SEC Form 10-Q filed by Mobile Global Esports Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal quarter ended
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For the transition period from to
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MOBILE GLOBAL ESPORTS INC.
Table of Contents
i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Quarterly Report. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “would,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | Failure of future market acceptance of our mobile esports products and services; |
| ● | Increased levels of competition; |
| ● | Changes in political, economic or regulatory conditions generally and in the markets in which we operate; |
| ● | Our ability to retain and attract senior management and other key employees; |
| ● | Our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| ● | Other risks, including those described in the “Risk Factors” discussion. |
You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes from the risk factors previously disclosed therein, except as set in the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. The forward-looking statements in this Quarterly Report are only predictions, and we may not actually achieve the plans, intentions or expectations included in our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward- looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.
These forward-looking statements speak only as of the date of this Quarterly Report. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
ii
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
MOBILE GLOBAL ESPORTS INC.
Condensed Balance Sheets
| March 31, | December 31, | |||||||||||
| 2024 | 2023 | |||||||||||
| Note | (unaudited) | (audited) | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | $ | ||||||||||
| Prepaid expenses | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net | 3 | |||||||||||
| Operating lease right of use asset | 4 | |||||||||||
| Other long-term assets | ||||||||||||
| Total assets | $ | $ | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued expenses | 5 | $ | $ | |||||||||
| Related party payable | 6 | |||||||||||
| Operating lease liabilities, current | 4 | |||||||||||
| Note payable | 7 | |||||||||||
| Total current liabilities | ||||||||||||
| Operating lease liabilities, long term | ||||||||||||
| Total liabilities | ||||||||||||
| Commitments and contingencies | 9 | |||||||||||
| Stockholders’ equity | 8 | |||||||||||
| Preferred stock; $ | ||||||||||||
| Common stock, $ | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||
| Total stockholders' equity - Mobile Global Esports Inc. | ||||||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity | ||||||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||||||
The accompanying footnotes are an integral part of these unaudited financial statements.
1
MOBILE GLOBAL ESPORTS INC.
Condensed Statements of Operations (Unaudited)
For the three months ended March 31, 2024 and 2023
| Three Months | Three Months | |||||||||||
| Ended | Ended | |||||||||||
| Note | March 31, 2024 | March 31, 2023 | ||||||||||
| Revenue | $ | $ | ||||||||||
| Cost of revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development expenses | ||||||||||||
| General and administrative expenses | 10 | |||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||||
| Net loss - non-controlling interest | $ | ( | ) | $ | ( | ) | ||||||
| Net loss attributable to Mobile Global Esports Inc. | $ | ( | ) | $ | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||||||
| Comprehensive loss: | ||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Unrealized loss on foreign currency translation | ( | ) | ( | ) | ||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||||||
| Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||
| Comprehensive loss - Mobile Global Esports Inc. | ( | ) | ( | ) | ||||||||
The accompanying footnotes are an integral part of these unaudited financial statements.
2
MOBILE GLOBAL ESPORTS INC.
Condensed Statements of Stockholders’ Equity (Unaudited)
For the three months ended March 31, 2024 and 2023
| Accumulated | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | Other Comprehensive | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Gain (Loss) | Interest | Equity | ||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Fair value of warrants issued for services | - | |||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Fair value of warrants issued for services | - | |||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited financial statements.
3
MOBILE GLOBAL ESPORTS INC.
Condensed Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2024 and 2023
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided (used) by operating activities: | ||||||||
| Depreciation | ||||||||
| Fair value of warrants issued for services | ||||||||
| Amortization of right of use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Related party payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Advances to supplier for software | ( | ) | ||||||
| Payments for property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and restricted cash | ( | ) | ( | ) | ||||
| Net increase in cash and restricted cash | ( | ) | ( | ) | ||||
| Cash and restricted cash as of beginning of period | ||||||||
| Cash and restricted cash as of end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Right of use assets obtained on operating lease commencement | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited financial statements.
