EDGAR 10-K Filing

Company CIK: 1451448
Filing Year: 2023
Filename: 1451448_10-K_2023_0001493152-23-037224.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
Esports is a skill-based, competitive, and organized form of video gaming by professional players, playing individually or as teams. Esports typically takes the form of organized, multiplayer video games that include genres such as real-time strategy, fighting, first-person shooter and multiplayer online battle arena games. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv and youtube.com.
Corporate History
Esports Entertainment Group, Inc. (“EEG”) was formed in the state of Nevada on July 22, 2008 under the name Virtual Closet, Inc., before changing its name to DK Sinopharma, Inc. on June 6, 2010 and then to, VGambling, Inc. on August 12, 2014. On or about April 24, 2017, VGambling, Inc. changed its name to Esports Entertainment Group, Inc. The Company is a diversified operator of iGaming, traditional sports betting and esports businesses with a global footprint. The Company’s strategy is to build and acquire iGaming and traditional sports betting platforms and use them to grow the esports business whereby customers have access to game centers, online tournaments and player-versus-player wagering. On July 31, 2020, the Company commenced revenue generating operations with the acquisition of LHE Enterprises Limited, a holding company for Argyll Entertainment (“Argyll”), an online sportsbook and casino operator. On January 21, 2021, the Company completed its acquisition of Phoenix Games Network Limited, the holding company for the Esports Gaming League (“EGL”), and provider of event management and team services, including live and online events and tournaments. On March 1, 2021, the Company completed the acquisition of the operating assets and specified liabilities that comprise the online gaming operations of Lucky Dino Gaming Limited, a company registered in Malta, and Hiidenkivi Estonia OU, its wholly owned subsidiary registered in Estonia (collectively referred to as “Lucky Dino”). On June 1, 2021, the Company acquired ggCircuit, LLC (“GGC”) and Helix Holdings, LLC (“Helix”). GGC is a business-to-business software company that provides cloud-based management for gaming centers, a tournament platform and integrated wallet and point-of-sale solutions. Helix owned and operated esports centers. On July 13, 2021, the Company acquired Bethard Group Limited’s business-to-consumer operations that included the online casino and sports book business operating under the brand of Bethard (“Bethard”). Bethard’s operations provided sportsbook, casino, live casino and fantasy sport betting services.
The Company has recently completed a series of independent transactions to streamline its operations to reduce operating losses and to increase its focus on core businesses. The Company closed its Argyll operations on December 8, 2022 by surrendering of its UK license and deconsolidated its Argyll operating entities during March and June 2023 due to liquidation and loss of control of the entities, and sold Bethard on February 24, 2023. The Company also disposed of the EGL business as of June 30, 2023. In the prior year, the Company disposed of Helix on June 10, 2022. Subsequent to these transactions, the core businesses of the Company include Lucky Dino of the EEG iGaming division, and GGC of the EEG Games division.
Business Overview
EEG is an esports-focused iGaming and entertainment company with a global footprint. EEG’s strategy is to build and acquire betting and related platforms, and lever them into the rapidly growing esports vertical. We operate the business in two verticals, EEG iGaming and EEG Games.
EEG iGaming:
EEG iGaming includes the esports betting platform with full casino and other functionality and services for iGaming customers. iDefix, proprietary technology acquired in connection with the acquisition of Lucky Dino, is a Maltese Gaming Authority (“MGA”) licensed iGaming platform with payments, payment automation manager, bonusing, loyalty, compliance and casino integrations that services all Lucky Dino sites.
EEG’s goal is to be a leader in the large and rapidly growing sector of esports real-money wagering, offering fans the ability to wager on approved esports events in a licensed and secure environment. We are now able to accept wagers from residents of over 180 jurisdictions including countries within the European Union, New Zealand and Latin America, on our platform.
Alongside the esports focused platform, EEG owns and operates Lucky Dino, which is licensed by the MGA to offer five online casinos under its seven different brands on its in-house built iDefix casino-platform.
We currently hold one Tier-1 gambling license in Malta. Our Lucky Dino operations provide a foothold in mature markets in Europe into which we believe we can cross-sell our esports offerings.
EEG Games:
EEG Games’ focus is on providing esports entertainment experiences to gamers through a combination of: (1) our proprietary infrastructure software, GGC, which underpins our focus on esports and is a leading provider of local area network (“LAN”) center management software and services, enabling us to seamlessly manage mission critical functions such as game licensing and payments, and (2) the creation of esports content for distribution to the betting industry. Currently, we operate our esports EEG Games business in the United States and Europe.
We believe that as the size of the market and the number of esports enthusiasts continues to grow, so will the number of esports enthusiasts who gamble on events, which we believe will increase the demand for our platform and services.
Competition
The online gambling and wagering industry is increasingly competitive. With relatively low barriers to entry, new competitors are entering the esports wagering and video game tournament segments. In both of these segments, there currently exist several major competitors. Most of EEG’s current competitors, including bet365, William Hill, Betway, Penn Entertainment, Inc. (Nasdaq: PENN), Pinnacle Sports, PointsBet Holdings Limited (OTC: PBTHF), DraftKings Inc. (Nasdaq:DKNG), Rush Street Interactive, Inc. (NYSE:RSI), Kindred Group plc, Flutter Entertainment plc, Betsson AB, Super Group (SGHC) Limited (NYSE:SGHC), 888 Holdings plc, and Entain Plc, have far greater resources than us.
However, we believe the following strengths position us for sustainable growth:
Management Team and Key Personnel Experience:
EEG’s Board of Directors (the “Board”) includes senior managers with extensive experience in online gambling, esports, information technology, compliance, regulation, accounting and finance.
EEG’s officers and management, including our recently hired Chief Executive Officer, include individuals with extensive experience in the regulation of online gambling, esports, information technology, marketing, business development, payment processing, compliance, regulation, accounting, finance, and customer service.
Unique Positioning within online gaming:
EEG was one of the first online gaming companies with an esports-first focus and a line of esports businesses; leading the effort to broaden legislation for betting on esports competitions. We are uniquely focused on connecting to customers across a broad set of retail and digital businesses to achieve greater revenue, scale, and profitability, as well as shaping esports infrastructure to facilitate omni-channel betting.
Technology Assets:
● EEG has acquired businesses with state-of-the-art business-to-business/business-to-consumer technologies across esports competition infrastructure, for in-person and internet-based competitions, for tournaments, esports wagering and skill-based betting.
● GGC Proprietary Platform: GGC’s ggLeap is a cloud-based management software solution that enables Gaming Centers to run games through the stat integrated client, reward gamers for playing the games they love, and allow gamers to run their own local tournaments. GGC is currently used by over 800 LAN centers and connects with over 2 million gamers monthly.
● Lucky Dino’s online casino platform - iDefix, a modern online casino platform licensed in Malta, upon which the Lucky Dino’s online casino brands operate. iDefix provides a full technical solution for casino operations, with various management tools as well as in-depth business intelligence reporting and analysis. The technology is built on a scalable event-driven micro-services-based architecture offering advanced automation features including anti money laundering compliance and know your customer (“KYC”) handling, responsible gambling management and monitoring, fraud and bonus abuse detection, as well as gamification, customer relationship management and bonus management.
Growth Strategy
In the future, we intend to:
● Expand our esports services into North America, including the 45 states where skill-based gambling is legal and the numerous other states where esports gambling is permitted but has yet to be launched in a meaningful way, enhance our product offering, as well as create relationships with players that will migrate into our real-money wagering platform.
● Expand our esports wagering platform and services into more jurisdictions, utilizing the MGA gaming license, which provides opportunity for access into over 180 countries.
Future Products and Services:
International Market Expansion
EEG received a gaming service license for online betting from the MGA in April 2020, and in February 2021, established a brick-and-mortar office and commenced online gaming operations in Malta. In order to effectively penetrate international markets, we translated our website into several additional languages and offer customer service and technical support in the local language of key markets.
EEG’s Online Wagering Platforms
iDefix, the Company’s modern online casino platform that the Lucky Dino online casino brands operate on, is licensed in Malta. iDefix provides a full technical solution for casino operations, with various management tools as well as in-depth business intelligence reporting and analysis.
On our esports-focused wagering platform, a player can place a bet on a team participating in any number of approved tournaments. The website also maintains a “how to play” section on the website which provides players with instructional videos on placing bets as well as other pieces of information that may be beneficial to an inexperienced player or a new user of our website. Additionally, the website includes a “frequently asked questions” section which provides customers with the ability to easily navigate general questions relating to the website, personal account information, payment processing and betting rules and procedures.
Marketing and Sales Initiatives
The Company has several sponsorship marketing agreements in place for its website.
EEG is looking to expand into new geographic territories by obtaining licenses or by working with B2C operators under a new platform licensing arrangement to operate in those territories. The need for hands-on implementation in these territories and support will require investment in additional marketing activities, offices, and other overhead.
We will also accelerate our expansion if we find complementary businesses that we are able to acquire in other markets. Marketing efforts to expand into new territories have included esports team and tournament sponsorship, affiliate marketing, social media advertising, content creation, and attendance at esports and gaming events in addition to personal contact with other industry leaders.
We plan to increase our marketing efforts and awareness of our brands through our existing suite of websites, as well as future offerings by:
● Educating sports betting consumers and gamers to bet on esports;
● Sponsoring professional esports teams and tournaments that have a global reach and to generate content for sale;
● Working with sports and gaming celebrities and social media influencers who have an interest in video games and esports to generate new customers and increasing our efforts in attracting esports players and other celebrities who have an interest in video game gambling and esports;
● Using a multichannel approach focused on acquiring and retaining customers; and
● Utilizing multiple social media platforms to promote our wagering business including, but not limited to, Facebook, X (formerly known as Twitter), Instagram, Snapchat, TikTok, YouTube, Twitch, Discord, WhatsApp, QQ, WeChat, email and SMS messages and using online advertisements, paid search optimization, and various social media campaigns to increase our online presence and drive traffic to our website.
Further, we intend to continue to invest in optimizing the Company’s website in an effort to become the premier esports gaming and gambling website in the industry.
Recent Developments:
October 2023 Settlement Agreement and Waiver
Partial Settlement of Registration Delay Payments under Registration Rights Agreement
On October 6, 2023, the Company entered into a settlement agreement (“October 2023 Settlement Agreement”) with the Holder to issue common stock in partial settlement of the Registration Rights Fees payable (“RRA Fees”) by the Company under the Registration Rights Agreement, and the previous settlement agreement, dated August 15, 2023 (see below), between the Company and the Holder, in connection with a delay in the filing of a registration statement for the purpose of registering the resale of the common stock issuable under the Holder’s Series D Convertible Preferred Stock and common warrants, despite the Company’s best efforts to avoid such delay. As of October 6, 2023, the Company is obligated to pay to the Holder a Registration Delay Payment of approximately $63,500 (subject to increase with respect to any additional RRA Fees that may accrue, from time to time, under the Registration Rights Agreement and subject to decrease in accordance with the October 2023 Settlement Agreement as described below). On September 30, 2023, the August 2023 Settlement Agreement (see below) expired pursuant to its terms.
The Company agreed to issue an additional 10,000 shares at $0.05 per share (“Continued Settlement Price Per Share”) in partial settlement of RRA Fees. The Company further agreed to settle an additional $1,000 (or such other amount as the parties shall mutually agree) on each seven day anniversary of the October 2023 Settlement Agreement (or another date mutually agreed between the parties), until the earlier of (i) the date that the parties mutually terminate the October 2023 Settlement Agreement in writing, and (ii) such time as the remaining balance of the RRA Fees are paid in full, as applicable, to satisfy up to the remaining balance of the RRA Fees at a price per share equal to the lower of (1) 90% of the lowest Volume-weighted average price (“VWAP”) per share of the common stock during the ten consecutive trading day period ending and including the trading day immediately preceding the additional share settlement, and (2) the Continued Settlement Price Per Share. As part of the settlement, the Holder also agreed to continue to waive, in part, applicable antidilution provisions within the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock such that the issuances of any settlement shares in accordance with the October 2023 Settlement Agreement shall not result in a Conversion Price for the applicable Conversion Amount (as such terms are defined in the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock) subject to such conversion less than the lesser of (A) the Conversion Price then in effect (without giving effect to any adjustments to the Conversion Price arising solely as a result of the issuances of the settlement shares under the October 2023 Settlement Agreement) and (B) the greater of (x) the Conversion Price then in effect (after giving effect to all adjustments to the Conversion Price (including, without limitation, such adjustments arising as a result of the issuances of the settlement shares under the October 2023 Settlement Agreement)) and (y) 90% of the lowest VWAP of the common stock during the ten consecutive trading day period ending and including such applicable conversion date under the terms of the Series C Convertible Preferred Stock or Series C Convertible Preferred Stock, as applicable.
The October 2023 Settlement Agreement further provides that, notwithstanding anything in the applicable Series C Certificate of Designations for the Series C Convertible Preferred Stock or Series D Certificate of Designations for the Series D Convertible Preferred Stock to the contrary, with respect to any given conversion of any Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, to the extent such Conversion Price, as so adjusted, is greater than 90% of the lowest VWAP of the common stock during the ten (10) consecutive trading day period ending and including the trading day of the applicable conversion notice, a Conversion Floor Price Condition (as defined in the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock) shall be deemed to have occurred with respect to such conversion of the Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, as applicable.
As part of the October 2023 Settlement Agreement, the Company triggered the anti-dilution down round price protection provisions of the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that allows for the conversion at the conversion price described above. Due to the down round price protection provision on the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, the Company recorded a deemed dividend within stockholders’ equity associated with the reduction in conversion price in effect prior to the October 2023 Settlement Agreement from $0.10 for both the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock to the conversion price as defined above, of approximately $1,566,000 based on the incremental value to the Holder due to the conversion price reduction. This incremental value will be presented on the consolidated statement of operations as an addition to the net loss available to common stockholders in the year ending June 30, 2024. The incremental value was determined by computing the additional shares the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that would be received based on the conversion price reduction multiplied by the estimated fair value of common stock of $0.0965 as of October 6, 2023.
From July 1, 2023, though October 12, 2023, one business day preceding this filing, the Holder exchanged $12,300,999 in Series C Convertible Preferred Stock for 49,916,813 shares of our common stock at conversion prices equal to 90% of the lowest VWAP (as defined in the Senior Convertible Note) of our common stock for a trading day during the ten consecutive trading day period ending, and including, the applicable date that the conversion price was lowered for purposes of a conversion, or the floor price then in effect, offset by the aggregate Alternate Conversion Floor Amount of $3,759,649 and accrued dividends of $476,597. The balance of Series C Convertible Preferred Stock was reduced to approximately $6,431,000 as of October 12, 2023, one business day preceding this filing. There were no conversions of the Series D Convertible Preferred Stock and no other amounts are due under the Series D Convertible Preferred Stock, other than the RRA Fees.
Partial Waiver of Subsequent Placement Optional Redemption of Preferred Shares
The Company also entered into a waiver agreement (“October 2023 Waiver”) on October 6, 2023, with the Holder, as a condition to access any net proceeds from the future sale of shares of common stock under the Company’s previously announced “at the market” (or “ATM”) equity offering program pursuant to a prospectus supplement that was filed with the SEC on September 15, 2023. The Holder agreed to partially waive its rights to ATM proceeds under the terms of a Subsequent Placement Optional Redemption, as defined in each of the Series C Certificate of Designations and Series D Certificate of Designations, but only with respect to sales under the ATM equity offering program (“ATM Sales”) and not with respect to any other future Subsequent Placement (as defined in each of the Series C Certificate of Designations and Series D Certificate of Designations) and, further, only to the extent of a waiver that provide that 50% of the net proceeds from ATM Sales (after deducting the agent’s commissions pursuant to the “at the market” offering and other reasonable and customary offering expenses) be retained by the Company and the remaining 50% of the net proceeds from ATM Sales be used by the Company to redeem first, the outstanding shares of Series D Convertible Preferred Stock and second, the outstanding shares of Series C Convertible Preferred Stock (“Redemption Proceeds”), unless the Holder elects to change such allocations (or waive such redemption, in whole or in part, with respect to one or more ATM Sales) as evidenced by a written notice to the Company (“Subsequent Placement Limited Waiver”). Concurrent with the execution of the October 2023 Settlement Agreement, the Company executed an escrow agreement (“Escrow Agreement”) with an independent third-party escrow agent (“Escrow Agent”), pursuant to which Redemption Proceeds received from each closing of ATM Sales shall be promptly deposited into a non-interest bearing escrow account (“Escrow Account”) and disbursed to the Holder under the terms and conditions contained in the September Settlement Agreement and the Escrow Agreement.
Equity Distribution Agreement
On September 15, 2023, the Company entered into an Equity Distribution Agreement with Group LLC (“Maxim Group”) under which the Company may offer and sell, from time to time at its sole discretion, shares of the Company’s common stock, par value $0.001 per share, with aggregate gross sales proceeds of up to $7,186,257 through an “at the market” equity offering program under which Maxim Group will act as sales agent.
Under the Equity Distribution Agreement, the Company will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Equity Distribution Agreement, Maxim Group may sell the shares by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act, including by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by Maxim and us.
The Equity Distribution Agreement provides that Maxim Group will be entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Maxim Group under the Equity Distribution Agreement. The Company has no obligation to sell any shares under the Equity Distribution Agreement, and may at any time suspend solicitation and offers under the Equity Distribution Agreement.
The shares will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-252370) and its registration on Form S-3 MEF (File No. 333-274542). The Company filed a prospectus supplement, dated September 15, 2023 with the SEC in connection with the offer and sale of the shares pursuant to the Equity Distribution Agreement (the “Prospectus Supplement”).
As per the October 2023 Wavier, part of the net proceeds of any ATM Sales under this Equity Distribution Agreement will be used by the Company to redeem first, the outstanding shares of Series D Convertible Preferred Stock and second, the outstanding shares of Series C Convertible Preferred Stock, unless the Holder elects to change such allocations, as discussed above.
The Equity Distribution Agreement contains customary representations, warranties and agreements of the Company and customary conditions to completing future sale transactions, indemnification rights and obligations of the parties and termination provisions.
As part of the filing of the Equity Distribution Agreement, the Company entered into a waiver agreement (“Waiver”) on September 15, 2023, with the Holder of the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock, as a condition to filing the registration statement on Form S-3 MEF on September 15, 2023 and the prospectus supplement on September 15, 2023 for the “at the market” offering. The Waiver allowed the Company to proceed with the initial filing of such registration statement and prospectus supplement with the SEC and not with respect to (x) any subsequent amendment or supplement thereto, (y) the issuance and sale of any of the Company’s securities contemplated by thereby or (z) any future Subsequent Placement (as defined in the Securities Purchase Agreement, dated April 30, 2023, among the Company and the buyers named therein). As discussed above the Company obtained a partial waiver of the Holder’s Redemption Amounts, and from October 10, 2023 through October 12, 2023 the Company had ATM Sales of approximately $679,000 for 8,440,375 shares common stock with 50% of the ATM Sales, after placement agent fees, to be held in escrow for the Holder.
August 2023 Settlement Agreement
On August 15, 2023, the Company entered into a settlement agreement (“August 2023 Settlement Agreement”) with the Holder to issue common stock in partial settlement of RRA Fees by the Company under the Registration Rights Agreement, in connection with a delay in the filing of a registration statement for the purpose of registering the resale of the common stock issuable under the Holder’s Series D Convertible Preferred Stock and common warrants, despite the Company’s best efforts to avoid such delay. As of August 15, 2023, the Company was obligated to pay to the Holder RRA Fees of $21,500 (subject to increase with respect to any additional RRA Fees that may accrue, from time to time, under the Registration Rights Agreement, and subject to decrease in accordance with the August 2023 Settlement Agreement as described below).
The Company agreed to initially issue 10,000 shares at $0.10 per share (“Initial Settlement Price Per Share”) in partial settlement of RRA Fees. The Company further agreed to settle an additional $1,000 (or such other amount as the parties shall mutually agree) on each seven day anniversary of the initial settlement (or another date mutually agreed between the parties), to satisfy up to the remaining balance of the RRA Fees at a price per share equal to the lower of (1) 90% of the lowest VWAP per share of the Common Stock during the ten consecutive trading day period ending and including the trading day immediately preceding the additional share settlement, and (2) the Initial Settlement Price Per Share. As part of the settlement, the Holder also agreed to waive, in part, applicable antidilution provisions within the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock such that the issuances of any settlement shares in accordance with the August 2023 Settlement Agreement shall not result in a conversion price for the applicable conversion amount (as such terms are defined in the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock) subject to such conversion less than the lesser of (A) the conversion price then in effect (without giving effect to any adjustments to the conversion price arising solely as a result of the issuances of the settlement shares under the August 2023 Settlement Agreement) and (B) the greater of (x) the conversion price then in effect (after giving effect to all adjustments to the conversion price (including, without limitation, such adjustments arising as a result of the issuances of the settlement shares under the August 2023 Settlement Agreement)) and (y) 90% of the lowest VWAP of the Common Stock during the ten consecutive trading day period ending and including such applicable conversion date under the terms of the Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, as applicable.
The August 2023 Settlement Agreement further provides that, notwithstanding anything in the applicable Certificate of Designations for the Series C Convertible Preferred Stock or Certificate of Designations for the Series D Convertible Preferred Stock to the contrary, with respect to any given conversion of any Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, to the extent such conversion price, as so adjusted, is greater than 90% of the lowest VWAP of the Common Stock during the ten consecutive trading day period ending and including the trading day of the applicable conversion notice, a conversion floor price condition (as defined in the Certificates of Designations governing the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock) shall be deemed to have occurred with respect to such conversion of the Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, as applicable.
As part of the August 2023 Settlement Agreement, the Company triggered the anti-dilution down round price protection provisions of the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that allows for the conversion at the conversion price described above. Due to the down round price protection provision on the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, the Company recorded a deemed dividend within stockholders’ equity associated with the reduction in conversion price in effect prior to the August 2023 Settlement Agreement from $0.44 for the Series C Convertible Preferred Stock and $0.39 Series D Convertible Preferred Stock to the conversion price as defined above, of approximately $9,383,000 based on the incremental value to the Holder due to the conversion price reduction. This incremental value will be presented on the consolidated statement of operations as an addition to the net loss available to common stockholders in the year ending June 30, 2024. The incremental value was determined by computing the additional shares the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that would be received based on the conversion price reduction multiplied by the estimated fair value of common stock of $0.1935 as of August 15, 2023.
August 2023 Registered Direct Offering
On August 15, 2023, the Company entered into a securities purchase agreement with the Holder of our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock (the “RD SPA”). The RD SPA relates to an offering of (a) 1,000,000 shares of our common stock, $0.001 par value per share, for a price of $0.1935 per share, directly to the Holder and (b) pre-funded warrants to purchase 4,167,959 shares of our common stock at a price of $0.1935 per warrant, directly to such Holder (the “RD Pre-funded Warrants”), with all but $0.001 per warrant prepaid to the Company at the closing of the offering. The RD Pre-funded warrants are exercisable immediately upon issuance. The exercise price of each RD Pre-funded Warrant is $0.001 per share of common stock. The offering closed on August 15, 2023.
The Pre-funded Warrants were all subsequently exercised on August 16, 2023.
The RD SPA included the Holder waiving its rights to require the Company to cause a Subsequent Placement Optional Redemption (as defined in each of the Certificate of Designations governing the Series C Convertible Preferred Stock and Certificate of Designations governing the Series D Convertible Preferred Stock) using the gross proceeds from the sale of the shares of common stock and Warrants (including from the exercise thereof) and its rights to participate in an Eligible Subsequent Placement (as defined in each of the Certificate of Designations governing the Series C Convertible Preferred Stock and Certificate of Designations governing the Series D Convertible Preferred Stock) pursuant to Section 7(b) of the Certificate of Designations governing the Series C Convertible Preferred Stock and Section 7(b) of the Certificate of Designations governing the Series D Convertible Preferred Stock, but only with respect to the offering and sale of the Securities contemplated by the RD SPA. As a result, the Company did not make any payments from the gross proceeds to the Holder.
The gross proceeds from the issuance and sale of the shares of common stock and RD Pre-funded Warrants, were approximately $1,000,000, before deducting the estimated offering expenses payable by us. The Company completed the offering without a placement agent and no placement agent fees were payable. The Company had broad discretion in the use of the net proceeds, including for working capital and general corporate purposes to support ongoing business operations.
