VIPZ 10-K
VIP Play, Inc. (VIPZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the fiscal year ended
For the transition period from _________ to ________
Commission
file number:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number:
KeyStar Corp.
(Former name or former address, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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.
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.
| ☐ Large accelerated filer | ☐ Accelerated filer |
| ☒
|
|
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The
aggregate market value of the voting and non-voting common stock held by non-affiliates as of December 30, 2021 cannot be computed due
to
As of September 23, 2024, the registrant had shares of common stock issued and outstanding.
TABLE OF CONTENTS
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Annual Report may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events, or performance, and underlying assumptions and other statements, which are not statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or other comparable terminology. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent management’s beliefs and assumptions only as of the date of this Annual Report. You should read this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
PART I
Item 1. Business
Overview
As used in this Annual Report and unless otherwise indicated, the terms the “Company,” “we”, “us” and “our” mean VIP Play, Inc., a Nevada corporation formed on April 16, 2020.
Prior to September 20, 2024, we were known as KeyStar Corp.
In the summer of 2022, our business consisted solely of providing online retail sales of masks and similar products and convention services (together, prior business). Through our e-commerce sales channel, we sold KN-95 facemasks, disposable facemasks, and disinfectant wipes through an online store in the United States of America (US). Through our convention sales channel, we offered convention services, which connected US buyers to Chinese manufacturers.
On June 15, 2022, we hired a new Chief Executive Officer and Chief Financial Officer along with certain key employees of ZenSports, Inc. to explore business opportunities related to software and mobile application development and services related to such technology.
On August 26, 2022, we entered into an Asset Purchase Agreement to purchase certain technological assets, as well as the brand ZenSports, from ZenSports, Inc. The assets were purchased to allow us to offer online sports betting, eSports, DeFi fintech and various entertainment services, on a direct-to-consumer (B2C) and business-to-business basis. We did not acquire the entity ZenSports Inc. On September 12, 2022, we entered into an Asset Purchase Agreement with Excel Members, LLC, a company controlled by Bruce Cassidy, the sole member of our Board of Directors (the “Board”), to acquire certain assets of a company acquired previously by Excel Members through an assignment for the benefit of creditors. Ultimate Gamer, LLC, which was formerly in the business of organizing and operating in-person and online video game competitions tournament, originally owned these assets. The purchased assets included the brand name Ultimate Gamer.
On September 15, 2022, we entered into an agreement to assign all of the assets in connection with or relating to our prior business owned or used by us (discontinued operations), and to delegate any and all liabilities owed by us, to TopSight Corporation, a company owned by Zixiao Chen, our former Chief Financial Officer.
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As a result of the foregoing transactions, we ceased all operations relating to our prior business and commenced operations relating to B2C offerings within online sports betting (current business or business). With our current business, augmented by net new development of products and services, we intend to pursue global business opportunities through a platform we’ve designed to be a flexible foundation for corporate growth.
Through our ZenSports brand we offer a modern, full-featured, native mobile, and global online sports betting platform incorporating; a sports book, peer-to-peer betting, eSports wagering, loyalty, and player retention.
In May 2023, we received approval on our Tennessee Sports Gaming Operator license, and we officially launched our sports betting operation in Tennessee in June 2023.
Our current business is a mobile app and online-based technology company with no demand for a physical storefront location. The website for our business is https://www.viplayinc.com. The information on our website is not made a part of this Quarterly Report. Our headquarters address is 1645 Pine Tree Ln, Suite 2, Sarasota, FL 34236. Our phone number is: (866) 783-9435.
Suppliers and Distribution
Our technology is internally developed by our dedicated global team of product managers, designers, and engineers. Each product feature is meticulously designed to enhance the overall user experience for our target markets and deployed using industry best practices. Our products are principally delivered through mobile and internet applications and, as such, we are not reliant on specific physical delivery.
Our Technology and Product Development
Through technology asset purchases and strategic personnel hires, we have assembled a comprehensive platform capability that enables B2C offerings within the online sports betting market. The strategic hires include highly capable product managers, software designers, developers, and engineers. Our team continues to enhance the platform through new development and integration with, and for, strategic partners.
Our current offerings are built on an integrated proprietary platform using modern, native-mobile, and internet technologies that provide flexibility in branding and deployment while addressing specific market requirements in an efficient manner.
We will continue to invest in our asset acquisitions from ZenSports ensuring that the needs of our target markets are addressed. Significant effort is made in avoiding technical debt as we enhance and augment our market-leading technical and product roadmaps. Fortunately, we do not have old legacy technology that restricts our speed to market and flexibility, reduces efficiency and increases cost, and forces workarounds and limited features. As a fundamentally digital business, our foundational focus revolves around the features and data that are desired by our end user, the sports betting players. Our integrated platform has been designed and built to be easily scalable, maintainable, and supportable. This creates the ability to offer outstanding customer responsiveness and reduce friction and inefficiency within operations.
While some components of our operational matrix include 3rd party providers, principally data providers, the vast majority of our capabilities are unique and have been developed internally. This proprietary nature of our technology provides a significant measure of control over data, analytics, and marketing capabilities deployed natively in our integrated platforms. It further lends itself to advanced machine learning and artificial intelligence across both our customer-facing functionality and our back-end infrastructure. Furthermore, it facilitates our ability to manage data from a holistic perspective and streamline our regulatory compliance across various jurisdictions. This powerful combination of features and data delivers significantly advanced automation and is incorporated for both enhanced user experience and the ability to reward referrals and behavior while driving significant customer retention. As a result, lifetime customer value can be tracked and grown organically within our solutions.
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Marketing
We are leveraging the considerable marketing experience of our team and have commenced a variety of Tennessee focused marketing activities, including paid media, sponsorships, contests, promotions, branding content marketing, cash rewards and other promotional and loyalty bonuses. For the short run we will focus our marketing efforts and budget to identify and streamline the effective marketing programs that are attracting new players in Tennessee. We are in the process of designing, budgeting, and funding a longer-term marketing plan.
Client and User Acquisition and Retention
We commenced marketing in Tennessee near our launch date of June 8, 2023, with a focus on cash rewards to separate ourselves from the competition, as such we currently do not have enough empirical data to determine the effectiveness of our marketing programs. The online sports betting market has cycled through an inherently inefficient and costly approach to user acquisition. Ever escalating costs of acquisition seem to have not translated to corresponding profitability in the United States (U.S.) market. We do, expect to avoid programs that have a questionable return on investment, unless they contribute significantly to growth and can be throttled to achieve planned results.
Advanced data and behavioral analytics have been used effectively by the team prior to acquisition and they will be important components of a broad-based strategy. In addition, our unique loyalty programs have proven in the past to not only result in high retention but also serve as a referral engine that grows our user base for a fraction of the cost. Traditional approaches to user acquisition such as database segmentation and marketing, affiliate marketing, advertising, social media and influencer marketing and other forms of free and paid content marketing all are or will all be deployed in a planned manner as well
E-commerce Website and Mobile Apps
We have developed and deployed a VIP Play, Inc. corporate website and a ZenSports sports betting website. A ZenSports sports betting mobile app is available for download from the Apple App Store. A ZenSports Android mobile app is available for download from the ZenSports website. We are currently working with Google to adhere to their modified approval process for downloading the Android app from the Google Play Store.
Distribution
Our distribution strategy is to focus solely on Tennessee in the short run, with plans to seek jurisdictional approval in multiple additional U.S. Jurisdictions. As of early 2023, 33 states and the District of Columbia had legalized sports betting, including 24 jurisdictions that allow online betting. We are in the process of identifying, budgeting, and securing funding for expansion into other jurisdictions.
Competition
Our users face a vast array of entertainment choices. Other forms of entertainment, such as television, movies, sporting events, and in-person casinos, are better established and may be perceived by our users to offer greater variety, affordability, interactivity, and enjoyment. We compete with these other forms of entertainment for the discretionary time and income of our users. Through our ZenSports sports betting app, we compete with much larger, better-funded, established organizations. We believe our fresh technology and know-how, and customer service focused operations provide significant differentiation.
Regulations
We are subject to various U.S. and foreign laws and regulations (online gaming laws) that affect our ability to operate our online sports betting and tournament betting product offerings. These product offerings are generally subject to extensive and evolving regulations that could change based on political and social norms and that could be interpreted in ways that could negatively impact our business.
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The online gaming industry (inclusive of our betting product offerings) is highly regulated, and we must maintain licenses and pay online gaming taxes or a percentage of gross bets (Handle) or gross gaming revenue where required by the jurisdictions in which we operate in order to continue our operations. Our business is subject to extensive regulation under the laws, rules and regulations of the jurisdictions in which we operate. These laws, rules, and regulations generally concern the responsibility, financial stability, integrity, and character of the owners, managers, and persons with material financial interests in the online gaming operations along with the integrity and security of the sports and tournament betting product offerings. Violations of laws or regulations in one jurisdiction could result in disciplinary action in that and other jurisdictions.
Gaming laws are generally based upon declarations of public policy designed to protect online gaming consumers and the viability and integrity of the online gaming industry. Gaming laws also may be designed to protect and maximize state and local tax revenues, as well as to enhance economic development and tourism. To accomplish these public policy goals, online gaming laws establish stringent procedures to ensure that participants in the online gaming industry meet certain standards of character and responsibility.
Licensing and Suitability Determinations
In order to operate in certain jurisdictions, we must obtain either a temporary or permanent license or determination of suitability from the responsible authorities. We seek to ensure that we obtain all necessary licenses to develop and put forth our offerings in the jurisdictions in which we operate and where our users are located.
Gaming laws in certain jurisdictions require us, and certain of our directors, officers and employees, and in some cases, certain of our stockholders, to obtain licenses from gaming authorities. Such licenses typically require a determination that the applicant qualifies or is suitable to hold the license. When determining whether to grant such a license to an applicant, gaming authorities generally consider: (i) the financial stability, integrity and responsibility of the applicant (including verification of the applicant’s sources of funding); (ii) the quality and security of the applicant’s online gaming platform, hardware and related software (including the platform’s ability to operate in compliance with local regulation, as applicable); (iii) the applicant’s history; (iv) the applicant’s ability to operate its online gaming business in a socially responsible manner; and (v) in certain circumstances, the effect on competition.
Gaming authorities may, subject to certain administrative procedural requirements: (i) deny an application, or limit, condition, revoke or suspend any license issued by them; (ii) impose fines, either on a mandatory basis or as a consensual settlement of regulatory action; (iii) demand that named individuals or stockholders be disassociated from an online gaming business; and (iv) in serious cases, liaise with local prosecutors to pursue legal action, which may result in civil or criminal penalties.
Events that may trigger revocation of such an online gaming license or another form of sanction vary by jurisdiction. However, typical events include, among others: (i) conviction in any jurisdiction of certain persons with an interest in, or key personnel of, the licensee of an offense that is punishable by imprisonment or may otherwise cast doubt on such person’s integrity; (ii) failure without reasonable cause to comply with any material term or condition of the online gaming license; (iii) declaration of, or otherwise engaging in, certain bankruptcy, insolvency, winding-up or discontinuance activities, or an order or application with respect to the same; (iv) obtaining the online gaming license by a materially false or misleading representation or in some other improper way; (v) violation of applicable anti-money laundering or terrorist financing laws or regulations; (vi) failure to meet commitments to users; (vii) failure to pay in a timely manner all online gaming or betting taxes or fees due; or (viii) determination by the gaming authority that there is another material and sufficient reason to revoke or impose another form of sanction upon the licensee.
We currently are only licensed in Tennessee and have no other active licenses. We are in the process of identifying and executing license applications in various states and jurisdictions within the U.S. In that regard we have hired a Chief Compliance Officer and engaged legal counsel with specific expertise in this area.
Data Protection and Privacy
Our acquired technological assets include certain data protections and privacy protections for our anticipated: handling, collection, storage, receiving, transmission, and other processes pertaining to certain personal information of expected future users and employees. We adhere to data and privacy protection regulations in our current marketing activities. We are currently fully compliant with all state sports betting data protection and privacy pursuant to our Tennessee gaming license.
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Any significant change to applicable laws, regulations, interpretations of laws or regulations, or market practices, regarding the use of personal data, or regarding the manner in which we seek to comply with applicable laws and regulations, could require us to make modifications to our products, services, policies, procedures, notices, and business practices, including potentially material changes. Such changes could potentially have an adverse impact on our business.
Compliance
We are fully compliant with the legal and regulatory requirements imposed on us in connection with our Tennessee gaming license, currently the only jurisdiction we operate our sports betting business.
Responsible and Safer Gaming
We view the safety and welfare of our future users as critical to our business and have made or will make appropriate investments in our processes and systems as we enter the marketplace. We have written responsible online gaming policies and are committed to industry-leading responsible online gaming practices as seek to provide our users with the resources and services they need to play responsibly. Additionally, all our employees take part in responsible gaming training with mandatory periodic refresher training, overseen by our compliance team.
Intellectual Property, Proprietary Rights, Patents, and Trademarks
Our business substantially relies on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of software code and trade secrets that we use to develop and properly run our mobile sports betting app and related services. We also purchase and use proprietary data acquired from other vendors.
While most of the intellectual property we use is created by us, we have obtained rights to use intellectual property of third parties, for both internal business operations and our market offerings, through licenses and service agreements with those third parties. Although we believe these licenses are sufficient for the operation of the company, these licenses typically limit our use of the third parties’ intellectual property to specific uses and for specific time periods.
We protect our intellectual property rights by relying on federal, state, and common law rights, including but not limited to registered trademarks and copyright law, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties. As we increase our B2B business, we will also engage in monitoring the activities of third parties with respect to potential infringing uses of our intellectual property. While some intellectual property is best protected through trade secret and copywrite law, we expect that we may from time to time actively seek patent protection covering inventions originating from us and, from time to time, review opportunities to acquire patents to the extent we believe such patents may be useful or relevant to our business.
In addition to these contractual arrangements, we also rely on a combination of trade secret, trademark, trade dress, and domain names to protect our product offerings and other intellectual property. We own the copyright to the software code to our content, as well as trademarks under which our product offerings and related services are marketed. We pursue the registration of our domain names, trademarks, and service marks in the U.S. and in locations outside the U.S. We have a significant number of registered trademarks for products and services, that have been or are being developed in the U.S., including our primary brand, “ZenSports”,
Employees
As of June 30, 2024, we had a total of 13 employees and 10 consultants.
Segments
We identify our reportable segments according to how the business activities are managed and evaluated, for which discrete financial information is available and is regularly reviewed by our Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance. Our chief operating decision maker is our sole Director, Bruce Cassidy.
The CODM reviews financial performance and allocates resources at a consolidated level on a regular basis. We have determined that during the fiscal year ended June 30, 2024, we had one reportable segment consisting of multiple product offerings.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report, including the consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
Our restatement of certain of our previously issued financial statements may impose unanticipated costs, affect investor confidence, and cause reputational harm.
During fiscal 2024, we corrected accounting errors related to the calculation and proper recording of a derivative instrument and an error relating to the accrual of liabilities.
Therefore, to correct these accounting errors, we recorded an adjustment to increase liabilities and net loss in the total amount of $4,484,395 at March 31, 2024.
In evaluating whether the previously issued Consolidated Financial Statements were materially misstated for the interim period ended March 31, 2024, the Company applied the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections, SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Assessing Materiality, and SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and concluded that the effect of the errors on prior period quarterly financial statements was material; and therefore as noted in SAB Topic 1.N. the Company has restated the March 31, 2024 consolidated financial statements in accordance with FASB ASC 250-10-45-23.
As a result, we have incurred, and may continue to incur, unanticipated costs in connection with or related to the Restatements, as well as any litigation or regulatory inquiries that may result and have resulted therefrom. In addition, the Restatements and any potential related media coverage may negatively affect our relationships with customers and may also negatively affect investor confidence in the accuracy of our financial disclosures and cause it reputational harm.
Because we have a limited operating history, you may not be able to accurately evaluate our operations.