4
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Note 1 – Organization and Basis of Presentation
Organization
Mobile Global Esports Inc. (“MOGO Inc”) was incorporated on March 11, 2021 under the laws of the State of Delaware. The Company was originally named Elite Esports, Inc. but changed its name to Mobile Global Esports Inc. on April 21, 2021. MOGO Inc has been assigned certain limited rights to commercialize university esports events for 92 universities in India. The unique advantage of esports is that the events can be virtual, and virtual events bypass any Covid-19 or other pandemic restrictions on in-person events.
During July 2022, MOGO Esports Private Limited
(“MOGO Pvt Ltd”) was established and incorporated in India by certain shareholders of MOGO Inc. During November 2022, MOGO
Inc acquired approximately
Basis of Presentation
The accompanying consolidated financial statements
were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The
consolidated financial statements include the accounts of MOGO Inc and MOGO Pvt Ltd (collectively, the “Company”). MOGO Inc
owns a
The functional currency of MOGO Pvt Ltd is the Indian Rupee (“INR”). The assets and liabilities of MOGO Pvt Ltd are translated to United States Dollars (“USD”) at period end exchange rates, while statements of operations accounts are translated at the average exchange rate during the period. The effects of foreign currency translation adjustments are included in other comprehensive loss, which is a component of accumulated other comprehensive income (loss) in stockholders’ equity. All significant intercompany accounts and transactions have been eliminated in consolidation.
Interim financial statements
The unaudited condensed financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024.
Liquidity and Going Concern
The Company’s operations are subject to certain risks and uncertainties, including, among others, the Company’s need for additional financing, the ability to attract mobile esports users and viewers to the Company’s offerings, the challenges of establishing a business in India, and reliance on key members of management.
The accompanying financial statements have been prepared on the basis that assumes that the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The
Company has a limited operating history, has incurred operating losses to date, and expects to incur operating losses for the foreseeable
future. In addition, the Company has had significant management turnover in the past year, which could negatively impact the Company’s
ability to achieve its strategic direction. Furthermore, the Company may be unable to generate significant revenue within the next year
or generate sufficient cash flows to continue its operations. The Company has a new Chief Executive Officer and is working with other
consultants and its board of directors to operate the Company. Management believes the current team has the necessary experience to achieve
its goals. The Company has $
5
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. 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. Significant estimates in the accompanying consolidated financial statements include the valuation allowance on deferred tax assets and the estimated value of warrants issued for services.
Cash Equivalents
For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, amounts held in escrow and all highly-liquid debt instruments with original maturities of three months or less. At March 31, 2024 and December 31, 2023, the Company did not have any cash equivalents.
Property and Equipment
Property and equipment, net, is stated at cost
and consists of furniture and fixtures and office and computer equipment. Depreciation is computed over the estimated useful lives of
the assets, generally
Leases
The Company leases office space in India under non-cancelable lease arrangements through MOGO Pvt Ltd. The Company applies the accounting guidance in Accounting Standards Codification (“ASC”) 842, Leases. As such, the Company assesses all arrangements, that convey the right to control the use of property and equipment, at inception, to determine if it is, or contains, a lease based on the unique facts and circumstances present in that arrangement. For those leases identified, the Company determines the lease classification, recognition, and measurement at the lease commencement date.
Fixed lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed are expensed as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within the accompanying consolidated statements of operations and comprehensive loss.
The interest rate implicit in the Company’s lease contracts is typically not readily determinable and as such, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
6
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Long-Lived Assets
The Company reviews long-lived assets for realizability on an ongoing basis. Changes in depreciation and amortization, generally accelerated depreciation and variable amortization, are determined and recorded when estimates of the remaining useful lives or residual values of long-term assets change. The Company also reviews for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. In those circumstances, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists. When testing for asset impairment, the Company groups assets and liabilities at the lowest level for which cash flows are separately identifiable. Any impairment loss is calculated as the excess of the asset’s carrying value over its estimated fair value. Fair value is estimated based on the discounted cash flows for the asset group over the remaining useful life or based on the expected cash proceeds for the asset less costs of disposal. Any impairment losses would be recorded in the consolidated statements of operations.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and accounts payable, the carrying amounts approximate their fair values due to their short maturities.
