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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

For the quarterly period ended September 30, 2024

 

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

 

Commission File Number: 000-56290

 

VIP Play, Inc.
(Exact name of registrant as specified in its charter)

 

Nevada   85-0738656

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1645 Pine Tree Ln, Suite 2 Sarasota FL   34236
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number: (866) 783-9435

 

(Former name or former address, if changed since last report): N/A

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, par value of $0.001

(Title of each class)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

 

The number of shares of the issuer’s common stock outstanding as of November 8, 2024, was 72,661,657 shares, par value $0.001 per share.

 

 

 

 

 

 

VIP Play, Inc.

Form 10-Q

Table of Contents

 

PART I - FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS 1
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS 5
ITEM 4. CONTROLS AND PROCEDURES 5
PART II - OTHER INFORMATION 6
ITEM 6. EXHIBITS 6
SIGNATURES 7

 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited), and June 30, 2024;
   
F-3 Condensed Consolidated Statements of Operations for the three months ended September 30, 2024, and 2023 (unaudited);
   
F-4 Condensed Consolidated Statement of Stockholders’ Deficit for the three month period ended September 30, 2024, and 2023 (unaudited);
   
F-6 Condensed Consolidated Statements of Cash Flow for the three months ended September 30, 2024, and 2023 (unaudited);
   
F-7 Notes to Condensed Consolidated Financial Statements.

 

1

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2024   June 30, 2024 
   (unaudited)     
ASSETS          
           
Current assets:          
Cash  $342,186   $221,754 
Cash reserved for users   202,188    228,009 
Prepaid expenses and other current assets   523,219    795,663 
Total current assets   1,067,593    1,245,426 
           
Other assets:          
Equipment, net   1,738    2,153 
Intangible assets, net   6,400,086    6,760,295 
Debt issuance costs, net   689,512    1,330,173 
Security deposit   12,236    12,236 
Total other assets   7,103,572    8,104,857 
           
Total assets  $8,171,165   $9,350,283 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable and accrued expenses  $1,041,252   $1,408,729 
Accrued expenses - related party   684,391    371,598 
Players balances   261,799    313,758 
Notes payable – current   813,620    875,828 
Notes payable - related party, net of discount   30,000    30,000 
Convertible notes, net   85,407    85,407 
Line of credit - related party   10,395,000    7,670,000 
Derivative liability   12,925,000    11,273,000 
Total current liabilities   26,236,469    22,028,320 
           
Long-term liabilities:          
Notes payable - long-term   346,470    512,527 
Total long-term liabilities   346,470    512,527 
           
Total liabilities   26,582,939    22,540,847 
           
Commitments and contingencies   -     -  

 

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

 

F-1

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - Continued

 

   September 30, 2024   June 30, 2024 
   (unaudited)     
Stockholders’ deficit:          
Preferred stock, $0.0001 par value, 25,000,000 shares authorized          
Series A preferred stock, 2,000,000 shares designated, 0 and 0 shares issued and outstanding as of September 30, 2024, and June 30, 2024, respectively   -    - 
Series B preferred stock, 12,000 shares designated, 11,693 and 11,693 shares issued and outstanding as of September 30, 2024, and June 30, 2024, respectively   11,693    11,693 
Series C preferred stock, 6,700,000 shares designated, 0 and 0 shares issued and outstanding as of September 30, 2024, and June 30, 2024, respectively   -    - 
Common stock, $0.001 par value, 475,000,000 shares authorized, 71,994,990 and 71,994,990 shares issued and outstanding as of September 30, 2024, and June 30, 2024, respectively   71,994    7,199 
Additional paid-in capital   30,278,695    30,295,318 
Accumulated deficit   (48,774,156)   (43,504,774)
Total stockholders’ deficit   (18,411,774)   (13,190,564)
           
Total liabilities and stockholders’ deficit  $8,171,165   $9,350,283 

 

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

 

F-2

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   2024   2023 
  

For the three months ended

September 30,

 
   2024   2023 
         
Negative gaming revenues  $(3,337)  $(218,624)
           
Costs of gaming revenue   96,232    405,244 
           
Net gaming loss   (99,569)   (623,868)
           
