ESPORTS ENTERTAINMENT GROUP, INC. - Quarter Report: 2017 December (Form 10-Q)

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PART 1. FINANCIAL STATEMENTS

ESPORTS ENTERTAINMENT GROUP, INC.

(formerly VGambling Inc.)

DECEMBER 31, 2017

(Unaudited)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Esports Entertainment Group, Inc.

(formerly VGambling Inc.)

Consolidated Balance Sheets

(Unaudited)

See accompanying notes to consolidated financial statements

5

Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Consolidated Statement of Operations

(Unaudited)

See accompanying notes to consolidated financial statements

6

Esports Entertainment Group, Inc.

(formerly VGambling Inc.)

Consolidated Statement of Cash Flows

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

1. Nature of Operations and Continuance of Business

Esports Entertainment Group, Inc. (formerly 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.

On April 18, 2017, the majority of the shareholders of the Company’s common stock voted to approve a change of the name of the Company from VGambling Inc. to Esports Entertaiment Group, Inc.

2. Summary of Significant Accounting Policies

a) Basis of Presentation

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed on Form 10-K of the Company for the period ended June 30, 2017 and notes thereto contained.

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 subsidiaries Esports Services Antigua Ltd., Vie Esports Services B.V., and Esport Services (Malta) Limited.  All significant intercompany transactions and balances have been eliminated. The Company has elected a June 30 year-end.

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2.Summary of Significant Accounting Policies (Continued)

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.

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.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

2. Summary of Significant Accounting Policies (Continued)

h) Beneficial Conversion Feature

From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

i) Recent Accounting Pronouncements

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, 2017, the Company had an accumulated deficit of $3,041,065.  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) During the period ended December 31, 2017 and 2016, the Company incurred salary of $60,000 and $30,000 to the President of the Company, respectively.  As of December 31, 2017 and June 30, 2017, the Company owed $331 and $1,229 to the President, respectively.

b) During the six months ended December 31, 2017, the Company incurred rent of $1,292 (2016 - $2,274) to the President of the Company.  

c)  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.  Mr. Lim left the Company as of October 26, 2016.  The Company owed $NIL to Mr. Lim as of September 30, 2017.  The Company paid $5,000 for his director’s service for the year ended June 30, 2017.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

5. Related Party Transactions (Continued)

d)  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.  The Company owed $30,000 to Mr. Rozum as of December 31, 2017 ($25,000 as of June 30, 2017).  The Company issued 111,250 shares for $45,000 for director’s services.

e)  On October 26, 2016 the Company appointed David Watt as a Director of the Corporation.  Mr. Watt will be paid $25,000 per year for serving as a director.  The Company owed $7,357 to Mr. Watt as of December 31, 2017 ($1,107 as of June 30, 2017). The Company issued 29,190 shares for $12,352 for Director’s services.

6. Convertible promissory notes

On June 3, 2016, the Company entered into a convertible promissory note agreement with an arms-length individual whereby the Company has borrowed $60,000. The convertible note is issued by discounts of $5,000 and the company paid finder’s fee of $5,000.

The note is interest bearing at 8% per annum commencing June 3, 2016, if the note was paid off in full within 90 days following the Effective Date, the interest would be waived.  The Company is obligated to repay the principal with any interest by March 3, 2017 (the “maturity date”).   In the event of default, additional interest will accrue from the date of the event of default at the rate equal to the lower of 18% per annum or the highest rate permitted by law.  

This Note will become effective only upon the execution by both parties, and the Irrevocable Transfer Agent Instructions and delivery of the initial payment of consideration by the Holder (the “Effective Date”).

As an investment incentive, the Company issued 427,777 five-year cashless warrants, exercisable at $0.14 per share.  The exercisable warrants were cancelled, and the Company settled the warrants with 230,300 common shares.

The Company assessed the terms of the convertible debenture in accordance with 470-20-55, Debt with Conversion and Other Options.  On issuance, the Company recognized $38,432 for the fair value of the incentive warrants as additional paid-in capital based on the relative fair values of the convertible debenture and the incentive warrants. In addition, the Company assessed whether there was a beneficial conversion feature associated with the convertible debenture and recognize a debt discount of $11,568 for the full fair value of the convertible debenture with a corresponding adjustment to additional paid-in capital.  The debt discount will be accreted over the term of the debenture.  During the year ended June 30, 2017, the Company amortized $60,000 (2016 - $nil) of the debt discount to interest expense.

