The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS
AND GOING CONCERN
Organization
Esports Technologies, Inc. (“Esports Tech”) was formed
on September 24, 2020 as a Nevada corporation. Esports Tech is a technology company creating and operating platforms focused on esports
and competitive gaming. The Company operates under a Curacao gaming sublicense and can provide online betting services to various countries
around the world. The majority of the Company’s customers are based in the Philippines. The Company’s consolidated financial
statements include its accounts and the accounts of its 100% owned subsidiaries, namely Global E-Sports Entertainment Group, LLC (“Global
E-Sports”), ESEG Limited (“ESEG”) and Gogawi Entertainment Group (“Gogawi”) (collectively referred to as
the “Company,” “we,” “our,” or “us”). Global E-Sports, a Nevada limited liability company,
was incorporated in Nevada on June 28, 2016. ESEG, a Belize company was incorporated on October 31, 2016. Gogawi, a Cypress company was
incorporated on December 8, 2018 and has always been a wholly owned subsidiary of ESEG. On December 8, 2020, the Company incorporated
Esportsbook Technologies Limited (“Esportsbook”) in Ireland as a wholly-owned subsidiary of Esports Tech. All amounts included
in this Form 10-Q are expressed in U.S. Dollars, unless otherwise noted.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. The Company has recurring losses and generated negative
cash flows from operations since inception. In April 2021, the Company completed its Initial Public Offering (“IPO”) and issued
2,400,000 shares of common stock for gross cash proceeds of $14,400,000. See note 9 for further information.
Impact of COVID-19
The outbreak of the 2019 novel coronavirus disease (“COVID-19”),
which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and
governmental authorities to contain and combat its outbreak and spread, has severely impacted the U.S. and world economies. Economic recessions,
including those brought on by the COVID-19 outbreak may have a negative effect on the demand for the Company’s products and the
Company’s operating results. The range of possible impacts on the Company’s business from the coronavirus pandemic could include:
(i) changing demand for the Company’s online betting products; and (ii) increasing contraction in the capital markets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of
the consolidated financial statements are as follows:
Basis of Presentation
The accompanying unaudited financial statements of the Company, include
the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting
principles accepted in the United States (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The
unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management,
necessary in order to make the condensed financial statements not misleading. Operating results for the three and six months ended March
31, 2021 are not necessarily indicative of the final results that may be expected for the year ended September 30, 2021. For more complete
financial information, these unaudited financial statements should be read in conjunction with the audited consolidated financial statements
for the year ended September 30, 2020 included in our Form S-1 filed with the SEC. Notes to the consolidated financial statements which
would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period,
as reported in the Form S-1, have been omitted. All intercompany accounts, transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior period amounts to
conform to the current year presentation.
Intangible Assets
Cryptocurrencies
There is currently no specific guidance under
GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised
significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB,
the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position
and results from operations.
Cryptocurrencies held are accounted for as an indefinite-lived intangible
asset under ASC 350, Intangible – Goodwill and Other. An intangible asset with an indefinite useful life is not amortized
but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely
than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured
using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company
has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If
it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the
Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized,
the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
The Company uses its cryptocurrencies to pay vendors
and users. The Company also receives payments on its receivables and player deposits in cryptocurrency. Gains and losses realized upon
settlement of cryptocurrencies are also recorded in general and administrative expense in our consolidated statements of operations.
Other Intangible Assets
The Company’s other intangible asset consist of internet domain
names, which are an indefinite-lived intangible. An intangible asset with an indefinite useful life is not amortized but assessed for
impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that
the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment,
the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment
exists. If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized,
the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Liabilities to Users
The Company records liabilities for user account balances at a given
reporting period based on deposits made by players either to the Company or the sales affiliate, less any losses on wagers and payout
made to players. Liabilities to users amounts are not required to be backed by cash reserves of the Company.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue
From Contracts With Customers, which was adopted on October 1, 2018 using the modified retrospective method. ASC Topic 606 requires
companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires
disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption
of ASC Topic 606 had no impact to the Company’s comparative consolidated financial statements. Revenue is recognized based on the
following five step model:
•
|
Identification of the contract with a customer
|
•
|
Identification of the performance obligations in the contract
|
•
|
Determination of the transaction price
|
•
|
Allocation of the transaction price to the performance obligations in the contract
|
•
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
No single customer exceeded more than 10% of revenue
during the three and six months ended March 31, 2021 and 2020. In addition, no disaggregation of revenue is required because all current
revenue is generated from gaming revenue.
