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

Commercial Centre, Jolly Harbour

St. Mary’s, Antigua and Barbuda

(Address of principal executive offices)

Registrant’s telephone number, including area code:  (268) 562-9111

VGambling Inc.

(Former name or former address if changed since last report)

Indicate by check mark 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.  Yes [   ]   No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive DataFile required to be submitted and posted 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 and post such files).   Yes [   ]   No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).   Yes [   ]   No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 31, 2017, the registrant had 75,258,861 shares of common stock, $0.001 par value, issued and outstanding.

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INDEX

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PART 1. FINANCIAL STATEMENTS

ESPORTS ENTERTAINMENT GROUP, INC.

(formerly VGambling Inc.)

MARCH 31, 2017

(Unaudited)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

4

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

7

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 Shareholder of the company owning a majority of the Company’s outstanding shares of common stock proved 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, 2016 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 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

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

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.

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,

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

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 March 31, 2017, the Company has an accumulated deficit of $1,504,540.  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.

The Company had signed agreement with Monarch Bay Securities, LLC in June 2016 to raise $6 million to $8 million through sale of equity or equity linked securities in the next twelve months. However management cannot provide any assurances that the Company will be successful in accomplishing any of our plans.

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 March 31, 2017 and 2016, the Company incurred salary of $45,000 and $45,000 to the President of the Company, respectively.  As of March 31, 2017 and June 30, 2016, the Company owed $10,848 and $19,974 to the President, respectively.

b)

During the nine months ended March 31, 2017, the Company incurred rent of $3,407 (2016 - $3,362) 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.  

c)

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.

d)

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.

e)

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 $20,000 to Mr. Lim as of March 31, 2017.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

f)

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 $35,000 to Mr. Rozum as of March 31, 2017. On March 1, 2017, the Company issued 80,000 shares for $20,000 for director’s services.

g)

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 March 31, 2017. The Company issued 20,000 shares for $5,000 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 convertible note is default as of March 31, 2017. The Company agreed to pay $90,000 and paid $45,000 as of March 31, 2017. The settle of the debts resulted a loss on debt settle of $26,015.  As at March 31, 2017, the carrying value of the convertible debenture was $45,000 (2016 - $nil). The Company will issue additional shares for debt settlement.

As an investment incentive, the Company issued 427,777 five year cashless warrants, exercisable at $0.14 per share.

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 period ended March 31, 2017, the Company amortized $60,000 (2016 - $nil) of the debt discount to interest expense.

7.

Common Stock

a)

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

b)

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.

c)

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

d)

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

e)

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.

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Esports Entertainment Group, Inc.

(Formerly VGambling Inc.)

Notes to the Consolidated Financial Statements

f)

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

g)

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.

h)

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

i)

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

j)

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

k)

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

l)

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

m)

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

n)

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

o)

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

p)

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.

q)

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 investor, exercisable at $0.15 per share. The warrant is exercisable before December 1, 2019.

r)

On November 30, 2016, 66,680 common shares were issued at a price of $0.15 per share to non related shareholders.

s)

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

t)

On Feb 21, 2017, 100,000 common shares were issued at a price of $0.15 per share to non related shareholders.

u)

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

v)

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 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

Stock Purchase Warrant

The following table summarizes all warrant activities for the nine months ended March 31, 2017:

8.

Debt Forgiveness

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

9.

Subsequent Event

a)

On April 1, 2017, the Company issued 400,000 shares to Agoracom Investor Relations, non related investors, for service.

b)

On April 12, 2017, the Company issued 500,000 common shares to non related investors at $0.15 per share.

c)

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

d)

On May 1, 2017, the Company signed a Licensing Agreement with Sportradar AG for internet and Mobile Live Streaming Rights for online betting purposes.

e)

On May 16, 2017, the Company signed a subscription agreement with a non related investor to issue 600,000 common shares at $0.25 per share, and 600,000 warrants 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.

f)

On April 18, 2017, the Shareholder of the company owning a majority of the Company’s outstanding shares of common stock proved a change of the name of the Company from VGambling, Inc. to Esports Entertaiment Group, Inc.

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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 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$40 billion, with forecasts to exceed US$50 billion by 2017.  Source: H2 Gambling Capital, Global Online Gambling Report, July 2014.

The esports market represents the fastest growing sports market in the world.  Approximately 205 million people watched or played esports in 2014, according to market research firm Newzoo.  Total esports cash prizes surpassed $USD 40 million in 2015. According to Fortune Magazine, the esports fan base will surpass the NFL by 2017, while Forbes magazine projects fans of esports will wager $USD 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 2League 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 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 or player-to-player wagering system with no risk to the Company. Esports Entertainment plans to generate revenue from fees charged to

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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 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 percentage of tournament entry fees and will not have any of our own capital at risk. Esports Entertainment intends to offer users a wide selection of downloadable mobile and PC or console 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 like 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 mobile and PC 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; 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.  We expect our sales and marketing efforts to begin not less than 90 days prior to the commencement of wagering operations. We intend to develop and launch our online esports focused wagering website within six months of raising the necessary funds.

