ESPORTS ENTERTAINMENT GROUP, INC. - Quarter Report: 2018 September (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

_______________________________________

 (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 [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File 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 [X]   No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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 November 15, 2018, the registrant had 86,879,593 shares of common stock, $0.001 par value, issued and outstanding.

PART 1. FINANCIAL STATEMENTS

ESPORTS ENTERTAINMENT GROUP, INC.

SEPTEMBER 30, 2018

(Unaudited)

INDEX TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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Esports Entertainment Group, Inc.

Condensed Interim Consolidated Balance Sheets

(Unaudited)

 (Amounts expressed in US dollars)

Approved on behalf of the Directors:

“Grant Johnson”          “Yan Rozum”       
  Director            Director

See accompanying notes to condensed interim consolidated financial statements

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Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 (Amounts expressed in US dollars)

See accompanying notes to condensed interim consolidated financial statements

4

Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)

(Amounts expressed in US dollars)

5

Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(Amounts expressed in US dollars)

6

Esports Entertainment Group, Inc.

Notes to the Condensed Interim Consolidated Financial Statements

September 30, 2018

(Unaudited)

(Expressed in U.S. dollars)

1.

Nature of Operations and Going Concern

Esports Entertainment Group, Inc. (formerly VGambling Inc.) (the “Company”) was incorporated in the state of Nevada on July 22, 2008.  

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 Entertainment Group, Inc.

The Company’s activities are subject to significant risks and uncertainties, including failing to obtain the licenses required to operate its gambling business, failing to secure the additional funding required to fully operationalize the Company’s business, and the risk of existing or future competitors offering similar or more advanced technology.

The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations.  The Company has incurred recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue.

These consolidated 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.  As at September 30, 2018, the Company had an accumulated deficit of $4,675,745 and a working capital deficiency of $316,280. The Company has not generated any revenues during the period ended September 30, 2018.  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. See Note 13.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s evaluations are based on relevant conditions and events that are known and reasonably to be knowable as of November 19, 2018.  Based on the following, management believes that it is probable that management will be unable to meet its obligations as they come due within one year that the financial statements are issued.

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.  Such adjustments could be material.

2.

Presentation of Financial Statements

Basis of Presentation

The accompanying unaudited condensed interim consolidated 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

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The Company's consolidated financial statements are prepared using the accrual method of accounting. The consolidated statements include the accounts of the Company and its wholly owned subsidiaries Esports Services Antigua Ltd., Vie Esports Services B.V., Esport Services (Malta) Limited and Esports Entertainment (Malta) Ltd.  All material intercompany transactions and balances have been eliminated on consolidation.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements.

ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides clarity to preparers on the treatment of eight specific items within an entity’s statement of cash flows. The guidance becomes effective for all public entities in fiscal years beginning after December 15, 2017, including interim periods therein. The adoption of the amended guidance did not have a material impact on the Company’s financial statements.

ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU amends the scope of modification accounting for share-based arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The guidance becomes effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. The adoption of the amended guidance did not have a material impact on the Company’s financial statements.

In March 2018, FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 amends SEC paragraphs in ASC 740 to reflect SEC Staff Accounting Bulletin (SAB) No.118. When the 2017 Tax Cuts and Jobs Act (the "Act") was signed into law, the SEC staff released SAB 118 for applying Topic 740 as it relates to the Act. SAB 118 outlines the approach companies may take if they determine that the necessary information is not available (in reasonable detail) to evaluate, compute, and prepare accounting entries to recognize the effect(s) of the Act by the time the financial statements are required to be filed. Companies may use this approach when the timely determination of some or all of the income tax effect(s) from the Act is incomplete by the due date of the financial statements. SAB 118 also prescribes disclosures that reporting entities must provide in these circumstances. The amendments to the Accounting Standards Codification became effective upon issuance. The adoption of the amended guidance did not have a material impact on the Company’s financial statements.

The following are new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ASU No. 2016-02, Leases (Topic 842), On February 25, 2016, the FASB issued a new standard which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. The new guidance will require the asset and liability to be initially measured at the present value of the lease payments in the statement of financial position. The new guidance will also require the company to recognize interest expense on the lease liability separately from the amortization of the right-use-asset for finance leases and recognize a single lease cost allocated on a straight-line basis over the lease term for operating leases, in the statement of comprehensive income. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early application permitted. The Company is currently evaluating this guidance to determine the impact it may have on the Company’s financial statements.