7.  Commitments

The Company signed a three-year lease agreement with Caribbean Developments (Antigua) Ltd. To rent a commercial space starting May 1, 2017 terminating on April 30, 2020.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

8.  Common Stock

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

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

c) On March 14, 2016, 60,000 common shares were issued at a fair value of $12,000 for consulting services.

d) On March 14, 2016, 200,000 common shares were issued at a fair value of $40,000 for director fees.

e) On April 7, 2016, 266,666 common shares were issued at a price of $0.15 per share to non-related shareholders.

f) On June 30, 2016, 466,680 common shares were issued at a price of $0.15 per share to non-related shareholders.

g) On June 30, 2016, 300,000 common shares were issued at a fair value of $60,000 for a prepayment for advertising service for the term of July 15, 2016 to July 15, 2017.

h) On September 21, 2016, 200,000 common shares were issued at a price of $0.15 per share to non-related shareholders. Company paid stock issuance cost of $7,526. Also, the Company issued 200,000 warrants to an investor, exercisable at $0.15 per share. The warrant is exercisable before December 1, 2019.

j) On December 31, 2016, 550,000 common shares were issued at a fair value of $137,500 for consulting services.

k) On Feb 21, 2017, 100,000 common shares were issued at a price of $0.15 per share to non-related shareholders. Also the Company issued 100,000 warrants to investors, exercisable at $0.15 per share. The warrant is exercisable before February 28, 2020

l) On March 1, 2017, 100,000 common shares were issued at a fair value of $25,000 for director fees.

m) On March 8, 2017, the Company issued 360,000 warrants to investors, exercisable at $0.15 per share.  The warrant is exercisable before March 8, 2022.

n) On March 31, 2017, 4,136,667 common shares were issued at a price of $0.15 per share to non-related shareholders.  Also the Company issued 4,136,667 warrants to investors, exercisable at $0.15 per share.  The warrant is exercisable before March 31, 2020.  The warrants are callable by the issuer any time after 12 months from the date the Company signed the subscription agreement with 30 days notice at a price of $0.05 per warrant.

o) On April 1, 2017, 400,000 common shares were issued at a fair value of $60,000 for service.

p) On April 1, 2017, 2,896,857 common shares were issued at a price of $0.15 per share to non-related shareholders.  Also, the Company issued 2,896,857 warrants to investors, exercisable at $0.15 per share. The warrant is exercisable before April 1, 2020.  

q) On April 22, 2017, the Company issued 92,000 common shares to non-related investors at $0.25 per share.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

8. Common Stock (continued)

r) On May 16, 2017, 600,000 common shares were issued at a price of $0.25 per share to non-related shareholders.  Also the Company issued 600,000 warrants to investors, exercisable at $0.25 per share.  The warrant is exercisable before May 16, 2020.  The warrants are callable by the issuer any time after 12 months from the date the equity investment is completed with 30 days notice at a price of $0.05 per warrant.

s) On May 24, 2017, 250,000 common shares were issued for compensation of fundraising. The Company recorded common stock and paid in additional capital of $250.

t) On June 30, 2017, 40,440 common shares were issued at a fair value of $32,352 for directors’ fee.

u) On June 26, 2017 the Company adopted an Employee Stock Incentive Plan. The Plan is intended to encourage ownership of Shares by Employees and directors of and certain Consultants to the Company and its Affiliates in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The number of Shares which may be issued from time to time pursuant to this Plan shall be 2,500,000 shares.  On August 1, 2017, the Company granted 521,500 options to 7 persons.

w) On July 6, 2017, the Company signed a subscription agreement with a non-related investor to issue 40,000 common shares at $0.25 per share, and 40,000 warrants exercisable at $0.25 per share.  The warrant is exercisable before July 6, 2020.  The warrants are callable by the issuer any time after 12 months from the date the Company signed the subscription agreement.

x) On July 16, 2017, the Company signed a subscription agreement with a non-related investor to issue 100,000 common shares at $0.25 per share, and 100,000 warrants exercisable at $0.25 per share.  The warrant is exercisable before July 16, 2020.  The warrants are callable by the issuer any time after 12 months from the date the Company signed the subscription agreement.

y) On July 17, 2017, the Company signed a subscription agreement with a non-related investor to issue 400,000 common shares at $0.25 per share, and 400,000 warrants exercisable at $0.25 per share.  The warrant is exercisable before July 17, 2020.  The warrants are callable by the issuer any time after 12 months from the date the Company signed the subscription agreement.