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 at 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 six months of raising the necessary funds.  We expect our sales and marketing efforts to begin within 180 days of the commencement of operations.

We currently have five full time and two part time employees.  We plan to hire additional employees before the commencement of online wagering operations.

In addition to technical and market research and organizational activities, we have recently begun to design and develop our wagering systems. As of March 31, 2017, we have not generated any revenue from our operations.

Our executive and business office is located at Commercial Centre, Jolly Harbour, St. Mary’s, Antigua and Barbuda. Our telephone number is (905) 580-2978.

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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 wagering under the Coliseum brand beginning in the second quarter of 2017.

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 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. 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 or 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 PC or game console and mobile versions of tournament play, under the Coliseum brand beginning in the second half of 2017, globally.

Antigua is a “UK white listed” gambling jurisdiction.  White listed gambling jurisdictions are those gambling jurisdictions that were allowed to advertise gambling services on-line in the United Kingdom and have more credibility in the online gambling industry. Accordingly, Esports Entertainment has submitted an Application for Interactive Wagering License to the Financial Services Regulatory Commission of Antigua and Barbuda in the 1st quarter of 2017.  If the license is granted, Esports Entertainment’s wholly-owned subsidiary will be able to conduct real-money online gambling and wagering activities on a global basis from Antigua.

Esports Entertainment believes that operating from Antigua, is beneficial for the following reasons:

·

access to experienced staff

·

access to premium office space

·

lower operating costs

Esports Entertainment’s wholly-owned subsidiary has been issued a Client Provider Authorization Permit from the Kahnawake Gaming Commission in Canada. This Permit allows Esports Entertainment’s wholly-owned subsidiary to conduct real-money online gambling and wagering activities on a global basis.

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

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eSports event wagering platforms for real money play and wagering.  We have recently begun the development and customization of the wagering system.

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

On August 25, 2016 we entered into an agreement with Income Access, a technology and digital marketing company serving the global iGaming industry. Under the agreement, Esports Entertainment will integrate Income Access’ award-winning affiliate management platform and Ad Serving tool to manage the operator’s forthcoming affiliate programme.

The Company will control the payments, customer service, marketing and other aspects of its business.

Land Based Operations

In June 2016, the Company made an offer to purchase the Grand Princess Casino, located in Jolly Harbor, Antigua, for $8,000,000 (US$).  As of May 15, 2017 the Company’s offer had not been accepted.  The offer was contingent, among other things, upon the Company being approved for the Citizenship by Investment Program (“CIP”) of Antigua and Barbuda.

If the offer is accepted, the Company plans to use the CIP program to finance the purchase price and the cost of refurbishing and renovating (estimated to be $4,750,000) the facility.

The Company will also need approximately $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 casino will not begin operations until six months after the needed capital is raised.

The CIP program was established following parliamentary assent to the Antigua and Barbuda Citizenship by Investment Regulations (2014).  These regulations allow the government to operate a program under which citizenship is granted to those who qualify under criteria set by parliamentary decision.  Through this program investors, along with their families, have the opportunity to apply for citizenship in Antigua and obtain a second passport.

Obtaining a passport through the CIP program allows an investor and his family to enjoy a number of benefits conferred by their citizenship.  A holder of an Antigua passport can enjoy visa-free travel to over 100 countries including the United Kingdom, Canada and all European Union Schengen countries.  In addition to the ability to travel freely, an investor can reside in Antigua for as long as he or she would like.

The CIP program requires a person to make a significant economic contribution to Antigua.  In exchange, and subject to application procedures, the applicants and their families are granted citizenship.  To qualify for citizenship, the primary applicant must be over 18 years of age, meet the application requirements and select one of the following Six investment options:

·

A contribution to the National Development Fund of a minimum non-refundable amount of US$200,000;

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·

An investment of at least US$400,000 into an approved real estate project to be held for at least 5 years;

·

An investment of a minimum of US$1,500,000 directly into an eligible business as sole investor or a joint investment involving at least two persons in an eligible business totalling at least US$5,000,000 and each of those persons individually invests at least US$400,000.

The Company has applied to have the Grand Princess Casino designated as an “approved real estate project”.  If approved, a person that invests at least $400,000 in an Antigua subsidiary of the Company will qualify the investor and his family for citizenship in Antigua and Barbuda.  The amounts invested in the Company’s subsidiary will be used to purchase and refurbish the Grand Princess Casino.

For each $1.00 invested, the investor will receive one share of the subsidiary’s preferred stock.  Each preferred share will pay an annual dividend of $0.08.  Dividends not paid will cumulate.

Beginning five years and one month after the issuance of the preferred shares, at the option of the holder, each preferred share will be convertible into shares of our common stock.  If converted, the number of shares of common stock to be issued will determined by dividing 1 by 80% of the average closing price of our common stock for the 30 trading days immediately preceding the date of the conversion.

Beginning five years after the issuance of the preferred shares, each preferred share is redeemable, at our option, in whole or in part, and on one or more occasions, at a price of $1.00 per share, plus accrued and unpaid dividends.

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 will 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

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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 social media of professional esports players and teams. We generate revenue in the form of ticket sales, third party sponsorship and advertising fees, both at the 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 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:

·

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.

