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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Form 10-Q

 

QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended Sept 30, 2022.

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

Commission File Number: 000-53949

 

Good Gaming, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   46-3917807

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification Number)

 

415 McFarlan Road, Suite 108

Kennett Square, PA 19348

(Address of principal executive offices and Zip Code)

 

(888) 295-7279

Registrant’s telephone number, including area code

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 last 90 days.

YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer Accelerated Filer
       
Non-accelerated Filer Smaller Reporting Company
       
(Do not check if smaller reporting company)   Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. As of September 30, 2022, there were 108,704,629 issued and outstanding shares of common stock of the registrant, par value $0.001.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Part I FINANCIAL INFORMATION
     
Item 1 Financial Statements F-1
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
Item 4 Controls and Procedures 13
     
Part II OTHER INFORMATION
 
Item 1 Legal Proceedings 13
Item 1A Risk Factors 13
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Mine Safety Disclosures 14
Item 5 Other Information 14
Item 6 Exhibits 14
  Signatures 15

 

2

 

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

 

These risks and uncertainties, many of which are beyond our control, include, and are not limited to:

 

our growth strategies;
   
our anticipated future operations and profitability;
   
our future financing capabilities and anticipated need for working capital;
   
the anticipated trends in our industry;
   
acquisitions of other companies or assets that we might undertake in the future; and
   
current and future competition.

 

In addition, factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

3

 

 

PART 1

 

Item 1. Financial Statements

 

Good Gaming, Inc.

Consolidated Balance Sheets

(Expressed in U.S. Dollars)

(Unaudited)

 

    September 30, 2022     December 31, 2021  
ASSETS                
Current Assets                
Cash and Cash Equivalents   $ 1,205,502     $ 2,407,966  
Prepaid expenses   $ 21,228       9,334  
Total Current Assets   $ 1,226,730       2,417,300  
                 
Digital Assets   $ 113,541       304,427  
Property and Equipment, Net   $ 2,585       5,669  
Gaming Software, Net   $ -       -  
TOTAL ASSETS   $ 1,342,856     $ 2,727,396  
LIABILITIES & STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts Payable and Accrued Expenses   $ 388,347     $ 299,017  
Derivative Liability   $ -       -  
Notes Payable   $ -       6,628  
Convertible Debentures, current   $ -       -  
Notes Payable Related Party- ViaOne Services   $ -       -  
Total Current Liabilities   $ 388,347       305,645  
                 
Total Liabilities   $ 388,347       305,645  
                 
Stockholders’ Deficit                
Class A Preferred Stock                
Authorized: 2,000,000 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 7,500 Shares     8       8  
Class B Preferred Stock                
Authorized: 249,999 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 19,296 Shares     19       20  
Class C Preferred Stock                
Authorized: 1 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 1 Share     1       1  
Class D Preferred Stock                
Authorized: Authorized: 350 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 0 Shares     -       -  
Class E Preferred Stock                
Authorized: Authorized: 2,750,000 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 57,663     58       58  
Common Stock                
Authorized: 200,000,000 Common Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 108,704,629     108,705       103,526  
Warrant     333       333  
Additional Paid-In Capital     10,145,071       9,956,764  
Accumulated Deficit     (9,299,687 )     (7,638,959 )
Total Stockholders’ Deficit     954,508       2,421,751  
TOTAL LIABILITIES & STOCKHOLDER’S DEFICIT   $ 1,342,856     $ 2,727,396  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 1

 

 

Good Gaming, Inc

Consolidated Statement of Operations

(Expressed in U.S Dollars)

(Unaudited)

 

    2022     2021  
    For three months ended
September 30
 
    2022     2021  
Revenues     3,244     $ 269,355  
Cost of Revenues     96,122       10,226  
Gross Profit     (92,878 )     259,129  
                 
