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EX-32.2 - GOOD GAMING, INC.ex32-2.htm
EX-32.1 - GOOD GAMING, INC.ex32-1.htm
EX-31.2 - GOOD GAMING, INC.ex31-2.htm
EX-31.1 - GOOD GAMING, INC.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Form 10-Q

 

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

 

For the quarterly period ended March 31, 2018

 

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 [X] 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 [X] 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,” “non-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 [X]
(Do not check if smaller reporting company)      

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

As of May 10, 2018, there were 28,568,195 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 4
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures About Market Risk 27
Item 4 Controls and Procedures 27
     
Part II OTHER INFORMATION
 
Item 1 Legal Proceedings 28
Item 1A Risk Factors 28
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3 Defaults Upon Senior Securities 28
Item 4 Mine Safety Disclosures 29
Item 5 Other Information 29
Item 6 Exhibits 29
  Signatures 30

 

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 operation 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;
     
  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)

 

   March 31, 2018   December 31, 2017 
ASSETS          
Current Assets          
Cash and Cash Equivalents  $101,147   $61,037 
Prepaid expenses   2,541    - 
Due from Affliate   -    700 
Total Current Assets   103,688    61,737 
           
Property and Equipment, Net   153,693    10,160 
Gaming Software, Net   690,000    750,000 
TOTAL ASSETS  $947,381   $821,897 
LIABILITIES & STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts Payable and Accrued Expenses  $120,508   $105,544 
Derivative Liability   325,693    570,643 
Notes Payable   13,440    13,440 
Convertible Debentures, current   117,910    183,065 
Due to Related Party- Tri State Phone Distribution, LLC   118,500    - 
Notes Payable Related Party- ViaOne Services   740,351    838,796 
Total Current Liabilities   1,436,402    1,711,488 
           
Total Liabilities   1,436,402    1,711,488 
           
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: 106,511 and 164,781 Shares, respectively   107    165 
Class C Preferred Stock          
Authorized: 1 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 1 and 1 Shares, respectively   1    1 
Class D Preferred Stock          
Authorized: 350 Preferred Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 210 and 105 Shares, respectively   1    1 
Common Stock          
Authorized: 200,000,000 Common Shares, With a Par Value of $0.001 Per Share Issued and Outstanding: 23,683,195 and 2,881,424 Shares, respectively   23,683    2,881 
Additional Paid-In Capital   4,345,784    3,996,373 
Accumulated Deficit   (4,858,605)   (4,889,020)
Total Stockholders’ Deficit   (489,021)   (889,591)
TOTAL LIABILITIES & STOCKHOLDER’S DEFICIT  $947,381   $821,897 

 

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

 

4
 

 

Good Gaming, Inc

Consolidated Statement of Operations

(Expressed in U.S Dollars)

(Unaudited)

 

   For the three months ended
March 31,
 
   2018   2017 
Revenues  $34,732   $2,519 
Cost of Revenues   -    - 
Gross Profit   34,732    2,519 
           
Operating Expenses          
General & Administrative   19,601    59,783 
Contract Labor   32,426    135,955 
Payroll Expense   26,331    - 
Depreciation and Amortization Expense   61,217    60,672 
Professional Fees   103,097    2,000 
Total Operating Expenses   242,672    258,410 
Operating Loss   (207,940)   (255,891)
Other Income (Expense)          
Interest Income   -    1,000 
Interest Expense   (6,595)   (3,360)
Gain (Loss) on Change in Fair Value of Derivative Liability   244,950    74,789 
Total Other Income (Loss)   238,355    72,429 
           
Net Income (Loss)  $30,415   $(183,462)
           
Net Income (Loss) Per Share, Basic and Diluted  $-   $(0.09)
           
Weighted Average Shares Outstanding   7,293,597    1,998,447 

 

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

 

5
 

 

Good Gaming, Inc

Consolidated Statements of Cash Flows

(Expressed in U.S Dollars)

(Unaudited)

 

  

For the Three Months Ended

March 31,

 
   2018   2017 
Operating Activities          
           
Net Income (Loss)  $30,415   $(183,462)
           
Adjustment To Reconcile Net Loss to Net Cash Used In Operating Activities          
Depreciation and Amortization   61,217    60,672 
Change In Fair Value Of Derivative Liability   (244,950)   (74,789)
Changes in operating assets and liabilities          
Due from Affiliate   700    - 
Prepaid expenses   (2,541)   - 
Accounts Payable and Accrued Liabilities   14,964    3,360 
           
Net Cash Provided By (Used in) Operating Activities   (140,195)   (194,219)
           
Investing Activities          
           
Purchase of Property and Equipment   (26,250)   - 
           
Net Cash Provided By (Used in) Investing Activities   (26,250)   - 
           
Financing Activities          
           
Repayment of Note Receivable   -    10,500 
Proceeds From Note Payable   -    213,000 
Proceeds From Sale Of Preferred Stock CL D   105,000    - 
Due To ViaOne Services   101,555    - 
           
Net Cash Provided By (Used In) Financing Activities   206,555    223,500 
           
Change in Cash and Cash Equivalents   40,110    29,281 
           
Cash and Cash Equivalents, Beginning Of Period   61,037    47,900 
           
Cash and Cash Equivalents, End Of Period  $101,147   $77,181 
           
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  $118,500   $- 
Common Shares Issued for Conversion Of Debt  $265,155   $6,585 
Shares Issued For Acquisition Of Software  $-   $- 

 

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

 

6
 

 

Good Gaming, Inc.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

 

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 esports players and participants worldwide that want to compete at the high school or college level. A substantial portion of the Company’s activities have involved developing a business plan and establishing contacts and visibility in the marketplace and the Company has not generated any substantial revenue to date.

