UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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the quarterly period ended
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FORM 10-Q
CLUBHOUSE MEDIA GROUP, INC.
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Clubhouse Media Group, Inc.
Consolidated Balance Sheets
| As of June 30, | As of December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid Expense | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholder’s equity (deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Convertible notes payable, net | ||||||||
| Shares to be issued | ||||||||
| Derivative liability | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Convertible notes payable, net - related party | ||||||||
| Notes payable - related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholder’s equity: | ||||||||
| Preferred stock, par value $, authorized shares; shares issued and outstanding at June 30, 2021 and December 31, 2020 | ||||||||
| Common stock, par value $, authorized shares; and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholder’s equity (deficit) | ( | ) | ( | ) | ||||
| Total liabilities and stockholder’s equity (deficit) | $ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
| 3 |
Clubhouse Media Group, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended | For the period from January 2, 2020 (inception) to | ||||||||||||||
| 2021 | 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
| Total Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| % | % | % | % | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general, and administrative | ||||||||||||||||
| Impairment of goodwill | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expenses: | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Loss in extinguishment of debt - related party | ||||||||||||||||
| Other (income) expense, net | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Total other (income) expenses | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax (benefit) expense | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
| 4 |
Clubhouse Media Group, Inc.
Consolidated Statements of Stockholder’s Equity (Deficit)
(Unaudited)
| Total | ||||||||||||||||||||||||||||
| Common Stock | Preferred Shares | Paid-In | Accumulated | Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance at January 2, 2020 (Inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Shares outstanding as of the recapitalization | - | |||||||||||||||||||||||||||
| Shares issued in recapitalization | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Conversion of convertible debt | - | |||||||||||||||||||||||||||
| Shares issued to settle accounts payable | - | |||||||||||||||||||||||||||
| Shares issued as debt issuance costs for convertible notes payable | - | |||||||||||||||||||||||||||
| Beneficial conversion features | - | - | ||||||||||||||||||||||||||
| Acquisition of Magiclytics | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Imputed Interest | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Shares issued to settle accounts payable | - | |||||||||||||||||||||||||||
| Shares issued as debt issuance costs for convertible notes payable | - | |||||||||||||||||||||||||||
| Warrants issued for stock compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
| 5 |
Clubhouse Media Group, Inc.
Consolidated Statements of Cash Flow
(Unaudited)
| For the six months ended June 30, | For the period from January 2, 2020 (Inception) to June 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest expense - amortization of debt discounts | ||||||||
| Imputed interest | ||||||||
| Stock compensation expense | ||||||||
| Loss in extinguishment of debt - related party | ||||||||
| Change in fair value of derivative liability | ||||||||
| Loss in extinguishment of debt | ||||||||
| Impairment of intangible assets | ||||||||
| Net changes in operating assets & liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expense, deposits and other current assets | ( | ) | ( | ) | ||||
| Accounts payable, accrued liabilities, due to affiliates, and other long-term liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ( | ) | ||||
| Purchases of intangible assets | ( | ) | ||||||
| Cash paid for Tongji public shell company | ( | ) | ||||||
| Cash received from acquisition of Magiclytics | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings from related party note payable | ||||||||
| Repayment to related party convertible note payable | ( | ) | ||||||
| Borrowings from convertible notes payable | ||||||||
| Repayment to convertible notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Shares issued to settle accounts payable | $ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
| 6 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji, Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”) by 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, 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 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 Company, through NTH, thereafter operated the hospital until the Company eventually sold NTH, as described below.
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.
| 7 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
On
May 29, 2020, Mr. Arcaro, through his ownership of Algonquin Partners Inc. (“Algonquin”), owner
On
July 7, 2020, the Company increased the authorized capital stock of the Company to
West
of Hudson Group, Inc. (“WOHG”) was incorporated in the State of Delaware on May 19, 2020 and owned
Doiyen
LLC (“Doiyen”) was incorporated in the State of California on January 2, 2020 and renamed to Doiyen LLC in July 7, 2020 and
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
| 8 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The unaudited consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements at 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, 2020 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 15, 2021, or the Annual Report. Interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
Principles of Consolidation
The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
In preparing the unaudited consolidated financial statements in conformity with U.S. 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 unaudited 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.
| 9 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Reverse Merger Accounting
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 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.
Business Combination
The Company applies the provisions of 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 unaudited 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.
Advertising
Advertising
costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying unaudited consolidated
statements of operations. We incurred advertising expenses of $
| 10 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 June 30, 2021 and December 31, 2020, there were $
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:
| Classification | Useful Life | |
| Equipment |
Lease
On January 2, 2020, the Company adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification 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 unaudited 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 record assets/liabilities for short term leases as of June 30, 2021 and December 31, 2020.
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.
| 11 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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.
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 collectibility based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
| 12 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 June 30, 2021 and December 31, 2020 were $
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 typically two to three 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 six months ended June 30, 2021, we capitalized
approximately $
| 13 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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
$
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.
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 and for the six months ended June 30, 2021 and June 30, 2020, there were
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.
| 14 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 unaudited consolidated statements of operations and comprehensive income (loss) as income tax expense.
The
Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating
losses from inception to December 31, 2020. The net operating losses as of June 30, 2021 that has future benefits will be recorded as
deferred tax assets, but net with
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 June 30, 2021 and December 31, 2020 were $
| 15 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. Potential common shares consist of the convertible promissory notes payable as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, there were approximately and potential shares issuable upon conversion of convertible notes payable.
| For the three months ended June 30, 2021 | For the three months ended June 30, 2020 | For the six months ended June 30, 2021 | For the period from January 2, 2020 (inception) to June 30, 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding—basic | ||||||||||||||||
| Dilutive common stock equivalents | - | - | - | - | ||||||||||||
| Weighted average common shares outstanding—diluted | ||||||||||||||||
| Net loss per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 16 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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.
One
customer accounted for
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 unaudited 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 unaudited 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.
| 17 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Beneficial Conversion Features
If
a conversion features 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 note. If the
effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note,
the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method. The
Company amortized $
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.
| 18 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
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 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 therein.
If the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated, then the estimated liability would be 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, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
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 unaudited consolidated financial statements.
On October 1, 2020, we early adopted Accounting Standard Update 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 unaudited consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update 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.
| 19 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the accompanying financial statements, the Company had a net loss of $
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 is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 – BUSINESS COMBINATIONS
Acquisition of Magiclytics
On February 3, 2021, the Company 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 shareholders 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.
| 20 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 issue shares of Company common stock to the 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 shares of Company Common Stock, representing
,. In the event that the initial 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 the offering circular, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company common stock equal to:
| (1) | $ | |
| (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.
In addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing Date the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R Share Exchange Agreement:
| (i) | The Board of Directors of Magiclytics (the “Magiclytics Board”) expanded the size of the Magiclytics Board to 3 persons and named Simon Yu, a current officer and director of the Company as a director of the Magiclytics Board. | |
| (ii) | The Magiclytics Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary of the Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics. |
| 21 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Further, immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in which Magiclytics engages with in the regular course of its business.
In connection with the closing, the Company entered in a consulting agreement with Christian Young, a Director of the Company. The compensation will be paid according to the 8-K filed on February 8, 2021 with the SEC.
Immediately
prior to closing of the Agreement, Chris Young is the President and Director of the Company, and was the Chief Executive Officer, a Director,
and a principal shareholder of 45% of outstanding capital stock of Magiclytics at the time of the share exchange. As a result of the
common ownership upon closing of the transaction, the acquisition was considered a common-control transaction and was outside the scope
of the business combination guidance in ASC 805-10. The entities are deemed to be under common control as of February 27, 2018, which
was the date that the majority shareholder acquired control of the Company and, therefore, held control over both companies. The Company
recorded the consideration issued to purchase Magiclytics based on the carrying value of the net assets received and $
Acquisition Consideration
The following table summarizes the carrying value of purchase price consideration to acquire Magiclytics:
| Description | Amount | |||
| Carrying value of purchase consideration: | ||||
| Common stock issued | $ | ( | ) | |
| Total purchase price | $ | ( | ) | |
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 liabilities assumed by the Company in the acquisition (in thousands):
| Description | Amount | |||
| Purchase price allocation: | ||||
| Cash | $ | |||
| Intangibles | ||||
| Related party payable | ( | ) | ||
| AP and accrued liabilities | ( | ) | ||
| Identifiable net assets acquired | ( | ) | ||
| Total purchase price | $ | ( | ) | |
| 22 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
NOTE 5 – PROPERTY AND EQUIPMENT
Fixed assets, net consisted of the following:
June 30, 2021 | December 31, 2020 | Estimated Useful Life | ||||||||
| (unaudited) | ||||||||||
| Equipment | $ | $ | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||||
| Property, plant, and equipment, net | $ | $ | ||||||||
Depreciation
expense were $
NOTE 6 – INTANGIBLES
As
of June 30, 2021 and December 31, 2020, the Company has intangible assets of $
NOTE 7 – OTHER ASSETS
As
of June 30, 2021 and December 31, 2020, other assets consist of security deposit of $
| 23 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
NOTE 8 – 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 $
The
Hoey Note had a maturity date of
On
December 8, 2020, the Company issued to Mr. Hoey 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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Niu Note has a maturity date of
| 24 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Since the conversion price is based on 30% 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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Galen Note has a maturity date of
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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Huynh Note has a maturity date of
| 25 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Wong Note has a maturity date of
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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Singer Note had a maturity date of
| 26 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
On
January 26, 2021, the Company issued to Matthew Singer shares of Company common stock
upon the conversion of the convertible promissory note issued to Mr. Singer in the principal
amount of $
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 10.
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
ProActive Capital Note has a maturity date of
The
$25,000 original issue discounts, the fair value of 50,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
| 27 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 $
The
GS Capital Note has a maturity date of
The
$28,889 original issue discounts, the fair value of 50,000 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 $
The
entire principal balance and interest were converted in the quarter ended June 30, 2021. The balance as of June 30, 2021 and December
31, 2020 were $
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 to GS Capital the aggregate principal amount of $
| 28 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
The
GS Capital Note has a maturity date of
The
$57,778 original issue discounts, the fair value of 100,000 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 $
GS
Capital converted $
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 to GS Capital the aggregate principal amount of $
The
GS Capital Note has a maturity date of
| 29 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
The
$57,778 original issue discounts, the fair value of 100,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
GS Capital Note #4 has a maturity date of
The
$50,000 original issue discounts, the fair value of 45,000 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 $
| 30 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
The
balance as of June 30, 2021 and December 31, 2020 were $
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 Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company issued
a convertible promissory note to GS Capital in the aggregate principal amount of $
The
April 2021 GS Capital Note #5 has a maturity date of
The
$50,000 original issue discounts, the fair value of 125,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
| 31 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 Partners, LLC (“GS Capital”), pursuant to which, on same date, the Company issued
a convertible promissory note to GS Capital in the aggregate principal amount of $
The
GS Capital Note #6 has a maturity date of
The
$50,000 original issue discounts, the fair value of 85,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Tiger Trout Note has a maturity date of
| 32 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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,
The
$440,000 original issue discounts, the fair value of 220,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
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 $
The
Eagle Equities Note has a maturity date of
| 33 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
The
$100,000 original issue discounts, the fair value of 165,000 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 $
The
balance as of June 30, 2021 and December 31, 2020 were $
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
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
| 34 |
Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
The
$100,000 original issue discounts, the fair value of 125,000 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 $
For
the quarter ended June 30, 2021, the Company paid $
The
balance as of June 30, 2021 and December 31, 2020 were $
| Convertible Promissory Note Holder | Start Date | End Date | Note
Principal Balance | Debt Discounts As of Issuance | Amortization | Debt Discounts As of 6/30/2021 | ||||||||||||||
| Scott Hoey | ( | ) | ||||||||||||||||||
| Cary Niu | ( | ) | ||||||||||||||||||
| Jesus Galen | ( | ) | ||||||||||||||||||
| Darren Huynh | ( | ) | ||||||||||||||||||
| Wayne Wong | ( | ) | ||||||||||||||||||
| Matt Singer | ( | ) | ||||||||||||||||||
| ProActive Capital | ( | ) | ||||||||||||||||||
| GS Capital #1 | ( | ) | ||||||||||||||||||
| Tiger Trout SPA | ( | ) | ||||||||||||||||||
| GS Capital #2 | ( | ) | ||||||||||||||||||
| Labrys Fund, LLP | ( | ) | ||||||||||||||||||
| GS Capital #3 | ( | ) | ||||||||||||||||||
| GS Capital #4 | ( | ) | ||||||||||||||||||
| Eagle Equities LLC | ( | ) | ||||||||||||||||||
| GS Capital #5 | ( | ) | ||||||||||||||||||
| GS Capital #6 | ( | ) | ||||||||||||||||||
| Total | Total | |||||||||||||||||||
| Add: Remaining note principal balance | ||||||||||||||||||||
| Total convertible promissory notes, net | ||||||||||||||||||||
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Future maturities of convertible notes payable at June 30, 2021 are as follows:
| Years ending December 31, | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | - | |||
| Thereafter | ||||
| $ | ||||
Interest
expense recorded related to the convertible notes payable for the three and six months ended June 30, 2021 were $
As of June 30, 2021 and December 31, 2020, the Company entered into various consulting agreements with consultants, directors, and terms of future financing from Labrys. The balances of shares to be issued – liability were $ and $ and has not been issued as of June 30, 2021 and December 31, 2020. 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.