We have a limited operating history upon which an evaluation of our business plan or performance and prospects can be made. The business and prospects of VIP Play, Inc. must be considered in the light of the potential problems, delays, uncertainties and complications encountered in connection with a newly established business and new industry. The risks include, but are not limited to, the possibility that we will not be able to raise sufficient capital to meet our ongoing operating needs and to fund our growth plans, develop functional and scalable products and services, or that although functional and scalable, our products and services will not be economical to market; that our competitors hold proprietary rights that preclude us from marketing such products; that our competitors market a superior or equivalent product; that we are not able to upgrade and enhance our technologies and products to accommodate new features and expanded service offerings; or the failure to receive necessary regulatory clearances for our products. To successfully introduce and market our products at a profit, we must establish brand name recognition and competitive advantages for our products. There are no assurances that we can successfully address these challenges. If unsuccessful with one or more of these issues, our business, financial condition and operating results could be materially and adversely affected.
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Our investors may lose their entire investment because our financial status creates a doubt whether we will continue as a going concern.
We have a limited operating history and have incurred recurring losses from operations. For the fiscal years ended June 30, 2024 and 2023, we incurred a net loss of $30,385,693 and $11,337,876, respectively. Our auditors, in their opinion dated September 23, 2024 have included a going concern paragraph. We do not have a history of generating revenues and only recently began to generate any revenues from our sports betting operations, further our projected revenues do not currently cover our expenses and we are dependent on outside capital to continue our operations. We may not be able to continue as a going concern without additional financing, and if such financing is not available to us or is not available to us on acceptable terms, we may be forced to cease operations.
We are dependent on outside financing for continuation of our operations.
Our business is in start-up mode building out our platform capability. We are currently licensed for gambling only in Tennessee and as such, we are currently generating di minimis revenues and in some instances losses from our sports betting App and are precluded from generating any revenues from our gambling technology outside of Tennessee. We generate no other revenues and we are completely dependent on the continued availability of financing in order to continue our business.
We are 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 our business plan. There can be no assurance that we will be successful in order to continue as a going concern. We are funding its initial operations by a related party demand line of credit, a related party demand 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 stockholders, prospective new investors, and future revenues will provide the additional cash needed to meet our obligations as they become due and will allow the expansion of the sports betting technology into additional jurisdictions. 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 us. Even if we are 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 case of equity financing.
Our failure to obtain future financing or to produce levels of revenue to meet our financial needs could result in our inability to continue as a going concern and, as a result, our investors could lose their entire investment.
Reductions in discretionary consumer spending could have an adverse effect on our business, financial condition, results of operations and prospects.
Our business is particularly sensitive to reductions from time to time in discretionary consumer spending. Demand for entertainment and leisure activities, including online gaming, can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond our control. Unfavorable changes in general economic conditions, including recessions, economic slowdowns, sustained high levels of unemployment, and rising prices or the perception by consumers of weak or weakening economic conditions, may reduce our prospective users’ disposable income or result in fewer individuals engaging in entertainment and leisure activities. As a result, we cannot ensure that demand for our offerings will materialize or remain constant. Adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases, could lead to a further reduction in discretionary spending on leisure activities, such as online gaming.
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Our projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations, both inside and outside of the U.S. As a result, our projected revenues, market share, expenses and profitability may differ materially from our expectations.
We operate in rapidly changing and competitive industries and our projections are subject to the risks and assumptions made by management with respect to our industries. Operating results are difficult to forecast because they generally depend on our assessment of the timing of adoption of future legislation and regulations by different states, which are uncertain. Furthermore, if we invest in the development of new products or distribution channels that do not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial “up front” costs of developing and marketing those products and distribution channels or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels.
Additionally, as described above under “Reductions in discretionary consumer spending could have an adverse effect on our business, financial condition, results of operations and prospects,” our business may be affected by reductions in consumer spending from time to time as a result of a number of factors which may be difficult to predict. This may result in decreased revenue levels, and we may be unable to adopt measures in a timely manner to compensate for any unexpected shortfall in income. This inability could cause our operating results in a given quarter to be higher or lower than expected. If actual results differ from our estimates, analysts may react negatively, and our stock price could be materially impacted.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disruption of our operations and the services we provide to users, damage to our reputation, and a loss of confidence in our products and services, which could adversely affect our business.
The secure maintenance and transmission of user information is a critical element of our operations. Our information technology and other systems that maintain and transmit user information, or those of service providers, business partners or employee information may be compromised by a malicious third- party penetration of our network security, or that of a third-party service provider or business partner or impacted by intentional or unintentional actions or inaction by our employees, or those of a third- party service provider or business partner. As a result, our users’ information may be lost, disclosed, accessed or taken without our users’ consent. We expect that we will be subject to attempts to gain unauthorized access to or through our information systems or those we develop for our customers, whether by our employees or third parties, including cyber-attacks by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs. We cannot provide assurance that they will not have a material impact in the future.
We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or such third parties otherwise maintain, including payment card systems, which may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods. We and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers.
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In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties. These risks may increase over time as the complexity and number of technical systems and applications we use also increases. Breaches of our security measures or those of our third-party service providers or cybersecurity incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of user information, including users’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and other potential liabilities. If any of these breaches of security should occur and be material, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. While we expect to obtain and maintain cybersecurity insurance coverage that we believe is adequate for our business, such coverage may not cover all potential costs and expenses associated with cybersecurity incidents that may occur in the future.
In addition, any party who is able to illicitly obtain a user’s password could access the user’s transaction data or personal information, resulting in the perception that our systems are insecure. Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition, results of operations and prospects. We devote significant resources to protect against security breaches or we may need to in the future to address problems caused by breaches, including notifying affected subscribers and responding to any resulting litigation, which in turn, diverts resources from the growth and expansion of our business.
We rely on other third-party service providers and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.
Our success depends in part on our relationships with other third-party service providers. For example, we rely on third parties for content delivery, load balancing and protection against distributed denial-of-service attacks. If those providers do not perform adequately, our users may experience issues or interruptions with their experiences. Furthermore, if any of our partners terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate provider, and may not be able to secure similar terms or replace such providers in an acceptable time frame. We also rely on other software and services supplied by third parties, such as communications and internal software, and our business may be adversely affected to the extent such software and services do not meet our expectations, contain errors or vulnerabilities, are compromised or experience outages. Any of these risks could increase our costs and adversely affect our business, financial condition and results of operations. Further, any negative publicity related to any of our third-party partners, including any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
We incorporate technology from third parties into our offerings. We cannot be certain that our licensors are not infringing the intellectual property rights of others or that the suppliers and licensors have sufficient rights to the technology in all jurisdictions in which we may operate. Some of our license agreements may be terminated by our licensors for convenience. If we are unable to obtain or maintain rights to any of this technology because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to obtain the technology or enter into new agreements on commercially reasonable terms, our ability to develop our offerings containing that technology could be severely limited and our business could be harmed.
Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our offerings, which could adversely affect our business, financial condition and results of operations.
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If Internet and other technology-based service providers experience service interruptions, our ability to conduct our business may be impaired and our business, financial condition and results of operations could be adversely affected.
A substantial portion of our network infrastructure is provided by third parties, including Internet service providers and other technology-based service providers. We require technology-based service providers to implement cyber-attack-resilient systems and processes. However, if Internet service providers experience service interruptions, including because of cyber-attacks, or due to an event causing an unusually high volume of Internet use (such as a pandemic or public health emergency), communications over the Internet may be interrupted and impair our ability to conduct our business. Internet service providers and other technology-based service providers may in the future roll out upgraded or new mobile or other telecommunications services, such as 5G or 6G services, which may not be successful and thus may impact the ability of our users to access our offerings in a timely fashion or at all. In addition, our ability to process e-commerce transactions depends on bank processing and credit card systems. To prepare for system problems, we continuously seek to strengthen and enhance our current facilities and the capabilities of our system infrastructure and support. Nevertheless, there can be no assurance that the Internet infrastructure or our own network systems will continue to be able to meet the demand placed on us by the continued growth of the Internet, the overall online gaming industry and our users. Any difficulties these providers face, including the potential of certain network traffic receiving priority over other traffic (i.e., lack of net neutrality), may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide. Any system failure as a result of reliance on third parties, such as network, software or hardware failure, including as a result of cyber-attacks, which causes a loss of our users’ property or personal information or a delay or interruption in our online services and products and e-commerce services, including our ability to handle existing or increased traffic, could result in a loss of anticipated revenue, interruptions to our offerings, cause us to incur significant legal, remediation and notification costs, degrade the customer experience and cause users to lose confidence in our offerings, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may invest in or acquire other businesses, and our business may suffer if we are unable to successfully integrate acquired businesses into our company or otherwise manage the growth associated with multiple acquisitions.
As part of our business strategy, we have made, and may continue to make, acquisitions as opportunities arise to add new or complementary businesses, products, brands or technologies. In some cases, the costs of such acquisitions may be substantial, including as a result of professional fees and due diligence efforts. There is no assurance that the time and resources expended on pursuing a particular acquisition will result in a completed transaction, or that any completed transaction will ultimately be successful. In addition, we may be unable to identify suitable acquisition or strategic investment opportunities or may be unable to obtain any required financing or regulatory approvals, and therefore may be unable to complete such acquisitions or strategic investments on favorable terms, if at all. We may decide to pursue acquisitions with which our investors may not agree, and we cannot assure investors that any acquisition or investment will be successful or otherwise provide a favorable return on investment. In addition, acquisitions and the integration thereof require significant time and resources and place significant demands on our management, as well as on our operational and financial infrastructure. In addition, if we fail to successfully close transactions or integrate new teams, or integrate the products and technologies associated with these acquisitions into our company, our business could be seriously harmed. Acquisitions may expose us to operational challenges and risks, including:
| ● | the ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies, and products into our business; | |
| ● | increased indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic, or cultural challenges in managing and integrating the expanded or combined operations; |
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| ● | entry into jurisdictions or acquisition of products or technologies with which we have limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions; | |
| ● | diversion of management’s attention and the over-extension of our operating infrastructure and our management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth; | |
| ● | the ability to fund our capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and | |
| ● | the ability to retain or hire qualified personnel required for expanded operations. |
Our acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Issuing shares of common stock to fund an acquisition would cause economic dilution to existing stockholders. If we develop a reputation for being a difficult acquirer or having an unfavorable work environment, or target companies view our common stock unfavorably, we may be unable to consummate key acquisition transactions essential to our corporate strategy and our business may be seriously harmed.
Our growth prospects depend on the legal status of online sports betting and online gaming in various jurisdictions, predominantly within the U.S., and legalization may not occur in as many states as we expect or may occur at a slower pace than we anticipate. Additionally, even if jurisdictions legalize online sports betting and online gaming, this may be accompanied by legislative or regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process of implementing regulations or securing the necessary licenses to operate in a particular jurisdiction may take longer than we anticipate, which could adversely affect our future results of operations and make it more difficult to meet our expectations for financial performance.
A number of states have legalized, or are currently considering legalizing, online sports betting and online gaming, and our business, financial condition, results of operations and prospects are significantly dependent upon legalization of online sports betting and online gaming. Our business plan is partially based upon the legalization of online sports betting and online gaming for a specific percentage of the population on a yearly basis and the legalization may not occur as we have anticipated. Additionally, if a large number of additional states or the federal government enact online sports betting and online gaming legislation and we are unable to obtain or are otherwise delayed in obtaining the necessary licenses to operate online sports betting or online gaming websites in U.S. jurisdictions where such games are legalized, our future growth in online sports betting and online gaming could be materially impaired.
As we enter into new jurisdictions, states or the federal government may legalize online sports betting and online gaming in a manner that is unfavorable to us. As a result, we may encounter legal, regulatory, and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new opportunity. For example, states may require us to have a relationship with a retail operator for online sports betting access, which tends to increase our costs of revenue. States that have established state-run monopolies may limit opportunities for private sector participants like us. States also impose substantial tax rates on online sports betting and online gaming revenue, in addition to the federal excise tax of 25 basis points on the amount of each wager. As most state product taxes apply to various measures of modified gross profit, tax rates, whether federal- or state-based, that are higher than we expect will make it more costly and less desirable for us to launch in a given jurisdiction, while tax increases in any of our existing jurisdictions may adversely impact our profitability.
Therefore, even in cases in which a jurisdiction purports to license and regulate online sports betting or online gaming, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees. Therefore, some “liberalized” regulatory regimes are considerably more commercially attractive than others.
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Failure to comply with regulatory requirements in a particular jurisdiction, or the failure to successfully obtain a license or permit applied for in a particular jurisdiction, could impact our ability to comply with licensing and regulatory requirements in other jurisdictions, or could cause the rejection of license applications or cancellation of existing licenses in other jurisdictions, or could cause financial institutions, online and mobile platforms, advertisers and distributors to stop providing services to us which we will need to rely upon to receive payments from, or distribute amounts to, our users, or otherwise to deliver and promote our services.
Compliance with the various regulations applicable to online sports betting and online gaming is costly and time-consuming. Regulatory authorities at the non-U.S., U.S. federal, state and local levels have broad powers with respect to the regulation and licensing of online sports betting and online gaming operations and may refuse to issue, revoke, suspend, condition or limit our online sports betting or online gaming licenses, impose substantial fines on us and take other actions, any one of which could have a material adverse effect on our business, financial condition, results of operations and prospects. These laws and regulations are dynamic and subject to potentially differing interpretations, and various legislative and regulatory bodies may expand current laws or regulations or enact new laws and regulations regarding these matters. We will strive to comply with all applicable laws and regulations relating to our business. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules. Non-compliance with any such law or regulations could expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business.
Any online sports betting or online gaming license could be denied, and if issued could be revoked, suspended, or conditioned at any time. The loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for such a license in another jurisdiction, and any of such losses, or potential for such loss, could cause us to cease offering some or all of our offerings in the impacted jurisdictions. We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, which could adversely affect our operations. Our delay or failure to obtain or maintain licenses in any jurisdiction may prevent us from distributing our offerings, increasing our customer base and/or generating revenues. We cannot assure you that we will be able to obtain and maintain the licenses and related approvals necessary to conduct our planned business operations. Any failure to obtain, maintain or renew licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects.
The success, including win or hold rates, of existing or future sports betting product offerings depends on a variety of factors and is not completely controlled by us.
The sports betting industry is characterized by an element of chance. Accordingly, we employ theoretical win rates to estimate what a certain type of sports bet, on average, will win or lose in the long run. Net win is impacted by variations in the hold percentage (the ratio of net win to total amount wagered), or actual outcome, on our sports bets we offer to our users. We use hold percentage as an indicator of a sports bet’s performance against its expected outcome. Although each sports bet generally performs within a defined statistical range of outcomes, actual outcomes may vary for any given period. In addition to the element of chance, win rates (hold percentages) may also (depending on the game involved) be affected by the spread of limits and factors that are beyond our control, such as a user’s experience and behavior, the financial resources of users, the volume of bets placed and the amount of time spent engaging with our product offering. As a result of the variability in these factors, the actual win rates on our sports bets may differ from the theoretical win rates we have estimated and could result in the winnings of our users exceeding those anticipated. The variability of win rates (hold rates) also has the potential to negatively impact our financial condition, results of operations, and cash flows.
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We rely on third-party providers to validate the identity and identify the location of our users, and if such providers fail to perform adequately or provide accurate information or we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
There is no guarantee that the third-party geolocation and identity verification systems that we rely on will perform adequately, or be effective. We rely on our geolocation and identity verification systems to ensure we are in compliance with certain applicable laws and regulations, and any service disruption to those systems would prohibit us from operating our product offerings, and would adversely affect our business. Additionally, incorrect or misleading geolocation and identity verification data with respect to current or potential users received from third-party service providers may result in us inadvertently allowing access to our product offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our product offerings, in each case based on inaccurate identity or geographic location determination. Our third-party geolocation services provider relies on its ability to obtain information necessary to determine geolocation from mobile devices, operating systems, and other sources. Changes, disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their inability to accurately determine the location of our users. Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations. If any of these risks materializes, we may be subject to disciplinary action, fines or lawsuits, and our business, financial condition and results of operations could be adversely affected.