 In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain

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internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU adds new disclosure requirements for Level 3 measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718). This ASU eliminated most of the differences between accounting guidance for share-based compensation granted to nonemployees and the guidance for share-based compensation granted to employees. The ASU supersedes the guidance for nonemployees and expands the scope of the guidance for employees to include both. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those years. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.

3.

Intangible Assets

During the three months ended September 30, 2018, the Company recorded total depreciation expense of $10,593 (September 30, 2017 - $1,996).   

4.

Equipment

During the three months ended September 30, 2018, the Company recorded depreciation expense of $2,228 (September 30, 2017 - $Nil).

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5.

Accounts Payable

Accounts payable were $415,395 as at September 30, 2018 (June 30, 2018 - $248,356).  Accounts payable are primarily comprised of trade payables of $329,107 (June 30, 2018 - $210,380) and payroll liabilities of $86,288 (June 30, 2018 - $37,976).

6.

Related Party Transactions

a) On May 20, 2013, the Company appointed Grant Johnson as President and a Director of the Company. Mr. Johnson is paid $120,000 per year for serving as President. During the three months ended September 30, 2018, the Company incurred salary of $30,000 (2017 - $30,000) to the President of the Company. As of September 30, 2018, the Company owed the President $6,005 (June 30, 2018 - $30,975).

b) During the three months ended September 30, 2018, the Company incurred rent of $1,200 (2017 - $1,202), charged by the President of the Company. As of September 30, 2018, the Company owed $2,751 (June 30, 2018 - $1,551) to the President related to rent payments.

c) On January 30, 2015, the Company appointed Chul Woong Alex Lim as a Director of the Company for which he receives annual compensation of $20,000.  Mr. Lim left the Company as of October 26, 2016. On March 15, 2018, the Company re-appointed Mr. Lim as a Director of the Company. During the three months ended September 30, 2018, the Company paid $5,000 (2017 - $5,000) for director’s fees.  During the year 2018, the Company issued 20,000 stock to Mr. Alex Lim and during the three months ended September 30, 2018, the Company recorded stock-based compensation expense of $3,481 (2017 - $Nil).  The Company prepaid $172 to Mr. Lim for his director’s fees as of September 30, 2018 (June 30, 2018 - $Nil). As of September 30, 2018, the Company owed $Nil (June 30, 2018 - $1,667) to Mr Lim for his director fees.

d) On March 9, 2015, the Company appointed Yan Rozum as a Director of the Company for which he receives annual compensation of $20,000.  Director’s fees for Mr. Rozum for the three months ended September 30, 2018 totaled $Nil (2017 - $20,000).  On November 22, 2017, the Company appointed Yan Rozum as Chief Technical Officer (“CTO”) of the Company for which he receives annual compensation of $75,000.  CTO fees for Mr. Rozum for the three months ended September 30, 2018 totaled $18,750 (2017 - $Nil). During the year 2018, the Company issued 75,000 stock options to Mr. Rozum and recorded stock-based compensation expense for three months ended September 30, 2018 of $13,053 (2017 - $Nil).  The Company owed $15,500 to Mr. Rozum as of September 30, 2018 (June 30, 2018 - $Nil).  

e) On October 26, 2016, the Company appointed David Watt as a Director for which he receives annual compensation of $25,000. Director’s fees for Mr. Watt for the three months ended September 30, 2018 totaled $5,000 (2017 - $5,000). The Company owed $15,557 to Mr. Watt as of September 30, 2018 (June 30, 2018 - $23,059). During the year 2018, the Company issued 20,000 stock options to Mr. Watt and recorded stock-based compensation expense for three months ended September 30, 2018 of $3,481 (2017 - $Nil).  The Company had provided an expense advance of $1,055 as of September 30, 2018 (June 30, 2018 - $11,331) to Mr. Watt, and the amounts are included in amounts receivable.

f) On December 11, 2017, the Company appointed Michał Kozłowski as Vice President of Finance. Mr. Kozłowski was paid 20,000 Polish Zloty ($5,367) per month before March 15, 2018 and 25,000 Polish Zloty ($6,709) per month after March 15, 2018. The Company owed $6,700 to Mr. Kozłowski as of September 30, 2018 (June 30, 2018 - $Nil). During the three months ended September 30, 2018, the Company incurred salary of $20,100 (2017 - $Nil) to the Vice President of Accounting. During the year 2018, the Company issued 80,000 stock options to Mr. Kozlowski and recorded stock-based compensation for three months ended September 30, 2018 of $12,800 (2017 - $Nil).

g) During the three months ended September 30, 2018, Swiss Interactive Software GmbH (“Swiss”) charged the Company software consulting fees of $Nil (2017 - $23,598) related to the development of the Company’s online gaming website.  Mr. Rozum is the controlling shareholder of Swiss and a director and the CTO of the Company. The Company owed $20,000 to Swiss as of September 30, 2018 (June 30, 2018 - $20,000).