Operating Expenses                
General & Administrative     169,943       199,631  
Contract Labor     1,200       15,850  
Depreciation and Amortization Expense     1,028       540  
Professional Fees     217,826       236,155  
Total Operating Expenses     389,997       452,176  
Operating Loss     (482,874 )     (193,047 )
Other Income (Expense)                
Gain on Digital Assets     -       -  
Impairment Cost     (120 )     -  
Loss on Stock Conversion     -       -  
Gain on Debt Settlement     -       -  
Loss on disposal of fixed assets     -       -  
Interest Income     -       -  
Interest Expense     -       (22,140 )
Gain (Loss) on Change in Fair Value of Derivative Liability     -       (12,110,000 )
Total Other Income (Loss)     (482,994 )     (12,132,140 )
                 
Net Income (Loss)     (482,994 )   $ (12,325,187 )
                 
Net Income (Loss) Per Share, Basic and Diluted     (0.00 )   $ (0.15 )
                 
Weighted Average Shares Outstanding     108,704,629       81,792,707  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 2

 

 

Good Gaming, Inc

Consolidated Statement of Operations

(Expressed in U.S Dollars)

(Unaudited)

 

    2022     2021  
    For the Nine months ended
September 30
 
    2022     2021  
Revenues   $ 4,988     $ 329,885  
Cost of Revenues   $ 196,688       19,803  
Gross Profit   $ (191,700 )     310,082  
                 
Operating Expenses                
General & Administrative   $ 513,536       236,581  
Contract Labor   $ 50,600       40,850  
Depreciation and Amortization Expense   $ 3,083       1,619  
Professional Fees   $ 747,360       423,937  
Total Operating Expenses   $ 1,314,579       702,987  
Operating Loss   $ (1,506,279 )     (392,905 )
Other Income (Expense)                
Gain on Digital Assets   $ 13,498       -  
Impairment Cost   $ (167,948 )     -  
Loss on Stock Conversion   $ -       -  
Gain on Debt Settlement   $ -       -  
Loss on disposal of fixed assets   $ -       -  
Interest Income   $ -       -  
Interest Expense   $ -       (38,004 )
Gain (Loss) on Change in Fair Value of Derivative Liability   $ -       (15,205,294 )
Total Other Income (Loss)   $ (154,450 )     (15,243,298 )
                 
Net Income (Loss)   $ (1,660,729 )   $ (15,636,203 )
                 
Net Income (Loss) Per Share, Basic and Diluted   $ (0 )   $ (0.19 )
                 
Weighted Average Shares Outstanding     108,704,629       81,792,707  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 3

 

 

Good Gaming, Inc

Consolidated Statements of Cash Flows

(Expressed in U.S Dollars)

(Unaudited)

 

    2022     2021  
    For nine months Ended September 30,  
    2022     2021  
Operating Activities                
                 
Net Income (Loss)   $ (1,660,729 )   $ (15,636,203 )
                 
Adjustment To Reconcile Net Loss to                
Net Cash Used In Operating Activities                
Digital Assets     -          
Depreciation and Amortization     3,083       1,619  
Loss on disposal of fixed assets     -          
Change In Fair Value Of Derivative Liability     -       15,205,294  
Stock based compensation     188,307       132,250  
Gain on debt settlement     -          
Gain on Digital Assets     (13,498 )        
Impairment Cost     167,948          
Changes in operating assets and liabilities                
Prepaid expenses     (11,895 )     (4,708 )
Accounts Payable     89,332       90,613  
                 
Net Cash Provided By (Used in) Operating Activities     (1,237,452 )     (211,135 )
                 
Investing Activities                
                 
Purchase of Digital Assets     (4,480 )     (323,207 )
Selling Digital Assets     38,962       -  
Reclass Digital Assets     1,955          
Selling Property and Equipment     -          
Purchase of Property and Equipment     -       -  
                 
Net Cash Provided By (Used in) Investing Activities     36,437       (323,207 )
                 