Our business model depends upon the continued compatibility between our app and the major mobile operating systems and upon third-party platforms for the distribution of our product offerings. If the Apple App Store, or the Google Play Store once we’re approved, prevents users from downloading our app or augments the restrictions on advertising to our users, our ability to grow our revenue, profitability and prospects may be adversely affected.
The substantial majority of our users access our products primarily on mobile devices, and we believe that this will continue to be increasingly important to our long-term success. Our business model depends upon the continued compatibility between our app and the major mobile operating systems. Third parties with whom we do not have any formal relationships control the design of mobile devices and operating systems. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones. Network carriers may also impact the ability to download apps or access specified content on mobile devices.
In addition, we rely upon third-party platforms for distribution of our product offerings. Our sports betting product is primarily distributed through the Apple App Store and a traditional website. We are currently working with Google to adhere to their modified approval process for downloading the Android app from the Google Play Store. We believe we will be approved by Google in the near future. The Google Play Store and Apple App Store are global application distribution platforms and the main distribution channels for our apps. As such, the promotion, distribution and operation of our apps are subject to the respective distribution platforms’ standard terms and policies for application developers, which are broad and subject to frequent changes and interpretation. Furthermore, the distribution platforms may not enforce their standard terms and policies for application developers consistently and uniformly across all applications and with all publishers.
There is no guarantee that popular mobile devices will start or continue to support or feature our product offerings, or that mobile device users will continue to use our product offerings rather than competing product offerings. We are dependent on the interoperability of our technology with popular mobile operating systems, technologies, networks and standards that we do not control, such as the Android and iOS operating systems, and any changes, bugs, technical or regulatory issues in such systems, our relationships with mobile manufacturers and carriers, or in their terms of service or policies that degrade our product offerings’ functionality, reduce or eliminate our ability to distribute our product offerings, give preferential treatment to competitive product offerings, limit our ability to deliver high quality product offerings, or impose fees or other charges related to delivering our product offerings, could adversely affect our product offering usage and monetization on mobile devices.
Moreover, our sports betting product requires high-bandwidth data capabilities in order to place time-sensitive bets. If the growth of high-bandwidth capabilities, particularly for mobile devices, is slower than we expect, our user growth, retention, and engagement may be seriously harmed. Additionally, to deliver high-quality content over mobile cellular networks, our product offerings must work well with a range of mobile technologies, systems, networks, regulations, and standards that we do not control. In particular, any future changes to the iOS or Android operating systems may impact the accessibility, speed, functionality, and other performance aspects of our product offerings, which issues are likely to occur in the future from time to time. In addition, the adoption of any laws or regulations that adversely affect the growth, popularity, or use of the Internet, including laws governing Internet neutrality, could decrease the demand for our product offerings and increase our cost of doing business. Specifically, any laws that would allow mobile providers in the United States to impede access to content, or otherwise discriminate against content providers like us, such as providing for faster or better access to our competitors, over their data networks, could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Furthermore, we may not successfully cultivate relationships with key industry participants or develop product offerings that operate effectively with these technologies, systems, networks, regulations, or standards. If it becomes more difficult for our users to access and use our product offerings on their mobile devices, if our users choose not to access or use our product offerings on their mobile devices, or if our users choose to use mobile product offerings that do not offer access to our product offerings, our user growth, retention, and engagement could be seriously harmed.In addition, if any of the third-party platforms used for distribution of our product offerings were to limit or disable advertising on their platforms, either because of technological constraints or because the owners of these distribution platforms wished to impair our ability to serve ads on them, our ability to generate revenue could be harmed. Also, technologies have been, and may continue to be, developed by companies, such as Apple and Google, that, among other things, block or limit the display of our advertisements and some or all third-party cookies on mobile and desktop devices, limit cross-site and cross-device attribution, prevent measurement outside a narrowly-defined attribution window and prevent advertisement re-targeting and optimization. These developments could require us to make changes to how we collect information on, and track the actions of, our users and impact our marketing activities. While these changes have not had a material adverse impact on our business to date, they could materially impact the way we do business in the future, and if we or our advertising partners are unable to quickly and effectively adjust to new changes, there could be an adverse effect on our business, financial condition, results of operations or prospects.
Our growth prospects and market potential will depend on our ability to obtain licenses to operate in a number of jurisdictions, and if we fail to obtain and subsequently maintain such licenses, our business, financial condition, results of operations and prospects could be impaired.
Our ability to grow our business will depend on our ability to obtain and maintain licenses to offer our product in a large number of jurisdictions or in heavily populated jurisdictions. Regulated gaming license applications and audits frequently involve an in-depth suitability review of the applicant’s business and operations and associated individuals including certain officers, directors, key employees and significant stockholders. These applications and audits take substantial time to prepare, submit, and complete, often requiring the production of multiple years’ worth of business and personal financial records and disclosures which take considerable time to compile, followed by the regulator’s investigatory process which may take months to complete. If we fail to obtain and maintain licenses in large jurisdictions or in a greater number of mid-market jurisdictions, this may prevent us from expanding the footprint of our product offerings, increasing our user base and/or generating revenues. We cannot be certain that we will be able to obtain and maintain licenses and related approvals necessary to conduct our sports betting operations in a timely manner or at all. Any failure to obtain and maintain licenses, registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and prospects.
Palpable (obvious) errors in odds making may occasionally occur in the normal course of business, sometimes for large liabilities. While it is a worldwide standard business practice to void bets associated with palpable errors or to correct the odds, there is no guarantee regulators will approve voiding palpable errors in every case.
Our sports betting product offers a competitive set of bet offerings involving popular professional sports leagues within the United States, and limited offerings for most international sports leagues. Odds are set through a combination of algorithmic and manual odds making. Bet acceptance is always a manual process performed by the customer. In some cases, the odds offered on our sport betting product constitute an obvious error. Examples of such errors are inverted lines between teams, or odds that are significantly different from the true odds of the outcome in a way that all reasonable persons would agree is an error. It is generally commonplace worldwide for operators to void bets associated with such palpable errors, and, in most mature jurisdictions, these bets can be voided without regulatory approval at operator discretion. In the U.S., it is unclear long term if state-by-state regulators will consistently approve the voiding of bets or re-setting odds to correct odds on such bets. In some cases, we require regulatory approval to void palpable errors ahead of time. If regulators were to not allow voiding of bets associated with large obvious errors in odds making, we could be subject to covering significant liabilities.
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Negative events or negative media coverage relating to, or a declining popularity of, sports betting, online sports betting or the underlying sports or athletes in general, or other negative coverage may adversely impact our ability to retain or attract users, which could have an adverse impact on our business.
Public opinion can significantly influence our business. Unfavorable publicity regarding us, for example, our product changes, product quality, litigation, or regulatory activity, or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes) could seriously harm our reputation. In addition, a negative shift in the perception of sports betting by the public or by politicians, lobbyists or others could affect future legislation of sports betting, which could cause jurisdictions to abandon proposals to legalize sports betting, thereby limiting the number of jurisdictions in which we are permitted to operate. Furthermore, illegal betting activity by athletes could result in negative publicity for our industry and could harm our brand reputation. Negative public perception could also lead to new restrictions on, or the prohibition of, sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.
Given our business, we may be the subject of governmental investigations and inquiries with respect to the operation of our businesses and we could be subject to future governmental investigations and inquiries, legal proceedings, and enforcement actions. Any such investigation, inquiry, proceeding or action could adversely affect our business.
We may receive formal and informal inquiries from time to time, from government authorities and regulators, including tax authorities and gaming regulators, regarding compliance with laws and other matters, particularly as we grow and expand our operations. Violation of existing or future regulations, regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations. In addition, it is possible that future orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose us to unanticipated liability or penalties, or require us to change our business practices in a manner materially adverse to our business.
We may have difficulty accessing the service of banks, credit card issuers and payment processing services providers, which may make it difficult to sell our products and services.
Although financial institutions and payment processors are permitted to provide services to us and others in our industry, banks, credit card issuers and payment processing service providers may be hesitant to offer banking and payment processing services to online sports betting and online gaming businesses. Consequently, those businesses involved in our industry, including our own, may encounter difficulties in establishing and maintaining banking and payment processing relationships with a full scope of services and generating market rate interest. If we were unable to maintain our bank accounts or our users were unable to use their credit cards, bank accounts or e-wallets to make deposits and withdrawals from our offerings it would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges which could result in an inability to implement our business plan.
If we are unable to hire and retain key personnel, we may not be able to implement our business plan.
Due to the specified nature of our business, having certain key personnel is essential to the development and marketing of the products and services we plan to sell and thus to the entire business itself. Our officer and director, Bruce Cassidy, is instrumental in the viability of our business and our future success. Consequently, the loss of this individual may have a substantial effect on our future success or failure. We may have to recruit qualified personnel with competitive compensation packages, equity participation, and other benefits that may affect the working capital available for our operations. Management may have to seek to obtain outside independent professionals to assist them in assessing the merits and risks of any business proposals as well as assisting in the development and operation of many company projects. No assurance can be given that we will be able to obtain such needed assistance on terms acceptable to us. Our failure to attract additional qualified employees or to retain the services of key personnel could have a material adverse effect on our operating results and financial condition.
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Our commercial success depends significantly on our ability to develop and commercialize our products without infringing the intellectual property rights of third parties.
Our commercial success will depend, in part, on operating our business without infringing the trademarks or proprietary rights of third parties. Third parties that believe we are infringing on their rights could bring actions against us claiming damages and seeking to enjoin the development, marketing and distribution of our products. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If any of these actions are successful, we could be required to pay damages and/or to obtain a license to continue to develop or market our products, in which case we may be required to pay substantial royalties. However, any such license may not be available on terms acceptable to us or at all. Ultimately, we could be prevented from commercializing a product or forced to cease some aspect of our business operations as a result of patent infringement claims, which would harm our business.
Because the Chairman of the Board beneficially owns stock representing a majority of the total voting power of our outstanding stock, you may not have any influence in the corporate decisions of the company, including the election of directors.
As of September 23, 2024, our current Chairman of the Board, Bruce Cassidy, through his companies Eagle Investment Group, LLC, Excel Family Partners, LLLP and Excel Members, LLC, beneficially owns outstanding voting securities representing 72.01% of the total voting power of our outstanding common stock and preferred stock. Currently, there are 71,994,990 shares of common stock outstanding that entitle the holders to 1 vote per share for a total of 71,994,990 votes. We also have 11,693 shares of Series B preferred stock outstanding that have the right to 100 votes per share for a total of 1,169,300 votes. Thus, there are a total of 106,084,082 total votes available and Mr. Cassidy controls 76,390,674 votes for 72.01% of the voting power over the company.
As a result, Mr. Cassidy has a majority of the voting power in all matters submitted to our stockholders for approval including:
| ● | Election of members of the Board; | |
| ● | Removal of any of our directors; | |
| ● | Amendment of our Articles of Incorporation or bylaws; | |
| ● | Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us. |
As a result of his ownership and position, Mr. Cassidy is able to substantially influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, the future prospect of sales of significant amounts of shares held by Mr. Cassidy could affect the market price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value of your investment in our company may decrease. Mr. Cassidy’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
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If we fail to comply with the new rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or if material weaknesses or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. Based on our assessments and those criteria, management determined that our internal controls over financial reporting were not effective as of June 30, 2024, material weaknesses exist in the Company’s internal control over financial reporting and disclosures. This could cause investors to lose confidence in our Company and result in a decline in our stock price and consequently affect our financial condition. In addition, if we fail to enhance and improve the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.
As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; | |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis); | |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and | |
| ● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” until the earliest of: (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion; (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period; or (iv) June 30, 2026. Even if we no longer qualify for the exemptions for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.
Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
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Risks Related to Our Securities
Our common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including:
| ● | technological innovations or new products and services by us or our competitors; | |
| ● | government regulation of our products and services; | |
| ● | the establishment of partnerships with other technology companies; | |
| ● | intellectual property disputes; | |
| ● | additions or departures of key personnel; | |
| ● | sales of our common stock | |
| ● | our ability to integrate operations, technology, products and services; | |
| ● | our ability to execute our business plan; | |
| ● | operating results below expectations; | |
| ● | loss of any strategic relationship; | |
| ● | industry developments; | |
| ● | economic and other external factors; and | |
| ● | period-to-period fluctuations in our financial results. |
Because we are an emerging growth company with nominal revenues to date, you should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the future on our common stock. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends on our common stock will depend on earnings, financial condition and other business and economic factors at such time as the board of directors may consider relevant. If we do not pay cash dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
Our shares will be subject to the Penny Stock Reform Act, which will affect your ability to sell your shares in any secondary market, which may develop. If our shares are not listed on a nationally approved exchange or NASDAQ, we do not meet certain minimum financing requirements, or have a bid price of at least $5.00 per share, they will likely be defined as a “penny stock”. Broker-dealer practices, in connection with transactions in “penny stocks”, are regulated by the SEC. Rules associated with transactions in penny stocks include the following:
| ● | the delivery of standardized risk disclosure documents; | |
| ● | the provision of other information such as current bid/offer quotations, compensation to be provided broker-dealer and salesperson, monthly accounting for penny stocks held in the customers’ account; | |
| ● | written determination that the penny stock is a suitable investment for purchaser; | |
| ● | written agreement to the transaction from purchaser; and | |
| ● | a two-business day delay prior to execution of a trade |
These disclosure requirements and the wide fluctuations that “penny stocks” often experience in the market may make it difficult for you to sell your shares in any secondary market, which may develop.
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Rule 144 sales in the future may have a depressive effect on our stock price as an increase in supply of shares for sale, with no corresponding increase in demand will cause prices to fall.
All of the outstanding shares of common stock held by the present officers, directors, and affiliate stockholders are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officer or director who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of six months if the company is a current reporting company under the 1934 Act. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Item 1B. Unresolved Staff comments
None
Item 2. Properties
Currently, we do not own any real estate, but are on a month-to-month lease for limited office space in Miami, Florida and have a one-year lease for an office in Sarasota, Florida. We are headquartered at 1645 Pine Tree Ln, Suite 2, Sarasota, FL 34236. Our phone number is: (866) 783-9435.
We believe that our current leases are adequate for our current needs, but growth potential may require larger facilities due to anticipated addition of personnel. We do not have any policies regarding investments in real estate, securities or other forms of property.
Item 3. Legal Proceedings
We have no currently pending material legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of our common stock are listed for quotation on the OTC Markets Group’s Pink Open Market under the symbol “VIPZ.” Our shares, however, are not actively traded and there is currently no established public trading market for our shares of common stock. Any quotations that do occur reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders of Our Common Stock
As of September 23, we had 71,994,990 shares of our common stock issued and outstanding, held by approximately 65 stockholders of record.
Dividends
We currently intend to retain future earnings for the operation of our business. We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
In the event that a dividend is declared, common stockholders on the record date are entitled to share ratably in any dividends that may be declared from time to time on the common stock by the Board from funds legally available.
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
| 1. | We would not be able to pay our debts as they become due in the usual course of business; or |
| 2. | Our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. |
Recent Sales of Unregistered Securities
During our fiscal year ended June 30, 2024, all sales of equity securities that were not registered under the Securities Act were previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of our equity securities that are registered by us pursuant to Section 12 of the Exchange Act during our fourth quarter of our fiscal year ended June 30, 2024.
Item 6. Selected Financial Data
Not required under Regulation S-K for “smaller reporting companies.”
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled “Risk Factors.”
Results of Operations
Fiscal Year Ended June 30, 2024, Compared to Fiscal Year Ended June 30, 2023
Revenues and Costs of Revenues
Negative gaming revenues for the years ended June 30, 2024, and 2023 were $(1,098,374) and $(36,789), respectively. Costs of gaming revenues for the years ended June 30, 2024, and 2023 were $1,320,380 and $46,820, respectively. The increase in gross gaming loss and negative gross margin for the year ended June 30, 2024 compared to June 30, 2023 is as a result of increased sports betting during the current year as compared to the prior year when our operations commenced.