Operating expenses:          
Salaries and wages   925,801    815,341 
Depreciation and amortization   472,223    432,427 
Sales and marketing   116,362    1,216,067 
General and administrative   988,564    708,002 
           
Total operating expenses   2,502,950    3,171,837 
           
Other income (expense):          
(Loss) gain on change in fair value of derivative   (1,652,000)   329,235 
Interest expense   (61,408)   (39,252)
Interest expense - related party   (953,455)   (1,552,580)
           
Total other expense   (2,666,863)   (1,262,597)
           
Net loss  $(5,269,382)  $(5,058,302)
Less: deemed dividend from the purchase of Series C preferred stock   -    (1,006,000)
Net loss attributable to common stockholders   (5,269,382)   (6,064,302)
           

Net loss per common share

- basic and diluted

  $(0.07)  $(0.14)
           

Weighted average number of common shares outstanding

- basic and diluted

   73,164,290    41,905,000 

 

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

 

F-3

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

(unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Deficit)   (Deficit) 
  

Preferred Shares

Series A $0.0001 Par Value

  

Preferred Shares

Series B

$1.00 Par Value

  

Preferred

Shares

Series C

$0.0001 Par Value

   Common Shares $0.001 Par Value   Additional Paid-In   Accumulated   Total
Stockholders’
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Deficit)   (Deficit) 
                                             
Balance, June 30, 2023   -   $-    11,693   $11,693    2,499,998   $250    41,905,000   $4,191   $12,669,930 -  $(13,119,081)  $       (433,017)
Fair value of vested incentive stock -      -          -         -         -         -    112,720  -   -    112,720 
Fair value of warrant granted as part of amended related party demand line of credit   -    -    -    -    -    -    -    -    1,753,037  -   -    1,753,037 
Net loss for the period   -    -    -    -    -    -    -    -    -  -   (5,058,302)   (5,058,302)
                                                        
Balance, September 30, 2023   -   $-    11,693   $11,693    2,499,998   $250    41,905,000   $4,191   $14,535,687  -  $(18,177,383)  $(3,625,562)

 

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

 

F-4

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT - continued

(unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   (Deficit) 
  

Preferred

Shares

Series A $0.0001 Par Value

  

Preferred Shares

Series B $1.00 Par Value

  

Preferred

Shares

Series C $0.0001 Par Value

  

Common Shares

$0.001 Par Value

   Additional Paid-In   Stock Subscriptions   Accumulated  

Total Stockholders’

Equity

 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Receivable   Deficit   (Deficit) 
                                                 
Balance, June 30, 2024      -   $     -    11,693   $11,693       -   $    -    71,994,990   $7,199   $30,295,318   $      -   $(43,504,774)  $(13,190,564)
                                                             
Fair value of vested incentive stock options   -    -    -    -    -    -    -    -    48,172    -    -    48,172 
                                                             
Change in par value of common stock   -    -    -    -    -    -    -    64,795    (64,795)   -    -    - 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    (5,269,382)   (5,269,382)
                                                             
Balance, September 30, 2024   -   $-    11,693   $11,693    -   $-    71,994,990   $71,994   $30,278,695   $-   $(48,774,156)  $(18,411,774)

 

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

 

F-5

 

 

VIP PLAY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

   2024   2023 
  

For the Three Months Ended

September 30,

 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(5,269,382)  $(5,058,302)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Amortization of debt issuance costs – related party   640,662    935,248 
Depreciation and amortization   472,223    432,427 
Incentive stock option expense   48,172    112,720 
Discount on related party note payable   -    323,345 
Loss (gain) on change in fair value of derivative   1,652,000    (329,235)
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   272,447    332,878 
Accounts payable and accrued expenses   (367,477)   443,631 
Accounts payable and accrued expenses - related party   312,793    (82,937)
Players balances   (51,958)   1,289,144 
Net cash used in operating activities   (2,290,520)   (1,601,081)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Cash paid for capitalized software   (111,604)   (111,000)
Net cash used in investing activities   (111,604)   (111,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from line of credit, related party   2,725,000    1,776,924 
Proceeds from convertible notes   -    850,000 
Repayments of note payable, current   (228,265)   (113,222)
Net cash provided by financing activities   2,496,735    2,513,702 
           