z) On July 17, 2017, the Company signed a subscription agreement with a non-related investor to issue 100,000 common shares at $0.25 per share, and 100,000 warrants exercisable at $0.25 per share.  The warrant is exercisable before July 17, 2020.  The warrants are callable by the issuer any time after 12 months from the date the Company signed the subscription agreement.

aa) On July 19, 2017, the Company issued 200,000 common shares at $0.15 per share, and 200,000 warrants exercisable at $0.15 per share in exchange for services.  The warrant is exercisable before July 18, 2020. The warrants are callable by the issuer any time after 12 months from the date the equity investment is completed with 30 days notice at a price of $0.05 per warrant.

bb) On July 20, 2017, the Company issued 100,000 common shares at $0.25 per share, and 100,000 warrants exercisable at $0.25 per share in exchange for services.  The warrant is exercisable before July 19, 2020. The warrants are callable by the issuer any time after 12 months from the date the equity investment is completed with 30 days notice at a price of $0.05 per warrant.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

8. Common Stock (continued)

cc) On July 24, 2017, the Company signed a subscription agreement with a non-related investor to issue 5,000 common shares at $0.50 per share, and 5,000 warrants exercisable at $2.00 per share.  The warrant is exercisable before July 23, 2018.

dd) On August 1, 2017, the Company granted stock options to certain Directors and employees of the Company. The stock options have an exercise price of $1.25. 213,667 stock options will vest on August 1, 2018, 100,000 stock options will vest on August 1, 2019, and 207,833 stock options will fully vest on August 1, 2020.

ff) On August 27, 2017, the Company signed a subscription agreement with a non-related investor to issue 300,000 common shares at $0.25 per share.

gg) On September 7, 2017, the Company signed a subscription agreement with a non-related investor to issue 20,000 common shares at $1.25 per share, and 20,000 warrants exercisable at $4.00 per share.  The warrant is exercisable before March 6, 2019.

hh) On September 21, 2017, the Company issued 156,667 common shares when the holder of 166,667 cashless warrants were exercised.

ii) On September 25, 2017, the Company signed a subscription agreement with a non-related investor to issue 4,000 common shares at $1.25 per share, and 4,000 warrants exercisable at $2.00 per share, and 4,000 piggyback warrants exercisable at $4.00 per share.  The warrant is exercisable before September 24, 2018 and the piggyback warrant is exercisable before September 24, 2019. The Company did not receive $5,000 and recorded $5,000 as subscription receivable as of September 30, 2017. The company received $30,000 in October 2017.

jj) On September 26, 2017, the Company issued 416,500 common shares at $0.15 per share for the 416,500 warrants were exercised.

kk) On September 29, 2017, the Company signed a subscription agreement with a non-related investor to issue 16,000 common shares at $1.25 per share, and 16,000 warrants exercisable at $2.00 per share, and 16,000 piggyback warrants exercisable at $4.00 per share.  The warrant is exercisable before September 28, 2018 and the piggyback warrant is exercisable before September 28, 2019.  The Company did not receive $20,000 and recorded $20,000 as subscription receivable as of September 30, 2017.  The Company received $20,000 in October 2017.

ll) On September 30, 2017, the Company signed a subscription agreement with a non-related investor to issue 44,800 common shares at $1.25 per share. The Company did not receive $56,000 and recorded $56,000 as subscription receivable as of September 30, 2017. The company received $56,000 in October 2017.

mm) On October 17, 2017, the Company issued 66,667 common shares at $0.15 per share for the 66,667 warrants were exercised.  

nn) On November 7, 2017, the Company signed a subscription agreement with a non-related investor to issued 15,500 common shares at $0.25 per share.  

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

8. Common Stock (continued)

Stock Purchase Warrant

The following table summarizes all warrant activities for the six months ended December 31, 2017:

9. Stock Options

On August 1, 2017, the Company adopted the 2017 Stock Incentive Plan (the “Plan”) whereby Incentive Stock Options issued to employees, officers, and directors to the Company to not exceed 2,500,000 stock options of which the purchase price of the stock options shall not be less than 100% of the fair market value of the Company’s common stock and the period for exercising the stock options not exceed 10 years from the date of grant. The Option price per share with respect to each option shall be determined by the Committee for non-qualified stock options.

