10-Q: VIP Play Reports Q1 2026 Loss, Cites Going Concern

Sentiment:

Quarterly Report 14 November 2025 2:06 PM

VIP Play, Inc. reported a net loss of $3.5 million for Q1 2026, facing significant liquidity challenges and disclosing material weaknesses in internal controls.

Delay expectedAs of September 30, 2025, operations in West Virginia had not yet commenced despite receiving interim license approval on March 31, 2025.The Casino and Sportsbook Online Operations Agreement for West Virginia had not yet been approved by the state of West Virginia Lottery Commission as of September 30, 2025.

Capital raiseThe company is dependent on securing additional lines of credit and raising additional capital through the placement of preferred and/or common stock to implement its business plan and continue as a going concern.Proceeds from a convertible note of $100 thousand were received during the three months ended September 30, 2025.The company borrowed approximately $2.9 million under a related party revolving line of credit during the three months ended September 30, 2025.Subsequent to September 30, 2025, and through November 14, 2025, an additional $1.6 million was borrowed under a new Discretionary Non-Revolving Line of Credit Demand Note with Excel Family Partners, LLP.The Board approved an increase in the aggregate number of shares available under the 2023 Stock Option Plan from 5,960,000 to 18,250,000 shares, subject to stockholder approval, which could facilitate future equity compensation or capital raises.

Worse than expectedThe company continues to operate with a substantial doubt about its ability to continue as a going concern, evidenced by a $65.8 million accumulated deficit and a $35.4 million working capital deficit.Material weaknesses in internal control over financial reporting were identified, indicating significant deficiencies in financial oversight and reporting reliability.The company received a notice of termination for its West Virginia market access agreement, which could hinder future expansion and potentially incur significant termination fees.Net cash used in operating activities increased to $2.47 million, indicating a higher cash burn rate.Total liabilities increased significantly to $38.2 million, largely driven by related party lines of credit, increasing financial leverage.A software defect led to $200 thousand in unauthorized player withdrawals, highlighting operational vulnerabilities and potential financial losses.

Summary

Net loss for the three months ended September 30, 2025, was $3.5 million, an improvement from a $5.3 million net loss in the same period of 2024.
Gaming revenues increased to $5 thousand for Q1 2026, up from a negative $4 thousand in Q1 2025, primarily due to the utilization of an external payment processor.
Total operating expenses rose to $2.68 million in Q1 2026, an increase of $178 thousand, driven by higher salaries and marketing costs, partially offset by reduced depreciation and general and administrative expenses.
The company reported a working capital deficit of $35.4 million and an accumulated deficit of $65.8 million as of September 30, 2025, raising substantial doubt about its ability to continue as a going concern.
Material weaknesses in internal control over financial reporting were identified, including limited segregation of duties, insufficient review controls, and inadequate IT controls, with remediation efforts initiated but not yet effective.
A software defect in August 2025 led to approximately $200 thousand in unauthorized player withdrawals, of which $30 thousand has been recouped, and a $200 thousand payable to the external payment processor was recorded.
The company received a notice of termination for its West Virginia market access agreement and a demand for an early termination fee, which it disputes.
Outstanding borrowings under related party lines of credit with Excel Family Partners totaled $22.5 million as of September 30, 2025.

Sentiment

Score: 3

Explanation: The company faces severe liquidity issues, substantial doubt about its going concern status, and material weaknesses in internal controls. While the net loss decreased and gaming revenue saw a slight positive shift, these are overshadowed by increasing liabilities, a software defect leading to financial loss, and a disputed termination of a key market access agreement in West Virginia. The heavy reliance on related-party financing and the need for further capital raises indicate ongoing financial fragility.

Positives

Net loss decreased to $3.5 million for the three months ended September 30, 2025, from $5.3 million in the prior year, representing a $1.8 million improvement.
Gaming revenues increased to $5 thousand for the three months ended September 30, 2025, compared to a negative $4 thousand in the same period last year, attributed to the use of an external payment processor which increased betting activity.
A gain of $132 thousand was recognized on the change in fair value of derivative liability for Q1 2026, a significant positive shift from a $1.65 million loss in Q1 2025.
Cash increased to $311 thousand as of September 30, 2025, from $163 thousand at June 30, 2025.
General and administrative expenses decreased by $186 thousand, primarily due to lower accounting, auditing, consulting, and legal fees.

