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.
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.
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:
SCHEDULE
OF EQUIPMENT ESTIMATED USEFUL LIVES
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:
SCHEDULE
OF ESTIMATED LIVES OF INTANGIBLE ASSETS
| 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.
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.
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.
SCHEDULE
OF DERIVATIVE LIABILITIES
| 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 | |
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.
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.
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.
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.
SCHEDULE
OF EARNINGS (LOSS) PER SHARE 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.
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.
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.
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:
SCHEDULE
OF SIGNIFICANT ASSUMPTIONS 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:
SCHEDULE OF FUTURE MATURITIES IF
NOTES PAYABLE AND NOTES PAYABLE RELATED PARTY
| Twelve months ending September 30, | |