 

Consolidation

 

The accompanying condensed consolidated financial statements include the accounts and operations of the Company and its’ wholly owned subsidiary, Crypto Strategies Group, Inc.. All intercompany accounts and transactions have been eliminated.

 

Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated minimal revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As of March 31, 2018, the Company had a working capital deficiency of $1,332,714 and an accumulated deficit of $4,858,605. 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. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

7
 

 

Reclassifications

 

Certain reclassifications have been made to the three months ended March 31, 2017 to the statement of operations and statement of cash flows to reflect consistency with the current presentation.

 

Use of Estimates

 

The preparation of consolidated 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 consolidated 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.

 

Cash Equivalents

 

The Company considers all highly liquid instruments with maturity 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.

 

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 circumstance 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.

 

8
 

 

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 records at is 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 March 31, 2018, the Company had 9,607,460 (2017 – 8,779,119) potentially dilutive shares from outstanding convertible debentures.

 

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 liabilities 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 liabilities 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.

 

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 is 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.

 

9
 

 

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 at March 31, 2018 and 2017 as follows:

 

Description  Fair Value Measurements at March 31, 2018 Using Fair Value Hierarchy 
   Total   Level 1   Level 2   Level 3 
Derivative liability  $325,693   $-   $-   $325,693 
Total  $325,693   $-   $-   $325,693 

 

Description  Fair Value Measurements at March 31, 2017 Using Fair Value Hierarchy 
   Total   Level 1   Level 2   Level 3 
Derivative liability  $228,605   $-   $-   $228,605 
Total  $228,605   $-   $-   $228,605 

 

The carrying values of all of 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.

 

10
 

 

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 $1,666 in advertising and promotion expenses in the three months ended March 31, 2018.

 

Revenue Recognition

 

The company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the company determines are within the scope of Topic 606, the company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Revenues primarily include revenues from microtransactions revenues are derived from the sale of virtual goods to the Company’s players. Proceeds from the sales of virtual goods directly are recognized as revenues when a player uses the virtual goods.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was amended in 2015 and 2016. The new revenue recognition standard relates to revenue from contracts with customers and will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance.

 

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard, as amended, is effective for annual periods beginning December 15, 2017. The Company has implemented the ASU and the adoption of the standard did not impact our consolidated financial statements.

 

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.

 

3. Other Assets

 

Property and Equipment consisted of the following:

 

   March 31, 
   2018   2017 
Computers and servers  $39,226   $13,440 
           
Bitmining machines   118,500    - 
           
   $157,726   $13,440 
           
Accumulated Depreciation   (4,033)   (2,688)
           
   $153,693   $10,752 

 

11
 

 

Depreciation expense for the three months ended March 31, 2018 and 2017 was $779 and $2,688, respectively.

 

On February 17, 2016, the Company acquired Good Gaming’s assets including intellectual property, trademarks, software code, equipment and other from CMG Holdings Group, Inc. The Company valued the software purchased at $1,200,000. The software has a useful life of 5 years. During the three months ended March 31, 2018, the Company acquired two additional software servers for $26,250. Amortization for the three months ended March 31, 2018 and 2017 was $60,437 and $60,000, respectively. The software consisted of the following:

 

   March 31, 
   2018   2017 
Software  $1,200,000   $1,200,000 
           
Accumulated Amortization   (510,000)   (270,000)
           
   $690,000   $930,000 

 

4. Debt

 

Convertible Debentures

 

On April 15, 2015, the Company entered into a $100,000 convertible debenture with a non-related party. During the quarter ended June 30, 2015, the Company received the first $50,000 payment. The remaining $50,000 payment will be made at the request of the borrower. No additional payments have been made as of September 30, 2017. Under the terms of the debenture, the amount is unsecured and was due on October 16, 2016. The note is currently in default and bears interest at 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 is sent by the holder to the Company. HGT and the company are currently solving disputes regarding this note via litigation.

 

On April 1, 2015, we entered into a transaction with Iconic Holdings, LLC (the “Purchaser”), whereby Iconic Holdings agreed to provide up to $600,000 through a structured convertible promissory note (the “Note”), with funds to be received in tranches. The note bears interest of 10% and was due April 1, 2016. The initial proceeds of $40,000 was received on April 9, 2015, with $30,000 remitted and delivered to us, $4,000 retained by the Purchaser as an original issue discount, and $6,000 retained by the Purchaser for legal expenses. On February 17, 2016 as part of a settlement between the lender and the Company, the note along with a remaining balance of $8,300 from former JABRO-Asher notes were restructured to a principal amount of $25,000 with a due date of June 18, 2017 and an interest rate of 0%. The lender is subject to strict lock-up and leak-out provisions. Additionally, as part of the February 2016 settlement with the lender, the lender funded $100,000 new debentures (the “$100,000 Convertible Promissory Note”) due August 2018 bearing 0% interest with the lender subject to strict lock-up and leak-out provisions.

 

On June 27, 2017, Iconic Holdings’ $100,000 Convertible Promissory Note issued on February 18, 2016 was amended to reflect an advisement of the conversion price of $.10 cents to $.08 cents per common share.

 

12
 

 

On June 29, 2017, Iconic Holdings, LLC entered into a 10% Convertible Promissory Note with the Company in the principal amount of $27,000 (the “Note”). Upon the execution of this note the sum of $9,000 has been remitted and delivered to the Company. On August 14, 2017, Iconic Holdings, LLC remitted and delivered to the Company another $9,000. The Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this Note. As of March 31, 2017, the Company has received a total $18,000 of the $27,000 principal amount. On April 16, 2018, the note was fully converted.