Performance Obligations
The Company operates an online betting platform allowing users to place
wagers on a variety of live sporting events and esports events. Each wager placed by users create a single performance obligation for
the Company to administer each event wagered. Gross gaming revenue is the aggregate of gaming wins and losses based on results of each
event that customers wager bets on. Variable commission fees are paid to sales affiliates based on a percentage of revenue generated from
the affiliate. The commissions rebated to affiliates are recorded as a reduction to gross gaming revenue.
Cost of Revenue
Cost of revenue consists of third-party costs associated with the betting
software platform and amortization of capitalized software costs.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standard Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified
effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material
impact on the Company’s financial position or results of operations upon adoption.
NOTE 3 – LONG-LIVED ASSETS
Software and equipment
The Company’s software and equipment consisted of the following
as of March 31, 2021 and September 30, 2020:
|
|
|
March
31, 2021
|
|
|
|
September
30, 2020
|
|
Software
|
|
$
|
148,151
|
|
|
$
|
–
|
|
Total software and equipment
|
|
|
148,151
|
|
|
|
–
|
|
Accumulated depreciation
|
|
|
(12,346
|
)
|
|
|
–
|
|
Software and equipment, net
|
|
$
|
135,805
|
|
|
$
|
–
|
|
On November 5, 2020, the Company entered into an asset purchase agreement
with a third party to acquire certain proprietary technology data. The Company made a cash payment of $61,425 and granted warrants to
purchase 32,000 shares of common stock at an exercise price of $0.25 per share for a period of five years. The fair value of the warrants
was estimated to be $57,252 as of the grant date. The total consideration paid of $118,677 is included as part of software costs within
property and equipment on the Company’s consolidated balance sheet. The Company also entered into an employment agreement with the
seller, effective November 1, 2020. The employee will be compensated at a rate of $110,000 per year and will receive a common stock award
of 100,000 shares, which vest annually over four years.
The software costs above relate to acquired components of the Company’s
new platform which is being depreciated over an expected useful life of two years.
Intangible Assets
On September 1, 2020, the Company’s wholly-owned subsidiary,
ESEG, entered into domain purchase agreements to acquire the rights to certain domain names from third parties. The cost to acquire the
domain names was $2,239,606, based on the estimated fair value of the consideration transferred to the sellers. ESEG issued notes payable
with a combined principal amount of $2,100,000, which were to mature on March 1, 2022, bearing interest at 10%. These notes were exchanged
for notes of the Company in September 2020. The Company also agreed to pay a total of $675,000 on September 1, 2025, with no interest.
The Company estimated discount of these liabilities totaling $535,394 at the date of the transaction, to be amortized over the maturity
period of the liabilities. The domain names were recorded as an intangible asset with an indefinite useful life. The Company’s
management evaluated the domain names at September 30, 2020 and determined no impairment was necessary.
The following table presents the activities of the Company’s
cryptocurrency holdings for the three and six months ended March 31, 2021:
Cryptocurrency at September 30, 2020
|
|
$
|
44,562
|
|
Additions of cryptocurrency
|
|
|
18,276
|
|
Payments of cryptocurrency
|
|
|
(89,197
|
)
|
Gain on cryptocurrency
|
|
|
35,140
|
|
Cryptocurrency at March 31, 2021
|
|
$
|
8,781
|
|
Additions of cryptocurrency during the six months ended March 31, 2021
represent settlement of outstanding accounts receivable of $18,158 and net deposits from players of $118. Payments of cryptocurrency during
the six months ended March 31, 2021 included payments of accounts payable and accrued expenses of $89,197. Use of cryptocurrency to settle
receivables and payables during the period are reflected as a component of changes in operating assets and liabilities in the consolidated
statement of cash flows.