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h) During the three months ended September 30, 2018, Ardmore Software SP.Z.O.O. (“Ardmore”) charged the Company IT consulting fees of $56,223 (2017 - $Nil) and $17,277 (2017 - $Nil) in rent expense, totalling $73,500. Mr. Rozum is the controlling shareholder of Ardmore and a director and the CTO of the Company. The Company owed $104,461 to Ardmore as of September 30, 2018 (June 30, 2018 - $84,869).

Amounts payable to related parties as disclosed above, are unsecured, non-interest bearing and due on demand.

Amounts due to shareholder are unsecured, non-interest bearing and due on demand. The shareholder is also a director and officer of the Company.

See also Notes 7 and 8.

7.

Promissory note

On August 13, 2018, the Company signed a promissory note with a shareholder, for principal of $50,000 bearing interest at 2% per month repayable by September 30, 2018. As a result of failure to repay the note by September 30, 2018, interest increased to 5% per month, and the note is now due on demand.

8.

Commitments and Contingencies

Management Agreements

On May 20, 2013, the Company appointed Grant Johnson as President and a Director of the Company.  Mr. Johnson is paid $120,000 per year for serving as President. In addition, the Company may pay a performance bonus of up to 50% of his base salary. The Company must pay three months’ salary for terminating the President without cause. 

On December 7, 2017, the Company appointed Yan Rozum as Chief Technology Officer of the Company.  Mr. Rozum will be paid $75,000 per year before the Company’s common stock is listing on the NASDAQ stock exchange, and $120,000 per year after the Company’s common stock is listed on the NASDAQ stock exchange. The Company must pay three months’ salary for terminating the Chief Technology Officer without cause and an additional one month’s salary for each full year of service.

On December 11, 2017, the Company appointed Michał Kozłowski as Vice President Accounting. Mr. Kozłowski will be paid 25,000 Polish Zloty ($6,664) per month for serving as Vice President Accounting. The Company must pay three months’ salary for terminating the Vice President Accounting without cause and an additional one month’s salary for each full year of service. 

Consultant Agreements

The Company has entered into various consulting agreements with minimum termination commitments totalling $91,000.

On June 12, 2014, the Company entered into a Betting Gaming Platform Software Agreement with Swiss Interactive Software GmbH. The monthly fees due under the agreement are based on the percentage of total revenues per month ranging from 5.0% to 10.0%. Monthly fees for platform support and maintenance services are set at a minimum of 2,500 Euros ($2,912) and a maximum of 25,000 Euros ($29,120). The Company must provide 30 days notice to terminate the agreement.

On August 1, 2017, the Company entered into a consulting agreement for compensation of $48,000 per year. If the Company’s generates revenues exceeding $1,000,000 per month for three consecutive months the base annual salary will increase to $72,000.

On July 13, 2018, the Company entered into an agreement in principle with an arm’s length party to assist the Company with an offering of common stock of the Company or any other financing.  Pursuant to this agreement, the Company advanced $50,000 for expenses which has been included in prepaid expenses as a

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deferred financing cost as at September 30, 2018.  In the event the agreement is terminated, the Company has agreed to reimburse the third party for the full amount of accountable expenses incurred to such date, up to a maximum of $200,000.  This agreement is subject to execution of a definitive underwriting agreement.

Lease Agreements

The Company entered into a five year lease agreement with Polskie Nieruchomości Sp. Z.O.O. to rent office space starting on July 1, 2018 and terminating on November 20, 2022.  Minimum payments for successive years ending June 30, are as follows:

The Company entered into a three-year lease agreement with Caribbean Developments (Antigua) Ltd. to rent commercial space starting on May 1, 2017 terminating on April 30, 2020. After the first twelve months, either party can terminate the lease agreement. Minimum payments for successive years ending June 30, are as follows:

Service Agreements

On September 6, 2016, the Company entered into an affiliate marketing agreement for a six month period from launch of the website, www.vie.gg. Affiliate fees under this agreement range from 20% to 40% of monthly revenue. The Company must provide thirty days written notice for termination.

