{"url_path":"/sec/vipz/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1832161/0001493152-26-023219-index.html","accession_number":"0001493152-26-023219","cik":"0001832161","ticker":"VIPZ","issuer_name":"VIP Play, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1832161/0001493152-26-023219-index.html","primary_entity_key":"0001832161","primary_entity_name":"VIP Play, Inc."},"word_count":3151,"has_tables":true,"body_markdown":"**Item\n2. Management’s Discussion and Analysis of Financial Condition and Results of Operations**\n\n \n\n**Forward-Looking\nStatements**\n\n \n\nCertain\nstatements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives,\nand expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”\nwithin the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E\nof the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,”\n“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,”\n“plan,” “may,” “will,” “would,” “will be,” “will continue,” “will\nlikely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions\nfor forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for\npurposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions\nthat are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.\nOur ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a\nmaterial adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic\nconditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles.\nThese risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed\non such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new\ninformation, future events, or otherwise. Further information concerning our business, including additional factors that could materially\naffect our financial results, is included herein and in our other filings with the SEC.\n\n \n\n**Overview**\n\n \n\nVIP\nPlay, Inc. (the “Company,” “we”, “us” and “our”), formerly known as KeyStar Corp. prior\nto September 20, 2024, was incorporated on April 16, 2020, under the laws of the State of Nevada. We are a mobile technology company\nthat has historically focused on delivering digital sports wagering experiences through a proprietary, cloud-native platform.\n\n \n\nWe\npreviously operated a mobile sportsbook platform in Tennessee, where we were licensed to offer mobile sports betting. In West Virginia, we previously received interim approval for an iGaming\nand mobile sports betting license in connection with a potential expansion of our gaming operations; however, operations never commenced,\nand the interim approval has since expired.\n\n \n\nSubsequent\nto March 31, 2026, we initiated a wind-down of our sports wagering operations following regulatory approval from the Tennessee Sports\nWagering Council (“SWC”). These operations represent substantially all of our historical revenue. We expect to complete the\nwind-down of these operations by the end of May 2026.\n\n \n\nIn\nconnection with this transition, we currently estimate that we will incur costs of $2.0 million to $2.5 million, primarily related to\ncontractual termination costs associated with technology and service provider agreements. These estimates are preliminary and subject\nto change as the wind-down progresses.\n\n \n\nFollowing\nthe wind-down of our sportsbook operations, we intend to transition our business model toward enterprise-focused offerings, including\nartificial intelligence consulting services, development of a fan engagement and data intelligence platform, and data analytics and marketing\noptimization solutions.\n\n \n\nWe\nhave limited operating history in these new business areas, and there can be no assurance that we will successfully execute this strategic\ntransformation, develop commercially viable products, secure enterprise clients, or achieve profitability sufficient to replace our historical\ngaming revenue.\n\n \n\nWe\nexpect this transition to negatively impact our near-term revenue and operating results and may result in a period of reduced or limited\nrevenue as we develop our new business lines.\n\n \n\nOn\nDecember 10, 2024, we entered into a Casino and Sportsbook Online Operations Agreement with a license holder in West Virginia. This agreement\ngranted us the right to seek and obtain licenses from the appropriate governing authority to offer and operate interactive online gaming\nservices in West Virginia via the Internet, mobile or other remote or electronic device or data network. On March 31, 2025, we received\ninterim approval on our West Virginia i-Gaming and Sports Wagering Management Service Provider License; however, operations never commenced in West Virginia, and the related\nOperations Agreement was not approved by the West Virginia Lottery Commission. The interim approval has since expired. Subsequent to March\n31, 2026, in connection with the wind-down of our sports wagering operations, we are evaluating our plans with respect to West Virginia\nand related agreements, including certain contractual matters that remain in dispute. See Note 12 – Commitments and Contingencies.\n\n \n\nOur\nproduct offering historically included a modern sportsbook with differentiated wager types, sweepstakes contests, and socially integrated\nfeatures designed to enhance player engagement. We have operated in compliance with applicable regulatory frameworks in each jurisdiction.