Negatives

The company reported a net loss of $3.45 million for the three months ended September 30, 2025.
Net gaming loss increased to $186 thousand from $100 thousand in the prior year, indicating higher costs relative to gaming revenue.
Total operating expenses increased by $178 thousand to $2.68 million for the three months ended September 30, 2025.
Salaries and wages increased by $574 thousand to $1.52 million due to increased headcount, including three new executives.
Sales and marketing expenses increased by $163 thousand to $279 thousand due to increased billboards, podcasts, and social media marketing.
A working capital deficit of $35.4 million as of September 30, 2025, worsened from $31.9 million at June 30, 2025.
Net cash used in operating activities increased to $2.47 million from $2.29 million in the prior year, indicating a higher cash burn rate.
Total liabilities increased to $38.2 million as of September 30, 2025, from $34.8 million at June 30, 2025.
Accumulated deficit grew to $65.8 million as of September 30, 2025.
A software defect in August 2025 resulted in approximately $200 thousand in unauthorized player withdrawals, with only $30 thousand recouped to date, and a $200 thousand payable to the external payment processor.
The company received a notice of termination for its West Virginia market access agreement and a demand for an early termination fee, which it disputes.

Risks

Substantial doubt about the ability to continue as a going concern due to an accumulated deficit of $65.8 million, a net loss of $3.5 million, and negative cash flows of $2.5 million for the three months ended September 30, 2025.
Dependence on achieving profitable operations and securing additional capital through lines of credit or equity placements, with no assurance that future financing will be available or on satisfactory terms.
Expected significant increases in operating costs related to license maintenance, technology development, sales and marketing, and personnel as the company transitions to a revenue-generating business.
Material weaknesses in internal control over financial reporting, including limited segregation of duties, insufficient review controls over complex accounting estimates, and inadequate information technology controls.
Potential financial loss and operational disruption from the disputed termination of the West Virginia market access agreement and associated early termination fee.
Credit risk associated with cash balances exceeding Federal Deposit Insurance Company (FDIC) limits by approximately $61 thousand as of September 30, 2025.
Reliance on related party financing, including a $22.5 million line of credit from Excel Family Partners, which may introduce conflicts of interest or unfavorable terms.
Risks associated with new non-gaming digital entertainment initiatives, which are in early stages of development and have not yet generated revenue.

Future Outlook

The company expects its revenues to increase over time but acknowledges a lack of sufficient history to accurately forecast the amount or time required to generate enough revenue to cover its current or future burn rate. It anticipates significant increases in operating costs related to license maintenance, technology development, sales and marketing, and labor as it transitions from a development stage to a revenue-generating operating business. The company is also exploring non-gaming digital entertainment opportunities, which are in early development and not yet material to current financial results.

Management Comments

Management believes the existing shareholders, prospective new investors, and future sales will provide the additional cash needed to meet the company’s obligations and allow the development of its core business operations.
Management is continuing to design, implement, and test enhanced controls to address material weaknesses in internal control over financial reporting, noting that these weaknesses will not be considered remediated until the controls are fully implemented, operating effectively, and validated through testing.
We expect our revenues to increase over time but we lack sufficient history to accurately forecast the amount or time required to generate sufficient revenues to cover our current or future burn rate.
We expect to incur significant increases in operating costs, which is a byproduct of transitioning from a development stage business to a revenue generating operating business.
The company disputes the validity of the termination of the West Virginia market access agreement and the associated fee and intends to contest the matter.

Industry Context

VIP Play operates in the highly competitive and regulated online sports wagering and iGaming industry. Its efforts to expand into West Virginia and the launch of its new VIP Play app in Tennessee demonstrate a strategy to grow market share within this sector. The company's exploration of non-gaming digital entertainment opportunities suggests a broader diversification strategy, potentially aligning with trends in the digital content and entertainment market. The significant reliance on related-party financing is characteristic of early-stage or financially challenged companies in capital-intensive industries like online gaming, where substantial investment is required for licensing, technology, and marketing to achieve scale.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Stock Option Plan Amendment	Board approved amendments to the 2023 Stock Option Plan, increasing the aggregate number of shares available for awards from 5,960,000 to 18,250,000 (subject to stockholder approval) and enabling the issuance of Restricted Stock Units (RSUs).	2025-10-03	Potentially increases future dilution for existing shareholders if the share increase is approved and awards are issued. Introduces a new equity compensation vehicle (RSUs) for attracting and retaining talent.
Internal Control Weakness	Identified material weaknesses in internal control over financial reporting related to limited segregation of duties, insufficient review controls over complex estimates, and insufficient IT controls.	2025-09-30	Raises concerns about the reliability of financial reporting and the company's ability to prevent or detect material misstatements. Remediation efforts are underway but not yet effective.

