References herein to "we," "us" or the "Company" refer to Simplicity Esports and
Gaming Company and its consolidated subsidiaries. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere herein.
Overview
We are a global esports organization, that is capitalizing on the growth in
esports through two business units: Simplicity Esports, LLC ("Simplicity Esports
LLC") and PLAYlive Nation, Inc. ("PLAYlive"). During the fiscal year ended May
31, 2022, we also had a third business unit: Simplicity One Brasil Ltda
("Simplicity One"). During the first quarter of the fiscal year ending May 31,
2023, in an effort to focus on business operations that were currently
profitable, the Company sold its League of Legends franchise asset, and exited
business operations in Brazil. Funding the Brazilian business operations created
a monthly cash burn of approximately $45,000. The Company sold the franchise
asset to Brazilian esports organization Los Grandes for total consideration of
1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal
quarterly installments.
Our Esports Teams
We own and manage multiple professional esports teams. Revenue is generated from
prize winnings, corporate sponsorships, advertising, league subsidy payments and
potential league revenue sharing payments from the publishers of video games.
Through our wholly owned subsidiary, Simplicity Esports LLC, we own and manage
multiple professional esports teams competing in games such as Heroes of the
Storm. We are committed to growing and enhancing the esports industry, fostering
the development of amateurs to compete professionally and signing established
professional gamers to support their paths to greater success.
In addition, from January 2020 to July 2022, we managed Flamengo eSports, one of
the leading Brazilian League of Legends® teams competing in the top tier league
CBLoL, through our 76% owned subsidiary, Simplicity One. In July 2022, in an
effort to focus on business operations that were currently profitable, the
Company sold its League of Legends franchise asset, and exited business
operations in Brazil. Funding the Brazilian business operations created a
monthly cash burn of approximately $45,000. The Company sold the franchise asset
to Brazilian esports organization Los Grandes for total consideration of
1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal
quarterly installments.
Online Tournaments
In response to demand from customers for online esports tournaments which was
likely triggered by the social distancing protocols attendant to the COVID-19
pandemic, we introduced in March 2020 an initiative of online esports
tournaments. Since March 2020, through our wholly owned subsidiary, Simplicity
Esports LLC, we had been holding online esports tournaments in the United
States. As of August 2022, we have temporarily ceased organizing online
tournaments while focusing on expense reduction and operational efficiency.
Our Gaming Centers
As of May 31, 2022, we had 29 operational locations (17 corporate locations and
12 franchise locations), through our subsidiaries throughout the U.S., giving
casual gamers the opportunity to play in a social setting with other members of
the gaming community. Subsequent to the 2022 fiscal year end, the Company closed
12 of its 17 corporate owned esports gaming center locations. The Company
continues to operate five corporate owned locations and 12 franchisee owned
locations. Management is exploring strategic alternatives, including merger and
acquisition opportunities, and is focused on high margin, lower capital
expenditure business strategies in the esports gaming industry, with a goal of
being cash flow positive in the next 12 to 24 months.
In addition, aspiring and established professional gamers have an opportunity to
compete in local and national esports tournaments held in our gaming centers for
prizes, notoriety, and potential contracts to play for one of our professional
esports teams. In this business unit, revenue is generated from franchise
royalties, the sale of game time, memberships, tournament entry fees, birthday
party events, corporate party events, concessions and gaming-related
merchandise.
50
Our business plan encompasses a brick-and-click physical and digital approach to
further recognize revenue from all verticals, which we believe to be unique in
the industry. The physical centers, together with our esports teams, lifestyle
brand and marketing campaigns offer opportunities for additional revenue via
strategic partnerships with both endemic and non-endemic brands. Our ultimate
goal is to further engage a diverse fan base with a 360-degree approach driving
traffic to both our digital platform, tournaments (online and in-person), and
physical real estate to maximize the monetization opportunities with these
relationships. In addition, we have proprietary intellectual capital, fan
engagement strategies and brand development blueprints which complement our
publicly available information.