Leadership changes
Appointment of Alex Igelman as Chief Executive Officer
On December 22, 2022, the Board appointed Alex Igelman as Chief Executive Officer, effective January 3, 2023.
Appointment of Michael Villani as Interim Chief Financial Officer and Chief Financial Officer
Effective January 6, 2023, the Company announced the appointment of Michael Villani as the Interim Chief Financial Officer, in addition to his current role as the Financial Controller. He was further promoted to permanent Chief Financial Officer on August 29, 2023. Mr. Villani serves as the Company’s Principal Financial Officer.
Departure of John Brackens as Chief Technology Officer/Chief Information Officer
On May 14, 2023, John Brackens, the Chief Technology Officer/Chief Information Officer, departed from the Company.
Appointment of Damian Mathews as Chief Operating Officer
Effective May 29, 2023, the Board appointed Damian Mathews, a current member of the Board, to serve as the Company’s Chief Operating Officer.
Appointment of Robert Soper to the Board of Directors
Effective June 6, 2023, the Board appointed Mr. Robert Soper as a member of the Board.
Compliance with Nasdaq Listing Requirements
On April 11, 2022, the Company received a deficiency notification letter from the Listing Qualifications Staff of Nasdaq (the “Staff”) indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous thirty consecutive business days (the “Bid Price Rule”).
On June 7, 2022, the Company received a further letter from Nasdaq notifying the Company that for the last 30 consecutive business days, the Company’s minimum Market Value of Listed Securities (“MVLS”) was below the minimum of $35.0 million required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Rule”).
On October 11, 2022, the Company received a third letter from Nasdaq notifying the Company that the Company’s common stock will be delisted, and the Company’s common stock warrants traded under the symbols GMBLW and GMBLZ and the Company’s 10% Series A Cumulative Redeemable Convertible Preferred Stock traded under symbol GMBLP will no longer qualify for listing, and in that regard trading of the Company’s common stock, common stock warrants and 10% Series A Cumulative Redeemable Convertible Preferred Stock will be suspended. The Company requested an appeal with the Nasdaq Hearings Panel (the “Panel”) and the hearing was held on November 17, 2022.
On November 30, 2022, the Company received a determination from the Panel granting the Company’s request for the continued listing of its common stock on the Capital Market tier of Nasdaq, subject to the Company evidencing compliance with the Bid Price Rule, and the minimum of $2.5 million stockholders’ equity requirement (the “Equity Rule”), as set forth in Nasdaq Listing Rules 5550(a)(2) and 5550(b)(1), respectively, on or before February 7, 2023 (which, as described below, was subsequently extended on February 8, 2023) and March 31, 2023, respectively, and adhering to certain other conditions and requirements described below.
On December 6, 2022, the Company received a fourth letter from Nasdaq notifying the Company that it has not regained compliance with the MVLS Rule. This was addressed in the November 17, 2022, hearing before the Panel where the Company presented on its plan to comply with the MVLS Rule or alternative criteria and was granted continued listing subject to the criteria noted above.
On February 8, 2023, the Company received notice from the Panel updating its remaining conditions as follows:
1. On February 20, 2023, the Company shall provide a written update to the Panel regarding the progress of its debt-to-equity conversion plan and its impact on the Company’s equity;
2. On March 7, 2023, the Company shall have demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions; and
3. On March 31, 2023, the Company shall demonstrate compliance with the Equity Rule.
The Company provided an update on its progress to the Panel on February 20, 2023 and on March 9, 2023, the Company received a letter from the Panel indicating that the Company has regained compliance with the Bid Price Rule.
On March 30, 2023, the Company submitted a written submission requesting an extension on the requirement to demonstrate compliance with the Equity Rule and on April 6, 2023, the Panel granted an extension through April 30, 2023.
On May 1, 2023, the Company announced it met the minimum Equity Rule.
On June 13, 2023, the Company received a notice from the Panel providing that the Company demonstrated compliance with the requirements for continued listing on The Nasdaq Capital Market, including the Equity Rule, as outlined in Listing Rule 5550(b)(1).
On September 6, 2023, the Company received a deficiency notification letter from the Staff indicating that the Company was not in compliance with Bid Price Rule.
The Company has 180 calendar days from the date of such notice, or until March 4, 2024, to regain compliance with the Bid Price Rule. To regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days.
The Company remains subject to a “Panel Monitor,” as defined by Nasdaq Listing Rule 5815(d)(4)(A), through June 13, 2024. In the event the Company fails to satisfy a continued listing requirement during the Panel Monitor, the Company will not be provided with the opportunity to present a compliance plan to the Staff and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3), which process might otherwise be available under the Nasdaq Listing Rules, but would instead have an opportunity to request a new hearing with the Panel. The Company’s securities may be at that time delisted from Nasdaq.
Any failure to maintain compliance with the continued listing requirements of Nasdaq could result in delisting of our common stock from Nasdaq and negatively impact our company and holders of our common stock, including by reducing the willingness of investors to hold our common stock because of the resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations and reduced news and analyst coverage. Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors, our employees and parties conducting business with us and limit our access to debt and equity financing.
Regulatory Developments
We operate in both emerging and well-established competitive markets. We expect that our future growth will come from online gaming and sports betting via expansions of gaming in existing jurisdictions; entrance into new jurisdictions, and improvements and expansions of our existing properties and strategic acquisitions of gaming properties, expanded software sales to more screens in game centers including in universities, entertainment centers and casinos, as well as increased esports adoption and events, particularly in North America. We continue to adjust operations and cost structures to reflect the changing economic conditions. We also continue to focus on revenue and cost synergies from our acquisitions, and offering our customers additional gaming experiences through our affiliates. The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including game centers; riverboat casinos; dockside casinos; land-based casinos; video lottery; iGaming; online and retail sports betting; sports media companies; gaming at taverns; gaming at truck stop establishments; sweepstakes and poker machines not located in casinos; the potential for increased fantasy sports; significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in; and other forms of gaming.
United Kingdom
Since the acquisition of the Argyll UK EEG iGaming business on July 31, 2020, the Company has responded to periodic requests for information from the UKGC in relation to information required to maintain its UK license following the change of corporate control. There have been no adverse judgments imposed by the UKGC against the Company. In recent months, the Company reduced its spending on marketing and was focused on retaining existing customers and reactivating past customers. On November 10, 2022, the Company determined that it would close down its licensed remote gambling operation in the UK market. On November 15, 2022, as part of the winding down of the Argyll UK iGaming operations, players were informed that they would no longer be able to place bets from November 30, 2022 and that they could withdraw their balances through December 7, 2022. On December 8, 2022 Argyll UK surrendered its UK license and the surrender was confirmed by the UKGC on December 9, 2022. Between December 7, 2022 and December 14, 2022 Argyll UK attempted to refund customer accounts that still had remaining balances. On March 3, 2023, the Board determined that the Company’s wholly-owned subsidiary, Argyll Entertainment, the Company’s Swiss entity that is part of Argyll UK, would be liquidated. The Swiss courts declared Argyll Entertainment bankrupt on March 27, 2023, at which point the Company lost control of Argyll Entertainment and, as a result, deconsolidated the entity. The Company further liquidated and deconsolidated wholly-owned subsidiary, Argyll Productions, on June 9, 2023. The Company had previously fully impaired the goodwill, intangible assets and other long-lived assets of Argyll UK in the fiscal year ended June 30, 2022. The Company recognized a gain on disposal of $2.2 million for Argyll Entertainment and $0.6 million for Argyll Productions.
Netherlands
A new licensing regime was implemented in the Netherlands for online gaming operators, with applications being accepted from April 1, 2021. EEG did not apply for a license after assessing the criteria for applying. The first licenses took effect on October 1, 2021. In a surprise to the market, the Dutch Minister for Legal Protection issued guidance warning that even those operators that were not targeting the Dutch market but were passively accepting Dutch customers would be punished, with authorities given the power to issue increased fines. Prior to this guidance, operators had understood that passive acceptance of bets was permissible. The vast majority of unlicensed operators (including EEG’s brands) promptly withdrew from the Dutch market completely on October 1, 2021, closing all active Dutch customer accounts. The sudden and earlier than anticipated withdrawal from the Dutch market had a negative impact on the unlicensed operators in the region. The sole period in which the Company had revenues from its EEG iGaming operations in the Netherlands was in the fiscal quarter ended September 30, 2021.
Finland
On January 1, 2022, amendments to the Finnish Lotteries Act came into effect, further restricting marketing opportunities and enhancing the enforcement powers of the Finnish regulator. Prior to these amendments coming into effect, in the fiscal quarter ended December 31, 2021, the Company had received communications from the Finnish regulator requesting clarification on its marketing and gaming practices related to its Finnish EEG iGaming operations. The Company responded to the initial communication in the third quarter of fiscal year 2022 and received a second request for further clarification. On November 28, 2022, the Company provided its response, further addressing its business and marketing operations in Finland.
Further powers allowing the Finnish regulator to require blocking by payment service providers of overseas operators who are targeting their marketing activities towards Finnish customers are also due to come into effect in 2023. Operations in Finland run under the MGA license on the Lucky Dino in-house built iDefix casino-platform.
On January 5, 2023, the Company received a communication that the Finnish regulator was satisfied with the Company’s response and no adverse judgments were imposed by the Finnish regulator against the Company.
Regulations Affecting our Business
The offering and operation of online real-money gambling platforms and related software and solutions is subject to extensive regulation and approval by various national, federal, state, provincial, tribal and foreign agencies (collectively, “gaming authorities”). Gambling laws are usually based on public policy declaration designed to protect the integrity of the gaming industry and its consumers, as well as to enhance economic development and tourism and to increase tax revenue. To accomplish these goals, gambling laws require EEG to obtain licenses or findings of suitability from gaming authorities for EEG, including each of our subsidiaries engaged in these activities, and certain of our directors, officers, employees and in some instances, significant shareholders (typically beneficial owners of more than 5% of a company’s outstanding equity unless waived as a passive institutional investor). The criteria used by gambling authorities to make determinations as to qualification and suitability of an applicant varies among jurisdictions, but generally require the submission of detailed personal and financial information followed by a thorough and sometimes lengthy investigation. Gaming authorities have broad discretion in determining whether an applicant qualifies for licensing or should be found suitable. Gambling authorities generally look, at a minimum, to the following criteria when determining to grant a license or finding of suitability, including (i) the financial stability, integrity and responsibility of the applicant, (ii) the quality, security and regulatory compliance of the applicant’s online real-money platform and gaming equipment and related software, as applicable, and (iii) the history and associations of the applicant. Gambling authorities may, subject to certain administrative proceeding requirements, (i) deny an application, or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, and (ii) fine any person licensed, registered or found suitable or approved. Notwithstanding the foregoing, some jurisdictions explicitly prohibit gaming in all or certain forms, and we will not market our gambling services in these jurisdictions. If any director, officer or employee of EEG fails to qualify for a license or is found unsuitable (including due to the failure to submit the required documentation) by a gaming authority, EEG may deem it necessary, or be required to, sever its relationship with such person, which may include terminating the employment of any such person. Gambling authorities have the right to investigate any individual or entity having a material relationship with EEG, to determine whether such individual or entity is suitable or should be licensed to do business as a business associate of ours. In addition, certain gambling authorities monitor the activities of the entities they regulate both in their respective jurisdiction and in other jurisdictions to ensure that these entities are in compliance with local standards on a worldwide basis.
On May 14, 2018, the Supreme Court of the United States struck down the Professional and Amateur Sports Protection Act, a 1992 law that barred state-authorized sports gambling with some exceptions and made Nevada the only state where a person could wager on the results of a single game. Since the Supreme Court’s decision, sports gambling has commenced in numerous states and many more states have enabling legislation pending. We plan to explore expansion of our esports online wagering platform into other U.S. States, at the appropriate time, and seek licenses in the United States.
The Unlawful Internet Gambling Enforcement Act of 2006 (“UIEGA”) made it a federal offense, punishable by up to five years in prison, for a business to accept payments “in connection with the participation of another person in unlawful internet gambling.” In support of such new prohibitions, the UIGEA uses a variety of terms - some of which are ambiguous or undefined. Initially, the UIGEA broadly defines a “bet or wager” as the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.
Further, a “bet or wager” specifically includes a chance on a lottery or prize awarded predominantly by chance; a “scheme” as defined in Title 28, U.S.C. § 3702 relating to government-sponsored amateur or professional sports betting and, “any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from, an account with the business of betting or wagering.” While this final prohibition incorporates the term “business of betting or wagering,” that term is not specifically defined anywhere in the UIGEA. The only reference to that term comes in § 5362(2), which states the following: the term “business of betting or wagering” does not include the activities of a financial transaction provider, or any interactive computer service or telecommunications service.
Nonetheless, the law does contain specific prohibitions. In order to establish a violation of the UIGEA, it must be shown that:
1. A “person” was engaged in the business of betting or wagering;
2. That person knowingly accepted a financial instrument or proceeds thereof; and
3. That instrument was accepted (by the person) in connection with the participation of another person in “unlawful Internet gambling.”
In the context of this statute “unlawful Internet gambling” is defined as follows:
To place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made.
Therefore, the UIGEA only applies to online gambling transactions that are already prohibited by other state, federal, or tribal laws and thus, in order for the financial transaction to be prohibited by § 5363 of the UIGEA, the bet or wager must be “initiated, received, or otherwise made” in a place where such activity (the bet of wager) violates preexisting state, federal, or tribal law.
Similarly, several other laws provide federal law enforcement with the authority to enforce and prosecute gambling operations conducted in violation of underlying state gambling laws. As with UIEGA, these enforcement laws include the Illegal Gambling Business Act and the Travel Act. No violation of the UIGEA, the Illegal Gambling Business Act or the Travel Act can be found absent a violation of an underlying state law or other federal law. In addition, the Wire Act of 1961 (the “Wire Act”) provides that anyone engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, will be fined or imprisoned, or both. However, the Wire Act notes that it shall not be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal. In 2018, the U.S. Department of Justice (the “DOJ”) reversed its previously-issued opinion published in 2011, which stated that interstate transmissions of wire communications that do not relate to a “sporting event or contest” fall outside the purview of the Wire Act. The DOJ’s updated opinion concluded instead that the Wire Act was not limited to wagering on sporting events or contests, and that certain of its provisions apply to non-sports-related wagering activity. In June 2019, a federal district court in New Hampshire ruled that the DOJ’s new interpretation of the Wire Act was erroneous and vacated the DOJ’s new opinion. On January 20, 2021, the First Circuit reaffirmed the district court’s decision. The DOJ did not appeal to the Supreme Court. However, while a positive result, arguably the case is binding precedent only within the First Circuit, and only applies to the specific parties in the lawsuit. Accordingly, the Wire Act could still impact our ability to engage in online internet gaming in the future. See ‘Recent Developments’ section above for a discussion of specific regulation items in relevant jurisdictions.
Intellectual Property
Esports Entertainment Malta owns several trademarks for its Lucky Dino, Kalevala, Casinojefe and Fiksukasino brands and GGC, LLC owns the ggCircuit trademark.
The Company owns the underlying IP rights for the iDefix and Phoenix platforms.
As of June 30, 2023, the Company had 111 employees, 100 of which are full time employees and 11 of which are part time employees.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations. The risk factors described below should be read together with the other information set forth in this Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. You should not interpret our disclosure of any risks in this Annual Report as implying that such risks have not already materialized.
Summary of the Material Risks Associated with Our Business
These risks include, but are not limited to, the following:
● Because there is substantial doubt about our ability to continue as a going concern for a reasonable period of time, an investment in our common stock is highly speculative; holders of our common stock could suffer a total loss of their investment.
● If we fail to maintain compliance with the continued listing requirements of Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
● If our common stock is delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be restricted and negatively impacted.
● We implemented a one-for-one hundred reverse stock split of our common stock on February 22, 2023 (the “Reverse Stock Split”), and the liquidity of our common stock may continue to be adversely effected.
● If we implement a second reverse stock split, the liquidity of our common stock may be further adversely effected.
● The Series C Convertible Preferred Stock and Series D Convertible Preferred Stock will continue to subordinate the rights of the holders of shares of our common stock and their terms have obligated us, and may continue to obligate us, to increase the value of such preferred stock due to forces that may be within, or outside of, our control.
● The trading price of our common stock has been, and will likely continue to be, volatile and you could lose all or part of your investment.
● The exercise of our outstanding options and warrants will result in significant dilution to our stockholders.
● We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
● We currently do not intend to pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
● We have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability or remain a going concern.
● You will experience dilution of your ownership interest due to the future issuance of additional shares of our common stock.
● Our business may be materially and adversely affected by increased levels of debt.
● Competition within the global interactive entertainment and gaming industries is intense and our existing and potential users may be attracted to competing forms of entertainment such as television, movies and sporting events, as well as other entertainment and gaming options on the Internet. If our offerings do not continue to be popular, our business could be harmed.
● Our business may be materially and adversely affected by the combined company’s business following acquisitions. If we are required to write down goodwill and other intangible assets, our financial condition and results would be negatively affected.
● Recent regulatory changes in the Netherlands and Finland have had a material impact on our financial results and may have additional negative consequences on our business and operations in the future.
● The coverage of business or our common stock by securities or industry analysts or the absence thereof could adversely affect the price of our securities and trading volume.
● We may issue additional preferred stock in the future with terms that could dilute the voting power or reduce the value of our common stock.
● Our Amended and Restated Articles of Incorporation allow for our board of directors to create new series of preferred stock without further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our common stock and warrants.
● Our quarterly results can fluctuate and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.
● We may require additional capital to support our growth plans, and such capital may not be available on terms acceptable to us, if at all. This could hamper our growth and adversely affect our business.
● We may invest in or acquire other businesses, and our business may suffer if we are unable to successfully integrate acquired businesses into our company or otherwise manage the growth associated with multiple acquisitions.
● If we fail to detect fraud or theft, including by our users and employees, our reputation may suffer which could harm our brand and reputation and negatively impact our business, financial condition and results of operations and can subject us to investigations and litigation.
● Our growth will depend on our ability to attract and retain users, and the loss of our users, failure to attract new users in a cost-effective manner, or failure to effectively manage our growth could adversely affect our business, financial condition, results of operations and prospects.
● Our online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.
● Our profitability depends upon many factors for which no assurance can be given.
● Participation in the sports betting industry exposes us to trading, liability management and pricing risk. We may experience lower than expected profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of the sports risk management processes.
● We may be subject to the payment of contributions or fees to sporting bodies or rights holders for the use of their data.
● We rely on other third-party data and live-streaming providers for real-time and accurate data and/or live streams for sporting events, and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.
● We operate in a very competitive business environment and if we do not adapt our approach and our products to meet this competitive environment, our business, results of operations or financial condition could be adversely impacted.
● Risks that impact our affiliate marketing program may negatively impact us.
● There has been consolidation among our competitors in the esports and gaming industry. Such consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive pricing models, gain a larger market share of customers, expand product offerings and broaden their geographic scope of operations.
● Our business is particularly vulnerable to additional or increased taxes and fees.
● Our growth prospects depend on the legal status of real-money gaming in various jurisdictions, including within the United States, and legalization may not occur in as many states or countries as we expect, or may occur at a slower pace than we anticipate. Additionally, even if jurisdictions legalize real money gaming, this may be accompanied by legislative or regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process of implementing regulations or securing the necessary licenses to operate in a particular jurisdiction may take longer than we anticipate, which could adversely affect our future results of operations and make it more difficult to meet our expectations for financial performance.
● Our business is subject to online security risk, including security breaches, denial of service or ransomware attacks, and loss or misuse of our stored information as a result of such a breach, including customers’ personal information, could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
● Risks related to our reliance on third party technology, platforms and software (“third-party software”), and any failures, errors, defects or disruptions in such third-party software could diminish our brand and reputation, subject us to liability, disrupt our business and adversely affect our operating results and growth prospects.
● The success, including win or hold rates, of existing or future online betting and casino gaming products depends on a variety of factors and is not completely controlled by us.
● Future cash flow fluctuations may affect our ability to fund our working capital requirements or achieve our business objectives in a timely manner.
● Failure to attract, retain and motivate key employees may adversely affect our ability to compete and the loss of the services of key personnel could have a material adverse effect on the business.
● Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
● Failure to remediate our material weaknesses or maintain adequate financial, information technology and management processes and controls could lead to errors in our financial reporting, which could adversely affect our business.
● Litigation costs and the outcome of litigation could have a material adverse effect on our business.
● While we work to integrate the iGaming businesses and operations together and leverage with the esports business and operations, management’s focus and resources may be diverted from operational matters and other strategic opportunities.
● The risks related to international operations, in particular in countries outside of the United States and Canada, could negatively affect our results.
● We are subject to foreign exchange and currency risks that could adversely affect our operations, and our ability to mitigate our foreign exchange risk through hedging transactions may be limited.
● The gaming industry is heavily regulated and failure by us to comply with applicable requirements could be disruptive to our business and could adversely affect our operations.
● We may not be able to capitalize on the expansion of online or other forms of interactive gaming or other trends and changes in the gaming industry, due to laws and regulations governing these industries in different jurisdictions.
● Global privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.
● Our stockholders and business partners are subject to extensive governmental regulation and if a stockholder is found unsuitable by a gaming authority, that stockholder would not be able to beneficially own our shares directly or indirectly.
● Because a number of our directors and a substantial portion of our assets are located in jurisdictions other than the United States and Canada, you may have no effective recourse against the directors not located in the United States and Canada for misconduct and may not be able to enforce a judgment and/or civil liabilities against these directors.
● We rely on third-party providers to validate the identity and identify the location of our users, and if such providers fail to perform adequately, provide accurate information or we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
● Our results of operations could be affected by natural events in the locations in which we operate or where our customers or suppliers operate.
● Changes in ownership of competitors or consolidations within the gaming industry may negatively impact pricing and lead to downward pricing pressures, which could reduce revenue.
● We rely on third-party payment processors to process deposits and withdrawals made by our users, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, financial condition and results of operations could be adversely affected.
● We are required to comply with applicable anti-money laundering and countering the financing of terrorism legislation, a breach of which could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
● We are subject to various laws relating to trade, export controls, and foreign corrupt practices, the violation of which could adversely affect our operations, reputation, business, prospects, operating results and financial condition.
● In the context of our European Union (the “EU”)-facing operations, we may be subject to specific compliance obligations under the General Data Protection Regulation (EU) 2016/679 (the “GDPR”) and associated laws and regulations in different EU Member States in which we operate as well as in portions of our business outside the EU, which may negatively affect our operations and financial results.
● We are subject to regulation affecting internet gaming which varies from one jurisdiction to another and future legislative and court proceedings pertaining to internet gaming may have a material impact on our operations and financial results.
● Regulations that may be adopted with respect to the Internet and electronic commerce may decrease the growth in the use of the Internet and lead to the decrease in the demand for our products and services.
● Legislative and regulatory changes could negatively affect our business and the business of our customers.
● If we fail to enforce and maintain our intellectual property rights, our business and financial results could be adversely affected.
● If we are subject to claims of intellectual property infringement or invalidity, our business operations and/or financial results may be negatively impacted either by the cost of litigation or any adverse result.
● Our intellectual property may be insufficient to properly safeguard our technology and brands.
● Compromises of our systems or unauthorized access to confidential information or our customers’ personal information could materially harm our reputation and business.
● Systems, network or telecommunications failures or cyber-attacks may disrupt our business and have an adverse effect on our results of operations.
● Malfunctions of third-party communications infrastructure, hardware and software expose us to a variety of risks that we cannot control.
● Disruption of our network systems or their inability to meet growing demand can negatively affect our business and financial results.
● Service interruptions of internet service providers could impair our ability to carry on our business.
● Efforts to remediate our material weaknesses and comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.
● Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock and common warrants.
● We are a smaller reporting company and a non-accelerated filer and the reduced disclosure requirements available to us may make our common stock less attractive to investors.
The summary risk factors described above should be read together with the text of the full risk factors below and in the other information set forth in this Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
Risks Related to Owning our Common Stock
Because there is substantial doubt about our ability to continue as a going concern for a reasonable period of time, an investment in our common stock is highly speculative; holders of our common stock could suffer a total loss of their investment.