Operating Expenses
Salaries and wages of $4,358,140 were incurred during the year ended June 30, 2024, compared to $5,477,939 during the year ended June 30, 2023.
The $1,119,799 decrease is primarily due to large bonuses and severance payments made during 2023 to former employees as per their employment and termination agreements.
Included in the 2023 Salaries and wages are bonuses of $425,000 paid to Mr. Linss and $50,000 paid to Mr. Thomas, our former Chief Executive Officers, respectively, pursuant to their respective employment agreements, $269,000 to Mr. Linss for severance, excluding employer taxes, and non-cash compensation totaling $1,161,669 of which $894,000 was for 2,980,000 shares of Series C preferred stock granted to Mr. Linss per the terms of his employment agreement, $94,750 and $23,687 in vested incentive stock options for Mr. Thomas and Mr. Fidaleo, our former Chief Financial Officer, respectively, $1,030,593 paid to key employees upon successful acquisition of ZenSports, Inc., assets, and $149,231 in vested incentive stock options for all other employees and contractors were included in salaries and wages.
General and Administrative Expenses
General and administrative costs for the years ended June 30, 2024, and 2023 were $2,834,698 and $1,880,658, respectively.
The $954,040 increase was primarily due to gaming license fees of $723,475 during 2024 compared to $119,881 in during 2023, which is due to the May 24, 2023 start of our gaming license and operations. Legal fees increased by $933,454 during the year ended June 30, 2024 as compared to the year ended June 30, 2023 primarily due to increased legal fees related to the ZenSports acquisition arbitration which was settled during the year. Accounting fees increased $239,859 during the year ended June 30, 2024 as compared to the year ended June 30, 2023 due to the switch in independent registered accounting firms and the increase in fees related to catching up on filings with the SEC.
Depreciation and Amortization
Depreciation and amortization for the years ended June 30, 2024, and 2023 were $1,785,522 and $104,484, respectively.
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The increase is principally related to amortizable costs of acquired assets and capitalized internally developed software being placed in service upon commencement of Sports Betting operations on June 8, 2023.
Sales and Marketing
Sales and Marketing for the years ended June 30, 2024, and 2023 were $3,517,265 and $276,783, respectively.
The $3,240,482 increase is principally related to promotional bonuses awarded to players beginning upon commencement of Sports Betting operations on June 8, 2023.
Other Expenses
Total other expenses for the years ended June 30, 2024, and 2023 were $15,471,313 and $3,456,490, respectively.
The $12,014,824 increase is primarily due to the increase in the change in fair value of the derivative liability of $8,561,998 during the year ended June 30, 2024. The derivative is related to a conversion feature associated with the line of credit and convertible debt which is remeasured each reporting period.
In addition, interest expense – related party for the year ended June 30, 2024 increased by $2,400,191 compared to the year ended June 30, 2023. The increase was due to the increase in principal balance on the LOC during the year ended June 30, 2024.
Net Loss
Our net loss for the years ended June 30, 2024 and 2023 was $30,385,693 and $11,337,876, respectively.
The significant increase in the net loss is primarily related to the commencement of our sports betting operations which went live on June 8, 2023.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts payable and accrued expenditures, and capital expenditures, including the costs associated with internally developed software and attaining Gaming licenses.
As of June 30, 2024, and June 30, 2023, we had total current assets of $1,245,426, and $1,549,684, a working capital deficit of $20,782,894, and $13,335,862, respectively.
Net cash used in operating activities during the year ended June 30, 2024, was $11,301,366 compared to $6,795,123, for the year ended June 30, 2023.
The $4,506,243 increase in negative operating cash flow from operations during the year ended June 30, 2024, as compared to the year ended June 30, 2023, is principally the result of the $22,531,817 increase in net loss primarily related to an increase in net gaming loss of $2,335,146, a $1,141,779 increase in general and administrative costs, a $3,240,482 increase in Sales and Marketing costs and an increase in depreciation and amortization of $1,681,038. All increases are as a result of obtaining our gaming license in Tennessee in May 2023 and going live with our sports betting app in Tennessee in June 2023.
As a result of the commencement of our operations, our net cash flows provided by prepaid and other current assets increased by $1,883,717 during 2024 compared to 2023 primarily as a result of the payments of prepaid annual gaming license and obtaining and prepaying a portion of cyber and E&O insurance in the year ended June 30, 2023.
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Our cash flows from accounts payable and accrued expenses decreased by $489,371 during 2024 compared to 2023 primarily as a result of an increase in legal and other professional fees. The increase in legal and professional fees is associated with the ZenSports arbitration and more filings with the Securities and Exchange commission than in the prior year. The increase in accounts payable is also due to our general and securities council having provided us with generous informal extended payment terms to support our start-up and growth, we do not know if or for how long they will continue to provide extended payment terms.
Our cash flows from accrued expenses related-party increased by $672,550 during 2024 compared to 2023, primarily as a result of the increase in accrued interest associated with the increase in related party borrowings on the LOC.
Our players balances increased by $178,812 during 2024 compared to 2023, as result of our going live with sports betting during June 2023.
Net cash used in investing activities during the year ended June 30, 2024, was $476,956 compared to $1,704,014 for the year ended June 30, 2023.
The decrease is principally related to the $750,000 cash paid in the prior year to acquire certain assets of ZenSports, Inc., the $339,741 decrease in cash paid for capitalized software during the year ended June 30, 2024 as compared to the year ended June 30, 2023, and the investment of $135,837 in capitalized gaming license costs, primarily legal and professional fees associated with obtaining our gaming license from Tennessee during the prior year.
Net cash provided by financing activities during the year ended June 30, 2024, was $11,872,689 compared to $8,788,292 for the year ended June 30, 2023.
The $3,084,397 increase in net cash provided from financing activities during the year ended June 30, 2024, as compared to the year ended June 30, 2023, was principally the result of the receipt of $11,660,000 in proceeds from the related party demand line of credit as compared to $3,685,338 during the year ended June 30, 2023. The increase was partially offset by a decrease of $2,467,500 in proceeds from the issuance of common stock during 2024 compared to 2023 as well as a decrease in proceeds from related party notes payable in the amount of $1,600,000.
As of September 15, 2022, we ceased all operations relating to our prior business and continued executing our business plan for our current business which began on June 16, 2022. During the year ended June 30, 2023, we executed our original business plan through January 10, 2023, at which time we replaced our CEO and commenced executing our revised business plan to solely focus on obtaining a gaming license in Tennessee and commencing sports betting revenues. We obtained our gaming license in May 2023 and on June 8, 2023 commenced sports betting operations.
Since our Current business has a limited history of generating revenues or operating successfully, we will be 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 the placement of preferred and/or common stock in order to implement our business plan. Because of our limited operating history, it is difficult to predict our capital needs on a monthly, quarterly, or annual basis. We will have limited capital available to us if we are unable to raise money through private equity offerings or find alternate forms of financing.
On July 24, 2023, we issued a press release announcing the commencement of an offering of up to $10.0 million of the Company’s Common Stock, at a purchase price of $1.00 per share. To date we have not closed any of this financing and may not be able find a willing market. We continue to explore various avenues and forms of financing and to aggressively increase revenues. However, management has limited bandwidth, we are in a transitioning financial market, and there can be no assurance that we will be successful in raising sufficient capital timely.
We expect our revenues to increase over time but we lack sufficient history to accurately forecast the amount or time required to generate sufficient revenues to cover our current or future burn rate.
We expect to incur significant increases in operating costs. The expected significant increases in costs will include, but not be limited to, costs relating to License maintenance, technology development and maintenance, sales and marketing, labor for both existing and new personnel, and other operating cost increases due to the current inflationary market place we operate in. The expected increase in operating costs is a byproduct of transitioning from a development stage business to a revenue generating operating business.
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Going Concern
Our consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the U.S. 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. We had an accumulated deficit of $43,504,774 as of June 30, 2024. We had a net loss of $30,385,693 and negative cash flows of $11,301,366 from operations for the year ended June 30, 2024. These conditions raise substantial doubt about our ability to continue as a going concern.
As of September 15, 2022, we ceased all operations relating to our prior business and focused exclusively on our current business plan. During the year ended June 30, 2023, we executed our original business plan through January 10, 2023, at which time we replaced our CEO and commenced executing our revised business plan to solely focus on obtaining a gaming license in Tennessee and commencing sports betting revenues. We obtained our gaming license in May 2023 and went live with our sports betting app and commenced revenues in June 2023. Since our current business has a limited history of generating revenues or operating successfully, we will be 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 the placement of preferred and/or common stock in order to implement our business plan. Because of our limited operating history, it is difficult to predict our capital needs on a monthly, quarterly, or annual basis. We will have limited capital available to us if we are unable to raise money through private equity offerings or find alternate forms of financing. On July 24, 2023, issued a press release announcing the commencement of an offering of up to $10.0 million of the Company’s Common Stock, at a purchase price of $1.00 per share. To date we have not closed any of this financing and may not be able find a willing market. We continue to explore various avenues and forms of financings and to aggressively increase revenues. We will be 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 the placement of preferred and/or common stock in order to implement our business plan. There can be no assurance that we will be successful in order to continue as a going concern. We are funding our business operations by utilizing a related party demand line of credit, borrowing on short term related party demand notes 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 stockholders, the prospective new investors, and future sales will provide the additional cash needed to meet our obligations as they become due and will allow the development of our 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 us. Even if we are 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. If adequate working capital is not available, we may not continue our operations.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset-carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
As of June 30, 2024, there were no off-balance sheet arrangements.
Emerging Growth Company Status
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis); |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| ● | disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. |
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” until the earliest of: (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion; (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period; or (iv) June 30, 2026. Even if we no longer qualify for the exemptions for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by reference to the consolidated financial statements and supplementary data set forth in Item 15 - “Exhibits and Consolidated Financial Statement Schedules” of Part IV of this Annual Report.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in, disagreements or reportable events required to be disclosed under Item 304(b) of Regulation S-K.
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Item 9A. Controls and Procedures
Evaluation of Effectiveness of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer(s) and principal financial officer(s), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the fiscal year ended June 30, 2024.
Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP.
Our internal control over financial reporting includes those policies and procedures that:
| 1. | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; | |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at June 30, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).
Based on our assessments and those criteria, management determined that our internal controls over financial reporting were not effective as of June 30, 2024, and that material weaknesses exist in our internal control over financial reporting and disclosures.
Management identified material weaknesses in the financial statement closing process as well as errors over financial reporting which required us to restate our prior quarters financial statements. These errors related to material adjustments over the valuation of the conversion feature associated with the related party demand line of credit. This was primarily the result of our lack of documentation of internal control in place, limited accounting personnel and lack of segregation of duties. These material weaknesses resulted in the restatement of our balance sheet and statement of operations as of March 31, 2024.
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Remediation of Material Weaknesses in Internal Control Over Financial Reporting
Our management is committed to improving its internal controls. Due to the nature of these material weaknesses, it is reasonably possible that misstatements which could be material to the interim consolidated financial statements could occur that would not be prevented or detected during our financial close and reporting process.
We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this annual report, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we intend to develop a comprehensive plan and implement the changes. The plan will include: (i) appointing additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopting sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Auditor’s Report on Internal Control over Financial Reporting
This annual report does not include a standard internal control report by our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to current rules of the SEC that permit us, as a smaller reporting company and an emerging growth company, to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act, we continue to review, test, and improve the effectiveness of our internal controls over financial reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth fiscal quarter of our fiscal year ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names and ages of our current directors and executive officers as of the date of this Annual Report on Form 10-K, their positions with us and the date they were first appointed to such positions.
| Name | Age | Position | Date First Appointed | |||
| Bruce Cassidy | 74 | Chief Executive Officer, Secretary and Director | December 17, 2021(1) | |||
| Jacob Shrader | 25 | Chief Operations Officer | November 1, 2023 | |||
| James Mackey | 57 | Chief Financial Officer | March 1, 2024 |
| (1) | Mr. Cassidy was appointed our Chief Executive Officer as of January 4, 2024 and prior to that he was appointed our Interim Chief Executive Officer as of October 31, 2023. Mr. Cassidy was also appointed our Secretary as of December 17, 2021 and as a member and chairman of the Board as of June 28, 2022. |
Bruce Cassidy: Since 2019, Mr. Cassidy has served as a member of the board of directors of Loop Media, Inc. (OTC: LPTV), a Glendale, California-based multichannel digital platform media company that offers self-curated, premium videos to customers in OOH venues and D2C on their personal in-home and mobile devices. Since November 2020, he has served as chairman of the board of Assisted 4 Living Inc. (OTC: ASSF), a Bradenton, Florida-based entity that provides, among other services, daily medical care for medically fragile and chronically ill children. Bruce also currently serves as chairman of the board of Segmint, Inc. He serves as Chairman of the Sarasota Green Group, the Executive Chairman of each of CelebYou LLC and CelebYou Productions, and is on the board of directors of Selinsky Force LLC. He was also the founding investor and served on the board of directors of Ohio Legacy Corp. Previously, Mr. Cassidy was the founder and CEO of Excel Mining Systems from 1991 until its sale in 2007 to Orica Mining Services, and from 2008 to 2009, served as the President and CEO of one of its subsidiaries, Minora North & South Americas. Bruce currently serves as President of The Concession Golf Club in Sarasota, Florida.
Jacob Shrader: Mr. Shrader has spent the majority of his professional career as a member of ZenSports Inc. and the Company following the acquisition of ZenSports Inc. in June 2022. He originally joined ZenSports Inc. in 2020 as the General Manager of Esports, and has served multiple roles within the Marketing, Business Development, and Operational groups, most recently as the Chief Marketing Officer of the Company. Mr. Shrader graduated from Tufts University with a Bachelor’s Degree in Economics where he provided insight into the gaming space to both the private and public sector through his work in the financial industry as well as independent journalism channels.
James Mackey: With more than 30 years of experience in financial services, investment banking and public accounting, Mr. Mackey has a track record of senior leadership roles across a wide variety of businesses. Most recently, from July 2020 to December 2023, Mr. Mackey served as Executive Vice President and Chief Financial Officer of the Consumer Lending Division at Wells Fargo, with over $12 billion in revenue across multiple businesses including credit cards, mortgage, merchant services, auto lending and personal lending. Prior to Wells Fargo, Mr. Mackey served as Executive Vice President, Chief Financial Officer and member of the Operating Committee at Freddie Mac from November 2013 to June 2020. As CFO of Freddie Mac, a $2 trillion asset company providing liquidity and stability to the home mortgage market, Mr. Mackey was a key leader in driving financial, operational, and cultural change to prepare the company for a competitive commercial future. Mr. Mackey also served as Chief Financial Officer from 2010 to 2013 at Ally Financial, an all-digital bank which serves 11 million customers across a variety of banking, lending and brokerage services. Prior to that, he spent 11 years at Bank of America serving in many roles, including Managing Director in Structured Products and Divisional Chief Financial Officer. Mr. Mackey earned his Master’s Degree in Accounting and a Bachelor’s Degree in Business Administration from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.
Term of Office
Each of our directors is elected or appointed to hold office for a one-year term expiring at the next annual meeting of our stockholders or until his successor has been elected or appointed and qualified, or until his earlier death, resignation, or removal. There are no agreements with respect to the election of directors. Our executive officers are appointed by the Board and serve at the discretion of the Board or until they resign.
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Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors and executive officers has been involved in any legal or regulatory proceedings, as set forth in Item 401 of Regulation S-K, during the past ten years.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who are beneficial owners of more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC.