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. The Company has determined that the warrants issued to date are freestanding financial instruments that are properly classified as equity.
At March 31, 2024 and December 31, 2023, the Company did not identify any assets or liabilities required to be presented on the balance sheet at fair value.
Concentration of Credit Risk
Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist of cash and restricted cash. The Company places its cash with high quality financial
institutions and at times may exceed the Federal Deposit Insurance Corporation $
7
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as
a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Segments
The Company has
Recent Accounting Pronouncements
During 2023, the Company adopted Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments-Credit Losses. ASU 2016-13 requires organizations to measure all expected credit losses for instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is applicable for the Company’s note receivable. However, the adoption of ASU 2016-13 did not have a material impact to the Company’s valuation of its note receivable.
8
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Note 3 – Property and Equipment
| March 31, 2024 | December 31, 2023 | |||||||
| Furniture and fixtures | ||||||||
| Office and computer equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
Depreciation expense was approximately $
Note 4 – Leases
The Company has office leases in India that are
classified as operating leases. These leases commenced in October 2022 and have a term of
| April 1, 2024 – December 31, 2024 | $ | |||
| 2025 | ||||
| Total | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
9
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
Note 5 – Accounts Payable and Accrued Expenses
| March 31, 2024 | December 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued consulting and professional fees | ||||||||
| Other accrued expenses | ||||||||
| Total | $ | $ | ||||||
Note 6 – Related Party Transactions
Included in related party payable as of March
31, 2024 was approximately $
During the three months ended March 31, 2024 and
2023, the Company incurred a total of $
During the three months ended March 31, 2024,
the Company paid a stockholder $
During the three months ended March 31, 2023,
the Company incurred sponsorship expenses of approximately $
Note 7 – Note Payable
During August 2023, the Company entered into an
agreement with a financing institution for payment of certain of the Company’s insurance policies. The financing agreement is payable
over a ten-month period ending May 2024 with monthly payments of principal and interest (
Note 8 – Stockholders’ Equity
Preferred Stock
The Company has authorized the issuance of
Common Stock
The Company has authorized the issuance of
Warrants
During the three months ended March 31, 2023,
the Company issued warrants (“2023 Consultant Warrants”) to purchase up to
10
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
The Company utilized the Black-Scholes option-pricing
model to value the warrants issued and the estimated fair value of the 2023 Consultant Warrants was $
| Expected dividend yield | ||||
| Risk-free interest rate | % | |||
| Expected volatility | % | |||
| Expected life (years) |
| Outstanding | Ex Price | Exercisable | Ex Price | |||||||||||||
| 2021 Consultant Warrants | $ | $ | ||||||||||||||
| IPO Warrants | $ | $ | ||||||||||||||
| PIPE Warrants | $ | $ | ||||||||||||||
| Placement Agent Warrants | $ | $ | ||||||||||||||
| 2023 Consultant Warrants | $ | $ | ||||||||||||||
| Total Warrants | ||||||||||||||||
The 2021 Consultant Warrants were granted to
three individuals (“Consultants”) that are advising the Company on developing, establishing, operating, commercializing,
marketing, promoting, and expanding the Company’s esports business with an aim to commercialize esports tournaments, esports sponsorships,
esports advertising revenues, esports merchandise revenues, esports broadcast revenues, esports video revenues, esports game development
and marketing and distribution revenues, and all other manner of esports revenue streams for the benefit of the Company. The Consultant
Warrants have an exercise price of $
In conjunction with the Company’s initial
public offering (“IPO”) in July 2022, the Company issued warrants (“IPO Warrants”) to purchase up to
In conjunction with a financing in September
2022, the Company issued
The PIPE Warrants and Placement Agent Warrants also include certain anti-dilution adjustments and potential adjustments upon the occurrence of certain change of control transactions.
11
MOBILE GLOBAL ESPORTS INC.