Without additional financing, our cash will be depleted in the near term. In addition to the risks related to the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, we have an accumulated deficit of $181,425,905 as of June 30, 2023 and have a history of recurring losses from operations and recurring negative cash flows from operations. We also considered our current liquidity as well as future market and economic conditions that may be deemed outside of our control as it relates to obtaining financing and generating future profits. We believe that our current level of cash is not sufficient to fund our operations and obligations without additional financing. Our ability to raise financing is subject to several factors, including market and economic conditions, performance, and investor sentiment as it relates to us and the esports and iGaming industry. The combination of these conditions was determined to raise substantial doubt regarding our ability to continue as a going concern. Furthermore, we may seek alternative sources of equity or debt financing, delay capital expenditures or evaluate potential asset sales, and potentially could seek relief under the applicable bankruptcy or insolvency laws. In the event of a bankruptcy proceeding or insolvency, or restructuring of our capital structure, holders of our common stock could suffer a total loss of their investment.
If we fail to maintain compliance with the continued listing requirements of Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
On April 11, 2022, the Company received a deficiency notification letter from the Listing Qualifications Staff of Nasdaq indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the bid price for the Company’s common stock had closed below $1.00 per share for the previous thirty consecutive business days (the “Bid Price Rule”).
On June 7, 2022, the Company received a further letter from Nasdaq notifying the Company that for the last 30 consecutive business days, the Company’s minimum Market Value of Listed Securities (“MVLS”) was below the minimum of $35,000,000 required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(b)(2).
On October 11, 2022, we received a third letter from Nasdaq notifying us that our common stock will be delisted, and our common stock warrants traded under the symbols GMBLW and GMBLZ and our 10% Series A Cumulative Redeemable Convertible Preferred Stock traded under symbol GMBLP will no longer qualify for listing, and in that regard trading of our common stock, common stock warrants and 10% Series A Cumulative Redeemable Convertible Preferred Stock will be suspended. We requested an appeal with the Nasdaq Hearings Panel (the “Panel”) and the hearing was held on November 17, 2022.
On November 30, 2022, the Company received a determination from the Panel granting the Company’s request for the continued listing of its common stock on the Capital Market tier of Nasdaq, subject to the Company evidencing compliance with the Bid Price Rule, and the minimum of $2,500,000 stockholders’ equity requirement (the “Equity Rule”), as set forth in Nasdaq Listing Rules 5550(a)(2) and 5550(b)(1), respectively, on or before February 7, 2023 (which, as described below, was subsequently extended on February 8, 2023) and March 31, 2023, respectively, and adhering to certain other conditions and requirements described below.
On December 6, 2022, the Company received a fourth letter from Nasdaq notifying the Company that it has not regained compliance with the MVLS Rule. This was addressed in the November 17, 2022, hearing before the Panel where the Company presented on its plan to comply with the MVLS Rule or alternative criteria and was granted continued listing subject to the criteria noted above.
On February 8, 2023, we received notice from the Panel updating its remaining conditions as follows:
1. On February 20, 2023, the Company shall provide a written update to the Panel regarding the progress of its debt-to-equity conversion plan and its impact on the Company’s equity;
2. On March 7, 2023, the Company shall have demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions; and
3. On March 31, 2023, the Company shall demonstrate compliance with the Equity Rule.
The Company provided an update on its progress to the Panel on February 20, 2023 and on March 9, 2023, the Company received a letter from the Panel indicating that the Company has regained compliance with the Bid Price Rule.
On March 30, 2023, the Company submitted a written submission requesting an extension on the requirement to demonstrate compliance with the Equity Rule and on April 6, 2023, the Panel granted an extension through April 30, 2023.
On May 1, 2023, the Company announced it met the minimum Equity Rule.
On June 13, 2023, the Company received a notice from the Panel providing that the Company demonstrated compliance with the requirements for continued listing on The Nasdaq Capital Market, including the Equity Rule, as outlined in Listing Rule 5550(b)(1).
On September 6, 2023, the Company received a deficiency notification letter from the Staff indicating that the Company was not in compliance with Bid Price Rule.
The Company has 180 calendar days from the date of such notice, or until March 4, 2024, to regain compliance with the Bid Price Rule. To regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days.
The Company remains subject to a “Panel Monitor,” as defined by Nasdaq Listing Rule 5815(d)(4)(A), through June 13, 2024. In the event the Company fails to satisfy a continued listing requirement during the Panel Monitor, the Company will not be provided with the opportunity to present a compliance plan to the Staff and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3), which process might otherwise be available under the Nasdaq Listing Rules, but would instead have an opportunity to request a new hearing with the Panel. The Company’s securities may be delisted from Nasdaq at that time.
Any failure to maintain compliance with the continued listing requirements of Nasdaq could result in the delisting of our common stock from Nasdaq and negatively impact our Company and holders of our common stock, including by reducing the willingness of investors to hold our common stock because of the resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations and reduced news and analyst coverage. Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors, our employees and parties conducting business with us and limit our access to debt and equity financing.
If our common stock is delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be restricted and negatively impacted.
In addition to the foregoing, if our common stock is delisted from Nasdaq and is traded on the over-the-counter market, the application of the “penny stock” rules could adversely affect the market price of our common stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions. If our common stock is delisted from Nasdaq and is traded on the over-the-counter market at a price of less than $5.00 per share, our common stock would be considered a penny stock. Unless otherwise exempted, the SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock, to deliver a standardized risk disclosure document that provides information about penny stock and the risks in the penny stock market, the current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. Further, prior to a transaction in a penny stock, the penny stock rules require the broker-dealer to provide a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, the penny stock rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock is no longer a penny stock.
We implemented the Reverse Stock Split on February 22, 2023 and the liquidity of our common stock may be continue to be adversely effected.
We effected the Reverse Stock Split of our outstanding common stock. The liquidity of the shares of our common stock may continue to be affected adversely by the Reverse Stock Split given the reduced number of shares of our common stock that are outstanding following the Reverse Stock Split, particularly if the market price of our common stock does not increase from its recent decline partly as a result of the Reverse Stock Split. Following the Reverse Stock Split, the market price of our common stock may not attract new investors and may not satisfy the investing requirements of those investors. There can be no assurance that our share prices will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
If we implement a second reverse stock split, the liquidity of our common stock may be further adversely effected.
If required to maintain compliance with Nasdaq listing rules, we will plan to effect a second reverse stock split of our outstanding common stock, with our Board having the discretion as to the exact ratio of any reverse stock split. Under Nevada law, our board of directors may take action to effect a reverse split of our common stock and a corresponding decrease to our authorized capital stock, without stockholder approval pursuant to Nevada Revised Statutes 78.207 if required to comply with the Bid Price Rule and if deemed to be in the interests of the Company. However, there can be no assurance that the market price per share of our common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split. The liquidity of the shares of our common stock may be further affected adversely by any reverse stock split given the reduced number of shares of our common stock that will be outstanding following the reverse stock split, particularly if the market price of our common stock does not increase as a result of the reverse stock split. Following any reverse stock split, the resulting market price of our common stock may not attract new investors and may not satisfy the investing requirements of those investors. Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
The Series C Convertible Preferred Stock and Series D Convertible Preferred Stock will continue to subordinate the rights of the holders of shares of our common stock and their terms have obligated us, and may continue to obligate us, to increase the value of such preferred stock due to forces that may be within, or outside of, our control.
The Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock give the Holder many of the certain rights, including the ability to convert at will the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock to shares of our common stock at a discount to the market prices of our common stock, which results in dilution to the holders of shares of our common stock, and the right to payment of cash and/or shares as dividends accrued on the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, and an increase in the respective Stated Values (and accordingly, the Conversion Amounts), based on a premium, in the event of a Triggering Event (as described in the Series C Certificate of Designations and Series D Certificate of Designations). Dividends accrued or paid on the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock are expected to significantly reduce or eliminate any cash that we might otherwise have available for the payment of dividends on shares of common stock in the future. In the event a Bankruptcy Triggering Event (as defined in the Series C Certificate of Designations and Series D Certificate of Designations) occurs, the Company will be required to redeem, in cash, the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock at a redemption price based on a required premium, as described in the Series C Certificate of Designations and Series D Certificate of Designations.
In addition, under Section 4(e)(iii) of the Series C Certificate of Designations and Series D Certificate of Designations, in the event that the Alternate Conversion Price (as defined in the Series C Certificate of Designations and Series D Certificate of Designations) falls below the Floor Price (as defined in the Series C Certificate of Designations and Series D Certificate of Designations) at the time of a conversion using the Alternate Conversion Price, the accrued and unpaid dividends on the outstanding shares of preferred stock shall automatically increase, pro rata, by the applicable Alternate Conversion Floor Amount (as defined in the Series C Certificate of Designations and Series D Certificate of Designations) or, at the Company’s option, the Company shall deliver the applicable Alternate Conversion Floor Amount to the holder on the applicable date of conversion.
As part of the August 2023 Settlement Agreement and the October 2023 Settlement Agreement, the Company triggered the anti-dilution down round price protection provisions of the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that allows for the conversion at the conversion price described below. Due to the down round price protection provision on the Series C Convertible Preferred Stock, the Company recorded a deemed dividend within stockholders’ equity associated with the reduction in conversion price in effect prior to the August 2023 Settlement Agreement from $0.44, and the October 2023 Settlement Agreement from $0.10, to the conversion price as defined below, of approximately $10.9 million based on the incremental value to the Holder due to the conversion price reduction. This incremental value will be presented on the consolidated statement of operations as an addition to the net loss available to common stockholders in the year ending June 30, 2024. The incremental value was determined by computing the additional shares the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that would be received based on the conversion price reduction multiplied by the estimated fair value of common stock of $0.1935 as of August 15, 2023, for the August 2023 Settlement Agreement and the additional shares the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that would be received based on the conversion price reduction multiplied by the estimated fair value of common stock of $0.0965 as of October 6, 2023 for the October 2023 Settlement Agreement.
From July 1, 2023 through October 12, 2023, one business day preceding this filing, the Holder converted $12.3 million in Series C Convertible Preferred Stock for 49,916,813 shares of our common stock at conversion prices equal to 90% of the lowest VWAP (as defined in the Senior Convertible Note) of our common stock for a trading day during the ten (10) consecutive trading day period ending, and including, the applicable date that the conversion price was lowered for purposes of a conversion, or the floor in place at the time of the conversion, offset by the aggregate Alternate Conversion Floor Amount of approximately $3.8 million and accrued dividends of $0.5 million. The balance of Series C Convertible Preferred Stock was reduced to approximately $6.4 million as of October 12, 2023, one business day preceding this filing. The alternate conversion Floor Adjustment was recorded as a deemed dividend and will be on the consolidated statement of operations as an addition to the net loss available to common stockholders. No such amounts are due under the Series D Convertible Preferred Stock.
We have provided a summary of the material terms of the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock in our Description of Securities, filed as Exhibit 4.4 to this report.
We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could affect our stock price and cause you to lose some or all of your investment.
We may be forced to write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. The result of these charges may thus be to negatively affect the price of our common stock causing stockholders to suffer a reduction in the value of their shares and could impact our compliance with the Equity Rule under the Nasdaq listing rules.
The trading price of our common stock has been, and will likely continue to be, volatile and as a result you could lose all or part of your investment due to dips in the market price caused by market fluctuations.
The trading price of our common stock has been, and will likely continue to be, volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our common stock and our common stock may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our common stock may include:
● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
● changes in the market’s expectations about our operating results;
● success of competitors;
● lack of adjacent competitors;
● our results failing to meet the expectation of securities analysts or investors in a particular period;
● changes in financial estimates and recommendations by securities analysts concerning us or the industries in which we operate in general;
● our ability to market new and enhanced products and services on a timely basis;
● commencement of, or involvement in, litigation involving us;
● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
● the volume of sales of shares of our common stock by our directors, executive officers or significant stockholders, including sales of shares issued upon conversions of the Series C Convertible Preferred Stock or Series D Convertible Preferred Stock, or the perception that such sales could occur; and
● general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
Broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general, and Nasdaq in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the affected companies. The trading prices and valuations of these stocks, and of our common stock, may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our common stock also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
The exercise of our outstanding options and warrants will result in significant dilution to our stockholders.
As of June 30, 2023, we had outstanding options to purchase up to 30,621 shares of our common stock including an award of 25,000 time-based stock options to our Chief Executive Officer, for options to purchase a total of 25,000 shares of common stock. In addition, as of June 30, 2023, we had outstanding warrants to purchase up to approximately 1,975,339 shares of our common stock. The exercise of a significant portion of our outstanding options and warrants may result in significant dilution to our stockholders.
The coverage of business or our common stock by securities or industry analysts or the absence thereof could adversely affect the price of our securities and trading volume.
The trading market for our common stock is influenced in part by the research and other reports that industry or securities analysts publish about us or our business or industry from time to time. We do not control these analysts, or the content and opinions included in their reports. Analysts who publish information about our securities may have had relatively little experience with our company given our history, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. If analysts do cover us and one or more of them downgrade our securities, or if they issue other unfavorable commentary about us or our industry or inaccurate research, our stock price would likely decline. Furthermore, if one or more of these analysts cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets. Any of the foregoing would likely cause our stock price and trading volume to decline.
We currently do not intend to pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We currently do not expect to declare or pay dividends on our common stock. We have entered into, and in the future we may also enter into agreements that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.
You will also experience dilution of your ownership interest due to the future issuance of additional shares of our common stock.
We are in a capital-intensive business and we do not have sufficient funds to finance the growth of our business or to support our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative costs of our business. We will in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to issue 500,000,000 shares of common stock and 10,000,000 shares of blank check preferred stock. Additionally, we implemented the Reverse Stock Split, without a corresponding reduction in the total number of authorized shares of common stock. The potential issuance of such additional shares of common or preferred stock or convertible debt, including upon conversions of the Series C Convertible Preferred Stock and/or Series D Convertible Preferred Stock, may create downward pressure on the trading price of our common stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for restructurings, capital raising purposes or for other business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings of our common stock or securities convertible into common stock.
Sales of a substantial number of shares of our common stock in the public market could occur at any time, either by us or our stockholders, including the Holder of our Series C Convertible Preferred Stock and Series D Convertible Preferred Stock. Actual sales of our common stock, or the perception in the market that we or holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Our outstanding shares of common stock may be freely sold in the public market at any time to the extent permitted by the Securities Act or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates.
We may issue additional preferred stock in the future with terms that could dilute the voting power or reduce the value of our common stock.
Our Amended and Restated Articles of Incorporation authorize us to issue, without stockholder approval, one or more series of preferred stock having such designation, powers, privileges, preferences, including preferences over our common stock with respect to dividends and distributions, terms of redemption and relative participation, optional, or other rights, if any, of the shares of each such series of preferred stock and any qualifications, limitations or restrictions thereof, as our Board may determine. In addition to the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock that were issued to the Holder, the terms of one or more other series of preferred stock that we may issue in the future could dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we assigned to the Holder of our preferred stock could affect the residual value of our common stock.
Our Amended and Restated Articles of Incorporation allow for our Board to create new series of preferred stock without further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our common stock and warrants.
Our authorized capital includes preferred stock issuable in one or more series. Our Board has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with restructurings, possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock of a premium that they might otherwise realize in connection with a proposed acquisition of our company.
On November 10, 2021, we designated 1,725,000 shares of preferred stock as 10% Series A Cumulative Redeemable Convertible Preferred Stock, with a par value of $0.001 per share and liquidation preference of $11.00. On November 11, 2021, we announced that we priced an underwritten public offering of preferred stock as 10% Series A Cumulative Redeemable Convertible Preferred Stock in the first series issuance of preferred stock, of which 835,950 shares were issued at $10.00 per share on November 16, 2021.
In addition, under the terms of the underwriting agreement for the public offering of the 10% Series A Cumulative Redeemable Convertible Preferred Stock, the Company granted the underwriters a 45-day option to purchase up to an additional 120,000 shares. On December 10, 2021, there was a partial exercise to purchase 35,950 shares.
Each share of 10% Series A Cumulative Redeemable Convertible Preferred Stock is convertible into one share of common stock at a conversion price of $17.50 per common share. Subject to earlier conversion or redemption, the 10% Series A Cumulative Redeemable Convertible Preferred Stock matures on November 15, 2026, at which point we must redeem the shares of 10% Series A Cumulative Redeemable Convertible Preferred Stock at the redemption price.
Dividends on the 10% Series A Cumulative Redeemable Convertible Preferred Stock are cumulative from the date of issuance. The dividends on the 10% Series A Cumulative Redeemable Convertible Preferred Stock are payable in equal monthly installments on the last day of each calendar month, when, as and if declared by our Board, in cash at an annual rate of 10.0% per annum.
The 10% Series A Cumulative Redeemable Convertible Preferred Stock is also redeemable, at the option of the Board, in whole or in part, at any time on or after January 1, 2023.
The holders of the 10% Series A Cumulative Redeemable Convertible Preferred Stock will not have any voting rights, except whenever dividends on any share of any series of preferred stock (“Applicable Preferred Stock”) have not been paid in an aggregate amount equal to four monthly dividends on the shares, the holders of the Applicable Preferred Stock will have the exclusive and special right, voting separately as a class and without regard to series, to elect at an annual meeting of stockholders or special meeting held in place of it one member of the Board, until all arrearages in dividends and dividends in full for the current monthly period have been paid.
Further, on December 20, 2022, we entered into a Subscription and Investment Representation Agreement with a member of management, the Chief Financial Officer of the Company (Interim Chief Financial Officer at the time of the transaction), who was an accredited investor (the “Purchaser”), pursuant to which we agreed to issue and sell 100 shares of Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), to the Purchaser for $10.00 per share in cash. The sale closed on December 21, 2022.
On December 21, 2022, we filed a Certificate of Designation with the Secretary of State of Nevada, effective as of the time of filing, designating the rights, preferences, privileges and restrictions of the shares of Preferred Stock. The Certificate of Designation provided that 100 shares of Series B Preferred Stock had 25 million votes each and was to vote together with the outstanding shares of our common stock as a single class exclusively with respect to any proposal to effect a reverse stock split of our common stock. The Series B Preferred Stock was voted, without action by the holder, on the reverse stock split proposal at our 2022 annual meeting of stockholders in the same proportion as shares of common stock were voted. The Series B Preferred Stock otherwise had no voting rights except as otherwise required by the Nevada Revised Statutes.
The Series B Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities. The Series B Preferred Stock had no rights with respect to any distribution of our assets, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up, whether voluntarily or involuntarily. The holder of the Series B Preferred Stock was not entitled to receive dividends of any kind.
Pursuant to the terms of the Series B Preferred Stock, the outstanding shares of Series B Preferred Stock were redeemed in whole following the effectiveness of stockholder approval of the Reverse Stock Split proposal. On February 10, 2023, the holder of the Series B Preferred Stock received consideration of $10.00 per share in cash, or $1,000 in the aggregate.
Additionally, on April 28, 2023 and May 22, 2023, we filed a Certificate of Designations with the Secretary of State of Nevada, effective as of the time of filing, for the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock, respectively. These designated the rights, preferences, privileges and restrictions of the shares of Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock.
The exchange of the Senior Convertible Note into the Series C Convertible Preferred Stock extinguished the Senior Convertible Note and the related debt liability outstanding of $15,230,024 into 15,230 shares of Series C Convertible Preferred Stock, $0.001 par value per share, for a price of $1,000 per share (the “Series C Preferred Stock”).
On May 22, 2023, we completed an offering to the Holder of (i) 4,300 shares of new Series D Convertible Preferred Stock, $0.001 par value per share, for a price of $1,000 per share (the “Series D Preferred Stock”), (ii) Common Warrants to purchase 1,433,333 shares of our common stock at a price of $1.96 per share, and (iii) preferred warrants to purchase 4,300 shares of our Series D Preferred Stock at a price of $1,000 per share, for total gross proceeds to the Company of approximately $4,300,000.
The Series C Certificate of Designations and Series D Certificate of Designations are substantially the same and contemplate that both the Series C Preferred Stock and the Series D Preferred Stock will be convertible into common stock (the “Conversion Shares”) at the option of the holder at any time from time to time after the date of issuance thereof. The number of Conversion Shares issuable upon conversion of any share of Series C Preferred Stock or Series D Preferred Stock, as applicable, shall be determined by dividing (x) the Conversion Amount (as defined below) of a share of Series C Preferred Stock or share of Series D Preferred Stock, as applicable, by (y), at the holder’s option, either (i) the Conversion Price (as defined below); and (ii) the Alternate Conversion Price (as defined below), subject to the Floor Price (as defined below). “Conversion Amount” shall mean, with respect to each share of Series C Preferred Stock or share of Series D Preferred Stock, as applicable, the sum of (A) $1,000 (such amount, subject to adjustment, the “Stated Value”) and (B) all declared and unpaid dividends with respect to such Stated Value and any other amounts owed under the Series C Certificate of Designations or share of Series D Certificate of Designations, as applicable, “Conversion Price” shall mean $2.50 and $3.00, for the Series C Preferred Stock and for the Series D Preferred Stock, respectively, subject to adjustment as provided in the Series C Certificate of Designations and Series D Certificate of Designations. “Alternate Conversion Price” shall mean with respect to any Alternate Conversion that price which shall be, at the holder’s option, either (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, and (ii) the greater of (x) the Floor Price and (y) 90% of the lowest VWAP of the common stock during the ten (10) consecutive Trading Day period ending and including the Trading Day of the applicable Conversion Notice (such period, the “Alternate Conversion Measuring Period”). All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such Alternate Conversion Measuring Period. “Floor Price” shall mean $0.44 and $0.39, for the Series C Preferred Stock and for the Series D Preferred Stock, respectively.
The Company shall not be allowed to effect the conversion of any of the Series C Preferred Stock or Series D Preferred Stock held by the holder, and such holder shall not have the right to convert any of the Series C Preferred Stock or Series D Preferred Stock held by such holder pursuant to the terms and conditions of the Series C Certificate of Designations and the Series D Certificate of Designations to the extent that after giving effect to such conversion, such holder together with its affiliates and certain related parties collectively would beneficially own in excess of 9.99% of the shares of common stock outstanding immediately after giving effect to such conversion.
Issuances of shares of common stock upon conversion of the Series D Preferred Stock and Common Warrants in excess of 20% of the Company’s outstanding shares of common stock would require approval by the Company’s stockholders pursuant to the rules and regulations of the Nasdaq Stock Market. Under the terms of the Securities Purchase Agreement for the Series D Preferred Stock offering, the Company was obligated to use its reasonable best efforts to obtain such stockholder approval by August 15, 2023, which was not achievable, despite reasonable best efforts.
Dividends on the Series C Preferred Stock and Series D Preferred Stock accrue daily at a rate equal to 8.0% per annum, increasing 0.50% each 135 day anniversary from the date of each issuance and are payable by way of inclusion of the Dividends in the Conversion Amount on each Conversion Date in accordance with an optional conversion or upon any redemption thereunder (including, without limitation, upon any required payment upon any Bankruptcy Triggering Event, as defined in the Series C Certificate of Designations and Series D Certificate of Designations).
If at any time the Company grants, issues or sells any options, convertible securities, or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of common stock (the “Series C and Series D Purchase Rights”), then each holder of the Series C Preferred Stock and Series D Preferred Stock will be entitled to acquire, upon the terms applicable to such Series C and Series D Purchase Rights, the aggregate Series C and Series D Purchase Rights which such holder could have acquired if such holder had held the number of shares of common stock acquirable upon complete conversion of all the Series C Preferred Stock and Series D Preferred Stock held by such holder immediately prior to the date as of which the record holders of shares of common stock are to be determined for the grant, issue or sale of such Series C and Series D Purchase Rights, subject to certain limitations on beneficial ownership.
The Exchange Agreement that effected the exchange of the Senior Convertible Note to the Series C Preferred Stock and the Securities Purchase Agreement that effected the Series D Preferred Stock offering each contained certain covenants and restrictions that the Company shall not file certain registration statements or issue or sell securities for a period of time after the closings, as more fully described in such agreements. These agreements contains customary representations and warranties and certain indemnification rights and obligations of the parties.
Risks Related to Our Business
Competition within the global interactive entertainment and gaming industries is intense and our existing and potential users may be attracted to competing forms of entertainment such as television, movies and sporting events, as well as other entertainment and gaming options on the Internet. If our offerings do not continue to be popular, our business could be harmed.