Financing Activities                
Class B Stock: Preferred Stock converted to common     (1 )        
Common Stock: Employee Compensation + conversion     5,180       -  
Repayments of Preferred Stock Series D             -  
Proceeds From Sale Of Preferred Stock CL D     -       -  
Payment on Note Interest     (6,628 )        
Due To ViaOne Services     -       535,870  
                 
Net Cash Provided By (Used In) Financing Activities     (1,449 )     535,870  
                 
Change in Cash and Cash Equivalents     (1,202,464 )     1,529  
                 
Cash and Cash Equivalents, Beginning Of Period     2,407,966       2,304  
                 
Cash and Cash Equivalents, End Of Period   $ 1,205,502     $ 3,833  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-Cash Investing And Financing Activities                
Unpaid Property and Equipment Acquired   $ -     $ -  
Common Shares Issued for Conversion  Of Debt   $ -     $ -  
Shares Issued For Acquisition Of Software   $ -     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 4

 

 

Good Gaming, Inc.

Statements of Stockholders’ Equity (Deficit)

(Expressed in U. S. Dollars)

(Unaudited)

 

    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
    Preferred Stock                 Common Stock     Warrants     Additional              
    Class A     Class B     Class C     Class D     Class E                             Paid-in     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
                                                                                                       
Balance, December 31, 2021     7,500       8       20,296       20       1       1       -       -       57,663       58       103,526,044       103,526       3,333,333       333       9,956,764       (7,638,959 )     2,421,751  
                                                                                                                                         
Stock Based Compensation     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Net income (Loss)     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (467,105 )     (467,105 )
                                                                                                                                         
Balance, March 31, 2022     7,500       8       20,296       20       1       1       -       -       57,663       58       103,526,044       103,526       3,333,333       333       9,956,764       (8,106,064 )     1,954,646  
                                                                                                                                         
Conversion of preferred shares B to common shares     -        -        -        -        -        -        -        -        -        -        -        -        -        -        -                   
Net Gain                                                                                                                             (710,630 )     (710,630 )
                                                                                                                                         
Balance, June 30, 2022     7,500       8       20,296       20       1       1       -       -       57,663       58       103,526,044       103,526       3,333,333       333       9,956,764       (8,816,693 )     1,244,017  
                                                                                                                                         
Stock Based Compensation Converted to common stock                                                                                     5,177,585       5,179                       188,307               193,486  
Conversion of preferred shares B to common shares     -        -        (1,000 )     (1 )     -        -        -        -        -        -        1,000       1       -        -                        -  
Net Gain                                                                                                                             (482,994 )     (482,994 )
                                                                                                                                         
Balance, September 30, 2022     7,500       8       19,296       19       1       1       -       -       57,663       58       108,704,629       108,705       3,333,333       333       10,145,071       (9,299,687 )     954,508  

 

The accompanying notes are an integral part of these financial statements

 

F- 5

 

 

Good Gaming, Inc.

Statements of Stockholders’ Equity (Deficit)

(Expressed in U. S. Dollars)

(Unaudited)

 

    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
    Preferred Stock     Common Stock     Additional              
    Class A     Class B     Class C     Class D                 Paid-in     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
Balance, December 31, 2020     7,500     $ 8       68,997     $ 69       1     $ 1       -     $ - -      65,374,031     $ 65,374 -    $ 4,282,629     $ (7,977,367 )   $ (3,629,286 )
                                                                                                         
Conversion of preferred shares B to common shares                     (18,000 )     (18 )                                -     3,600,000     $ 3,600 -    $ (3,582 )           $ -  
Net Gain     -       -       -       -       -       -       -       -       -       -       -       131,167       131,167  
                                                                                                         
Balance, March 31, 2021     7,500       8       50,997       51       1       1       -       -  -     68,974,031       68,974 -      4,279,047       (7,846,200 )     (3,498,119 )
                                                                                                         