| Beginning Balance, January 1, 2021 | $ | |||
| Shares to be issued | ||||
| Shares issued | ( | ) | ||
| Ending Balance, June 30, 2021 | $ |
Shares to be issued - liability is summarized as below:
| Beginning Balance, January 2, 2020 | $ | |||
| Shares to be issued | ||||
| Shares issued | ||||
| Ending Balance, June 30, 2021 | $ |
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
NOTE 10 – DERIVATIVE LIABILITY
The
derivative liability is derived from the conversion features in note 8 signed for the period ended December 31, 2020. All were valued
using the weighted-average Binomial option pricing model using the assumptions detailed below. As of June 30, 2021 and December 31, 2020,
the derivative liability were $
| June 30, 2021 | ||||
| Annual Dividend Yield | ||||
| Expected Life (Years) | | |||
| Risk-Free Interest Rate | % | |||
| Expected Volatility | % | |||
Fair value of the derivative is summarized as below:
| Beginning Balance, December 31, 2020 | $ | |||
| Additions | ||||
| Mark to Market | ||||
| Cancellation of Derivative Liabilities Due to Conversions | ||||
| Reclassification to APIC Due to Conversions | ||||
| Ending Balance, June 30, 2021 | $ |
| December 31, 2020 | ||||
| Annual Dividend Yield | ||||
| Expected Life (Years) | | |||
| Risk-Free Interest Rate | % | |||
| Expected Volatility | % |
| Beginning Balance, January 2, 2020 | $ | |||
| Additions | ||||
| Mark to Market | ||||
| Cancellation of Derivative Liabilities Due to Conversions | ||||
| Reclassification to APIC Due to Conversions | ( | ) | ||
| Ending Balance, December 31, 2020 | $ |
NOTE 11 – 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 $
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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 $
At
the time of the qualification by the United States Securities and Exchange Commission of the Company’s Offering Circular, pursuant
to Regulation A under the Securities Act of 1933, as amended, $
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 $
As of June 11, 2021, the Company received notice of qualification by the United States Securities and Exchange Commission on its Offering Circular. Accordingly, the principal balance of $ has been converted to common stock and recorded under shares to be issued until it is issued.
The balance as of June 30, 2021 and December 31, 2020 were $
NOTE 12 – RELATED PARTY TRANSACTIONS
As
of December 31, 2020, the Company’s Chief Executive Officer had advanced $
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 $
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
At
the time of the qualification by the United States Securities and Exchange Commission of the Company’s Offering Circular, pursuant
to Regulation A under the Securities Act of 1933, as amended, $
For
the three months ended March 31, 2021, the Board of Directors approved and paid $
For
the three months ended June 30, 2021, the Board of Directors approved and paid $
For
the three months ended March 31, 2021, the Company’s Chief Executive Officer advanced an additional $
For
the three and six months ended June 30, 2021, the Company paid the Company’s Chief Executive Officer interest of $
For
the three and six months ended June 30, 2020, the Company paid the Company’s Chief Executive Officer interest of $
Effective March 4, 2021, the Company entered into three (3) separate director agreements with three 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.
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 $ |
As
of June 30, 2021 and December 31, 2020, The Company has a payable balance owed to Christian Young of $
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
As
of June 30, 2021 and December 31, 2020, The Company has a payable balance owed to Magiclytics of $
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)
On
July 7, 2020, the Company increased the authorized capital stock of the Company to
Preferred Stock
As of June 30, 2021 and December 31, 2020, there was preferred share issued and outstanding.
On November 12, 2020, the Company 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.
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
Common Stock
As of June 30, 2021 and December 31, 2020, the Company had shares of common stock authorized with a par value of $. There were and shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
For
the three months ended March 31, 2021, the Company issued shares to consultants and directors at fair value of $
For the period ended March 31, 2021, the Company issued shares to acquire Magiclytics,
For
the three months ended March 31, 2021, the Company issued shares to settle a conversion of $
For the three months ended March 31, 2021, the Company issued shares to settle an accounts payable balance of $.
For
the three months ended March 31, 2021, the Company issued shares as debt issuance costs for convertible notes payable at fair
value of $
For
the three months ended June 30, 2021, the Company issued shares to consultants and directors at fair value of $
For
the three months ended June 30, 2021, the Company issued shares to settle an accounts payable balance of $
For
the three months ended June 30, 2021, the Company issued shares as debt issuance costs for convertible notes payable at fair
value of $
For
the three months ended June 30, 2021, the Company issued warrants at fair value of $
NOTE 14 – 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.
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
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, 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 15 – SUBSEQUENT EVENTS
The Company has evaluated events subsequent to June 30, 2021, to assess the need for potential recognition or disclosure in the unaudited consolidated financial statements. Such events were evaluated through August 13, 2021, the date and time the unaudited consolidated financial statements were issued, and it was determined that no subsequent events, except as follows, occurred that required recognition or disclosure in the unaudited consolidated financial statements.
On
July 1, 2021, the Company issued shares of Company unrestricted common stock to nine investors for a purchase price of $
per share (for an aggregate of $
On July 9, 2021, the Company issued shares of Company common stock to Adam Miguest with a value of $ per share as compensation for bringing in brand deals for influencers.
On July 9, 2021, the Company issued shares of Company common stock to Wilfred Man with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Lindsay Brewer with a value of $ per share as compensation for services to the Company.
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Andrew Omori with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Tommy Shek with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Amir Ben-Yohanan, Chief Executive Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Andrew Omori with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Phoenix Media & Entertainment with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to G Money, Inc. with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Amir Ben-Yohanan, Chief Executive Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Chris Young, President of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Simon Yu, Chief Operating Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Harris Tulchin, Chief Legal Counsel of the Company, with a value of $ per share as compensation for services to the Company.
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Clubhouse Media Group, Inc.
Notes to the Unaudited Consolidated Financial Statements
June 30, 2021 and 2020
On July 13, 2021, the Company issued shares of Company common stock to Gary Marenzi, a director of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Laura Anthony with a value of $ per share for legal services rendered to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Heather Ferguson with a value of $ per share as compensation for services to the Company.
Repayment of Labrys Convertible Promissory Note
In
July 2021, the Company paid $
In
July 2021, the Company received $
In July 2021, the Company terminated the lease for Society Las Vegas.
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ITEM 2. MANAGEMENT’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 quarterly report, including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding Clubhouse Media Group, Inc.’s (the “Company”) financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this quarterly report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes thereto contained elsewhere in this quarterly report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We operate a global network of professionally run content houses, each of which has its own brand, influencer cohort and production capabilities. 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 social media influencer space. Our management team consists of successful entrepreneurs with financial, legal, marketing, and digital content creation expertise.
Through our subsidiary, West of Hudson Group, Inc., or WOHG, we currently generate revenues primarily from talent management of social media influencers residing in our Clubhouses and for paid promotion by companies looking to utilize such social media influencers to promote their products or services. 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 external influencers not residing in our Clubhouses.
We were incorporated under the laws of the State of Nevada on December 19, 2006 with the name Tongji Healthcare Group, Inc. by Nanning Tongji Hospital, Inc. (“NTH”). On the same day, Tongji, Inc., our wholly owned subsidiary, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”) by the Nanning Tongji Medical Co. Ltd. and an individual on October 30, 2003.
NTH was a designated hospital for medical insurance in the city of Nanning and Guangxi province with 105 licensed beds. 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, Tongji, Inc. acquired 100% of the equity of NTH pursuant to an Agreement and Plan of Merger, pursuant to which NTH became a wholly owned subsidiary of Tongji Inc. Pursuant to the Agreement and Plan of Merger, we issued 15,652,557 shares of common stock to the shareholders of NTH in exchange for 100% of the issued and outstanding shares of common stock of NTH. The acquisition of NTH was accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of NTH obtained control of the 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 Company, through NTH, thereafter operated the hospital, until we eventually sold NTH, as described below.
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Effective December 31, 2017, under the terms of a Bill of Sale, we agreed to sell, transfer convey and assign forever all of its rights, title and interest in its equity ownership interest in its subsidiary, NTH, to Placer Petroleum Co., LLC, an Arizona limited liability company. 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. As a result of the Bill of Sale, the related assets and liabilities of Nanning Tongji Hospital, Inc. was reported as discontinued operations effective 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 and Order Granting Application of Joseph Arcaro as Custodian of Tongji Healthcare Group, Inc. pursuant to NRS 78.347(1)(b), pursuant to which Joseph 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, Joseph 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, Joseph 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 November 13, 2019, Mr. Arcaro filed a Motion to Terminate Custodianship of Tongji Healthcare Group, Inc. pursuant to NRS 78.650(4) with the District Court in Clark County Nevada. On December 6, 2019, the court granted Mr. Arcaro’s motion, and the custodianship was terminated.
Effective May 29, 2020, Joseph Arcaro, our Chief Executive Officer, President, Secretary, Treasurer and sole director and the beneficial owner, through his ownership of Algonquin Partners Inc. (“Algonquin”), of 65% of the Company’s common stock, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among West of Hudson Group, Inc., the Company, Algonquin, and Mr. Arcaro. Pursuant to the terms of the SPA, WOHG agreed to purchase, and Algonquin agreed to sell, 30,000,000 shares of the Company’s common stock in exchange for payment by WOHG to Algonquin of $240,000 (the “Stock Purchase”). Thereafter, WOHG distributed the 30,000,000 shares of the Company among the shareholders of WOHG. The Stock Purchase closed on June 18, 2020, resulting in a change of control of the Company.
On July 7, 2020, we amended our articles of incorporation whereby it increased its authorized capital stock to 550,000,000 shares, comprised of 500,000,000 shares of common stock, par value $0.001 and 50,000,000 shares of preferred stock, par value $0.001.
On August 11, 2020, we entered into the Share Exchange Agreement with (i) WOHG, (ii) each of the WOHG Shareholders and (iii) Mr. Ben-Yohanan as the Shareholders’ Representative.
Pursuant to the Share Exchange Agreement, the parties agreed that at the closing of the transactions contemplated by the Share Exchange Agreement, which occurred on November 12, 2020 (the “WOHG Closing”), the Company would acquire 100% of WOHG’s issued and outstanding capital stock, in exchange for the issuance to the WOHG Shareholders of a number of shares of the Company’s common stock, par value $0.001 per share to be determined at the WOHG Closing.
Overview of Business of West of Hudson Group, Inc.
WOHG, the directly wholly owned subsidiary of Clubhouse Media Group, Inc., was incorporated on May 19, 2020 under the laws of the State of Delaware. WOHG is primarily a holding company, and operates various aspects of its business through its operating subsidiaries of which WOHG is the 100% owner and sole member, and which are as follows:
| 1. | Doiyen, LLC – a talent management company that provides representation to Clubhouse influencers, as further described below. | |
| 2. | WOH Brands, LLC – a content-creation studio, social media marketing company, technology developer, and brand incubator, as further described below. | |
| 3. | Digital Influence Inc. (doing business as Magiclytics) – a company that provides predictive analytics for content creation brand deals. |
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Doiyen, LLC (“Doiyen”), formerly named WHP Management, LLC, and before that named WHP Entertainment LLC, is a California limited liability company formed on January 2, 2020. Doiyen was acquired by WOHG on July 9, 2020 pursuant to an exchange agreement between WOHG and Doiyen, pursuant to which WOHG acquired 100% of the membership interests of Doiyen in exchange for 100 shares of common stock of WOHG. As described above, Doiyen is a talent management company for social media influencers, and seeks to represent some of the world’s top talent in the world of social media. Doiyen is the entity with which our influencers contract when living in one of our Clubhouses.
WOH Brands, LLC (“WOH Brands”) is a Delaware limited liability company formed on May 19, 2020 by WOHG. As described above, WOH Brands engages and also plans to engage in a number of activities, including brand development and incubation, content creation, and technology development.