During the period ended September 30, 2017, the Company issued 716,500 stock options to employees and officers of the Company.  The stock options are exercisable at $1.25 per share for a period of five years, and vest over a period of one to three years from the date of grant.

A summary of the Company’s stock option activity is as follows:

Additional information regarding stock options outstanding as at December 31, 2017, is as follows:

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

9. Stock Options (continued)

The fair value of the stock options granted was determined using the Black-Scholes option pricing model assuming no expected dividends and the following assumptions:

During the period ended December 31, 2017, the Company recorded stock-based compensation expense of $487,872, which has been recorded as salary expense in the statement of operations.  The schedule of vesting of stock options and stock-based compensation expense is as follows:

10.  Debt Forgiveness

Accounts payable was reduced $NIL (2016 - $22,068 (20,000 Euro)) because of debt forgiven by an arm’s length company. The Company recorded it as gain of forgiveness.

11.  Subsequent Event

a) On February 5, 2018 the Company incorporated Esports Entertainment (Malta) Limited in Malta as a wholly owned subsidiary.

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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

Esports Entertainment Group, Inc., ("Esports Entertainment", "the Company", “our” or "we") was incorporated in Nevada on July 22, 2008.  Esports Entertainment is a development-stage online gambling and 18+ gaming company and plans to offer wagering on esports events and the ability to participate in video game tournaments for real-money in a licensed and secure environment.

The online gambling market represents one of the fastest growing segments of the gambling industry. H2 Gambling Capital, a leading supplier of data and market intelligence on the global gambling industry, estimates the current size of the global online gambling market is in excess of US$50 billion.  Source: H2 Gambling Capital, Global Online Gambling Report 2016.

The esports market represents the fastest growing sports market in the world. According to market research firm Newzoo, the global esports audience will reach 385 million in 2017, made up of 191 million esports enthusiasts and a further 194 million occasional viewers. The number of enthusiasts is expected to grow by 50% toward 2020, totaling 286 million. According to Fortune Magazine, the esports fan base will surpass the NFL by 2017. In 2016, there were 424 esports events with a prize pool above $5,000 worldwide. North America held the 28% of the events, followed by Western Europe with 26%, and Eastern Europe with 13%. Total esports prize money in 2016 reached $93.3 million, up from $61.0 million in 2015, or an increase of 52.9% year on year. For major esports events with prize pools above $5,000, total prize money reached $81.5 million, up from $54.7 million in 2015, or an increase of 49.0% year on year. Forbes magazine projects fans of esports will wager $23 billion by 2020.

Esports is the professionalization of video games.  Contrary to its name, esports does not involve video games of traditional sports such as football and basketball. Rather, esports typically takes the form of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter, and multiplayer online battle arena games. The best-known example of an esports game among non-esports enthusiasts is Call of Duty. Currently, however, the two most successful esports games are Dota 2 and League of Legends (a multiplayer online battle arena game) and Counter Strike: Global Offensive (a first-person shooter game).  Other popular games include Smite, StarCraft II, Call of Duty¸ Heroes of the Storm, and Hearthstone. Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions such as WII (Nintendo), and Halo (343 Industries).

Although official competitions have long been a part of video game culture, participation and spectatorship of such events have seen a massive global surge in popularity with the rapid growth of online streaming over the last few years. The advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums (which are often sold out), as well as of online viewers

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(which regularly exceed 1,000,000 for major tournaments).  The impact has been so significant, that many video game developers now build features into their games designed to facilitate competition.

Esports Entertainment intends to offer esports enthusiasts from around the world, excluding the United States, the ability to wager on a wide variety of esports events. Esports Entertainment intends to offer users the opportunity to wager against other users utilizing a peer-to-peer wagering system with no risk to the Company. Esports Entertainment plans to generate revenue from fees charged to players based on a percentage of the amount wagered on an event. Esports Entertainment intends to offer spectators the ability to wager on all major professional esports events and a wide range of amateur esports events.

Esports Entertainment also intends to offer users from around the world, excluding 13 States within the United States, the ability to participate in online mobile and PC video game tournaments and win cash prizes. Participants will be able to enter and play against each other with prize money distributed to the last remaining competitors. Esports will collect a percentage of tournament entry fees and will not have any of its own capital at risk. Esports Entertainment intends to offer users a wide selection of video games of skill to be played online for real money in both small groups and major tournaments.