 

On July 5, 2017, Iconic Holdings converted $15,895 of its $100,000 Convertible Promissory Note. On July 25, 2017, Iconic Holdings converted $18,950 of its $100,000 Convertible Promissory Note.

 

On January 23, 2018, Iconic Holdings converted $65,155 of its $100,000 Convertible Promissory Note. Accordingly, the $100,000 Convertible Promissory Note issued on February 18, 2016 was fully converted into 1,250,001 shares of common stock.

 

As part of the asset purchase agreement between HDS International Corp. and CMG Holdings Group, Inc., SirenGPS was issued a $60,000 0% interest convertible debenture that matures in August 2018. The debentures are convertible into common stock at a 20% discount to the 20-day moving average of the Company’s common stock after a period of seven months. The debt is subject to strict lock-up and leak-out provisions. SirenGPS has agreed to sell this security to the Company or to an investor of the Company’s choosing at face value.

 

4. Derivative Liabilities

 

The following inputs and assumptions were used to value the convertible debentures outstanding during the years ended March 31, 2018 and March 31, 2017:

 

The projected annual volatility for each valuation period was based on the historic volatility of the Company of 198.7% and 171% at March 31, 2018 and 2017, respectively. The risk free rate was 2.12% and 1.03% at March 31, 2018 and 2017, respectively. The expected life was one year and the dividend yield was 0% for each year.

 

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

 

Balance, March, 2017  $153,816 
      
Change in value   172,507 
      
Balance, March 31, 2018   325,693 

 

5. Common Stock

 

Share Transactions for the Year Ended December 31, 2017:

 

On January 4, 2017, the Hillwinds Ocean Energy converted 70,000 shares of its common stock to 500 shares of Class B Preferred Stock.

 

13
 

 

On January 5, 2017, Iconic Holdings converted $6,585 of convertible debt into 65,585 shares of the Company’s common stock.

 

On July 5, 2017, Iconic Holdings converted $15,895 of convertible debt into 198,688 shares of the Company’s common stock.

 

On July 13, 2017, a shareholder converted 1,000 Series B Preferred Shares (“Series B Preferred Shares”) into 200,000 shares of the Company’s common stock.

 

On July 25, 2017, Iconic Holdings converted $18,950 of convertible debt into 236,875 shares of the Company’s common stock.

 

On August 11, 2017, an investor converted 1,250 Series B Preferred Shares into 250,000 shares of the Company’s common stock.

 

At March 31, 2017, the Company had 21,891,805 shares of common stock reserved for issuance relating to convertible debentures and Series D Preferred Stock.

 

Share Transactions for the Year Ended March 31, 2018:

 

On January 8, 2018, Silver Linings Management converted 15,000 shares of the Company’s Series B Preferred Shares into 3,000,000 common shares of the Company.

 

On January 8, 2018, Britton & Associates converted 5,000 the Company’s Series B Preferred Shares in 1,000,000 common shares of the Company.

 

On January 9, 2018, ViaOne Services converted $200,000 its convertible note into 8,333,333 common shares of the Company.

 

On January 12, 2018, SSB Trading converted 10,000 the Company’s Series B Preferred Shares into 2,000,000 common shares of the Company.

 

On January 12, 2018, CMG Holdings converted 5,605 the Company’s Series B Preferred Shares into 1,211,000 common shares of the Company.

 

On January 18, 2018, CMG Holdings converted 9,000 the Company’s Series B Preferred Shares into 1,800,000 common shares of the Company.

 

On January 23, 2018, Iconic Holdings converted $65,155 of its convertible note into 814,438 common shares of the Company.

 

On January 26, 2018, Michael Tadin converted 5,000 the Company’s Series B Preferred Shares into 1,000,000 common shares of the Company.

 

On February 9, 2018, Vik Grover converted 8,665 the Company’s Series B Preferred Shares into 1,733,000 common shares of the Company.

 

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6. Preferred Stock

 

Our Articles of Incorporation authorize us to issue up to 2,250,350 shares of preferred stock, $0.001 par value. Of the 2,250,000 authorized shares of preferred stock, the total number of shares of Class A Preferred Shares the Corporation has the authority to issue is Two Hundred Forty Nine thousand Nine Hundred Ninety Nine (249,999), par value $0.001 per share, the total number of shares of Class B Preferred Shares the Corporation has the authority to issue is Two Million (2,000,000), par value $0.001 per share and the total number of shares of Class C Preferred Shares the Corporation has the authority to issue is One (1), par value $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 March 31, 2018, we had 7,500 shares of our Class A preferred stock issued and outstanding. As of March 31, 2018, we had 106,511 shares of Class B preferred stock issued and outstanding. As of March 31, 2018, we had 1 shares of Class C Preferred Stock issued and outstanding. At March 31, 2018, we had 210 shares of Class D Preferred Stock issued and outstanding.

 

The 7,500 issued and outstanding shares of Class A Preferred Stock are convertible into shares of common stock at a rate of 20 common shares for each Class A Preferred Share. The 106,511 issued and outstanding shares of Class B Preferred Stock are convertible into shares of common stock at a rate of 200 common shares for each Class B Preferred Share. If all of our Class A Preferred Stock and Class B Preferred Stock, issued and outstanding as of March 31, 2018 are converted into shares of common stock, the number of issued and outstanding shares of our common stock will increase by 21,452,200 shares.

 

The 1 issued and outstanding share of Class 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 David Dorwart, our CEO.