Optimally, the esports gaming centers of Simplicity Esports LLC ("Simplicity
Esports Gaming Centers") measure between 2,000 and 4,000 square feet, with
dozens of gaming stations. The Simplicity Esports Gaming Centers feature cutting
edge technology, futuristic aesthetic décor and dynamic high-speed gaming
equipment. We believe our brick-and-click strategy will present attractive
opportunities for sponsors and advertisers to connect with our audience,
creating an intriguing monetization opportunity for sponsors and advertisers. As
of September 26, 2022, our corporate owned stores operate in approximately
40,000 square feet of retail space in desirable, high traffic locations.
Creating content that engages fans, sponsors and developers, while promoting our
brand is one of our primary goals. In August 2021, we announced a partnership
with Television Korea 24 ("ESTV") to provide esports and gaming content for
their 24-7 live linear channel around the world. ESTV can be viewed in over 45
countries, including the U.S. We seek to reach a broad demographic encompassing
the casual, amateur and professional gaming community. Our philosophy is to
enhance our footprint for both endemic and non-endemic partnerships. We believe
we possess a deep perception of our markets and understand the new age of
branding while maintaining authenticity to the gaming community that comprises
our fanbase.
As a result of COVID-19, all of our corporate and franchised Simplicity Esports
Gaming Centers were closed effective April 1, 2020. We commenced reopening
Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16
corporate and 12 franchised Simplicity Esports Gaming Centers. Subsequent to the
2022 fiscal year end, the Company closed 12 of its 17 corporate owned esports
gaming center locations. The Company continues to operate five corporate owned
locations and 12 franchisee owned locations. See "Risk Factors-Public health
epidemics or outbreaks, such as COVID-19, could materially and adversely impact
our business."
Corporate Gaming Centers
As of May 31, 2022, we operated 17 corporate-owned retail Simplicity Esports
Gaming Centers. Subsequent to the 2022 fiscal year end, the Company closed 12 of
its 17 corporate owned esports gaming center locations. The Company continues to
operate five corporate owned locations and 12 franchisee owned locations.
Management is exploring strategic alternatives, including merger and acquisition
opportunities, and is focused on high margin, lower capital expenditure business
strategies in the esports gaming industry, with a goal of being cash flow
positive in the next 12 to 24 months.
Franchised Gaming Centers
Due to interest from potential franchisees, in 2019 we launched a franchising
program to accelerate the expansion of our planned nationwide footprint. We sell
specific franchise territories, through our wholly owned subsidiary PLAYlive,
and assist with the establishment and buildout of esports gaming centers to
potential business owners that desire to use our branding, infrastructure and
process to open and operate gaming centers. We currently operate 12 fully
constructed franchise esports gaming centers. Franchise revenue is generated
from the sale of franchise territories, supplying furniture, equipment and
merchandise to the franchisees for buildout of their centers, a gross sales
royalty fee and a national marketing fee. We license the use of our branding,
assist in identifying and negotiating commercial locations, assist in overseeing
the buildout and development, provide access to proprietary software for point
of sale, inventory management, employee training and other HR functions.
Franchisees also have an opportunity to participate in our national esports
tournament events. Once an esports gaming center is opened, we provide
operational guidance, support and use of branding elements in exchange for a
monthly royalty fee calculated as 6% of gross sales. Prior to selling a
franchise, among other things, the Company is required to provide a potential
franchisee with a franchise disclosure document. We do not currently have an
active franchise disclosure document.
51
The combination of the esports gaming centers, owned or franchised by our wholly
owned subsidiaries Simplicity Esports LLC or PLAYlive, provides us with what we
believe is one of the largest esports gaming center footprints in North America.
Franchise Roll Up Strategy
We began implementing a franchise roll-up strategy in July 2020 because of the
disruption caused by COVID-19 related stay-at-home orders, and the disruption it
caused to the commercial real estate market. The reduction in revenues for some
franchisees because of stay-at-home orders, and government mandates to remain
closed created significant accrued rent payments due to landlords. We have been
able to come to terms with many franchisees to acquire the assets of their
gaming centers and make them corporate owned. We have simultaneously negotiated
new leases with some of the largest national mall chains, including Simon
Property Group and Brookfield Asset Management, and are in the process of
negotiating additional locations with other landlords. The new leases involve
significant reductions in or elimination of fixed rent and the addition of
percentage of revenues rent terms.
