KUSTOM ENTERTAINMENT, INC. 10-Q

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Pursuant to a securities purchase agreement, dated as of January 27, 2021, by and between the Company and certain investors (the “Purchase Agreement”), the Company issued common stock purchase warrants to such investors on February 1, 2021 (the “February Warrants”), which were initially issued and included for registration, along with the shares of Common Stock underlying such February Warrants and certain other securities, in a registered direct offering by the Company, pursuant to a prospectus supplement, dated January 27, 2021 (the “January 27th Prospectus Supplement”) to the Company’s effective registration statement on Form S-3 (File No. 333-239419), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 25, 2020, and was declared effective on July 2, 2020 (the “Shelf Registration Statement”). On August 19, 2021, the Company cancelled February Warrants exercisable for up to 7,681,540 shares of Common Stock in consideration for its issuance of the Warrants to the investors. The Company also filed a supplement to the Prospectus Supplement removing the cancelled February Warrants and the shares of Common Stock exercisable thereunder from registration under the Shelf Registration Statement in order to provide additional availability for the issuance of securities under the Shelf Registration Statement. The Warrants were issued pursuant an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) because the investors had a pre-existing relationship with the Company, there was no general solicitation made, and the investors represented their sophistication. On September 2, 2021, the Company, and TicketSmarter, LLC (“TicketSmarter”) on behalf of itself and its wholly owned subsidiary Goody Tickets, LLC, and members of TicketSmarter (“Sellers”), entered into a Unit Purchase Agreement (the “UPA”), pursuant to which, the Company purchased all of the issued and outstanding membership interests of TicketSmarter, for aggregate consideration of approximately $14.1 million,(subject to adjustment) including cash of approximately $8.9 million and 719,738 shares of Company common stock with a value of approximately $990,360, which consideration was paid at closing. Such consideration includes up to approximately $4.2 million structured as contingent payment (the “Contingent Payment”) in additional cash and shares of Common Stock if TicketSmarter achieves certain EBITDA milestones prior to March 31, 2022, as set forth in the UPA. The UPA contains customary representations and warranties and covenants. The closing of the UPA and the acquisition also occurred on September 2, 2021. Mr. Jeffrey Goodman and Mr. Michael Goodman, will be employed by Digital TicketSmarter as Chief Executive Officer and Chief Operations Officer, respectively, and they each executed certain restricted stock grant agreements with the Company (collectively, the “Restricted Stock Grant Agreements”), whereby the Company issued 100,000 restricted shares of Common Stock and 50,000 shares of Common Stock to Mr. Jeffrey Goodman and Mr. Michael Goodman, respectively, subject to the terms and provisions of the Company’s 2020 Stock Option and Restricted Stock Plan. The restricted shares of Common Stock were valued based on the closing price of the Common Stock on the Nasdaq Stock Market on the day of grant. The restricted shares of Common Stock will vest in equal installments over a five-year period beginning on the first anniversary date each recipient began employment. The issuance of the 719,738 restricted common shares and the total issuance of the 150,000 restricted common shares to Jefferey Goodman and Michael Goodman were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) because Jefferey Goodman and Michael Goodman had a pre-existing relationship with the Company, there was no general solicitation made, and the investors represented their sophistication. Furthermore, the creditor made representations that the securities issued to extinguish the obligations were taken for investment purposes and not with a view to resale. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Mine Safety Disclosures. Not applicable.