 

The 210 issued and outstanding shares of Class D Preferred Stock are convertible into shares of common stock at a rate of 125% of the conversion amount at a price that is the lower of 110% of the volume weighted average prices (“VWAP”) of the common stock on the closing date, the VWAP of the common stock on the conversion date or the VWAP of the common stock on the date prior to the conversion date. for each one Class A Preferred Share. The shares of Class D Preferred Stock are convertible beginning 6 months from the issue date. At March 31, 2017, no shares of Class D Preferred Stock were eligible to be converted to common stock.

 

The 210 issued and outstanding shares of Class D Preferred Stock are entitled to cumulative dividends at a rate of 5% of the face value of shares, or the number of shares multiplied by 1,000. The dividends accrue commencing on the issuance date of the preferred shares and accrue whether or not declared and whether or not there is sufficient earnings or surplus. The dividends are payable quarterly, with the first dividend date being March 31, 2017. The dividends are payable in cash or shares of common stock. At March 31, 2018, the Company had $2,532 in cumulative unpaid dividends.

 

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

 

7. Warrant

 

In connection with the $100,000 convertible debenture issued to HGT Capital, LLC, the Company issued HGT Capital, LLC a warrant to purchase 100,000 shares of the Company’s common stock at $1.00 per share. This warrant was not exercised, is exercisable through April 15, 2020 and had a remaining life of 2.29 years as of March 31, 2018. The intrinsic value of the warrant at March 31, 2018 was zero as the exercise price exceeded the closing stock price.

 

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8. Related Party Transactions

 

On or around April 7, 2016, Silver Linings Management, LLC funded the Company $13,439.50 in the form of convertible debentures secured by certain high-powered gaming machines purchased from XIDAX. Such note bears interest at a rate of 10% per annum payable in cash or kind at the option of the Company matures on April 1, 2018, and is convertible into Series B Preferred shares at the option of the holder at any time.

 

On November 30, 2016, ViaOne Services, LLC (“ViaOne”) purchased a Secured Promissory Note equal to a maximum initial principal amount of $150,000 issued by the Company to ViaOne. As additional advances were made by ViaOne to the Company, the principal amount of the Note was increased to $225,000 and $363,000 by amendments dated January 31, 2017 and March 1,, 2017, respectively.

 

On May 5, 2017, ViaOne delivered a default notice to the Company pursuant to Section 6 of the Note Purchase Agreement but has subsequently extended the due date and has increased the funding up to One Million ($1,000,000) dollars. After giving the Company a fifteen (15) day notice period to cure the default under the Stock Pledge Agreement, dated November 30, 2016, entered by and among the Company, CMG and ViaOne (“Pledge Agreement”), ViaOne took possession of the Series C Stock, which was subject of the Pledge Agreement.

 

The Note as amended increased from time to time due to additional advances provided to the Company by ViaOne.

 

On September 1, 2017, the Company executed an amended Employee Services Agreement with ViaOne which stipulated that ViaOne would continue providing to the Company services relating to the Company’s human resources, marketing, advertising, accounting and financing for a monthly management fee of $25,000. This agreement was amended on January 1, 2018 to continue until March 31, 2018. The accrued monthly management fees, $100,000 at March 31, 2017, are convertible by ViaOne into the Company’s common stock at rate of 125% of the accrued fees at a conversion price of (i) $0.05 per share; or (ii) the volume weighted adjusted price (“VWAP”) of the common stock on the 14th day of each month if the 14th of that month is a trading day. In the event the 14th day of a month falls on a Saturday, Sunday, or a trading holiday, the VWAP of the Common Stock will be valued on the last trading day before the 14th day of the month.

 

At March 31, 2018, the total amount owed to ViaOne Services, was $740,351.

 

The Company’s Chairman and Chief Executive Officer is the Chairman of ViaOne.

 

The amount receivable from an affiliate of $700 was repaid in 2018.

 

9. Income Taxes

 

The Company has a net operating loss carried forward of $1,576,720 available to offset taxable income in future years which commence expiring in fiscal 2030.

 

The significant components of deferred income tax assets and liabilities at March 31, 2018 and 2017 are as follows:

 

   2018   2017 
Net Operating Loss Carryforward  $331,111   $562,497 
           
Valuation allowance   (331,111)  $(562,497)
           
Net Deferred Tax Asset  $-   $- 

 

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The income tax benefit has been computed by applying the weighted average income tax rates of the United States (federal and state rates) of 21% and 35%, respectively, to the net loss before income taxes calculated for each jurisdiction. The tax effect of the significant temporary differences, which comprise future tax assets and liabilities, are as follows:

 

   2018   2017 
Income tax recovery at statutory rate  $6,387   $(64,212)
           
Valuation allowance change   (6,387)  $64,212 
           
Provision for income taxes  $-   $- 

 

10.Commitments and Contingencies

 

HGT Capital LLC (“HGT”) has filed a lawsuit against the Company, claiming breach of contract due to a default on a $50,000 junior loan made by HGT to HDS International Corp., our predecessor, in 2015. The Company has retained counsel to represent it on this matter and responded with affirmative defenses in the Supreme Court of New York. HGT’s motion for summary judgment is scheduled for oral argument on May 31, 2018. The Company intends to vigorously contest such action.

 

11.Acquisition

 

On March 21, 2018, the Company announced the acquisition of Crypto Strategies Group, Inc. as it diversifies into the cryptocurrency market for $500. As the acquisition was between entities under common control with the Company, the assets and liabilities were recorded at their carrying amount on the date of transfer. On the date of transfer, Crypto Strategies Group, Inc. had no asset or liabilities.

 

12.Subsequent Events

 

On April 12, 2018, the Company announced it has received confirmation for its uplisting to the OTCQB platform.