There is intense competition amongst gaming solution providers. There are a number of established, well financed companies producing both land-based and online gaming and interactive entertainment products and systems that compete with our products. As some of our competitors have financial resources that are greater than ours, they may spend more money and time on developing and testing products, undertake more extensive marketing campaigns, adopt more aggressive pricing policies or otherwise develop more commercially successful products than us, which could impact our ability to win new marketing contracts and renew our existing ones. Furthermore, new competitors may enter our key market areas. If we are unable to obtain significant market presence or if we lose market share to our competitors, our results of operations and future prospects would be materially adversely affected. There are many companies with already established relationships with third parties, including gaming operators that are able to introduce directly competitive products and have the potential and resources to quickly develop competitive technologies. Our success depends on our ability to develop new products and enhance existing products at prices and on terms that are attractive to our customers.
There has also been consolidation among our competitors in the esports and gaming industry. Such consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive pricing models, gain a larger market share of customers, expand product offerings and broaden their geographic scope of operations.
The industries in which we operate are characterized by intense competition. We compete against other providers of retail or online sports betting and online or brick-and-mortar casinos, as well as against providers of online and mobile entertainment and leisure products more generally. Other companies that provide these products and services are often well-established and financed, and other companies may introduce competitive products or services. Our competitors may spend more money and time on developing and testing products and services, undertake more extensive or far-reaching marketing campaigns, adopt more aggressive pricing, bonusing or promotions or otherwise develop more commercially successful products or services than ours, which could negatively impact our business. Our competitors may also develop products, features or services that are similar to ours or that achieve greater market acceptance. New competitors, whether licensed or not, may enter the sports betting or gaming industries. If we are unable to maintain or improve our market share, or if our offerings do not continue to be popular, our business, financial condition, results of operations and prospects could be adversely affected. Competitive pressures may also adversely affect our margins. We operate in the global gaming and entertainment industry with our online casino and online sports betting and other gaming offerings. Our customers face a vast array of entertainment choices. Other forms of entertainment, such as television, movies and digital streaming and on-demand services (which continue to gain popularity), social media, sporting events and in-person casinos, are more well-established, and our customers may view them as offering greater variety, affordability, interactivity and enjoyment. We compete with these and other forms of entertainment for our customers’ discretionary time and income. If we are unable to sustain sufficient interest in our online and retail product and service offerings in comparison to other forms of entertainment, including new forms of entertainment, our business, financial condition, results of operations and prospects could be adversely affected. Our ability to grow our revenue in the future will depend, in large part, upon our ability to attract new customers to our offerings and retain and engage existing customers, as well as continued user adoption of online casino and online sports betting more generally. Growth in the online casino, sports betting and gaming industries and the level of demand for and market acceptance of our offerings will be subject to a high degree of uncertainty. We cannot provide assurance that customer adoption of our offerings will continue at their current levels or increase, as necessary, in the future, or that we will achieve growth consistent with the industry.
We have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability or remain a going concern.
We have only recently commenced revenue producing operations during the fiscal year ended June 30, 2021 through the previously mentioned acquisitions. If we are unable to increase revenues in future periods, we will not be able to achieve and maintain profitability. Beyond this, we may incur significant losses in the future for a number of reasons including other risks described in this document, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not ever be able to achieve profitability. We incurred negative cash flows from operating activities and recurring net losses in fiscal years 2023 and 2022. As of June 30, 2023, and 2022, our accumulated deficit was $181,425,905 and $149,140,426, respectively. These factors, among others, raised substantial doubt about our ability to continue as a going concern.
Our quarterly results can fluctuate and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.
Our betting operations are subject to the seasonal variations dictated by the sporting calendar, which may have an effect on its financial performance. Customer engagement in our online casino and sports betting offerings may vary due to numerous factors, including customers satisfaction with our platform, the number and timing of sporting events, the length of professional sports seasons, our offerings and those of our competitors, our marketing efforts, climate and weather conditions, public sentiment or an economic downturn. As customer engagement varies, so may our quarterly financial performance. Traditional sports have an off-season that can cause a corresponding, temporary decrease in their respective revenues. Our ability to generate revenues is also affected by the scheduling of major events that do not occur annually.
Cancellation or curtailment of significant sporting events, for example due to adverse weather, traffic or transport disruption or civil disturbances or the outbreak of infectious diseases, or the failure of certain sporting teams to qualify for sporting events, may adversely impact our business, financial condition and results of operations for the relevant period.
We may require additional capital to support our growth plans, and such capital may not be available on terms acceptable to us, if at all. This could hamper our growth and adversely affect our business.
We intend to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new offerings and features or enhance our existing offerings and features, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. Our ability to obtain additional capital, if and when required, will depend on our business plans, investor demand, our operating performance, capital markets conditions and other factors. If we raise additional funds by issuing equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our currently issued and outstanding equity or debt, and our existing stockholders may experience dilution. If we are unable to obtain additional capital when required, or on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges or unforeseen circumstances could be adversely affected, and our business may be harmed.
We may invest in or acquire other businesses, and our business may suffer if we are unable to successfully integrate acquired businesses into our company or otherwise manage the growth associated with multiple acquisitions.
As part of our business strategy, we have made, and we intend to continue to make, acquisitions as opportunities arise to add new or complementary businesses, products, brands or technologies. In some cases, the costs of such acquisitions may be substantial, including as a result of professional fees and due diligence efforts. There is no assurance that the time and resources expended on pursuing a particular acquisition will result in a completed transaction, or that any completed transaction will ultimately be successful. In addition, we may be unable to identify suitable acquisition or strategic investment opportunities, or may be unable to obtain any required financing or regulatory approvals, and therefore may be unable to complete such acquisitions or strategic investments on favorable terms, if at all. We may decide to pursue acquisitions with which our investors may not agree and we cannot assure investors that any acquisition or investment will be successful or otherwise provide a favorable return on investment. In addition, acquisitions and the integration thereof require significant time and resources and place significant demands on our management, as well as on our operational and financial infrastructure. In addition, if we fail to successfully close transactions or integrate new teams, or integrate the products and technologies associated with these acquisitions into our company, our business could be seriously harmed. Acquisitions may expose us to operational challenges and risks, including:
● the ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies and products into our business;
● increased indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic or cultural challenges in managing and integrating the expanded or combined operations;
● entry into jurisdictions or acquisition of products or technologies with which we have limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions;
● diversion of management’s attention and the over-extension of our operating infrastructure and our management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth;
● the ability to fund our capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and
● the ability to retain or hire qualified personnel required for expanded operations.
Our acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Issuing shares of common stock to fund an acquisition would cause economic dilution to existing stockholders. If we develop a reputation for being a difficult acquirer or having an unfavorable work environment, or target companies view our common stock unfavorably, we may be unable to consummate key acquisition transactions essential to our corporate strategy and our business may be seriously harmed.
Risks that impact our affiliate marketing program may negatively impact us.
Because we generate website traffic through our affiliate marketing program, if participants in our affiliate marketing program see a slowdown in business or website traffic it may lead to fewer visitors on our website, which could have an adverse effect on our business.
Because a number of our directors and a substantial portion of our assets are located in jurisdictions other than the United States and Canada, you may have no effective recourse against the directors not located in the United States and Canada for misconduct and may not be able to enforce a judgment and/or civil liabilities against these directors.
Three of our directors and a substantial portion of our assets are or may be located in jurisdictions outside the U.S. As a result, a person may not be able to affect service of process within the U.S. on our directors and officers. A person also may not be able to recover against them on judgments of U.S. courts or to obtain original judgments against them in foreign courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.
Our business is particularly vulnerable to additional or increased taxes and fees.
We believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary reasons that certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to the normal federal, state, provincial and local income taxes and such taxes and fees may be increased at any time. From time to time, legislators and officials have proposed changes in tax laws or in the administration of laws affecting the gaming industry. Many states and municipalities, including ones in which we operate, are currently experiencing budgetary pressures that may make it more likely they would seek to impose additional taxes and fees on our operations. It is not possible to determine the likelihood or extent of any such future changes in tax laws or fees, or changes in the administration of such laws; however, if enacted, such changes could have a material adverse impact on our business.
Our growth prospects depend on the legal status of real-money gaming in various jurisdictions, including within the United States, and legalization may not occur in as many states or countries as we expect, or may occur at a slower pace than we anticipate. Additionally, even if jurisdictions legalize real money gaming, this may be accompanied by legislative or regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process of implementing regulations or securing the necessary licenses to operate in a particular jurisdiction may take longer than we anticipate, which could adversely affect our future results of operations and make it more difficult to meet our expectations for financial performance.
A number of U.S. states have legalized, or are currently considering legalizing, real money gaming. Our business, financial condition, results of operations and prospects are significantly dependent upon continued and increasing legalization of real money gaming. If a large number of additional states or the federal government enact real money gaming legislation and we are unable to obtain, or are otherwise delayed in obtaining the necessary licenses to operate online sports betting or iGaming websites in U.S. jurisdictions where such games are legalized, our future growth in online sports betting and iGaming could be materially impaired.
As we enter into new jurisdictions, states or the federal government may legalize real money gaming in a manner that is unfavorable to us. As a result, we may encounter legal, regulatory and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new opportunity. For example, certain states require us to have a relationship with a retail operator for online gaming access, which tends to increase our costs of revenue. States that have established state-run monopolies may limit opportunities for participants like us. States also impose substantial tax rates on online sports betting and iGaming revenue, in addition to the federal excise tax of 25 basis points on the amount of each wager. As most state product taxes apply to various measures of modified gross profit, tax rates, whether federal- or state-based, that are higher than we expect will make it more costly and less desirable for us to launch in a given jurisdiction, while tax increases in any of our existing jurisdictions may adversely impact our profitability.
Therefore, even in cases in which a jurisdiction purports to license and regulate sports betting or iGaming, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees. Therefore, some “liberalized” regulatory regimes are considerably more commercially attractive than others.
Furthermore, in the online real money gaming industry, a significant “first mover” advantage exists. Our ability to compete effectively in respect of a particular style of online real money gaming in the United States may be premised on introducing a style of gaming before our competitors. Failing to do so could materially impair our ability to grow in the online real money gaming space. We may fail to accurately predict when online real money gaming will be legalized in significant jurisdictions. The legislative process in each state and at the Federal level is unique and capable of rapid, often unpredictable change. If we fail to accurately forecast when and how, if at all, online real money gaming will be legalized in additional state jurisdictions, such failure could impair our readiness to introduce online real money gaming offerings in such jurisdictions which could have a material adverse impact on our business.
Our business is subject to online security risk, including security breaches, denial of service or ransomware attacks, and loss or misuse of our stored information as a result of such a breach, including customers’ personal information, could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
We receive, process, store and use personal information and other customer data. There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us which could have an adverse impact on our business. In the area of information security and data protection, many states have passed laws requiring notification to customers when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these types of laws may increase in the future as a result of changes in interpretation or changes in law. Any failure on our part to comply with these types of laws may subject us to significant liabilities.
Third parties we work with, such as vendors, may violate applicable laws or our policies, and such violations may also put our customers’ information at risk and could in turn have an adverse impact on our business. We are also subject to payment card association rules and obligations under each association’s contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the associated expense and penalties. If we fail to follow payment card industry security standards, even if no customer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.
Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry. Many companies, including ours, have been the targets of such attacks. Any security breach caused by hacking which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing players and attract new players.
If we experience unauthorized disclosure of the source code we currently license we could potentially lose future trade secret protection for that source code. This could make it easier for third parties to compete with our products by copying functionality which could adversely affect our revenue and operating margins. Unauthorized disclosure of source code also could increase security risks.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party vendor; however, such measures cannot provide absolute security.
Risks related to our reliance on third party technology, platforms and software (“third-party software”), and any failures, errors, defects or disruptions in such third-party software could diminish our brand and reputation, subject us to liability, disrupt our business and adversely affect our operating results and growth prospects.
We rely on third party software that is critical to the performance of our platform and offerings and to user satisfaction. Lucky Dino has various third-party casino game suppliers.
If there is any interruption to the third-party software provided by these suppliers or their products or services are not as scalable as anticipated or at all, or if there are problems in upgrading such products or services, our business could be adversely affected, and we may be unable to find adequate replacement services on a timely basis or at all and/or at a reasonable price. Additionally, third-party software may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch. If a particular product offering is unavailable when end users attempt to access it or navigation through our platforms is slower than they expect, users may be unable to place their bets and may be less likely to return to our platforms as often, if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience of our users, harm our reputation, cause our users to stop utilizing our platforms, divert our resources and delay market acceptance of our offerings, any of which could result in legal liability to us or harm our business, financial condition, results of operations and prospects. Moreover, end users are discriminating about the nature of the products offered and if our suppliers do not provide new and improved products on a regular basis, we may lose market share.
There is a risk that if contracts with such third parties are terminated or not renewed, or not renewed on favorable terms, or if they do not get the level of support (in terms of updates and technical assistance) they require as we grow, our financial condition and performance going forward may be materially impacted. There may be circumstances in which we wish to terminate our arrangements with such suppliers due to poor performance or other reasons, but we are unable to do so. Any such circumstance may have a material adverse effect on our reputation, business, financial condition and results of operations.
We are dependent upon such software suppliers defending any challenges to their intellectual property. Any litigation that arises as a result of such change could materially impact us and, even if legal actions were successfully defended, such actions could disrupt our business in the interim, divert management’s time and result in significant cost and expense for us. Further, any negative publicity related to any of our third-party partners, including any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
As a condition of an ongoing license, permit or other authorization required for their business, a key supplier may determine that a condition of the ongoing use its products and services, or the continuation of the license, is that we should block customers from certain territories, which may cause business disruption and loss should we either need to switch suppliers on short notice or discontinue business in certain territories, either permanently (while such suppliers are necessary) or pending the expiry of contract notice periods and/or the sourcing of alternative suppliers.
We rely on third-party providers to validate the identity and identify the location of our users, and if such providers fail to perform adequately, provide accurate information or we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
There is no guarantee that the third-party geolocation and identity verification systems that we rely on will perform adequately or will function as designed and within the requirements of our business and the law. We rely on our geolocation and identity verification systems to ensure we are in compliance with certain laws and regulations, and any service disruption to those systems would prohibit us from operating our offerings and would adversely affect our business. Additionally, incorrect or misleading geolocation and identity verification data with respect to current or potential users received from third-party service providers may result in us inadvertently allowing access to our offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our offerings, in each case based on inaccurate identity or geographic location determination. Our third-party geolocation service provider relies on its ability to obtain information necessary to determine geolocation from mobile devices, operating systems, and other sources. Changes, disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their inability to accurately determine the location of our users. Moreover, our inability to maintain our existing contracts with third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation and identity verification data necessary for our day-to-day operations. If any of these risks materialize, we may be subject to disciplinary action, fines and lawsuits, and our business, financial condition and results of operations could be adversely affected.
We rely on third-party payment processors to process deposits and withdrawals made by our users, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, financial condition and results of operations could be adversely affected.
We rely on a limited number of third-party payment processors to process deposits and withdrawals made by our users. If any of our third-party payment processors terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate payment processor, and may not be able to secure similar terms or replace such payment processor in an acceptable time frame. Further, the software and services provided by our third-party payment processors may not meet our expectations, contain errors or vulnerabilities, be compromised or experience outages. Any of these risks could cause us to lose our ability to accept online payments or other payment transactions or make timely payments to our users, any of which could make our technology less trustworthy and convenient and adversely affect our ability to attract and retain our users.
Nearly all of our payments are made by credit card, debit card or through other third-party payment services, which subjects us to certain regulations and to the risk of fraud. Any introduction of legislation or regulations restricting financial transactions with online gambling operators or prohibiting the use of credit cards and other banking instruments for online gambling transactions, or any other increase in the stringency of regulation of financial transactions, whether in general or in relation to the online gambling industry in particular, may restrict our ability to accept payment from our customers or facilitate withdrawals by them. Certain governments may seek to impede the online gambling industry by introducing legislation or through enforcement measures designed to prevent customers or financial institutions based in their jurisdictions from transferring money to online gambling operations. They may seek to impose embargoes on currency use, wherever transactions are taking place. This may result in the providers of payment systems for a particular market deciding to cease providing their services for such market. This in turn would lead to an increased risk of payments due to us being misappropriated, frozen or diverted by banks and credit card companies. We may in the future offer new payment options to users that may be subject to additional regulations and risks. There may be a limited availability of alternative systems, in particular in light of recent consolidation in the financial services industry. We are also subject to a number of other laws and regulations relating to the payments we accept from our users, including with respect to money laundering, money transfers, privacy and information security. If we fail to comply with applicable rules and regulations, we may be subject to civil or criminal penalties, fines and/or higher transaction fees and may lose our ability to accept online payments or other payment card transactions, which could make our offerings less convenient and attractive to our users. If any of these events were to occur, our business, financial condition and results of operations could be adversely affected.
For example, if we are deemed to be a money transmitter as defined by applicable regulation, we could be subject to certain laws, rules and regulations enforced by multiple authorities and governing bodies in the United States and numerous state and local agencies who may define money transmitter differently. For example, certain states may have a more expansive view of who qualifies as a money transmitter. Additionally, outside of the United States, we could be subject to additional laws, rules and regulations related to the provision of payments and financial services, and if we expand into new jurisdictions, the foreign regulations and regulators governing our business that we are subject to will expand as well. If we are found to be a money transmitter under any applicable regulation and we are not in compliance with such regulations, we may be subject to fines or other penalties in one or more jurisdictions levied by federal or state or local regulators, including state Attorneys General, as well as those levied by foreign regulators. In addition to fines, penalties for failing to comply with applicable rules and regulations could include criminal and civil proceedings, forfeiture of significant assets or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny.
If we fail to detect fraud or theft, including by our users and employees, our reputation may suffer which could harm our brand and reputation and negatively impact our business, financial condition and results of operations and can subject us to investigations and litigation.
We have in the past incurred, and may in the future incur, losses from various types of financial fraud, including use of stolen or fraudulent credit card data, claims of unauthorized payments by a user and attempted payments by users with insufficient funds. Bad actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized use of another person’s identity, account information or payment information and unauthorized acquisition or use of credit or debit card details, bank account information and mobile phone numbers and accounts. Under current credit card practices, we may be liable for use of funds on our products with fraudulent credit card data, even if the associated financial institution approved the credit card transaction.
Acts of fraud may involve various tactics, including collusion. Successful exploitation of our systems could have negative effects on our product offerings, services and user experience and could harm our reputation. Failure to discover such acts or schemes in a timely manner could result in harm to our operations. In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and prospects. In the event of the occurrence of any such issues with our existing technology or product offerings, substantial engineering and marketing resources and management attention may be diverted from other projects to correct these issues, which may delay other projects and the achievement of our strategic objectives.
In addition, any misappropriation of, or access to, users’ or other proprietary information or other breach of our information security could result in legal claims or legal proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal information or for misusing personal information, which could disrupt our operations, force us to modify our business practices, damage our reputation and expose us to claims from our users, regulators, employees and other persons, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.
Despite measures we have taken to detect and reduce the occurrence of fraudulent or other malicious activity on our offerings, we cannot guarantee that any of our measures will be effective or will scale efficiently with our business. Our failure to adequately detect or prevent fraudulent transactions could harm our reputation or brand, result in litigation or regulatory action and lead to expenses that could adversely affect our business, financial condition and results of operations.
We are required to comply with applicable anti-money laundering and countering the financing of terrorism legislation a breach of which could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
We receive deposits and other payments from customers in the normal course of their business. The receipt of monies from customers imposes anti-money laundering and other obligations and potential liabilities on us. Compliance with all such laws and regulations creates complex regulatory obligations which involves a risk of large financial penalties (in not being fully compliant) and additional potential burdens (in being fully compliant). While we have processes in place regarding customer profiling and the identification of customers’ source of funds, such processes may fail or prove to be inadequate whether in respect of the source of customers’ funds or otherwise. Any such failure or inadequacy could have a material adverse effect on our financial position and impact upon our licensing obligations.
Handling, or any form of facilitating the use of criminal property, is a crime in all jurisdictions in which we take material custom (and going forward will take material custom). In instances where no local licensing regime is in place and there is doubt in connection with the legality of the remote supply of gambling services, there is a risk that the authorities will claim that money movements in connection with gambling amounts to money laundering, irrespective of whether the intention is actually to launder money (i.e., to disguise or conceal its provenance). This gives rise to a risk that when monies are held in (or moved into) certain territories, authorities may wish to freeze their onward payment, seek to trace money movements into different jurisdictions and recover the relevant sums. This would give rise to conflicts of law issues (not all the definitions of what comprises criminal property are identical in all jurisdictions) and what may not amount to money laundering in one jurisdiction may satisfy the definition in that other territory. There is a risk that should any such claim be brought and be successful, significant funds may have to be repatriated to the jurisdiction bringing a claim, which would have a significant impact on our profitability.
We rely on other third-party data and live-streaming providers for real-time and accurate data and/or live streams for sporting events, and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.
We rely on third-party sports data and live streaming providers to obtain accurate information regarding schedules, results, performance and outcomes of sporting events and the live streaming of such events, such as horse racing. We rely on this data to determine when and how bets are settled. We have experienced, and may continue to experience, errors in this data and/or streaming feed which may result in us incorrectly settling bets. If we cannot adequately resolve the issue with our end users, our end users may have a negative experience with our offerings, our brand or reputation may be negatively affected and our users may be less inclined to continue or resume utilizing our products or recommend our platform to other potential users. As such, a failure or significant interruption in our service would harm our reputation, business and operating results.
Furthermore, if any of our data and/or live streaming partners terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate provider, and may not be able to secure similar terms or replace such providers in an acceptable time frame. Any of these risks could increase our costs and adversely affect our business, financial condition and results of operations. Further, any negative publicity related to any of our third-party partners, including any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
We may be subject to the payment of contributions or fees to sporting bodies or rights holders for the use of their data.
Gambling operators can be liable to make contributions to sporting bodies whether under regulations or agreement, as a way of ensuring certain revenues generated from betting on sports are used to benefit those sports or related interests. We may also be required to pay royalties or other types of levies to the organizers of sporting events, or the rights holders in respect of such, to offer betting markets on such events. Any requirement to pay additional levies, fees or royalties could have a material adverse effect on our business. In all such cases, the level of any such levy, fee or royalty will be outside of our control and would have a negative effect on our business and financial results. We cannot predict with any certainty what future payments may be required for the success of their business and what other additional resources will need to be made available to address the conditions which impose fees, royalties or other levies, as well as sports integrity issues.
The success, including win or hold rates, of existing or future online betting and casino gaming products depends on a variety of factors and is not completely controlled by us.
The sports betting and casino gaming industries are characterized by an element of chance. Accordingly, our brands employ theoretical win rates to estimate what a certain type of sports bet or game, on average, will win or lose in the long run. Net win is impacted by variations in the hold percentage (the ratio of net win to total amount wagered), or actual outcome, on our games and sports betting we offer to our users. We use the hold percentage as an indicator of a casino game’s or sports bet’s performance against its expected outcome. Although each game or sports bet generally performs within a defined statistical range of outcomes, actual outcomes may vary for any given period. In addition to the element of chance, win rates (hold percentages) may also (depending on the game involved) be affected by the spread of limits and factors that are beyond our control, such as an end user’s skill, experience and behavior, the mix of games played, the financial resources of users, the volume of bets placed and the amount of time spent gambling. As a result of the variability in these factors, the actual win rates on our online casino games and sports bets may differ from the theoretical win rates we have estimated and could result in the winnings of our casino game’s or sports bet’s users exceeding those anticipated. The variability of win rates (hold rates) also have the potential to negatively impact our financial condition, results of operations, and cash flows.
Participation in the sports betting industry exposes us to trading, liability management and pricing risk. We may experience lower than expected profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of its sports risk management processes.
Our fixed-odds betting products involve betting where winnings are paid on the basis of the stake placed and the odds quoted. Odds are determined with the objective of providing an average return to the Company over a large number of events and therefore, over the long term, gross win percentage is expected to remain fairly constant. However, there can be significant variation in gross win percentage event-by-event and day-by-day. As a result, in the short term, there is less certainty of generating a positive gross win, and we may experience significant losses with respect to individual events or betting outcomes, in particular if large individual bets are placed on an event or betting outcome or series of events or betting outcomes. Odds compilers and risk managers are capable of human error, thus even allowing for the fact that a number of betting products are subject to capped pay-outs, significant volatility can occur. In addition, it is possible that there may be such a high volume of trading during any particular period that even automated systems would be unable to address and eradicate all risks. Any significant losses on a gross-win basis could have a material adverse effect on our business, financial condition and results of operations. In addition, if a jurisdiction where we hold or wish to apply for a license imposes a high turnover tax for betting (as opposed to a gross-win tax), this too would impact profitability, particularly with high value/low margin bets, and likewise have a material adverse effect on our business.