NET CHANGE IN CASH   94,611    801,621 
           
CASH AT BEGINNING OF PERIOD   449,763    355,396 
           
CASH AT END OF PERIOD  $544,374   $1,157,017 
           
DISCLOSURE OF CASH AND CASH RESERVERD FOR USERS:          
           
CASH   342,186    113,593 
           
CASH RESERVED FOR USERS   202,188    1,043,424 
           
CASH AT END OF PERIOD  $544,374   $1,157,017 
           
SUPPLEMENTAL INFORMATION:          
Interest paid  $56,120   $8,500 
           
NON-CASH FINANCING AND INVESTING ACTIVITIES:          
Payoff of related party note payable with related party line of credit  $-   $1,760,000 

 

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

 

F-6

 

 

VIP PLAY, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024 AND 2023

 

NOTE 1 – OVERVIEW AND ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Overview and Organization

 

VIP Play, Inc., formerly known as KeyStar Corp. (the “Company,” “we”, “us” and “our”) was incorporated on April 16, 2020, under the laws of the State of Nevada, as VIP Play, Inc. Up until August 5, 2024, the company had two wholly owned subsidiaries, one was formed on December 21, 2021, under the State of Nevada, as UG Acquisition Sub, Inc., the second KeyStar TN LLC was formed on December 9, 2022. On August 5, 2024, the board of directors approved the winding down and dissolution of its wholly owned subsidiary, UG Acquisition Sub, Inc. Prior to September 20, 2024, we were known as KeyStar Corp.

 

Currently the singular focus is on business-to-consumer (B2C) sports betting in one targeted jurisdiction, Tennessee. In May 2023, the Company received approval on its Tennessee Sports Gaming Operator license. The Company officially launched its Sports Betting operation in Tennessee in June 2023.

 

Basis of Presentation

 

The foregoing unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended June 30, 2024. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

 

F-7

 

 

Operating results for the three month period ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending June 30, 2025. The condensed consolidated balance sheet at June 30, 2024, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.

 

Principals of Consolidation

 

The consolidated financial statements represent the results of VIP Play, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation of these entities.

 

Segment Reporting

 

The Company operates as one reportable segment under Accounting Standards Codification “ASC” 280, Segment Reporting. The chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performance.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions reflected in the financial statements relate to and include, but are not limited to, the valuation of debt and equity instruments, the valuation and expensing of equity awards, accounting for contingencies and uncertainties, purchase price allocations, including fair value estimates of intangible assets, the estimated useful lives of fixed assets and intangible assets, internally developed software costs and accrued expenses.

 

F-8

 

 

Going Concern

 

The Company’s condensed consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has an accumulated deficit of $48,774,156 as of September 30, 2024. The Company had a net loss from operations of $5,269,382 and negative cash flows of $2,290,520 from operations for the three months ended September 30, 2024. These conditions raise substantial doubt about the entity’s ability to continue as a going concern for a period of one year from the issuance of these financial statements.

 

The Company is dependent upon, among other things, achieving a level of profitable operations and receiving additional cash infusions including securing additional lines of credit and raising additional capital through placement of preferred and/or common stock in order to implement its business plan. There can be no assurance that the Company will be successful in order to continue as a going concern. The Company is funding its initial operations by securing a related party line of credit, a related party note payable, a note payable, issuing preferred stock, and issuing common stock through private placements.

 

We cannot be certain that capital will be provided when it is required or in amounts sufficient to meet our operating requirements. Management believes the existing shareholders, the prospective new investors, and future sales will provide the additional cash needed to meet the Company’s obligations as they become due and will allow the development of its core business operations. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

Cash and Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Company (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of September 30, 2024, the Company’s cash balance exceeded the FDIC limits by approximately $92,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

Cash Reserved for Users

 

The Company maintains separate bank accounts to segregate users’ funds from operational funds. User funds are held by KeyStar TN, LLC, a Tennessee limited liability company and wholly owned subsidiary of the Company, which was organized for the purpose of protecting users’ funds in the event of creditor claims. As of September 30, 2024 and June 30, 2024, approximately $202,000 and $228,000 was reserved for users.