 

On April 13, 2018, Red Diamond converted 5 shares of Preferred D stock into 555,556 of the Company’s common shares.

 

On April 17, 2018, Red Diamond Red Diamond converted 5 shares of Preferred D stock into 609,756 of the Company’s common shares.

 

On April 23, 2018, Red Diamond Red Diamond converted 5 shares of Preferred D stock into 806,452 of the Company’s common shares.

 

On April 16, 2018, Iconic Holdings converted 18,000 of a convertible note into 1,892,828 of the Company’s common shares.

 

On April 30, 2018, the holder of one (1) share of Series C Preferred Stock of the Company that entitles such holder to vote a majority of the issued and outstanding voting securities of the Company’s approved by written consent that the Company adopts the 2018 Stock Incentive Plan (the “2018 Plan”) under which the board of directors of the Company may decide at its sole discretion to grant equity awards to certain employees and consultants as set forth in the 2018 Plan.

 

On May 3, 2018, the Company filed a Certificate of Amendment to Articles of Incorporation with the Secretary of the State of Nevada which, among other things, increased its authorized shares of common stock from 100,000,000 to 200,000,000, par value $0.001 per share. The Certificate of Amendment became effective on May 3, 2018.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Cautionary Statements

 

This Quarterly Report on Form 10-Q (“Form 10-Q”) may contain “forward-looking statements,” as that term is used in federal securities laws, about Good Gaming, Inc. (“GMER,” “we,” “our,” “us,” the “Company,” “management”) and its financial condition, results of operations and business. These statements include, among others:

 

  statements concerning the potential benefits that we may experience from our business activities and certain transactions we contemplate or have completed; and
     
  statements of GMER’s expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-Q. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “opines,” or similar expressions used in this Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause GMER’s actual results to be materially different from any future results expressed or implied by GMER in those statements. The most important facts that could prevent GMER from achieving its stated goals include, but are not limited to, the following:

 

  (a) volatility or decline of our stock price;
  (b) potential fluctuation of quarterly results;
  (c) failure of GMER to achieve revenues or profits;
  (d) inadequate capital to continue or expand our business, and inability to raise additional capital or financing to implement our business plans;
  (e) decline in demand for GMER’s products and services;
  (f) rapid adverse changes in markets;
  (g) litigation with or legal claims and allegations by outside parties against us, including but not limited to challenges to our intellectual property rights; and
  (h) insufficient revenues to cover operating costs.

 

There is no assurance that GMER will be profitable, be able to successfully develop, manage or market its products and services, be able to attract or retain qualified executives and personnel, be able to obtain customers for its products or services, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, the exercise of outstanding warrants and stock options, or the conversion of convertible promissory notes, and other risks inherent in GMER’s businesses.

 

Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. GMER cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that GMER or persons acting on its behalf may issue. GMER does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.

 

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Overview

 

The Company was incorporated on November 3, 2008 under the laws of the State of Nevada, to engage in certain business services. Our goal is to become a leading tournament gaming provider as well as an online destination, targeting over 250 million esports players and participants worldwide that want to compete at the high school or college level. We are a developmental stage business, have generated limited revenues to date and have a history of operating losses.

 

The Good Gaming platform was established in early 2014 by its founding members who recognized the need that millions of gamers worldwide desired to play games at competitive levels. The founders recognized that there was no structure or organization on a large scale for amateur gamers while professional esports was quickly establishing itself.

 

Good Gaming is effectively building the business infrastructure for the rapidly growing esports industry, similar to the high school and college athletic industry. Good Gaming is designed to be the gateway for amateur esports athletes to compete at the semi-professional level, improve their gaming skills, and interact with veteran gamers globally in a destination site and social networking framework.

 

Good Gaming differs from the professional level of the esports industry by focusing on more than approximately 250 million gamers that fall below the professional level but are above the casual level, classified as “amateurs.” Good Gaming distinguishes itself from its direct and indirect competitors by being the first company to offer multi-game, multi-console services at the amateur esports level. The Company is not exclusive to any particular hardware or software vendor.

 

On May 4, 2016, the Company announced that it had completed its first closed public beta testing of their 2.0 tournament platform to determine the functionality, speed, ease of use, and accuracy of the system and are preparing to enter into full-blown production.

 

On February 18, 2016, the Company, formerly HDS International Corp., acquired the assets of Good Gaming, Inc. from CMG Holdings Group, Inc. (OTCQB: CMGO). On that date, the Company’s former CEO, Paul Rauner, resigned. The Company appointed Vikram Grover to the positions of CEO and Director of the board of directors (the “Board”). Vikram Grover is a former Wall Street analyst and investment banker with more than 20 years of experience in telecommunications, media and technology. In addition, David Dorwart was elected by the majority shareholders to the Company’s Board. Mr. Dorwart is the Co-Founder and Chairman of Assist Wireless, Inc., a provider of lifeline wireless services to tens of thousands of subscribers primarily in the Midwest.

 

On June 27, 2017 the Board of Directors of the Company appointed David B. Dorwart, 59 years old, as the Company’s Chief Executive Officer. On June 21, 2017, Mr. Dorwart was appointed to serve as the Chairman of the Board of Directors. David B. Dorwart, Chairman and CEO of Good Gaming, Inc., brings over 31 years of start-up entrepreneurism and executive level management to the Company. Mr. Dorwart was a CoFounder and CEO of dPi Teleconnect, a prepaid wireless provider, for 10 years. During his tenure, he grew the company from a start-up to $75 million in revenues before selling the company. Over the last 9 years, he has been involved with several other successful projects including Assist Wireless, Brooklet Energy Distribution, PayGo Distributors and Britton & Associates. He is currently the Chairman and CoFounder of ViaOne Services, a company which specializes in wireless communications and provides intricate multi-faceted services for start-up companies utilizing industry experts. By virtue of their ownership of this Series C Preferred Stock, ViaOne is the Company’s principal stockholder.