Digital Influence Inc. (doing business as Magiclytics) is a Wyoming corporation formed on July 2, 2018. The Company acquired a 100% interest in Magiclytics on February 3, 2021. As described above, Magiclytics provides predictive analytics for content creation brand deals.
WOHG is the 100% owner and sole member and manager of each of these entities pursuant to each of the limited liability company agreements and bylaws, where applicable, that govern these entities, and has complete and exclusive discretion in the management and control of the affairs and business of WOH Brands, Doiyen, and Digital Influence Inc. (doing business as Magiclytics) possesses all powers necessary to carry out the purposes and business of these entities. WOHG is entitled to the receipt of all income (and/or losses) that these entities generate.
In addition to the above, WOHG is the 100% owner of two other limited liability companies – Clubhouse Studios, LLC, which holds most of our intellectual property, and DAK Brands, LLC, each incorporated in the State of Delaware on May 13, 2020. However, each of these entities has minimal or no operations, and is not intended to have any material operations in the near future.
Recent Developments
Share Exchange Agreement – West of Hudson Group, Inc.
On August 11, 2020, we entered into the Share Exchange Agreement with (i) WOHG; (ii) each of the WOHG Shareholders; and (iii) Mr. Ben-Yohanan as the Shareholders’ Representative.
Pursuant to the terms of the Share Exchange Agreement, the parties agreed that the Company would acquire 100% of WOHG’s issued and outstanding capital stock, in exchange for the issuance to the WOHG Shareholders of a number of shares of the Company’s common stock to be determined at the closing of the Share Exchange Agreement.
On November 12, 2020, the Company 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.
The closing of the Share Exchange Agreement occurred on November 12, 2020. Pursuant to the terms of the Share Exchange Agreement, the Company acquired 200 shares WOHG’s common stock, par value $0.0001 per share, representing 100% of the issued and outstanding capital stock of WOHG, in exchange for the issuance to the WOHG Shareholders of 46,811,195 shares of the Company’s common stock (the “Share Exchange”). As a result of the Share Exchange, WOHG became a wholly owned subsidiary of the Company.
In addition, on November 20, 2020, pursuant to the Share Exchange Agreement and subsequent Waiver, the Company issued and sold to Amir Ben-Yohanan one share of Series X Preferred Stock, at a purchase price of $1.00. This one share of Series X Preferred Stock has a number of votes equal to all of the other votes entitled to be cast on any matter by any other shares or securities of the Company plus one, but will not have any economic or other interest in the Company.
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The Share Exchange is intended to be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Share Exchange Agreement is intended to be a “plan of reorganization” within the meaning of the regulations promulgated under Section 368(a) of the Code and for the purpose of qualifying as a tax-free transaction for federal income tax purposes.
On November 12, 2020, pursuant to the closing of the Share Exchange Agreement, we acquired WOHG, and WOHG thereafter became our wholly owned subsidiary, and the business of WOHG became the business of the Company going forward.
Other Recent Developments of West of Hudson Group, Inc.
On August 3, 2020, on behalf of WOHG, Amir Ben-Yohanan, our Chief Executive Officer, entered into a lease agreement for an initial term ended July 31, 2021 for $50,000 a month (for the property currently being used for the Dobre Brothers House – Beverly Hills location.). The lease is currently on a month to month basis.
On September 4,, 2020, on behalf of WOHG, Mr. Ben-Yohanan, our Chief Executive Officer, entered into a one year lease agreement for $40,000 a month for the “Weheartfans House – Bel-Air” Clubhouse.
On September 6, 2020, WOHG entered into an agreement to rent the property for Clubhouse Europe until November 5, 2020 for 4,000 euros per month and to be extended month to month thereafter.
Name Change
On November 2, 2020, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada in order to amend its Articles of Incorporation to change the Company’s name from “Tongji Healthcare Group, Inc.” to “Clubhouse Media Group, Inc.”
On January 20, 2021, Financial Industry Regulatory Authority (“FINRA”) approved our name change from “Tongji Healthcare Group, Inc.” to “Clubhouse Media Group, Inc.” and approved the change the symbol of our common stock from “TONJ” to “CMGR.”
Society Las Vegas Lease
On February 1, 2021, on behalf of the Company, Amir Ben-Yohanan, our Chief Executive Officer, entered into a one-year lease agreement for a term commencing on February 1, 2021 and ending January 31, 2022 for $12,500 a month (for the property currently being used for the Society Las Vegas – Las Vegas location). As of July 31, 2021, the Company and the landlord mutually agreed to terminate the lease without penalty.
Share Exchange Agreement - Magiclytics
On February 3, 2021, the Company 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 shareholders 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.
Pursuant to the terms of the A&R Share Exchange Agreement, the Company agreed to acquire from the Magiclytics Shareholders, who hold an aggregate of 5,000 shares of Magiclytics’ common stock, par value $0.01 per share (the “Magiclytics Shares”), all 5,000 Magiclytics Shares, representing 100% of Magiclytics’ issued and outstanding capital stock, in exchange for the issuance by the Company to the Magiclytics Shareholders of the 734,689 shares of the Company’s common stock based on a $3,500,000 valuation of Magiclytics, to be apportioned between the Magiclytics Shareholders pro rata based on their respective ownership of Magiclytics Shares.
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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 issue 734,689 shares of Company common stock to the Magiclytics Shareholders in exchange for all 5,000 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 330,610 shares of Company Common Stock, representing 45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing.
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 $4.76 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 Closing. Because the initial public offering price per share of the Company common stock in its Regulation A offering was less than the Base Value, then within three (3) business days of the qualification by the SEC of the Regulation A Offering Statement forming part of the Offering Circular, the Company agreed to issue to the Magiclytics Shareholders a number of additional shares of Company common stock equal to:
| (1) | $3,500,000 divided by $4.00, minus; | |
| (2) | 734,689. |
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.
In addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing Date the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R Share Exchange Agreement:
| (i) | The Board of Directors of Magiclytics (the “Magiclytics Board”) expanded the size of the Magiclytics Board to 3 persons and named Simon Yu, a current officer and director of the Company as a director of the Magiclytics Board. | |
| (ii) | The Magiclytics Board named Wilfred Man as the Chief Executive Officer of Magiclytics, Christian Young as the President and Secretary of the Magiclytics and Simon Yu as the Chief Operating Officer of Magiclytics. |
Further, immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in which Magiclytics engages with in the regular course of its business.
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Yomtubian Consulting Agreement
On June 10, 2021, the Company entered into a consulting agreement with Joseph Yomtubian. Pursuant to the terms of the consulting agreement, Mr. Yomtubian agreed to provide to the Company certain management consulting and business advisory services. In exchange for such services, the Company agreed to pay Mr. Yomtubian $20,000 monthly. The consulting agreement has a term of one year.
Young Consulting Agreement
On February 3, 2021, in connection with (but not pursuant to) the closing of the A&R Share Exchange Agreement relating to Magiclytics, the Company entered in a consulting agreement with Chris Young, the President, Secretary, and a Director of the Company.
Call Agreements
On March 12, 2021, Harris Tulchin, a Director of the Company, entered into separate “Call Agreements” with each of Amir Ben-Yohanan, a Director and the Chief Executive Officer of the Company, and Christian Young, a Director and the President and Secretary of the Company.
Employment Agreements
Simon Yu Employment Agreement
On April 9, 2021, the Company entered into an employment agreement with Simon Yu, its Chief Operating Officer. Pursuant to this employment agreement, Mr. Yu agreed to continue to serve as Chief Operating Officer of the Company, reporting to the Chief Executive Officer of the Company (or other person determined by the Chief Executive Officer or the Company’s Board of Directors (the “Board”). As compensation for Mr. Yu’s services, the Company agreed to pay Mr. Yu an annual base salary of $380,000 (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 – or $180,000 on an annual basis. The remaining $200,000 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. | |||
| (i) | 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. Yu is entitled to be paid discretionary annual bonuses as determined by the Board (currently intended to be a maximum of $250,000 per year), 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 (1) year from the effective date of the agreement (i.e. April 9, 2022), unless earlier terminated. Thereafter, the term is automatically extended on an annual basis for terms of one (1) year each, unless either the Company or Mr. Yu provides notice to the other party of their desire to not so renew the term of the agreement (as applicable) at least thirty (30) days prior to the expiration of the then-current term.
Mr. Yu’s employment with the Company shall be “at will,” meaning that either Mr. Yu or the Company may terminate Mr. Yu’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. Yu 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. Yu terminates the employment agreement without good reason, Mr. Yu 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. Yu 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. Yu will be immediately forfeited as of the termination date.
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If the Company terminates the employment agreement without cause or Mr. Yu terminates the employment agreement with good reason, Mr. Yu 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. Yu’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. Yu shall, to the extent not already vested, be deemed automatically vested.
Harris Tulchin Employment Agreement
On April 9, 2021, the Company entered into an employment agreement with Harris Tulchin for Mr. Tulchin to serve as Chief Legal Officer of the Company. The terms of Mr. Tulchin’s employment agreement are identical to the terms of the employment agreement of Simon Yu described above.
On April 11, 2021, the Company’s Board formally appointed Harris Tulchin as an executive officer of the Company, with the title of Chief Legal Officer.
Christian Young Employment Agreement
On April 11, 2021, the Company entered into an employment agreement with Christian Young for Mr. Young to serve as President of the Company. The terms of Mr. Young’s employment agreement are identical to the terms of the employment agreement of Simon Yu and Harris Tulchin described above, except for the fact that the Company and Mr. Young acknowledged that each of them are also the parties to that certain Consulting Agreement, dated as of February 3, 2021 and filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K filed February 8, 2021 with the SEC (the “Consulting Agreement”), and that the Consulting Agreement and Mr. Young’s employment agreement will operate independently of each other – except that in the event of a conflict between this employment agreement and the Consulting Agreement, the terms and conditions of this employment agreement will control.
Amir Ben-Yohanan Employment Agreement
On April 11, 2021, the Company entered into an employment agreement with Amir Ben-Yohanan for Mr. Ben-Yohanan to serve as Chief Executive Officer of the Company. The terms of Mr. Ben-Yohanan’s employment agreement are identical to the terms of the employment agreements of Simon Yu and Harris Tulchin described above, except for the following terms:
| ● | Mr. Ben-Yohanan’s Base Salary is $400,000 per year | |
| ● | Mr. Ben-Yohanan reports only to the Board of Directors of the Company. |
Advisory Board
On April 2, 2021, the Company established an advisory board (“Advisory Board”) to provide guidance and advice to the directors and officers of the Company regarding technical and business matters. The advisory board has no voting powers. The advisory board is made up of two members including Andrew Omori and Perry Simon.
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Andrew Omori. On April 2, 2021, the Company entered into a consulting agreement with Andrew Omori and appointed Mr. Omori to the Advisory Board of the Company. Mr. Omori is a partner at Andreessen Horowitz, one of Silicon Valley’s most prominent and successful venture capital firms, with $17.6 billion in assets under management. Andreessen Horowitz is well known for leading investments in hit social audio app, Clubhouse (which is not owned, and is not otherwise affiliated with, the Company), as well as Airbnb and Coinbase. Prior to joining Andreessen Horowitz, Mr. Omori served as a VP at JMP Group and as a successful technology investment banker. Mr. Omori has dedicated his career to helping technology companies scale and has worked with a variety of social companies including Snap, Pinterest, Roblox, and the Clubhouse app. Mr. Omori will advise the Board of Directors and the Company regarding optimal pathways for monetizing the Company’s operations as well as providing the Company with access to relationships, branding opportunities, and partnerships that hold the potential for further gains in shareholder value.
Perry Simon. On April 21, 2021, the Company entered into a consulting agreement with Perry Simon and appointed Mr. Simon to the Advisory Board of the Company. Mr. Simon is the former executive vice president of Primetime at NBC Entertainment, where he helped develop and supervise some of television’s most iconic series, including “Cheers,” “The Golden Girls,” “Law and Order,” “L.A. Law,” “Miami Vice,” “Frasier,” Seinfeld, and “The Cosby Show.” He is also a former General Manager at PBS former Managing Director at BBC Worldwide America, former President of Viacom Productions and former executive officer at Paul Allen’s Vulcan Productions. Over the past 20 years, Mr. Simon has helped to facilitate the rapid growth of mission-driven programming, driving large gains in audience size and fan engagement, and winning multiple awards along the way (Golden Globes, Emmys, and Peabodys). Mr. Simon will advise the Company on non-profit and social impact activities, as well as other business, financial, and organizational matters, and access his extensive entertainment industry relationships and knowledge for content development, acquisition, and deal structures.
We are planning to obtain the funds necessary to execute our plan of operations from various capital raises, including potentially through private placements or our common stock or the issuance and sales of convertible notes, as well as potentially through a registration statement or an offering statement filed with the SEC.