Based solely upon our review of Forms 3 and 4 and amendments thereto filed electronically with the SEC during our most recent fiscal year, and a review of Forms 5 and amendments thereto filed electronically with the SEC with respect to our most recent fiscal year, we believe that all of our directors, executive officers and any other applicable stockholders timely filed all reports required by Section 16(a) of the Exchange Act during the fiscal year ended June 30, 2024, except for the following: (i) Mark Thomas failed to file a Form 4 which was due on November 2, 2023, and failed to file a Form 5; (ii) James Mackey failed to file a Form 3 which was due on March 11, 2024, and failed to file a Form 5; (iii) Anthony J. Fidaleo failed to file a Form 4 which was due on September 19, 2023, and failed to file a Form 5; (iv) Bruce Cassidy and his affiliated entity, Excel Family Partners LLLP, failed to file Forms 4 covering transactions that each required Form 4 filings due on July 20, 2023, September 18, 2023 and December 29, 2023, and failed to file a Form 5; and (v) Jacob Shrader failed to file a Form 3 which was due on November 11, 2023, and failed to file a Form 5.
Code of Ethics
We intend to have our Board adopt a Code of Ethics that applies to all of our executive officers and employees, including our Chief Executive Officer and Chief Financial Officer prior to the end of our fiscal year ending June 30, 2025. We have not yet adopted a Code of Ethics because we are in the process of reshaping our Board to include additional members who would advise on such policy.
Board and Committee Meetings
During the fiscal year ended June 30, 2024, the Board consisted of only one member and therefore does not have any standing committees. All proceedings of the Board were conducted by resolutions consented to in writing by the sole director and filed with the minutes of the proceedings of the Board. Such resolutions consented to in writing by the sole director entitled to vote on that resolution at a meeting of the Board are, according to the Nevada Business Corporation Act and our Bylaws, as valid and effective as if they had been passed at a meeting of the Board duly called and held.
Nomination Process
As of June 30, 2024, we did not affect any material changes to the procedures by which our stockholders may recommend nominees to the Board. The Board does not have a policy with regards to the consideration of any director candidates recommended by our stockholders. The Board has determined that it is in the best position to evaluate our requirements as well as the qualifications of each candidate when it considers a nominee for a position on the Board. If stockholders wish to recommend candidates directly to the Board, they may do so by sending communications to our Chief Executive Officer at the address on the cover of this annual report.
Audit Committee
Currently our audit committee consists of the entire Board. We do not have a separately-designated standing audit committee as we currently have limited working capital and minimal revenues. Should we be able to raise sufficient funding to execute our business plan, we intend to form an audit committee and other applicable committees utilizing our directors’ expertise.
From inception to present date, we believe that the members of the Board have been and are capable of analyzing and evaluating our consolidated financial statements and understanding internal controls and procedures for financial reporting.
Audit Committee Financial Expert
We do not currently have an audit committee financial expert because we do not have an audit committee. We also do not have a director who is qualified to act as financial expert of an audit committee.
Insider Trading Policy
We
intend to adopt an insider trading policy to promote compliance with federal and state securities laws that prohibit certain persons
who are aware of material nonpublic information about a company from: (i) trading in securities of that company; or (ii) providing material
nonpublic information to other persons who may trade on the basis of that information. We have
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Item 11. Executive Compensation.
The following table sets forth all compensation awarded to, earned by, or paid to the following “named executive officers,” which is defined as follows:
| (a) | all individuals serving as our principal executive officer (PEO) or acting in a similar capacity during our fiscal year ended June 30, 2024; and | |
| (b) | our two most highly compensated executive officers other than the PEO who were serving as executive officers at the end of our fiscal year ended June 30, 2024; and |
Summary Compensation Table
| Name | Title | Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||
| Bruce Cassidy | Chief Executive Officer, Principal Executive Officer and Secretary (1) | 2024 | - | - | - | - | - | |||||||||||||||||
| Mark Thomas | Chief Executive Officer, Principal Executive Officer and President (2) | 2024 | 126,667 | - | 31,583 | - | 158,250 | |||||||||||||||||
| 2023 | 321,725 | 50,000 | 94,750 | 513,140 | 979,615 | |||||||||||||||||||
| Jacob Shrader | Chief Operations Officer (3) | 2024 | 142,100 | 20,000 | 14,213 | - | 176,313 | |||||||||||||||||
| James Mackey | Chief Financial Officer, Treasurer, Principal Financial Officer and Principal Accounting Officer (4) | 2024 | 91,667 | - | - | - | 91,667 | |||||||||||||||||
| (1) | Mr. Cassidy was appointed our Interim Chief Executive Officer as of October 31, 2023 and was appointed our Chief Executive Officer and Principal Executive Officer as of January 4, 2024. Mr. Cassidy was appointed our Secretary as of December 17, 2021, and as a member and chairman of the Board as of June 28, 2022. |
| (2) | Mr. Thomas was appointed our Chief Executive Officer, Principal Executive Officer, President, and Chief Technology Officer on January 10, 2023. Prior to accepting the new positions, Mr. Thomas was our Chief Product Officer beginning June 15, 2022. Mr. Thomas resigned from all officer positions as of October 31, 2023. |
| (3) | Mr. Shrader was appointed our Chief Operations Officer as of November 1, 2023. |
| (4) | Mr. Mackey was appointed our Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Treasurer as of March 1, 2024. |
Narrative to Compensation Table
Bruce Cassidy does not receive any compensation in connection with serving as our Chief Executive Officer, Principal Executive Officer, Secretary and Chairman of the Board.
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Mark Thomas was the founder and former Chief Executive Officer of ZenSports, Inc. We acquired certain technical assets of ZenSports Inc. on August 26, 2022. As part of the cash portion of the purchase price, Mr. Thomas was paid $50,000 as a bonus on behalf of ZenSports Inc., which is included in All Other Compensation for fiscal year 2023. Pursuant Mr. Thomas’ offer letter dated January 10, 2023, he received an annual salary of $380,000 and 1,000,000 options to purchase our common stock. The options were granted on April 10, 2023, and consisted of 800,000 incentive stock options and 200,000 non-qualified stock options, together the “options”. The options vested as to 25% of the shares on June 16, 2023 with a fair market value of $94,750. Thereafter, the options further vested as to 1/48th of the shares subject to the option on the 16th day of each month, beginning on July 16, 2023, for a period of 36 months; provided he provided continuous service to us through each such vesting date. Mr. Thomas resigned as of October 31, 2024. As of that date, an additional 83,333 options had vested with a fair market value of $31,583. On February 6, 2023, pursuant to a supplemental to the offer letter, Mr. Thomas received additional incentives, including:
| ● | In the event we received a sports betting license (or equivalent) in the State of Tennessee, within 30 days after the issue date, Mr. Thomas was entitled to a cash bonus of $50,000. Mr. Thomas was paid the $50,000 bonus on May 24, 2023. | |
| ● | In the event our net loss for our 2022-2023 fiscal year, as determined by our Chief Financial Officer, is less than $6,197,719 (the “Benchmark”), Mr. Thomas was entitled to a cash bonus in an amount equal to 8% of the difference of the actual net loss minus the Benchmark. Mr. Thomas was not paid a cash bonus since the net loss for our fiscal year 2022-2023 was not less than the Benchmark. |
Jacob Shrader receives an annual salary of $210,000. On April 10, 2023, Mr. Shrader was granted 150,000 incentive stock options. The options vested as to 25% of the shares on June 16, 2023 with a fair market value of $14,213. Thereafter, the options further vested as to 1/48th of the shares subject to the option on the 16th day of each month, beginning on July 16, 2023, for a period of 36 months; provided he provided continuous service to us through each such vesting date. During fiscal year 2024, 37,500 additional options vested with a fair market value of $14,213.
James Mackey receives an annual salary of $275,000 pursuant to the terms of an offer letter he entered into with us on February 29, 2024. The $91,667 of salary in year 2024 represents four month’s of salary.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information regarding all outstanding equity awards held by our named executive officers as of June 30, 2024.
OPTION AWARDS
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||||
| Bruce Cassidy | - | - | - | - | ||||||||||||
| Mark Thomas (1) | - | - | - | - | ||||||||||||
| Jacob Shrader | 75,000 | 75,000 | 0.50 | 04/10/2033 | ||||||||||||
| James Mackey | - | - | - | - | ||||||||||||
| (1) | While Mr. Thomas was a named executive officer during our fiscal year ended June 30, 2024, he resigned from all officer positions as of October 31, 2023. |
Director Compensation
We have not compensated our directors for service on the Board or reimbursed for expenses incurred for attendance at meetings of the Board for the fiscal year ended June 30, 2024. We do not have any agreements for compensating our directors for their services in their capacity as directors. The Board may, however, in the future determine to pay directors’ fees and reimburse directors for expenses related to their activities as such.
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Equity Compensation Plan Information
On December 28, 2021, our Board approved the 2021 stock option plan (“2021 Plan”). The 2021 Plan was subject to the approval of our stockholders within 12 months of the Board’s approval. We did not seek approval of the 2021 Plan from our stockholders on or before December 28, 2022, and no awards of any type were granted under the 2021 Plan.
On April 10, 2023, the Board terminated the 2021 Plan and approved a new stock option plan for our director’s officers, employees, advisors, and contractors containing the same terms and conditions as the 2021 Plan (the “2023 Plan”). The 2023 Plan was approved by our stockholders on March 15, 2024. In connection with the approval of the 2023 Plan, the Board granted Incentive Stock Options (“ISOs”) and Non statutory Stock Options (“NSOs”) under the 2023 Plan to employees and advisors of the Company to purchase a total of 3,250,000 shares of our common stock at an exercise price of $0.50 per share (the “Awards”).
The 2023 Plan provides eligible participants with benefits consisting of one or more of the following: ISOs, NSOs, and bonuses in the form of our common stock (“Stock Bonuses”). The Board or a committee of directors will administer the 2023 Plan and determine what employees or officers will receive an award under the 2023 Plan. ISOs, which are intended to be compliant with Section 422 of the Internal Revenue Code, may be awarded only to our employees. NSOs and Stock Bonuses are not subject to Section 422 of the Internal Revenue Code and can be awarded to employees and non-employees.
As with the 2021 Plan, the aggregate number of shares of our authorized but unissued common stock that can be awarded under the 2023 Plan is 5,960,000, whether in the form ISOs, NSOs, or Stock Bonuses (or a combination thereof). Awards can be issued under the 2023 Plan for ten years from the date the Board approved the 2023 Plan. ISOs may be exercised during a period no longer than ten years from the date of the award (five years for individuals who own more than 10% of the combined voting power of the Company). NSOs may be exercised for a maximum period of ten years from the date of the award. ISOs and NSOs may not be exercised after the earlier of the following: (a) in the event of termination for cause (as defined by the plan): the date of termination; (b) in the event of termination due to death or disability: the earlier of the ISO or NSO’s expiration or one year after the termination due to death or disability; (c) in the event of termination for any other reason: three months following the date of termination.
The following table summarizes the number of shares of our common stock authorized for issuance under our equity compensation plans (including individual compensation arrangements) as of June 30, 2024.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c) | |||||||||
| Equity compensation plans approved by security holders | 3,250,000 | $ | 0.50 | 2,710,000 | ||||||||
| Equity compensation plans not approved by security holders | 0 | $ | 0 | 0 | ||||||||
| Total | 3,250,000 | $ | 0.50 | 2,710,000 |
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of September 23, 2024, certain information with respect to the beneficial ownership of shares of our common stock by: (i) each of our directors (including director nominees); (ii) each of our named executive officers; (iii) our directors and executive officers as a group; and (iv) each stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock. To our knowledge, none of the shares reported below are pledged as security.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option, or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. As of September 23, 2024, we had 71,994,990 shares of common stock and 11,693 shares of Series B preferred issued and outstanding.
| Common Stock | Series B Preferred Stock (2) | |||||||||||||||
| Name of Beneficial Owner (1) | Number of Shares Owned | Percent of Class | Number of Shares Owned | Percent of Class | ||||||||||||
| Bruce Cassidy (3) | 81,285,039 | 75.39 | % | 11,693 | 100 | % | ||||||||||
| Mark Thomas (4) | - | - | - | - | ||||||||||||
| Jacob Shrader (5) | 87,500 | * | - | - | ||||||||||||
| James Mackey | - | - | - | - | ||||||||||||
| All Directors and Officers as a Group (4 persons) | 81,372,539 | 75.41 | % | 11,693 | 100 | % | ||||||||||
| 5% Holders | ||||||||||||||||
| ZS Liquidating, Inc. (6) | 5,500,000 | 7.64 | % | - | - | |||||||||||
| * | Indicates beneficial ownership of less than 1% of the outstanding shares of our common stock. |
| (1) | Unless otherwise indicated, the address of each of the individuals and entity listed below is c/o VIP Play, Inc. 1645 Pine Tree Lane, Sarasota, FL 34326. |
| (2) | Holders of Series B preferred stock vote with the common stockholders on an as-converted basis, with each share of Series B preferred stock converting into 100 shares of common stock, on all matters submitted to a vote by holders of our common stock; but, with respect to the election of directors, however, the majority of the holders of Series B preferred stock shall have the power to elect a majority of the then-seated or to-be-seated members of our Board and the common stockholders are entitled only to elect a minority of the then-seated or to-be-seated members of our Board. |
| (3) | Consists of: (i) 19,028,000 shares of common stock held of record by Eagle Investment Group, LLC, of which Mr. Cassidy is the manager; (ii) 1,169,300 shares of common stock underlying 11,693 immediately convertible shares of Series B Preferred Stock held of record by Eagle Investment Group, LLC; (iii) 24,933,374 shares of common stock held of record by Excel Family Partners, LLLP, of which Mr. Cassidy is the indirect general partner as sole manager of a limited liability company that is the general partner of Excel Family Partners; (iv) 8,460,000 shares of common stock underlying immediately exercisable warrants held of record by Excel Family Partners, LLLP; (v) 11,753,164 shares of common stock underlying the immediately convertible Sixth Amended and Restated Discretionary Convertible Revolving Line of Credit Demand Note held of record by Excel Family Partners, LLLP; (vi) 1,500,000 shares of common stock held of record by Excel Members, LLC, of which Mr. Cassidy is the co-manager with two other people and may be deemed to share voting and investment power with respect to these shares; and (vii) 14,441,201 shares of common stock underlying the immediately convertible Discretionary Convertible Revolving Line of Credit Demand Note held of record by Excel Family Partners, LLLP. |
| (4) | While Mr. Thomas was a named executive officer during our fiscal year ended June 30, 2023, he resigned from all officer positions as of October 31, 2023. |
| (5) | Consists of 87,500 shares of common stock underlying immediately exercisable options held of record by Mr. Shrader. The options are exercisable any time before April 10, 2033. |
| (6) | On or about September 9, 2024, ZenSports, Inc., a Delaware corporation, changed its name to ZS Liquidating, Inc. |
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
| (a) | Transactions with Related Persons |
Except as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since July 1, 2022, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.
On July 11 and 12, 2022, we entered into Securities Purchase Agreements with: (1) Excel for the purchase of 1,000,000 shares of our Series C Convertible Preferred Stock (“Series C Preferred”) at a price of $0.30 per share for an aggregate purchase price of $300,000; and (2) Corespeed, LLC, an entity wholly-owned by John Linss, at that time our Chief Executive Officer and a member of the Board, for the purchase of 333,333 shares of Series C Preferred at a price of $0.30 per share for an aggregate purchase price of $99,999.90.
On August 16, 2022, we amended and restated a non-revolving line of credit demand note for $250,000 (the “Excel Note”) we executed with Excel Family Partners, LLLP (“Excel”), a company controlled by Bruce Cassidy, on February 22, 2022. The Excel Note accrued interest at 5% per annum and was due and payable upon demand. The Excel Note did not constitute a committed line of credit. Loans under the Excel Note were made by Excel in its sole and absolute discretion. Upon repayment of any amount of principal or interest under the Excel Note, we were not able to reborrow thereunder. The amendment and restatement of the Excel Note increased the principal amount to not more than $2,000,000, and all other terms and conditions remained the same.
