Annual Report for Fiscal Year Ending June 30, 2026 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in the section titled "Risk Factors."

Overview

During the fiscal year ended June 30, 2026, the Company completed a significant strategic transformation. In April 2026, management approved a plan to discontinue the Company's Tennessee online sportsbook operations and redirect its resources toward the development of proprietary artificial intelligence ("AI") technologies, software applications, and related intellectual property. Customer wagering operations ceased on April 30, 2026, and the Company's Tennessee Sports Gaming Operator license expired on May 24, 2026.

The Company's current operations consist principally of software development activities, corporate administration, financing activities, and the continued development of proprietary AI technologies. As of June 30, 2026, and through the date of this Annual Report, the Company's AI and software technologies remained in the development stage and had not generated revenue from commercial operations. The Company continues to develop and evaluate potential applications and commercialization opportunities for these technologies. The timing and extent of commercialization will depend on the successful development of the Company's technologies and its ability to identify and secure customers and other commercial opportunities. Accordingly, the Company may experience a period of limited or no revenue while these development and commercialization efforts continue, and operating results during this period are not necessarily indicative of future operating performance.

Results of Operations

Gaming Revenue and Cost of Gaming Revenue

Gaming revenue was approximately $184 thousand for the year ended June 30, 2026, compared to negative gaming revenue of approximately $86 thousand for the year ended June 30, 2025. Gaming revenue reflects the Company's historical online sportsbook operations in Tennessee, which ceased accepting customer wagers on April 30, 2026.

Cost of gaming revenue was approximately $1.2 million for the year ended June 30, 2026, compared to approximately $510 thousand for the year ended June 30, 2025. The increase primarily reflects gaming platform costs, including fees paid to Kambi as the betting service provider for the VIP Play application, as well as promotional and bonus-bet costs, payment processing fees, and other direct gaming costs incurred through the wind-down of the sportsbook operations. As a result, the Company incurred a net gaming loss of approximately $1.0 million during fiscal 2026 compared to approximately $596 thousand during fiscal 2025.

The Company ceased its sportsbook operations during fiscal 2026 and does not expect to generate gaming revenue from these operations in future periods. The cessation of the Company's sportsbook operations did not meet the criteria for presentation as discontinued operations under ASC 205-20; accordingly, the historical results of the sportsbook operations are included in continuing operations for all periods presented.

Salaries and Wages

Salaries and wages increased to approximately $5.2 million for the year ended June 30, 2026 from approximately $4.5 million during the prior year.

The increase was primarily attributable to personnel costs associated with the Company's software development activities, including artificial intelligence initiatives, together with stock-based compensation recognized during the year.

General and Administrative Expenses

General and administrative expenses increased to approximately $3.8 million for the year ended June 30, 2026, compared to approximately $2.6 million for the prior year, primarily due to a $1.2 million write-off of prepaid assets related to the Company's gaming operations. General and administrative expenses otherwise primarily consist of public company costs, professional fees, consulting expenses, insurance, and other corporate overhead.

Depreciation and Amortization

Depreciation and amortization expense decreased to approximately $458 thousand for the year ended June 30, 2026 from approximately $993 thousand during the prior year.

Asset Impairment

The Company recognized impairment expense of approximately $831 thousand during the year ended June 30, 2026, related to the developed technology and other intangible assets associated with the Company's VIP Play gaming application, compared to approximately $5.9 million during the year ended June 30, 2025, related to the intangible assets associated with the Company's former ZenSports application.

Sales and Marketing

Sales and marketing expense totalled approximately $590 thousand during fiscal 2026 compared to $1.1 million during fiscal 2025. The decrease was primarily attributable to reduced marketing and promotional activities associated with the Company's sportsbook operations as those operations were wound down during fiscal 2026.

Interest Expense

Interest expense and related-party interest expense remained significant during fiscal 2026 as the Company continued to rely on related-party financing and convertible debt to fund operations.

Interest expense totalled approximately $173 thousand, while related-party interest expense totalled approximately $3.2 million during the current year, compared to approximately $483 thousand and $3.0 million, respectively, during the prior year.

Gain on Change in Fair Value of Derivative Liabilities

The Company recognized a gain on the change in fair value of derivative liabilities of approximately $5.7 million during fiscal 2026 compared to approximately $47 thousand during fiscal 2025.

The derivative liabilities arise from embedded conversion features associated with certain related-party line of credit arrangements and convertible promissory notes. These liabilities are remeasured at fair value each reporting period, with changes recognized in earnings. The increase in the gain during fiscal 2026 primarily resulted from changes in the estimated timing and economics of conversion under the underlying instruments, which reduced the estimated fair value of the derivative liabilities, partially offset by changes in other valuation assumptions, including expected volatility. The resulting gain was noncash.

Net Loss

Net loss for fiscal 2026 totalled approximately $9.5 million, compared to approximately $19.2 million during fiscal 2025.