Our Stream Team
The Simplicity Esports LLC stream team encompasses commentators (commonly known
as "casters"), influencers and personalities who connect to a dedicated fan
base. Our electric group of live personalities represent our organization to the
fullest with their own unique style. We are proud to support and present a
diverse group of gamers as we engage fans across a multitude of esports genres.
Our Twitch affiliation has enabled our stream team to reach a broad fan base.
Additionally, we have created several niches within the streaming community
which has enabled us to engage fans within certain titles on a 24/7 basis.
Through Simplicity Esports LLC, we have begun to implement a unique approach to
ensure the ultimate fan friendly esports experience. Our intention is to have
gamers involved at the grassroots level and feel a sense of unity as we compete
with top class talent. Our management and players are known within the esports
community and we plan to use their skills to create a seamless content creation
plan helping gamers feel closer to our brand than any other in the industry.
COVID-19
As a result of COVID-19, all of our corporate and franchised Simplicity Esports
Gaming Centers were closed effective April 1, 2020. We commenced reopening
Simplicity Esports Gaming Centers on May 1, 2020 and subsequently reopened 16
corporate and 12 franchised Simplicity Gaming Centers, the majority of which are
operating at restricted capacity based on local COVID-19 regulations. Subsequent
to May 31, 2022, the Company closed 12 of its 17 corporate owned esports gaming
center locations. The Company continues to operate five corporate owned
locations and 12 franchisee owned locations. Although our franchise agreements
with franchisees of Simplicity Esports Gaming Centers require a minimum monthly
royalty payment to us from the franchisees regardless of whether the franchised
Simplicity Esports Gaming Centers are operating, a limited number of the
franchisees of Simplicity Esports Gaming Centers have defaulted on their
obligations to pay their minimum monthly royalty payment to us. This has
resulted in either an increase in accounts receivables or a bad debt expense
where account receivables are no longer collectible due to franchisee's
inability to pay the minimum monthly royalty payments owed by the franchisee. As
of May 31, 2022, we have recorded an allowance for doubtful accounts of
approximately $39,000 and have written off $4,000, partly in conjunction with
taking back certain franchises and converting them to company owned stores.
Notwithstanding our efforts to support franchisees and still collect on
receivables, it is unclear exactly how much of the increase in accounts
receivables is attributable to the impact of COVID-19. We have waived the
minimum monthly royalty payment obligations from July 2020 through present day
and are instead billing the franchisees a true-up of 6% of gross sales without a
minimum. We continue to assess possible similar accommodations to the
franchisees in light of the impact of COVID-19. Additionally, the disruptions in
commercial real estate caused by COVID-19 lockdowns have allowed the Company to
strengthen its existing relationships with national landlords by signing new
locations with percentage rent leases.
52
The ultimate impact of the COVID-19 pandemic on the Company's operations is
unknown and will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the duration of the COVID-19
outbreak, new information which may emerge concerning the severity of the
COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period
of continued business disruption, reduced customer traffic and reduced
operations. Any resulting financial impact cannot be reasonably estimated at
this time but is anticipated to have a material adverse impact on our business,
financial condition and results of operations.
The measures taken to date adversely impacted the Company's business during the
year ended May 31, 2022 and will potentially continue to impact the Company's
business. Management observes that all business segments continue to be impacted
by reduced foot traffic that began as a result of COVID-19 lockdowns and has
continued as consumer habits have changed.
For the fiscal years ended May 31, 2022 and 2021, we generated revenues of
$3,552,665 and $1,551,923 and reported net losses of $17,838,138 and $6,096,855,
respectively. Net cash used in operating activities for the fiscal years ended
May 31, 2022 and 2021 was $2,679,110 and $1,617,914, respectively. As of May 31,
2022, we had an aggregate accumulated deficit of $29,838,444. We anticipate that
we will continue to report losses and negative cash flow. There is substantial
doubt regarding our ability to continue as a going concern as a result of our
historical recurring losses and negative cash flows from operations as well as
our dependence on private equity and financings. See "Risk Factors-We have a
history of operating losses and our auditors have indicated that there is a
substantial doubt about our ability to continue as a going concern."
Results of Operations
The following table summarizes our operating results for the fiscal years ended
May 31, 2022 and 2021.