Our profitability depends upon many factors for which no assurance can be given.
Profitability depends upon many factors, including the ability to develop and maintain valuable products and services, our ability to identify and obtain the rights to additional products to add to our existing product line, success and expansion of our sales programs, expansion of our customer base, obtaining the right balance of expense levels and the overall success of our business activities. We may not be able to achieve or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and our stock, and could impair our ability to raise capital, expand our business, diversify our product offerings or even continue our operations. A decline in the value of our stock could also cause you to lose all or part of your investment.
Future cash flow fluctuations may affect our ability to fund our working capital requirements or achieve our business objectives in a timely manner.
Our working capital requirements and cash flows are expected to be subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales and collection of receivables, customer payment terms and supplier terms and conditions. We expect that a greater than expected slow-down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect, and we may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.
Our business may be materially and adversely affected by increased levels of debt.
In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants in our credit and/or support facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability to fund our business operations. Other effects of a high level of debt include the following:
● we may have difficulty borrowing money in the future or accessing sources of funding;
● we may need to use a large portion of our cash flows from operating activities to pay principal and interest on our indebtedness, which would reduce the amount of cash available to finance our operations and other business activities;
● a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse developments in our business; putting us at risk of violating debt covenants; and
● if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products and services, sell assets and/or forego business opportunities including acquisitions, research and development projects or product design enhancements.
Our online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.
The online gaming and interactive entertainment industry, which includes social, casual and mobile gaming and interactive entertainment, is relatively new and continues to evolve. Whether these industries grow and whether our online business will ultimately succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such as the passage of new laws or regulations or the extension of existing laws or regulations to online gaming activities), taxation of gaming activities, data privacy laws and regulation and other factors that we are unable to predict and which are beyond our control. Given the dynamic evolution of these industries, it can be difficult to plan strategically, and it is possible that competitors will be more successful than we are at adapting to change and pursuing business opportunities. Additionally, as the online gaming industry advances, including with respect to regulation, we may become subject to additional compliance-related costs. Consequently, we cannot provide assurance that its online and interactive offerings will grow at the rates expected or be successful in the long term.
Several companies have launched online social casino offerings, and new competitors are likely to continue to emerge, some of which may be operated by social gaming companies with a larger base of existing users, or by casino operators with more experience in operating a casino. If our products do not obtain popularity or maintain popularity or fail to grow in a manner that meets management’s expectations, our results of operations and financial condition could be harmed.
We operate in a very competitive business environment and if we do not adapt our approach and our products to meet this competitive environment, our business, results of operations or financial condition could be adversely impacted.
There is intense competition in the gaming management and gaming products industry which is characterized by dynamic customer demand and rapid technological advances. Today, there are many systems providers in the U.S. and abroad offering casinos and gaming operators “total solution” casino management and table games management systems. As a result, we must continually adapt our approach and our products to meet this demand and match technological advances and if we cannot do so, our business results of operations or financial condition may be adversely impacted. Conversely, the development of new competitive products or the enhancement of existing competitive products in any market in which we operate could have an adverse impact on our business, results of operations or financial condition. If we are unable to remain dynamic in the face of changes in the market, it could have a material adverse effect on our business, results of operations or financial condition.
Our growth will depend on our ability to attract and retain users, and the loss of our users, failure to attract new users in a cost-effective manner, or failure to effectively manage our growth could adversely affect our business, financial condition, results of operations and prospects.
Our ability to achieve growth in revenue in the future will depend, in large part, upon our ability to attract new users to our offerings, retain existing users of our offerings and reactivate users in a cost-effective manner. Achieving growth in our community of users may require us to increasingly engage in sophisticated and costly sales and marketing efforts, which may not make sense in terms of return on investment. We have used and expect to continue to use a variety of free and paid marketing channels, in combination with compelling offers and exciting games to achieve our objectives. For paid marketing, we intend to leverage a broad array of advertising channels, including sponsorships, affiliate networks, social media platforms, such as Facebook, Instagram, Twitter and Twitch, paid and organic search, and other digital channels, such as mobile display. If the search engines on which we rely modify their algorithms, change their terms around gaming, or if the prices at which we may purchase listings increase, then our costs could increase, and fewer users may click through to our website. If links to our website are not displayed prominently in online search results, if fewer users click through to our website, if our other digital marketing campaigns are not effective, or if the costs of attracting users using any of our current methods significantly increase, then our ability to efficiently attract new users could be reduced, our revenue could decline and our business, financial condition and results of operations could be harmed.
In addition, our ability to increase the number of users of our offerings will depend on continued user adoption of esports. Growth in the esports industry and the level of demand for and market acceptance of our product offerings will be subject to a high degree of uncertainty. We cannot assure that consumer adoption of our product offerings will continue or exceed current growth rates, or that the industry will achieve more widespread acceptance.
Additionally, as technological or regulatory standards change and we modify our platforms to comply with those standards, we may need users to take certain actions to continue playing, such as performing age verification checks or accepting new terms and conditions. Users may stop using our product offerings at any time, including if the quality of the user experience on our platform, including our support capabilities in the event of a problem, does not meet their expectations or keep pace with the quality of the customer experience generally offered by competitive offerings.
Failure to attract, retain and motivate key employees may adversely affect our ability to compete and the loss of the services of key personnel could have a material adverse effect on the business.
We depend on the services of a few key executive officers. We recently hired a new Chief Executive Officer and promoted a new Chief Financial Officer, due to departures of our previous Chief Executive Officer and Chief Financial Officer (who also held the position of Chief Operating Officer and subsequently returned to this position), and the loss of any key persons could have a material adverse effect on our business, results of operations and financial condition. Our success is also highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified technical, marketing and management personnel. Competition for such personnel can be intense, and we cannot provide assurance that we will be able to attract or retain highly qualified technical, marketing and management personnel in the future Stock options may comprise a significant component of key employee compensation, and if the market price of our common stock price declines, it may be difficult to retain such individuals. Similarly, changes in our share price may hinder our ability to recruit key employees, as they may elect to seek employment with other companies that they believe have better long-term prospects. Our inability to attract and retain the necessary technical, marketing and management personnel may adversely affect our future growth and profitability. Our retention and recruiting may require significant increases in compensation expenses, which would adversely affect our results of operation.
Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Although we are not required to provide an attestation report on the internal controls over financial reporting by our independent registered public accounting firm, we are required to comply with applicable requirements of the Sarbanes-Oxley Act as well as other rules and regulations that include, but are not limited to, the listing standards of Nasdaq, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We might encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting as it relates to our operations inclusive of recent business combinations. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information and the price of our common stock could decline.
Failure to remediate our material weaknesses or maintain adequate financial, information technology and management processes and controls could lead to errors in our financial reporting and decision making, which could adversely affect our business.
We have identified material weaknesses in our internal control that includes the inability to: (i) complete an effective assessment of our internal controls over financial reporting, (ii) maintain sufficient period-end financial reporting controls related to segregation of duties, reviews of completed or non-recurring transactions, accounting for income taxes, and procedures for preparing the financial statements and disclosures and (iii) maintain sufficient information technology controls and perform testing of information technology controls for operating effectiveness. If we do not remediate our material weaknesses and complete our implementation of internal controls, we may not detect errors timely, produce reliable financial reports, and prevent financial fraud. A lack of internal control could also result in regulatory scrutiny and a loss of confidence by stakeholders, which in turn could harm our business and adversely affect the market price of our common stock. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC, FINRA or other regulatory authorities, as well as increase the risk of liability arising from litigation based on securities law. If we are unable to upgrade our systems, implement additional financial and management controls, reporting systems, IT systems and procedures, and hire additional accounting, finance, compliance and audit staff in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act and the Sarbanes-Oxley Act could be impaired.
Our business is vulnerable to changing economic conditions and to other factors that adversely affect the industries in which we operate.
The demand for entertainment and leisure activities tends to be highly sensitive to changes in consumers’ disposable income, and thus can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond our control. Unfavorable changes in general economic conditions, including recessions, economic slowdown, sustained high levels of unemployment, and increasing fuel or transportation costs, may reduce customers’ disposable income or result in fewer individuals visiting casinos, whether land-based or online, or otherwise engaging in entertainment and leisure activities, including gambling. As a result, we cannot ensure that demand for our products or services will remain constant. Continued or renewed adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in many financial markets, increasing interest rates, increasing energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, could lead to a further reduction in discretionary spending on leisure activities, such as gambling. Any significant or prolonged decrease in consumer spending on entertainment or leisure activities could reduce our online games, reducing our cash flows and revenues. If we experience a significant unexpected decrease in demand for our products, we could incur losses.
Changes in ownership of competitors or consolidations within the gaming industry may negatively impact pricing and lead to downward pricing pressures which could reduce revenue.
A decline in demand for our products in the gaming industry could adversely affect our business. Demand for our products is driven primarily by the replacement of existing services as well as the expansion of existing online gaming, and the expansion of new channels of distribution, such as mobile gaming. Additionally, consolidation within the online gambling market could result in us facing competition from larger combined entities, which may benefit from greater resources and economies of scale. Also, any fragmentation within the industry creating a number of smaller, independent operators with fewer resources could also adversely affect our business as these operators might cause a further slowdown in the replacement cycle for our products.
Litigation costs and the outcome of litigation could have a material adverse effect on our business.
From time to time, we may be subject to litigation claims through the ordinary course of our business operations regarding, among other things, employment matters, security of consumer and employee personal information, contractual relations with suppliers, marketing and infringement of trademarks and other intellectual property rights. Litigation to defend us against claims by third parties, or to enforce any rights that we may have against third parties, may be necessary, which could result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition and results of operations. Aside from the lawsuit and other matters referenced herein under the heading “Legal Proceedings”, we are not aware of any current material legal proceedings outstanding, threatened or pending as of the date hereof by or against us. However, given the nature of our business, we are, and may from time to time in the future be, party to various, and at times numerous, legal, administrative and regulatory inquiries, investigations, proceedings and claims that arise in the ordinary course of business. Because the outcome of litigation is inherently uncertain, if one or more of such legal matters were to be resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition could be materially adversely affected.
While we work to integrate the iGaming businesses and operations together and leverage with the esports business and operations, management’s focus and resources may be diverted from operational matters and other strategic opportunities.
Successful integration of acquisitions operations, sports betting, gaming and esports technology and personnel places an additional burden on management and other internal resources. The diversion of management’s attention and any difficulties encountered in the transition and integration process could harm our business, financial condition, results of operations and prospects. In addition, uncertainty about the effect of the acquisitions on our systems, employees, customers, partners, and other third parties, including regulators, may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel for some time after the acquisitions.
Furthermore, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customers and other relationships. The difficulties of combining the operations of the companies include, among others, difficulties in integrating operations and systems; conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures; assimilating employees, including possible culture conflicts and different opinions on technical decisions and product roadmaps; managing the expanded operations of a larger and more complex company, including coordinating a geographically dispersed organization; and keeping existing customers and obtaining new customers. Many of these factors will be outside our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations.
Our business may be materially and adversely affected by the combined company’s business following acquisitions. If we are required to write down goodwill and other intangible assets, our financial condition and results would be negatively affected.
When we acquire a business, a substantial portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. According to the Board issued Accounting Standards Update No. 2014-02, Intangibles-Goodwill and Other (Topic 350): Accounting for Goodwill, and Accounting Standards Update No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill and intangible assets deemed to have indefinite lives no longer be amortized but instead be tested for impairment at three different points in time. We must also perform annual tests for impairment. However, upon meeting certain criteria, we may not require a quantitative annual test. We may also be required to perform an interim impairment test, which is required if certain “triggering events” occur, such as adverse changes in the business climate or market which might negatively impact the value of a reporting unit. Finally, other intangible assets will continue to be amortized over their useful lives. Under current accounting standards, if we determine goodwill or intangible assets are impaired, we will be required to write down these assets. Any write-down would have a negative effect on the consolidated financial statements and could impact our compliance with equity requirement under the Nasdaq listing rules.
Risks Related to International Operations
The risks related to international operations, in particular in countries outside of the United States and Canada, could negatively affect our results.
A material portion of our operations are conducted in foreign jurisdictions including Malta. It is expected that we will derive a significant majority of our revenue from transactions denominated in currencies other than the United States dollar, and we expect that receivables with respect to foreign revenues will continue to account for a majority of our total accounts and receivables outstanding. As such, our operations may be adversely affected by changes in applicable foreign government policies and legislation or social instability and other factors which are not within our control, including, but not limited to, recessions in foreign economies, expropriation, nationalization and limitation or restriction on repatriation of funds, assets or earnings, longer receivables collection periods and greater difficulty in collecting accounts receivable, changes in consumer tastes and trends, renegotiation or nullification of existing contracts or licenses, changes in gaming policies, regulatory requirements or the personnel administering them, currency fluctuations and devaluations, exchange controls, economic sanctions and royalty and tax increases, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, including royalty and tax increases and retroactive tax claims, volatility of financial markets and fluctuations in foreign exchange rates, difficulties in the protection of intellectual property particularly in countries with fewer intellectual property protections, the effects that evolving regulations regarding data privacy may have on our online operations, adverse changes in the creditworthiness of parties with whom we have significant receivables or forward currency exchange contracts, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which our operations are conducted. Our operations may also be adversely affected by social, political and economic instability and by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If our operations are disrupted and/or the economic integrity of our contracts is threatened for unexpected reasons beyond our control, our business may be harmed.
Our international activities may require protracted negotiations with host governments, national companies and third parties. Foreign government regulations may favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In the event of a dispute arising in connection with our operations in a foreign jurisdiction where we conduct our business, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of United States or Canada or enforcing American and Canadian judgments in such other jurisdictions. We may also be hindered or prevented from enforcing our rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, our activities in foreign jurisdictions could be substantially affected by factors beyond our control, any of which could have a material adverse effect on us. We believe that management’s experience to date in commercializing our products and solutions in Europe and the Caribbean may be of assistance in helping to reduce these risks. Some countries in which we may operate may be considered politically and economically unstable.
Doing business in the industries in which we operate often requires compliance with numerous and extensive procedures and formalities. These procedures and formalities may result in unexpected or lengthy delays in commencing important business activities. In some cases, failure to follow such formalities or obtain relevant evidence may call into question the validity of the entity or the actions taken. Our management is unable to predict the effect of additional corporate and regulatory formalities which may be adopted in the future including whether any such laws or regulations would materially increase our cost of doing business or affect its operations in any area.
We may in the future enter into agreements and conduct activities outside of the jurisdictions where we currently carry on business, which may present challenges and risks that we have not faced in the past, any of which could adversely affect the results of operations and/or financial condition.
We are subject to foreign exchange and currency risks that could adversely affect our operations, and our ability to mitigate our foreign exchange risk through hedging transactions may be limited.
We expect that we will derive a significant majority of our revenues in currencies other than the United States dollar; however, a substantial portion of our operating expenses are incurred in United States dollars. Fluctuations in the exchange rate between the U.S. dollar, the Euro and other currencies may have a material adverse effect on our business, financial condition and operating results. Our consolidated financial results are affected by foreign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions denominated in currencies other than United States dollars and from the translation of foreign-currency-denominated balance sheet accounts into United States dollar-denominated balance sheet accounts. We are exposed to currency exchange rate fluctuations because portions of its revenue and expenses are denominated in currencies other than the United States dollar, particularly the Euro. In particular, uncertainty regarding economic conditions in Europe and the debt crisis affecting certain countries in the European Union pose risk to the stability of the Euro. Exchange rate fluctuations could adversely affect our operating results and cash flows and the value of its assets outside of United States. If a foreign currency is devalued in a jurisdiction in which we are paid in such currency, then our customers may be required to pay higher amounts for our products, which they may be unable or unwilling to pay.
While we may enter into forward currency swaps and other derivative instruments intended to mitigate the foreign currency exchange risk, there can be no assurance we will do so or that any instruments that we enter into will successfully mitigate such risk. If we enter into foreign currency forward or other hedging contracts, we would be subject to the risk that a counterparty to one or more of these contracts defaults on its performance under the contracts. During an economic downturn, a counterparty’s financial condition may deteriorate rapidly and with little notice, and we may be unable to take action to protect its exposure. In the event of a counterparty default, we could lose the benefit of its hedging contract, which may harm its business and financial condition. In the event that one or more of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any benefit lost as a result of that counterparty’s default may be limited by the liquidity of the counterparty. We expect that we will not be able to hedge all of our exposure to any particular foreign currency, and we may not hedge our exposure at all with respect to certain foreign currencies. Changes in exchange rates and our limited ability or inability to successfully hedge exchange rate risk could have an adverse impact on our liquidity and results of operations.
Global privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.
Personal privacy has become a significant issue in Canada, the United States, Europe, and many other countries in which we currently operate and may operate in the future. Many federal, state, and foreign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection, use, and disclosure of personal information obtained from individuals. Changes to laws or regulations affecting privacy could impose additional costs and liability on us and could limit its use of such information to add value for customers. If we were required to change our business activities or revise or eliminate services, or to implement burdensome compliance measures, our business and results of operations could be harmed. In addition, we may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy regulations, any of which could adversely affect our business, liquidity and results of operation.
Our results of operations could be affected by natural events in the locations in which we operate or where our customers or suppliers operate.
We, our customers, and our suppliers have operations in locations subject to natural occurrences such as severe weather and other geological events, including hurricanes, earthquakes, or flood that could disrupt operations. Any serious disruption at any of our facilities or the locations of our customers or suppliers due to a natural disaster could have a material adverse effect on revenues and increase our costs and expenses. If there is a natural disaster or other serious disruption at any of our facilities, it could impair our ability to adequately supply our customers, cause a significant disruption to our operations, cause us to incur significant costs to relocate or re-establish these functions and negatively impact our operating results. While we intend to seek insurance against certain business interruption risks, such insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters. In addition, any natural disaster that results in a prolonged disruption to the operations of our customers or suppliers may adversely affect its business, results of operations or financial condition.
Risks Related to Regulation
The gaming industry is heavily regulated and failure by us to comply with applicable requirements could be disruptive to our business and could adversely affect our operations.
The gaming industry is subject to extensive scrutiny and regulation at all levels of government, both domestic and foreign, including but not limited to, federal, state, provincial, local, and in some instances, tribal authorities. While the regulatory requirements vary by jurisdiction, most require:
● licenses and/or permits;
● findings of suitability;
● documentation of qualifications, including evidence of financial stability; and
● other required approvals for companies who operate in online gaming or manufacture or distribute gaming equipment and services, including but not limited to approvals for new products.
Compliance with the various regulations applicable to internet gaming is costly and time-consuming. Regulatory authorities at the non-U.S., U.S. federal, state and local levels have broad powers with respect to the regulation and licensing of internet gaming operations and our license may be revoked, suspended or limited for non-compliance and regulators have the power to impose substantial fines on us and take other actions, any one of which could have a material adverse effect on our business, financial condition, results of operations and prospects. These laws and regulations are dynamic and subject to potentially differing interpretations, and various legislative and regulatory bodies may expand current laws or regulations or enact new laws and regulations regarding these matters. We will strive to comply with all applicable laws and regulations relating to our business. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules. Non-compliance with any such law or regulations could expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business.
Any license, permit, approval or finding of suitability may be revoked, suspended or conditioned at any time. The loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction. We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process which could adversely affect its operations. The finding of suitability process may be expensive and time-consuming. Our delay or failure to obtain licenses and approvals in any jurisdiction may prevent us from distributing our solutions and generating revenues. A gaming regulatory body may refuse to issue or renew a registration, license or other approval if we, or one of our directors, officers, employees or associates: (i) is considered to be a detriment to the integrity or lawful conduct or management of gaming, (ii) no longer meets a registration, license or other approval requirement, (iii) has breached or is in breach of a condition of registration, licensure, other approval or an operational agreement with a regulatory authority, (iv) has made a material misrepresentation, omission or misstatement in an application for registration, license or other approval or in reply to an enquiry by a person conducting an audit, investigation or inspection for a gaming regulatory authority, (v) has been refused a similar registration, license or other approval in another jurisdiction, (vi) has held a similar registration, or license or other approval in that province, state or another jurisdiction which has been suspended, revoked or cancelled, or (vii) has been convicted of an offense, inside or outside of the United States that calls into question our honesty or integrity or the honesty or integrity of one of our directors, officers, employees or associates.
Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised that it is required by gaming authorities may be denied a license or found unsuitable, as applicable. Furthermore, we may be subject to disciplinary action or our license may be in peril if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or any of our subsidiaries, we: (i) pay that person any dividend or interest upon our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pay remuneration in any form to that person for services rendered or otherwise; or (iv) fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities.
Additionally, our services must be approved in some jurisdictions in which they are offered, which approval cannot be assured or guaranteed. Obtaining these approvals is a time-consuming process that can be extremely costly. Even where a jurisdiction regulates online gaming, it may not be commercially desirable to secure a license in such a jurisdiction due to tax or other operational considerations.
A provider of gaming solutions may pursue corporate regulatory approval with regulators of a particular jurisdiction while it pursues technical regulatory approval for its gaming solutions by that same jurisdiction. It is possible that after incurring significant expenses and dedicating substantial time and effort towards such regulatory approvals, we may not obtain either of them. If we fail to obtain the necessary certification, registration, license, approval or finding of suitability in a given jurisdiction, we would likely be prohibited from distributing our services in that particular jurisdiction altogether. If we fail to seek, does not receive, or receive a revocation of a license in a particular jurisdiction for our games, hardware or software, then we cannot sell, service or place on a participation or leased basis or license our products in that jurisdiction and our issued licenses in other jurisdictions may be impacted. Furthermore, some jurisdictions require license holders to obtain government approval before engaging in some transactions, such as business combinations, reorganizations, stock offerings and repurchases. We may not be able to obtain all necessary registrations, licenses, permits, approvals or findings of suitability in a timely manner, or at all. Delays in regulatory approvals or failure to obtain such approvals may also serve as a barrier to entry to the market for our solutions. If we are unable to overcome the barriers to entry, it will materially affect our results of operations and future prospects. To the extent new gaming jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating such new jurisdictions or expanding our business in line with the growth of existing jurisdictions. As we enter into new markets, we may encounter legal and regulatory challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. If we are unable to effectively develop and operate within these new markets, then our business, operating results and financial condition could be impaired. Our failure to obtain the necessary regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business.
To expand into new jurisdictions, we may need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major stockholders, key employees or business partners. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect our opportunities for growth or delay our ability to recognize revenue from the sale or installation of products in any such jurisdictions.
Directly related to the above risk, we have responded to periodic requests for information from the UKGC in relation to information required to maintain its UK license following the change of corporate control. There have been no adverse judgments imposed by the UKGC against us. In recent months, we reduced our spending on marketing and were focused on retaining existing customers and reactivating past customers. On November 10, 2022, the Company determined that it would close down its licensed remote gambling operation in the UK market. On November 15, 2022, as part of the winding down of the Argyll UK iGaming operations, players were informed that they would no longer be able to place bets from November 30, 2022 and that they could withdraw their balances through December 7, 2022. On December 8, 2022 Argyll UK surrendered its UK license and the surrender was confirmed by the UKGC on December 9, 2022. Between December 7, 2022 and December 14, 2022 Argyll UK attempted to refund customer accounts that still had remaining balances. On March 3, 2023, the Company’s Board determined that the Company’s wholly-owned subsidiary, Argyll Entertainment, the Company’s Swiss entity that is part of Argyll UK, would be liquidated. The Swiss courts declared Argyll Entertainment bankrupt on March 27, 2023, at which point the Company lost control of Argyll Entertainment and, as a result, deconsolidated the entity. The Company further liquidated and deconsolidated wholly-owned subsidiary, Argyll Productions, on June 9, 2023. The Company had previously fully impaired the goodwill, intangible assets and other long-lived assets of Argyll UK in the fiscal year ended June 30, 2022. The Company recognized a gain on disposal of $2.2 million for Argyll Entertainment and $0.6 million for Argyll Productions.
We are subject to various laws relating to trade, export controls, and foreign corrupt practices, the violation of which could adversely affect our operations, reputation, business, prospects, operating results and financial condition.