Esports Entertainment will not offer online users traditional casino style games such as poker, craps or slots, nor will it offer online wagering on traditional sporting events such as football or soccer. Esports Entertainment will be focused solely on offering online wagering on the widest range of esports events broadcast from around the world, as well as, hosting online video game tournaments for enthusiasts.

Given the global demand for live esports events, Esports Entertainment also intends to acquire the 62,000-square foot Grand Princess Casino in Antigua, for the purposes of converting it into an Esports Coliseum that will hold a variety of esports events such as: hosting spectators as they watch live esports events on the main floor; and hosting video game tournaments that provide visitors with the opportunity to participate in tournaments on the second floor.

Our initial plan to launch and operate our business involves two phases.

In the first phase, we intend to complete the development, testing and launching of our esports focused online gambling website. We estimate that the costs involved in completing the first phase will be approximately $2,000,000.  Our sales and marketing efforts began in the third quarter of 2017. We intend to launch our online esports focused wagering website in the first quarter of 2018.

In the second phase, we intend to acquire, renovate, equip and operate our land based Esports Coliseum.  We estimate the cost of acquiring and refurbishing the Grand Princess Casino in Antigua to be approximately $14,000,000.  We further estimate the cost of equipping and operating the esports focused multi-purpose facility at approximately $6,000,000 to $8,000,000.  We intend to acquire, renovate, equip and launch our esports focused multi-purpose facility in Antigua within twelve months of raising the necessary funds.  We expect our sales and marketing efforts to begin within twelve months of the commencement of operations.

We currently have twelve full time and three-part time employees.  If we are able to raise sufficient capital, we plan to hire additional employees by March 31, 2018.

To date, our operations have been limited to the design, develop and testing of our wagering systems. As of December 31, 2017, we have not commenced commercial operations. As of December 31, 2017, we have not generated any revenue from our operations.

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Our executive and business offices are located at Commercial Centre, Jolly Harbour, St. Mary’s, Antigua and Barbuda.  Our telephone number is (268) 562-1119.

Online Operations

Esports Entertainment intends to offer users from around the world, excluding the United States, the ability to wager on a wide variety of esports events. Esports event gambling involves spectators wagering online on the outcome of professional and amateur esporting events. Esports Entertainment intends to offer users the opportunity to wager against other users utilizing a peer-to-peer wagering system with no risk to the Company. Esports Entertainment intends to offer spectators the ability to wager on all major professional esports events and a wide range of amateur esports events that will be broadcast live via streaming services including, twitch.tv, azubu.tv, ustream.tv and youtube.com. Esports Entertainment currently expects to launch online and mobile versions of esports event betting under the VIE brand beginning in the first quarter of 2018.

Esports Entertainment also intends to offer users from around the world, excluding 13 States within the United States, the ability to enter and participate in online video game tournaments and win cash prizes. Participants will be able to enter and play against each other with prize money distributed to the last remaining competitors. We will collect a tournament entry fee for scheduled tournaments and will not have any of our own capital at risk. Esports Entertainment intends to offer users a wide selection of video games of skill to be played online for real money in small groups to major tournaments. Users will be able to enter and participate in tournaments utilizing their PC, game console or mobile device. In video game tournaments, players play against each other in either ring games (i.e., games for cash on a hand-by-hand basis) or in tournaments (i.e., players play against each other for tournament chips with prize money distributed to the last remaining competitors) or variations thereof. Esports Entertainment collects a percentage of each pot (the “rake”) in ring games and a tournament entry fee for scheduled tournaments and sit and go tournaments, which do not put any of the Company’s own capital at risk. Esports Entertainment expects to launch online and mobile versions of tournament play, initially utilizing simple video games and later more complex video games, under the VIE brand beginning in the second half of 2018, globally.

Esports Entertainment has been issued a Client Provider Authorization Permit from the Kahnawake Gaming Commission in Canada. The computer servers and related equipment required for our esports gambling business will be located in the data center facilities on the Mohawk of Kahnawake Indian Reservation in Canada. Although this Permit allows Esports Entertainment’s wholly-owned subsidiary to conduct real-money online gambling and wagering activities on a global basis, Esports Entertainment believes that also operating from Curacao, in addition to from the Mohawk Indian Reservation in Canada, is more beneficial for the following reasons:

·

access to experienced staff

·

access to premium office space

·

lower operating costs

Accordingly, Esports Entertainment has been issued a Curacao eGaming License in Curacao in the Kingdom of the Netherlands. The License allows Esports Entertainment’s wholly-owned subsidiary to conduct real-money online gambling and wagering activities on a global basis from Curacao.