Fiscal Year Fiscal Year
Ended Ended
May 31, 2022 May 31, 2021
Franchise royalties and license fees $ 262,663 $ 151,634
Franchise deposit revenue 31,987 154,291
Company-owned stores and other revenue 2,897,293 1,053,226
Esports revenue 360,722 192,772
Total revenue 3,552,665 1,551,923
Less: Cost of goods sold (2,492,238 ) (1,014,310 )
Gross margin 1,060,427 537,613
Operating expenses (12,090,974 ) (5,335,112 )
Other expense (6,807,591 ) (1,397,329 )
Net loss attributable to non-controlling interest 291,593 97,973
Net Loss $ (17,838,138 ) $ (6,096,855 )
Summary of Statement of Operations for the Fiscal Year Ended May 31, 2022 and
2021:
Revenue
We generated $3,552,665 of revenue for the fiscal year ended May 31, 2022 as
compared to $1,551,923 for the fiscal year ended May 31, 2021. The increase in
revenue was principally due to the increase in the number of company owned
stores we operate, offset by a slight reduction in franchise royalties and
franchise deposit revenue as franchises were converted to company owned stores.
53
Franchise royalties, franchise deposit and termination revenue and company-owned
stores sales and other revenues, totaled $3,191,943 and $1,359,151, for the
fiscal years ended May 31, 2022 and 2021. In addition, esports revenue was
$360,722 during the fiscal year ended May 31, 2022, up from $192,772 in the
fiscal year ended May 31, 2021. This increase was due to inclusion of the full
year of operations of Simplicity One Brazil which was acquired in January 2020.
In July 2022, in an effort to focus on business operations that were currently
profitable, the Company sold its League of Legends franchise asset, and exited
business operations in Brazil. Funding the Brazilian business operations created
a monthly cash burn of approximately $45,000. The Company sold the franchise
asset to Brazilian esports organization Los Grandes for total consideration of
1,920,000 Brazilian Reais (approximately $362,000) to be paid in five equal
quarterly installments.
Cost of Goods Sold
Cost of goods sold during the fiscal years ended May 31, 2022 and 2021 totaled
$2,492,238 and $1,014,310, respectively. Cost of goods sold is related to player
and team expenses related to esports revenues and cost of gaming system and
store merchandise sold at company owned stores, including the depreciation on
the gaming equipment needed to generate these revenues. The increase is cost of
goods sold is directly related to the increase in company owned store revenues.
Operating Expenses
Operating expenses for the fiscal year ended May 31, 2022 totaled $12,090,974, a
$6,755,862 increase from the $5,335,112 of operating expense in the fiscal year
ended May 31, 2021. The increase was the result of impairment expenses of
$4,031,244 recorded in connection with the impairment of goodwill and other
intangible assets, impairment expense of $1,355,156 recorded in connection with
the right-of use-asset, inventory and fixed assets, increased compensation and
related benefits of approximately $476,000, primarily due to a $429,000 decrease
in stock-based compensation, coupled with a $900,000 increase in salaries, wages
and the related insurance and taxes, predominantly driven by the increase in
employees related to the new company owned stores; an increase in professional
fees of $669,000, of which $436,000 was for increased legal, accounting and
consulting services; an increase in general and administrative expenses of
$633,000, primarily due to an increase in amortization of $108,000, an increase
in rent of $170,000, and an increase in utilities of $90,000.
Other Expense
Other expense represented an expense of approximately $6,808,000 and $1,400,000
during the fiscal years ended May 31, 2022 and 2021, respectively. The increase
in other expense of $5,408,000 is due to an increase of $2,946,000 of interest
expense on the notes payable mentioned herein, a $2,290,000 increase in debt
forgiveness expense.
Net Loss Attributable to Non-Controlling Interest
As part of the conversion of franchises into company-owned stores, two of the
original franchisees retained a 21% interest in the stores, one retained a 49%
interest and 24% of our interest in Simplicity One Brasil, some of which is
owned by Jed Kaplan, our former Chairman of the Board. As such, a portion of the
net loss incurred during the year is allocated to those parties. For the fiscal
year ended May 31, 2022, the net loss attributable to non-controlling interest
was $291,593, which represents an increase of $193,620 from the year ended May
31, 2021.