 

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On June 27, 2017, the Company also bolstered its Board of Directors with executive level professionals by adding two seasoned individuals who specialize in organization and finance as well as the branding and marketing of established and emerging organizations which are poised to show significant growth.

 

Domenic Fontana, age 37, is currently Sr. Vice President of ViaOne Services and a new board member. He is an experienced CPA and financial executive who has worked in progressively more advanced executive roles throughout his career. Having worked at Verizon, Ebay and now ViaOne Services over the last 13 years, he has developed intimate and extensive knowledge of executive level management and the telecommunications industry. He has worked in all aspects of Finance, Accounting, Treasury, and Operations.

 

Jordan Majkszak Axt, a new board member, age 36, is a results-producing marketing professional with over 14 years of experience successfully developing marketing and branding strategies. He has been consistently noted by executives, colleagues, and journalists for his specific expertise in bringing products and services online with a comprehensive digital go-to-market strategy. He has previously held executive level positions as Director of Marketing for ProfitPoint Inc. and Clutch Holdings LLC. He is currently Sr. Director of Marketing of ViaOne Services where he develops all marketing and customer acquisition strategies for 14 consumer facing brands.

 

On July 10, 2017, the Company’s Board of Directors elected David Dorwart its CEO. Additionally, the Board of Directors approved Domenic Fontana and Jordan Axt to the Company’s Board of Directors.

 

On August 8, 2017, the board of directors of the Company accepted Vikram Grover’s resignation as the Treasurer of the Company and as a member of the Board, effective immediately.

 

On August 8, 2017, the Board of the Company accepted Barbara Laken’s resignation as the Secretary of the Company and as a member on the Board, effective immediately.

 

On August 9, 2017, the Company announced a strategic review of its business, which prompted improvements to its business model and a reduction in expenses designed to accelerate its move to free cash flow generation.

 

On August 29, 2017, Eric Brown became the Chief Operating Officer.

 

In September of 2017, the Company began focusing on its Minecraft server by enhancing the development staff and launched an offering of microtransactions after it saw the opportunity to generate revenue without adding a great deal of overhead. The initial offering of microtransactions exceeded revenue expectations and the Company has continued to expand the Minecraft server offerings. The Company also began pursuing the acquisition of additional Minecraft servers that were already established to begin scaling this effort.

 

In March of 2017, the Company began exploring potential partnerships with various franchise opportunities related to both LAN centers and Virtual Reality centers. Financial analysis and research on these opportunities is ongoing.

 

Technology

 

In 2016, the Company completed its 2.0 tournament platform and thereafter ran dozens of robotic internal test tournaments and held numerous free-to-play tournaments on large scales with its partner The Syndicate, the owner of the world’s longest running online gaming guild that has 1,200 members worldwide. Good Gaming conducted two closed public beta tournaments of hundreds of participants in May 2016 in order to fully vet the system. After making roughly 100 fixes and changes to the system, it now runs smoothly. The system is designed to scale to 512,000 concurrent competitors. The Company has updated the system to handle team tournaments, which will further expand its opportunity to popular titles that have tens of millions of active players and has recently launched titles that have the potential for cross-platform play among Gaming PC, Microsoft Xbox and Sony PlayStation.

 

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In 2017, the Company ran hundreds of tournaments on a regular basis with a dedicated customer base of over 30,000 members. Additionally, the Company expanded its website by offering content relevant to the member base with information relating to game play strategy and game news. This generated nearly 100,000 unique visits per month. In an effort to monetize that traffic, the Company employed the use of Google display advertising and tested a subscription model. After careful evaluation of the Company’s strategy, management decided to move away from free tournaments and custom content and focus on growing and monetizing our Minecraft server, which has grown substantially in popularity. This decision was a result of comprehensive competitive analysis and evaluations made in how the esports industry was shifting in its space. Tournaments and custom content are currently suspended while the Company grows revenue and focuses on expanding its efforts with Minecraft. The Company is also aggressively evaluating several business models and acquisition opportunities to resume its previous success as it is related to tournaments.

 

Business Strategy

 

In the past, our management team’s strategy was to be a full-service company endeavoring to provide best in class tournaments, the best platform on which they are played, and content that is all about the esports world. We have looked at this strategy and have changed the way we view our business.

 

It’s our ambition and strategy to be great at providing a place for amateurs to play. By focusing on what the gaming universe needs, it allows us to focus on the promotion of teams, leagues and competition. We will continue with this strategy because over this past year, we have been successful in managing the tournaments. We intend to begin with local servers and expand organically from there. We recognize there are millions of players who desire to compete within the gaming community.

 

Minecraft is another business strategy. We have a well-established server and will continue to devote resources to developing and acquiring other Minecraft assets. We feel that we have learned how to monetize this and will be able to continue to grow and have it as a meaningful part of our business strategy.

 

In our evaluation of our current business model, we have decided not to pursue the operation as a tournament platform. We feel there are too many great platforms that allow complete integration via APIs to run our tournaments. These companies have spent and continued spending millions of dollars establishing their platforms. It’s what they do very well and they rely on companies such as Good Gaming to run and host tournaments.

 

We previously developed our own codes and have a platform that really is quite good to handle tournaments but needs some improvement to be commercially ready. In fact, it’s this platform that we have used up to now to run our Hearthstone tournaments. Although it is functional, the challenge is that it costs too much capital to maintain and improve the platform. At this this point, it’s an asset we have and we may try to monetize this at some point.