On February 26, 2018, the Company entered into a one year service agreement expiring on March 1, 2019. Minimum monthly commitment of 7,500 Euros ($8,736) of which the Company must pay three months’ notice if terminated.

Contingency

Boustead Securities, LLC (“Boustead”) has notified the Company that it owes Boustead $192,664, as well as warrants to purchase 1,417,909 common shares of the Company, as compensation for their acting as the placement agent for the sale of Company securities between June 2017 and 2018.  Unless this matter is settled, Boustead has notified us that they plan to file an arbitration claim to resolve this dispute.  Management believes this claim to be without merit as it is management’s position that Boustead has been paid in full for the services provided and that no further cash or warrants are owed.  

9.

Common Stock

Issued

a) On July 5, 2017, the Company issued 800,000 units at $0.25 per unit for cash proceeds of $200,000. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $0.25. The warrants are exercisable before July 5, 2020.  The warrants are callable by the Company any time after July 5, 2018 with 30 days notice at a price of $0.05 per warrant.

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b) On July 6, 2017, the Company issued 400,000 units at $0.25 per unit for cash proceeds of $100,000.  Each unit consists of one common share and one warrant.  Each warrant entitles the holder to purchase one common share at $0.25. The warrants are exercisable before July 6, 2020.  The warrants are callable by the Company any time after July 6, 2018 with 30 days notice at a price of $0.05 per warrant.

c)

On July 16, 2017, the Company issued 100,000 units at $0.25 per unit for cash proceeds of $25,000. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $0.25. The warrants are exercisable before July 16, 2020.  The warrants are callable by the Company any time after July 16, 2018 with 30 days notice at a price of $0.05 per warrant.

d)

On July 17, 2017, the Company issued 290,000 units at $0.25 per unit for cash proceeds of $72,500. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $0.25. The warrants are exercisable before July 17, 2020.  The warrants are callable by the Company any time after July 17, 2018 with 30 days notice at a price of $0.05 per warrant.

e)

On July 19, 2017, the Company issued 200,000 units at $0.15 per unit to an arm’s length consultant in exchange for services of $30,000.  Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $0.15. The warrants are exercisable before July 19, 2020.  The warrants are callable by the Company any time after July 19, 2018 with 30 days notice at a price of $0.05 per warrant.

f)

On July 20, 2017, the Company issued 100,000 units at $0.25 per unit for cash proceeds of $25,000. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $0.25. The warrants are exercisable before July 19, 2020. The warrants are callable by the issuer any time after July 20, 2018 with 30 days notice at a price of $0.05 per warrant.

g) On July 24, 2017, the Company issued 5,000 units at $0.50 per unit for cash proceeds of $2,500. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $2.00. The warrants are exercisable before July 24, 2018.  

h) On August 8, 2017, the Company issued 10,000 units at $1.25 per unit for cash proceeds of $12,500. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $2.00. The warrants are exercisable before February 8, 2019.  

i) On August 27, 2017, the Company issued 300,000 common shares at $0.25 per share for cash proceeds of $75,000.

j) On September 7, 2017, the Company issued 20,000 units at $1.25 per unit for cash proceeds of $25,000. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $4.00. The warrants are exercisable before March 6, 2019.  

k) On September 21, 2017, the Company issued 156,667 common shares upon the exercise of 166,667 warrants exercised at $0.15 on a cashless basis. 10,000 common shares were held back by the Company as consideration for the exercise.

l) On September 26, 2017, the Company issued 101,000 common shares at $0.15 per share upon the exercise of 101,000 warrants.

m) On September 27, 2017, the Company issued 44,800 units at $1.25 per unit for cash proceeds of $56,000. Each unit consists of one common share and one warrant. Each warrant entitles the holder to purchase one common share at $4.00. The warrants are exercisable before March 30, 2019.  

n) On September 29, 2017, the Company issued 4,000 units at $1.25 per unit for cash proceeds of $5,000. Each unit consists of one common share, one warrant and one piggyback warrant. Each warrant entitles the holder to

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purchase one common share at $2.00. Each piggyback warrant entitles the holder to purchase one common share at $4.00. The warrant is exercisable before September 24, 2018 and the piggyback warrant is exercisable before September 24, 2019.