 

Equipment

 

Equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the asset’s estimated useful life. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts, and the net difference less any amount realized from the disposition is reflected in earnings. Estimated useful lives are as follows:

 

Equipment   3 to 5 years 

 

F-9

 

 

Intangible assets include developed technology, internally developed software and website development costs, gaming license, and trademarks.

 

Internally developed capitalized software and website development and the VIP Play, Inc. trade name is stated at cost, less accumulated amortization on the balance sheet. Amortization is calculated using the straight-line method over the asset’s estimated useful life. The capitalization policy for the company is to capitalize intangible assets greater than $5,000. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from the disposition is reflected in earnings. Developed technology is principally related to technological assets acquired through Asset Purchase Agreements which are recorded at relative fair value based on the purchase consideration, less accumulated amortization on the balance sheet. Amortization is calculated using the straight-line method over the asset’s estimated useful life. Expenditures for maintenance and repairs are expensed as incurred. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts, and the net difference less any amount realized from the disposition is reflected in earnings. Developed technology was placed in service on June 8, 2023. See Note 3.

 

Estimated useful lives are as follows:

 

Developed technology   5 years 
Capitalized software and website development   3 years 
Trade marks   3-5 years 

 

Developed Technology

 

Developed technology primarily relates to the design and development of sports betting software for online sportsbook.

 

Internally Developed Software

 

Software that is developed for internal use is accounted for pursuant to ASC 350-40, Intangibles, Goodwill and Other—Internal-Use Software. Qualifying costs incurred to develop internal-use software are capitalized when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completed and perform as intended. These capitalized costs include compensation for employees who develop internal-use software and external costs related to development of internal use software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Internally developed software is amortized using the straight-line method over an estimated useful life. All other expenditures, including those incurred in order to maintain an intangible asset’s current level of performance, are expensed as incurred. When intangible assets are retired or disposed of, the cost and accumulated amortization thereon are removed, and any resulting gain or losses are included in the consolidated statements of operations.

 

Gaming licenses

 

Certain costs, generally legal and professional fees, are required to attain jurisdictional gaming licenses in order to legally operate our core sports betting business. Gaming licenses, with indefinite useful lives, are tested at least on an annual basis as to the assets that have been impaired. Intangible assets determined to have an indefinite useful life are not amortized. Gaming licenses are assets that are determined to have an indefinite useful life are not amortized and are included in intangible assets in the balance sheet. Annual gaming license fees and legal and professional fees required to maintain the licenses are recorded as period costs in the statement of operations.

 

Trademarks

 

Trademarks are carried at cost and are mainly related to branding and promotion, with indefinite useful lives. The Company tests at least on an annual basis whether trademarks with indefinite useful lives are impaired. Intangible assets determined to have an indefinite useful life are not amortized and are included in intangible assets in the balance sheet.

 

The Company conducts its annual impairment tests at June 30 of each year or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.

 

F-10

 

 

Impairment of Long-Lived Assets

 

Intangible assets include the cost of developed technology, trademarks and trade names and gaming licenses. Intangible assets are amortized utilizing the straight-line method over their remaining economic useful lives. The Company reviews long-lived assets and intangible assets for potential impairment annually and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss is recorded equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to an asset, an impairment loss equal to the remaining carrying value of the asset is recorded. The Company did not record any impairment charges related to intangibles assets during the three months ended September 30, 2024 and 2023.

 

Lease Commitments

 

On October 1, 2023, the Company entered into a lease for office space in Miami, Florida. The lease expired on October 31, 2024, and was not renewed. The lease has a minimum monthly lease payment of $6,500.

 

On February 4, 2024, the Company entered into a lease for office space in Sarasota, Florida. The lease expires on February 1, 2025, and has a monthly lease payment of $1,600.

 

Total rental expense for the three months ended September 30, 2024 and 2023 was $26,220 and $21,652, respectively.

 

ASC Topic 842 provides for certain practical expedients when adopting the guidance. The Company elected to apply the short-term lease exception; therefore, the Company will not record an ROU asset or corresponding lease liability for leases with an initial term of twelve months or less that are not reasonably certain of being renewed and instead will recognize a single lease cost allocated over the lease term, generally on a straight-line basis.