We have a Betting Gaming Platform Software Agreement with Swiss Interactive Software GmbH, a company controlled by Yan Rozum, one of our directors. Under the Agreement, Swiss Interactive has agreed to grant Esports Entertainment an exclusive license to offer certain Swiss Interactive developed esports event wagering platforms for real money play and wagering.  

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We have agreements with a number of entities that allows us to process money transfers through the internet.

We will control the compliance, payments, customer service, marketing and other aspects of our business.

Land Based Operations

In December 2017, the Company made an offer to purchase the Grand Princess Casino, located in Jolly Harbor, Antigua, for $7,500,000 (US$).  A condition of the purchase is the Company is required to pay a deposit of $750,000. While the Company continues to seek additional sources of equity capital, as of December 31, 2017 the Company has not yet paid the required deposit.

In addition to the purchase price, the Company will also need approximately $5,000,000 to refurbish and renovate the facility plus $6,000,000 to $8,000,000 to purchase equipment and provide working capital during the start-up phase following its opening.  The Company estimates the facility, if and when it begins operations, will have approximately 12 employees and will cost approximately $50,000 per month to operate.  If the Company’s offer is accepted, and needed capital is raised, the Company estimates the esports casino will not begin operations until 12 months after the needed capital is raised.

The Grand Princess Casino will not be operated as a traditional casino.  Rather, it will host spectators as they watch live esports events on the main floor, as well as, provide visitors with the opportunity to participate in video game tournaments on the second floor, all under the Esports Coliseum brand.

A live esports event normally involves two or more professional teams which are contracted to participate.  The sponsor of the event is typically required to pay the transportation and lodging expenses of the participating teams.  The quality of teams participating is based on the cash prize offered to the winner.  As a sponsor of the event, we will be a major contributor to the cash prize pool with the goal of making the prize pool as large as possible so as attract the highest quality teams.

The Grand Princess Casino consists of 62,000 square feet over three floors and will be rebranded as the Esports Coliseum.

Initially, the first floor of the Esports Coliseum will be used to host events arranged by existing and established esports tournament organizers. We intend to work with multiple esports tournament organizers and arrange for them to host one or a series of events at the Esports Coliseum. As a permanent esports event hosting facility, tournament organizers will benefit from the cost efficiency of not having to ship, assemble and then remove the equipment and services needed to host an esports event involving multiple teams, 1,500 spectators and broadcasting in a temporary facility. The Esports Coliseum plans to generate revenue from facilities rental to tournament organizers in the form of a flat fee or as a percentage of ticket sales.

Ultimately, we also intend to organize and host our own esports events on the first floor of the Esports Coliseum. We intend to negotiate with multiple video game publishers to secure the rights to their game software to enable us to host one or more esports events at the Esports Coliseum. The cost of the game software licenses are negotiated individually and can be based on a flat fee, as a percentage of the prize pool, as a percentage of ticket sales, or at no cost. We intend to attract esports spectator demographic focused sponsors and advertisers to make financial contributes to the event prize pool. We intend to enter into agreements with the esports teams from around the world to have them participate in our events. The teams will have the opportunity to compete for the prize pool offered. We intend to broadcast globally all esports events live on multiple video streaming platforms, such as twitch.tv and youtube.com.  We intend to market the events primarily through online advertising on esports focused websites and the websites and

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social media of professional esports players and teams. We plan to generate revenue in the form of ticket sales, third party sponsorship and advertising fees, both at the Esports Coliseum and on online broadcasts of tournaments.

The second floor of the Esports Coliseum will provide a tournament play area with space for up to 200 participants who will play video games among themselves. The tournament play area will be equipped with 200 gaming stations, each of which will include the latest in gaming hardware and accessories, a computer with a large monitor, desk and ergonomic chair. Participants will be able to enter and play against each other for tournament chips with prize money distributed to the last remaining competitors. We will collect a tournament entry fee for scheduled tournaments and will not have any of our own capital at risk. No spectator seating will be available on the second floor and the tournaments played on the second floor will not be broadcast.

The second floor will also host a full-service restaurant and lounge. A portion of the third floor is planned for a roof top patio bar area. The remainder of the third floor will be utilized for offices.