Other Long-Term Assets
On October 1, 2020, the Company entered into an option agreement which
gives the Company the right to acquire a license for proprietary technology related to online betting. The Company paid $133,770 upon
execution of the option agreement, and in the event the option is exercised and the license agreement is executed, the Company will pay
an additional £200,000 (or approximately $270,000 as of March 31, 2021) in cash and issue 65,000 shares of common stock. The option
was to initially expire on May 1, 2021, and was extended until May 6, 2021. The option was exercised on or about May 3, 2021. The Company
recorded an other long-term asset of $133,770 related to the initial payment.
NOTE 4 – CONVERTIBLE
NOTES PAYABLE AND OTHER LONG-TERM LIABILITIES
On September 1, 2020, ESEG entered into three promissory notes, with
a combined principal amount of $2,100,000. The notes bore interest at the rate of 10% per annum and matured on March 1, 2022. The Company
also agreed to pay two of the lenders a total of $675,000 on September 1, 2025, bearing no interest. The Company estimated total debt
discount of these liabilities to be $535,394 at the date of the transaction, of which $279,516 related to the promissory notes payable,
and $255,878 related to the other long-term liabilities. The discounts will be amortized over the maturity period of each liability. As
of March 31, 2021 and September 30, 2020, the carrying amount of the other long-term liabilities was $442,680 and $422,409, respectively,
which is net of the remaining discount totaling $232,320 and $252,591, respectively. The carrying amount of the convertible notes payable
and associated discount is further discussed below.
On September 26, 2020, the Company assumed the notes payable with principal
of $2,100,000 from ESEG. In connection with this assumption, Esports Tech issued each of the lenders a conversion option at a fixed price
of $0.50 per share and issued 2,015,000 warrants to purchase shares of the Company’s common stock at an exercise price of $0.30
per share, each with a term of five years. The convertible notes bear interest at 10% per annum and mature on March 1, 2022. The holder
may convert the note into shares of common stock at any time throughout the maturity date, to the extent and provided that no holder of
the notes was or will be permitted to convert such notes so long as it or any of its affiliates would beneficially own in excess of 4.99%
of the Company’s common stock after such conversion. The Company determined that the assignment of the notes payable by the subsidiary
to the parent company was an extinguishment of the original notes payable due to the addition of a substantive conversion feature, and
the Company recognized a loss on extinguishment of $265,779 during the year ended September 30, 2020.
The Company evaluated the conversion option and concluded a beneficial
conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants
as a debt discount and additional paid in capital. The fair value of the warrants at the grant date was estimated using a Black-Scholes
model and the following assumptions: 1) volatility of approximately 85% based on a peer group of companies; 2) dividend yield of 0%; 3)
risk-free rate of 0.26%; and 4) an expected term of five years. The $2,100,000 debt discount will be amortized through the maturity date
of the convertible notes payable.
During the three months ended December 31, 2020, a total of $187,500
of principal was converted into 375,000 shares of common stock. As of March 31, 2021, the balance due under these notes, net of unamortized
discount of $1,136,012, is $776,488, with accrued interest of $116,774. During the six months ended March 21, 2021, the Company recorded
a charge of $867,593 in the accompanying consolidated statement of operations from the amortization of its debt discount.
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company is currently authorized to issue up to 100,000,000 shares
of common stock with a par value of $0.001. In addition, the Company is authorized to issue 10,000,000 shares of preferred stock with
a par value of $0.001. The specific rights of the preferred stock, when so designated, shall be determined by the board of directors.
During the three months ended December 31, 2020, the Company received
gross cash proceeds of $4,000,000 in exchange for 2,000,000 shares of common stock. In conjunction with this fundraising, broker commission
and expenses of $351,929 were paid and 173,625 common stock warrants with an exercise price of $2.00 and a five-year term were issued.