 

We cannot provide any assurance that our focus on hosting the esports tournaments will be successful and profitable in the future or at all.

 

Offices

 

Our executive offices are located at 415 McFarlan Rd, Suite 108, Kennett Square, PA 19501. Our telephone number is (888) 295-7279.

 

Critical Accounting Policies and Estimates

 

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 circumstance 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.

 

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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 records at is 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 March 31, 2018, the Company had 9,607,460 (2017 – 8,779,119) potentially dilutive shares from outstanding convertible debentures.

 

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 liabilities 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 liabilities 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.

 

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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 is 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 at March 31, 2018 and 2017 as follows:

 

Description  Fair Value Measurements at March 31, 2018 Using Fair Value Hierarchy 
   Total   Level 1   Level 2   Level 3 
Derivative liability  $325,693   $-   $-   $325,693 
Total  $325,693   $-   $-   $325,693 

 

Description  Fair Value Measurements at March 31, 2017 Using Fair Value Hierarchy 
   Total   Level 1   Level 2   Level 3 
Derivative liability  $228,605   $-   $-   $228,605 
Total  $228,605   $-   $-   $228,605 

 

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The carrying values of all of 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.

 

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 $1,666 in advertising and promotion expenses in the three months ended March 31, 2018.

 

Revenue Recognition

 

The company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the company determines are within the scope of Topic 606, the company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Revenues primarily include revenues from microtransactions revenues are derived from the sale of virtual goods to the Company’s players. Proceeds from the sales of virtual goods directly are recognized as revenues when a player uses the virtual goods.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was amended in 2015 and 2016. The new revenue recognition standard relates to revenue from contracts with customers and will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance.

 

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard, as amended, is effective for annual periods beginning December 15, 2017. The Company has implemented the ASU and the adoption of the standard did not impact our consolidated financial statements.

 

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.

 

RESULTS OF OPERATIONS

 

Our auditors have issued a going concern opinion on the financial statements for the year ended December 31, 2017. This means that our auditors believed there was substantial doubt that we could continue as an ongoing business for the next twelve months from the date of issuance of this going concern opinion unless we obtained additional capital. We generated little revenue in the past. We have completed the development of our website, sourced out suppliers for products to sell and sourced out customers to buy our products. Accordingly, we need to raise cash from sources other than operations. Our other source for cash at this time is investments by others in our company and the revenue we generate from the sales of our products. We need to raise cash to continue our project and build our operations.

 

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Plan of Operation – Milestones

 

We are at the early stage of our new business operations. Over the next twelve months, our primary target milestones include:

 

1

Continue to achieve substantial growth within our Minecraft division. This is a profitable center for us and we expect the continued growth of our existing server, good-gaming.com as well as the re-launch of our acquired servers minecade.com and olimpocraft.com which we expect will contribute substantially to our profitability. Additionally, we will look to expand this division into other avenues.

   
2 Launch an in-person gaming product. We expect to launch this product in the second quarter of 2018 and anticipate substantial growth by the end of the year.
   
3 Continue to evaluate opportunities which have synergies to our existing business line.
   
4 Anticipate sustainable financial profitability this year.

 

Limited operating history and need for additional capital

 

There is limited historical financial information about us upon which to base an evaluation of our performance relating to our new business direction. We have generated little revenue. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.

 

Results of Operations

 

March 31, 2018 as compared to March 31, 2017

 

  Working Capital

 

   March 31, 2018   March 31, 2017 
Current Assets  $103,688   $77,181 
           
Current Liabilities   1,436,402    762,834 
           
Working Capital (Deficit)  $(1,332,714)  $(685,653)

 

  Operating Revenues

 

We have generated $34,732 in revenue in the three months ended March 31, 2018 and $2,519 in revenue in the three months ended March 31, 2017, which reflects an increase of $32,213 or 1279%. Such increase in revenues in the compared periods was primarily caused by the sale of in-game purchases.

 

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  Operating Expenses and Net Loss

 

Operating expenses for the three months ended March 31, 2018 were $242,672 compared with $258,410 for the three months ended March 31, 2017. The increase in operating expenses was attributed to an increase in professional fees for day to day operations offset by a decrease in contract labor.

 

During the three months ended March 31, 2018, the Company recorded net income of $30,415 compared with a net loss of $183,462 for the three months ended March 31, 2017. The decrease in net loss was attributed to the increase in revenues and the decrease in the change in value of the Company’s derivative liabilities.

 

  Liquidity and Capital Resources

 

As of March 31, 2018, the Company’s cash balance consisted of $101,147 compared to cash balance of $77,181 as of March 31, 2017. The increase in the cash balance was attributed to the financing that we received for day-to-day activities. As of March 31, 2018, the Company had $947,381 in assets compared to total assets of $1,017,933 as at March 31, 2017. The decrease in assets was attributable to the amortization of the assets purchased during the acquisition of Good Gaming, Inc.

 

As of March 31, 2018, the Company had total liabilities of $1,436,402 compared with total liabilities of $776,274 as of March 31, 2017. The increase in liabilities was attributable to increase in financing and in derivative liabilities.

 

As of March 31, 2018, the Company has a working capital deficit of $1,332,714 compared with a working capital deficit of $685,653 as of March 31, 2017 with the increase in the working capital deficit attributed to an increase in financing the Company received for day to day operating costs.

 

Cash flow from Operating Activities

 

During the three months ended March 31, 2018, the Company used $140,195 of cash for operating activities compared to the use of cash in an amount of $194,219 for operating activities during the three months ended March 31, 2017. The decrease in the use of cash for operating activities was attributed to the net decrease in derivative liabilities.