Legal Proceedings

The company received a notice of termination under its West Virginia market access Agreement and a demand for an early termination fee. The company disputes the validity of the termination and the associated fee and intends to contest the matter. The outcome is not determinable, and no liability has been recorded as of the filing date.

Related Party Transactions

A promissory note with John Linss (former Chief Executive Officer and former member of the board of directors) for $1.7 million, with an outstanding principal balance of $345 thousand as of September 30, 2025.
Discretionary non-revolving and revolving line of credit demand notes with Excel Family Partners, LLLP (a related party controlled by Bruce Cassidy, former CEO and current Chairman/Secretary), totaling $22.5 million in outstanding borrowings as of September 30, 2025.
Subsequent to September 30, 2025, the company began providing support services, without charge, to a private company controlled by the company's Chief Executive Officer and Chairman.

Stakeholder Impact

**Shareholders**: Potential for significant dilution from future capital raises (debt conversion, equity offerings) and the increased share pool for stock options/RSUs. Risk of value erosion due to going concern issues, operational losses, and internal control weaknesses.
**Creditors**: High exposure due to significant related party debt ($22.5 million line of credit) and overall liquidity challenges, raising concerns about repayment ability.
**Employees**: Increased headcount in Q1 2026, and significant RSU awards to the CEO and VP of Operations, potentially boosting morale and retention for key personnel, but overall company stability remains a concern.
**Customers (Players)**: Impacted by a software defect leading to unauthorized withdrawals, which could erode trust. The launch of the new VIP Play app aims to enhance engagement.
**Regulators**: The company is subject to ongoing scrutiny due to its gaming licenses and the reported internal control weaknesses. The dispute over the West Virginia market access agreement could also draw regulatory attention.

Next Steps

Continue remediation efforts to address material weaknesses in internal control over financial reporting, including hiring additional accounting personnel, enhancing review processes, and improving IT controls.
Contest the notice of termination and demand for an early termination fee related to the West Virginia market access agreement.
Seek stockholder approval for the increase in authorized shares under the 2023 Stock Option Plan.
Continue to develop and expand non-gaming digital entertainment initiatives.
Secure additional lines of credit and raise further capital through debt and/or equity instruments to support operations and business plan implementation.