 

Fair Value of Financial Instruments

 

The Company recognized the fair value of financial instruments in accordance with FASB ASC 820, Fair Value Measurements and Disclosures, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices for identical assets and liabilities in active markets;

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

 

Level 3 - Unobservable inputs that are supported by little to no market activity.

 

F-11

 

 

The Company’s derivative liabilities are carried at fair value and are classified as Level 3 liabilities.

 

The Company’s financial instruments consist principally of cash, prepaid expenses, accounts payable, accrued expenses, related party notes payable, related party line of credit, and notes payable approximate the fair value because of their short maturities.

 

The Company’s Derivative liabilities are determined based on “Level” 3 inputs, which are significant and unobservable and have the lowest priority. There were no transfers into our out of “Level 3” during the three months ended September 30, 2024, or 2023.

 

Description  Total fair
value at
September 30, 2024
   Quoted prices
in Active
markets (level 1)
   Significant other
observable inputs
(level 2)
   Significant
unobservable
inputs (level 3)
 
Derivative liability (1)  $12,925,000   $   -   $   -   $12,925,000 

 

Description  Total fair
value at
June 30, 2024
   Quoted prices
in Active
markets (level 1)
   Quoted prices
in Active
markets (level 2)
   Quoted prices
in Active
markets (level 3)
 
Derivative liability (1)  $11,273,000   $   -   $   -   $         11,273,000 

 

(1) The Company has estimated the fair value of these derivatives using the Monte-Carlo model.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could transfer a liability in an orderly transaction between willing and able maker participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for the identical assets and liabilities in active markets, where available. When these are not available other inputs used to model fair value such as prices of similar instruments, yield curves, volatilities., prepayment speeds, default rates credit spreads, rely first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair value as discussed above.

 

Derivative Liabilities

 

The Company accounts for derivative instruments in accordance with ASC 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of September 30, 2024, and June 30, 2024, the Company had a derivative liability of $12,925,000 and $11,273,000, respectively.

 

F-12

 

 

Players Balances

 

Players balances were comprised of players betting deposits and contestant prize winnings for promotional events.

 

As per the Tennessee Sports Wagering Council, the Company is required to maintain a reserve in the form of cash, cash equivalents and/or irrevocable letter of credit along with a required $500,000 Surety Bond (see Note 11) of not less than the players liability balance at any given day. As of September 30, 2024, the Company had sufficient coverage for these liabilities as per the requirements of the state of Tennessee.

 

Revenue Recognition

 

The Company records revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires more detailed disclosures to enable readers of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

 

The Company determines revenue recognition through the following steps:

 

  Identify the contract, or contracts, with the customer;
  Identify the performance obligations in the contract;
  Determine the transaction price;
  Allocate the transaction price to performance obligations in the contract; and
  Recognize revenue when, or as, the Company satisfies performance obligations by transferring the promised good or services.

 

The Company provides online sportsbook betting services with its technical infrastructure to its direct customers. Sportsbook or sports betting involves a user wagering money on an outcome or series of outcomes occurring. When a user’s wager wins, the Company pays the user a pre-determined amount known as fixed odds. Sportsbook revenue is generated by setting odds such that there is a built-in theoretical margin in each sports wagering opportunity offered to users. Sportsbook revenue is generated from users’ wagers net of payouts made on users’ winning wagers and incentives awarded to users. Each wager placed by a user creates a single performance obligation for the Company. The performance obligation is satisfied once the event wagered on has been completed. Any unsettled wagers are recorded as a players balance liability. Net gaming revenue is the aggregate of gaming wins and losses based on results of each event that customers wager bets on.

 

Cost of Revenue

 

Cost of revenue consists primarily of variable costs, principally recurring online platform costs directly associated with revenue-generating activities including payment processing and supporting technology costs, web hosting, regulatory compliance software and Sports Betting privilege taxes.

 

F-13

 

 

Stock -based Compensation

 

The Company records stock-based compensation in accordance with ASC 718 “Compensation- Stock Compensation”, using the fair value method. All transactions in which services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

The Company accounts for Stock-based compensation awards issued to non-employees for services as prescribed by ASC 718, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Updated (“ASU”) 2018-07.