o) On September 29, 2017, the Company issued 16,000 units at $1.25 per unit for cash proceeds of $20,000. Each unit consists of one common share, one warrant and one piggyback warrant. Each warrant entitles the holder to purchase one common share at $2.00. Each piggyback warrant entitles the holder to purchase one common share at $4.00. The warrant is exercisable before September 28, 2018 and the piggyback warrant is exercisable before September 28, 2019.  

p) On October 17, 2017, the Company issued 66,667 common shares at $0.15 per share upon the exercise of 66,667 warrants.  

q) On October 31, 2017, the Company issued 315,500 common shares at $0.15 per share upon the exercise of 315,500 warrants.

r) On November 7, 2017, the Company issued 15,500 common shares at $0.25 per share for cash proceeds of $3,875.

s) On March 2, 2018, the Company issued 120,000 common shares at $0.75 per share to an arm’s length consultant for marketing services provided, of which $84,706 was reflected as a prepaid expense at June 30, 2018. The share value was based on the quoted value of the stock at the time of issue.

t) On April 4, 2018, the Company issued 16,000 common shares at $0.25 per share upon the exercise of 16,000 warrants.

u) On April 26, 2018, the Company issued 100,000 common shares at $0.20 per share for cash proceeds of $20,000.

v) On April 26, 2018, the Company issued 166,667 common shares at $0.20 per share for cash proceeds of $33,333.

w) On May 21, 2018, the Company issued 170,000 common shares at $0.15 per share upon the exercise of 170,000 warrants.

x) On June 11, 2018, the Company issued 250,000 common shares at $1.00 per share to an arm’s length consultant for referral services of which, $185,625 was reflected as a prepaid expense at June 30, 2018.  The share value was based on the quoted value of the stock at the time of issue.

y) On June 18, 2018, the Company issued 25,000 common shares at $0.20 per share for cash proceeds of $5,000.

z) On June 20, 2018, the Company issued 20,000 common shares at $0.80 per share to an arm’s length consultant for advisory services provided. The share value was based on the quoted value of the stock at the time of issue.

aa) On July 26, 2018, the Company issued 360,000 common shares at $0.15 per share upon the exercise of 360,000 warrants. As of June 30, 2018, 193,333 of the warrants exercised had been reflected as shares to be issued.

bb) On July 26, 2018, the Company issued 15,000 common shares at $0.80 per share in exchange for services of $12,000 to a consultant for advisory services provided.  

cc) On July 26, 2018, the Company issued 206,667 common shares at $0.15 per share. As of June 30, 2018, this had been reflected as shares to be issued.

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dd) On July 31, 2018, the Company issued 150,000 common shares to a consultant at $0.85 per share for advisory services of $127,500 pursuant to an agreement dated June 19, 2018. As of June 30, 2018, this had been reflected as shares to be issued.

ee) On August 3, 2018, the Company issued 333,333 common shares at $0.15 per share upon the exercise of 333,333 warrants.

ff) On August 16, 2018, the Company issued 1,566,667 common shares at $0.15 per share upon the exercise of 1,566,667 warrants. As of June 30, 2018, 1,266,667 of the warrants exercised had been reflected as shares to be issued.

gg) On August 27, 2018, the Company issued 100,000 common shares at $0.15 per share for exercise of warrants.

hh) On September 5, 2018, the Company issued 66,667 common shares at $0.15 per share upon the exercise of 66,667 warrants.

ii) On September 6, 2018, the Company issued 300,000 common shares at $0.25 per share upon the exercise of 300,000 warrants.

jj) On September 6, 2018, the Company issued 200,000 common shares at $0.15 per share upon the exercise of 200,000 warrants.

Equity to be issued

(kk) As of September 30, 2018, the Company was committed to issue 100,000 shares valued at $62,000 on the quoted value of the stock at the time of the commitment, to a consultant for advisory services pursuant to an agreement dated September 15, 2018. These common shares were issued subsequent to September 30, 2018 (note 13(c)).

Warrants

A summary of the Company’s warrant activities is as follows:

The intrinsic value of the warrants exercised during the three months ended September 30, 2018 was $1,622,800. There were no warrants exercised during the three months ended September 30, 2017.  

As at September 30, 2018, the following warrants were outstanding:

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10.

Stock Options

On August 1, 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”) whereby incentive stock options issued to employees, officers, and directors of the Company shall not exceed 2,500,000 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.

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

As at September 30, 2018, the following options were outstanding:

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As at September 30, 2018, the weighted average remaining life of the options was 3.73 years.

