ESPORTS ENTERTAINMENT GROUP, INC. - Quarter Report: 2015 December (Form 10-Q)

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VGAMBLING INC.

DECEMBER 31, 2015

(Unaudited)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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VGAMBLING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2015 AND 2014

1.

Nature of Operations and Continuance of Business

VGambling Inc. (the “Company”) was incorporated in the state of Nevada on July 22, 2008.  On May 20, 2013, the Company entered into a Share Exchange Agreement with H&H Arizona Corporation, an Antigua and Barbuda corporation which is in the business of internet gambling.

On May 10, 2010, the Company completed its merger with Dongke Pharmaceuticals Inc., a Delaware company, in accordance with the Share Exchange Agreement.  Pursuant to the Share Exchange Agreement, the Company acquired all of the outstanding capital stock and ownership interests of Dongke from the Dongke shareholders.  In exchange for their interests, the Company issued to Donke shareholders an aggregate of 1,941,818 shares of the Company’s common stock.  The reverse merger was cancelled on April 30, 2013, and 26,700,000 shares were returned to treasure.

On May 20, 2013, the Company entered into a Share Exchange Agreement with H&H Arizona Corporation.  Under the terms of the agreement, the Company acquired all of the outstanding capital stock and ownership interests of H&H Arizona Corporation from the H&H Arizona shareholders.  In exchange for the interest, the Company issued to the H&H Arizona shareholders 50,000,000 shares of the Company’s common stock.  As a result of the consummation of the Exchange Agreement, H&H Arizona became the Company’s wholly-owned subsidiary and the Company’s operating entity.

H&H Arizona Corporation is treated as the “accounting acquirer” in the accompanying financial statements.  In the transaction, the Company issued 50,000,000 common shares to the shareholders of H&H Arizona Corporation; such shares represented, immediately following the transaction, 79% of the outstanding shares of the Company.  The transaction was accounted for as a “reverse merger” and a reverse recapitalization and the issuances of common stock were recorded as a reclassification between paid-in-capital and par value of Common Stock.

2.

Summary of Significant Accounting Policies

a)

Basis of Presentation

The financial statements present the balance sheet, statements of operations, stockholders' equity (deficit) and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.

The Company's consolidated financial statements are prepared using the accrual method of accounting. These consolidated statements include the accounts of the Company and its subsidiary H&H Arizona Corporation.  All significant intercompany transactions and balances have been eliminated. The Company has elected a June 30 year-end.

b)

Use of Estimates and Assumptions

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

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c)

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

d)

Income Taxes

The Company accounts for income taxes under ASC 740 "Income Taxes," which codified SFAS 109, "Accounting for Income Taxes" and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

e)

Net Loss per Share

Net income (loss) per common share is computed pursuant to ASC Topic 260 “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement.  

Basic loss per share includes no dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Dilutive loss per share reflects the potential dilution of securities that could share in the losses of the Company. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.

f)

Foreign Currency Translation

The Company’s functional and reporting currency is the US dollar. Foreign exchange items are translated to US dollars in accordance with ASC 830, “Foreign Currency Translation Matters”, using the exchange rate prevailing at the balance sheet date. Monetary assets and liabilities are translated using the exchange rate at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

g)

Share Based Expenses

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation, and ASC 505-50, Equity Based Payments to Non-Employees, using the fair value method. All transactions in which goods or 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. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

h)

Recent Accounting Pronouncements

The Company has limited operations and is considered to be in the development stage. During the year ended June 30, 2013, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this

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Update allows the Company to remove the inception-to-date information and all references to development stage.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

3.

Going Concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize it assets and discharge its liabilities in the normal course of business.  During the period ended December 31, 2015, the Company has an accumulated deficit of $758,135.  The Company is licensed to conduct online gambling.  The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

4.

Acquisition of H&H Arizona Corporation and Recapitalization

On May 20, 2013, the Company entered into a Share Exchange Agreement with H&H Arizona Corporation.  Under the terms of the agreement, the Company acquired all of the outstanding capital stock and ownership interests of H&H Arizona from the H&H Arizona shareholders.  In exchange for the interest, the Company issued to the H&H Arizona shareholders 50,000,000 shares of the Company’s common stock.  As a result of the consummation of the Exchange Agreement, H&H Arizona became the Company’s wholly-owned subsidiary and the Company’s operating entity.

5.