Conversion of preferred shares B to common shares                     (29,881 )     (30 )                                -     5,976,200     $ 5,976 -    $ (5,946 )           $ -  
Conversion of convertible notes                                                                     1,257,476     $ 1,257     $ 15,983             $ 17,240  
Net Loss     -       -       -       -       -       -       -       -       -       -       -       (3,442,183 )     (3,442,183 )
                                                                                                         
Balance, June 30, 2021     7,500       8       21,116       21       1       1       -       -  -     76,207,707       76,207 -      4,289,084       (11,288,383 )     (6,923,062 )
Conversion of convertible notes                     (2,500 )     (3 )                                -     500,000     $ 500 -    $ (498 )           $ -  
Stock Based Compensation                                                                     5,085,000     $ 132,067     $ 183             $ 132,250  
Net Loss     -       -       -       -       -       -       -       -       -       -       -       (12,325,187 )     (12,325,187 )
                                                                                                         
Balance, September 30, 2021     7,500       8       18,616       19       1       1       -       -  -     81,792,707       208,774 -      4,288,769       (23,613,570 )     (19,115,999 )

 

The accompanying notes are an integral part of these financial statements

 

F- 6

 

 

Good Gaming, Inc.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(Unaudited)

 

1. Nature of Operations and Continuance of Business

 

Good Gaming, Inc. (Formerly HDS International Corp.) (the “Company”) was incorporated on November 3, 2008, under the laws of the State of Nevada. The Company is a leading tournament gaming platform and online destination targeting over 250 million e-sports players and participants worldwide that want to compete at the high school or college level. A substantial portion of the Company’s activities has involved developing a business plan and establishing contacts and visibility in the marketplace and the Company has not generated any substantial revenue to date. Beginning in 2018, the Company began deriving revenue by providing transaction verification services within the digital currency networks of cryptocurrencies. However, on December 12, 2018, the Company discontinued such transaction verification services by dissolving Crypto Strategies Group, Inc., its wholly-owned subsidiary. In 2021, the Company formulated a new plan to create a new game called “MicroBuddies™” that combines Ethereum ERC721 NFTs (Non-fungible tokens), non-standard ERC20 tokens (GOO™), and strategic gameplay to replicate and create unique and rare NFTs. The game is played online via the MicroBuddies website and blockchain transactions take place on the Polygon Network. The game was launched after beta testing in December of 2021.

 

Going Concern

 

As of September 30, 2022, the Company had a working capital of $838,384, and an accumulated deficit of $9,299,687. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. 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.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair values of convertible debentures, derivative liability, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.

 

Cash Equivalents

 

The Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents. Amounts receivable from credit card processors are also considered cash equivalents because they are both short-term and highly liquid in nature.

 

Intangible Assets

 

Intangible assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally five years.

 

F- 7

 

 

Impairment of Long-Lived Assets

 

Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold, and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

 

Beneficial Conversion Features

 

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

 

Derivative Liability

 

From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is recorded at its fair value calculated by using an option pricing model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the statement of operations.

 

Basic and Diluted Net Loss Per Share

 

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At September 30, 2022 and December 31, 2021, the Company had 10,000,000 and 10,000,000 potentially dilutive shares from outstanding convertible debentures, respectively.

 

Income Taxes

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. Unrecognized tax positions, if ever recognized in the consolidated financial statements, are recorded in the statement of operations as part of the income tax provision. Our policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of the income tax provision. The Company has no liability for uncertain tax positions. Unrecognized tax positions, if ever recognized in the consolidated financial statements, are recorded in the statement of operations as part of the income tax provision. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of the income tax provision. The Company has no liability for uncertain tax positions.

 

On March 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the “U.S. Tax Reform Act”) was enacted in the United States. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21% beginning in 2018. On March 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740.