During the three months ended September 30, 2018, the Company recorded stock-based compensation expense of $126,829 (2017 - $185,540) which has been recorded as stock based compensation in the statements of operations. As of September 30, 2018, there was $221,123 of unrecognized expense related to non-vested stock-based compensation arrangements (June 30, 2018 - $347,952).

The following table provides the details of the total stock-based payments expense during the three months ended September 30, 2018 and 2017:

11.

Segmented Information

The following table summarizes financial information by geographic segment for the three months ended September 30, 2018:

12.

General and Administrative Expenses

The following table summarizes general and administrative expenses for the three months ended September 30, 2018 and 2017:

13.

Subsequent Events

a) On September 24, 2018, the Company entered into an agreement to issue senior secured convertible promissory notes bearing interest at 5% per annum (the “Notes”).  The Notes, with a principal value of $2,200,000, would be purchased at a 10% discount for $2,000,000 and mature 12 months from the closing date.  As at November 19, 2018, these Notes had not been issued.

If the Company defaults, the holders would have the right to be paid 130% of the outstanding principal balance and accrued interest immediately due prior to such event of default. Following an event of default, interest

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would accrue at rate of 1.5% per month until paid.

The Notes may be prepaid at any time in an amount equal to 110% of the outstanding principal and accrued interest for the first 180 days and 125% of the outstanding principal and accrued interest for days 181-365 days after issuance. In order to prepay the Notes, the Company must give at least 20 trading days written notice to the Investors, during which time the holders may convert the Notes in whole or in part.

The holder of the Note would be entitled at any time after the requisite 144 holding period, to convert all or any amount of the principal face amount of the Notes then outstanding into common shares at a price of $0.60 per share.  In the event of default, the conversion price would be equal to 80% of the lowest trading price of the common stock as reported on the OTCQB or other principal market where the Company's common stock is traded for the twenty prior trading days.

100% warrant coverage would be exercisable for a period of 3 years post issuance at an exercise price of $0.75 per share. The warrants would contain a cashless exercise provision if not covered by a registration statement. The Company may call the warrants if the stock trades at $1.25 for a period of 10 straight trading days and are covered by an effective registration statement and the average daily volume of the common stock for the previous 10 trading days must be greater than $75,000. The Company would pay legal fees at the closing of up to $20,000.

b) On October 4, 2018, the Company issued 15,000 common shares to a consultant for advisory services pursuant to an agreement dated June 15, 2018.

c) On October 12, 2018, the Company issued 100,000 shares to a consultant for advisory services pursuant to an agreement dated September 15, 2018. At September 30, 2018, these shares had been reflected as shares to be issued.

d) On October 12, 2018, the Company cancelled 120,000 options that were granted during the year ended June 30, 2018 to a consultant of the Company.  

e) On November 13 and 14, 2018 the Company sold senior secured convertible promissory notes in the principal amount of $1,914,000 to a group of private arm’s length investors.  The Company received gross proceeds of $1,740,000 from the sale of the notes, after an original issue discount of $174,000.  The notes bear interest at 5% per year and are secured by all of the Company’s assets.  notes in the principal amount of $1,650,000 mature on November 13, 2019.  A note in the principal amount of $264,000 matures on November 14, 2019.  The notes are convertible into shares of the Company’s common stock, initially at a conversion price of $0.60 per share, subject to adjustment.

If an Event of Default occurs, the outstanding principal amount of the notes, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the notes will become, at the note holder’s election, immediately due and payable in cash at the Mandatory Default Amount. The Mandatory Default Amount means the sum of 130% of the outstanding principal amount of the Notes plus accrued and unpaid interest, including default interest of 18% per year, and all other amounts, costs, expenses and liquidated damages due in respect of the notes.

The note holders also received warrants which collectively allow the note holders to purchase up to 3,190,000 shares of the Company’s common stock.  The warrants are initially exercisable at a price of $0.75 per share, subject to adjustment, and expire in November, 2021.

The placement agent for the offering received cash compensation of $159,200 and warrants to purchase 638,000 shares of the Company’s common stock, at an initial exercise price of $0.75 per share, subject to adjustment (“Agent Warrants”).  The Agent Warrants may be exercised on a “cashless” basis and will expire in November 2023.

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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

We are an online gambling company.  We offer persons (which we sometimes refer to as “players”) the ability to wager on a wide variety of esports events in a licensed and secure environment.  Esports is the competitive playing of video games by amateur and professional teams for cash prizes. Esports event gambling involves players wagering online on the outcome of professional esports events.  In the future, we intend to also offer players the ability to participate in video game tournaments for cash prizes.  