On September 12, 2022, we entered into an Asset Purchase Agreement with Excel Members, LLC to acquire certain assets of Excel Members. Bruce Cassidy was the beneficial owner of a 53.7% membership interest in Excel Members and one of its three managers. Prior to entering into the transaction, Excel Members acquired certain assets of Ultimate Gamer, LLC (the “UG Assets”). We purchased a portion of the UG Assets, consisting primarily of intellectual property, including trademarks, domain name registrations and database(s) of users and gamers. We did not assume any liabilities or obligations of Excel Members or Ultimate Gamer of any kind, whether known or unknown, contingent, matured or otherwise. Pursuant to the terms and conditions of the Asset Purchase Agreement, the aggregate purchase price paid to Excel Members consisted of 1,500,000 shares of our common stock, valued at $1.00 per share.
On February 24, 2023, the Excel Note was amended and restated a second time whereby: (1) the principal amount was increased to not more than $4,000,000; (2) the interest rate was increased to 15% per annum; (3) Excel may, at its sole option, convert all or any portion of the debt into fully paid and non-assessable shares of our common stock.at a conversion price in an amount equal to the product of the lowest recent price multiplied by 80% where the lowest recent price is defined, as of each applicable conversion rate, the lowest price per share that we have sold one or more shares to an investor or lender within the 24-month period prior to the applicable conversion date; provided, however, that if no shares were sold within such 24-month period, the lowest recent price will be $0.50 per share (the “Conversion Price”); (4) Excel was issued a common stock warrant exercisable on a cash or cashless basis for up to 4,000,000 shares of our common stock at an exercise price of $0.25 per share, with an expiration date of February 1, 2028; and (5) the outstanding indebtedness remained due and payable upon demand.
On February 27, 2023, we entered into Stock Redemption and Purchase Agreement with Mr. John Linss and his wholly-owned entity, Corespeed, LLC, for the purchase of Series C Convertible Preferred Stock owned by Corespeed, LLC. We paid $300,000 at the closing and entered into a promissory note 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 our common stock is listed for public trading on either the Nasdaq Stock Market, the New York Stock Exchange, or the NYSE American (an “Uplisting”). On February 23, 2024, the Company and Mr. Linss entered into a First Amendment to Promissory Note dated February 19, 2024 which amended the repayment terms of the note. Pursuant to the note amendment, the note will be repaid as follows: (i) $425,000.00 of the indebtedness was paid on February 27, 2024; (ii) commencing on April 1, 2024, and continuing on the first day of each calendar month thereafter, equal monthly payments of principal and interest (based on a two (2) year amortization) in the amount of $59,665.09 are due and payable; and (iii) the balance of the indebtedness is to be paid on the earliest of: (a) April 1, 2026; (b) the fifth day after the occurrence of the Uplisting; or (c) the fifth day after the occurrence of a change of control.
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On May 5, 2023, we entered into a promissory note with Excel in the principal amount of $1,600,000 (the “May Note”). The May Note matures on November 4, 2023, at which time the outstanding principal amount under the May Note, along with a flat funding fee of $160,000 is due and payable in full. In connection with entering the May Note, we 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 “May Warrant”). The May Warrant may be exercised on a cash or cashless basis any time through May 4, 2028. The May Note was rolled into the Excel Note in connection with the fourth amendment and restatement on September 14, 2023.
On July 18, 2023, the Excel Note was amended and restated for a third time whereby: (1) the principal amount was increased to not more than $5,000,000; (2) the interest rate remained the same; (3) the note remained convertible at the Conversion Price; (4) Excel was issued a common stock warrant exercisable on a cash or cashless basis for up to 1,000,000 shares of our common stock at an exercise price of $0.25 per share, with an expiration date of July 17, 2028; and (5) the outstanding indebtedness remained due and payable upon demand.
On September 14, 2023, the Excel Note was amended and restated for a fourth time whereby: (1) the principal amount was increased to not more than $10,000,000; (2) the interest rate remained the same; (3) the note remained convertible at the Conversion Price; (4) Excel was issued a common stock warrant exercisable on a cash or cashless basis for up to 3,400,000 shares of our common stock at an exercise price of $0.25 per share, with an expiration date of September 13, 2028; and (5) the outstanding indebtedness remained due and payable upon demand.
On December 29, 2023, the Excel Note was amended and restated for a fifth time whereby: (1) the principal amount available was decreased to not more than $2,000,000; (2) the interest rate remained the same; (3) the note remained convertible at the Conversion Price; and (4) the outstanding indebtedness remained due and payable upon demand. The day prior a total of $10,366,652.74 of indebtedness under the Excel Note was converted into shares of our common stock at a conversion price of $0.40 per share (based on the sale by us of shares within the last two years at $0.50 per share multiplied by 80%). As a result of the conversion, the outstanding indebtedness under the Excel Note was reduced to $1,135,000.
On August 7, 2024, the Excel Note was amended and restated for a sixth time whereby: (1) the principal amount available was increased to not more than $4,110,000; (2) the interest rate remained the same; (3) the note remained convertible at the Conversion Price; and (4) the outstanding indebtedness remained due and payable upon demand.
On August 7, 2024, we also executed a new Discretionary Convertible Revolving Line of Credit Demand Note with Excel in the principal amount of not more than $5,000,000 (the “New LOC”). The terms and conditions for all loans made under the New LOC are substantially similar in all respects to loans made under the Excel Note, except that: (1) the interest rate under the New LOC was reduced to 12.0% per annum; (2) monthly interest only payments don’t begin until October 1, 2024; (3) the look back period to determine the “lowest recent price” for the conversion rate was reduced to a 12-month period; and (4) while the outstanding principal and accrued and unpaid interest are due and payable upon demand, the New LOC has a maturity date of April 1, 2025.
| (b) | Director independence |
Mr. Bruce Cassidy is the sole member of our Board. Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, our Board has adopted the definition of “independent director” as set forth in Rule 4200(a)(15) of the rules of The Nasdaq Stock Market LLC. In summary, an “independent director” means a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director who accepted any compensation from us in excess of $200,000 during any period of twelve consecutive months with the past three fiscal years. The ownership of our stock will not preclude a director from being independent.
In applying this definition, our Board has determined that Mr. Cassidy does not qualify as an “independent director” pursuant to such Rule 4200(a)(15).
Item 14. Principal Accounting Fees and Services
Below are tables of Audit Fees (amounts in US$) billed by our auditors in connection with the audit of our annual financial statements and review of financial statements included in our quarterly reports for the fiscal years indicated below:
Consolidated Financial Statements For the Year Ended June 30 | Audit Fees | Audit Related Fees | Tax Fees | All Other Fees | ||||||||||||
| 2024 | $ | 239,000 | $ | - | $ | 10,000 | $ | - | ||||||||
| 2023 | $ | 102,750 | $ | - | $ | 3,000 | $ | - | ||||||||
| 35 |
PART IV
Item 15. Exhibit and Financial Statement Schedules
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |
| (1) | Consolidated Financial Statements |
The following documents are filed as part of this Form 10 K, as set forth on the Index to Consolidated Financial Statements found below after the signature page.
| (2) | Consolidated Financial Statement Schedules |
All consolidated financial statement schedules are omitted because they are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(b) Exhibits to this Form 10-K
| 36 |
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Indicates a management contract or compensation plan, contract or arrangement. |
| 37 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
| VIP Play, Inc., a Nevada corporation | ||
| (Registrant) | ||
| September 23, 2024 | By: | /s/ Bruce Cassidy |
| Bruce Cassidy | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| September 23, 2024 | By: | /s/ James Mackey |
| James Mackey | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Bruce Cassidy | Chief Executive Officer | September 23, 2024 | ||
| Bruce Cassidy | (Principal Executive Officer) and Director | |||
| /s/ James Mackey | Chief Executive Officer | September 23, 2024 | ||
| James Mackey | (Principal Financial and Accounting Officer) |
| 38 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VIP PLAY, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 39 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of VIP Play, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of VIP Play, Inc. (the Company) as of June 30, 2024 and 2023, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended June 30, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses since inception, has negative cash flows from operations, and has negative working capital, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/
|
|
| We have served as the Company’s auditor since 2023. | |
| September 23, 2024 |
| F-1 |
VIP PLAY, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | June 30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Cash reserved for users | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Debt issuance costs, net | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued expenses - related party | ||||||||
| Players balances | ||||||||
| Notes payable - current | ||||||||
| Notes payable - related party, net of discount | ||||||||
| Convertible notes, net | ||||||||
| Line of credit - related party | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable - long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies – Note 12 | ||||||||
The accompanying notes are an integral part of these audited financial statements.
| F-2 |
VIP PLAY, INC.
CONSOLIDATED BALANCE SHEETS - continued
| June 30, 2024 | June 30, 2023 | |||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Series A preferred stock, shares designated, and shares issued and outstanding as of June 30, 2024, and June 30, 2023, respectively | ||||||||
| Series B preferred stock, shares designated, and shares issued and outstanding as of June 30, 2024, and June 30, 2023, respectively | ||||||||
| Series C preferred stock, shares designated, and shares issued and outstanding as of June 30, 2024, and June 30, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of June 30, 2024, and June 30, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these audited financial statements.
| F-3 |
VIP PLAY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Negative gaming revenues | $ | ( | ) | $ | ( | ) | ||
| Cost of gaming revenue | ||||||||
| Net gaming loss | ( | ) | ( | ) | ||||
| Operating expenses: | ||||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Impairment of common control intangible assets | ||||||||
| Sales and marketing | ||||||||
| Total operating expenses | ||||||||
| Other income (expense): | ||||||||
| Other income | ||||||||
| Loss on change in fair value of derivative | ( | ) | ( | ) | ||||
| Loss on extinguishment of debt – related party | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense – related party | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss from continuing operations, net of income taxes | ( | ) | ( | ) | ||||
| Net income (loss) from discontinued operations, net of income taxes | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: deemed dividend from the purchase of Series C preferred stock | ( | ) | ||||||
| Net loss attributable to common stockholders | ( | ) | ( | ) | ||||
Net loss per common share - basic and diluted | $ | ) | $ | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these audited financial statements.
| F-4 |
VIP PLAY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ 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 $0.0001 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, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Receipt of cash from Issuance of preferred stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase and redemption of preferred stock for cash | ( | ) | ( | ) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition of certain assets of ZenSports, Inc. | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for common control acquisition of certain assets of Ultimate Gamer, LLC | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock as compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of preferred stock as compensation | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant issued as part of restated. relate party demand. Line of credit | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| - | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend on purchase of preferred stock | - | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Fair value of warrant issued with related party note payable | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value of vested incentive stock options | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited financial statements.
| F-5 |
VIP PLAY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT - continued
| 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 $0.0001 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, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of debt | - | - | - | | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of Series C Preferred Stock | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant issued as part of restated related party demand line of credit. | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of warrants | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Fair value of warrant granted for consulting services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value of vested incentive stock options | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited financial statements.
| F-6 |
VIP PLAY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Gain (loss) on assignment of assets | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs | ||||||||
| Issuance of Series C preferred stock for services | ||||||||
| Loss on sale of equipment | ||||||||
| Impairment of common control intangible assets | ||||||||
| Fair value of warrant issued with related party note payable | ||||||||
| Fair value of vested incentive stock options | ||||||||
| Discount on related party note payable | ( | ) | ||||||
| Change in fair value of derivative liability | ||||||||
| Loss on extinguishment of debt – related party | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued expenses - related party | ||||||||
| Players balances | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Proceeds from sale of equipment | ||||||||
| Cash paid for capitalized software | ( | ) | ( | ) | ||||
| Cash paid for capitalized gaming license | ( | ) | ||||||
| Cash paid for assets acquired in the ZenSports transaction | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Cash paid for repurchase of Series A convertible preferred stock | ( | ) | ||||||
| Cash paid for repurchase of Series C convertible preferred stock | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from issuance of Series C convertible preferred stock | ||||||||
| Proceeds from line of credit, related party | ||||||||
| Proceeds from note payable, related party | ||||||||
| Repayments of note payable, related party | ( | ) | ||||||
| Proceeds from convertible notes | ||||||||
| Proceeds from note payable – current | ||||||||
| Repayments of note payable - current | ( | ) | ( | ) | ||||
| Cash received in satisfaction of stock subscriptions receivable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH RESERVED FOR USERS | ||||||||
| CASH AND CASH RESERVED FOR USERS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH RESERVED FOR USERS AT END OF PERIOD | $ | $ | ||||||
DISCLOSURE OF CASH AND CASH RESERVED FOR USERS: | ||||||||
| CASH | $ | $ | ||||||
| CASH RESERVED FOR USERS | ||||||||
| CASH AND CASH RESERVED FOR USERS AT THE END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Common stock issued for acquisition of assets of ZenSports Inc. | $ | $ | ||||||
| Common stock issued for common control transaction | $ | $ | ||||||
| Note payable issued for purchase of Series C convertible preferred stock | $ | $ | ||||||
| Insurance financing | $ | $ | ||||||
| Payoff of related party note payable with related party line of credit | $ | $ | ||||||
| Common stock issued upon conversion of debt | $ | $ | ||||||
| Derivative and warrants issued for deferred financing costs | $ | $ | ||||||
| Deemed dividends on purchase of Series C Convertible preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these audited financial statements.
| F-7 |
VIP Play, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024 and 2023
NOTE 1 – OVERVIEW AND ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview and Organization
VIP Play, Inc. (the “Company,” “we”, “us” and “our”) was incorporated on April 16, 2020, under the laws of the State of Nevada, as VIP Play, Inc. The company has 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. 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.
Prior to September 15, 2022, our business consisted of the retail sale of masks and similar products, and convention services (together, the prior business). Through our e-commerce sales channel, we sold KN-95 facemasks, disposable facemasks, and disinfectant wipes through an online store in the United States of America.
On August 26, 2022, the Company entered into an Asset Purchase Agreement to purchase certain technological assets from ZenSports, Inc. The assets were purchased to allow us to offer gambling and entertainment opportunities through technology, principally the online gaming technology and use of the name ZenSports. We did not acquire all the assets of the Company, the assets we didn’t purchase include, among other assets, ZenSport’s legal entity name “ZenSports, Inc.” and those assets related to ZenSports’ physical casino called the Big Wheel Casino, located in Lovelock, Nevada. See Note 3.
On September 12, 2022, we entered into an Asset Purchase Agreement between the Company and Excel Members, LLC (“Excel”), a company controlled by Bruce Cassidy, the chairman of our board of directors, to acquire certain assets of Excel a company of which a Company controlled by Mr. Cassidy is the manager, and effectively has a controlling interest. Excel acquired certain assets of a company, Ultimate Gamer, LLC, which was formerly an Esports tournament company, through the assignment for the benefit of the creditor’s court process. See Notes 3, 13 and 15.
On September 15, 2022, we executed an assignment and assumption agreement whereby we assigned our e-commerce sales channel and the convention services operating assets to TopSight Corporation (“TopSight”), a company owned by our former Chief Financial Officer Zixiao Chen, effectively discontinuing our historical operations.
After the foregoing transactions, we have effectively ceased our prior business operations and assembled a comprehensive platform capability that enables both business-to-business and direct-to-consumer offerings within the online sports betting, eSports, and fintech/digital currency markets.
Basis of Presentation
The consolidated financial statements presented in this report are of VIP Play, Inc. and its wholly owned subsidiaries. The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
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.
| F-8 |
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.
Fiscal Year End
The Company’s year-end is June 30.
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 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 $
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 demand line of credit, a related party 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 revenues 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.
These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for our Company to continue as a going concern.
Cash and 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 June 30, 2024, the
Company maintained a total cash balance which was $
| F-9 |
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 June 30, 2024 and 2023, approximately $
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 |
Intangible assets include developed technology, internally developed software and website development costs, gaming license, and trade marks.
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 $
Estimated useful lives are as follows:
| Developed technology | ||
| Capitalized software and website development | ||
| Trade marks |
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.
| F-10 |
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. At June 30, 2023, management determined that the acquired Ultimate Gamer trademarks were fully impaired pursuant to the annual impairment test and, as such has written off the carrying value of trademarks.