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2024 and 2023 (unaudited)
The fair value of the 2023 Consultant Warrants
and 2021 Consultant Warrants are being amortized to expense over their vesting period. The Company recorded total expense of approximately
$
Note 9 – Commitments and Contingencies
Legal
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
Other Commitments
In April 2024, the Company paid its former Chief of Staff $
Note 10 – General and Administrative Expense
General and administrative costs are expensed as incurred and primarily include personnel costs in the U.S. and India, public filing fees, travel expenses, contractor fees, and professional fees.
Note 11 – Net Loss Per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the periods. Fully diluted net loss per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of warrants that are computed using the treasury stock method.
At March 31, 2024 and December 31, 2023, there
were
Note 12 – Subsequent Events
On April 11, 2023, the Company received written notice (the “Notice”) from the , the Nasdaq Listing Qualifications Staff (the
“Staff”) of the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that the bid price for the Company’s common
stock (the “Common Stock”), for the last 30 consecutive business days, had closed below the minimum $
On April 9, 2024, the Staff notified the Company that it had not regained compliance with Listing Rule 5550(a)(2) (the “Delisting Determination”). On April 18, 2024, the Company’s common stock was suspended from trading on the Nasdaq Capital Market. The Company’s common stock currently trades on the Over The Counter (“OTC”) Pink Sheets.
On April 4, 2024, the Company’s Board Chairman resigned is position. However, the former Board Chairman is continuing to work with the Company as a consultant.
On May 1, 2024, the Company’s Chief Financial Officer resigned from the Company.
Management has evaluated events that occurred subsequent to the end of the reporting period and there are no subsequent events to report.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes appearing in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
Mobile Global Esports Inc. (“MOGO” or “Mogo,” or the “Company”) was organized in March of 2021 to carry on and expand an esports business (the “Business”) started by Sports Industry of India (“SII”), in 2016. Through a series of contracts, the rights to the Business were assigned to MOGO by SII and its affiliates beginning in October of 2021. MOGO is now building out and expanding the business created by SII, which is focused on the rapidly-growing esports industry, with special emphasis on India and other South Asian markets. The Indian market for esports, and particularly university esports events in India, represent, in management’s opinion, one of the largest and fastest growing esports markets in the world.
SII is an American branding, marketing and sports promotion company that, through subsidiaries and affiliates primarily in India and Pakistan, enters into exclusive long-term arrangements with universities for the purpose of promoting, expanding and commercializing university sports programs, creating professional opportunities for university athletes and alumni and developing and marketing university and event-branded merchandise. The SII esports business, which has now been transferred to and is operated by MOGO, is the only business in India to organize and sponsor an officially-sanctioned national championship for university esports. At March 31, 2024, SII holds a 12.5% minority common share interest in MOGO, and thus has no controlling interest in MOGO.
Esports are the competitive playing of video games by amateur and professional teams for cash and other prizes. Esports typically take the form of organized, multiplayer video games that include real-time strategy and competition, including virtual fights, first-person shooter and multiplayer online battle arena games. Esports are defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck. Mobile esports are defined as esports that are streamed on an electronic esports platform and played by individuals or teams on mobile devices, usually smartphones. Competitors participate at large in-person events, small in-person events and virtually from home or computer cafes. Interest in esports is rapidly growing. In 2020, the global audience for gaming video content, including esports, grew to 1.2 billion viewers, an 18 percent increase from 2019, according to Statista, as gaming streams became a popular social activity and distraction during coronavirus-related lockdowns. A DataProt report in January 2023 placed the number of gamers at 1.7 billion.
MOGO’s esports business began in 2016 when SII introduced esports to the Association of Indian Universities (“AIU”), an academic and sports body that represents 854 major universities. AIU sanctioned esports as a championship event in a unique and exclusive 10-year renewable agreement with SII. SII has assigned most of its esports rights under these and other agreements involving esports to MOGO under a series of contracts between the two companies. SII licensed to MOGO exclusive rights to develop, organize, promote and monetize mobile esports events in collaboration with AIU and with a second major university sports association, Elite University Sports Alliance of India Pvt. Ltd. (“EUSAI”), a for-profit subsidiary of SII. EUSAI itself has direct contracts with 92 leading Indian universities pursuant to which EUSAI is granted exclusive rights to organize and monetize a range of sports, including esports. Although any AIU or EUSAI members may choose to not participate in MOGO’s esports business, the combination of AIU and EUSAI’s member universities potentially gives MOGO access to students attending these 854 Indian universities.