 

The Company uses the Black Scholes pricing model to calculate the fair value of stock-based awards. This model is affected the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of expenses associated with advertising and costs related to free to play contests. Advertising costs are expensed as incurred and are included in sales and marketing expense in our condensed consolidated unaudited statements of operations. Advertising costs include those costs associated with communicating with potential customers and generally use some form of media, such as internet, radio, print, television, or billboards. Advertising costs also include costs associated with strategic league and team partnerships. During the three months ended September 30, 2024 and 2023, advertising costs calculated in accordance with U.S. GAAP were $116,362 and $1,216,067, respectively.

 

General and Administrative

 

General and administrative expenses consist of costs not related to sales and marketing, product and technology or revenue. General and administrative costs include professional services (including legal, regulatory, audit and accounting), rent and facilities maintenance, contingencies and insurance.

 

F-14

 

 

Income Taxes

 

The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s balance sheet in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income, and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the statements of operations.

 

ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.

 

Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

 

Based on the uncertainty of future pre-tax income, we fully reserved our net deferred tax assets as of September 30, 2024 and June 30, 2024. In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase income in the period such determination was made. The provision for income taxes represents the net change in deferred tax amounts, plus income taxes paid or payable for the current period.

 

We follow U.S. GAAP related accounting for uncertainty in income taxes, which provisions include a two-step approach to recognizing, de-recognizing and measuring uncertainty in income taxes. As a result, we did not recognize a liability for unrecognized tax benefits. As of September 30, 2024 and June 30, 2024, we had no unrecognized tax benefits.

 

Earnings (loss) per Share

 

Basic net (loss) earnings per common share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number vested of common shares, plus the net impact of common shares (computed using the treasury stock method), if dilutive, resulting from the exercise of dilutive securities. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2024 and June 30, 2024, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

 

   For the three
months ended
September 30, 2024
   For the year
ended
June 30, 2024
 
Stock Options   4,250,000    4,250,000 
Series B Preferred Shares   1,169,300    1,169,300 
Warrants   10,000,000    10,000,000 
Shares issuable upon conversion of convertible notes   2,125,000    2,125,000 
Shares issuable upon conversion of line of credit   27,657,613    26,551,338 
Total potentially dilutive shares   45,201,913    44,095,638 

 

Recent Accounting Pronouncements

 

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“ASC”). The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of ASC Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the ASC with the SEC’s regulations. The ASU has an unusual effective date and transition requirements since it is contingent on future SEC rule setting. If the SEC fails to enact required changes by June 30, 2027, this ASU is not effective for any entities. Early adoption is not permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): “Improvements to Reportable Segment Disclosures” (“ASU 2023-07”) to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. This update is effective beginning with the Company’s 2024 fiscal year annual reporting period, with early adoption permitted. This ASU had no impact on the Company as the Company reports on one segment.

 

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”) to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. This ASU applies to all entities subject to income taxes. This ASU will be effective for public companies for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

 

F-15

 

 

NOTE 2 - EQUIPMENT

 

The Company’s equipment consisted of the following as of:

 

 

   September 30, 2024   June 30, 2024 
Equipment  $4,980   $4,980 
Total   4,980    4,980 
Less: accumulated depreciation   3,242    2,827 
Equipment, net  $1,738   $2,153 

 

Depreciation expense of equipment during the three months ended September 30, 2024, and 2023 was $415 and $415, respectively.

 

NOTE 3 - LONG LIVED AND OTHER INTANGIBLE ASSETS

 

Long-lived and other intangible assets held, net of impairment are comprised of the following at: 

 

    September 30, 2024     June 30, 2024  
Developed technology   $ 8,083,564     $ 7,971,965  
Tradenames and trademarks     539,099       539,099  
Gaming licenses     135,837       135,837  
Total     8,758,500       8,646,901  
Less: accumulated amortization     (2,358,414 )     (1,886,606 )
Net carrying value   $ 6,400,086     $ 6,760,295  

 

Amortization expense of business intellectual property for three months ended September 30, 2024, and 2023, was $444,853 and $405,056, respectively. Amortization expense of tradenames for the three months ended September 30, 2024, and 2023, was $26,955 and $26,955, respectively. Amortization expense is included in the statement of operations.