\n\n \n\nWe\nbegan operations in June 2023.\n\n \n\nOn\nMay 7, 2025, we received regulatory approval from the state of Tennessee to launch our VIP Play brand application. On May 8, 2025, we\nbegan a “soft launch” of the VIP Play application and on May 12, 2025, we executed our official launch. The ZenSports brand\nand app were discontinued on April 28, 2025.\n\n \n\nOur\nbusiness is a mobile app and online-based technology platform with no demand for a physical storefront location. The website for our\nbusiness is https://www.viplayinc.com. The information on our website is not incorporated by reference into this Quarterly Report. Our\nheadquarters address is: 8400 W. Sunset Rd., Suite 300, Las Vegas, NV 89113. Our phone number is: (866) 783-9435.\n\n \n\n2\n\n \n\n \n\n**Results\nof Operations for the Three Months Ended March 31, 2026, and 2025**\n\n \n\n*Gaming\nRevenues and Costs of Revenues*\n\n \n\nFor\nthe three months ended March 31, 2026 and 2025, the Company generated gaming revenues of $102 thousand and $1 thousand, respectively.\nThe $101 thousand increase in gaming revenues during the 2026 period was primarily attributable to increased operating activity following\nthe launch of the Company’s VIP Play application in May 2025, including increased player engagement and deposit activity supported\nby expanded payment processing capabilities.\n\n \n\nRevenue\nfor the three months ended March 31, 2025 was minimal, reflecting reduced operating activity on the Company’s legacy platform.\nWhile the ZenSports application remained in service during the period, the Company had ceased further development and was transitioning\nto its new VIP Play application, which did not commence operations until May 2025.\n\n \n\nFor\nthe three months ended March 31, 2026 and 2025, we had costs of revenues of $415 thousand and $143 thousand, respectively. Our costs\nof revenues increased by approximately $272 thousand during the three months ended March 31, 2026 as compared to the three months ended\nMarch 31, 2025 primarily due to increased costs related to platform fees incurred in connection with the new Player Account Management\nServices Agreement entered into in February 2025.\n\n \n\n*Operating\nExpenses*\n\n \n\nSalaries\nand wages of $1.3 million were incurred during the three months ended March 31, 2026, compared to $956 thousand during the three months\nended March 31, 2025. The approximately $385 thousand increase is primarily due to increased headcount, including 3 new executives in\nJune 2025.\n\n \n\nDepreciation\nand amortization for the three months ended March 31, 2026, and 2025 were $125 thousand and $1 thousand, respectively. The increase of\napproximately $124 thousand is primarily attributable to amortization of the Company’s internally developed VIP Play application,\nwhich was placed into service in May 2025. Prior to being placed into service, costs associated with the development of the application\nwere capitalized and not subject to amortization.\n\n \n\nSales\nand Marketing for the three months ended March 31, 2026, and 2025 were $124 thousand and $412 thousand, respectively. The approximately\n$288 thousand decrease is principally related to a shift in marketing strategy toward lower-cost digital and social media channels during\nthe current period, resulting in reduced overall marketing spend compared to the prior year period.\n\n \n\nGeneral\nand administrative expenses for the three months ended March 31, 2026 and 2025 were $503 thousand and $456 thousand, respectively. The\nincrease of approximately $47 thousand was primarily attributable to higher accounting and audit fees, including incremental costs associated\nwith the Company’s auditor transition and increased involvement of audit specialists related to the valuation of derivative liabilities.\nThe increase was also related to a new advisory agreement entered into during the period.\n\n \n\n*Other\nExpenses*\n\n \n\nTotal\nother expenses for the three months ended March 31, 2026, and 2025 were $9.0 million and $3.2 million, respectively.\n\n \n\nThe\napproximately $5.8 million increase is primarily due to a loss on the change in fair value of the derivative liability of $8.1 million\nfor the three months ended March 31, 2026 as compared to a loss of $2.4 million for the three months ended March 31, 2025. The derivative\nis related to a conversion feature associated with the line of credit and convertible debt which is remeasured each reporting period.\n\n \n\n3\n\n \n\n \n\nIn\naddition, interest expense – related party for the three months ended March 31, 2026 increased by approximately $203 thousand compared\nto the three months ended March 31, 2025. The increase was primarily attributable to higher average outstanding borrowings under the\nCompany’s related party line of credit during the current period.\n\n \n\nInterest\nexpense decreased by approximately $78 thousand during the three months ended March 31, 2026 primarily due to the debt discount\nbeing fully amortized during the three months ended December 31, 2025 for the convertible notes as well as the repayment of a $500\nthousand convertible note in October 2025.