The fair value of the warrants issued in connection with the financing was estimated to be $228,500 as discussed below.
In January 2021, the Company sold 250,014 shares
of common stock to investors for $3 per share, receiving gross proceeds of $750,042. The company paid $30,314 of broker fees and commissions
related to this fundraising and issued 8,750 warrants to purchase common stock with an exercise price of $3 per share and a term of 5
years. The fair value of the warrants issued in connection with the financing was estimated to be $228,500 as discussed below.
In February 2021, the Company entered into an
agreement with a consultant where the Company agreed to issue warrants to purchase 4,166 shares of stock with a term of 5 years at an
exercise price of $3 per share, and pay $37,500 of cash for services rendered. The consultant will also receive $50,000 of consideration
per year for an additional two years in a combination of cash and common stock warrants.
In April 2021, the Company completed its IPO and issued 2,400,000 shares
of common stock for gross cash proceeds of $14,400,000. See note 9 for further information.
2020 Stock Plan
In December 2020, the Company adopted the Esports Technologies, Inc.
2020 Stock Plan, or the 2020 Plan. The 2020 Plan is a stock-based compensation plan that provides for discretionary grants of stock options,
stock awards, stock unit awards and stock appreciation rights to key employees, non-employee directors and consultants.
Under the 2020 Plan, the aggregate value of all compensation granted
or paid to any individual for service as a non-employee director with respect to any calendar year, including awards granted under the
2020 Plan and cash fees paid to such non-employee director, will not exceed $300,000 in total value. For purposes of this limitation,
the value of awards is calculated based on the grant date fair value of such awards for financial reporting purposes.
The number of shares of the common stock that may be issued under the
2020 Plan is 4,000,000. As of March 31, 2021, the Company had awarded a total 3,526,598 shares under the 2020 Plan, with 473,402 remaining
under the 2020 Plan.
Common Stock Awards
During the six months ended March 31, 2021, the Company agreed to award
a total of 1,110,250 restricted stock units that convert into common stock to various employees and officers under the 2020 Plan. Of the
restricted stock unit awards, 610,250 will vest annually over a period of two to four years, 300,000 will vest upon the completion of
various performance goals related to the operations of the Company, and 200,000 shares of common stock underlying awards made to the Company’s
CEO will vest equally upon reaching trailing twelve months revenue of $10 million and $20 million. The Company estimated the fair value
of the awards at $2 per share based on recent sales of common stock for cash as described above.
In November 2020, the Company entered into four consulting agreements
under which the Company issued a total of 683,334 shares of common stock, which vest equally over terms ranging from three to twelve months.
During the three and six months ended March 31, 2021, the Company recognized
a total of $353,313 and $1,438,532 of stock-based compensation expense related to common stock awards and expects to recognize additional
compensation cost of $2,148,636 upon vesting of all awards.
Warrants
As discussed above, the Company has issued common stock warrants in
connection with its fundraising activities to brokers, an asset purchase agreement and convertible notes issued during the year ended
September 30, 2020. The following table summarizes warrant activity during the three and six months ended March 31, 2021:
|
|
Common Stock Warrants
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
average
Remaining
Life in years
|
|
Outstanding at September 30, 2020
|
|
|
2,015,000
|
|
|
$
|
0.30
|
|
|
|
4.99
|
|
Granted
|
|
|
218,541
|
|
|
|
1.80
|
|
|
|
5.00
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at March 31, 2021
|
|
|
2,233,541
|
|
|
$
|
0.45
|
|
|
|
4.50
|
|
Exercisable at March 31, 2021
|
|
|
2,233,541
|
|
|
$
|
0.45
|
|
|
|
4.50
|
|
The outstanding and exercisable common stock warrants
had an estimated intrinsic value of $5,702,125. The Company estimated the fair value of the warrants using a Black-Scholes option pricing
model and the following assumptions: 1) stock price of $2 to $3 per share; 2) dividend yield of 0%; 3) risk-free rate of between 0.18%
and 0.52%; 4) expected term of between 2.5 and 5 years; 5) an exercise price of $0.25, $2 or $3 and 6) expected volatility of between
84.1% and 99.0% based on a peer group of public companies. The warrants granted to brokers in connection with sales of common stock during
the six months ended March 31, 2021 had an estimated fair value of $247,108 which was reflected as a cost of capital, warrants granted
to consultants for services had a fair value of $8,819, and the warrants granted in connection with the asset purchase agreement had an
estimated fair value of $57,252.