The decrease in net loss was primarily attributable to the approximately $5.7 million non-cash gain recognized on the change in fair value of derivative liabilities during fiscal 2026 and the decrease in impairment expense from approximately $5.9 million in fiscal 2025 to approximately $0.8 million in fiscal 2026. These decreases were partially offset by an approximately $1.2 million increase in general and administrative expenses associated with the write off of gaming-related prepaid assets recognized during fiscal 2026 and higher salaries and wages.

Liquidity and Capital Resources

Liquidity is the ability of the Company to generate sufficient cash to fund its operations, satisfy its obligations, and support future business activities. During the year ended June 30, 2026, the Company completed the strategic exit of its Tennessee sportsbook operations and redirected its resources toward the development of artificial intelligence technologies, software applications, and related intellectual property. As a result, the Company's future liquidity requirements are expected to be driven primarily by software development activities, corporate operating expenses, working capital requirements, and investments in new technologies.

As of June 30, 2026, the Company had current assets of approximately $887 thousand, current liabilities of $42.2 million, and a working capital deficit of $41.3 million, compared to current assets of $2.9 million, current liabilities of $35.5 million, and a working capital deficit of $32.7 million as of June 30, 2025.

Management expects to continue funding operations through a combination of cash on hand, borrowings under related-party financing arrangements, primarily with Excel Family Partners, LLLP, and additional capital raising activities as necessary. The Company is dependent on continued related-party financing to fund a significant portion of its operating and liquidity needs. If such financing were reduced, terminated, or otherwise unavailable, the Company would need to obtain alternative sources of financing and/or reduce or delay expenditures, including expenditures related to its software development activities. There can be no assurance that related-party or other financing will continue to be available on acceptable terms, or at all.

Operating Activities

Net cash used in operating activities during the year ended June 30, 2026 was $8.9 million, compared to $10.4 million during the year ended June 30, 2025.

Operating cash flows primarily reflected the Company's net loss, adjusted for significant non-cash items, including gains from changes in the fair value of derivative liabilities, stock-based compensation, depreciation and amortization, and changes in working capital accounts. Cash used in operating activities also reflected the continued funding of corporate operations and software development activities.

Investing Activities

Net cash used in investing activities during the year ended June 30, 2026 was $406 thousand, compared to $1.0 million during the year ended June 30, 2025.

Investing activities during fiscal 2026 consisted of approximately $338 thousand of capitalized software development costs, primarily related to enhancements to the Company's sportsbook application, and $68 thousand of other gaming-related intangible assets.

Financing Activities

Net cash provided by financing activities during the year ended June 30, 2026 was $9.0 million, compared to $11.4 million during the year ended June 30, 2025.

Financing activities during fiscal 2026 primarily consisted of approximately $10.2 million of borrowings under the Company's related-party line of credit and $100 thousand of proceeds from convertible notes, partially offset by approximately $500 thousand of convertible note repayments and $858 thousand of repayments of other notes payable.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2026, the Company had an accumulated deficit of $72.6 million, incurred a net loss of $9.5 million during the year ended June 30, 2026, and used $8.9 million of cash in operating activities. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

During fiscal 2026, the Company completed the strategic exit of its Tennessee sportsbook operations and redirected its resources toward artificial intelligence technologies, software development, and related intellectual property. Management intends to continue funding operations through existing related-party financing arrangements and additional equity or debt financings while continuing to develop its technology platform and pursue commercialization opportunities.

The Company's ability to continue as a going concern is dependent upon its ability to obtain additional financing, generate future cash flows from operations, and successfully execute its business strategy. There can be no assurance that additional financing will be available on acceptable terms, or at all.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

Critical Accounting Estimates

The Company's derivative liabilities are measured at fair value using a Monte Carlo simulation model and are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. The valuation requires management to make estimates and assumptions regarding expected stock price volatility, risk-free interest rates, expected term and other contractual terms of the underlying instruments. Changes in these assumptions could result in materially different fair value measurements and corresponding gains or losses recognized in the consolidated statements of operations. See Note 8 - Derivative Liabilities for additional information regarding the valuation methodology and assumptions used.

The Company reviews long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment assessment requires management to estimate future undiscounted cash flows and, when applicable, the fair value of the related assets. These estimates involve significant judgment regarding expected future operating performance, useful lives and other assumptions. Changes in these assumptions could result in additional impairment charges. During the year ended June 30, 2026, the Company recognized impairment expense in connection with the cessation of its gaming operations. See Note 4 - Intangible Assets for additional information.

The Company measures stock-based compensation based on the fair value of equity awards. The fair value of stock options and certain warrants is estimated using the Black-Scholes option pricing model, which requires assumptions regarding expected stock price volatility, risk-free interest rates, expected term and dividend yield. Changes in these assumptions could affect the estimated fair value of awards and the amount of compensation expense recognized. See Note 10 - Stock-Based Compensation for additional information.

Off-Balance Sheet Arrangements

As of June 30, 2026, there were no off-balance sheet arrangements.

Emerging Growth Company Status

The Company no longer qualifies as an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012.