54
Liquidity and Capital Resources
In 2018, the completion of the Initial Public Offering and simultaneous Private
Placement, inclusive of the underwriters' exercise of their over-allotment
option, generated gross proceeds to the Company of $54,615,000. Related
transaction costs amounted to approximately $3,838,000, consisting of $3,360,000
of underwriting fees, including $1,820,000 of deferred underwriting commissions
payable (which was held in the Trust Account) and $478,000 of Initial Public
Offering costs.
Following the Initial Public Offering and the underwriter's partial exercise of
the over-allotment option, a total of $52,780,000 was placed in the Trust
Account and we had $552,190 of cash held outside of the Trust Account, after
payment of all costs related to the Initial Public Offering.
On November 20, 2018, in connection with the closing of our initial Business
Combination, the funds in the Trust Account were used for, among other things,
the following:
? $45,455,596 to redeem 4,448,260 shares
? $7,255,306 to fund the escrow agreement for Polar and K2
? $150,000 to fund our investment in Smaaash
As of May 31, 2020, we had no cash and marketable securities held in the Trust
Account.
As of May 31, 2022 and 2021, we had cash of $103,000 and $414,000, which is
available for use by us to cover the costs associated with general corporate
purposes. In addition, as of May 31, 2022 and 2021, we had accounts payable and
accrued expenses of $2,360,000 and $1,605,000, respectively.
For the fiscal years ended May 31, 2022 and 2021, cash used in operating
activities amounted to $2,679,110 and $1,617,914, respectively. The increase in
net cash used of approximately $1,061,000 is due to a decrease in shares for
services of approximately $1,900,000, an increase in non-cash interest expense
of approximately $2,400,000, increased impairment losses of approximately
$5,000,000, an increase in depreciation and amortization charges of
approximately $110,000 and an increase in debt forgiveness expense of
approximately $2,290,000, offset by an increased net loss of approximately
$11,600,000. In addition, changes in our operating liabilities and assets
provided approximately $1,500,000 of cash, an increase of approximately
$1,700,000 from May 31, 2021. The increase in cash provided is due to increased
accrued expenses of approximately $930,000, a reduction in deferred revenues of
approximately $125,000, a decrease in inventory of approximately $40,000, a
decrease in prepaid expenses and security deposits of approximately $20,000 and
a decrease in due from franchisee of approximately $45,000, offset by reduced
accounts receivable of approximately $132,000 and decreased deferred brokerage
fees of approximately $61,000. Cash used in investing activities amounted to
$515,179, an increase of $363,230 from the prior year. The increase is
attributable to increased purchase of property and equipment of $359,000. Cash
provided from financing activities amounted to $2,833,500, an increase of
$1,534,000 over the prior year. The increase is mainly attributable to a net
cash increase of $1,087,000 for the net effect of the issuance in notes payable,
coupled with an increase in funds received from private placement units of
$379,000, an increase non-controlling interest in subsidiaries of $179,000,
offset by an increase in deferred financing costs of $111,000.
We will need to raise additional funds in order to meet the expenditures
required for operating our business.
Off-balance sheet arrangements
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements. We do not participate in transactions that
create relationships with unconsolidated entities or financial partnerships,
often referred to as variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements. We
have not entered into any off-balance sheet financing arrangements, established
any special purpose entities, guaranteed any debt or commitments of other
entities, or purchased any non-financial assets.
55
Going Concern
The Company's consolidated financial statements have been prepared assuming that
it will continue as a going concern, which contemplates continuity of
operations, realization of assets, and liquidation of liabilities in the normal
course of business.
As reflected in the consolidated financial statements, the Company has an
accumulated deficit as of May 31, 2022, a net loss and net cash used in
operating activities for the reporting period then ended. These factors raise
substantial doubt about the Company's ability to continue as a going concern
within one year from the of the date that the financial statements are issued.
The Company's cash position may not be sufficient to support the Company's daily
operations. Management plans to raise additional funds by way of a private or
public offering. While the Company believes in the viability of its strategy and
its ability to generate sufficient revenue and to raise additional funds, there
can be no assurances to that effect. Should the Company fail to raise additional
capital, it may be compelled to reduce the scope of its planned future business
activities.