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The first SII esports championship was held at Lovely Professional University (LPU) in 2017, the second at Maharshi Dayanand University in 2018 and the third at SRM Institute of Science and Technology in 2019. The 2020 championships were cancelled during the covid lockdowns. MOGO sponsored the 2021-2022 championships at LPU in April 2022. During the period of May through December 2021, MOGO, with the help of SII and SII’s subsidiaries pursuant to their mutual contracts, organized and commercialized a total of 27 virtual esports tournaments in India. These events included inter- and intra-university competitions that reached an aggregate audience of over 450,000 viewers (most of whom were added in the last quarter of calendar year 2021, reflecting recent momentum in interest in university esports), according to SII’s YouTube channel analytics. During September 2023, MOGO produced the MOGO National Championship 2.0 event, which was held at Lovely Professional University (“LPU”) in Phagwara, India. The event featured competitive play from 16 teams representing four geographic regions within India. MOGO produced the esports championship in cooperation with Elite Power Sports, which produced the national basketball, volleyball, and kabaddi university championships. Team MOGO Esports also secured victories in two competitions, held on October 28, 2023 and November 8, 2023, featuring teams from across India.
Management expects commercialization of these events will be similar to events in more developed esports markets, such as South Korea, China and the U.S. Revenue is expected to come from sponsorships, advertising, subscriptions, tickets to future events, branded merchandise and fees. In addition, monetization of the data collected through MOGO’s game platform is expected to provide additional revenues. In the past events, the viewers’ data was collected by third-party streaming services, such as YouTube and Facebook. Once the players and viewers are routed through MOGO’s proprietary game and social media platform, MOGO anticipates collecting the data (names, phone numbers, email addresses, university affiliation, etc.), processing the data, combining the data with other commercially-available data sets and offering the data to the markets following strict government privacy guidelines, particularly since a subset of our users will likely be underage first-year university students. Management believes that the value of the data may become one of the dominant revenue elements in MOGO’s business model.
Recent Events
On April 11, 2023, we received written notice (the “Notice”) from the , the Nasdaq Listing Qualifications Staff (the “Staff”) of the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that the bid price for the Company’s common stock (the “Common Stock”), for the last 30 consecutive business days, had closed below the minimum $1.00 per share and, as a result, the Company was not in compliance with the $1.00 minimum bid price requirement for the continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). We were provided an initial period of 180 calendar days, or until October 9, 2023 to regain compliance with the Minimum Bid Price Rule. Subsequently, on October 10, 2023, we were provided an additional 180 calendar day compliance period, or until April 8, 2024 to regain compliance.
On April 9, 2024, the Staff notified us that we had not regained compliance with Listing Rule 5550(a)(2) (the “Delisting Determination”). On April 18, 2024, our common stock was suspended from trading on the Nasdaq Capital Market. Our stock currently trades on the OTC Pink Sheets.
Components of Statements of Operations
Revenue and Cost of Revenue
We have not generated any significant revenue or cost of revenue to date.
General and Administrative Expenses
General and administrative expenses consist principally of personnel costs, public filing fees, travel expenses, operating expenses for the office in Mumbai, and other professional fees for consulting, legal, auditing and tax services.
Critical Accounting Estimates
We discussed our accounting policies and significant assumptions used in our estimates in Note 2 of our audited financial statements included in our 2023 Form 10K, and that disclosure should be read in conjunction with the Quarterly Report on Form 10-Q. There have been no material changes during the three months ended March 31, 2024 to our critical accounting policies, significant judgments and estimates disclosed in our Form 10K.