·

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

·

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

·

use a multimedia approach focusing on acquiring and retaining customers.

·

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 brand will be featured prominently as a major sponsor of professional esports events held at the facility and broadcast globally.

Play-money gaming, which is permitted in most jurisdictions, involves players receiving virtual currency for free, or paying a fee to receive additional virtual currency, which can be used to play certain gaming offerings. Some play-money games may require an additional fee to download software upgrades or to buy-in to certain advanced play. Our proposed play-money games will initially consist of mobile video games, and PC and console video games. There will no cash prizes or other prizes for monetary value. The

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primary purpose of the play-money games will be to direct users to our real-money wagering portal.  We currently have eight real-money websites, available in local languages, under development.

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 Unikorn, Skillz, bet365, William Hill, and Pinnacle Sports, have far greater resources than Esports Entertainment.

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

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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.

Results of Operations

Working Capital

Cash Flows

Operating Revenues

From July 22, 2008 (date of inception) to March 31, 2017, the Company did not record any revenues.

Results of Operations for the three Months ended March 31, 2017

Operating Expenses and Net Loss

Operating expenses for the three months ended March 31, 2017 was $138,684 compared to $108,566 for the three months ended March 31, 2016.   The Company incurred director’s fees of $51,250, an increase of $1,250, general and administrative expenses of $75,555 an increase of $21,289 in salaries and consulting fees and professional fees of $11,878, an increase of $7,878 in professional fees relating to increased legal and audit costs.

Interest expense amounted to $14,836 for the three months ended March 31, 2017 and $ nil for the three months ended March 31, 2016. The increase in interest expense period over the prior period is the result of increased debt. Loss on debt settlement amounted to $26,015 for the three months ended March 31,

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2017 and $ nil for the three months ended March 31, 2016. The increase in loss on debt settlement period over the prior period is the result of settlement of convertible note.

Net loss for the three months ended March 31, 2017 was $179,594 compared with a net loss of $109,881 for the three months ended March 31, 2016.  

Results of Operations for the Nine Months ended March 31, 2017

Operating Expenses and Net Loss

Operating expenses for the nine months ended March 31, 2017 was $484,726 compared to $268,472 for the nine months ended March 31, 2016.   The Company incurred director’s fees of $97,500, a decrease of $2,500, general and administrative expenses of $347,001 an increase of $207,014 in salaries and consulting fees, and professional fees of $40,225, an increase of $11,740 in professional fees relating to increased legal and audit costs.

Interest expense amounted to $57,696 for the nine months ended March 31, 2016 and $ nil for the nine months ended March 31, 2016. The increase in interest expense period over the prior period is the result of increased debt. Loss on debt settlement amounted to $26,015 for the nine months ended March 31, 2017 and $ nil for the nine months ended March 31, 2016. The increase in loss on debt settlement period over the prior period is the result of settlement of convertible note.

Net loss for the nine months ended March 31, 2017 was $568,312 compared with a net loss of $269,443 for the nine months ended March 31, 2016.

Plan of Operation

The Company has not yet generated any revenue from its operations. As of March 31, 2017 we had $347,698 of cash on hand. We incurred operating expenses in the amount of $484,726 in the nine months ended March 31, 2017. These operating expenses were comprised of director’s fees, professional fees, and administrative and general expenses. From the inception date to March 31, 2017, we have net loss in amount of $1,504,540.

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 March 31, 2017 we have raised $1,822,025 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.

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.  We expect our sales and marketing efforts to begin not less than 90 days prior to the commencement of wagering operations. We intend to develop and launch our online esports focused wagering website within six months of raising the necessary funds.

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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 at 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 six months of raising the necessary funds.  We expect our sales and marketing efforts to begin within 180 days of the commencement of operations.

We currently have four full time and two part time employees.  We plan to hire additional employees prior to the commencement of wagering operations.

To date, our operations have included technical and market research and organizational activities, and we have recently begun to design and develop our wagering systems. As of March 31, 2017, we have not generated any revenue 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 Esports Entertainment an exclusive license to offer certain Swiss Interactive developed eSports wagering platforms for real money play and wagering. 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, 2014 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. On August 25, 2016 we entered into an agreement with Income Access, a technology and digital marketing company serving the global iGaming industry. Under the agreement, Esports Entertainment will integrate Income Access’ award-winning affiliate management platform and Ad Serving tool to manage the operator’s forthcoming affiliate programme.

The Company has made an offer to purchase the Grand Princess Casino in Antigua. The 3-story, 62,000 sq ft Grand Princess Casino will not be operated as a traditional casino. Rather, it will host more than 1,500 spectators as they watch live major esports events on the main floor while the events are broadcast globally on multiple video streaming platforms, as well as, provide up to 200 visitors with the opportunity to participate in video game tournaments on the second floor, all under the Esports Coliseum brand.

We recently submitted an Application for Interactive Wagering License to the Financial Services Regulatory Commission of Antigua and Barbuda.

Our auditor’s report on our June 30, 2016 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business.

We believe we have sufficient capital is available and that we will generate revenue within six months.

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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.

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 March 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 22^nd day of May, 2017.

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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