\n\n \n\n*Net\nLoss*\n\n \n\nOur net loss for the three months ended March 31, 2026 was $11.4 million,\ncompared to a net loss of $5.2 million for the three months ended March 31, 2025. The $6.2 million increase was driven primarily by an\n$8.1 million non-cash loss on the change in fair value of our derivative liability, which is remeasured each reporting period and is sensitive\nto changes in our common stock price and other valuation inputs. Excluding the impact of this non-cash derivative remeasurement, our net\nloss for the three months ended March 31, 2026 would have been approximately $3.3 million, compared to approximately $2.7 million for\nthe three months ended March 31, 2025, with the remaining increase primarily attributable to higher salaries and wages associated with\nexpanded headcount and higher interest expense on increased borrowings under our related party line of credit.\n\n \n\n**Results\nof Operations for the Nine Months Ended March 31, 2026, and 2025**\n\n \n\n*Gaming\nRevenues and Costs of Revenues*\n\n \n\nFor\nthe nine months ended March 31, 2026 and 2025, we had gaming revenues of $178 thousand and $18 thousand, respectively. Gaming revenue\nfor the nine months ended March 31, 2026 increased by approximately $160 thousand compared to the nine months ended March 31, 2025. The\nincrease was primarily attributable to the launch and ramp-up of the Company’s VIP Play application in May 2025, which resulted\nin increased player activity and wagering volumes during the current period. In addition, the Company’s implementation of an external\npayment processor, including the introduction of debit card funding options, contributed to increased customer spending activity. The\nprior year period also included reduced operating activity as the Company transitioned between platforms, contributing to lower comparative\nrevenues.\n\n \n\nFor\nthe nine months ended March 31, 2026 and 2025, we had costs of revenues of $874 thousand and $347 thousand, respectively. Our costs of\nrevenues increased by approximately $527 thousand during the nine months ended March 31, 2026 as compared to the nine months ended March\n31, 2025 primarily due to increased costs related to platform fees incurred in connection with the new Player Account Management Services\nAgreement entered into in February 2025.\n\n \n\n*Operating\nExpenses*\n\n \n\nSalaries\nand wages of $4.2 million were incurred during the nine months ended March 31, 2026, compared to $3.0 million during the nine months\nended March 31, 2025. The approximately $1.2 million increase is primarily due to increased headcount, including three new executives\nin June 2025.\n\n \n\nDepreciation\nand amortization for the nine months ended March 31, 2026 and 2025 were $313 thousand and $955 thousand, respectively. The decrease of\napproximately $642 thousand was primarily attributable to amortization of the Company’s legacy ZenSports platform during the prior\nyear period, which had a higher carrying value and was fully amortized through December 2024. In contrast, amortization in the current\nperiod relates primarily to the Company’s VIP Play application, which was placed into service in May 2025 and therefore reflects\nonly a partial period of amortization. \n\n \n\nImpairment\nof developed technology and tradename for the nine months ended March 31, 2026, and 2025 were $0 and $5.9 million, respectively. The decrease\nof $5.9 million is attributable to an impairment charge recognized in the prior year period related to the Company’s legacy ZenSports\nplatform and associated tradename.\n\n \n\nSales\nand marketing expenses for the nine months ended March 31, 2026 and 2025 were $561 thousand and $920 thousand, respectively. The decrease\nof approximately $359 thousand was primarily attributable to a shift in marketing strategy toward lower-cost digital and social media\nchannels during the current period, resulting in reduced overall marketing spend compared to the prior year period.\n\n \n\nGeneral\nand administrative costs for the nine months ended March 31, 2026, and 2025 were $1.9 million and $2.1 million, respectively. The approximately\n$196 thousand decrease was primarily due to a decrease in accounting and auditing fees during the nine months ended March 31, 2026 as\ncompared to the nine months ended March 31, 2025 due the timing of audit services provided. The decrease was also due to a decrease in\nconsulting fees for advisory agreements that ended during the year ended June 30, 2025, as well as a decrease in legal fees due to higher\nfees in the comparative period related to the review of potential new state jurisdictions for expansion of our sports betting operations.\nThe total decrease was partially offset by an increase in operating expense due to the recognition of an allowance for estimated losses\nrelated to the payment processing incident that occurred during the nine months ended March 31, 2026.\n\n \n\n4\n\n \n\n* *\n\n*Other\nIncome (Expenses)*\n\n \n\nTotal\nother income for the nine months ended March 31, 2026 was $534 thousand and total other expense for the nine months ended March 31, 2025\nwas $3.3 million, respectively.