There can be no assurance that we’ll be able to obtain the necessary funds for our foregoing operations on terms that are acceptable to us or at all, and there can be no assurance that our plan of operations can be executed as planned, or at all.
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020 and the Period from January 2, 2020 (Inception) to June 30, 2020
Net Revenue
Net revenue was $929,962 for the three months ended June 30, 2021, compared to net revenue of $95,534 for the three months ended June 30, 2020. The increase was due to the generation of revenue since the second quarter in 2020 and the increase of brand deals and revenue from Tinder Blog.
Net revenue was $1,453,338 for the six months ended June 30, 2021, compared to net revenue of $95,534 for the period from January 2, 2020 (inception) to June 30, 2020. The increase was due to the generation of revenue since the second quarter in 2020 and the increase of brand deals and revenue from Tinder Blog.
Cost of Goods Sold
Cost of sales was $865,103 for the three months ended June 30, 2021, compared to cost of sales of $90,206 for the three months ended June 30, 2020. The increase was due to the generation of revenue since the second quarter in 2020 and the increase of brand deals and revenue from Tinder Blog.
Cost of sales was $1,181,787 for the six months ended June 30, 2021, compared to $90,206 for the period from January 2, 2020 (inception) to June 30, 2020. The increase was due to the generation of revenue since the second quarter in 2020 and the increase of brand deals and revenue from Tinder Blog.
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Gross Profit
Gross profit was $64,859 for the three months ended June 30, 2021, compared to gross profit of $5,328 for the three months ended June 30, 2020. The gross profit percentage was 6.97% for the three months ended June 30, 2021, compared to 5.58% for the three months ended June 30, 2020.
Gross profit was $271,551 for the six months ended June 30, 2021, compared to gross profit of $5,328 for the period from January 2, 2020 (inception) to June 30, 2020. The gross profit percentage was 18.68% for the six months ended June 30, 2021, compared to 5.58% for the period from January 2, 2020 (inception) to June 30, 2020.
Operating Expenses
Operating expenses for the three months ended June 30, 2021 were $5,030,964, compared to $747,033 for the three months ended June 30, 2020.
The variances were as follows: (i) an increase in rent and utilities expense of $390,600; (ii) an increase in consultant fees of $509,766; (iii) an increase in sales and marketing expenses of $398,447; (iv) an increase in legal fees of $249,435; (v) an increase in office expense of $42,687; (vi) a decrease of production expense of $(64,483), (vii) an increase of meals and travel expense of $117,861; (viii) an increase of director and executive expenses of $125,000; (ix) an increase in accounting and audit fees of $24,254, and (x) an increase in payroll of $401,104.. The overall increase in general and administrative expenses resulted from the commencement of our operations since 2020 and incurred more expenses from the expansion of operations and professional fees incurred as a public company.
Non-cash operating expenses for the three months ended June 30, 2021 were $1,785,985, including (i) depreciation of $4,140, and (ii) stock-based compensation of $1,785,845.
Non-cash operating expenses for the three months ended June 30, 2020 were $0.
Operating expenses for the six months ended June 30, 2021 were $9,398,327, compared to $974,112 for the period from January 2, 2020 (inception) to June 30, 2020.
The variances were as follows: (i) an increase in rent and utilities expense of $866,623; (ii) an increase in consultant fees of $515,766; (iii) an increase in sales and marketing expenses of $547,946; (iv) an increase in legal fees of $537,740; (v) an increase in office expense of $120,887; (vi) an increase of production expense of $29,652, (vii) an increase of meals and travel expense of $179,973; (viii) an increase of director and executive expenses of $834,996; (ix)an increase in accounting and audit fees of $99,787, and (x) an increase in payroll of $401,104. The overall increase in general and administrative expenses resulted from the commencement of our operations since 2020 and incurred more expenses from the expansion of operations and professional fees incurred as a public company.
Non-cash operating expenses for the six months ended June 30, 2021 were $14,014 from depreciation expenses, and (ii) stock-based compensation of $4,112,398.
Non-cash operating expenses for the period from January 2, 2020 (inception) to June 30, 2020 were $2,940.
Other (Income) Expenses
Other (income) expenses for the three months ended June 30, 2021 were $2,344,238, as compared to $14,425 for the three months ended June 30, 2020. Other expenses for the three months ended June 30, 2021 included (i) change in fair value derivative liability of $75,299, (ii) interest expense of $2,202,364; and (iii) extinguishment of debt for $66,575. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. Interest expense of $2,202,364 was mostly comprised of non-cash interest of $1,962,339 from amortization of debt discounts and $193,224 from interest accrued to the convertible promissory note holders.
Other (income) expenses for the six months ended June 30, 2021 were $3,982,145, as compared to $14,425 for the period from January 2, 2020 (inception) to June 30, 2020. Other expenses for the six months ended June 30, 2021 included (i) change in fair value derivative liability of $25,765, (ii) interest expense of $3,538,439; and (iii) extinguishment of debt with related party for $297,138, and extinguishment of debt for $120,803. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. Interest expense of $3,538,439 was mostly comprised of non-cash interest of $15,920 from imputed interest, $2,458,275 from amortization of debt discounts and $629.795 from the fair value of shares issued to one of the convertible promissory note holders, and $277,687 interest accrued to convertible promissory note holders.
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Net Loss
Net loss for the three months ended June 30, 2021 was $7,310,343, compared to $756,130 for the three months ended June 30, 2020 for the reasons discussed above.
Net loss for the six months ended June 30, 2021 was $13,108,921, compared to $983,209 for the period from January 2, 2020 (inception) to June 30, 2020 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 was $5,191,058. This amount was primarily related to a net loss of $13,108,922 and offset by (i) net working capital increase of $826,839; (ii) non-cash expenses of $7,091,024 including (iii) depreciation and amortization of $14,014; (iv) imputed interest of $15,920; (v) stock-based compensation of $4,112,398; (vi) loss in extinguishment of debt from related party of $297,138; (vii) loss in extinguishment of debt $120,801, (viii) change in fair value of derivative liability of $25,765, and (ix) interest expense from amortization of debt discounts of $2,504,987.
Net cash used in operating activities for the period from January 2, 2020 (inception) to June 30, 2020 was $746,653. This amount was primarily related to a net loss of $983,209 and net working capital decrease of $21,089 and offset by impairment of intangible assets of $240,000.
Investment Activities
Net cash used in investing activities for the six months ended June 30, 2021 was $145,691. The Company purchased $33,900 in property, plant, and equipment and $111,867 in internal used software for the six months ended June 30, 2021.
Net cash used in investing activities for the period from January 2, 2020 (inception) to June 30, 2020 was $300,700. The Company purchased $60,700 in property, plant, and equipment and $240,000 in the Tongji public shell company for the six months ended June 30, 2021.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021 was $6,804,744. The amount was related to proceeds from our chief executive officer and chairman of the Board of $244,799 and repayment to our chief executive officer and chairman of the Board of $137,500 and proceed from borrowing from convertible notes payable of $6,997,445 and repayments of $300,000 to convertible notes payable holders..
Net cash provided by financing activities for the period from January 2, 2020 (inception) to June 30, 2020 was $1,062,538. The amount was related to proceeds from our chief executive officer and chairman of the Board of $1,062,538.
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Effects of Coronavirus on the Company
If the current outbreak of the coronavirus continues to grow, the effects of such a widespread infectious disease and epidemic may inhibit our ability to conduct our business and operations and could materially harm our Company. The coronavirus may cause us to have to reduce operations as a result of various lock-down procedures enacted by the local, state or federal government, which could restrict the movement of our influencers outside of or within a specific Clubhouse or even effect the influencer’s ability to create content. The coronavirus may also cause a decrease in advertising spending by companies as a result of the economic turmoil resulting from the spread of the coronavirus and thereby having a negative effect on our ability to generate revenue from advertising. Further, if there is a spread of the coronavirus within any of our Clubhouses, it may cause an inability for our content creators to create and post content and could potentially cause a specific Clubhouse location to be entirely quarantined. Additionally, we may encounter negative publicity or a negative public reaction when creating and posting certain content while a coronavirus related lockdown is enacted. The continued coronavirus outbreak may also restrict our ability to raise funding when needed, and may cause an overall decline in the economy as a whole. The specific and actual effects of the spread of coronavirus are difficult to assess at this time as the actual effects will depend on many factors beyond our control and knowledge. However, the spread of the coronavirus, if it continues, may cause an overall decline in the economy as a whole and also may materially harm our Company.
Notwithstanding the foregoing possible negative impacts on our business and results of operations, up until now, we do not believe our prior and current business operations, financial condition, and results of operations have been negatively impacted by the coronavirus pandemic and related shutdowns. As the social media sector appears to have been thriving during the pandemic and shutdowns, we believe that our social media-based business and our results of operations have been thriving as well. More specifically, we have been successful at opening several houses, actively recruiting influencers/creators, creating content, and generating revenue during the pandemic and shutdowns. Notwithstanding, the ultimate impact of the coronavirus pandemic on our operations remains unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the coronavirus outbreak, new information which may emerge concerning the severity of the coronavirus pandemic, and any additional preventative and protective actions that governments, or our company, may direct, which may result in an extended period of business disruption and reduced operations. The long-term financial impact cannot be reasonably estimated at this time and may ultimately have a material adverse impact on our business, financial condition, and results of operations.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying financial statements, the Company had a net loss of $13,108,922 for the six months ended June 30, 2021, negative working capital of $5,390,802 as of June 30, 2021, and stockholder’s deficit of $5,116,368. 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 is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Convertible Promissory Notes
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 50,000 shares of Company Common Stock at a purchase price of $0.001 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.
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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.
The ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at ProActive 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 ProActive 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 ProActive Capital Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the ProActive Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by ProActive Capital; | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, ProActive Capital may declare all or any portion of the then-outstanding principal amount of the ProActive Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the ProActive Capital Note shall thereupon become, immediately due and payable in cash and ProActive Capital will also have the right to pursue any other remedies that ProActive Capital may have under applicable law. In the event that any amount due under the ProActive Capital 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.
The balance as of June 30, 2021 and December 31, 2020 were $250,000 and $0, respectively.
First Convertible Promissory Note – GS Capital Partners
On January 25, 2021, the Company entered into a securities purchase agreement (the “GS Capital SPA”) 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 50,000 shares of Company Common Stock at a purchase price of $0.001 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 or any portion of the principal amount and any accrued and unpaid interest at any time without penalty.
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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 any stock splits, etc. which occur following the determination of the conversion price.
The GS Capital Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the GS Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the GS Capital Note shall thereupon become, immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may have under applicable law. In the event that any amount due under the GS Capital 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.
The entire principal balance and interest were converted in the quarter ended June 30, 2021.
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. On February 12, 2021, the Company issued the 220,000 shares of Company common stock to Tiger Trout.
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.
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The balance as of June 30, 2021 and December 31, 2020 were $1,540,000 and $0, respectively.
Convertible Promissory Note – Amir Ben-Yohanan
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 “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, pursuant to a promissory note dated January 2, 2020, in which West of Hudson Group, Inc. was named as the borrower due to a scrivener’s error (the “Prior Note”). The Prior Note was intended to be between WHP Entertainment, LLC, which is now named Doiyen LLC. (West of Hudson Group, Inc. is a wholly owned subsidiary of the Company and Doiyen LLC is a wholly owned subsidiary of West of Hudson Group, Inc.). Effective as of February 2, 2021, the Prior Note was terminated and is of no further force or effect.
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.
On June 11, 2021, $1,000,000 of the principal amount and accrued interest automatically converted into a number of restricted shares of Company common stock equal to (i) $1,000,000 divided by (ii) $4.00. In the event that at such time the Company has repaid an amount of the principal amount and accrued interest such that the remaining indebtedness is less than $1,000,000, then such amount of remaining indebtedness will be substituted for the $1,000,000 figure above.
Any portion of the principal amount and interest which is not converted to Company common stock as set forth above will be payable by the Company commencing on February 2, 2022 as required to amortize the Note and the outstanding indebtedness over the following 24 months. The final maturity date of the Note is February 2, 2024.
As of June 11, 2021, the Company received notice of qualification by the United States Securities and Exchange Commission on its Offering Circular. Accordingly, 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 paid back $27,697 principal during the six months ended June 30, 2021. The balance as of June 30, 2021 and December 31, 2020
were $1,269,864 and $0, respectively.
Second Convertible Promissory Note – GS Capital Partners
On February 19, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to which, on same date, the Company issued a convertible promissory note to GS Capital the aggregate principal amount of $577,778 for a purchase price of $520,000, reflecting a $57,780 original issue discount (the “February 2021 GS Capital Note”), and in connection therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per share price of $0.001 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 February 2021 GS Capital Note has a maturity date of February 19, 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 February 2021 GS 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.