Related Party Transactions

a)

Grant Johnson, the President of the Company, had forgiven a total of $NIL and $27,763 during the six  months period ended December 31, 2015 and fiscal year ended June 30, 2015, respectively.  During the six months ended December 31, 2015 and 2014, the Company incurred salary of $30,000 and $30,000 to the President of the Company, respectively.  

b)

During the six months ended December 31, 2015, the Company incurred rent of $3,000 (2014 - $6,688) to the President of the Company.  

c)

On January 7, 2015, the Company issued 100,000 shares at a price of $0.05 per shares to a director for his advisory services for 2014.  

d)

On March 31, 2015, the President of the Company had forgiven a total of $24,993 for the rent expenses payable to him and the Company recorded them as additional paid in capital.

e)

On June 30, 2015, the President of the Company had forgiven a total of $2,770 for shareholder loan payable to him and the Company recorded them as additional paid capital.

f)

On January 30, 2015 the Company appointed Chul Woong “Alex” Lim as a Director of the Corporation.  Mr. Lim will be paid $20,000 per year for serving as a director.  During f the six months ended December 31, 2015, Mr. Lim received $10,000 compensation for serving as a director. The company owed $5,000 as of December 31, 2015.

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g)

On March 9, 2015 the Company appointed Yan Rozum as a Director of the Corporation.  Mr. Rozum will be paid $20,000 per year for serving as a director.  During the six months ended December 31, 2015, Mr. Rozum received $10,000 compensation for serving as a director. The company owed $5,000 as of December 31, 2015.

6.

Convertible promissory notes

a)

On February 28, 2014, the Company entered into a convertible promissory note agreement with an arms length individual whereby the Company has borrowed $9,367 (CAD$10,000).

The Note is interest bearing at 5% per month, calculated monthly, not in advance, The Company is obligated to repay the principal with any interest by December 31, 2014.  The Note is convertible into Common Shares at a 50% discount to the price of Common Shares offered in the next round equity investors of the Company.

The Company and noteholder agreed to convert the convertible promissory note plus accrued interest $2,729 (CAD$3,000) at $0.05 per share for a total of 236,500 shares in September 2014.  

b)

On April 4, 2014, the Company entered into a convertible promissory note agreement with an arms length individual whereby the Company has borrowed $50,000.  

The convertible promissory note is interest bearing at 12% per annum commencing April 4, 2014.  The Company is obligated to repay the principal with any interest by April 5, 2015 (the “maturity date”).  The convertible promissory note is convertible on or before the date of the repayment in full of this note in an equity finance resulting in gross proceeds to the Company of at least $500,000.00 (including the conversion of the note and other debts (a “Qualified Financing”)), then the holder of the outstanding principal and unpaid accrued interest balance of this note shall have the option to convert, in whole or in part, by the Holder into such note at a conversion price equal to 50% of the per share price paid by the investors, and otherwise on the same terms and conditions as given to the Investors in the Qualified Financing. If the conversion of this Note would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of one share of the class and series of shares into which this Note has converted by such fraction, unless such amount is less than ten dollars ($10).

The Company and noteholder agreed to convert the convertible promissory notes of $50,000 plus accrued interested $3,000 at $0.075 per share for a total of 706,667 shares in September 2014.

7.

Common Stock

a)

On May 10, 2010, the Company entered into a Share Exchange Agreement with the Dong Ke Pharmaceutical, Inc., a Delaware corporation.  Pursuant to the terms of the Share Exchange Agreement, the Company acquired all of the outstanding capital stock and ownership interests of Dong Ke from the Dong Ke shareholders.  In exchange for the interest, the Company issued to the Dong Ke shareholders 1,941,818 shares of the Company’s common stock.  Additionally, as a result of the consummation of the Exchange Agreement, 10,015,000 of the Company shares were cancelled.  