\n\n \n\nThe\napproximately $3.8 million increase is primarily due to a gain on the change in fair value of the derivative liability of $3.0 million\nas compared to a loss on the change in fair value of the derivative liability of $415 thousand. The derivative is related to a conversion\nfeature associated with the line of credit and convertible debt which is remeasured each reporting period.\n\n \n\nIn\naddition, interest expense – related party for the nine months ended March 31, 2026 decreased by approximately $208 thousand compared\nto the nine months ended March 31, 2025. The decrease was primarily attributable to the absence of debt discount amortization in the\ncurrent period, as the related discount was fully amortized in the prior year period. This decrease was partially offset by higher average\noutstanding borrowings under the Company’s related party lines of credit during the current period.\n\n \n\nInterest\nexpense decreased by approximately $223 thousand during the nine months ended March 31, 2026 primarily due the debt discount being fully\namortized during the nine months ended March 31, 2026 for the convertible notes as well as the repayment of a $500 thousand convertible\nnote in October 2025.\n\n \n\n*Net\nLoss*\n\n \n\nOur\nnet loss for the nine months ended March 31, 2026 was $7.1 million and our net loss for the nine months ended March 31, 2025 was $16.4\nmillion.\n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nLiquidity\nis the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate\non an ongoing basis. Significant factors in the management of liquidity include funds generated by operations, levels of accounts payable\nand accrued expenditures, and capital expenditures, including costs associated with internally developed software.\n\n \n\nAs\nof March 31, 2026, we had total current assets of $2.8 million, total current liabilities of $42.3 million, and a working capital deficit\nof $39.5 million. Net cash used in operating activities was $7.2 million during the nine months ended March 31, 2026, compared to $7.8\nmillion during the nine months ended March 31, 2025. The decrease in net cash used was primarily attributable to a lower net loss in\nthe current period and non-cash gains related to changes in the fair value of derivative liabilities. In addition, the prior year period\nincluded significant non-cash charges, including impairment of intangible assets and amortization of debt issuance costs, which did not\nrecur in the current period. These favorable impacts were partially offset by changes in working capital, including increases in related\nparty receivables and higher cash outflows associated with player balances, as well as changes in accrued expenses.\n\n \n\nNet\ncash used in investing activities decreased by approximately $222 thousand during the nine months ended March 31, 2026 compared to the\nnine months ended March 31, 2025, primarily due to lower capitalized software development costs. During the prior year period, the Company\nwas actively capitalizing development costs related to its legacy ZenSports platform, whereas in the current period development activity\nwas reduced following the cessation of development on the legacy platform and the placement of the VIP Play application into service\nin May 2025.\n\n \n\nNet\ncash provided by financing activities decreased by approximately $953 thousand during the nine months ended March 31, 2026 compared to\nthe nine months ended March 31, 2025. The decrease was primarily attributable to proceeds from the issuance of common stock in the prior\nyear period, which did not recur in the current period, as well as repayments of convertible debt during the current period.\n\n \n\nAs\nof March 31, 2026, the Company had a working capital deficit of $39.5 million, recurring losses from operations, and negative cash flows\nfrom operating activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern\nfor a period of one year from the issuance date of these unaudited condensed consolidated financial statements.\n\n \n\nSubsequent\nto March 31, 2026, the Company initiated a wind-down of its sports wagering operations following regulatory approval from the Tennessee\nSports Wagering Council (“SWC”), which is expected to significantly impact future revenue-generating activities and change\nthe Company’s future operations and capital requirements.\n\n \n\nThe\nCompany’s ability to continue operations is dependent upon, among other things, its ability to obtain additional financing and\nmanage operating costs during and following the wind-down process. Management’s plans include seeking additional capital through\ndebt and/or equity financings, reducing certain operating costs as wagering activities are discontinued, and evaluating alternative business\nstrategies. However, there can be no assurance that such financing will be available on acceptable terms, or at all.\n\n \n\nThe\nunaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.\n\n \n\n**Off\nBalance Sheet Arrangements**\n\n \n\nAs\nof March 31, 2026, we had no off-balance sheet arrangements."}