The February 2021 GS Capital 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 offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the February 2021 GS Capital Note (and the principal amount and any accrued and unpaid interest) will be convertible in to 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 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 February 2021 GS Capital Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the February 2021 GS Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the February 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the February 2021 GS Capital Note shall thereupon become immediately due and payable in cash and February 2021 GS Capital will also have the right to pursue any other remedies that GS Capital may have under applicable law. In the event that any amount due under the February 2021 GS Capital 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.
GS Capital converted $96,484 and $3,515 accrued interest in the quarter ended June 30, 2021. The balance as of June 30, 2021 and December 31, 2020 were $481,294 and $0, respectively.
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 125,000 shares of its common stock to Labrys as a commitment fee pursuant to the Labrys SPA. Pursuant to the terms of the Labrys Note, the Company agreed to pay to $1,000,000 (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 $10.00 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.
The balance as of June 30, 2021 and December 31, 2020 were $700,000 and $0, respectively.
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Third Convertible Promissory Note – GS Capital Partners
On March 22, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, pursuant to which, on same date, the Company issued a convertible promissory 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 (the “March 2021 GS Capital Note”), and in connection therewith, sold to GS Capital 100,000 shares of Company’s common stock at a purchase price of $100, representing a per share price of $0.001 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 March 2021 GS Capital 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 March 2021 GS 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.
The March 2021 GS Capital 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 offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the March 2021 GS Capital 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 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 March 2021 GS Capital Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the March 2021 GS Capital Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the March 2021 GS Capital Note, together with all accrued and unpaid interest thereon, due and payable, and the March 2021 GS Capital Note shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may have under applicable law. In the event that any amount due under the March 2021 GS Capital 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.
The balance as of June 30, 2021 and December 31, 2020 were $577,778 and $0, respectively.
Fourth Convertible Promissory Note – GS Capital Partners
On April 1, 2021, the Company entered into a securities purchase agreement (the “SPA”) with GS Capital Partners, 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 (the “GS Capital Note #4”), and in connection therewith, sold to GS Capital 45,000 shares of Company’s common stock at a purchase price of $45, representing a per share price of $0.001 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 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 April 2021 GS 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.
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 offering of Company Common Stock pursuant to Regulation A under the Securities Act of 1933, as amended. At such time, the GS Capital Note #4 (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 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 GS Capital Note #4 contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the GS Capital Note #4 on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by GS Capital; or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, GS Capital may declare all or any portion of the then-outstanding principal amount of the GS Capital Note #4, together with all accrued and unpaid interest thereon, due and payable, and the GS Capital Note #4 shall thereupon become immediately due and payable in cash and GS Capital will also have the right to pursue any other remedies that GS Capital may have under applicable law. In the event that any amount due under the GS Capital Note #4 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.
The balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, 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 $1,100,000.00 for a purchase price of $1,000,000.00, reflecting a $100,000 original issue discount (the “Eagle Equities Note”), and in connection therewith, sold to Eagle Equities 165,000 shares of Company’s common stock at a purchase price of $165, representing a per share price of $0.001 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.
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 $3,5000,000 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.
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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 Eagle Equities Note contains customary events of default, including, but not limited to:
| ● | if the Company fails to pay the then-outstanding principal amount and accrued interest on the Eagle Equities Note on any date any such amounts become due and payable, and any such failure is not cured within three business days of written notice thereof by Eagle Equities; or | |
| ● | the Company fails to remain compliant with the Depository Trust Company (“DTC”), thus incurring a “chilled” status with DTC; or | |
| ● | any trading suspension is imposed by the SEC under Section 12(j) of the Exchange Act or Section 12(k) of the Exchange Act; or | |
| ● | the occurrence of any delisting of the Company Common Stock from any securities exchange on which the Company Common Stock is listed or suspension of trading of the Company Common Stock on the OTC Markets. |
If an event of default has occurred and is continuing, Eagle Equities may declare all or any portion of the then-outstanding principal amount of the Eagle Equities Note, together with all accrued and unpaid interest thereon, due and payable, and the Eagle Equities Note shall thereupon become immediately due and payable in cash and Eagle Equities will also have the right to pursue any other remedies that Eagle Equities may have under applicable law. In the event that any amount due under the Eagle Equities 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.
The balance as of June 30, 2021 and December 31, 2020 were $1,100,000 and $0, respectively.
Convertible Promissory Note – GS Capital Partners #5
On April 29, 2021, 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 125,000 shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”) at a purchase price of $125, representing a per share price of $0.001 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 #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.
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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, par value $0.001 per share (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 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 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 balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, 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 Partners, LLC (“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 85,000 shares of the Company’s common stock, par value $0.001 per share (the “Company Common Stock”) at a purchase price of $85, representing a per share price of $0.001 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, par value $0.001 per share (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 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 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.
The balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, respectively.
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.
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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 June 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.
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).
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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.
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 June 30, 2021 and December 31, 2020 were $41,143 and $73,848, 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.
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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.
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 December 31, 2020, 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.
The Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating losses from inception to December 31, 2020. The net operating losses that has future benefits will be recorded as deferred tax assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
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.
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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 June 30, 2021 and December 31, 2020 were $330,255 and $304,490, respectively. The Company recorded $25,765 and $0 loss from gain (loss) in derivative liability during the six months ended June 30, 2021 and 2020, respectively.
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.
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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.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the existence of material weaknesses identified in our internal control over financial reporting.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For the three months ended June 30, 2021, the Company issued 175,070 shares to consultants and directors at fair value of $1,546,413.
For the three months ended June 30, 2021, the Company issued 22,250 shares to settle an accounts payable balance of $164,520.
For the three months ended June 30, 2021, the Company issued 383,080 shares as debt issuance costs for convertible notes payable at fair value of $2,875,589.
For the three months ended June 30, 2021, the Company issued warrants at fair value of $15,797 to an non-employee as compensation.
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.
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Item 6. Exhibits.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
+ Management contract, compensatory plan or agreement.
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CLUBHOUSE MEDIA GROUP, INC. | ||
| Date: August 16, 2021 | By: | /s/ Amir Ben-Yohanan |
| Amir Ben-Yohanan | ||
| Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATIONS
I, Amir Ben-Yohanan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 of Clubhouse Media Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 16, 2021
| /s/ Amir Ben-Yohanan | |
| Amir Ben-Yohanan | |
| Chief Executive Officer | |
| (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Amir Ben-Yohanan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 of Clubhouse Media Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 16, 2021
| /s/ Amir Ben-Yohanan | |
| Amir Ben-Yohanan | |
| Chief Executive Officer | |
| (principal financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Clubhouse Media Group, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Amir Ben-Yohanan, Chief Executive Officer of the Company, certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 16, 2021
| /s/ Amir Ben-Yohanan | |
| Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2021 |
Dec. 31, 2020 |
Jul. 07, 2020 |
|---|---|---|---|
| Statement of Financial Position [Abstract] | |||
| Preferred stock par value | $ 0.001 | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued | 1 | 1 | |
| Preferred stock, shares outstanding | 1 | 1 | |
| Common stock par value | $ 0.001 | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 500,000,000 | 500,000,000 | 500,000,000 |
| Common stock, shares issued | 94,883,195 | 92,682,632 | |
| Common stock, shares outstanding | 94,883,195 | 92,682,632 |
Consolidated Statements of Operations - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Income Statement [Abstract] | ||||
| Total Revenue, net | $ 929,962 | $ 95,534 | $ 1,453,338 | $ 95,534 |
| Cost of sales | 865,103 | 90,206 | 1,181,787 | 90,206 |
| Gross profit | $ 64,859 | $ 5,328 | $ 271,551 | $ 5,328 |
| Concentration risk percentage | 6.97% | 5.58% | 18.68% | 5.58% |
| Operating expenses: | ||||
| Selling, general, and administrative | $ 4,491,329 | $ 267,436 | $ 8,334,702 | $ 494,515 |
| Impairment of goodwill | 240,000 | 240,000 | ||
| Rent expense | 539,635 | 239,597 | 1,063,625 | 239,597 |
| Total operating expenses | 5,030,964 | 747,033 | 9,398,327 | 974,112 |
| Operating loss | (4,966,105) | (741,705) | (9,126,776) | (968,784) |
| Other (income) expenses: | ||||
| Interest expense, net | 2,202,364 | 15,425 | 3,538,439 | 15,425 |
| Loss in extinguishment of debt - related party | 297,138 | |||
| Other (income) expense, net | 66,575 | (1,000) | 120,803 | (1,000) |
| Change in fair value of derivative liability | 75,299 | 25,765 | ||
| Total other (income) expenses | 2,344,238 | 14,425 | 3,982,145 | 14,425 |
| Income (loss) before income taxes | (7,310,343) | (756,130) | (13,108,921) | (983,209) |
| Income tax (benefit) expense | ||||
| Net income (loss) | $ (7,310,343) | $ (756,130) | $ (13,108,921) | $ (983,209) |
| Basic and diluted weighted average shares outstanding | 94,518,186 | 92,623,386 | 93,330,191 | 92,623,386 |
| Basic and diluted net loss per share | $ (0.08) | $ (0.01) | $ (0.14) | $ (0.01) |
ORGANIZATION AND OPERATIONS |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND OPERATIONS | 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 State of Nevada on December 19, 2006 by Nanning Tongji Hospital, Inc. (“NTH”). On December 20, 2006, Tongji, Inc., a wholly owned subsidiary of the Company, was incorporated in the State of Colorado. Tongji, Inc. was later dissolved on March 25, 2011.
NTH was established in Nanning in the province of Guangxi of the People’s Republic of China (“PRC” or “China”) by 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, 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 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 Company, through NTH, thereafter operated the hospital until the Company eventually sold NTH, as described below.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 550,000,000, comprised of shares of common stock, par value $, and shares of preferred stock, par value $.
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.
Doiyen LLC (“Doiyen”) was incorporated in the State of California on January 2, 2020 and renamed to Doiyen LLC in July 7, 2020 and 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 Merger will be those of WOHG and will be recorded at the historical cost basis of WOHG. The unaudited consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and WOHG, historical operations of WOHG 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. This was a common control transactions so all amounts were based on historical cost and no goodwill was recorded.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The unaudited consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements at 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, 2020 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 15, 2021, or the Annual Report. Interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
Principles of Consolidation
The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
In preparing the unaudited consolidated financial statements in conformity with U.S. 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 unaudited 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Reverse Merger Accounting
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 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.
Business Combination
The Company applies the provisions of 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 unaudited 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.
Advertising
Advertising costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying unaudited consolidated statements of operations. We incurred advertising expenses of $21,907 and $3,500 for the three months ended June 30, 2021 and June 30, 2020, respectively. We incurred advertising expenses of $42,452 and $26,270 for the six months ended June 30, 2021 and June 30, 2020, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 June 30, 2021 and December 31, 2020, there were $0 and $0 for bad debt allowance for accounts receivable.
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:
Lease
On January 2, 2020, the Company adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification 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 unaudited 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 record assets/liabilities for short term leases as of June 30, 2021 and December 31, 2020.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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.
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 collectibility based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 June 30, 2021 and December 31, 2020 were $41,143 and $73,848, respectively.
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 typically two to three 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 six months ended June 30, 2021, we capitalized approximately $111,867, related to internal use software and recorded $0 in related amortization expense. Unamortized costs of capitalized internal use software totaled $111,867 and $0 as of June 30, 2021 and December 31, 2020, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 $240,000 of goodwill for the six months ended June 30, 2021 and June 30, 2020, 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.
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 and for the six months ended June 30, 2021 and June 30, 2020, there were 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 unaudited consolidated statements of operations and comprehensive income (loss) as income tax expense.
The Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating losses from inception to December 31, 2020. The net operating losses as of June 30, 2021 that has future benefits will be recorded as deferred tax assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
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 June 30, 2021 and December 31, 2020 were $330,255 and $304,490, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. Potential common shares consist of the convertible promissory notes payable as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, there were approximately and potential shares issuable upon conversion of convertible notes payable.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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.
One customer accounted for 72% and 56% of the Company’s sales for the three and six month ended June 30, 2021, respectively. Accounts receivable from this customer was $0 as of June 30, 2021.
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 unaudited 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 unaudited 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Beneficial Conversion Features
If a conversion features 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 note. If the effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note, the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method. The Company amortized $2,504,987 and $0 of the discount on the convertible notes payable to interest expense for the six months ended June 30, 2021 and for the period from January 2, 2020 (inception) to June 30, 2020, respectively.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
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 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 therein.