Sales and Marketing

We plan to:

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implement an affiliate marketing program. Affiliate marketing is a type of performance-based marketing by which a business, such as ours, rewards affiliates for each customer brought by the affiliate's marketing efforts. Affiliate marketing is a very successful form of online marketing and is utilized by global leaders such as Amazon, Apple and all leading online gambling sites.

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advertise and sponsor major professional esports events held in stadiums around the world that are broadcast online to a global audience.

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utilize professional esports players and other celebrities, who have an interest in video games and esports, to generate new customers.

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use a multimedia approach focusing on acquiring and retaining customers.

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use online advertisements, paid search optimization, and various social media campaigns to increase our online presence and drive traffic to our website.

If we are able to acquire the Grand Princess Casino in Antigua, the Esports Entertainment brands will be featured prominently as a major sponsor of professional esports events held at the facility and broadcast globally.

Competition

The online gambling and wagering industry is increasingly competitive. With relatively low barriers to entry, new competitors are entering the esports wagering and video game tournament segments. In both of these segments, there currently exist several major competitors.  Because many of these competitors focus on delivering one product, as opposed to a full suite of esports and video gambling products and services that Esports Entertainment intends to offer, the competitors may offer an equivalent or superior product to that of the Company.  Esports Entertainment expects the number of companies offering products and services in each market segment to increase.  Many of Esports Entertainment’s current and potential competitors, including but not limited to Unikrn, Skilz, bet365, William Hill, Betway, and Pinnacle Sports, have far greater resources than Esports Entertainment.

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Regulations Affecting our Business

The offering and operation of online real-money gambling platforms and related software and solutions is subject to extensive regulation and approval by various federal, state, provincial, tribal and foreign agencies (collectively, “gaming authorities”). Gambling laws require us to obtain licenses or findings of suitability from gaming authorities for Esports Entertainment, including each of our subsidiaries engaged in these activities, and certain of our directors, officers, employees and in some instances, significant shareholders (typically beneficial owners of more than 5% of a company’s outstanding equity). The criteria used by gambling authorities to make determinations as to qualification and suitability of an applicant varies among jurisdictions, but generally require the submission of detailed personal and financial information followed by a thorough investigation. Gaming authorities have broad discretion in determining whether an applicant qualifies for licensing or should be found suitable. Gambling authorities generally look to the following criteria when determining to grant a license or finding of suitability, including (i) the financial stability, integrity and responsibility of the applicant, (ii) the quality and security of the applicant’s online real-money platform and gaming equipment and related software, as applicable, (iii) and, the past history of the applicant. Gambling authorities may, subject to certain administrative proceeding requirements, (i) deny an application, or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, and (ii) fine any person licensed, registered or found suitable or approved. Notwithstanding the foregoing, some jurisdictions explicitly prohibit gaming in all or certain forms and we will not market our gambling services in these jurisdictions. If any director, officer or employee of ours fails to qualify for a license or is found unsuitable (including due to the failure to submit the required documentation) by a gaming authority, we may deem it necessary, or be required to, sever our relationship with such person, which may include terminating the employment of any such person. Gambling authorities have the right to investigate any individual or entity having a material relationship with us, to determine whether such individual or entity is suitable or should be licensed to do business as a business associate of ours. In addition, certain gambling authorities monitor the activities of the entities they regulate both in their respective jurisdiction and in other jurisdictions to ensure that these entities are in compliance with local standards on a worldwide basis. As a regulated entity, we will be required to maintain strong corporate governance standards and will be required to, among other things, maintain effective internal controls over our financial reporting and disclosure controls and procedures, maintain systems for accurate record keeping, file periodic reports with gaming authorities and maintain strict compliance with various laws and regulations applicable to our business.

We will work to obtain all permits, authorizations, registrations and/or licenses required in the jurisdictions in which we operate.  We will have a zero-tolerance approach to money laundering, fraud and collusion and we will work with regulators and law enforcement globally in this area.  We plan to have a dedicated compliance team that will work to ensure that we comply with all regulatory requirements under our licenses, as well as all applicable anti-money laundering, anti-fraud and anti-collusion rules and laws.

We will be dedicated to responsible gambling practices and will seek to provide our customers with the resources and services they need to play responsibly. These practices, resources and services are expected to include deposit limits, table and game play limits, voluntary restrictions on access and use of certain games, self-exclusion and cooling off periods, and voluntary permanent exclusions from our services, sites and applications.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report.