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Results of Operations
Three months Ended March 31, 2024 compared with the Three months Ended March 31, 2023
The following table summarizes the results of our operations for the three month period ended March 31, 2024 and 2023, together with the changes in those items in dollars and as a percentage:
| Three Months Ended | ||||||||||||||||
| March 31, | $ | % | ||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Revenue | $ | — | $ | — | $ | — | * | |||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | — | — | — | * | ||||||||||||
| General and administrative | 617,374 | 815,731 | (198,357 | ) | ** | |||||||||||
| Total costs and expenses | 617,374 | 815,731 | (198,357 | ) | ** | |||||||||||
| Loss from operations | (617,374 | ) | (815,731 | ) | 198,357 | ** | ||||||||||
| Interest income | 129 | 3,647 | (3,518 | ) | ** | |||||||||||
| Interest expense | (1,382 | ) | - | (1,382 | ) | * | ||||||||||
| Net loss | $ | (618,627 | ) | $ | (812,084 | ) | $ | 193,457 | ** | |||||||
| * | Not meaningful |
| ** | Change is significantly more than 100% |
General and Administrative Expenses
General and administrative expenses were approximately $617,000 for the three months ended March 31, 2024, compared with $816,000 for the three months ended March 31, 2023. The decrease in general and administrative expenses was primarily driven by an increase of approximately $272,000 in professional and consulting fees, $203,000 in compensation to U.S. personnel, $289,000 in travel, and $100,000 in expenses incurred by MOGO Pvt Ltd.
General and administrative expenses were approximately $2,976,000 for the nine months ended September 30, 2023, compared with $547,000 for the nine months ended September 30, 2022. The increase in general and administrative expenses was primarily driven by a decrease of approximately $68,000 in accounting, legal and consulting fees and $127,000 in compensation to U.S. personnel.
Liquidity and Capital Resources
As of March 31, 2024 and December 31, 2023, we had cash of approximately $2,770,000 and $3,175,000, respectively.
We have financed our operations through the issuance of common stock and common stock with warrants. In July 2022, we issued 1,725,000 shares of common stock for total gross proceeds of $6,900,000 through an initial public offering (“IPO”). We received net proceeds after commissions, fees and expenses of approximately $5,465,000. In September 2022, we issued 1,886,793 shares of common stock along with 1,886,793 warrants, for total gross proceeds of $5,000,001 through a private equity placement (“PIPE”). We received net proceeds after commissions, fees and expenses of approximately $4,422,000.
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Funding Requirements
We believe we may need to raise additional funding to meet our cash, operational and liquidity requirements for at least 12 months after the date of this quarterly report.
We cannot specify with certainty all of the particular uses for the net proceeds to us from the IPO and the PIPE. Accordingly, our management will have broad discretion in the application of these proceeds.
We intend to use the net proceeds from the IPO and the PIPE for operating expenses, marketing, event expenses, streaming, retention of additional staff in the United States and India, working capital and general corporate purposes, including perhaps acquisitions of game licenses, technology platform agreements, data development and strategic partnerships. Investors are cautioned, however, that expenditures may vary substantially from these uses. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of the IPO and the PIPE. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of cash generated by our operations and the amount of competition we face and other operational factors. We may find it necessary or advisable to use portions of the proceeds from the IPO and the PIPE for other purposes.
Because of the numerous risks and uncertainties associated with establishing a new business in India, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
| ● | Failure of future market acceptance of our mobile esports products and services; |
| ● | Increased levels of competition; |
| ● | Changes in political, economic or regulatory conditions generally and in the markets in which we operate; |
| ● | Our ability to retain and attract senior management and other key employees; |
| ● | Our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| ● | Other risks, including those described in the “Risk Factors” discussion. |
See “Risk Factors” for additional risks associated with our substantial capital requirements.