We are subject to risks associated with doing business outside of the United States, including exposure to complex foreign and U.S. regulations such as the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws which generally prohibit U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions and other penalties. It may be difficult to oversee the conduct of any contractors, third-party partners, representatives or agents who are not our employees, potentially exposing us to greater risk from their actions. If our employees or agents fail to comply with applicable laws or company policies governing our international operations, we may face legal proceedings and actions which could result in civil penalties, administration actions and criminal sanctions. Any determination that we have violated any anti-corruption laws could have a material adverse impact on our business. Changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned countries or with sanctioned entities.
Violations of these laws and regulations could result in significant fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, disgorgement of profits, cessation of business activities in sanctioned countries, prohibitions on the conduct of our business and our inability to market and sell our products in one or more countries. Additionally, any such violations could materially damage our reputation, brand, international expansion efforts, ability to attract and retain employees and our business, prospects, operating results and financial condition.
We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violation of anti-money laundering laws or regulations by any of our properties could have a material adverse impact on our business.
We are subject to regulation affecting internet gaming which varies from one jurisdiction to another and future legislative and court proceedings pertaining to internet gaming may have a material impact on our operations and financial results.
Online gambling is not unequivocally legal in all jurisdictions. We are licensed to supply gambling services from jurisdictions in which we operate but not in every jurisdiction where the customer is located. Some countries have introduced regulations attempting to restrict or prohibit internet gaming, while others have taken the position that internet gaming should be regulated and have adopted or are in the process of considering legislation to enable that regulation.
While the UK and other European countries and territories such as Malta, Alderney and Gibraltar have currently adopted a regime which permits its licensees to accept wagers from any jurisdiction, other countries, including the United States, have, or are in the process of implementing, regimes which permit only the targeting of the domestic market provided a local license is obtained and local taxes accounted for. Other European countries and territories continue to defend a licensing regime that protects monopoly providers and have combined this with an attempt to outlaw all other suppliers. By contrast, a number of countries have not passed legislation in relation to online gambling but may introduce it in the future. Some jurisdictions have not updated legislation focused on land-based gambling which may be interpreted in an unfavorable way to online gambling. Different jurisdictions have different views to determining where gambling takes place and which jurisdiction’s law applies and these views may change from time to time.
We currently block, through IP address filtering, direct access to wagering on our international websites from the United States and other jurisdictions that we are precluded from supplying our services to pursuant to our gaming license. Individuals are required to enter their age upon gaining access to our platform and any misrepresentation of such users age will result in the forfeiting of his or her deposit and any withdrawals from such users account requires proof of government issued identification. In addition, our payment service providers use their own identity and ISP verification software. Despite all such measures, it is conceivable that a user, underage or otherwise, could devise a way to evade our blocking measures and access our international websites from the United States or any other foreign jurisdiction in which we do not currently permit users to use our services.
Future legislative and court decisions may have a material impact on our operations and financial results. Therefore, there is a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities incumbent monopoly providers, or private individuals, could be initiated against us, internet service providers, credit card processors, advertisers and others involved in the internet gaming industry. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon our or our licensees or other business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business, revenues, operating results and financial condition as well as impact upon our reputation.
There can be no assurance that legally enforceable prohibiting legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our business to legislate or regulate various aspects of the internet or the online gaming industry (or that existing laws in those jurisdictions will not be interpreted negatively). Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations, either as a result of our determining that a jurisdiction should be blocked, or because a local license may be costly for us or our licensees to obtain and/or such licenses may contain other commercially undesirable conditions. In any case, such regulations may negatively impact our business and financial results.
We may not be able to capitalize on the expansion of online or other forms of interactive gaming or other trends and changes in the gaming industry, due to laws and regulations governing these industries in different Jurisdictions.
We participate in the new and evolving interactive gaming industry through our online, social and mobile products. We intend to take advantage of the liberalization of online and mobile gaming, within Canada, the U.S. and internationally; however, expansion of online and mobile gaming involves significant risks and uncertainties, including legal, business and financial risks. The success of online and mobile gaming and our interactive products and services may be affected by future developments in social networks, including Facebook, mobile platforms, regulatory developments, data privacy laws and other factors that we are unable to predict and are beyond our control. Consequently, our future operating results relating to our online gaming products and services are difficult to predict, and we cannot provide assurance that our products and services will grow at expected rates or be successful in the long term.
Additionally, our ability to successfully pursue our interactive gaming strategy depends on the laws and regulations relating to wagering through interactive channels. Internationally, laws relating to online gaming are evolving, particularly in Europe. To varying degrees, a number of European governments have taken steps to change the regulation of online wagering through the implementation of new or revised licensing and taxation regimes, including the possible imposition of sanctions on unlicensed providers. We cannot predict the timing, scope or terms of any such state, federal or foreign laws and regulations, or the extent to which any such laws and regulations will facilitate or hinder its interactive strategy.
Our ability to operate in our proposed online jurisdictions or expand in new online jurisdictions could be adversely affected by new or changing laws or regulations, new interpretations of existing laws or regulations, and difficulties or delays in obtaining or maintaining required licenses or product approvals.
Changes in existing gaming laws or regulations, new interpretations of existing gaming laws or regulations or changes in the manner in which existing laws and regulations are enforced, all with respect to online gaming activities, may hinder or prevent us from continuing to operate in those jurisdictions where we currently carry on business, which would harm our operating results and financial condition. Furthermore, gaming regulatory bodies may from time to time amend the various disclosures and reporting requirements. If we fail to comply with any existing or future disclosure or reporting requirements, the regulators may take action against us which could ultimately include fines, the conditioning, suspension or revocation of approvals, registrations, permits or licenses and other disciplinary action. It cannot be assured that we will be able to adequately adjust to such potential changes. Additionally, evolving laws and regulations regarding data privacy, cyber security and anti-money laundering could adversely impact opportunities for growth in our online business, and could result in additional compliance-related costs.
Public opinion can also exert a significant influence over the regulation of the gaming industry. A negative shift in the public’s perception of gaming could affect future legislation in different jurisdictions. Among other things, such a shift could cause jurisdictions to abandon proposals to legalize gaming, thereby limiting the number of new jurisdictions into which we could expand. Negative public perception could also lead to new restrictions on or to the prohibition of gaming in jurisdictions in which we currently operate.
Recent regulatory changes in the Netherlands and Finland have had a material impact on our financial results and may have additional negative consequences on our business and operations in the future.
In addition, as a result of regulatory developments in Finland, we received communications requesting clarification on our marketing and gaming practices related to its Finnish EEG iGaming operations, from the Finnish regulator. The net revenues for our Lucky Dino business have declined from approximately $22.2 million for the year ended June 30, 2022 to approximately $10.2 million for the year ended June 30, 2023. Net revenues for our Lucky Dino business represented approximately 44% of our consolidated net revenues for the year ended June 30, 2023.
There can be no assurance that operations and revenues from our Finnish and other iGaming operations will recover and not be further negatively impacted in the future.
Regulations that may be adopted with respect to the internet and electronic commerce may decrease the growth in the use of the internet and lead to the decrease in the demand for our products and services.
In addition to regulations pertaining to the gaming industry in general and specifically to online gaming, we may become subject to any number of laws and regulations that may be adopted with respect to the internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. Additionally, current laws, which predate or are incompatible with the internet and electronic commerce, may be applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the context of the internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the internet. The adoption of new laws or regulations relating to the internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the internet, decrease the demand for our products and services, increase our cost of doing business or could otherwise have a material adverse effect on our business, revenues, operating results and financial condition.
Our stockholders and business partners are subject to extensive governmental regulation and if a stockholder is found unsuitable by a gaming authority, that stockholder would not be able to beneficially own our Common Shares directly or indirectly.
In many jurisdictions, gaming laws can require any of our stockholders and business partners to file an application, be investigated, and qualify or have his, her or its suitability determined by gaming authorities. Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.
Furthermore, any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming authority, may not hold directly or indirectly ownership of any voting security or the beneficial or record ownership of any non-voting security or any debt security of any public corporation which is registered with the relevant gaming authority beyond the time prescribed by the relevant gaming authority. A violation of the foregoing may constitute a criminal offence. A finding of unsuitability by a particular gaming authority impacts that person’s ability to associate or affiliate with gaming licenses in that particular jurisdiction and could impact the person’s ability to associate or affiliate with gaming licenses in other jurisdictions.
Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities of a gaming company and, in some jurisdictions, non-voting securities, typically 5%, to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only.
Thus, any purchaser of the common stock offered by the Company may find themselves subject to investigation and potentially required to disgorge their shares due to regulatory action in one of the jurisdictions we operate.
Current environmental laws and regulations, or those enacted in the future, could result in additional liabilities and costs. Compliance with these laws could increase our costs and impact the availability of components required to manufacture its products. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact its results of operations, financial position or cash flows.
Legislative and regulatory changes could negatively affect our business and the business of our customers.
Legislative and regulatory changes may affect demand for or place limitations on the placement of our products. Such changes could affect us in a variety of ways. Legislation or regulation may introduce limitations on our products or opportunities for the use of our products and could foster competitive products or solutions at our or our customers’ expense. Our business will likely also suffer if our products become obsolete due to changes in laws or the regulatory framework.
Legislative or regulatory changes negatively impacting the gaming industry as a whole or our customers in particular could also decrease the demand for our products. Opposition to gaming could result in restrictions or even prohibitions of gaming operations in any jurisdiction or could result in increased taxes on gaming revenues. Tax matters, including changes in state, federal or other tax legislation or assessments by tax authorities could have a negative impact on our business. A reduction in growth of the gaming industry or in the number of gaming jurisdictions or delays in the opening of new or expanded casinos could reduce demand for our products. Changes in current or future laws or regulations or future judicial intervention in any particular jurisdiction may have a material adverse effect on our existing and proposed foreign and domestic operations. Any such adverse change in the legislative or regulatory environment could have a material adverse effect on our business, results of operations or financial condition.
In the context of our European Union (the “EU”)-facing operations, we may be subject to specific compliance obligations under the General Data Protection Regulation (EU) 2016/679 (the “GDPR”) and associated laws and regulations in different EU Member States in which we operate as well as in portions of our business outside the EU which may negatively affect our operations and financial results.
Every international business that has a presence in the EU as well as multiple data protection jurisdictions is subject to an impact on its operations placed by its obligation to comply with the requirements of the GDPR and associated EU legislation with respect to the offering of products or services to, or the monitoring of, individuals in the EU. We may also be subject to the local privacy and data protection laws of the EU Member States in which we offer products or services. Failure to comply with these EU data protection and privacy laws, can carry penalties and potential criminal sanctions, as well as the risk of litigation. In addition, Directive 2002/58/EC (as amended by Directive 2009/136/EC) (together, the “e-Privacy Directive”) governs, among other things, the use of cookies and the sending of electronic direct marketing within the EU and, as such, will apply to our marketing activities within the EU. Following Brexit, the UK has adopted its own data protection and direct marketing laws (the “UK data protection laws”) which are currently based on the corresponding EU legislation. Our UK-facing operations may therefore be subject to specific compliance obligations under the UK data protection laws.
In our efforts to comply with these requirements, we rely on positions and interpretations of the law that have yet to be fully tested before the relevant courts and regulators. While the UK data protection laws are currently similar to the corresponding EU laws, it is possible that those laws will diverge in the future. To the extent that those laws do diverge, then that may increase the costs of maintaining regulatory compliance. There is also a risk that it may become more difficult to make cross-border transfers of personal data, as a result of diverging data protection regimes in the territories where our customers are located and the territories where our operations are based. If a regulator or court of competent jurisdiction determined that one or more of our compliance efforts does not satisfy the applicable requirements of the GDPR or the e-Privacy Directive, or the UK data protection laws, or if any party brought a claim in this regard, there could be potential governmental or regulatory investigations, enforcement actions, regulatory fines, compliance orders, litigation or public statements against us by consumer advocacy groups or others, and that could cause customers to lose trust in us and damage our reputation. Likewise, a change in guidance could be costly and have an adverse effect on our business.
Risks Related to Intellectual Property and Technology
Our intellectual property may be insufficient to properly safeguard our technology and brands.
We may apply for patent protection in the United States, Canada, Europe and other countries relating to certain existing and proposed processes, designs and methods and other product innovations. Patent applications can, however, take many years to issue and we can provide no assurance that any of these patents will be issued at all. If we are denied any or all of these patents, we may not be able to successfully prevent our competitors from imitating our solutions or using some or all of the processes that are the subject of such patent applications. Such imitation may lead to increased competition within the finite market for our solutions. Even if pending patents are issued to us, our intellectual property rights may not be sufficiently comprehensive to prevent our competitors from developing similar competitive products and technologies. Our success may also depend on our ability to obtain trademark protection for the names or symbols under which we market our products and to obtain copyright protection and patent protection of our proprietary technologies, intellectual property and other game innovations and if the granted patents are challenged, protection may be lost. We may not be able to build and maintain goodwill in our trademarks or obtain trademark or patent protection, and there can be no assurance that any trademark, copyright or issued patent will provide competitive advantages for us or that our intellectual property will not be successfully challenged or circumvented by competitors.
Computer source codes for technology licenses may also receive protection under international copyright laws. As such, we, or the party which we license the source code from, may need to initiate legal proceedings following such use to obtain orders to prevent further use of the source code.
We will also rely on trade secrets, ideas and proprietary know-how. Although we generally require our employees and independent contractors to enter into confidentiality and intellectual property assignment agreements, it cannot be assured that the obligations therein will be maintained and honored. If these agreements are breached, it is unlikely that the remedies available to us will be sufficient to compensate it for the damages suffered. In spite of confidentiality agreements and other methods of protecting trade secrets, our proprietary information could become known to or independently developed by competitors.
If we fail to adequately protect our intellectual property and confidential information, our business may be harmed, and our liquidity and results of operations may be materially adversely impacted.
If we are subject to claims of intellectual property infringement or invalidity our business operations and/or financial results may be negatively impacted either by the cost of litigation or any adverse result.
Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. Although we intend to aggressively pursue anyone who is reasonably believed to be infringing upon our intellectual property rights and who poses a significant commercial risk to the business, to protect and enforce our intellectual property rights, initiating and maintaining suits against such third parties will require substantial financial resources. We may not have the financial resources to bring such suits, and, if we do bring such suits, we may not prevail. Regardless of our success in any such actions, the expenses and management distraction involved may have a material adverse effect on our financial position.
A significant portion of our revenues may be generated from products using certain intellectual property rights, and our operating results would be negatively impacted if we were unsuccessful in licensing certain of those rights and/or protecting those rights from infringement, including losses of proprietary information from breaches of our cyber security efforts.
Further, our competitors have been granted patents protecting various gaming products and solutions features, including systems, methods and designs. If our products and solutions employ these processes, or other subject matter that is claimed under our competitors’ patents, or if other companies obtain patents claiming subject matter that we use, those companies may bring infringement actions against us. The question of whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. In addition, because patent applications can take many years to issue, there may be applications now pending of which we are unaware, which might later result in issued patents that our products and solutions may infringe. There can be no assurance that our products, including those with currently pending patent applications, will not be determined to have infringed upon an existing third-party patent. If any of our products and solutions infringes a valid patent, we may be required to discontinue offering certain products or systems, pay damages, purchase a license to use the intellectual property in question from its owner, or redesign the product in question to avoid infringement. A license may not be available or may require us to pay substantial royalties, which could in turn force us to attempt to redesign the infringing product or to develop alternative technologies at a considerable expense. Additionally, we may not be successful in any attempt to redesign the infringing product or to develop alternative technologies, which could force us to withdraw our product or services from the market.
We may also infringe other intellectual property rights belonging to third parties, such as trademarks, copyrights and confidential information. As with patent litigation, the infringement of trademarks, copyrights and confidential information involve complex legal and factual issues and our products, branding or associated marketing materials may be found to have infringed existing third-party rights. When any third-party infringement occurs, we may be required to stop using the infringing intellectual property rights, pay damages and, if we wish to keep using the third-party intellectual property, purchase a license or otherwise redesign the product, branding or associated marketing materials to avoid further infringement. Such a license may not be available or may require us to pay substantial royalties.
It is also possible that the validity of any of our intellectual property rights might be challenged either in a standalone legal proceeding or as part of infringement claims in the future.
There can be no assurance that our intellectual property rights will withstand an invalidity claim and, if declared invalid, the protection afforded to the product, branding or marketing material will be lost.
Moreover, the future interpretation of intellectual property law regarding the validity of intellectual property by governmental agencies or courts in the United States, Canada, Europe or other jurisdictions in which we have rights could negatively affect the validity or enforceability of our current or future intellectual property. This could have multiple negative impacts including, without limitation, the marketability of, or anticipated revenue from, certain of our products. Additionally, due to the differences in foreign patent, trademark, copyright and other laws concerning proprietary rights, our intellectual property may not receive the same degree of protection in foreign countries as it would in the United States, Canada, or Europe. Our failure to possess, obtain or maintain adequate protection of its intellectual property rights for any reason in these jurisdictions could have a material adverse effect on its business, results of operations and financial condition.
Furthermore, infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and we may not have the financial and human resources to defend ourselves against any infringement suits that may be brought against us. Litigation can also distract management from day-to-day operations of the business.
In addition, our business is dependent in part on the intellectual property of third-parties. For example, we license intellectual property from third parties for use in our gaming products. Our future success may depend upon our ability to obtain licenses to use new and existing intellectual property and our ability to retain or expand existing licenses for certain products. If we are unable to obtain new licenses or renew or expand existing licenses, we may be required to discontinue or limit our use of such products that use the licensed marks and our financial condition, operating results or prospects may be harmed.
If we fail to enforce and maintain our intellectual property rights, our business and financial results could be adversely affected.
The success of our business depends on our continued ability to use our existing tradenames in order to increase our brand awareness. Esports Entertainment Malta owns EU registered trademarks for our Lucky Dino brands. The unauthorized use or other misappropriation of any of the foregoing trademarks or tradenames could diminish the value of our business or financial results which would have a material adverse effect on our financial condition and results of operation.
Compromises of our technology systems or unauthorized access to confidential information or our customers’ personal information could materially harm our reputation and business.
We collect and store confidential, personal information relating to our customers for various business purposes, including marketing and financial purposes, and credit card information for processing payments. For example, we handle, collect and store personal information in connection with our online gaming products. We may share this personal and confidential information with vendors or other third parties in connection with processing of transactions, operating certain aspects of our business or for marketing purposes. Our collection and use of personal data is governed by federal, state and provincial laws and regulations as well as the applicable laws and regulations in other countries in which it operates. Privacy law is an area that changes often and varies significantly by jurisdiction. We may incur significant costs in order to ensure compliance with the various privacy requirements. In addition, privacy laws and regulations may limit our ability to market to our customers.
We intend to assess and monitor the security of collection, storage and transmission of customer information on an ongoing basis. We intend to utilize commercially available software and technologies to monitor, assess and secure our network. However, the systems currently intended for transmissions and approval of payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, are determined and controlled by the payment card industry, not us. Although we intend to take steps designed to safeguard our customers’ confidential personal information, our network and other systems and those of third parties, such as service providers, could be compromised by a third-party breach of our system’s security or that of a third-party provider or as a result of purposeful or accidental actions of third parties, our employees or those employees of a third party. Advances in computer and software capabilities and encryption technology, new tools and other developments may increase the risk of such a breach. As a result of any security breach, customer information or other proprietary data may be accessed or transmitted by or to a third party. Despite these measures, there can be no assurance that we are adequately protecting our customers’ information.
Any loss, disclosure or misappropriation of, or access to, customers’ or other proprietary information or other breach of our information security could result in legal claims or legal proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal information or for misusing personal information, which could disrupt our operations, damage our reputation and expose us to claims from our customers, financial institutions, regulators, payment card associations, employees and other persons, any of which could have a material adverse effect on our business, revenues, financial conditions and operations.
Service interruptions of internet service providers could impair our ability to carry on our business.
Most of our customers will rely on internet service providers to allow our customers and servers to communicate with each other. If internet service providers experience service interruptions, communications over the internet may be interrupted and impair our ability to carry on business. In addition, our ability to process e-commerce transactions depends on bank processing and credit card systems. In order to prepare for system problems, we intend to continuously seek to strengthen and enhance our planned facilities and the capability of our system infrastructure and support. Nevertheless, any system failure as a result of reliance on third parties, including network, software or hardware failure, which causes a delay or interruption in our online services and products and e-commerce services, could have a material adverse effect on our business, revenues, operating results and financial condition.
Disruption of our network systems or their inability to meet the growing demand can negatively affect our business and financial results.
The growth of internet usage has caused frequent interruptions and delays in processing and transmitting data over the internet. There can be no assurance that the internet infrastructure or our own network systems will be able to meet the demand placed on it by the continued growth of the internet, the overall online gaming and interactive entertainment industry and our customers.
The internet’s viability as a medium for products and services offered by us could be affected if the necessary infrastructure is not sufficient, or if other technologies and technological devices eclipse the internet as a viable channel.
End-users of our products and services will depend on internet service providers and our system infrastructure (or those of our licensed partners) for access to our or our licensees’ products and services. Many of these services have experienced service outages in the past and could experience service outages, delays and other difficulties due to system failures, stability or interruption.
Systems, network or telecommunications failures or cyber-attacks may disrupt our business and have an adverse effect on our results of operations.
Any disruption in our network or telecommunications services could affect our ability to operate our games and online offerings, which would result in reduced revenues and customer down time. Our network and databases of business or customer information, including intellectual property, trade secrets, and other proprietary business information and those of third parties we utilize, will be susceptible to outages due to fire, floods, power loss, break-ins, cyber-attacks, hackers, network penetration, data privacy or security breaches, denial of service attacks and similar events, including inadvertent dissemination of information due to increased use of social media. Despite implementation of network security measures and data protection safeguards by us, including a disaster recovery strategy for back office systems, our servers and computer resources will be vulnerable to viruses, malicious software, hacking, break-ins or theft, third-party security breaches, employee error or malfeasance, and other potential compromises. Disruptions from unauthorized access to or tampering with our computer systems, or those of third parties we utilize, in any such event could result in a wide range of negative outcomes, including devaluation of our intellectual property goodwill and/or brand appeal, increased expenditures on data security, and costly litigation, and can have a material adverse effect on our business, revenues, reputation, operating results and financial condition.
Malfunctions of third-party communications infrastructure, hardware and software expose us to a variety of risks that we cannot control.
Our business will depend upon the capacity, reliability and security of the infrastructure owned by third parties over which our offerings would be deployed. We have no control over the operation, quality or maintenance of a significant portion of that infrastructure or whether or not those third parties will upgrade or improve their equipment. We depend on these companies to maintain the operational integrity of our connections. If one or more of these companies is unable or unwilling to supply or expand our levels of service in the future, our operations could be adversely impacted. Also, to the extent the number of users of networks utilizing our future products and services suddenly increases, the technology platform and secure hosting services which will be required to accommodate a higher volume of traffic may result in slower response times or service interruptions. System interruptions or increases in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users. In addition, users depend on real-time communications; outages caused by increased traffic could result in delays and system failures. These types of occurrences could cause users to perceive that our products and services do not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners and customers.
Miscellaneous Risks of This Investment
Efforts to remediate our material weaknesses and comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.
Under current SEC rules, we have been required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, and related rules and regulations of the SEC. We will be required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. This process may result in a diversion of management’s time and attention and may involve significant expenditures. We have not maintained internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404 of the Sarbanes-Oxley Act. The rules governing the standards that must be met for our evaluation management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We might encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot remediate our material weaknesses or favorably assess the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information and the price of our common stock could decline.
Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock and common warrants.
We are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our Amended and Restated Articles of Incorporation and/or Amended and Restated Bylaws:
● authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt;
● provide that vacancies on our Board of Directors, including newly created directorships, may be filled by a majority vote of directors then in office;
● place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders; do not provide stockholders with the ability to cumulate their votes; and
● provide that our Board of Directors or a majority of our stockholders may amend our bylaws.
We are a smaller reporting company and a non-accelerated filer and the reduced disclosure requirements available to us may make our common stock less attractive to investors.