Options
During the three months ended March 31, 2021, the Company entered into
various agreements with employees, consultants and directors whereby the Company agreed to award a total of 402,000 common stock options,
including 150,000 to two members of the Board of Directors under the 2020 Plan. These awards vest over a period of six months to four
years, with 20,000 options issued to a consultant vesting immediately.
During the three months ended December 31, 2020, the Company entered
into various agreements with employees and consultants whereby the Company agreed to award a total of 2,014,348 common stock options,
including 90,000 to consultants and 100,000 to a member of the Board of Directors under the 2020 Plan. Of the total, 1,390,000 vest equally
over periods of between one and four years, 70,313 vested upon completion of the Company’s IPO, 200,000 to the Company’s
Chief Operating Officer would have vested in the event that the Company’s IPO raised gross proceeds of at least $18 million (as
the IPO proceeds were less than $18 million, these shares did not vest), 16,785 vest upon the earlier of 1 year or the completion of
the Company’s IPO, and 57,250 to the Company’s prior interim CFO vested upon the hiring of the Company’s full time
CFO.
The following table summarizes option activity during the six months
ended March 31, 2021:
|
|
Common Stock Options
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
average
Remaining
Life in years
|
|
Outstanding at September 30, 2020
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
Granted
|
|
|
2,416,348
|
|
|
|
0.99
|
|
|
|
9.23
|
|
Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at March 31, 2021
|
|
|
2,416,348
|
|
|
$
|
0.99
|
|
|
|
8.87
|
|
Exercisable at March 31, 2021
|
|
|
77,250
|
|
|
$
|
0.96
|
|
|
|
8.71
|
|
During the three and six months ended March 31,
2021, the Company recognized stock-based compensation expense of $337,869 and $574,676 related to common stock options awarded. The exercisable
common stock options had an intrinsic value as of March 31, 2021 of $157,438. The Company expects to recognize an additional $3,739,510
of compensation cost related to stock options expected to vest.
The Company estimated the fair value of the stock
options awarded using a Black-Scholes option pricing model and the following assumptions: 1) stock price of $2 to $3 per share; 2) dividend
yield of 0%; 3) risk-free rate of between 0.22% and 0.90%; 4) expected term of between 3.5 and 6.25 years; 5) an exercise price of $0.25,
$2 or $3 and 6) expected volatility of between 82.3% and 95.33% based on a peer group of public companies.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
On September 2, 2020, the Company entered into
a financial advisor agreement with Boustead Securities LLC, the representative of the underwriters in the Company’s initial public
offering, to provide services related to fundraising on the Company’s planned public listing. The Company agreed to pay the financial
advisor a success fee of 4% of any gross proceeds from any debt financing, and a 7% success fee related to any equity or convertible debt
financing, subject to customary approval by the regulatory authorities. In April 2021, the Company completed its IPO and issued 2,400,000
shares of common stock for gross cash proceeds of $14,400,000. The Company paid underwriting fees of $820,800 and issued 168,000 warrants
to purchase shares of common stock at a price of $7.20 per share for a period of five years.
On September 26, 2020, the Company entered into a consulting agreement
with a registered foreign broker dealer for fundraising services and paid 10% of any gross proceeds through capital raises from non-US
investors introduced by the consultant, up to a maximum payment to the consultant of $200,000 and the consultant also received warrants
to purchase shares of the Company’s common stock at an exercise price of $2.00 per share. These warrants were exercised in April
2021 and were converted into 62,386 shares of the Company stock.