If the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated, then the estimated liability would be 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, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
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 unaudited consolidated financial statements.
On October 1, 2020, we early adopted Accounting Standard Update 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 unaudited consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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GOING CONCERN |
6 Months Ended |
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Jun. 30, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| GOING CONCERN | NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying financial statements, the Company had a net loss of $13,108,922 for the six months ended June 30, 2021, negative working capital of $5,390,802 as of June 30, 2021, and stockholder’s deficit of $5,116,368. 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 is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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BUSINESS COMBINATIONS |
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| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS COMBINATIONS | NOTE 4 – BUSINESS COMBINATIONS
Acquisition of Magiclytics
On February 3, 2021, the Company 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 shareholders 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 issue shares of Company common stock to the 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 shares of Company Common Stock, representing 45% each, or 90% in total of the Company common stock which we agreed to issue to the Magiclytics Shareholders at the Magiclytics Closing.
,. In the event that the initial 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 the offering circular, the Company will issue to the Magiclytics Shareholders a number of additional shares of Company common stock equal to:
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.
In addition to the exchange of shares between the Magiclytics Shareholders and the Company described above, on the Magiclytics Closing Date the parties took a number of other actions in connection with the Magiclytics Closing pursuant to the terms of the A&R Share Exchange Agreement:
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Further, immediately following the Magiclytics Closing, the Company assumed responsibility for all outstanding accounts payables and operating costs to continue operations of Magiclytics including but not limited to payment to any of its vendors, lenders, or other parties in which Magiclytics engages with in the regular course of its business.
In connection with the closing, the Company entered in a consulting agreement with Christian Young, a Director of the Company. The compensation will be paid according to the 8-K filed on February 8, 2021 with the SEC.
Immediately prior to closing of the Agreement, Chris Young is the President and Director of the Company, and was the Chief Executive Officer, a Director, and a principal shareholder of 45% of outstanding capital stock of Magiclytics at the time of the share exchange. As a result of the common ownership upon closing of the transaction, the acquisition was considered a common-control transaction and was outside the scope of the business combination guidance in ASC 805-10. The entities are deemed to be under common control as of February 27, 2018, which was the date that the majority shareholder acquired control of the Company and, therefore, held control over both companies. The Company recorded the consideration issued to purchase Magiclytics based on the carrying value of the net assets received and $97,761 related party payables assumed per the acquisition agreement as of February 3, 2021 of $(60,697). The financial statements as of June 30, 2021 were adjusted as if the acquisition happened at the beginning of the year as of January 1, 2021.
Acquisition Consideration
The following table summarizes the carrying value of purchase price consideration to acquire Magiclytics:
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 liabilities assumed by the Company in the acquisition (in thousands):
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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PROPERTY AND EQUIPMENT |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT | NOTE 5 – PROPERTY AND EQUIPMENT
Fixed assets, net consisted of the following:
Depreciation expense were $7,080 and $2,940 for the three months ended June 30, 2021 and June 30, 2020. Depreciation expense were $14,014 and $2,940 for the six months ended June 30, 2021 and for the period from January 2, 2020 (inception) to June 30, 2020, respectively.
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INTANGIBLES |
6 Months Ended |
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Jun. 30, 2021 | |
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| INTANGIBLES | NOTE 6 – INTANGIBLES
As of June 30, 2021 and December 31, 2020, the Company has intangible assets of $189,755 and $0 from and after the acquisition of Magiclytics in February 2021. It is a platform that internally developed for revenue prediction from influencer collaboration.
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OTHER ASSETS |
6 Months Ended |
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Jun. 30, 2021 | |
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
| OTHER ASSETS | NOTE 7 – OTHER ASSETS
As of June 30, 2021 and December 31, 2020, other assets consist of security deposit of $232,000 and $219,000 for operating leases, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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CONVERTIBLE NOTES PAYABLE |
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| CONVERTIBLE NOTES PAYABLE | NOTE 8 – 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 a 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 the maturity date other than as specifically set forth in the Hoey 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. 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 shares of Company common stock upon the conversion of the $7,500 convertible promissory note issued to Mr. Hoey at a conversion price of $0.69 per share.
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 10.
The balance as of June 30, 2021 and December 31, 2020 were $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”).
The Niu Note has a maturity date of September 18, 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 Niu 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. 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 option conversion date, subject to customary adjustments for stock splits, etc. occurring after the issuance date.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Since the conversion price is based on 30% 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 10.
The balance as of June 30, 2021 and December 31, 2020 were $50,000 and $50,000, respectively.
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 principal amount or interest are due prior to the maturity date other than as specifically set forth in the Galen 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. 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 10.
The balance as of June 30, 2021 and December 31, 2020 were $30,000 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 10.
The balance as of June 30, 2021 and December 31, 2020 were $50,000 and $50,000, 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.
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 10.
The balance as of June 30, 2021 and December 31, 2020 were $25,000 and $25,000, 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
On January 26, 2021, the Company issued to Matthew Singer shares of Company common stock upon the conversion of the convertible promissory note issued to Mr. Singer in the principal amount of $13,000 on January 3, 2021 at a conversion price of $1.59 per share.
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 10.
The balance as of June 30, 2021 and December 31, 2020 were $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.
The ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at ProActive 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 ProActive 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 $25,000 original issue discounts, the fair value of 50,000 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 $217,024.
The balance as of June 30, 2021 and December 31, 2020 were $250,000 and $0, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 or 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 any stock splits, etc. which occur following the determination of the conversion price.
The $28,889 original issue discounts, the fair value of 50,000 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 in the quarter ended June 30, 2021. The balance as of June 30, 2021 and December 31, 2020 were $0 and $0, respectively.
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 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
The GS Capital Note has a maturity date of February 19, 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 or 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 the Company Common Stock at GS Capital’s election at any time following the time that the Securities and Exchange 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 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 100,000 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.
GS Capital converted $96,484 and $3,515 accrued interest in the quarter ended June 30, 2021. The balance as of June 30, 2021 and December 31, 2020 were $481,294 and $0, 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 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 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 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 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 Securities and Exchange 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 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
The $57,778 original issue discounts, the fair value of 100,000 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.
The balance as of June 30, 2021 and December 31, 2020 were $577,778 and $0, 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, 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 (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 Securities and Exchange 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 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 $50,000 original issue discounts, the fair value of 45,000 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
The balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, respectively.
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 Partners, LLC (“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 (the “Company Common Stock”) 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, par value $0.001 per share (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 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 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 125,000 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.
The balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 Partners, LLC (“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, par value $ per share (the “Company 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, par value $0.001 per share (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 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 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.
The $50,000 original issue discounts, the fair value of 85,000 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.
The balance as of June 30, 2021 and December 31, 2020 were $550,000 and $0, 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 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 220,000 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.
The balance as of June 30, 2021 and December 31, 2020 were $1,540,000 and $0, 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 $1,000,000.00, reflecting a $100,000 original issue discount (the “Eagle Equities Note”), and, in connection therewith, sold to Eagle Equities shares of Company’s common stock, par value of $ per share (the “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.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 165,000 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 as of June 30, 2021 and December 31, 2020 were $1,100,000 and $0, respectively.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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.
The $100,000 original issue discounts, the fair value of 125,000 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.
For the quarter ended June 30, 2021, the Company paid $300,000 cash to reduce the balance of the convertible promissory note from Labrys Fund, LP. The balance as of June 30, 2021, was $700,000.
The balance as of June 30, 2021 and December 31, 2020 were $700,000 and $0, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Future maturities of convertible notes payable at June 30, 2021 are as follows:
Interest expense recorded related to the convertible notes payable for the three and six months ended June 30, 2021 were $193,224 and $277,687, respectively. Interest expense recorded for the three and six months ended June 30, 2020 were $0 and $0, respectively.
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SHARES TO BE ISSUED - LIABILITY |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Shares To Be Issued - Liability | |||||||||||||||||||||||||||||||||||||||||
| SHARES TO BE ISSUED - LIABILITY |
As of June 30, 2021 and December 31, 2020, the Company entered into various consulting agreements with consultants, directors, and terms of future financing from Labrys. The balances of shares to be issued – liability were $ and $ and has not been issued as of June 30, 2021 and December 31, 2020. 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.
Shares to be issued - liability is summarized as below:
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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DERIVATIVE LIABILITY |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVE LIABILITY | NOTE 10 – DERIVATIVE LIABILITY
The derivative liability is derived from the conversion features in note 8 signed for the period ended December 31, 2020. All were valued using the weighted-average Binomial option pricing model using the assumptions detailed below. As of June 30, 2021 and December 31, 2020, the derivative liability were $330,255 and $304,490, respectively. The Company recorded $25,765 and $0 loss from gain (loss) in derivative liability during the six months ended June 30, 2021 and 2020, respectively. The Binomial model with the following assumption inputs:
Fair value of the derivative is summarized as below:
Fair value of the derivative is summarized as below:
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NOTE PAYABLE, RELATED PARTY |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Note Payable Related Party | |
| NOTE PAYABLE, RELATED PARTY | NOTE 11 – 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 has to be paid back on or before 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 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 United States Securities and Exchange Commission of the Company’s Offering Circular, pursuant to Regulation A under the Securities Act of 1933, as amended, $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.
As of June 11, 2021, the Company received notice of qualification by the United States Securities and Exchange Commission on its Offering Circular. Accordingly, the principal balance of $ has been converted to common stock and recorded under shares to be issued until it is issued.
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RELATED PARTY TRANSACTIONS |
6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||
| Related Party Transactions [Abstract] | |||||||
| RELATED PARTY TRANSACTIONS | NOTE 12 – 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 $87,213 as imputed interest and recorded as additional paid in capital for the year ended December 31, 2020 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
At the time of the qualification by the United States Securities and Exchange Commission of the Company’s Offering Circular, pursuant to Regulation A under the Securities Act of 1933, as amended, $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 and six months ended June 30, 2021, the Company paid the Company’s Chief Executive Officer interest of $67,163 and $67,163, respectively.
For the three and six months ended June 30, 2020, the Company paid the Company’s Chief Executive Officer interest of $0 and $0, respectively.
Effective March 4, 2021, the Company entered into three (3) separate director agreements with three 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.
Pursuant to the Director Agreements, the Company agreed to compensate each of the Directors as follows:
As of June 30, 2021 and December 31, 2020, The Company has a payable balance owed to Christian Young of $14,301 and $23,685.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
As of June 30, 2021 and December 31, 2020, The Company has a payable balance owed to Magiclytics of $97,761 and $0 from the acquisition of Magiclytics on February 3, 2021.
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STOCKHOLDERS’ EQUITY (DEFICIT) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Equity [Abstract] | |
| STOCKHOLDERS’ EQUITY (DEFICIT) | NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)
On July 7, 2020, the Company increased the authorized capital stock of the Company to 550,000,000, comprised of shares of common stock, par value $, and shares of preferred stock, par value $.
Preferred Stock
As of June 30, 2021 and December 31, 2020, there was preferred share issued and outstanding.
On November 12, 2020, the Company 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
Common Stock
As of June 30, 2021 and December 31, 2020, the Company had shares of common stock authorized with a par value of $. There were and shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
For the three months ended March 31, 2021, the Company issued shares to consultants and directors at fair value of $2,113,188.
For the period ended March 31, 2021, the Company issued shares to acquire Magiclytics,
For the three months ended March 31, 2021, the Company issued shares to settle a conversion of $13,000 convertible promissory note.
For the three months ended March 31, 2021, the Company issued shares to settle an accounts payable balance of $.
For the three months ended March 31, 2021, the Company issued shares as debt issuance costs for convertible notes payable at fair value of $3,441,400.
For the three months ended June 30, 2021, the Company issued shares to consultants and directors at fair value of $1,546,413.
For the three months ended June 30, 2021, the Company issued shares to settle an accounts payable balance of $164,520.
For the three months ended June 30, 2021, the Company issued shares as debt issuance costs for convertible notes payable at fair value of $2,875,589.
For the three months ended June 30, 2021, the Company issued warrants at fair value of $15,797 to an non-employee as compensation.
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COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 14 – 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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, 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.
The Company has three short term leases in the United States and two month to month lease in Europe as of June 30, 2021. All short-term leases will be expired in 2021. The total monthly rent expense is approximately $148,000.
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SUBSEQUENT EVENTS |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 15 – SUBSEQUENT EVENTS
The Company has evaluated events subsequent to June 30, 2021, to assess the need for potential recognition or disclosure in the unaudited consolidated financial statements. Such events were evaluated through August 13, 2021, the date and time the unaudited consolidated financial statements were issued, and it was determined that no subsequent events, except as follows, occurred that required recognition or disclosure in the unaudited consolidated financial statements.