We were incorporated in Nevada on July 22, 2008.  Our company was engaged in a number of different enterprises up until May 20, 2013, when, pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of H&H Arizona in exchange for 50,000,000 shares of our common stock.  From May 2013 until August 2018, our operations were limited to designing, developing and testing our wagering systems. We launched our online esports wagering website (www.vie.gg) in August 2018. We are currently the only online gambling company focused on esports to offer bet exchange style wagering, player VS player (“PvP”) betting, on professional esports events.

Esports is video game played competitively for spectators, typically by professional gamers.  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. A well-known example of an Esport game is Call of Duty. Currently, however, the two largest selling esports games are Dota 2, 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, Hearthstone and Fortnite. Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions such as WII (Nintendo), and Halo (343 Industries).  Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including, twitch.tv, azubu.tv, ustream.tv and youtube.com.

According to market research firm Newzoo, in 2018 the total global esports audience will reach 380.2 million. Esports Enthusiasts, which are people who watch professional esports content at least once a month, will make up 165.0 million of the total up from 143.2 million in 2017, and will grow with a CAGR (2016-2021) of +15.6% to reach almost 250 million in 2021. The number of Occasional Viewers, which are people who watch professional esports content less than once a month, will reach 215.2 million in 2018, up from 191.9 million in 2017, and will grow with a CAGR of +14.0% to surpass 306 million in 2021. The number of people who are aware of esports worldwide will reach 1.6 billion in 2018, up from 1.3 billion in 2017. China is expected to contribute most to global esports awareness, with 468.3 million people aware of esports. The increasing exposure of esports as a mainstream entertainment industry is driving the growth in awareness in most regions.  Audience and awareness growth in the emerging regions of Latin America, Middle East and Africa, Southeast Asia, and Rest of Asia is largely driven by improving IT infrastructure and urbanization. The rise of new franchises, such as PLAYERUNKNOWN’S BATTLEGROUNDS or PubG, is an important global growth factor. The influx of millennials, to whom esports is a natural phenomenon, will further drive the growth of the industry’s audience.

In 2017, there were 588 major esports events that generated an estimated $59 million in ticket revenues, up from $32 million in 2016. The total prize money of all esports events held in 2017 reached

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$112 million, breaking the $100 million mark for the first year.

Forbes magazine projects fans of esports will wager $23 billion on professional esports events by 2020.

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), and by 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.

Results of Operations

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 three months ended September 30, 2018 as compared to the same period last year, are discussed below:

Revenue and Expenses

Our operating expenses are classified into several categories:

·

Directors Compensation

·

Consulting Fees

·

Professional Fees

·

General and Administrative Expenses

·

Stock Based Compensation

Directors Compensation is comprised of cash and stock option compensation paid to the directors of the Company.  These amounted to $13,271 for the three months ended September 30, 2018, and $57,822 for the three months ended September 30, 2017.  The decrease of $27,979 in Director’s fees period over period is attributable primarily to the change of a Board member to an Executive subsequent to the three months ended September 30, 2018.

Consulting Fees are comprised of cash and stock option compensation paid to consultants to the Company. These amounted to $166,315 for the three months ended September 30, 2018, and $141,114 for the three months ended September 30, 2017. The increase of $25,201 in consulting fees over the prior period is attributed primarily to additional work being contracted out by the Company to third party consultants in the current year.

Professional Fees consist primarily of our contracted accounting, legal and audit fees. These amounted to $25,995 for the three months ended September 30, 2018, and $48,224 for the three months ended September 30, 2017.  The decrease of $22,229 in the three months 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 2017.

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 with the State of Nevada, and other administrative expenses. These amounted to $540,370 for the three months ended September 30, 2018, and $158,524 for the three months ended September 30, 2017, respectively. The increase of $381,846 in 2018

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versus 2017 is attributable primarily to increased business development activities associated with the commencement of online operations.

Stock based compensation refers to common shares issued to employees and consultants as part of the compensation package. These amounted to $126,829 for the three months ended September 30, 2018 and $185,540 for the three months ended September 30, 2017. The decrease of $58,711 in 2018 versus 2017 is attributable to options being issued in 2017 versus options only vesting in 2018.

 For the three months ending September 30, 2018, we incurred total operating expenses and resulting net loss of $872,780 and $872,923 respectively, and for the three months ending September 30, 2017, we incurred total operating expenses and resulting net loss of $574,652 and $575,028, respectively.