 

Cash flow from Investing Activities

 

During the quarter ended March 31, 2018, the Company had $26,250 in cash used in investing activities compared to $0 for the quarter ended March 31, 2017. The increase in cash used in investing activities was due to the Company purchasing two servers in 2018.

 

Cash flow from Financing Activities

 

During the year ended March 31, 2018, the Company received $204,743 of proceeds from financing activities compared to $223,500 during the year ended March 31, 2017. The increase in proceeds from financing activities was due to receiving proceeds from the sale of preferred stock and convertible debentures.

 

Going Concern

 

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. As such, there is substantial doubt about our ability to continue as a going concern for a period of one year from the issuance of these financial statements without further financing.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

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Future Financings

 

We will continue to rely on equity sales of our preferred shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders.

 

There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure

 

Based on the evaluation of our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934 the “Exchange Act”), our principal executive officer and principal financial officer have concluded that as of the end of the three-month period ended March 31, 2018 covered by this quarterly report on Form 10-Q, such disclosure controls and procedures were not effective due to the lack of segregation of duties and lack of a formal review process that includes multiple levels of review to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms because of the identification of a material weakness in our internal control over financial reporting which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and accounting functions were performed by an external consultant with no oversight by a professional with accounting expertise. Our Chief Executive Officer and Chief Financial Officer did not possess accounting expertise and our company does not have an audit committee. This weakness was due to the Company’s lack of working capital to hire additional staff. Subsequently, with the completion of transition in the management and Board, the financial management will be lead by a certified public accountant with extensive accounting experience who follows the standards of U.S. generally accepted accounting principles and internal controls procedures to ensure the faithful representation of the financial statements, including the results of operations, financial position, and cash flows of the reporting entity.

 

Changes in Internal Control over Financial Reporting

 

Except as noted above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first quarter of 2018 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

 

HGT Capital LLC (“HGT”) has filed a lawsuit against the Company, claiming breach of contract due to a default on a $50,000 junior loan made by HGT to HDS International Corp., our predecessor, in 2015. The Company has retained counsel to represent it on this matter and responded with affirmative defenses in the Supreme Court of New York. HGT’s motion for summary judgment is scheduled for oral argument on May 31, 2018. The Company intends to vigorously contest such action.

 

Item 1–A. Risk factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 2. Unregistered sales of equity securities and use of proceeds

 

On January 8, 2018, Silver Linings Management converted 15,000 shares of the Company’s Series B Preferred Shares into 3,000,000 common shares of the Company.

 

On January 8, 2018, Britton & Associates converted 5,000 the Company’s Series B Preferred Shares in 1,000,000 common shares of the Company.

 

On January 9, 2018, ViaOne Services converted $200,000 its convertible note into 8,333,333 common shares of the Company.

 

On January 12, 2018, SSB Trading converted 10,000 the Company’s Series B Preferred Shares into 2,000,000 common shares of the Company.

 

On January 12, 2018, CMG Holdings converted 5,605 the Company’s Series B Preferred Shares into 1,211,000 common shares of the Company.

 

On January 18, 2018, CMG Holdings converted 9,000 the Company’s Series B Preferred Shares into 1,800,000 common shares of the Company.

 

On January 23, 2018, Iconic Holdings converted $65,155 of its convertible note into 814,438 common shares of the Company.

 

On January 26, 2018, Michael Tadin converted 5,000 the Company’s Series B Preferred Shares into 1,000,000 common shares of the Company.

 

On February 9, 2018, Vik Grover converted 8,665 the Company’s Series B Preferred Shares into 1,733,000 common shares of the Company.

 

The issuances referenced above were made in reliance on an exemption from registration set forth in Section 4(2) of the Securities Act, as amended.

 

Except the issuances as listed herein, there were no unregistered sales of equity securities that have not been disclosed on the Company’s current reports during the three months ended March 31, 2018.

 

Item 3. Defaults upon senior securities

 

None.

 

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Item 4. Mine safety disclosures

 

Not Applicable.

 

Item 5. Other information

 

On April 12, 2018, the Company announced it has received confirmation for its uplisting to the OTCQB tier.

 

On April 30, 2018, the holder of one (1) share of Series C Preferred Stock of the Company that entitles such holder to vote a majority of the issued and outstanding voting securities of the Company’s approved by written consent that the Company adopts the 2018 Stock Incentive Plan (the “2018 Plan”) under which the board of directors of the Company may decide at its sole discretion to grant equity awards to certain employees and consultants as set forth in the 2018 Plan.

 

On May 3, 2018, the Company filed a Certificate of Amendment to Articles of Incorporation with the Secretary of the State of Nevada which, among other things, increased its authorized shares of common stock from 100,000,000 to 200,000,000, par value $0.001 per share. The Certificate of Amendment became effective on May 3, 2018. The description of the Certificate of Amendment to Articles of Incorporation is not purported to be complete and is incorporated by reference to a current report on Form 8-k filed with the SEC on May 4, 2018.

 

Item 6. Exhibits

 

  31.1   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
  31.2   Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002
  32.1   Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002
  32.2   Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002
  101.INS   XBRL Instance Document
  101.SCH   XBRL Taxonomy Extension Schema
  101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
  101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
  101.LAB   XBRL Taxonomy Extension Labels Linkbase Document
  101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with 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.

 

  Good Gaming, Inc.
  (the “Registrant”)
May 15, 2018    
  BY: /s/ David B. Dorwart
    David B. Dorwart
    Principal Executive Officer

 

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