Key Dates

Date	Description
2020-04-16	Company incorporated under the laws of the State of Nevada.
2021-12-17	Promissory note entered into with Eagle Investment Group, LLC.
2021-12-21	Formed UG Acquisition Sub, Inc. as a wholly-owned subsidiary.
2022-02-22	Entered into a discretionary non-revolving line of credit demand note with Excel Family Partners, LLLP.
2022-12-09	Formed VIP Play TN, LLC as a wholly-owned subsidiary.
2023-02-24	Line of credit with Excel Family Partners amended and restated to provide up to $4.0 million.
2023-02-27	Entered into Stock Redemption and Purchase Agreement with John Linss and Corespeed, LLC for Series C Convertible Preferred Stock.
2023-04-10	Board approved the 2023 stock option plan.
2023-05-01	Company received approval on its Tennessee Sports Gaming Operator license.
2023-06-01	Company officially launched its Sports Betting operation in Tennessee.
2023-07-18	Line of credit with Excel Family Partners amended to $5.0 million.
2023-08-23	Entered into a Convertible Note Purchase Agreement and Convertible Promissory Note (Note A) with an unrelated party for $200 thousand.
2023-08-28	Entered into a Convertible Note Purchase Agreement and Convertible Promissory Note (Note B) with an unrelated party for $500 thousand.
2023-09-01	Entered into a Convertible Note Purchase Agreement and Convertible Promissory Note (Note C) with an unrelated party for $150 thousand.
2023-09-14	Line of credit with Excel Family Partners amended to $10 million.
2023-12-27	$10.4 million of indebtedness from Excel Family Partners converted into 25,916,632 shares of common stock.
2023-12-28	$10.4 million of indebtedness from Excel Family Partners converted into 25.9 million shares of common stock.
2023-12-29	New amendment to Excel Family Partners line of credit, adjusting borrowing capacity to $2.0 million.
2024-02-04	Entered into a lease for office space in Sarasota, Florida (expired Feb 1, 2025, continued month-to-month).
2024-02-19	First amendment to the $1.7 million Promissory Note with John Linss.
2024-02-27	$425 thousand payment made to John Linss as per promissory note amendment.
2024-04-01	Monthly payments of $60 thousand to John Linss began.
2024-06-15	Board approved issuance of common shares upon conversion of all outstanding Series C Preferred Stock.
2024-08-01	Excel Family Partners facility split into a $5.0 million discretionary revolving note and a $4.1 million non-revolving note.
2024-08-05	Board of Directors approved winding down and dissolution of UG Acquisition Sub, Inc.
2024-09-20	Company changed its name from KeyStar Corp. to VIP Play, Inc. and changed par value of common stock from $0.0001 to $0.001.
2024-10-01	Note B (convertible note) amended and extended through October 1, 2025.
2024-11-01	Entered into an agreement with a sports betting services provider (amended Jan 8, 2025).
2024-11-06	Entered into a short-term note payable to fund excess and surplus insurance.
2024-12-10	Entered into a Casino and Sportsbook Online Operations Agreement with a license holder in West Virginia.
2024-12-31	Former ZenSports app sunsetted.
2025-02-07	Entered into a Player Account Management Services Agreement.
2025-03-04	Formed VIP Play WV, LLC as a wholly owned subsidiary.
2025-03-31	Received interim approval on West Virginia i-Gaming and Sports Wagering Management Service Provider License. Revolving note with Excel Family Partners amended to increase borrowing capacity to $14.0 million.
2025-04-28	ZenSports brand and app was sunsetted.
2025-05-07	Received regulatory approval from Tennessee to launch new VIP Play brand application.
2025-05-08	Began soft launch of the VIP Play application.
2025-05-12	Executed official VIP Play app launch.
2025-05-24	Renewed a short-term note payable with a premium finance company.
2025-06-18	Entered into a month-to-month lease for office space in Las Vegas, Nevada.
2025-07-01	Adopted ASU 2023-07, Segment Reporting, using retrospective application.
2025-08-01	Note A and Note C (convertible notes) amended and extended through August 31, 2026.
2025-08-01	Software defect encountered impacting internal IT infrastructure and applications.
2025-09-09	Entered into a Convertible Promissory Note (Note D) for $100 thousand.
2025-09-30	End of the current reporting period for this Form 10-Q.
2025-10-01	Maturity date for Convertible Promissory Note B.
2025-10-03	Board approved two amendments to the 2023 Stock Option Plan, including a share increase and the ability to issue Restricted Stock Units (RSUs).
2025-10-23	Accrued interest on Convertible Promissory Note D to be paid monthly in cash beginning this date.
2025-11-14	Date of filing of this Form 10-Q and disclosure of subsequent events.
2026-01-01	First vesting date for Mr. Ottolenghi's and Mr. Dermody's Restricted Stock Units.
2026-04-01	Amended maturity date of the Promissory Note with John Linss.
2026-08-31	Amended maturity date of Convertible Promissory Notes A and C.
2026-09-08	Maturity date of Convertible Promissory Note D.
2026-12-15	Effective date for ASU 2024-03 (Income Statement: Reporting Comprehensive Income Expense Disaggregation Disclosures) for fiscal years beginning after this date.
2027-12-15	Effective date for ASU 2025-06 (Intangibles Goodwill and Other Internal-Use Software) for annual reporting periods beginning after this date.

Recommendation

strong sell

The company faces severe financial distress, evidenced by a substantial going concern doubt, a significant working capital deficit, and increasing liabilities. The identified material weaknesses in internal controls raise serious questions about financial reporting reliability. Furthermore, the dispute over the West Virginia market access agreement and the software defect leading to unauthorized withdrawals highlight significant operational and regulatory risks. While the net loss decreased, the underlying financial health and operational stability are highly concerning, making the stock a high-risk investment with significant downside potential. The heavy reliance on related-party financing and the continuous need for capital raises suggest a precarious financial position.

Keywords

VIP Play, 10-Q, Quarterly Report, Sports Wagering, Online Gaming, iGaming, Tennessee, West Virginia, Financial Results, Going Concern, SEC Filing, Gambling Technology, Digital Entertainment, Internal Controls, Related Party Transactions, Convertible Debt, Liquidity

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