Capital Resources and Liquidity

The Company’s sources and (uses) of cash for the three months ended September 30, 2018 and 2017 are shown below:

2018

2017

Cash used in operating activities                                        $(309,802)           $(385,223)

Cash used in investing activities                                            (18,132)          (54,670)

Cash provided by financing activities

       248,397        

585,143

On November 13 and 14, 2018 the Company sold senior secured convertible promissory notes in the principal amount of $1,914,000 to a group of private arm’s length investors.  The Company received gross proceeds of $1,740,000 from the sale of the notes, after an original issue discount of $174,000.  The notes bear interest at 5% per year and are secured by all of the Company’s assets.  Notes in the principal amount of $1,650,000 mature on November 13, 2019.  A note in the principal amount of $264,000 matures on November 14, 2019.  The notes are convertible into shares of the Company’s common stock, initially at a conversion price of $0.60 per share, subject to adjustment.

The note holders also received warrants which collectively allow the note holders to purchase up to 3,190,000 shares of the Company’s common stock.  The warrants are initially exercisable at a price of $0.75 per share, subject to adjustment, and expire in November, 2021.

The Placement Agent for the offering received cash compensation of $159,200 and warrants to purchase 638,000 shares of the Company’s common stock, at an initial exercise price of $0.75 per share, subject to adjustment (“Agent Warrants”).  The Agent Warrants may be exercised on a “cashless” basis and will expire in November 2023.

Our projected capital requirements during the next 18 months are as follows:

Project

Estimated Cost

Launch our skill-based video game tournaments for

     play on mobile devices

$   500,000

Launch our skill-based video game tournaments for

     play on PCs and video game consoles

    $1,000,000

Obtain online gaming license from, and establish

    operations in, Malta

    $1,000,000

Obtain online gaming license from, and establish

     operations in, an Asian country to be selected

     by us.

      $    500,000

Market our online betting services

$5,000,000

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In addition to the $7,500,000 purchase price the Grand Princess casino, we will also need additional capital to refurbish and renovate the casino and to purchase equipment for the casino, estimated at approximately $15,000,000, and to provide working capital during the start-up phase following its opening. We expect the monthly operating expenses for the casino to be approximately $25,000. 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 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, 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, 2018 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business.

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 Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We conducted an evaluation, with the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2018, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive/principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer/Chief Financial Officer have concluded that as of September 30, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

Management identified the following four material weaknesses that have caused management to conclude that, as of September 30, 2018, our disclosure controls and procedures were not effective at the reasonable assurance level:

1.

Our documentation with respect to our internal control policies and procedures is not adequate.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending September 30, 2018. We plan to progressively implement the written policies and procedures commencing in the immediate future.

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2.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on the current magnitude of our operations, it is impractical to employ sufficient staff to fully address the separation of duties issue. As the business plan is implemented and additional staff is required, we will be able to and intend to address this identified weakness.

3.

Effective controls over the control environment have not been fully implemented. Specifically, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors has only two independent members. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. As the expansion plans are implemented, we intend to communicate our accounting policies and procedures to our employees.

4.

We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.

The Company plans to initiate a program to address the above weakness. While segregation of duties is very difficult in a small company.  The Company has an internal policy that all major expenditures must be approved by a majority of the Board of Directors.  In addition, the Company has constituted an Audit Committee, consisting of two non-management directors with an Independent Director as the Chair.

To address the material weaknesses identified, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

As part of the implementation strategy for the expansion of the Company we have engaged a third-party firm to assist us with the development of any additional systems required. We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees as funding becomes available to implement the business plan in order to segregate duties in a manner that establishes effective internal controls. All such required remedies are dependent on having the financial resources available to complete them.

Notwithstanding the above, our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

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Changes in internal controls.

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended September 30, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Boustead Securities, LLC has notified us that we owe Boustead $192,664, as well as warrants to purchase 1,417,909 shares of our common stock, as compensation for their acting as the placement agent for the sale of our securities between June 2017 and 2018.

Unless this matter is settled, Boustead has notified us that they plan to file an arbitration claim to resolve this dispute.

       It is our position that we have paid Boustead in fill for the services it provided to us.  We deny that we owe Boustead any additional cash or warrants.

Exhibit No.

Description

(1)

Incorporated by reference from the Company’s filing with the Securities and Exchange Commission on December 19, 2008.

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SIGNATURES

In accordance with Section 13 or 15(a) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 19^h day of November 2018.

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