 

F- 8

 

 

Financial Instruments

 

ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument categorized within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2

 

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s consolidated balance sheet as of September 30, 2022 and 2021 as follows:

 

 

Description     Fair Value Measurements at September 30, 2022 Using Fair Value Hierarchy  
      Total         Level 1       Level 2       Level 3  
Derivative liability   $ 0-     $ 0-     $ $ 0-     $ 0-  
Total   $ 0-     $ 0-     $ $ 0-     $ -  

 

    Total     Level 1     Level 2     Level 3  
Description   Fair Value Measurements at September 30, 2021 Using Fair Value Hierarchy  
    Total     Level 1     Level 2     Level 3  
Derivative liability   $ 16,508,750     $ -     $ -     $ 16,508,750  
Total   $ 16,508,750     $ -     $ -     $ 16,508,750  

 

The carrying values of all our other financial instruments, which include accounts payable and accrued liabilities, and amounts due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.

 

F- 9

 

 

Advertising Expenses

 

Advertising expenses are included in general and administrative expenses in the consolidated Statements of Operations and are expensed as incurred. The Company incurred $103,044 and $158,715 in advertising and promotion expenses in the three months ended September 30, 2022, and 2021, respectively.

 

Revenue Recognition

 

Revenue is recognized in accordance with ASC 606. The Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Revenues primarily include revenues from microtransactions. Microtransaction revenues are derived from the sale of virtual goods to the Company’s players. Proceeds from the sales of virtual goods are directly recognized as revenues when a player uses the virtual goods.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet (except for short-term leases). This new standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted this new standard effective January 1, 2019. Adoption did not have any effect on the Company as it does not have any leases.

 

The Company has implemented all other new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

F- 10

 

 

3. Other Assets

 

Property and Equipment consisted of the following:

 

    2022     2021  
    September 30,  
    2022     2021  
Computers and servers   $ 22,285     $ 20,333  
                 
Accumulated Depreciation     (19,700 )     (16,077 )
                 
Property and equipment, net    $ 2,585     $ 4,256  

 

Depreciation expense for the three months ended September 30, 2022, and 2021 was $1,028 and $540, respectively.

 

4. Digital Assets

 

In 2021, the Company started working on creating a new game called MicroBuddies™ that will be played online and will use blockchain technology. Digital Asset prices have been volatile in the past and may continue to be so in the future, owing to a variety of risks and uncertainties. Under current accounting rules, digital assets are considered indefinite-lived intangible assets. The Company needs to recognize impairment charges if there is any decrease in their fair value, whereas the Company may not make any upward revisions for market price increases until a sale. Thus, the carrying value represents the lowest fair value of the digital assets.

 

As of September 30, 2022, the carrying value of the Company’s digital assets was $113,541 compared to $323,207 on September 30, 2021. which reflects $120 impairment charges for the three months ending Sept 30, 2022 and $0 on September 30, 2021.

 

5. Debt

 

Convertible Debentures

 

On April 15, 2015, the Company issued a convertible debenture with the principal amount of $100,000 to HGT Capital, LLC (“HGT”), a non-related party. During the quarter ended June 30, 2015, the Company received the first $50,000 in payment. The remaining $50,000 payment would be made at the request of the borrower. No additional payments have been made as of September 30, 2018. Under the terms of the debentures, the amount was unsecured and was due on October 16, 2016. The note is currently in default and bears an interest of 22% per annum. It was convertible into shares of common stock any time after the maturity date at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company’s common stock for the thirty trading days ending one trading day prior to the date the conversion notice was sent by the holder to the Company. On September 21, 2018, the Company entered into a modification agreement with HGT with respect to the convertible promissory note which has a balance of $107,238. Pursuant to such modification agreement, all defaults were waived, and it was agreed that such note will convert at a 25% discount to the market rather than the default rate. HGT also agreed to certain sale restrictions which limit the amount of shares that they can sell in any month for the next three months. HGT also agreed to dismiss, with prejudice, the lawsuit that it had filed against the Company. On November 29, 2018, HGT converted $6,978 of a convertible note into 1,655,594 shares of the Company’s common stock. On August 17, 2020, HGT converted $5,833 of notes into 2,645,449 shares of the Company’s common stock. On September 9, 2020, HGT converted $11,822 of notes into 2,775,076 shares of the Company’s common stock. On November 11, 2020, HGT converted $25,239 of notes into 2,911,055 shares of the Company’s common stock. On December 18, 2020, HGT converted $40,126 of notes into 3,053,696 shares of the Company’s common stock. As of December 31, 2020, the remaining note balance was $17,240. On June 25, 2021, HGT converted the remaining note balance of $17,240 into 1,257,476 shares of the Company’s common stock.