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 performed a qualitative test as of June 30, 2023, and determined that the common control developed
technology and trademarks acquired would no longer be invested in and would not be generating cash flows for the foreseeable future.
Impairment charges of $
Lease Commitments
On
October 1, 2023, the Company entered into a lease for office space in Miami, Florida. The lease expires on
On
February 4, 2024, the Company entered into a lease for office space in Sarasota, Florida. The lease expires on
| F-11 |
Total rental
expense for the years ended June 30, 2024 and 2023 was $
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 support 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 years ended June 30, 2024, or 2023.
| Description | Total
fair value at June 30, 2024 | Quoted
prices in Active markets (level 1) | Significant
other observable inputs (level 2) | Significant unobservable inputs (level 3) | ||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| Description | Total
fair value at June 30, 2023 | Quoted
prices in Active markets (level 1) | Quoted
prices in Active markets (level 2) | Quoted
prices in Active markets (level 3) | ||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| (1) |
| F-12 |
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 June 30, 2024, and June 30, 2023, the Company had a derivative liability of $
Players Balances
Players balances were comprised of sports betting deposits assumed and recorded at the fair market value acquired from ZenSports, Inc. on August 26, 2022, as part of an asset purchase agreement. The balances as of June 30, 2024 and 2023, are comprised of players betting deposits and contestant prize winnings for eSports and other promotional events. During May 2023, the Company was approved by the state of Tennessee for its Sports Betting license and commenced Sports Betting operations on June 8, 2023, as such, the Company began accepting new sports betting deposits in addition to recording only payouts on the acquired players liability balances.
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 $
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. |
| F-13 |
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, Sports Betting privilege taxes and federal excise taxes on wagers.
Revenue Recognition from our former business
The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (a) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Revenue recognition for our prior business occurred at the time we satisfy a service performance obligation to our customers or when control of product transfers to customers upon shipment, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only recorded revenue when collectability was probable. All payments are received upon order of services and prior to delivery of the product, so we have no accounts receivable.
The Company’s prior business was providing quality merchandise through its former online store in the United States of America. Due to the COVID-19 pandemic, the Company was focusing on providing disposable face masks and KN-95 face masks at affordable prices. Customers ordered and paid for the products through the online store, when the Company confirmed the order and payment, the Company delivered the product through common carriers, at which point the Company recognized revenue, as this is when our performance obligation is satisfied. The Company recorded actual sales returns when the customers return the products. The transaction price has not been affected by returns as the Company did have significant returns.
All
prior business operations, including sales and revenues, are included in the net income (loss) from discontinued operations, net of income
taxes in the statement of operations. For the year ended June 30, 2023, the Company recognized e-commerce sales of products $
Cost of Revenues from our former business
Costs of revenues from our prior business primarily consisted of outsourced vendors for both types of revenues. The Company includes product costs (i.e., material, direct labor, and overhead costs) and shipping and handling expenses in cost of revenues. All prior business operations, including cost of revenues, are included in the net income (loss) from discontinued operations, net of income taxes in the statement of operations.
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.
| F-14 |
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 years ended June 30, 2024 and 2023, advertising costs were $
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
| F-15 |
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 June 30, 2024 and 2023 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 year ended June 30, 2024 | For
the year ended June 30, 2023 | |||||||
| Stock Options | ||||||||
| Series B Preferred Shares | ||||||||
| Series C Preferred Shares | ||||||||
| Warrants | ||||||||
| Shares issuable upon conversion of line of credit | ||||||||
| Shares issuable upon conversion of convertible notes | ||||||||
| Total potentially dilutive shares | ||||||||
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending September 30, 2023, for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The adoption of ASU 2016-13 did not impact the Company’s consolidated financial statements.
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. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
| F-16 |
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 2 - EQUIPMENT
The Company’s equipment consisted of the following as of:
| June 30, 2024 | June 30, 2023 | |||||||
| Equipment | $ | $ | ||||||
| Total | ||||||||
| Less: accumulated depreciation | ||||||||
| Equipment, net | $ | $ | ||||||
Equipment
at June 30, 2024 and 2023 consisted of computers. Depreciation expense of equipment during the years ended June 30, 2024, and 2023 was
$
NOTE 3 - STRATEGIC ASSET ACQUISITIONS
ZenSports, Inc.
On
August 26, 2022, $
ZenSports is in the business of offering gambling and entertainment opportunities through technology and a physical casino. The Company purchased a portion of ZenSports’ assets, principally the online gaming technology and use of the name ZenSports. The assets we didn’t purchase include, among other assets, ZenSports legal entity name “ZenSports, Inc.” and those assets related to ZenSports’ physical casino called the Big Wheel Casino, located in Lovelock, Nevada.
Pursuant
to the terms and conditions of the APA, the aggregate purchase price paid to ZenSports consisted of cash in the amount of the sum of
$
| F-17 |
In connection with the Transaction and issuance of the Transaction Shares, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with ZenSports (together with any other party that may become a party to the Registration Rights Agreement, “Holders”). Pursuant to the Registration Rights Agreement, subject to the terms and conditions set forth therein, we are obligated, among other things, to use our reasonable best efforts to prepare and file on the six-month anniversary of our common stock becoming listed on the New York Stock Exchange, The NYSE American, The Nasdaq Global Market, The Nasdaq Global Select Market, The Nasdaq Capital Market or any successor or substantially equivalent national securities exchange a registration statement covering the sale or distribution from time to time of our common stock held by Holders. We are also obligated to provide for the registration of such registrable securities for resale by Holders in accordance with any reasonable method of distribution elected by Holders, and to use our reasonable best efforts to cause such registration statement to be declared effective by the Securities and Exchange Commission as promptly as is reasonably practicable.
The
fair value of the purchase consideration issued to the ZenSports asset sellers was allocated to the net assets acquired. The Company
accounted for this transaction as an asset acquisition as per ASC 350, and the assets and liabilities we recorded as of the acquisition
date, at their respective fair values and consolidated with those of the Company. The fair value of the assets acquired as approximately
$
The table below shows the analysis for the ZenSports asset acquisition:
| Purchase consideration at fair value: | ||||
| Common Stock | $ | |||
| Cash, net of prepaid expenses and players liabilities | ||||
| Transaction fees | ||||
| Amount of consideration | $ | |||
| Assets acquired and liabilities assumed at relative fair market value: | ||||
| Current assets | $ | |||
| Players liability | ( | ) | ||
| Developed technology | ||||
| Trade name | ||||
| Net assets acquired | $ |
Ultimate Gamer
On September 12, 2022, we entered into an Asset Purchase Agreement with Excel Members, LLC, a company controlled by Bruce Cassidy, our Chairman and a member of our Board of Directors, to acquire certain assets of a company acquired previously by Excel through an assignment for the benefit of creditors. Ultimate Gamer, LLC (“UG”), which was formerly in the business of organizing and operating in-person and online video game competitions tournaments, originally owned these assets. The purchased assets included the brand name Ultimate Gamer.
We
purchased a portion of the UG assets, consisting primarily of intellectual property, including trademarks, domain name registrations,
and UG’s database(s) of users and gamers for shares of our common stock, valued at $
Since the acquired assets were owned by a company controlled by our Chairman of the Board, this transaction has been accounted for as assets acquired under common control, in which the assets have been presented at their carrying values at the date of the transaction and the equity interests issued were recorded at an amount equal to the carrying amount of the net assets transferred. See Notes 10 and 13.
A summary of the assets acquired at provisional net book value (NBV) allocated is as follows:
| Website | $ | |||
| Trademarks | ||||
| Equipment | ||||
| Total assets acquired at provisional net book value | $ |
| F-18 |
Subsequently,
during the year ended June 30, 2023, management determined that the acquired developed technology and trademarks of Ultimate Gamer, LLC
would no longer be invested in and would not be generating cash flows for the foreseeable future and the intangible assets were fully
impaired in the amount of $
NOTE 4 - LONG LIVED AND OTHER INTANGIBLE ASSETS
The
ZenSports, Inc. assumed developed technology and trademark were recorded and allocated using relative fair value, based on a on a third
party valuation in accordance with the provisions of ASC 350 of the acquired costs from ZenSports, Inc. on August 26, 2022, as part of
an asset purchase agreement. There was
The
Ultimate Gamer developed technology and trademarks were acquired on September 12, 2022, as part of the acquisition of the assets of Ultimate
Gamer, LLC in a common control transaction. The developed technology and trademarks acquired were recorded at the net book value of Ultimate
Gamer, LLC on the date of close, which included the depreciation for September 2022. As of June 30, 2023, as part of the repositioning
of the company’s operations, management determined that acquired developed technology and trademarks of Ultimate Gamer, LLC would
no longer be invested in and would not be generating cash flows for the foreseeable future and as such fully expensed the assets as part
of the Company’s annual impairment analysis. The remaining value of the developed technology (website) of $
Gaming
license costs are primarily comprised of legal and professional fees associated with our application for a gaming license in Tennessee.
There was
Long-lived and other intangible assets held, net of impairment are comprised of the following at:
| June 30, 2024 | June 30, 2023 | |||||||
| Developed technology | $ | $ | ||||||
| Tradenames and trademarks | ||||||||
| Gaming licenses | ||||||||
| Impairment charges | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Net carrying value | $ | $ | ||||||
Amortization
expense of business intellectual property years ended June 30, 2024 and 2023, was $
| F-19 |
As of June 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 | $ | $ | $ | |||||||||||||||
| Internally developed software | ||||||||||||||||||
| Trademarks and tradenames | ||||||||||||||||||
| Website | ||||||||||||||||||
| Total finite lived intangible assets | $ | $ | $ | |||||||||||||||
| Indefinite lived intangible assets: | ||||||||||||||||||
| Gaming license | $ | $ | $ | |||||||||||||||
| Total indefinite lived intangible assets: | $ | $ | $ | |||||||||||||||
| Total intangible assets: | $ | $ | $ | |||||||||||||||
The estimated future amortization of intangibles subject to amortization at June 30, 2024 was as follows:
| For the Years Ended June 30, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
NOTE 5 – PLAYERS BALANCES
Players
balances were comprised of sports betting deposits assumed and recorded at the fair market value acquired from ZenSports, Inc. on August
26, 2022, as part of an asset purchase agreement. During May 2023, the Company was approved by the state of Tennessee for its Sports
Betting license and commenced Sports Betting operations on June 8, 2023, as such, the Company began accepting new sports betting deposits
in addition to recording only payouts on the acquired players liability balances. Players balances were $
NOTE 6 - 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 $
| F-20 |
The
fair value of the conversion feature upon issuance of the three notes was $
The following are the significant assumptions used in the Monte-Carlo model. See Note 9.
| Expected volatility | Risk-free interest rate | Expected dividend yield | Expected
life (in years) | |||||||||||||
| At September 1, 2023 | % | % | % | |||||||||||||
NOTE 7 - NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY
On
April 27, 2020, the Company executed a promissory note with Zixiao Chen, our former Chief Financial Officer for $
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 $
As
of June 30, 2024 and 2023, the principal balance is $
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. See Note 10. The Company paid $
| F-21 |
The
outstanding principal balance at June 30, 2024, is $
The following represents the future aggregate maturities of the promissory note with Mr. Linss as of June 30, 2024, for each of the five (5) succeeding years and thereafter as follows:
| Fiscal year ending June 30, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
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 $
The
note payable the warrants are issued in a single transaction and as such were allocated among the 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 $
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 | % | % | | % | | |||||||||||
The
$
At
June 30, 2023, the remaining balance of the note discount is $
On
September 14, 2023, the principal balance of $
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 $
| F-22 |
On
May 24, 2024, the Company renewed the 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 $
NOTE 8- LINE OF CREDIT - RELATED PARTY
On
February 22, 2022, the Company executed a non-revolving line of credit demand note for $
On
August 16, 2022, the non-revolving line of credit demand note was increased to $
On
February 24, 2023, the Company entered into a second amended and restated discretionary non-revolving line of credit demand note with
Excel in the principal amount of not more than $
The
amended note includes a conversion option that Excel may, at its sole option, convert all or any portion of the debt into fully paid
and non-assessable shares of common stock of the Company’s common stock.at a conversion price in an amount equal to the product
of the lowest recent price multiplied by
The following are the significant assumptions used in the Monte-Carlo model.
| Expected volatility | Risk-free interest rate | Expected dividend yield | Expected life (in years) | |||||||||||||
| At February 24, 2023 | % | % | | % | ||||||||||||
The
note includes a common stock warrant exercisable up to
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 February 24, 2023 | % | % | | % | | |||||||||||
The
amended non-revolving line of credit was exchanged and modified on substantially different terms from the non-revolving line of credit
demand note it replaced and as such is treated as a debt modification. The Company incurred debt issuance costs of $
| F-23 |
On
July 18, 2023, the Company entered into a Third Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with Excel
Family Partners, LLLP, (“Excel”) in the principal amount of not more than $
The following are the significant assumptions used in the Black-Scholes model for the warrants:
| Expected volatility | Risk-free
interest rate | Expected
dividend yield | Expected
life (in years) | |||||||||||||
| At July 18, 2023 | % | % | % | |||||||||||||
At
the date of the third amendment, the remaining unamortized debt issuance costs were $
On
September 14, 2023, the Company entered into a Fourth Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with
Excel Family Partners, LLLP, a Florida limited liability limited partnership (“Excel”) in the principal amount of not more
than $
| F-24 |
The following are the significant assumptions used in the Black-Scholes model for the warrants:
| Expected volatility | Risk-free
interest rate | Expected
dividend yield | Expected
life (in years) | |||||||||||||
| At September 13, 2023 | % | % | % | |||||||||||||
At
the date of the fourth amendment, the remaining unamortized debt issuance costs were $
As
of the date of the Fourth Amended and Restated Discretionary Non-Revolving Line of Credit Demand Note, the aggregate outstanding principal
balance of all loans was $
On
December 27, 2023, a total of $
The offer, sale and issuance of the Conversion Shares were deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The converting debt holders acquired the Conversion Shares for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the Conversion Shares upon issuance thereof.
On
December 29, 2023, the Company entered into a Fifth Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with
Excel Family Partners, LLLP, a Florida limited liability limited partnership (“Excel”) in the principal amount of not more
than $
A
total of $
| F-25 |
The following are the significant assumptions used in the Black-Scholes model for the warrants:
| Expected volatility | Risk-free
interest rate | Expected
dividend yield | Expected
life (in years) | |||||||||||||
| At December 27, 2023 | % | % | % | |||||||||||||
At
June 30, 2024, the remaining unamortized debt issuance costs were $
As
of June 30, 2024 and 2023, the aggregate outstanding principal balance of all loans under the Note was $
NOTE 9 – DERIVATIVE LIABILITIES
On February 24, 2023, July 18, 2023 and September 14, 2023, the Company entered into the second, third and fourth amended and restated discretionary non-revolving line of credit demand notes (“LOC”) with a common control owner (See Note 8). On August 23, 2023, August 28, 2023 and September 1, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with three unrelated parties (See Note 6). The LOC and Convertible Promissory Notes contain conversion options that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value of derivatives.