On July 1, 2021, the Company issued shares of Company unrestricted common stock to nine investors for a purchase price of $ per share (for an aggregate of $1,030,500) in connection with the initial closing of this Regulation A offering.
On July 9, 2021, the Company issued shares of Company common stock to Adam Miguest with a value of $ per share as compensation for bringing in brand deals for influencers.
On July 9, 2021, the Company issued shares of Company common stock to Wilfred Man with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Lindsay Brewer with a value of $ per share as compensation for services to the Company.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Andrew Omori with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Tommy Shek with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Amir Ben-Yohanan, Chief Executive Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Arlene G. Todd with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Andrew Omori with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to Phoenix Media & Entertainment with a value of $ per share as compensation for services to the Company.
On July 9, 2021, the Company issued shares of Company common stock to G Money, Inc. with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Amir Ben-Yohanan, Chief Executive Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Chris Young, President of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Simon Yu, Chief Operating Officer of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Harris Tulchin, Chief Legal Counsel of the Company, with a value of $ per share as compensation for services to the Company.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
On July 13, 2021, the Company issued shares of Company common stock to Gary Marenzi, a director of the Company, with a value of $ per share as compensation for services to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Laura Anthony with a value of $ per share for legal services rendered to the Company.
On July 13, 2021, the Company issued shares of Company common stock to Heather Ferguson with a value of $ per share as compensation for services to the Company.
Repayment of Labrys Convertible Promissory Note
In July 2021, the Company paid $125,000 cash to reduce the balance of the convertible promissory note from Labrys Fund, LP.
In July 2021, the Company received $845,290 from the Regulation A Offering.
In July 2021, the Company terminated the lease for Society Las Vegas. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation | Basis of presentation
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The unaudited consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements at 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, 2020 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 15, 2021, or the Annual Report. Interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.
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| Principles of Consolidation | Principles of Consolidation
The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
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| Use of Estimates | Use of Estimates
In preparing the unaudited consolidated financial statements in conformity with U.S. 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 unaudited 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Reverse Merger Accounting | Reverse Merger Accounting
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 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.
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| Business Combination | Business Combination
The Company applies the provisions of 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 unaudited consolidated statements of operations.
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| Cash and Cash Equivalents | 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.
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| Advertising | Advertising
Advertising costs are expensed when incurred and are included in selling, general, and administrative expense in the accompanying unaudited consolidated statements of operations. We incurred advertising expenses of $21,907 and $3,500 for the three months ended June 30, 2021 and June 30, 2020, respectively. We incurred advertising expenses of $42,452 and $26,270 for the six months ended June 30, 2021 and June 30, 2020, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Accounts Receivable | 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 June 30, 2021 and December 31, 2020, there were $0 and $0 for bad debt allowance for accounts receivable.
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| Property and equipment, net | 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:
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| Lease | Lease
On January 2, 2020, the Company adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification 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 unaudited 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 record assets/liabilities for short term leases as of June 30, 2021 and December 31, 2020.
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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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.
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| Revenue Recognition | 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.
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 collectibility based on a number of factors, including the creditworthiness of the customer and payment and transaction history.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 June 30, 2021 and December 31, 2020 were $41,143 and $73,848, respectively.
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| Software Development Costs | 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 typically two to three 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 six months ended June 30, 2021, we capitalized approximately $111,867, related to internal use software and recorded $0 in related amortization expense. Unamortized costs of capitalized internal use software totaled $111,867 and $0 as of June 30, 2021 and December 31, 2020, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Goodwill Impairment | 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 $240,000 of goodwill for the six months ended June 30, 2021 and June 30, 2020, respectively.
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| Impairment of Long-Lived Assets | 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.
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 and for the six months ended June 30, 2021 and June 30, 2020, there were no impairment loss of its long-lived assets.
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| Income Taxes | 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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 unaudited consolidated statements of operations and comprehensive income (loss) as income tax expense.
The Company has not completed a full fiscal year, post-recapitalization and has not filed an income tax return and incurred net operating losses from inception to December 31, 2020. The net operating losses as of June 30, 2021 that has future benefits will be recorded as deferred tax assets, but net with 100% valuation allowance until the Company expected to realize this deferred tax assets in the future.
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| Fair Value of Financial Instruments | 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 June 30, 2021 and December 31, 2020 were $330,255 and $304,490, respectively.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Basic Income (Loss) Per Share |
Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. Potential common shares consist of the convertible promissory notes payable as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, there were approximately and potential shares issuable upon conversion of convertible notes payable.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Concentration of Credit Risk | 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.
One customer accounted for 72% and 56% of the Company’s sales for the three and six month ended June 30, 2021, respectively. Accounts receivable from this customer was $0 as of June 30, 2021.
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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.
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| Derivative instruments | 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 unaudited 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 unaudited 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Beneficial Conversion Features | Beneficial Conversion Features
If a conversion features 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 note. If the effective conversion price was less than the market value of underlying common stock at the inception of the convertible promissory note, the Company recorded the difference as debt discounts and amortized over the life of the notes using the effective interest method. The Company amortized $2,504,987 and $0 of the discount on the convertible notes payable to interest expense for the six months ended June 30, 2021 and for the period from January 2, 2020 (inception) to June 30, 2020, respectively.
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| Related Parties | 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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| Commitments and Contingencies | Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB ASC to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
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 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 therein.
If the assessment of a contingency indicates it is probable a material loss was incurred and the amount of the liability can be estimated, then the estimated liability would be 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, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
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| New Accounting Pronouncements | 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 unaudited consolidated financial statements.
On October 1, 2020, we early adopted Accounting Standard Update 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 unaudited consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update 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.
Clubhouse Media Group, Inc. Notes to the Unaudited Consolidated Financial Statements June 30, 2021 and 2020
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT, NET ESTIMATED USEFUL LIVES |
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| SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNING PER SHARE |
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BUSINESS COMBINATIONS (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PURCHASE PRICE CONSIDERATION | The following table summarizes the carrying value of purchase price consideration to acquire Magiclytics:
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| SCHEDULE OF CARRYING VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED | 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 liabilities assumed by the Company in the acquisition (in thousands):
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PROPERTY AND EQUIPMENT (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FIXED ASSETS, NET | Fixed assets, net consisted of the following:
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CONVERTIBLE NOTES PAYABLE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CONVERTIBLE PROMISSORY NOTE |
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| SCHEDULE OF FUTURE MATURITIES OF CONVERTIBLE NOTES PAYABLE | Future maturities of convertible notes payable at June 30, 2021 are as follows:
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SHARES TO BE ISSUED - LIABILITY (Tables) |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Shares To Be Issued - Liability | |||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SHARES TO BE ISSUED LIABILITY |
Shares to be issued - liability is summarized as below:
|
DERIVATIVE LIABILITY (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DERIVATIVE LIABLITY ASSUMPTIONS INPUT |
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| SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILTY | Fair value of the derivative is summarized as below:
|
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SCHEDULE OF PROPERTY AND EQUIPMENT, NET ESTIMATED USEFUL LIVES (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Equipment [Member] | |
| Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
| Estimated Useful Life of Equipment | 3 years |
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNING PER SHARE (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Accounting Policies [Abstract] | ||||
| Net loss | $ (7,310,343) | $ (756,130) | $ (13,109,921) | $ (983,209) |
| Weighted average common shares outstanding—basic | 94,518,186 | 92,623,286 | 93,330,191 | 92,623,386 |
| Dilutive common stock equivalents | ||||
| Weighted average common shares outstanding—diluted | 94,518,186 | 92,623,386 | 93,330,191 | 92,623,386 |
| Basic | $ (0.08) | $ (0.01) | $ (0.14) | $ (0.01) |
| Diluted | $ (0.08) | $ (0.01) | $ (0.14) | $ (0.01) |
GOING CONCERN (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 |
Mar. 31, 2021 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
Jan. 01, 2020 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||
| Net income (loss) | $ 7,310,343 | $ 5,798,578 | $ 756,130 | $ 227,079 | $ 13,108,922 | $ 983,209 | ||
| Working capital deficit | 5,390,802 | 5,390,802 | ||||||
| Total stockholder's equity (deficit) | $ 5,116,368 | $ 2,408,344 | $ 982,909 | $ 226,779 | $ 5,116,368 | $ 982,909 | $ 2,332,086 | |
SCHEDULE OF PURCHASE PRICE CONSIDERATION (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Business Combination and Asset Acquisition [Abstract] | |
| Common stock issued | $ (60,697) |
| Total purchase price | $ (60,697) |
SCHEDULE OF CARRYING VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Business Acquisition [Line Items] | |
| Total purchase price | $ (60,697) |
| Magiclytics [Member] | |
| Business Acquisition [Line Items] | |
| 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) |
SCHEDULE OF FIXED ASSETS, NET (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Property, Plant and Equipment [Line Items] | ||
| Less: accumulated depreciation and amortization | $ (28,959) | $ (14,945) |
| Property, plant, and equipment, net | 84,679 | 64,792 |
| Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property, plant, and equipment, gross | $ 113,638 | $ 79,737 |
| Estimated Useful Life | 3 years |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation expense | $ 7,080 | $ 2,940 | $ 14,014 | $ 2,940 |
INTANGIBLES (Details Narrative) - USD ($) |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Intangible assets | $ 189,755 | $ 0 |
OTHER ASSETS (Details Narrative) - USD ($) |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Security deposit | $ 232,000 | $ 219,000 |
SCHEDULE OF FUTURE MATURITIES OF CONVERTIBLE NOTES PAYABLE (Details) |
Jun. 30, 2021
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2021 | |
| 2022 | 6,454,072 |
| 2023 | |
| 2024 | |
| 2025 | |
| Thereafter | |
| Total | $ 6,454,072 |
CONVERTIBLE NOTES PAYABLE (Details Narrative) |
3 Months Ended | 6 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 03, 2021
USD ($)
$ / shares
shares
|
Apr. 29, 2021
USD ($)
$ / shares
shares
|
Apr. 13, 2021
USD ($)
$ / shares
shares
|
Apr. 02, 2021
USD ($)
$ / shares
shares
|
Mar. 16, 2021
USD ($)
$ / shares
shares
|
Mar. 11, 2021
USD ($)
$ / shares
shares
|
Feb. 19, 2021
USD ($)
$ / shares
shares
|
Jan. 29, 2021
USD ($)
shares
|
Jan. 25, 2021
USD ($)
$ / shares
shares
|
Jan. 20, 2021
USD ($)
$ / shares
shares
|
Jan. 03, 2021
USD ($)
Integer
$ / shares
shares
|
Dec. 08, 2020
USD ($)
$ / shares
shares
|
Oct. 06, 2020
USD ($)
Integer
|
Sep. 18, 2020
USD ($)
Integer
|
Sep. 10, 2020
USD ($)
Integer
|
Jun. 30, 2021
USD ($)
$ / shares
|
Jun. 30, 2020
USD ($)
|
Jun. 30, 2021
USD ($)
$ / shares
|
Jun. 30, 2020
USD ($)
|
Jun. 30, 2020
USD ($)
|
Dec. 31, 2020
USD ($)
$ / shares
|
Jul. 07, 2020
$ / shares
|
|
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Purchase price | $ 6,997,445 | |||||||||||||||||||||
| Debt Instrument original issue discount | $ 4,429,980 | 4,429,980 | ||||||||||||||||||||
| Total debt discounts | $ 2,504,987 | $ 0 | ||||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||||||||||
| Repayment of convertible debt | $ 300,000 | |||||||||||||||||||||
| Interest expense for notes payable | $ 193,224 | $ 0 | $ 277,687 | $ 0 | ||||||||||||||||||
| Tiger Trout Capital Puerto Rico, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Additional amount to be paid | $ 50,000 | |||||||||||||||||||||