 

The Company entered into a line of credit agreement (“Line Of Credit”) with ViaOne on September 27, 2018 (the “Effective Date”). This Line of Credit dated as of, was entered into by and between the Company and ViaOne. The Company had an immediate need for additional capital and asked ViaOne to make a new loan(s) in an initial amount of $25,000 on the Effective Date (the “New Loan”). The Company may need additional capital and ViaOne has agreed pursuant to this Line of Credit to provide for additional advances, although ViaOne shall have no obligation to make any additional loans. Any further New Loans shall be memorialized in a promissory note with substantially the same terms as the New Loan and shall be secured by all of the assets of the Company. On or before the Effective Date, the Company may request in writing to ViaOne that it loan the Company additional sums of up to $250,000 and within five days of such request(s), ViaOne shall have the right, but not an obligation, to make additional loans to the Company and the Company shall in turn immediately issue a note in the amount of such loan. In consideration for making the New Loan, the Company entered into a security agreement whereby ViaOne received a senior security interest in all the assets of the Company.

 

On September 30, 2021, the Company and ViaOne Services, LLC entered a revolving convertible promissory note (the “Revolving Note”). The Company agrees to pay ViaOne the principal sum of $1,000,000 or such a smaller amount as ViaOne may advance to the Company from time to time under the Revolving Note, which is subject to a simple interest rate of 8% per annum and will expire earlier on demand or the third anniversary of the Original Issue Date. The Revolving Note (and any unpaid interest or liquidated damages amount) may be converted into shares of Common Stock at a conversion price of eighty-five percent (85%) of the VWAP for the five (5) trading days immediately prior to the date of the notice of conversion. On December 31, 2021, the Company amended the note to allow for the conversion of the Note into shares of the Company’s Series E Preferred Stocks. Effective December 31, 2021, ViaOne Services, LLC converted the Revolving Note into 6,730 shares of the Company’s Series E Convertible Preferred Stock, terminating the Revolving Note.

 

On September 30, 2021, the Company entered into a new Employee Services Agreement with ViaOne effective as of September 1, 2021 (the “Effective Date”). For a monthly management fee of $42,000 (the “Monthly Management Fee”), ViaOne shall provide to the Company services related to Company’s human resources, payroll, marketing, advertising, accounting, and financial services for a period of one year beginning on the Effective Date and automatically renewing for successive terms of one year each unless either party provides 90 days’ notice. ViaOne has the right to convert part or all the Monthly Management Fee into shares of the Company’s common stock, par value $0.001 per share at a Conversion Rate equal to 125% of the Conversion Amount, divided by the Conversion Price. The Conversion Price means, with respect to Management Fee, 85% of the volume weighted average price (“VWAP”) for the 5 trading days immediately prior to the date of the notice of conversion. On December 31, 2021, the Company amended the note to allow for the conversion of the Note into shares of the Company’s Series E Preferred Stocks. Effective December 31, 2021, ViaOne Services, LLC converted the new Employee Services Agreement Note into 1,557 shares of the Company’s Series E Convertible Preferred Stock. On January 1, 2022, the monthly management fee increased to $72,000 to include the addition of a full time COO and other support employees. In May 2022, the management fee was reduced to $46,600.