 

As of September 30, 2024, intangible assets consisted of the following:

 

   Estimated Useful Life   Remaining Weighted Average Useful Life   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Finite lived intangible assets:                         
Developed technology   5 years    3.69 Years   $6,678,303   $1,751,196   $4,927,107 
Internally developed software   3 years    1.69 Years    1,391,761    456,854    934,907 
Trademarks and tradenames   5 years    3.69 Years    539,099    141,364    397,735 
Website   3 years    1.02 Years    13,500    9,000    4,500 
Total finite lived intangible assets            $8,622,663   $2,358,414   $6,264,249 
                          
Indefinite lived intangible assets:                         
Gaming license   Indefinite        $135,837   $-   $135,837 
Total indefinite lived intangible assets:            $135,837   $-   $135,837 
Total intangible assets:            $8,758,500   $2,358,414   $6,400,086 

 

The estimated future amortization of intangibles subject to amortization at September 30, 2024 was as follows:

For the Years Ended June 30,  Amount 
2025  $1,514,491 
2026   1,862,796 
2027   1,443,481 
2028   1,443,481 
Total  $6,264,249 

 

F-16

 

 

NOTE 4 - PLAYERS BALANCES

 

The players balances were comprised of players betting deposits and contestant prize winnings for promotional events. Players balances were $261,799 and $313,758 as of September 30, 2024 and June 30, 2024, respectively.

 

NOTE 5 - CONVERTIBLE DEBT

 

On August 23, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with an unrelated party in the principal amount of $200,000. On August 28, 2023, the Company entered into a Note Purchase Agreement and a Convertible Promissory Note with another unrelated party in the principal amount of $500,000. On September 1, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with a third unrelated party in the principal amount of $150,000. These Notes are part of a private convertible debt offering of up to $2,000,000 the Company is undertaking to raise additional reserve funds required to cover increases in wagers. The outstanding principal under the Notes, which will accrue interest at a rate equal to twelve percent (12%) per annum, is due and payable in a single balloon payment by us on the date that is one year following the date of issuance of each of the Notes. Accrued interest is to be paid monthly in cash beginning the first month after the issuance of each of the Notes. The Company has no right to prepay all or any portion of the outstanding principal under the Notes prior to the Maturity Date. The outstanding principal under the Notes and accrued and unpaid interest are convertible into shares of the Company’s common stock, par value $.001 per share, at a conversion price equal to 80% of the lowest price per share that we sell shares of our common stock during the period beginning with the date of issuance of each of the Notes until the Maturity Date, and if no shares are sold in such period, at a conversion price equal to $1.00 per share. The number of Conversion Shares issuable upon the conversion of the Notes is subject to adjustment from time to time upon the occurrence of certain events such as stock splits or combinations and stock or other distributions of assets to equity holders.

 

The conversion option was valued by the Company using the Monte-Carlo model.

 

The following are the significant assumptions used in the Monte-Carlo model. See Note 8.

 

    Expected
volatility
    Risk-free
interest rate
    Expected
dividend yield
   Expected life (in years)  
At September 1, 2023   68.2%   4.87 %   0 %    2.00  

 

In August 2024 all three of these Convertible Notes were extended for an additional year.

 

NOTE 6 – NOTES PAYABLE AND NOTES PAYABLE - RELATED PARTY

 

On December 30, 2020, the Company executed a promissory note with TopSight, a company owned by Zixiao Chen, our former Chief Financial Officer for cash proceeds of $30,000. The note bears interest at 10% per annum and is due in two business days after the demand for payment. On December 17, 2021, TopSight entered into a note purchase and assignment agreement with Eagle Investment Group, LLC, a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our Board of Directors to assign the note to Eagle Investment Group, LLC. Concurrently, we entered into an Allonge agreement with TopSight to change the noteholder from TopSight to Eagle Investment Group, LLC.

 

F-17

 

 

As of September 30, 2024, and June 30, 2024, the principal balance is $30,000 and $30,000 and accrued interest is $11,246 and $10,496, respectively. The interest expense for the three months ended September 30, 2024 and 2023 was $750 and $750, respectively.