The ability of the Company to continue as a going concern is dependent upon the
Company's ability to further implement its business plan, to generate sufficient
revenue and to raise additional funds by way of public and/or private offerings.
The consolidated financial statements do not include any adjustments related to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
As a result of COVID-19, all of our corporate and franchised Simplicity Gaming
Centers had been closed effective April 1, 2020. Although our franchise
agreements with franchisees of Simplicity Gaming Centers require a minimum
monthly royalty payment to us from the franchisees regardless of whether the
franchised Simplicity Gaming Centers are operating, there is a potential risk
that franchisees of Simplicity Gaming Centers will default in their obligations
to pay their minimum monthly royalty payment to us. As of May 31, 2020, some of
our franchised gaming centers have begun to re-open.
The ultimate impact of the COVID-19 pandemic on the Company's operations is
unknown and will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the duration of the COVID-19
outbreak, new information which may emerge concerning the severity of the
COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period
of continued business disruption, reduced customer traffic and reduced
operations. Any resulting financial impact cannot be reasonably estimated at
this time but is anticipated to have a material adverse impact on our business,
financial condition and results of operations.
The measures taken to date adversely impacted the Company's business during the
year ended May 31, 2022 and will potentially continue to impact the Company's
business. Management observes that all business segments continue to be impacted
by reduced foot traffic that began as a result of COVID-19 lockdowns and has
continued as consumer habits have changed.
56
Contractual obligations
We do not have any long-term capital lease obligations, operating lease
obligations or long-term liabilities, except as follows:
The Company has entered into various lease agreements in support of our
corporate offices and our gaming centers. All of the Company's gaming center
leases have been recorded with the appropriate Right of Use ("ROU") asset and
related liability.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of a
contract with the customer are satisfied. Product sales occur once control is
transferred upon delivery to the customer. Revenue is measured as the amount of
consideration the Company expects to receive in exchange for transferring goods
and services. Our revenue is derived principally from two sources, the first is
from the sale of the rights to our players to third parties and second from
participation and prize money awarded at gaming tournaments.
Intangible Assets and impairment
Intangible assets that are subject to amortization are reviewed for potential
impairment whenever events or circumstances indicate that carrying amounts may
not be recoverable. Assets not subject to amortization are tested for impairment
at least annually. The Company had intangible assets subject to amortization
related to its acquisition of Simplicity Esports, LLC. These costs were included
in intangible assets on our balance sheet and amortized on a straight-line basis
when placed into service over the estimated useful lives of the costs, which is
3 to 5 years.
The Company periodically reviews its intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company recognizes an impairment loss
when the sum of expected undiscounted future cash flows is less that the
carrying amount of the asset. The amount of impairment is measured as the
difference between the asset's estimated fair value and its book value. For the
year ended May 31, 2022, the Company performed an internal valuation to review
our intangible assets and based upon this valuation, Then Company recorded an
impairment charge of $324,000
Goodwill
Goodwill is the excess of our purchase cost over the fair value of the net
assets of acquired businesses. We do not amortize goodwill, but we assess our
goodwill for impairment at least annually. Our assessment date was May 31, 2022,
and the company performed an internal valuation to review our goodwill and based
upon this valuation, the Company recorded an impairment charge of $3,707,000.
Operating Lease Right-of-Use Assets and Operating Lease Liabilities
The Company adopted the Financial Accounting Standards Board's Accounting
Standards Codification Topic 842, Leases (Topic 842) and has elected the
'package of practical expedients', which permits it not to reassess under the
new standard its prior conclusions about lease identification, lease
classification and initial direct costs. In addition, the Company elected not to
apply Topic 842 to arrangements with lease terms of 12 months or less. The
Company has entered into various lease agreements mainly to support the
operations of its gaming centers.
The significant assumption used to determine the present value of the lease
liability was a discount rate ranging from of 12% which was based upon the
Company's estimated incremental borrowing rate at the start of the lease term.
The Company has recorded an impairment charge of $1,355,000 related to the fact
that multiple stores were closed subsequent to the end of reporting period.
© Edgar Online, source Glimpses
SIMPLICITY ESPORTS AND GAMING COMPANY 