NOTE 7 –LOSS PER COMMON SHARE
The basic net loss per common share is calculated by dividing the Company's
net loss available to common shareholders by the weighted average number of common shares during the year. The diluted net loss per common
share is calculated by dividing the Company's net loss available to common shareholders by the diluted weighted average number of common
shares outstanding during the year. The diluted weighted average number of common shares outstanding is the basic weighted number of common
shares adjusted for any potentially dilutive debt or equity. Common shares issuable under convertible debt, stock options and common stock
warrants were excluded from the calculation of diluted net loss per share due to their antidilutive effect.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,375,660
|
)
|
|
$
|
5,073
|
|
|
$
|
(5,126,391
|
)
|
|
$
|
(18,355
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted weighted average common shares
|
|
|
10,587,654
|
|
|
|
7,340,421
|
|
|
|
9,878,185
|
|
|
|
7,340,421
|
|
Basic and diluted net income (loss) per common share
|
|
$
|
(0.22
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.52
|
)
|
|
$
|
(0.00
|
)
|
NOTE 8 – TRANSACTION WITH RELATED PARTIES
As of March 31, 2021, the Company owed $155,228 to Gogawi Inc. (a company
controlled by certain initial shareholders of the Company) (see note 1). At September 30, 2020 the amounts owed to these related parties
was $152,888. The advances are due on demand and are non-interest bearing. In May 2021, the Company repaid the advances in full.
On November 10, 2020, the Company entered into an employment agreement
with Michal Barden, a family member of the Company’s Chief Operating Officer, to serve as the Company’s marketing director.
The employment agreement provides for an annual salary of $132,000, a technology allowance of $5,000, and an award of 30,000 shares of
common stock in the Company, vesting in four equal annual installments.
NOTE 9–
SUBSEQUENT EVENTS
In April 2021, the Company completed its IPO
and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000. The Company paid underwriting fees of $820,800 and
issued 168,000 warrants to purchase shares of common stock at a price of $7.20 per share for a period of five years.
item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section of this
report includes 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 a technology company creating and operating platforms focused
on esports and competitive gaming. Founded in late 2016, our focus has been operating our primary platform, gogawi.com, which is an online
esports/sportsbook focused on gamers located in Asia and Latin America. Although we are focused on esports wagering, we also offer iGaming,
which is online casino and table games such as blackjack, virtual sport computer simulated games and slot machines, as well as traditional
sports betting in jurisdictions in which we are licensed to do so. We currently hold a gaming sublicense from the Curacao Gaming Authority.
Under our existing sublicense, we can accept wagers from residents of more than 149 jurisdictions. Historically, virtually all of our
wagers have been sourced in the Philippines.
Results of Operations
Results of operations in dollars
and as a percentage of net revenue were as follows:
|
|
Three Months Ended March 31,
|
|
Six Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
$
|
|
|
%
|
|
$
|
|
|
%
|
|
$
|
|
|
%
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
33,834
|
|
|
100%
|
|
$
|
40,750
|
|
|
100%
|
|
$
|
44,628
|
|
|
100%
|
|
$
|
77,878
|
|
|
100%
|
Cost of revenue
|
|
|
12,465
|
|
|
37%
|
|
|
27,002
|
|
|
66%
|
|
|
24,724
|
|
|
55%
|
|
|
52,167
|
|
|
67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
21,369
|
|
|
63%
|
|
|
13,748
|
|
|
34%
|
|
|
19,904
|
|
|
45%
|
|
|
25,711
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
234,691
|
|
|
694%
|
|
|
–
|
|
|
0%
|
|
|
273,944
|
|
|
614%
|
|
|
–
|
|
|
00%
|
Product and technology
|
|
|
603,445
|
|
|
1,784%
|
|
|
–
|
|
|
0%
|
|
|
1,109,380
|
|
|
2,486%
|
|
|
15,635
|
|
|
20%
|