 

On February 27, 2023, the Company entered into Stock Redemption and Purchase Agreement with John Linss, our former Chief Executive Officer and former member of the board of directors, and his wholly owned Corespeed, LLC for the purchase of Series C Convertible Preferred Stock owned by Linss’ Corespeed, LLC. The Company paid $300,000 at the closing and entered into a promissory note with Mr. Linss for the remaining $1,700,000 of the purchase price. The Note bears interest at a rate of 5% per annum, and requires the following payments: (i) no less than $850,000.00, in aggregate, of one or more payments is due by the 12-month anniversary of the Note; and (ii) a balloon payment for the balance of the Note is due by the earlier of the 24-month anniversary of the Note or five days after the Company’s common stock is listed for public trading on either the Nasdaq Stock Market, the New York Stock Exchange, or the NYSE American. On February 19, 2024, the Company entered into a first amendment to the $1,700,000 promissory note with John Linss. As per the amendment, $425,000 was paid on February 27, 2024 and equal monthly payments of principal and interest of $59,665 shall be paid to Mr. Linss monthly, beginning on April 1, 2024 for a period of twenty-four months. The amended maturity date of the note is the earliest of (a) April 1, 2026, (b) upon the occurrence of an uplisting, the fifth day after the occurrence of the uplisting, or (c) upon the occurrence of a change of control. All other terms of the original note remain the same. The Company has evaluated this amendment and has deemed it a debt modification in accordance with the ASC 470 guidance.

 

The outstanding principal balance at September 30, 2024, is $982,368, with $635,898 being classified as Note Payable- Current on the balance sheet, and accrued interest is $100,190. The interest expense for the three months ended September 30, 2024 and 2023 is $30,620 and $21,696 respectively.

 

On May 5, 2023, the Company entered into a Promissory Note with Excel Family Partners, LLLP, a company controlled by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our Board of Directors in the principal amount of $1,600,000. The Note matured on November 4, 2023, at which time the outstanding principal amount under the Note, along with a flat funding fee of $160,000 was payable in full at loan maturity. In connection with entering the Note, the Company issued a Common Stock Warrant to purchase 1,600,000 shares of our common stock at an exercise price of $0.25 per share (the “Warrant”). The Warrant may be exercised, in whole or in part, at any time through May 4, 2028, on either a cash or cashless basis.

 

F-18

 

 

The note payable and the warrants were issued in a single transaction and as such were allocated among the freestanding instruments identified. The warrants were valued by the Company using the Black-Scholes option pricing model with the allocated fair value of $485,017 recorded as a note discount to be amortized over the 6 month life of the note.

 

The following are the significant assumptions used in the Black-Scholes model:

 

    Expected
volatility
    Risk-free
interest rate
    Expected
dividend yield
   Expected life (in years)  
At May 5, 2023   111.60%   4.20 %   0 %    5  

 

On September 14, 2023, the principal balance of $1,600,000 and the flat funding fee of $160,000 was paid in full by the fourth amended line of credit with Excel Family Partners, LLLP (See Note 7).

 

On May 24, 2023, the Company entered into a short term note payable with a premium finance company to fund their technology services and cyber liability insurance. The total premiums, taxes and fees financed was $434,250 at an annual percentage rate of 8.88%. After a down payment of $72,994 was made upon execution of the Note, ten monthly payments remained in the amount of $37,744 each. The final monthly payment was paid on March 24, 2024.

 

On May 24, 2024, the Company renewed the short term note payable with the premium finance company to fund their technology services and cyber liability insurance. The total premiums, taxes and fees financed was $318,557 at an annual percentage rate of 9.60%. After a down payment of $47,784 was made upon execution of the Note, ten monthly payments remained in the amount of $28,382 each. The final monthly payment is due on March 24, 2025. The balance of this Note was $177,722 and $257,612 as of September 30, 2024 and June 30, 2024, respectively, and is included as part of Notes Payable – Current in the balance sheet.

 

The following represents the future aggregate maturities of the notes payable and notes payable-related party as of September 30, 2024, for each of the five (5) succeeding years and thereafter as follows:

 

Twelve months ending September 30,