| Eagle Equities LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Additional amount to be paid | $ 3,500,000 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | ProActive Capital SPV I, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Jan. 20, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 121,296 | $ 121,296 | ||||||||||||||||||||
| Total debt discounts | $ 95,728 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #1 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Jan. 25, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | ||||||||||||||||||||||
| Total debt discounts | $ 288,889 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #2 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Feb. 16, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 308,555 | $ 308,555 | ||||||||||||||||||||
| Total debt discounts | $ 269,223 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #3 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Mar. 16, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 409,985 | $ 409,985 | ||||||||||||||||||||
| Total debt discounts | $ 167,793 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #4 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Apr. 01, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 414,384 | $ 414,384 | ||||||||||||||||||||
| Total debt discounts | $ 135,616 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #5 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Apr. 29, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 409,863 | $ 409,863 | ||||||||||||||||||||
| Total debt discounts | $ 140,137 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | GS Capital Partners, LLC #6 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Jun. 03, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 509,315 | $ 509,315 | ||||||||||||||||||||
| Total debt discounts | $ 40,685 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | Tiger Trout Capital Puerto Rico, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Jan. 29, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 898,685 | $ 898,685 | ||||||||||||||||||||
| Total debt discounts | $ 641,315 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | Eagle Equities LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Apr. 13, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 864,932 | $ 864,932 | ||||||||||||||||||||
| Total debt discounts | $ 235,068 | |||||||||||||||||||||
| Convertible Promissory Note [Member] | Labrys Fund, LP [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Mar. 11, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 395,890 | $ 395,890 | ||||||||||||||||||||
| Total debt discounts | $ 604,110 | |||||||||||||||||||||
| Scott Hoey [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Sep. 10, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | ||||||||||||||||||||||
| Total debt discounts | $ 7,500 | |||||||||||||||||||||
| Cary Niu [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Sep. 18, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 30,479 | $ 30,479 | ||||||||||||||||||||
| Total debt discounts | $ 19,521 | |||||||||||||||||||||
| Jesus Galen [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 19,027 | $ 19,027 | ||||||||||||||||||||
| Total debt discounts | $ 10,973 | |||||||||||||||||||||
| Darren Huynh [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 31,712 | $ 31,712 | ||||||||||||||||||||
| Total debt discounts | $ 18,288 | |||||||||||||||||||||
| Wayne Wong [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | 15,856 | $ 15,856 | ||||||||||||||||||||
| Total debt discounts | 9,144 | |||||||||||||||||||||
| Purchase Agreement [Member] | Scott Hoey [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 0 | 0 | $ 0 | |||||||||||||||||||
| Purchase Agreement [Member] | Scott Hoey [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 7,500 | |||||||||||||||||||||
| Purchase price | $ 7,500 | |||||||||||||||||||||
| Debt instrument maturity date | Sep. 10, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 50.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Issued shares of common stock upon the conversion | shares | 10,833 | |||||||||||||||||||||
| Debt conversion amount | $ 7,500 | |||||||||||||||||||||
| Convertible note conversion price | $ / shares | $ 0.69 | |||||||||||||||||||||
| Purchase Agreement [Member] | Cary Niu [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 50,000 | 50,000 | 50,000 | |||||||||||||||||||
| Purchase Agreement [Member] | Cary Niu [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 50,000 | |||||||||||||||||||||
| Purchase price | $ 50,000 | |||||||||||||||||||||
| Debt instrument maturity date | Sep. 18, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 30.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Purchase Agreement [Member] | Jesus Galen [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 30,000 | 30,000 | 30,000 | |||||||||||||||||||
| Purchase Agreement [Member] | Jesus Galen [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 30,000 | |||||||||||||||||||||
| Purchase price | $ 30,000 | |||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 50.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Purchase Agreement [Member] | Darren Huynh [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 50,000 | 50,000 | 50,000 | |||||||||||||||||||
| Purchase Agreement [Member] | Darren Huynh [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 50,000 | |||||||||||||||||||||
| Purchase price | $ 50,000 | |||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 50.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Purchase Agreement [Member] | Wayne Wong [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 25,000 | 25,000 | 25,000 | |||||||||||||||||||
| Purchase Agreement [Member] | Wayne Wong [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 25,000 | |||||||||||||||||||||
| Purchase price | $ 25,000 | |||||||||||||||||||||
| Debt instrument maturity date | Oct. 06, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 50.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Purchase Agreement [Member] | Matthew Singer [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 0 | 0 | 0 | |||||||||||||||||||
| Purchase Agreement [Member] | Matthew Singer [Member] | Convertible Promissory Note [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 13,000 | |||||||||||||||||||||
| Purchase price | $ 13,000 | |||||||||||||||||||||
| Debt instrument maturity date | Jan. 03, 2023 | |||||||||||||||||||||
| Debt instrument interest rate | 8.00% | |||||||||||||||||||||
| Common stock conversion price percentage | 70.00% | |||||||||||||||||||||
| Trading day period | Integer | 20 | |||||||||||||||||||||
| Issued shares of common stock upon the conversion | shares | 8,197 | |||||||||||||||||||||
| Debt conversion amount | $ 13,000 | |||||||||||||||||||||
| Convertible note conversion price | $ / shares | $ 1.59 | |||||||||||||||||||||
| Securities Purchase Agreement [Member] | ProActive Capital SPV I, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 250,000 | 250,000 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | GS Capital Partners, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Interest Payable | 3,515 | 3,515 | ||||||||||||||||||||
| Securities Purchase Agreement [Member] | GS Capital Partners, LLC #1 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 0 | 0 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | GS Capital Partners, LLC #2 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 481,294 | 481,294 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | GS Capital Partners, LLC #3 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 577,778 | 577,778 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | GS Capital Partners, LLC #4 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 550,000 | 550,000 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | Eagle Equities LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 1,100,000 | 1,100,000 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | Labrys Fund, LP [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 1,000,000 | |||||||||||||||||||||
| Debt instrument interest rate | 10.00% | |||||||||||||||||||||
| Total debt discounts | 700,000 | 700,000 | 0 | |||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 10.00 | |||||||||||||||||||||
| [custom:PrincipalSumOutstandingPercent-0] | 100.00% | |||||||||||||||||||||
| Administrative Fees Expense | $ 750 | |||||||||||||||||||||
| Repayment of convertible debt | 300,000 | |||||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | ProActive Capital SPV I, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 250,000 | |||||||||||||||||||||
| Purchase price | $ 225,000 | |||||||||||||||||||||
| Debt instrument maturity date | Jan. 20, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 10.00% | |||||||||||||||||||||
| Debt Instrument original issue discount | $ 25,000 | |||||||||||||||||||||
| Sale of common stock share | shares | 50,000 | |||||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | |||||||||||||||||||||
| Reimbursement amount | $ 10,000 | |||||||||||||||||||||
| Debt conversion description | The ProActive Capital Note (and the principal amount and any accrued and unpaid interest) is convertible into shares of Company Common Stock at ProActive 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 ProActive 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 | |||||||||||||||||||||
| Total debt discounts | $ 217,024 | |||||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | GS Capital Partners, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 550,000 | $ 550,000 | $ 550,000 | $ 577,778 | $ 577,778 | $ 288,889 | ||||||||||||||||
| Purchase price | $ 500,000 | $ 500,000 | $ 500,000 | $ 520,000 | $ 520,000 | $ 260,000 | ||||||||||||||||
| Debt instrument maturity date | Jun. 03, 2022 | Apr. 29, 2022 | Apr. 01, 2022 | Mar. 22, 2022 | Feb. 19, 2022 | Jan. 25, 2022 | ||||||||||||||||
| Debt instrument interest rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | ||||||||||||||||
| Debt Instrument original issue discount | $ 50,000 | $ 50,000 | $ 50,000 | $ 57,778 | $ 57,778 | $ 28,889 | ||||||||||||||||
| Sale of common stock share | shares | 85,000 | 125,000 | 45,000 | 100,000 | 100,000 | 50,000 | ||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | ||||||||||||||||
| Reimbursement amount | $ 5,000 | $ 5,000 | $ 10,000 | $ 10,000 | $ 10,000 | $ 10,000 | ||||||||||||||||
| Debt conversion description | 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, par value $0.001 per share (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 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 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 | 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, par value $0.001 per share (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 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 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 GS Capital 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 Securities and Exchange 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 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 GS Capital 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 Securities and Exchange 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 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 GS Capital 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 Securities and Exchange 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 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 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 any stock splits, etc. which occur following the determination of the conversion price | ||||||||||||||||
| Total debt discounts | $ 550,000 | $ 550,000 | $ 550,000 | $ 577,778 | $ 577,778 | $ 288,889 | ||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | $ 0.001 | |||||||||||||||||
| Proceeds from isuance of common stock | $ 85 | $ 125 | $ 45 | $ 100 | $ 100 | |||||||||||||||||
| Interest Payable | 96,484 | 96,484 | ||||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | GS Capital Partners, LLC #5 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 550,000 | 550,000 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | GS Capital Partners, LLC #6 [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Total debt discounts | 550,000 | 550,000 | 0 | |||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | Tiger Trout Capital Puerto Rico, LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | 1,540,000 | |||||||||||||||||||||
| Purchase price | $ 1,100,000 | |||||||||||||||||||||
| Debt instrument maturity date | Jan. 29, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 10.00% | |||||||||||||||||||||
| Total debt discounts | $ 1,540,000 | $ 1,540,000 | $ 0 | |||||||||||||||||||
| Debt Instrument original issue discount | $ 440,000 | |||||||||||||||||||||
| Sale of common stock share | shares | 220,000 | |||||||||||||||||||||
| Debt conversion description | 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 | |||||||||||||||||||||
| Total debt discounts | $ 1,540,000 | |||||||||||||||||||||
| Proceeds from isuance of common stock | $ 220.00 | |||||||||||||||||||||
| Securities Purchase Agreement [Member] | Convertible Promissory Note [Member] | Eagle Equities LLC [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | 1,100,000 | |||||||||||||||||||||
| Purchase price | $ 1,000,000.00 | |||||||||||||||||||||
| Debt instrument maturity date | Apr. 13, 2022 | |||||||||||||||||||||
| Debt instrument interest rate | 10.00% | |||||||||||||||||||||
| Debt Instrument original issue discount | $ 100,000 | |||||||||||||||||||||
| Sale of common stock share | shares | 165,000 | |||||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | |||||||||||||||||||||
| Reimbursement amount | $ 10,000 | |||||||||||||||||||||
| Debt conversion description | 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 | |||||||||||||||||||||
| Total debt discounts | $ 1,100,000 | |||||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 0.001 | |||||||||||||||||||||
| Common stock purchase per share | $ / shares | $ 165.00 | |||||||||||||||||||||
| Securities Purchase Agreement [Member] | 10% Promissory Note [Member] | Labrys Fund, LP [Member] | ||||||||||||||||||||||
| Short-term Debt [Line Items] | ||||||||||||||||||||||
| Debt instruement face amount | $ 900,000 | |||||||||||||||||||||
| Debt instrument maturity date | Mar. 11, 2022 | |||||||||||||||||||||
| Debt Instrument original issue discount | $ 100,000 | |||||||||||||||||||||
| Debt conversion description | 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 $10.00 per share | |||||||||||||||||||||
| Total debt discounts | $ 1,000,000 | |||||||||||||||||||||
| Number of common stock were issued | shares | 125,000 | |||||||||||||||||||||
| Debt instrument, prepayment description | 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 | |||||||||||||||||||||
SCHEDULE OF SHARES TO BE ISSUED LIABILITY (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Shares To Be Issued - Liability | ||
| Beginning Balance, January 2, 2020 | $ 87,029 | |
| Shares to be issued | 3,735,029 | 87,029 |
| Shares issued | (2,048,583) | |
| Ending Balance, June 30, 2021 | $ 2,457,517 | $ 87,029 |
SHARES TO BE ISSUED - LIABILITY (Details Narrative) - USD ($) |
Jun. 30, 2021 |
Dec. 31, 2020 |
Jun. 30, 2020 |
Jan. 02, 2020 |
|---|---|---|---|---|
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | ||||
| Shares to be issued - liability | $ 2,457,517 | $ 87,029 | $ 87,029 | |
| Two Directors and One Consultant [Member] | ||||
| Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items] | ||||
| Shares to be issued - liability | $ 2,457,517 | $ 87,029 |
SCHEDULE OF FAIR VALUE OF DERIVATIVE LIABILTY (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Dec. 31, 2020 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
| Beginning Balance, January 2, 2020 | $ 304,490 | |
| Additions | 270,501 | |
| Mark to Market | 25,765 | 61,029 |
| Cancellation of Derivative Liabilities Due to Conversions | ||
| Reclassification to APIC Due to Conversions | (27,040) | |
| Ending Balance, December 31, 2020 | $ 330,255 | $ 304,490 |
DERIVATIVE LIABILITY (Details Narrative) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||
| Derivative Liability | $ 330,255 | $ 304,490 | |
| Gain (loss) in derivative liability | $ 25,765 | $ 0 | |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Lessor, Lease, Description [Line Items] | ||||
| Rent and expenses | $ 539,635 | $ 239,597 | $ 1,063,625 | $ 239,597 |
| Short Term Leases [Member] | ||||
| Lessor, Lease, Description [Line Items] | ||||
| Operating leases, description | The Company has three short term leases in the United States and two month to month lease in Europe as of June 30, 2021. All short-term leases will be expired in 2021 | |||
| Rent and expenses | $ 148,000 | |||
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