General and administrative
|
|
|
1,189,410
|
|
|
3,515%
|
|
|
8,675
|
|
|
21%
|
|
|
2,783,121
|
|
|
6,236%
|
|
|
28,431
|
|
|
37%
|
Total operating expenses
|
|
|
2,027,546
|
|
|
5,993%
|
|
|
8,675
|
|
|
21%
|
|
|
4,166,445
|
|
|
9,336%
|
|
|
44,066
|
|
|
57%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,006,177
|
)
|
|
(5,930)%
|
|
|
5,073
|
|
|
12%
|
|
|
(4,146,541
|
)
|
|
(9,291)%
|
|
|
(18,355
|
)
|
|
(24)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(367,214
|
)
|
|
(1,085)%
|
|
|
–
|
|
|
0%
|
|
|
(967,620
|
)
|
|
(2,168)%
|
|
|
–
|
|
|
0%
|
Foreign currency loss
|
|
|
(2,269
|
)
|
|
(7)%
|
|
|
–
|
|
|
0%
|
|
|
(12,230
|
)
|
|
(27)%
|
|
|
–
|
|
|
0%
|
Total other expense
|
|
|
(369,483
|
)
|
|
(1,092)%
|
|
|
–
|
|
|
0%
|
|
|
(979,850
|
)
|
|
(2,196)%
|
|
|
–
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/profit
|
|
$
|
(2,375,660
|
)
|
|
(7,022)%
|
|
$
|
5,073
|
|
|
12%
|
|
$
|
(5,126,391
|
)
|
|
(11,487)%
|
|
$
|
(18,355
|
)
|
|
(24)%
|
Three Months Ended March 31, 2021 compared to March 31, 2020
Revenue and Gross Profit
During the three months ended March 31, 2021,
we generated $33,834 in revenue and $21,369 in gross profit. For the three months ended March 31, 2020, we generated $40,750 in revenue
and $13,748 in gross profit. The decrease in revenue and gross profit was primarily driven by the disruption to our business stemming
from our launching our improved wagering platform, which resulted in less outreach to new and existing customers, thus causing a decrease
in revenue for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The new platform was launched
in beta format in February 2021 and for general release in March 2021.
Sales and Marketing Expense
Sales and marketing expense was $234,691 for the
three months ended March 31, 2021, an increase from zero in the same period in the prior year. This increase was a result of adding marketing
staff to prepare for our outreach campaign related to our new wagering products and services and the initial roll out of our marketing
campaigns. We expect sales and marketing expenses to increase in future periods as our marketing campaigns increase in both number and
volume.
Product and Technology Expense
Product and technology expense was $603,445 for
the three months ended March 31, 2021, as compared to zero for the three months ended March 31, 2020, representing an increase of $603,445,
as a result of increased hiring of both employees and consultants focused expanding our product offerings. The three months ended March
31, 2021 included payroll-related costs of $306,536, stock-based compensation of $148,690 and development costs of $148,219.
General and Administrative Expense
General and administrative expense was $1,189,410
for the three months ended March 31, 2021 as compared to $8,675 for the three months ended March 31, 2020, representing an increase of
$1,180,735. The increase in general and administrative expense was mainly attributable to an increase in employee costs from adding new
employees, $545,697 of stock-based compensation cost (of which $307,048 was to outside consultants), and professional fees of approximately
$230,000 as we prepared for our initial public offering.
Interest and Other Expenses
During the three months ended March 31, 2021, we
recognized interest expense of $367,214, which included amortization of debt discount of $309,822 related to the convertible debt issued
to acquire certain intangible assets consisting of acquired domain names. We also incurred a foreign currency loss of $2,269.
Net Income/Loss
Net loss for the three months ended March 31, 2021
was $2,375,660 compared to a net profit of $5,073 for the three months ended March 31, 2020. The increase in net loss was primarily due
to the significant in increase in general and administrative expenses of $1,180,735 described above, an increase in product and technology
expenses of $603,445 as a result of our efforts to develop our new products and services, and interest on convertible notes and the loss
on extinguishment of convertible notes described above, which totaled $309,822.