The SEC established the smaller reporting company, or SRC, category of companies in 2008, and expanded it in 2018, in an effort to provide general regulatory relief for smaller companies. SRCs may choose to comply with scaled financial and non-financial disclosure requirements in their annual and quarterly reports and registration statements relative to non-SRCs. In addition, companies that are not “accelerated filers” can take advantage of additional regulatory relief. Whether a company is an accelerated filer or a SRC is determined on an annual basis. For so long as we qualify as a non-accelerated filer and/or a SRC, we will be permitted to and we intend to rely on some or all of the accommodations available to such companies. These accommodations include:
● not being required to provide an auditor’s attestation of management’s assessment of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act;
● reduced financial disclosure obligations, including that SRCs need only provide two years of financial statements rather than three years; a maximum of two years of acquiree financial statements are required rather than three years; fewer circumstances under which pro forma financial statements are required; and less stringent age of financial statements requirements;
● reduced non-financial disclosure obligations, including regarding the description of their business, management’s discussion and analysis of financial condition and results of operations, market risk, executive compensation, transactions with related persons, and corporate governance; and
● later deadlines for the filing of annual and quarterly reports compared to accelerated filers.
We will continue to qualify as a SRC and non-accelerated filer for so long as (a) our public float is less than $75 million as of the last day of our most recently completed second fiscal quarter or (b) our public float is $75 million or more but less than $700 million and we reported annual revenues of less than $100 million for our most recently completed fiscal year.
We may choose to take advantage of some, but not all, of the available accommodations. We cannot predict whether investors will find our common stock less attractive if we rely on these accommodations. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties.
Effective on August 19, 2021, we relocated our executive and business offices to Block 6, Triq Paceville, Saint Julians, Malta, STJ 3109. We entered into a lease for our executive and business offices, consisting of approximately 284 square feet, for a term expiring in 2026. The annual rent for the first year under the lease agreement is €83,000, with such amount increasing by 4% in each of the subsequent years of the five-year term. We also have agents and locations in Carson City and Indiana, which serve as the headquarters for our gaming operations and ggC operations, respectively, in the United States. The ggC lease is month to month with a monthly rent of $3,000. We believe that our current structure, including our facilities are suitable and adequate to meet our needs for the immediate future, and that the productive capacity in such facilities is substantially being utilized.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
Legal Proceedings
On January 6, 2023, our former chairman and chief executive officer, Grant Johnson, filed a lawsuit in the United States District Court for the Southern District of New York against the Company. The claim alleges breach by the Company of Mr. Johnson’s employment agreement when it terminated him for “Cause” as defined in the agreement on December 3, 2022. Mr. Johnson seeks in excess of $1,000,000 as well as 2,000 shares of the Company’s common stock, plus attorney’s fees. On February 28, 2023, Mr. Johnson filed an amended complaint to amend his original claim and to add an alleged defamation claim. On March 14, 2023, the Company filed its Pre-Motion Letter requesting that the claim be dismissed and on March 15, 2023 Mr. Johnson filed a letter to the Court requesting that the claim not be dismissed. On May 4, 2023, a pretrial conference took place and the Company decided not to move forward with the motion to dismiss and is preparing documents for the discovery phase and a response to the Plaintiff’s statement of claim as well as a counterclaim.
The Company believes the claims are without merit and intends to defend against the claims vigorously. The case is captioned Grant Johnson v. Esports Entertainment Group, Inc. 1:22-cv-10861 (SDNY).
The Company at times may be involved in litigation relating to claims arising from its operations in the normal course of business. The Company is currently not involved in any litigation that it believes could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our Common Stock, Unit A Warrants, 10% Series A Cumulative Redeemable Convertible Preferred Stock and March 2022 Warrants are quoted for trading on Nasdaq under the symbols “GMBL”, “GMBLW”, “GMBLP” and “GMBLZ”, respectively.
Approximate Number of Equity Security Holders
As of October 12, 2023, one business day preceding this filing, there were approximately 128 holders of record of our Common Stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.
Dividend Policy
We have not paid any cash dividends on our common stock and do not currently anticipate paying cash dividends in the foreseeable future. The agreements into which we may enter in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our capital stock. Payment of future dividends on our common stock, if any, will be at the discretion of our Board and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our Board may deem relevant. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.
Recent Purchases
During the three months ended June 30, 2023, there were no repurchases of the Company’s Common Stock by the Company.
Recent Sales of Unregistered Securities
We sold the following shares of unregistered common stock on the date and for the consideration shown to the identified individuals pursuant to Section 4(a)(2) of the Securities Act or Section 3(a)(9), as applicable, which shares are restricted shares as defined in the Securities Act. The purchasers or recipients of our securities in these transactions were accredited investors, as defined in Regulation D.
Date
Purchaser/Recipient
Security Type
Number of
Securities
Consideration
May 8, 2023 - October 12, 2023
Holder of Series C Convertible Preferred Stock
Common Stock
50,327,288
Conversions of Series C Convertible Preferred Stock for shares of common stock
October 6, 2023
Holder of Series D Convertible Preferred Stock
Common Stock
10,000
October 2023 Settlement Agreement
August 15, 2023
Holder of Series D Convertible Preferred Stock
Common Stock
10,000
August
Settlement Agreement
June 30, 2023
Vendor
Common Stock
111,391
Services Provided
May 22, 2023
Holder of Series C Convertible Preferred Stock
Series D Convertible Preferred Stock, Series D Convertible Preferred Stock Warrants, Common Stock Warrants
4,300 shares of Series D Convertible Preferred Stock, Warrants to Purchase 4,300 shares of Series D Convertible Preferred Stock, Warrants to Purchase 1,433,333 shares of common stock
Series D Convertible Preferred Stock, Preferred Warrants and Warrants issued in private placement
April 28, 2023
Holder of Senior Convertible Note
Series C Convertible Preferred Stock
15,230
Exchange of Senior Convertible Note for shares of Series C Convertible Preferred Stock
January 31, 2023 - February 21, 2023
Holder of Senior Convertible Note
Common Stock
2,242,143
Conversion of debt principal under Senior Convertible Note
January 3, 2023
Alex Igelman, Chief Executive Officer
Common Stock
25,000
New hire inducement grant for services
December 21, 2022
Member of management
Preferred Stock (Series B)
$1,000
April 2, 2022
Damian Mathews, Former Chief Financial Officer (current Chief Operating Officer and Director)
Common Stock
2,000
New hire inducement grant for services
February 22, 2022
Holder of Senior Convertible Note
Senior Convertible Note
N/A
Exchange of Senior Convertible Note
May 28, 2021
Institutional Investor
Senior Convertible Note
N/A
$35,000,000
May 28, 2021
Institutional Investor
Warrants to Purchase Shares of Common Stock
40,000
No additional consideration; included as part of the sale of the Senior Convertible Note

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with other sections of this Annual Report, including “Item 1. Business” and the accompanying Consolidated Financial Statements and related Notes included elsewhere in this Report. Unless otherwise indicated, the terms “we,” “us,” or “our” refer to Esports Entertainment Group, Inc. (the “Company” or “EEG”), a Nevada corporation, together with its consolidated subsidiaries.
This section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this discussion. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Overview
Esports is a skill-based, competitive, and organized form of video gaming by professional players, playing individually or as teams. Esports typically takes the form of organized, multiplayer video games that include genres such as real-time strategy, fighting, first-person shooter and multiplayer online battle arena games. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv and youtube.com.
Esports Entertainment Group, Inc. (the “Company” or “EEG”) is an esports-focused iGaming and entertainment company with a global footprint. EEG’s strategy is to build and acquire betting and related platforms, and lever them into the rapidly growing esports vertical. We operate the business in two verticals, EEG iGaming and EEG Games.
We have financed operations primarily through the sale of equity securities and debt. Until revenues are sufficient to meet our needs, we will continue to attempt to secure financing through equity or debt securities.
Basis of Presentation
We operate two complementary business segments: Our EEG iGaming business and our EEG Games business.
EEG iGaming
EEG iGaming includes the esports betting platform with full casino and other functionality and services for iGaming customers. iDefix, proprietary technology acquired in connection with the acquisition of Lucky Dino, is an MGA licensed iGaming platform with payments, payment automation manager, bonusing, loyalty, compliance and casino integrations that services all Lucky Dino.
EEG’s goal is to be a leader in the large and rapidly growing sector of esports real-money wagering, offering fans the ability to wager on approved esports events in a licensed and secure environment. From February 2021, under the terms of our MGA license, we are now able to accept wagers from residents of over 180 jurisdictions including countries within the EU, Canada, New Zealand and South Africa, on our platform.
Alongside the esports focused platform, EEG owns and operates five online casino brands of Lucky Dino Gaming Limited and Hiidenkivi Estonia OU, its wholly-owned subsidiary (collectively referred to as “Lucky Dino”), licensed by the MGA on its in-house built iDefix casino-platform. We currently hold one Tier-1 gambling licenses in Malta. Our Lucky Dino business provides a foothold in mature markets in Europe into which we believe we can cross-sell our esports offerings.
EEG Games
EEG Games’ focus is on providing esports entertainment experiences to gamers through a combination of: (1) our proprietary infrastructure software, GGC, which underpins our focus on esports and is a leading provider of local area network (“LAN”) center management software and services, enabling us to seamlessly manage mission critical functions such as game licensing and payments, and (2) the creation of esports content for distribution to the betting industry. Currently, we operate our esports EEG Games business in the United States and Europe.
Key Performance Indicators
In the esports and gaming industry, revenue is driven by discretionary consumer spending. We have no way of determining why customers spend more or less money; therefore, we are unable to quantify a dollar amount for each factor that impacts our customers’ spending behaviors. However, some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others, include decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market and high fuel or other transportation costs. Such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments. The vast majority of our revenues is EEG iGaming revenue, which is highly dependent upon the number and volume and spending levels of customers.
Reportable Segments
At June 30, 2023, the Company has two reportable segments: EEG iGaming and EEG Games, consistent with June 30, 2022.
Financial Highlights
The following tables set forth a summary of our financial results for the periods indicated and are derived from our consolidated financial statements for the years ended June 30, 2023 and 2022, respectively:
Year Ended June 30,
Net revenue $ 22,965,804 $ 58,351,650
Total operating costs and expenses (excluding Loss on disposal of businesses, net and Asset impairment charges) $ (43,635,968 ) $ (101,214,859 )
Loss on disposal of businesses, net $ (3,497,221 ) $ -
Asset impairment charges $ (16,135,000 ) $ (46,498,689 )
Total other income (expense), net $ 8,017,282 $ (18,544,634 )
Income tax (expense) benefit $ (376 ) $ 5,674,442
Net loss $ (32,285,479 ) $ (102,232,090 )
Net loss attributable to common stockholders $ (33,632,161 ) $ (102,915,706 )
Non-GAAP Information
This report includes Adjusted EBITDA, which is a non-U.S. GAAP (“U.S. GAAP” is defined as accounting principles generally accepted in the United States of America) financial performance measure that we use to supplement our results presented in accordance with U.S. GAAP. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses this non-U.S. GAAP financial measure for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that it provides useful information about operating results, enhances the overall understanding of past financial performance and future prospects, and allows for greater transparency with respect to key metrics used by management in its financial and operational decision making. Adjusted EBITDA, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. We define Adjusted EBITDA as earnings (loss) before, as applicable to the particular period, interest expense, net; income taxes; depreciation and amortization; stock-based compensation; cost of acquisition; asset impairment charges; loss on extinguishment of senior convertible note; loss on conversion of senior convertible note; change in fair value of derivative liability; change in fair value of warrant liability; change in fair value of contingent consideration; and other non-operating income (loss), net, and certain other non-recurring, non-cash or non-core items, as described in the reconciliation below, if not covered above.
Adjusted EBITDA excludes certain expenses that are required in accordance with U.S. GAAP because they are non-recurring items (for example, in the case of transaction-related costs), non-cash expenditures (for example, in the case of depreciation and amortization, stock-based compensation, asset impairment charges, change in fair value of derivative liability and change in fair value of warrant liability), or are not related to our underlying business performance (for example, in the case of interest income and expense and litigation settlement and related costs).
Segment Revenues and Adjusted EBITDA
The table below presents our Segment Revenues and Adjusted EBITDA reconciled to our net loss, for the periods indicated:
For the year ended June 30,
Net Revenue:
EEG iGaming segment $ 19,690,722 $ 53,104,795
EEG Games segment $ 3,275,082 $ 5,246,855
Total $ 22,965,804 $ 58,351,650
Net loss: $ (32,285,479 ) $ (102,232,090 )
Adjusted for:
Interest expense $ 2,485,758 $ 6,423,039
Loss on disposal of businesses, net $ 3,497,221 $ -
Gain on termination of lease $ (799,901 ) $ -
Loss on conversion of senior convertible note $ - $ 5,999,662
Loss on extinguishment of senior convertible note $ 1,821,013 $ 28,478,804
Change in fair value of derivative liability $ (7,435,687 ) $ 10,882,241
Change in fair value of warrant liability $ (7,113,292 ) $ (31,468,270 )
Change in fair value of contingent consideration $ 2,864,551 $ (2,355,308 )
Other non-operating (income) loss, net $ 160,276 $ 584,466
Depreciation and amortization $ 6,475,794 $ 12,026,581
Right of use asset amortization $ 46,244 $ 506,742
Asset impairment charges $ 16,135,000 $ 46,498,689
Stock-based compensation $ 1,148,147 $ 5,165,653
Cost of acquisition $ 35,931 $ 269,012
Income tax expense (benefit) $ 376 $ (5,674,442 )
Total Adjusted EBITDA $ (12,964,048 ) $ (24,895,221 )
Adjusted EBITDA
EEG iGaming segment $ (2,542,357 ) $ (7,019,463 )
EEG Games segment $ (3,064,747 ) $ (4,915,549 )
Other(1) $ (7,356,944 ) $ (12,960,209 )
Total Adjusted EBITDA $ (12,964,048 ) $ (24,895,221 )
(1) Other comprises corporate and overhead costs.
(2) We have no intersegment revenues or costs and thus no eliminations were required.
(3) We define Adjusted EBITDA as earnings (loss) before, as applicable to the particular period, interest expense; income taxes; depreciation and amortization including right of use asset amortization; stock-based compensation; cost of acquisition; asset impairment charges; loss on extinguishment of senior convertible note; loss on conversion of senior convertible note; change in fair value of derivative liability; change in fair value of warrant liability; change in fair value of contingent consideration; and other non-operating income (loss), net and certain other non-recurring, non-cash or non-core items (included in table above).
Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The financial data is at the consolidated and reporting segment levels and reported in U.S. Dollars ($).
Comparison of Year ended June 30, 2023 and 2022
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. The financial data is at the consolidated level and reported in U.S. Dollar ($).
Net Revenue
Net revenue totaled $23.0 million in the year ended June 30, 2023, a decrease of $35.4 million, or 61%, from the $58.4 million recorded in the year ended June 30, 2022. The decrease is primarily attributable to the sale of the Bethard Business on February 24, 2023 and the decrease in the iGaming operations of Lucky Dino, Bethard and Argyll that were impacted by regulatory changes in the Netherlands, Finland and the UK, and the worsening investment and market conditions. Argyll Entertainment was declared bankrupt by the Swiss court on March 27, 2023 and Argyll Productions was liquidated on June 9, 2023. On these dates the Company lost control of the Argyll entities and as a result, they were deconsolidated. The decrease in the iGaming segment revenue was $33.4 million falling from $53.1 million to $19.7 million. Revenue in the EEG Games segment also decreased $1.9 million from $5.2 million to $3.3 million due to the disposal of the Helix Holdings, LLC game center assets in Foxboro, MA and North Bergen, NJ that occurred in June 2022 and lower other revenues. The Company’s continuing revenue generating business are Lucky Dino and ggC going into new fiscal year.
Cost of Revenue
Cost of revenue totaled $8.8 million in the year ended June 30, 2023, a decrease of $15.4 million, or 64%, from the $24.2 million recorded in the year ended June 30, 2022. The decrease is primarily attributable to the sale of the Bethard Business on February 24, 2023 and the liquidation of the Argyll operating entities on March 27, 2023 and June 9, 2023 and the decrease in the iGaming operations of Lucky Dino, Bethard and Argyll in the EEG iGaming segment and includes corresponding EEG iGaming decreases in line with revenue. This includes decreases of $9.2 million for payment processing fees, platform costs, gaming duties and costs related to revenue sharing arrangements, $2.6 million for the game provider expenses and $1.8 million for lower other direct expenses related to the delivery of services. EEG Games also had a reduction in costs with $1.7 million lower hosting, hardware and equipment costs and other direct expenses.
Sales and Marketing
Sales and marketing expense totaled $5.9 million in the year ended June 30, 2023, a decrease of $19.8 million, or 77%, compared to the $25.7 million recorded for the year ended June 30, 2022. The decrease was primarily attributable to a $2.1 million reduction in marketing, $13.3 million lower affiliate costs and $0.2 million lower sponsorship costs related to the EEG iGaming segment and a $4.0 million reduction in corporate expense driven by $3.8 million less incurred for sponsorship agreements with professional sports clubs and our service partners, and $0.2 million less other sales and marketing costs.
General and Administrative
General and administrative expense totaled $28.9 million for the year ended June 30, 2023, a decrease of $22.4 million, or 44%, compared to the $51.3 million recorded for the year ended June 30, 2022. The decrease was primarily attributable to decreases of $5.4 million in payroll costs, $3.3 million depreciation and amortization, $2.5 million in information technology related costs, and $0.8 million decrease related to other general and administrative cost from the EEG iGaming segment, and further decreases of $0.8 million in payroll costs, $2.3 million depreciation and amortization, and $1.1 million related to other general and administrative costs from the EEG Games segment. Corporate general and administrative costs decreased $6.1 million with $1.3 million lower payroll costs, $3.5 million lower share based compensation expense and $1.3 million less other general and administrative cost primarily including lower professional fees.
Loss on disposal of businesses, net
During the year ended June 30, 2023, the Company recorded a loss on disposal of businesses, net of $3.5 million.
On January 18, 2023, the Company sold its Spanish iGaming operations, including its Spanish iGaming license and received approximately $1.2 million in proceeds and $1.1 million in cash from the return of a deposit held with the Spanish regulator. The Company recognized a gain on disposal of the Spanish iGaming operations of $1.1 million.
On February 24, 2023, the Company sold its Bethard Business for purchase consideration determined by the Company to be $8.1 million comprised of cash received on the Bethard Closing Date of €1.65 million ($1.7 million using exchange rates in effect on the Bethard Closing Date), holdback consideration of €0.15 million ($0.16 million using exchange rates in effect on the Bethard Closing Date) and the Company’s settlement of its contingent consideration liability of €5.9 million ($6.2 million using exchange rates in effect on the Bethard Closing Date) that had originated from its acquisition of the Bethard Business on July 13, 2021 and other liabilities. The Company recognized a loss on disposal of the Bethard Business of $7.7 million in Loss on disposal of businesses, net.
On November 10, 2022, the Company determined that it would close down its licensed remote gambling operation in the UK market. On December 8, 2022, Argyll UK surrendered its UK license and the surrender was confirmed by the UKGC on December 9, 2022. The Swiss courts declared Argyll Entertainment bankrupt on March 27, 2023, at which point the Company lost control of Argyll Entertainment and, as a result, deconsolidated the entity. The Company further liquidated and deconsolidated Argyll Productions on June 9, 2023. The Company had previously fully impaired the goodwill, intangible assets and other long-lived assets of Argyll UK in the fiscal year ended June 30, 2022. The Company recognized a gain on disposal of $2.1 million for Argyll Entertainment and $0.6 million for Argyll Productions, in loss on disposal of businesses, net.
As part of the sale and EGL on June 30, 2023, the Company recognized an additional gain on disposal of $0.4 million in loss on disposal of businesses, net.
The Company recognized a gain on sale of business of $1.1 million, which is included in other income (expense) in the year ended June 30, 2022.
Asset Impairment Charges
During the year ended June 30, 2023, the Company initiated a process to evaluate the strategic options for the EEG iGaming business, including exploring a sale of EEG iGaming assets due to increasing regulatory burdens and competition. In December 2022, the Company closed down its licensed remote gambling operation in the UK market and on December 9, 2022, surrendered its UK license, as part of the winding down of the Argyll UK iGaming operations. During the year ended June 30, 2023, the Company appointed a new Chief Executive Officer and a new interim Chief Financial Officer and on January 18, 2023, sold its EEG iGaming Spanish license. As part of these changes, the Company has been focused on reducing costs in its businesses as it has seen the EEG iGaming revenues decline significantly from levels seen in the previous year and previous quarters. This and uncertainties caused by inflation and world stability were determined to be a triggering event and the long-lived assets of the Company were quantitatively tested for impairment at December 31, 2022. For year ended June 30, 2023, the Company recognized total goodwill asset impairment charges of $16.1 million, with asset impairment charges to the goodwill of the iGaming reporting unit of $14.5 million, which is part of the EEG iGaming segment, and to the goodwill of the GGC reporting unit of $1.6 million, which is part of the EEG Games segment. Further downturns in economic, regulatory and operating conditions could result in additional goodwill impairment in future periods.
As of June 30, 2022, the Company determined that in-person attendance at its Helix and customer game centers is not expected to attain levels previously forecasted and that under the current liquidity and investment constraints it is less likely to reach the previously forecasted revenue and profits in EGL and GGC. For the year ended June 30, 2022, the Company recognized $38.6 million of asset impairment charges of long-lived assets, including $23.1 million of goodwill and $15.5 million of long-lived assets in the EGL, GGC and Helix reporting units from the EEG Games segment. Also, during the year ended June 30, 2022, due to continuing liquidity and investment restraints and the additional regulation and expected costs of continuing in the UK market that the iGaming Argyll (UK) goodwill and asset group intangible assets and equipment were impaired resulting in asset impairment charges of $7.9 million, including $3.9 million of goodwill and $4.0 million of other long-lived assets in the iGaming Argyll reporting unit from the EEG iGaming segment. This was a total for the year ended June 30, 2022 of $46.5 million.
Other Income (expense)
Other income (expense), net changed $26.5 million from an expense of $18.5 million for the year ended June 30, 2022 to income of $8.0 million for the year ended June 30, 2023. The other income for the year ended June 30, 2023 resulted primarily from $2.5 million of interest expense related to the Senior Convertible Note, $1.8 million for the loss on extinguishment of the Senior Convertible Note related to the conversion of $19.3 million of the Senior Convertible note into 2,242,143 shares of our common stock and an increase of $2.9 million for the change in the fair value of the contingent consideration for Bethard, offset by other income primarily made up of $7.4 million for the change in the fair value of the derivative liability on Senior Convertible Note and $7.1 million from the reduction in fair value of the warrant liability. The driver of the change in fair value of the warrants was a decrease of $5.0 million for the September 2022 Warrants issued as part of the September 2022 Offering that decreased from the $5.3 million valued on issuance at September 19, 2022 to $0.3 million at June 30, 2023 and a decrease of $2.0 million for the March 2022 Warrants from $2.1 million at June 30, 2022 to $0.1 million at June 30, 2023. Other warrants also decreased $0.1 million for the year ended June 30, 2023.
The other expense for the year ended June 30, 2022 results primarily from the $10.9 million expense for derivative liabilities on senior convertible note, $28.5 million of loss on extinguishment primarily attributable to amortization of the debt discount, $6.0 million loss on the conversion of the Senior Convertible Note, driven by the conversion of a principal provided to the Senior Convertible Note holder as part of the October 13, 2021 waiver provided on the covenants related to the Senior Convertible Note and $6.4 million in interest expense. These expenses were offset by other income primarily made up of $2.4 million for the change in the fair value of the contingent consideration due as part of the Bethard transaction and $31.5 million from the reduction in fair value of the warrant liability. The Series A and Series B Warrants fair value decreased from $23.5 million as of June 30, 2021 to $0.1 million and the March 2022 Warrants decreased from initial fair value of $10.2 million to $2.1 million as of June 30, 2022, resulting in a total gain of $31.5 million.
Income Tax (expense) benefit
Income tax expense for June 30, 2023 was not material. During the year ended June 30, 2023, the Company recorded no material current taxes, remained in a cumulative loss position in all jurisdictions, and maintained a full valuation allowance position against any deferred tax assets in the jurisdictions it operated in, thus recording no deferred tax benefits or expenses. The income tax benefit for the year ended June 30, 2022 was $5.7 million, which resulted primarily from the release of valuation allowance of $5.7 million that followed an assessment of the realizability of our deferred tax assets subsequent to the completion of the Bethard acquisition.
Capital Resources and Liquidity
Liquidity and Going Concern
The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Company has determined that certain factors raise substantial doubt about its ability to continue as a going concern for a least one year from the date of issuance of these consolidated financial statements.