Cash Flows
The following table summarizes our sources and uses of cash:
| Three months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (360,632 | ) | $ | (687,767 | ) | ||
| Investing activities | (5,469 | ) | (29,484 | ) | ||||
| Financing activities | (38,740 | ) | (47,545 | ) | ||||
| Effect of exchange rate changes on cash and restricted cash | (242 | ) | (405 | ) | ||||
| Net increase (decrease) in cash | $ | (405,083 | ) | $ | (765,201 | ) | ||
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Operating Activities
Net cash used in operating activities decreased by approximately $327,000 for the three months ended March 31, 2024 compared with the three months ended March 31, 2023. The decrease was primarily due to a decrease in net loss of approximately $193,000 and a decrease in the change in other current assets of $100,000.
Investing Activities
Net cash used in investing activities decreased by approximately $24,000 for the three months ended March 31, 2024 compared with the three months ended March 31, 2023. The decrease was due to a decrease in the amount of payments for property, equipment and software.
Financing activities
Net cash used in financing activities changed by approximately $9,000 for the three months ended March 31, 2024 compared with the three months ended March 31, 2023. The change was due to a decrease in payments on the note payable for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
JOBS Act
As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
Subject to certain conditions, as an emerging growth company, we rely on certain of these exemptions, including without limitation:
| ● | reduced disclosure about our executive compensation arrangements; |
| ● | no advisory votes on executive compensation or golden parachute arrangements; and |
| ● | exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
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We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of 2027; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of March 31, 2024, management has not completed an effective assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that, during the period covered by this quarterly report, our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.
1. We lack the necessary corporate accounting resources to maintain adequate segregation of duties.
2. We did not perform an effective risk assessment or monitor internal controls over financial reporting or our cyber security environment.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently subject to any legal proceedings or claims, however, we may become subject to legal proceedings and claims arising in connection with the normal course of our business.
Item 1A. Risk Factors.
RISK FACTORS
You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes from the risk factors previously disclosed therein, except as set forth below;
We will require additional financing in order to implement and execute our business plan, and we cannot be certain that such additional financing will be available on reasonable terms when required, or at all.
As of March 31, 2024, we had a cash balance of approximately $2,770,000. We believe we may need to raise additional funding to meet our cash, operational and liquidity requirements to continue operating for at least 12 months after the date of this quarterly report.
We currently do not have any contracts or commitments for additional financing. Any future equity financing may involve substantial dilution to existing shareholders. There can be no assurance that such additional capital will be available on a timely basis, or on terms acceptable to the Company. If adequate funds are not available or are not available on acceptable terms when needed, the Company may not be able to fund its business or its expansion, take advantage of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed could have a material adverse effect on the Company’s business, results of operations, cash flow, financial condition and prospects.
If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or privileges senior to those possessed by our then-existing stockholders and/or note holders. Additionally, future sales of a substantial number of shares of our Common Stock or other equity-related securities could depress the market price of our Common Stock in the public market, and could impair our current or future ability to raise capital through the sale of additional equity or equity-linked securities or the sale of debt. We cannot predict the effect that future sales of our Common Stock or other equity-related securities would have on the market price of our Common Stock.
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Item 6. Exhibits
The exhibits listed on the Exhibit Index hereto are filed or furnished (as stated therein) as part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
| Exhibit No. | Document | |
| 31.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. | |
| 31.2* | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. | |
| 32.1** | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. | |
| 32.2** | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. | |
| 101* | The following materials from Mobile Global Esports Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Extensible Business Reporting Language (iXBRL): (i) Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023, (ii) Statements of Operations (unaudited) for the three months ended March 31, 2024 and 2023, (iii) Statements of Cash Flows (unaudited) for the three months ended March 31, 2024 and 2023 and (iv) Notes to Financial Statements (unaudited). | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MOBILE GLOBAL ESPORTS INC. | ||
| DATE: May 20, 2024 | By: | /s/ Sunny Bhandarkar |
| Sunny Bhandarkar | ||
| Chief Executive Officer | ||
| MOBILE GLOBAL ESPORTS INC. | ||
| DATE: May 20, 2024 | By: | /s/ Mansi Solanki |
| Mansi Solanki | ||
| Interim Vice-President of Finance | ||
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