 

F- 11

 

 

6. Derivative Liabilities

 

The following inputs and assumptions were used to value the convertible debentures outstanding during the years ended September 30, 2022, and September 30, 2021:

 

The projected annual volatility for each valuation period was based on the historic volatility of the Company of 0% and 245.6% at September 30, 2022 and 2021, respectively. The risk-free rate was 0% and .07% on September 30, 2022 and 2021, respectively.

 

A summary of the activity of the derivative liability is shown below:

 

Balance, September 30, 2020   $ 991,322  
Change in value     15,517,428  
Balance, September 30, 2021     16,508,750  
Change in value     (16,508,750 )
Balance, September 30, 2022     0  

 

7. Common Stock

 

Share Transactions for the Quarter Ended September 30, 2021:

 

On March 8, 2021, Lincoln Acquisition converted 18,000 shares of Preferred B Stock into 3,600,000 of the Company’s common stock.

 

On May 18, 2021, Lincoln Acquisition converted 29,881 shares of Preferred B Stock into 5,976,200 of the Company’s common stock.

 

On June 25, 2021, HGT converted $17,240 of a convertible note into 1,257,476 shares of the Company’s common stock.

 

On July 21, 2021, William Schultz converted 2,500 shares of Preferred B Stock into 500,000 of the Company’s common stock.

 

On August 24, 2021, the Company issued 1,000,000 Company’s common stock to David B. Dorwart for accrued compensation.

 

On August 24, 2021, the Company issued 1,000,000 Company’s common stock to Eric Brown for accrued compensation.

 

On August 24, 2021, the Company issued 500,000 Company’s common stock to Jordan Axt for accrued compensation.

 

On August 24, 2021, the Company issued 500,000 Company’s common stock to Domenic Edward Fontana for accrued compensation.

 

On August 24, 2021, the Company issued 500,000 Company’s common stock to John D Hilzendager for accrued compensation.

 

On August 24, 2021, the Company issued 300,000 Company’s common stock to Alexandra M Dorwart for accrued compensation.

 

On August 24, 2021, the Company issued 200,000 Company’s common stock to Marjorie Greenhalgh for accrued compensation.

 

F- 12

 

 

On August 24, 2021, the Company issued 150,000 Company’s common stock to Frances Lynn Martin for accrued compensation.

 

On August 24, 2021, the Company issued 50,000 Company’s common stock to Kaitlyn Kazanjian as accrued compensation.

 

On August 24, 2021, the Company issued 50,000 Company’s common stock to Elizabeth Van Fossen as accrued compensation.

 

On August 24, 2021, the Company issued 400,000 Company’s common stock to Douglas Wathen as accrued compensation.

 

On August 24, 2021, the Company issued 100,000 Company’s common stock to Tim Bergman as accrued compensation.

 

On August 24, 2021, the Company issued 25,000 Company’s common stock to Samuel Joseph Schwieters as accrued compensation.

 

On August 24, 2021, the Company issued 50,000 Company’s common stock to Robert Welch as accrued compensation.

 

On August 24, 2021, the Company issued 10,000 Company’s common stock to Nuno Neto as accrued compensation.

 

On August 24, 2021, the Company issued 10,000 Company’s common stock to Maria Iriarte Uriarte accrued compensation.

 

On August 24, 2021, the Company issued 100,000 Company’s common stock to Infinity Global Consulting Group, Inc. as stock based compensation.

 

On September 03, 2021, the Company issued 8,000 Company’s common stock to Netleon Technologies Private Limited as stock based compensation.

 

On September 03, 2021, the Company issued 105,000 Company’s common stock to Whole Plant Systems, LLC as stock based compensation.

 

On September 03, 2021, the Company issued 10,000 Company’s common stock to J Ramsdell Consulting as stock based compensation.

 

On November 16, 2021, the Company issued 9,188,820 Company’s common stock to Armistice Capital LLC as part of closing the Private Placement funding.