Material changes in line items in our Statement of Operations for the six months ended December 31, 2017 as compared to the same period last year, are discussed below:

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Revenue and Expenses

We had no revenue from July 22, 2008 (inception) through December 31, 2017.

Our operating results for the six months ended December 31, 2017, and the six months ended December 31, 2016 are summarized as follows.

Our operating expenses are classified into several categories:

· Directors Compensation

· Consulting Fees

· Professional Fees

· General and Administrative Expenses

Directors Compensation is comprised of cash and stock fees paid to the Directors of the Company.  These amounted to $124,067 for the six months ended December 31, 2017 and $46,250 for the six months ended December 31, 2016.  The increase of $77,817 in Directors fees period over period is attributable primarily to the change in the Board members appointed during the year.

Consulting fees are comprised of cash and stock fees paid to Consultants to the Company. These amounted to $269,297 for the six months ended December 31, 2017 and $236,000 for the six months ended December 31, 2016. The increase of $33,297 in Consulting fees over the prior period is attributed primarily to additional work being contracted out by the Company to third party consultants.

Professional Fees consist primarily of our contracted accounting, legal and audit fees. These amounted to $59,745 for the six months ended December 31, 2017 and $28,347 for the six months ended December 31, 2016.  The increase of $31,398 in professional fees period over period is attributable primarily to increases in accounting, legal and audit fees for preparation and review of our filings with the Securities & Exchange Commission (SEC) in the quarter.

General and Administrative Expenses refers to our salaries, occupancy costs, marketing costs, travel costs, office supplies, telephone expenses, bank charges, fees to process and file documents with the SEC, stock transfer fees, investors relations costs, corporate filing fees, and other administrative expenses. These amounted to $813,420 for the six months ended December 31, 2017 and $35,445 for the six months ended December 31, 2016 respectively. The increase of $777,975 in 2017 versus 2016 is attributable primarily to increased business development activities, and included the issuance of 300,000 shares of common stock in the amount of $55,000 for investor relations services and the granting of 521,500 options to employees and Directors of the Company for stock based compensation of $156,181.

For the six months ending December 31, 2017 we incurred total operating expenses and resulting net loss of $1,266,529 and $1,266,905 respectively, and for the six months ending December 31, 2016 we incurred total operating expenses and resulting net loss of $346,042 and $388,718 respectively.

Capital Resources and Liquidity

For the six months ended December 31, 2017, cash used by operating activities was $718,276. Cash used by operating activities for the six months ended December 31, 2016 was $81,205. The change in cash used by operating activities was primarily due to the increase in the net loss during the period.

Cash used by investing activities during the six months ended December 31, 2017 was $80,995. Cash used by investing activities for the six months ended December 31, 2016 was $Nil. The change in cash

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used in investing activities is due to the cash used to purchase computer software and equipment during six months ended December 31, 2017.

Net cash provided by financing activities for the six months ended December 31, 2017 was $680,018. Cash provided by financing activities for the six months ended December 31, 2016 was $39,008. The change in cash provided by financing activities is due primarily to the increase in cash received from the issuance of shares during the six-month period ended December 31, 2017.

At December 31, 2017 we had $426,857 in cash, compared to $5,725 as at December 31, 2016.

The cost to launch our wagering systems and commence operations is estimated to be in approximately $2,000,000 over the next six months. In addition to the $8,000,000 purchase price, the Company will also need approximately $5,000,000 to refurbish and renovate the Grand Princess casino plus $6,000,000 to $8,000,000 to purchase equipment for the casino and to provide working capital during the start-up phase following its opening. Our current cash holdings will not satisfy our capital 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.  If we are unsuccessful in raising additional equity capital we will then have to seek additional funds through debt financing, which would be highly difficult for a new development stage company to secure and, which may not even be available. However, if such financing were available, we would likely have to pay additional costs associated with high risk loans and be subject to an above market interest rate. At such time these funds are required, management would evaluate the terms of available debt financing and determine whether our business could sustain operations and growth and manage the debt load. If we cannot raise additional capital we would be required to cease operations. As a result, investors in our common stock may lose all of their investment.

Our auditor’s report on our June 30, 2017 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business.

We believe that if sufficient capital is available, we will generate revenue within twelve months of raising the capital.

Other than the foregoing, we do not know of any trends that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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.

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Item 4. Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive and Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive and Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of December 31, 2017, our disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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 14^th day of March, 2018.

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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