On April 30, 2013, the Company entered into an Agreement to reverse the above agreement and cancelled 1,941,818 of the Company shares.

b)

On April 30, 2013, the Company issued 10,000,000 shares at a fair value of $100,000 as a commencement bonus for consulting services to the Company’s President.  

c)

On May 20, 2013, the Company entered into a Share Exchange Agreement with H&H Arizona Corporation, an Antigua and Barbuda corporation.  Pursuant to the terms and the Share Exchange Agreement, the

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Company acquired all of the outstanding capital stock and ownership interest of H&H from the H&H shareholders.  In exchange for the interest, the Company issued to the H&H shareholders 50,000,000 shares of the Company’s common stock.

d)

On August 29, 2014, the $50,000 promissory note and accrued interested were converted to 706,667 shares of the Company’s common stock.

e)

On September 11, 2014, the $9,367 (CAD $10,000) promissory note and accrued interest were converted to 236,500 shares of the Company’s common stock.

f)

On September 11, 2014, the Company issued 308,000 shares at a fair value of $30,800 in exchange for consulting services.

g)

On September 11, 2014, the Company issued 1,580,000 common shares at $0.10 per share for proceeds of $158,000.

h)

On January 7, 2015, 300,000 common shares were issued at a price of $0.05 per share to the director and consultants in consideration for advisory services rendered to the Company. Also on January 7, 2015, 50,000 common shares were issued at a price of $0.05 per share to consultant in consideration for future website services rendered to the Company.

i)

On February 6, 2015, 100,000 common shares were issued at a priced of $0.19 per share to a director in consideration for future advisory services rendered to the Company.

j)

On March 13, 2015, 400,000 common shares were issued at a price of $0.15 per share plus 200,000 shares of warrant which has the rights to purchase the Company stocks at a price of $0.25 per share to a non related shareholder.

k)

On June 8, 2015, 900,000 common shares were issued at a price of $0.10 per share to a non related shareholder.

l)

On June 16, 2015, 765,000 common shares were issued at a price of $0.10 per share to a non related shareholder.

m)

On July 27, 2015, 60,000 common shares were issued at a price of $0.10 per share to a non related shareholder.

n)

On August 24, 2015, 106,000 common shares were issued at a fair value of $21,200 in exchange for consulting services.

8.

Subsequent Event

The Company has evaluated subsequent events through to the date of issuance of the financial statements, and did not have any material recognizable subsequent events after December 31, 2015.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Overview

VGambling Inc., ("VGambling", "the Company", “our” or "we") was incorporated in the State of Nevada as a for-profit company on July 22, 2008. VGambling is a development-stage next generation Internet gambling company. VGambling intends to offer users from around the world the ability to play and wager on multi-player video games and e-Sports events for real money in our licensed and secure environment. VGambling intends to conduct real money interactive gaming on a global basis from bases in Canada and Antigua. VGambling has recently been issued a Client Provider Authorization Permit to conduct real money interactive gaming on a global basis from a base in Canada by the Kahnawake Gaming Commission. VGambling has entered into a Betting Gaming Platform Software Agreement with Swiss Interactive Software GmbH to provide wagering platform software. VGambling has an agreement with CAMS, LLC to provide global electronic payment and risk management solutions.

VGambling is currently developing several bet for fun websites and the real money wagering website www.vgambling.bet.

Our business office is located at 60 Nevis Street, St. John’s, Antigua and Barbuda; our telephone number is (905) 580-2978. Our United States and registered statutory office is located at 112 North Curry Street, Carson City, Nevada, 89703, telephone number (775) 882-1013.

The Company has not yet implemented its business model and to date has generated no revenues.

VGambling has no plans to change its business activities or to combine with another business and is not aware of any circumstances or events that might cause this plan to change.

Results of Operations

Working Capital

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Cash Flows

Operating Revenues

From July 22, 2008 (date of inception) to December 31, 2015, the Company did not record any revenues.

Results of Operations for Three Month Period ended November 30, 2015

Operating Expenses and Net Loss

Operating expenses for the three months ended December 31, 2015 was $76,821compared to $75,990 for the three months ended December 31, 2014.  The Company incurred director’s fees of $25,000, an increase of $25,000 relating to additional board members, general and administrative expenses of $36,829, a decrease of $16,322 primarily in salaries and consulting fees, and a decrease of $7,847 in professional fees relating to decreased legal and audit costs.

Net loss for the three months ended December 31, 2015 was $75,937 compared with a net loss of $75,990 for the three months ended December 31, 2014.  

Results of Operations for Six Month Period ended November 30, 2015

Operating Expenses and Net Loss

Operating expenses for the six months ended December 31, 2015 was $159,906 compared to $150,852 for the six months ended December 31, 2014.  The Company incurred director’s fees of $50,000, an increase of $25,000 relating to additional board members, general and administrative expenses of $85,721, a decrease of $37,402 primarily in salaries and consulting fees, and a decrease of $3,544 in professional fees relating to decreased legal and audit costs.