Six Months Ended March 31, 2021 compared to March 31, 2020
Revenue and Gross Profit
During the six month period ended March 31, 2021,
we generated $44,628 in revenue and $19,904 in gross profit. For the six month period ended March 31, 2020, we generated $77,878 in revenue
and $25,711 in gross profit. The increase in revenue was primarily driven by the expansion of our existing player base. The slight decrease
in gross profit was due to decreased technology platform costs during the six month period ended March 31, 2021. Increased technology
platform costs were related to support of our affiliate program in 2021 compared to 2020 along with additional fees incurred from Amazon
Web Services.
Sales and Marketing Expense
Sales and marketing expense was $273,944 for the
six months ended March 31, 2021, an increase from zero in the same period in the prior year. This increase was a result of adding marketing
staff to prepare for our outreach campaign related to our new wagering products and services and the initial roll out of our marketing
campaigns. We expect sales and marketing expenses to increase in future periods as our marketing campaigns increase in both number and
volume.
Product and Technology Expense
Product and technology expense was $1,109,380 for
the six months ended March 31, 2021, as compared to $15,635 for the six months ended March 31, 2020, representing an increase of $1,093,745,
as a result of increasing development activities of our products and services. The increase in product and technology expense was partially
attributable to an increase in stock-based compensation of $251,330.
General and Administrative Expense
General and administrative expense was $2,783,121
for the six month period ended March 31, 2021 as compared to $28,431 for the six month period ended March 31, 2020, representing an increase
of $2,754,690. The increase in general and administrative expense was mainly attributable to an increase in employee costs from adding
new employees, $1,762,583 of stock-based compensation cost and professional fees as we prepared for our initial public offering.
Interest and Other Expenses
During the six month period ended March 31, 2021,
we recognized interest expense of $967,620, including amortization of debt discount of $867,593 related to the convertible debt issued
to acquire certain intangible assets consisting of acquired domain names.
Net Income/Loss
Net loss for the six month period ended March 31,
2021 was $5,126,391 compared to a net loss of $18,355 for the six month period ended March 31, 2020. The increase in net loss was primarily
due to interest on convertible notes and the loss on extinguishment of convertible notes described above, which totaled $867,593, stock-based
compensation of $2,022,026 and an increase in payroll related expenses as we add new employees to support our growth, as described above.
Liquidity and Capital Resources
On March 31, 2021, we had cash of $2,269,615, and
had working capital of $1,820,825. We have historically funded our operations from proceeds from debt and equity sales, and through the
use of bitcoin cryptocurrency received from customers.
During October and November 2020, we completed
a private placement of 2,000,000 shares of our common stock for gross proceeds of $4.0 million.
During January and February 2021, we completed
a private placement of 250,014 shares of our common stock at $3.00 per share for gross proceeds of $0.75 million.
As of March 31, 2021, we have
incurred an accumulated deficit of $6,575,917 since inception and have not yet generated any meaningful income from operations. In April
2021, we completed our initial public offering and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000. We
paid underwriting fees of $820,800 and issued 168,000 warrants to purchase shares of common stock at a price of $7.20 per share for a
period of five years.
Cash used in operating activities
Net cash used in operating activities was $1,873,473
for the six months ended March 31, 2021 as compared to cash used in operating activities of $21,563 for the six months ended March 31,
2020. Net cash used in operating activities during the three months ended March 31, 2021 mainly included payments made for employee costs,
professional fees to our consultants, attorneys and accountants for services related to completion of our audit, development of our new
wagering platform and preparation of our public offering filings.
Cash used in investing activities
Net cash used in investing activities was $224,669
for the six months ended March 31, 2021 and was related to the purchase of software assets to support the new wagering platform, and the
purchase of long term assets related to intellectual property rights.
Cash used provided by financing activities
Net cash provided by financing activities was $4,367,757
for the six months ended March 31, 2020 and was related to the sale of 2,000,000 shares of common stock at $2.00 per share in a private
placement, partially offset by costs of capital to brokers of $351,929 as well as private placements of our common stock completed in
January and February 2021, at $3.00 per share for gross proceeds of $750,000.
Off Balance Sheet
Arrangements
None.