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 Companys common stock voted to approve a change of the name of the Company from VGambling, Inc. to Esports Entertainment Group, Inc.
The Companys 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 Companys 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 Companys ability to continue as a going concern. Managements 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
7
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 entitys 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 Companys 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 Companys 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 Companys 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 Companys financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customers 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
8
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 Companys 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 Companys 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 Companys financial statements.
3.
Intangible Assets
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|
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|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Depreciation
|
|
Online gaming website
|
|
$
|
127,133
|
|
|
$
|
14,125
|
|
|
$
|
127,133
|
|
|
$
|
3,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127,133
|
|
|
$
|
14,125
|
|
|
$
|
127,133
|
|
|
$
|
3,532
|
|
Net carrying amount
|
|
|
|
|
|
$
|
113,008
|
|
|
|
|
|
|
$
|
123,601
|
|
During the three months ended September 30, 2018, the Company recorded total depreciation expense of $10,593 (September 30, 2017 - $1,996).
4.
Equipment
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Depreciation
|
|
Computer equipment
|
|
$
|
16,102
|
|
|
$
|
6,079
|
|
$
|
|
14,450
|
|
|
$
|
4,863
|
|
Furniture and equipment
|
|
|
20,241
|
|
|
|
5,397
|
|
|
|
20,241
|
|
|
|
4,385
|
|
Total
|
|
$
|
36,343
|
|
|
|
11,476
|
|
$
|
|
34,691
|
|
|
|
9,248
|
|
Net carrying amount
|
|
|
|
|
|
$
|
24,867
|
|
|
|
|
|
|
$
|
25,443
|
|
During the three months ended September 30, 2018, the Company recorded depreciation expense of $2,228 (September 30, 2017 - $Nil).
9
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 directors 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 directors 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. Directors 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. Directors 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 Companys 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).
10
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 Companys common stock is listing on the NASDAQ stock exchange, and $120,000 per year after the Companys 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 months 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 Companys 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 arms 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
11
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:
|
| |
2019
|
$
|
36,975
|
2020
|
|
49,300
|
2021
|
|
49,300
|
2022
|
|
49,300
|
2023
|
|
20,500
|
|
$
|
205,375
|
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:
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| |
2019
|
$
|
15,731
|
2020
|
|
17,478
|
|
$
|
33,209
|
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 managements 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.
12
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 arms 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
13
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 arms 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 arms 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 arms 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.
14
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 Companys warrant activities is as follows:
|
|
|
|
|
|
|
|
|
|
| |
|
|
Number of Warrants
|
|
Weighted-Average Exercise Weighted Average Exercise Price
|
Weighted Average Weighted Average Remaining Life
|
Intrinsic
value
|
Outstanding, June 30, 2018
|
|
9,866,338
|
|
$ 0.21
|
2.60 years
|
$6,064,913
|
Exercised
|
|
(2,926,667)
|
|
0.16
|
|
|
Expired
|
|
(124,667)
|
|
0.60
|
|
|
Outstanding and Exercisable at September 30, 2018
|
|
6,815,004
|
|
$ 0.22
|
2.35 years
|
$3,116,150
|
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:
15
|
| |
Expiry Date
|
Number of Warrants Issued and Exercisable
|
Weighted Average Exercise Price
$
|
February 2019
|
10,000
|
2.00
|
March 2019
|
64,800
|
4.00
|
July 2019
|
4,000
|
4.00
|
September 2019
|
16,000
|
0.44
|
December 2019
|
66,680
|
0.15
|
February 2020
|
350,000
|
0.15
|
March 2020
|
1,480,191
|
0.15
|
June 2020
|
450,000
|
0.15
|
July 2020
|
740,000
|
0.22
|
August 2020
|
900,000
|
0.25
|
March 2022
|
2,733,333
|
0.15
|
|
6,815,004
|
0.22
|
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 Companys 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 Companys stock option activity is as follows:
|
| |
|
Number of options
|
Weighted average exercise price
$
|
|
|
|
Outstanding, June 30, 2018 and
September 30, 2018
|
819,120
|
0.70
|
As at September 30, 2018, the following options were outstanding:
|
|
| |
Expiry Date
|
Number of Options Issued
|
Number of Options Exercisable
|
Weighted Average Exercise Price
$
|
|
|
|
|
August 18, 2020
|
50,000
|
16,667
|
0.70
|
August 1, 2023
|
529,120
|
125,040
|
0.70
|
May 29, 2020
|
240,000
|
30,000
|
0.70
|
|
819,120
|
171,707
|
0.70
|
16
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:
|
|
|
|
|
|
|
| |
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Employees and directors stock-based payments
|
|
$
|
126,829
|
|
|
$
|
185,540
|
|
Non-employee awards
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
126,829
|
|
|
$
|
185,540
|
|
11.
Segmented Information
The following table summarizes financial information by geographic segment for the three months ended September 30, 2018:
|
|
|
|
| |
|
Antigua
|
Malta
|
Curacao
|
U.S.
|
Total
|
|
$
|
$
|
$
|
$
|
$
|
Net loss
|
112,483
|
8,641
|
30,684
|
721,115
|
872,923
|
Assets
|
171,947
|
15,496
|
1,031
|
171,553
|
360,027
|
12.
General and Administrative Expenses
The following table summarizes general and administrative expenses for the three months ended September 30, 2018 and 2017:
|
| |
|
2018
$
|
2017
$
|
Advertising and promotion
|
309,707
|
42,334
|
Wages and benefits
|
80,850
|
37,650
|
Rent and utilities
|
20,281
|
10,575
|
Travel
|
16,237
|
28,585
|
Licensing and filing fees
|
5,570
|
5,250
|
Office expenses
|
89,279
|
28,932
|
Bank charges
|
5,625
|
3,202
|
Depreciation
|
12,821
|
1,996
|
Total General and Administrative Expenses
|
540,370
|
158,524
|
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
17
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 arms 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 Companys 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 Companys 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 holders 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 Companys 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 Companys 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.
18
Item 2.