 

On November 16, 2021, the Company issued 2,166,668 Company’s common stock to Iroquois Capital Investment Group LLC as part of closing the Private Placement funding.

 

On November 16, 2021, the Company issued 1,166,668 Company’s common stock to Iroquois Master Fund LTD as part of closing the Private Placement funding.

 

On November 16, 2021, the Company issued 1,700,000 Company’s common stock to Bigger Capital Fund LP as part of closing the Private Placement funding.

 

On November 16, 2021, the Company issued 1,700,000 Company’s common stock to District 2 Capital Fund LP as part of closing the Private Placement funding.

 

On December 27, 2021, Armistice Capital LLC converted 1,477,848 warrants into the Company’s common stock.

 

Share Transactions for the Quarter Ended September 30, 2022:

 

On July 26, 2022, William Crusoe converted 1,000 Class B shares into common stock.

 

On August 17, 2022, the Company issued 3,698,274 Company’s common stock as employee compensation.

 

On August 23, 2022, the Company issued 739,655 Company’s common stock as employee compensation.

 

On September 13, 2022, the Company issued 739,655 Company’s common stock as employee compensation.

 

F- 13

 

 

8. Preferred Stock

 

Our Articles of Incorporation authorize us to issue up to 5,000,350 shares of preferred stock, $0.001 par value. Of the 5,000,000 authorized shares of preferred stock, the total number of shares of Series A Preferred Stock the Corporation shall have the authority to issue is 2,000,000, with a stated par value of $0.001 per share, the total number of shares of Series B Preferred Stock the Corporation shall have the authority to issue is 249,999, with a stated par value of $0.001 per share, the total number of shares of Series C Preferred Stock the Corporation shall have the authority to issue is 1, with a stated par value of $0.001 per share, and the total number of shares of Series D Preferred Stock the Corporation shall have the authority to issue is 350, with a stated par value of $0.001 per share, and the total number of shares of Series E Preferred Stock the Corporation shall have the authority to issue is 2,750,000, with a stated par value of $0.001 per share. Our Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that the Board of Directors’ power to set the terms of, and our ability to issue preferred stock, will provide flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control of our company.

 

As of September 30, 2022, we had 7,500 shares of our Series A preferred stock, 19,296 shares of Series B preferred stock, 1 shares of Series C Preferred Stock, and 0 shares of Series D Preferred Stock, and 57,663 shares of Series E preferred stock issued and outstanding.

 

The 7,500 issued and outstanding shares of Series A Preferred Stock are convertible into shares of common stock at a rate of 20 common shares for each Series A Preferred Share. The 19,296 issued and outstanding shares of Series B Preferred Stock are convertible into shares of common stock at a rate of 200 common shares for each Series B Preferred Share. The 57,663 issued and outstanding shares of Series E Preferred Stock are convertible into shares of common stock at a rate of 1,000 common shares for each Series E Preferred Share. If all of our Series A, B and E Preferred Stock are converted into shares of common stock, the number of issued and outstanding shares of our common stock will increase by 61,672,201 shares.

 

The 1 issued and outstanding shares of Series C Preferred Stock has voting rights equivalent to 51% of all shares entitled to vote and is held by ViaOne Services LLC, a Company controlled by our CEO.

 

The Series D Preferred Stock can be convertible into shares of common stock at the lower of the Fixed Conversion Price ($.06 per share) or at the VWAP which shall be defined as the average of the five (5) lowest closing prices during the 20 days prior to conversion. We did not have any share of Series D preferred stock issued and outstanding as of September 30, 2022.

 

The holders of Series A, Series B, Series C and Series D have a liquidation preference to the common shareholders.

 

8. Warrant

 

In connection with the $100,000 convertible debenture issued to HGT Capital, LLC (“HGT”), the Company issued HGT a warrant to purchase 100,000 shares of the Company’s common stock at $1.00 per share. This warrant was not exercised and expired on April 15, 2020.