Net loss for the six months ended December 31, 2015 was $159,562 compared with a net loss of $150,852 for the six months ended December 31, 2014.  

Plan of Operation

The Company has not yet generated any revenue from its operations. As of December 31, 2015 we had $9,285 of cash on hand. We incurred operating expenses in the amount of $159,906 in the six months ended

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December 31, 2015. These operating expenses were comprised of professional fees and office and general expenses. From the inception date to December 31, 2015, we incurred operation expense in amount of $758,135.

Our current cash holdings will not satisfy our liquidity requirements and we will require additional financing to pursue our planned business activities. We are in the process of seeking equity financing to fund our operations over the next 12 months. As of December 31, 2015 we have raised $753,113 from the sales of our common stock.

Management believes that if subsequent private placements are successful, we will generate sales revenue within the following twelve months thereof. However, additional equity financing may not be available to us on acceptable terms or at all, and thus we could fail to satisfy our future cash requirements.

Within 12 months after we are able to raise the necessary funds, we intend to complete the design, development and testing of our online wagering systems. Our planned operations during this period involve two phases:

In the first phase, we intend to complete the development, testing and launching of our real money wagering website. We intend to develop and launch our online wagering systems within six months after we are able to raise approximately $1,000,000.  

In the second phase, contingent upon a favourable outcome of the first phase, will begin our Marketing and Sales efforts. We intend to develop and implement our affiliate marketing program and to commence our online marketing campaign. We expect our marketing efforts to commence within 3 months prior to the first phase is completed. We estimate that the costs involved in the first six months of the second phase will be approximately $2,000,000.

After the first phase we will need to purchase approximately $500,000 of additional equipment.

We currently have one full time and three part time employees.  We plan to hire additional employees within 6 months after we are able to raise the necessary funds.

To date, our operations have been limited to technical and market research and organizational activities. We have recently begun to design and develop, we have not commenced to operate our wagering systems. To date, we have not generated any revenues from our operations.

On June 12, 2014, we entered into a Betting Gaming Platform Software Agreement with Swiss Interactive Software GmbH. Under the Agreement, Swiss Interactive agrees to grant VGambling an exclusive license to offer certain Swiss Interactive developed eSports wagering platforms for real money play and wagering. On October 21, 2014, we entered into an agreement with CAMS, LLC to provide VGambling with global electronic payment and risk management solutions. With this agreement, CAMS will provide VGambling IP Geo-Location services, Mobile Geo-Location, Device Intelligence, Player Age Verification, payment connectivity, chargeback representment and tokenization through a single integration to its centralized platform. On November 7, 2014 we were approved as an online merchant by Skrill Limited, a company that allows payments and money transfers to be made through the Internet with a focus on low-cost international money transfers. On November 11, 2014 we were approved as an online merchant by paysafecard, MAC Ltd., is Europe's most popular and proven internet payment method. On December 3, 2104 we were approved as an online merchant by Paypal Pte Ltd., a leader in the online financial transaction processing industry. On January 13, 2015 we were approved as online merchant by Neteller, an e-money/e-wallet stored-value service owned and operated by publicly traded British global payments company Optimal Payments PLC. On January 26, 2015 we were approved as an online merchant by Entropay which offers VISA and MasterCard virtual prepaid credit cards. On February 15, 2015 we were approved as online Bitcoin, Litecoin and Dogecoin merchant by GoCoin, a leader in the online virtual currency transaction processing industry.

We intend to submit an Application for Interactive Wagering License to the Financial Services Regulatory Commission of Antigua and Barbuda in early 2016.

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At the present time, we have not made any arrangements to raise additional cash. We will need additional cash and if we are unable to raise it, we will either suspend development and/or marketing operations until we do raise the cash necessary to continue our business plan, or we cease operations entirely. If we are unable to complete any phase of our business plan or marketing efforts because we don’t have enough money, we will cease our development and/or marketing activities until we raise money. Attempting to raise capital after failing in any phase of our business plan would be difficult. As such, if we cannot secure additional funds we will have to cease operations and investors will lose their entire investment.

Off Balance Sheet Arrangement

The company is dependent upon the sale of its common shares to obtain the funding necessary to carry its business plan.

Other than the above described situation the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures

Not required.

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PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Registrant is not currently involved in any litigation.

Item 1a.  Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosure

[Not Applicable]

Item 5.  Other Information

None

Item 6.  Exhibits

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SIGNATURES

In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 12th day of February, 2016.

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

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