The table below sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the years ended June 30, 2024 and 2023:
| Balance at the beginning of the period | $ | |||
| Embedded conversion option of convertible debt | ||||
| Change in the fair value of the embedded conversion option | ||||
| Balance at June 30, 2023 | $ | |||
| Embedded conversion option of convertible debt | ||||
| Derivative liability extinguished upon conversion of debt (Note 8) | ( | ) | ||
| Change in the fair value of the embedded conversion option | ||||
| Balance at June 30, 2024 | $ |
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions. See Note 9.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
| Expected
volatility | Risk-free
interest rate | Expected
dividend yield | Expected
life (in years) | |||||||||||||
| At June 30, 2023 | - | % | - | % | % | - | ||||||||||
| At June 30, 2024 | - | % | - | % | % | - | ||||||||||
NOTE 10 - STOCKHOLDERS’ DEFICIT
The Company is authorized to issue shares of common stock, par value $ per share, and shares of preferred stock, par value $ per share; of which shares have been designated as Series A Convertible Preferred Stock, shares have been designated as Series B Convertible Preferred Stock and shares have been designated as Series C Convertible Preferred Stock.
| F-26 |
The
Series A Convertible Preferred Stock has a liquidation preference of $
The
Series B Convertible Preferred Stock has a liquidation preference of $
The
Series C Convertible Preferred Stock has a liquidation preference of $
Series A Convertible Preferred Stock
On
August 30, 2022, the Series A shares owned by TopSight, a company owned by Ms. Chen, the Company’s former Chief Financial Officer,
were redeemed and the Company retired all of the Series A shares. During the years ended June 30, 2024 and 2023, there were
Series B Convertible Preferred Stock
During
the years ended June 30, 2024 and 2023, there were
Series C Convertible Preferred Stock
On
July 11, 2022, the Company sold shares of its Series C Convertible Preferred Stock at $ per share for total proceeds of
$
On August 16, 2022, John Linss our former Chief Executive Officer and former member of our board of directors was issued shares of our Series C Convertible Preferred Stock as part of an amendment to his employment agreement. The stock was valued at $ per share, the recent cash price paid for all previous issuances of Series C Convertible Preferred stock, and vests over a 3-year period unless certain milestones are met, in which case it will fully vest sooner.
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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 the shares of Series C
Convertible Preferred Stock owned by Linss and Corespeed, LLC. The Company paid $
On June 15, 2024, the board of directors approved the issuance of common shares upon conversion of all outstanding Series C Preferred Stock. A total of shares of common stock was issued upon the conversion of shares of Series C Preferred stock.
As at June 30, 2024 and 2023, and shares were outstanding, respectively.
Common Stock
On August 26, 2022, we issued shares of common stock issued for the acquisition of certain assets of ZenSports Inc pursuant to an asset purchase agreement, shares of common stock issued for the acquisition of certain assets of Ultimate Gamer LLC pursuant to an asset purchase agreement. See Note 3.
On
August 26, 2022, we closed on a private offering of our common stock where we sold an aggregate of shares of our common stock
to 11 third-party investors at a price of $ per share for an aggregate purchase price of $
From
August 26 to September 26, 2022, we had multiple closings on our private offering whereby we issued a total of shares of Common
stock at $ per share for proceeds of $
During
March 2023, we opened a second private offering whereby we issued shares of common stock at $ per share for proceeds of
$
On
December 28, 2023, a total of
shares of common stock were issued upon conversion of $
On January 8, 2024 the Company sold shares of common stock to an unrelated party for cash proceeds of $.
On June 15, 2024, the board of directors approved the issuance of common shares upon conversion of all outstanding Series C Preferred Stock. A total of shares of common stock was issued upon the conversion of shares of Series C Preferred stock.
On
June 28, 2024, the board of directors approved the issuance of shares of common stock upon the cashless exercise of
NOTE 11 - STOCK OPTIONS
On December 28, 2021, the board of directors (the “Board”) approved the 2021 stock option plan (“2021 Plan”). The 2021 Plan was subject to the approval of our stockholders within 12 months of the Board’s approval. We did not seek approval of the 2021 Plan from our stockholders on or before December 28, 2022, and no awards of any type were granted under the 2021 Plan.
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On April 10, 2023, the Board terminated the 2021 Plan and approved a new stock option plan for our director’s officers, employees, advisors, and contractors containing the same terms and conditions as the 2021 Plan (the “2023 Plan”). The 2023 Plan is also subject to approval of our stockholders within 12 months from the date of the Board’s approval. In connection with the approval of the 2023 Plan, the Board granted Incentive Stock Options (“ISOs”) and Non statutory Stock Options (“NSOs”) under the 2023 Plan to employees and advisors of the Company to purchase a total of shares of our common stock at an exercise price of $ per share (the “Awards”).
The 2023 Plan provides eligible participants with benefits consisting of one or more of the following: ISOs, NSOs, and bonuses in the form of our common stock (“Stock Bonuses”). The Board or a committee of directors will administer the 2023 Plan and determine what employees or officers will receive an award under the 2023 Plan. ISOs, which are intended to be compliant with Section 422 of the Internal Revenue Code, may be awarded only to our employees. NSOs and Stock Bonuses are not subject to Section 422 of the Internal Revenue Code and can be awarded to employees and non-employees.
As with the 2021 Plan, the aggregate number of shares of our authorized but unissued common stock that can be awarded under the 2023 Plan is , whether in the form ISOs, NSOs, or Stock Bonuses (or a combination thereof). Awards can be issued under the 2023 Plan for ten years from the date the Board approved the 2023 Plan. ISOs may be exercised during a period no longer than ten years from the date of the award (five years for individuals who own more than % of the combined voting power of the Company). NSOs may be exercised for a maximum period of ten years from the date of the award.
As
part of the Awards, on April 10, 2023, our former CEO, Mark Thomas, was granted ISOs and NSOs, and our former CFO, Anthony
Fidaleo, was granted ISOs (collectively, the “Officer Awards”). In aggregate on April 10, 2023 the Company granted
a total of including the Officer Awards to 16 employees and 6 contractors that vest to % of the shares on June 16, 2023 and
hereafter, the option Awards will further vest as to 1/48th of the shares monthly for a period of 36 months; provided all vesting is
subject to the officer having provided continuous service to us or a related corporation through each such vesting date. ISOs and NSOs
may not be exercised after the earlier of the following: (a) in the event of termination for cause (as defined by the plan): the date
of termination; (b) in the event of termination due to death or disability: the earlier of the ISO or NSO’s expiration or one year
after the termination due to death or disability; (c) in the event of termination for any other reason: three months following the date
of termination. The Company has calculated these options estimated fair market value at $
On
April 10, 2023, the Company granted Awards to 1 consultant vest to 1/18th of the shares on May 10, 2023, and hereafter, the option
Awards will further vest as to 1/18th of the shares monthly for a period of 17 months; provided all vesting is subject to the consultant
having provided continuous service to us or a related corporation through each such vesting date. The Company has calculated these options
estimated fair market value at $
Number of Shares Underlying Outstanding Options | Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Intrinsic Value |
|||||||||||||
| Options outstanding as of June 30, 2023 | years |
$ | $ | |||||||||||||
| Options exercisable as of June 30, 2023 | years |
$ | $ | |||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited or expired | - | $ | - | |||||||||||||
| Options outstanding as of June 30, 2024 | years | $ | $ | |||||||||||||
| Options exercisable as of June 30, 2024 | years | $ | $ | |||||||||||||
Year Ended | ||||
| Exercise Price: | $ | |||
| Volatility: | % | |||
| Risk Free Rate: | % | |||
| Vesting Period: | years | |||
| Expected Life | years | |||
| F-29 |
As of June 30, 2024 there was $ of unrecognized compensation expense related to outstanding stock options that will be recognized over a remaining weighted average period of years.
During the year ended June 30, 2024, stock options were forfeited upon the termination of employment of two executives and one employee as per the terms of their stock option and termination agreements.
As of June 30, 2024, all outstanding stock options were issued according to the Company’s 2023 Plan. There are unissued shares of common stock available for future issuance under the 2023 Plan.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies are as follows:
Mark
Thomas served as our Chief Executive Officer, Principal Executive Officer, President, Chief Technology Officer, interim Chief Financial
Officer and interim Treasurer from January 10, 2023 until his resignation from all positions effective October 31, 2023. The Company
entered into a Consulting Agreement with Thomas, effective November 1, 2023 for professional services. As part of the Consulting Agreement,
Thomas received bi-monthly compensation at a rate of $
On
March 1, 2024, the board of directors of the Company appointed James Mackey as the Company’s new Chief Financial Officer, Principal
Financial and Accounting Officer and Treasurer, effective immediately. He received an offer letter stating that he will receive an annual
salary of $
During
August 2022, the Company entered into a 60-month contract extension with a vendor for hosting services in Nevada with the intention of
using said service in multiple domestic and international jurisdictions pursuant to the Company’s expansion plans at that time.
During May 2023, the Company was informed by the Tennessee Sports Wagering and Advisory Council that the vendor was not approved for
hosting Sports Betting technology in Tennessee. Since the services cannot be used in Tennessee and the Company is no longer actively
engaged in seeking gaming licensing in other domestic or international jurisdictions, prior to June 30, 2023, the Company entered into
negotiations to settle the remaining contract and an accrued balance of $
During
May 2023, the Company was issued $
On
February 23, 2024, a Complaint and Demand for Arbitration was filed against us with the American Arbitration Association, Las Vegas Regional
Office. The complaint alleges that the Company made misrepresentations of material facts and engaged in deceptive trade practices in
connection with the purchase of certain assets pursuant to an asset purchase agreement dated August 26, 2022. The Claimant was requesting
an award of recission damages in the amount of $
| F-30 |
Legal matter contingencies
The Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Provisions for losses are established in accordance with ASC 450, “Contingencies” when warranted. Once established, such provisions are adjusted when there is more information available about an event that occurs requiring a change.
NOTE 13 - RELATED PARTY TRANSACTIONS
Transactions with our former and current Chief Executive Officers:
On
June 14, 2022, the Company entered into an employment agreement with John Linss, as the Company’s former Chief Executive Officer.
The agreement was amended on August 16, 2022. The agreement and amended agreement work in tandem and provide for a -year term at an
annual base salary of $
On
July 11, 2022, the Company sold shares of its convertible preferred series C stock at $ per share for total proceeds of $
Effective January 10, 2023, John Linss, our former Chief Executive Officer and former member of our board of directors resigned. As part of the separation agreement and release as of that date, the Parties agreed that Mr. Linss through his ownership of CoreSpeed, LLC has rights set forth in the Award Agreement concerning the restricted preferred series C convertible stock that the Parties will consider Linss’ resignation a Vesting Acceleration Event of the restricted series C convertible stock.
Linss
and CoreSpeed, LLC, as part of the above-noted separation and release agreement, have agreed to sell and VIP Play, Inc. has agreed to purchase
all of the Subject Shares for a total of $
On
January 10, 2023, the Board appointed Mark Thomas (“Thomas”) as the new Chief Executive Officer. In lieu of an employment
agreement, Thomas received a written offer letter (the “Offer”) that states he will receive an annual salary of $
Transactions with our former Chief Financial Officer:
In
July, 2022, the Company’s former Chief Financial Officer, Zixiao Chen was paid $
On
April 27, 2020, the Company executed a promissory note with our former Chief Financial Officer for $
On
July 26, 2022, the Company made 3 payments to the Company’s former Chief Financial Officer totaling $
| - | On
July 26, 2022, the Company paid off $ |
| - | On
July 26, 2022, the Company paid off the promissory note held by the Company’s former Chief Financial Officer for $ |
| - | On
July 26, 2022, the Company redeemed and retired the shares of Series A Convertible Preferred Stock owned by Ms. Chen for
$ |
| F-31 |
On
February 19, 2024, the Company entered into a first amendment to the $
Transactions with our former Chief Executive Officer and current Chairman of our Board of Directors:
On
July 11, 2022, the Company sold shares of its convertible preferred series C stock at $ per share for total proceeds of
$
On
August 16, 2022, the non-revolving line of credit demand with Excel Family Partners, LLLP (“Excel”) a company controlled
by Bruce Cassidy (our former Chief Executive Officer through June 14, 2022) the Chairman of our board of directors, which can exert significant
influence over the Company, was increased to $
On
February 24, 2023, the Company entered into a second amended and restated discretionary non-revolving line of credit demand note with
Excel in the principal amount of not more than $
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 $
On
July 18, 2023, the Company entered into a Third Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with Excel
Family Partners, LLLP, (“Excel”) in the principal amount of not more than $
On
September 14, 2023, the Company entered into a Fourth Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with
Excel Family Partners, LLLP, a Florida limited liability limited partnership (“Excel”) in the principal amount of not more
than $
A
total of $
On
December 29, 2023, the Company entered into a Fifth Amended and Restated Discretionary Non-Revolving Line Of Credit Demand Note with
Excel Family Partners, LLLP, a Florida limited liability limited partnership (“Excel”) in the principal amount of not more
than $
| F-32 |
On September 12, 2022, we entered into an asset purchase agreement with Excel Members, LLC, a company controlled by Bruce Cassidy, (our former Chief Executive Officer through June 14, 2022) the Chairman of our Board of Directors, to acquire certain assets of a company acquired previously by Excel through an assignment for the benefit of creditors. Ultimate Gamer, LLC (“UG”), which was formerly in the business of organizing and operating in-person and online video game competitions tournaments, originally owned these assets. The purchased assets included the brand name Ultimate Gamer.
We purchased a portion of UG assets, consisting primarily of intellectual property, including trademarks, domain name registrations, and UG’s databases of users and gamers for shares of our common stock. See Notes 3 and 10.
Other related party transactions:
On
July 11, 2022, the Company sold shares of its convertible preferred series C stock at $ per share for total proceeds of $
Effective
January 1, 2023, the Company assumed the office lease of a related party, ZenSports, Inc. The lease expired on
NOTE 14 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of June 30, 2024 and 2023 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its business model. Because of the impacts of the valuation allowance, there was no income tax expense or benefit for the years ended June 30, 2024 and 2023.
A reconciliation of the differences between the effective and statutory income tax rates for the years ended June 30, 2024 and 2023:
| June 30, 2024 | June 30, 2023 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Federal statutory rates | $ | ( | ) | % | $ | ( | ) | % | ||||||||
| State income taxes | ( | ) | % | ( | ) | % | ||||||||||
| Valuation allowance against net deferred tax assets | - | % | - | % | ||||||||||||
| Effective rate | $ | % | $ | % | ||||||||||||
At June 30, 2024 and 2023, the significant components of the deferred tax assets are summarized below:
| June 30, 2024 | June 30, 2023 | |||||||
| Deferred income tax asset | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Debt extinguishment/modification | ||||||||
| Depreciation and amortization | ( | ) | ||||||
| Gain or loss on sale | ( | ) | ( | ) | ||||
| Unrealized gains and losses on investments | ||||||||
| Impairments | ||||||||
| Accrued Interest | ||||||||
| Non-cash compensation | ||||||||
| Capitalized Sec 174 R&D | ||||||||
| Amortization of 174 R&D | ( | ) | ( | ) | ||||
| Total deferred income tax asset | ||||||||
| Less valuation allowance | ( | ) | ( | ) | ||||
| Total deferred income tax asset | $ | $ | ||||||
| F-33 |
The
valuation allowance increased by $
The
Company has recorded as of June 30, 2024 and 2023 a valuation allowance of $
The Company conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of June 30, 2024 and 2023.
The
Company has net operating loss carry-forwards of approximately $
NOTE 15 - SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 2024, to the date, these financial statements were issued, and as of September 23, 2024, there were no other material subsequent events to disclose in these financial statements with the exception of the events below.
On July 25, 2024, the maturity dates of the Convertible Note Purchase Agreements and Convertible Promissory Notes with all three unrelated parties were extended for the additional term of one year. All other terms of the agreements remained the same.
On
August 7, 2024, $
On
August 7, 2024, the Company entered into a Sixth Amended and Restated Discretionary Non-Revolving Line of Credit Demand Note with Excel
Family Partners, LLLP, a Florida limited liability limited partnership (“Excel”) in the principal amount of not more than
$
On
August 7, 2024, the Company entered into a new Discretionary Non-Revolving Line of Credit Demand Note with Excel Family Partners, LLLP,
a Florida limited liability limited partnership (“Excel”) in the principal amount of not more than $
On
August 13, 2024, the Company borrowed an additional $
On
August 28, 2024, the Company borrowed an additional $
On
September 11, 2024, the Company borrowed an additional $
As
of September 23, 2024, $
On August 5, 2024, the board of directors approved the winding down and dissolution of its wholly owned subsidiary, UG Acquisition Sub, Inc.
On September 20, 2024, the Company changed its legal name from KeyStar Corp. to VIP Play Inc. and changed the per share par value of its capital stock from $0.0001 to $0.001. See Note 1.
| F-34 |