The Company considered that it had an accumulated deficit of $181.4 million as of June 30, 2023 and that it has had a history of recurring losses from operations and recurring negative cash flows from operations as it has prepared to grow its esports business through acquisition and new venture opportunities. At June 30, 2023, the Company had total current assets of $4.0 million and total current liabilities of $8.9 million. Net cash used in operating activities for the year ended June 30, 2023 was $15.7 million, which includes a net loss of $32.3 million.
The Company also considered its current liquidity as well as future market and economic conditions that may be deemed outside the control of the Company as it relates to obtaining financing and generating future profits. As of June 30, 2023, the Company had $1.7 million of available cash on-hand and net current liabilities of $4.8 million.
In determining whether the Company can overcome the presumption of substantial doubt about its ability to continue as a going concern, the Company may consider the effects of any mitigating plans for additional sources of financing. The Company identified additional financing sources it believes, depending on market conditions, may be available to fund its operations and drive future growth, which include (i) up to $7.2 million in gross proceeds from the Equity Distribution Agreement, through an “at the market” (“ATM”) equity offering program whereby the Company will retain 50% of the net proceeds from ATM Sales (after deducting the agent’s commissions pursuant to the “at the market” offering and other customary offering expenses) and the remaining 50% of the net proceeds from ATM Sales be used by the Company to redeem first, the outstanding shares of Series D Convertible Preferred Stock and second, the outstanding shares of Series C Preferred Stock, unless the Holder elects to change such allocations (discussed further below per the waiver dated October 6, 2023); (ii) the potential expected proceeds from future offerings, where the amount of the offering has not yet been determined; and (iii) the ability to raise additional financing from other sources. The Company has been able to raise additional funds through the capital markets and direct offerings and has recently completed the following transactions that have added to cash flow and include additional potential sources of funding, including, (1) on May 22, 2023 the Company closed the issuance of the Series D Preferred Stock, that includes the issuance of (i) 4,300 shares of Series D Preferred Stock for a price of $1,000 per share, (ii) Common Warrants to purchase 1,433,333 shares of our common stock at a price of $1.96 per share, and (iii) preferred warrants to purchase 4,300 shares of our Series D Preferred Stock at a price of $1,000 per share, for a total gross proceeds to the Company of $4.3 million before deducting underwriting discounts and commissions of $0.3 million, for net proceeds of $4.0 million, with the preferred warrants to purchase the Series D Preferred Stock as a potential source of additional funds; (2) on August 15, 2023, the Company closed a securities purchase agreement with the holder of the Company’s outstanding Series C Preferred Stock and Series D Preferred Stock (the “Holder”) (the “August RD SPA”). The August RD SPA relates to the offering of (i) 1,000,000 shares of our common stock (the “Common Stock”), $0.001 par value per share, for a price of $0.1935 per share, directly to the Holder and (ii) pre-funded warrants to purchase 4,167,959 shares of our Common Stock at a price of $0.1935 per warrant, directly to such Holder (the “August RD Pre-funded Warrants”), with all but $0.001 per warrant prepaid to the Company at the closing of the offering. The August RD Pre-funded Warrants were exercisable immediately upon issuance and were entirely exercised at an exercise price of $0.001 per share of Common Stock on August 17, 2023. The gross proceeds from the issuance and sale of the shares of Common Stock and August RD Pre-funded Warrants, was approximately $1.0 million, before deducting the estimated offering expenses payable of $130,000, for net proceeds of $870,000;
These above plans are likely to require the Company to place reliance on several factors, including favorable market conditions, to access additional capital in the future. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.
The amount of available cash on hand on October 12, 2023, one business day preceding this filing, was $0.3 million.
The Company believes that its current level of cash is not sufficient to fund its operations and obligations without additional financing. Although the Company has financing available, as described above, the ability to raise financing using these sources is subject to several factors, including market and economic conditions, performance, and investor sentiment as it relates to the Company and the esports and iGaming industry. The combination of these conditions was determined to raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these consolidated financial statements.
Our material cash requirements include sponsorships with professional teams and an online wagering and services agreement. The Company is expected to incur $0.5 million in sponsorship obligations with various sports teams, with $0.3 being incurred within the next 12 months. The Company is also required to pay $1,250,000 and issue 100 shares of common stock annually under the Bally’s Corporation wagering and services agreement that extends for 10 years from July 1, 2021 and has minimum annual commitments from September 28, 2023 of approximately $385,000 under the online wagering and services agreement with Delasport Limited that has an initial term of 18 months with subsequent annual renewals.
The Company’s sources and (uses) of cash for the year ended June 30, 2023 and 2022 are shown below:
Cash (used in) operating activities $ (15,746,481 ) $ (21,006,437 )
Cash provided by (used in) investing activities $ 2,936,561 $ (20,080,376 )
Cash provided by financing activities $ 8,679,888 $ 23,488,285
Net cash used in operating activities for the year ended June 30, 2023 was $15.7 million, which includes a net loss of $32.3 million, offset by net non-cash adjustments of $16.6 million.
Net cash provided by investing activities for the year ended June 30, 2023 totaled $2.9 million principally related to the sale of the Bethard business and Spanish operations.
Net cash provided by financing activities for the year ended June 30, 2023 totaled $8.7 million, which related to $4.0 million net proceeds from the sale of the Series D Convertible Preferred Stock issuance, $9.0 million net proceeds from the December 2022 Registered Direct Offering, including exercise of pre-funded warrants, and the September 2022 Offering, offset by the repayments of part of the Senior Convertible Note principal of $3.5 million, repayments of notes payable and a finance lease for less than $0.1 million and the payments of the dividends on the 10% Series A cumulative redeemable convertible preferred stock of $0.8 million.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies to the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires our management to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on management’s historical and industry experience and on various other assumptions that are believed to be reasonable under the circumstances. On a regular basis, we evaluate these accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our estimates, and such differences could be material.
A full discussion of our significant accounting policies is contained in Note 2 to our consolidated financial statements, which is included in Item 8 - “Financial Statements and Supplementary Data” of this report.
We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial results. These estimates require our most difficult, subjective or complex judgments because they relate to matters that are inherently uncertain.
Revenue recognition
Revenue and Cost Recognition
The revenue of the Company is currently generated from online casino and sports betting (referred to herein as “EEG iGaming revenue”), and esports revenue (referred to herein as “EEG Games Revenue”), consisting of the sales of subscriptions to access cloud-based software used by independent operators of game centers, and from hardware and equipment sales, consulting and data analytic services provided to game operators (“EEG Games Esports and Other Revenue”), and from the provision of esports event and team management services (“EEG Games Esports Event Management and Team Service Revenue”). The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“ASC 606”) when control of a product or service is transferred to a customer. The amount of revenue is measured at the transaction price, or the amount of consideration that the Company expects to receive in exchange for transferring a promised good or service. The transaction price includes estimates of variable consideration to the extent that it is probable that a significant reversal of revenue recognized will not occur.
Revenue generating activities of the Company may be subject to value added tax (“VAT”) in certain jurisdictions in which the Company operates. Revenue is presented net of VAT in the consolidated statements of operations. VAT receivables and VAT payables are included in other receivables and accounts payable and accrued expenses, respectively on the consolidated balance sheets. Sales to customers do not have significant financing components or payment terms greater than 12 months.
EEG iGaming Revenue
EEG iGaming revenue is derived from the placement of bets by end-users, also referred to as customers, through online gaming sites. The transaction price in an iGaming contract, or Net Gaming Revenue (“NGR”), is the difference between gaming wins and losses, as further reduced by any nondiscretionary incentives awarded to the customer. Gaming transactions involve four performance obligations, namely the settlement of each individual bet, the honoring of discretionary incentives available to the customer through loyalty reward programs, the award of free spin and deposit match bonuses, and the winning of a casino jackpot. The total amount wagered by a customer is commonly referred to as the win or Gross Gaming Revenue (“GGR”). The GGR is allocated to each performance obligation using the relative standalone selling price determined for iGaming contracts.
Revenue recognition for individual wagers is recognized when the gaming occurs, as such gaming activities are settled immediately. The revenue allocated to incentives, such as loyalty points offered through a rewards program, is deferred and recognized as revenue when the loyalty points are redeemed. Revenue allocated to free spins and deposit matches, referred to as bonuses, are recognized at the time that they are wagered. Jackpots, other than the incremental progressive jackpots, are recognized at the time they are won by customers. The Company applies a practical expedient by accounting for its performance obligations on a portfolio basis as iGaming contracts have similar characteristics. The Company expects the application of the revenue recognition guidance to a portfolio of iGaming contracts will not materially differ from the application of the revenue recognition guidance on an individual contract basis.
The Company evaluates bets that its users place on websites owned by third party brands in order to determine whether it may recognize revenue on a gross basis, when acting as the principal provider of the wagering service, or on a net basis, when acting as an intermediary or agent. The principal in a wagering service involving a third party is generally the entity that controls the wagering service such that it has a right to the services being performed by the third party and can direct the third party in delivery of the service to its users. The Company records revenue on a gross basis as it has determined it is the principal in transactions involving third parties, such as revenue sharing arrangements, as it controls the wagering service being offered to the users such that it has a right to the service performed by third parties and can further direct third parties in providing services to users. The Company further records expenses related to its revenue sharing arrangements and other third-party iGaming expenses within costs of revenue in the consolidated statements of operations.
EEG Games Revenue
EEG Games Esports and Other Revenue
The Company derives revenue from sales of subscriptions to access cloud-based software used by independent operators of game centers, as well as from consulting services provided to game operators. The revenue derived from the sale of subscription services to cloud-based software used by game centers is recognized over the term of the contract, using the input method of time lapsed to measure the progress toward satisfying the performance obligation, which generally can range from one month to three years in duration, beginning on the date the customer is provided access to the Company’s hosted software platform. Maintenance services are recognized over time, using the input method as services are performed.
The Company previously derived revenue from its operation of game centers and revenue was recognized when a customer purchased time to use the esports gaming equipment at each center. The revenue from time purchased by a customer and from the sale of concessions was recognized at the point of sale. The Company disposed of this revenue stream through the sale of Helix on June 10, 2022.
The Company further provides hardware and equipment sales and consultation services related to the use of hardware and equipment for gaming operations together with implementation services that include sourcing, training, planning, and installation of technology. The Company considers services related to hardware and equipment and implementation, as separate performance obligations. Revenue for hardware and equipment sales and implementation are recognized at a point in time upon satisfaction of the performance obligation when the customer obtains control.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each distinct performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account the Company’s overall pricing objectives, considering market conditions and other factors, including the value of the deliverables in the contracts, customer demographics, geographic locations, and the number and types of users within the contracts. The Company does not have any significant financing components or significant payment terms in its contracts.
EEG Games Esports Event Management and Team Service Revenue
The Company derived revenue from esports event management and team services prior to the sale of EGL on June 30, 2023. Esports event management services supported the creation, production and delivery of an esports event by providing event staffing, gaming consoles, and other technical goods and services for a customer event that is either hosted live in person or online. The revenue generated from esports event management services was generally earned on a fixed fee basis per event.
The esports team services offerings of the Company included recruitment and management services offered to sports clubs to facilitate their entrance into esports tournament competition. Team services provided to a customer may include player recruitment, administration of player contracts, processing of tournament admission, providing logistical arrangements, as well as providing ongoing support to the team during the event. Team services are earned on a fixed fee basis per tournament.
Esports event management and team services revenues were recognized over the term of the event or the relevant contractual term for services as this method best depicts the transfer of control to the customer. The Company recognized revenue for event management services based on the number of days completed for the event relative to the total days of the event. Revenue from team management services was recognized from inception of the contract through the end of the tournament using the number of days completed relative to the total number of days in the contract term. Revenue collected in advance of the event management or team services was recorded as deferred revenue on the consolidated balance sheets. The Company also could enter into profit sharing arrangements which were determined based on the net revenue earned by the customer for an event in addition to a fixed fee. Revenue recognition for profit sharing arrangements was recognized at the time the revenue from the event is determined, which is generally at the conclusion of the event. An event or team services contact may further have required the Company to distribute payments to event or tournament attendees resulting in the recognition of a processing fee by the Company. The Company did not recognize revenue from the processing of payments until the conclusion of the event or tournament.
The Company evaluated the service being provided under an esports event and team services contract to determine whether it should recognize revenue on a gross basis as the principal provider of the service, or on a net basis in a manner similar to that of an agent. The Company has determined that for esports event and team services contracts that allow for the assignment of individual tasks to a third-party contractor, the Company acted as the principal provider of the service being offered to the customer as it remains primarily responsible for fulfilling the contractual promise to the customer. In profit sharing arrangements, such as events that allow for the Company to share in the revenue earned by a customer for an event, the Company had determined it acts in the role of an agent to the customer as the event creator. The Company also determined it acted as an agent when it collected a processing fee for performing the service of distributing prize money on behalf of its customers to event or tournament winners.
Impairment of Goodwill and long-lived assets
Goodwill represents the excess of fair value of consideration paid for an acquired entity over the fair value of the assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but rather it is tested for impairment at the reporting unit level on an annual basis at the beginning of the fourth quarter of each fiscal year, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. A reporting unit represents an operating segment or a component of an operating segment. In accordance with ASC Topic 350 Intangibles - Goodwill and Other, after the disposals in the year ended June 30, 2023, our business is classified into the following reporting units: iGaming Malta and GGC.
In testing goodwill for impairment, we have the option to begin with a qualitative assessment, commonly referred to as “Step 0,” to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, including changes in our management, strategy and primary user base. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit. If it is determined that the fair value is less than its carrying amount, the excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss in accordance with Accounting Standards Update (“ASU”) No. 2017-04, Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. The Company utilizes a discounted cash flow analysis, referred to as an income approach, and uses internal and market multiples, to assess reasonableness of assumptions, to determine the estimated fair value of our reporting units. For the income approach, significant judgments and assumptions including anticipated revenue growth rates, discount rates, gross margins, operating expenses, working capital needs and capital expenditures are inherent in the fair value estimates, which are based on our operating and capital forecasts. As a result, actual results may differ from the estimates utilized in our income approach. The use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and could result in the recognition of additional impairment charges in the financial statements. As a test for reasonableness, the Company also considers the combined fair values of our reporting units to a reasonable market capitalization of the Company. The Company may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test.
Equipment and other long-lived assets, including finite lived intangibles, are evaluated for impairment periodically or when events and circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, an estimate of future undiscounted cash flows are determined through estimated disposition date of the asset. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions. An estimation of future cash flows requires significant judgment as the Company makes assumptions about future results and market conditions. Since the determination of future cash flows is an estimate of future performance, there may be impairments recognized in future periods in the event future cash flows do not meet expectations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide information required by this Item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See financial statements included in Item 15 “Exhibits, Financial Statement Schedules” of this annual report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
As previously reported on Form 8-K filed with the Securities and Exchange Commission on October 28, 2022, based on information provided by the Company’s independent registered public accounting firm, Friedman LLP, effective September 1, 2022, Friedman LLP combined with Marcum LLP and continued to operate as an independent registered public accounting firm. On October 25, 2022, the Audit Committee of the Board of Directors of the Company approved the dismissal of Friedman LLP and the engagement of Marcum LLP to serve as the independent registered public accounting firm of the Company. The services previously provided by Friedman LLP are now provided by Marcum LLP. There are no disagreements with accountants on accounting and financial disclosure.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. As further discussed below, we have identified material weaknesses in the effectiveness, design and operation of our disclosure controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and includes those policies and procedures that:
1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
As of June 30, 2023, management has not completed an effective assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) Internal Control - Integrated Framework. Management has concluded that, during the period covered by this report, our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.
1. We did not perform an ongoing and/or separate formal evaluation to determine whether the components of internal control are present and functioning within the period under audit;
2. We did not have sufficient period-end financial reporting controls in place as it relates to segregation of duties, reviews of certain completed or non-recurring transactions, accounting for income taxes, and certain procedures for preparing the financial statements and disclosures.
3. We did not have sufficient controls in place as it relates to information technology (“IT”) controls and IT controls were not formally evaluated to determine operating effectiveness, including the evaluation of system organization controls and related complementary user entity controls.
The material weaknesses described above could result in misstatements of the accounts and disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.
This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management’s report in this annual report.
Remediation Plans and Actions
Management has taken, and will continue to take, several actions to remediate the identified material weaknesses. By fiscal year end 2024:
● during the period ending June 30, 2023, the Company has undergone significant changes in its business composition and operations and is performing a risk assessment to reevaluate the control environment and to implement, enhance, monitor, and assess the internal controls; and
● continue with the development of procedures for executing the design, documentation, implementation, and assessment of internal controls.
Although management believes the Company has made improvements, additional efforts are necessary to remediate the material weaknesses. To further address the material weaknesses, the Company will, among other things, continue to:
● conduct training for process and control owners about the system of internal control and Sarbanes-Oxley requirements and control design and execution best practices;
● engaging an experienced income tax consultant to assist management
● reinforce accountability and retaining required supporting control documentation through the implementation of a control repository for retaining evidence;
● implement reporting tools and procedures for the monitoring of SOX compliance throughout the organization;
● perform detailed analysis of segregation of duties to minimize duty conflicts where possible as well as properly mitigate risks of any unavoidable conflicts; and
● perform detailed assessment and evaluation of information technology controls to ensure the proper controls are designed and implemented including the evaluation of third-party system and organization control reports.
In addition, under the direction of the Audit Committee of the Company’s Board of Directors, management will continue to develop and implement policies and procedures to improve the overall effectiveness of internal control over financial reporting. Management believes the foregoing efforts will effectively remediate the material weaknesses. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may determine additional measures are necessary to address control deficiencies or determine that it is necessary to modify the remediation plan described above. Management cannot provide assurance as to when the Company will remediate such weaknesses, nor can management be certain of whether additional actions will be required or the costs of any such actions.
Changes in Internal Control over Financial Reporting
Other than changes described under “-Remediation Plans and Actions,” there were no changes in our internal control over financial reporting during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The names of our executive officers and directors and their age, title, and biography as of June 30, 2023 are set forth below. Our officers and directors serve until their respective successors are elected and qualified.
Name
Age
Position(s)
Non-Executive Directors:
Alan Alden
Director
Jan Jones Blackhurst
Director and Chair of the Board of Directors
Chul Woong Lim
Director
Robert Soper
Director
Executive Officers:
Alex Igelman
Chief Executive Officer (Principal Executive Officer)
Damian Mathews
Chief Operating Officer and Director,
Former Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) (resigned December 31, 2022) and
Former Chief Operating Officer (resigned December 31, 2022, reappointed May 29, 2023)
Jennifer Pace
Chief People Officer
Lydia Roy
Group General Counsel and Compliance, Corporate Secretary
Michael Villani
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
The following noteworthy experience, qualifications, attributes and skills for each Board member, together with the biographical information for each person described below, led to our conclusion that the person should serve as a director in light of our business and structure:
Alan Alden
Mr. Alden has served as a director of the Company since October 2020. Mr. Alden has been a specialist in advising remote gaming companies located in Malta since 2000, when he advised the first remote gaming companies as the Senior Manager of Enterprise Risk Services at Deloitte & Touche (Malta). In 2006, Mr. Alden established Kyte Consultants Ltd, a company that specialized in the remote gaming and payment card sectors, to assist companies located in Malta. In 2009, Mr. Alden became a founding director in Contact Advisory Services Ltd, a licensed Company Service Provider that offers a complete service to its customers, from company incorporation, to licensing for gaming and financial institutions. Since 2010, Mr. Alden has served as the General Secretary of the Malta Remote Gaming Council. Mr. Alden is a Certified Information Systems Security Professional and a Certified Information Systems Auditor. Mr. Alden was also the founding President of the ISACA Malta Chapter between 2005 and 2008. In 2015, Mr. Alden became a Part Time Lecturer on IT Auditing at the University of Malta. Mr. Alden was selected to serve as a director because of his extensive experience in the gaming industry.
Jan Jones Blackhurst
Ms. Jones Blackhurst has served as a director of the Company since May 2022 and as Chair of the Board of Directors on . Ms. Jones Blackhurst has served as a director of Caesars Entertainment, Inc. (Nasdaq: CZR) since October 2019. Ms. Jones Blackhurst served as Executive Vice President, Public Policy and Corporate Responsibility of Caesars from May 2017 through September 2019. Ms. Jones Blackhurst also served as Executive Vice President of Communications and Government Relations of Caesars from November 2011 until May 2017 and as Senior Vice President of Communications and Government Relations of Caesars from November 1999 to November 2011. Ms. Jones Blackhurst has over 20 years of experience in the gaming industry and has played a key role in innovating responsible gaming programs that are now used throughout the industry. Ms. Jones Blackhurst serves as the Chairwoman of the Public Education Foundation and as Chief Executive-In-Residence of the UNLV International Gaming Institute. Ms. Jones Blackhurst became Executive Director, UNLV Black Fire Leadership Initiative in January 2022. Since February 2022, Ms. Jones Blackhurst has served as a director of Gaming & Hospitality Acquisition Corp. Prior to joining Caesars, Ms. Jones Blackhurst served two terms as Mayor of Las Vegas, from 1991 until 1999. Ms. Blackhurst was selected to serve as a director because of her extensive experience in the gaming industry and proven leadership abilities.
Chul Woong Lim
Mr. Lim has served as a director of the Company since October 2020. Since June 2018, Mr. Lim has served as Director of Global Business for Loud Communications based in Seoul, South Korea. Between 2014 and 2018 Mr. Lim was the Secretary General of the International e-Sports Federation (IeSF) based in Seoul, South Korea where he was responsible for relations with 47 national federations, international sports authorities, and global partners, in addition to organizing and operating the eSports World Championship and other international esports tournaments. During 2010, Mr. Lim was Deputy Manager of Sports Marketing with FIRSONS Inc., a Seoul, South Korea based sports events marketing firm. Mr. Lim served as a director of the Company from January 30, 2015 and October 26, 2016. Mr. Lim received a B.S. in Physical Education from Seoul National University. Mr. Lim was selected to serve as a director because of his extensive experience in the gaming industry.
Robert Soper
Mr. Soper has served as a director since June 2023. Mr. Soper has served as Chief Executive Officer and Founder of Sun Gaming & Hospitality LLC since April 2017. Mr. Soper also served as International President for Mohegan Gaming & Entertainment from March 2021 to June 2022. Prior to this, Mr. Soper spent over 20 years serving in various executive roles, including as President and Chief Executive Officer of various Mohegan Sun entities. Mr. Soper previously served as President and Chief Executive Officer of Mohegan Sun Pocono in Wilkes-Barre, PA, and President and Chief Executive Officer of Mohegan Sun in Uncasville, Connecticut. As President and Chief Executive Officer of these properties, Mr. Soper was responsible for overseeing the successful launch of the first casino in the Commonwealth of Pennsylvania as well as the launch of online gaming for the organization. In addition, Mr. Soper served as President and Chief Executive Officer of the Mohegan parent company, Mohegan Tribal Gaming Authority (MTGA) where he oversaw all business development efforts and day-to-day operations of MTGA. Mr. Soper graduated magna cum laude with a Bachelor of Business Administration in Economics from the University of Georgia, and graduated with a Juris Doctor from the University of Georgia Law with honors, also serving on the Editorial Board of the Georgia Law Review. Mr. Soper currently serves on the board of directors of Playgon Games, a Toronto-based public company. Mr. Soper was selected to serve as a director due to his extensive experience in the gaming industry.
Alex Igelman
Mr. Igelman has served as the Company’s Chief Executive Officer since January 2023. He has more than 30 years of experience in the gaming industry. He is a gaming lawyer and the co-founder of FairP2P and Esports Capital Corp., entities which have been leaders in their respective sectors. During his career, Mr. Igelman worked across the gambling and gaming industry in a variety of senior leadership positions. From 2016 to 2019, Mr. Igelman served as Chief Executive Officer and Executive Chairman of Millennial Esports Corporation, an esports platform provider and from 2019, was Founder and Managing Director of Esports Capital Corp. advisory and investment company. Mr. Igelman provides extensive knowledge of esports and related businesses to the Company and is well connected within esports and gaming.
Damian Mathews
Mr. Mathews is the Company’s Chief Operating Offer, reappointed effective May 29, 2023. Mr. Mathews joined as a Director in June 2020 and was the chair of the Audit Committee until he took on other roles at the Company in 2022. Mr. Mathews previously served as our Chief Financial Officer of the Company since April 2022 and added the role of Chief Operating Officer in June 2022 until his resignation from those positions on December 31, 2022. Mr. Mathews combines over 25 years of experience in senior finance positions within investment management, banking and accounting. Previously, Mr. Mathews served as Group Chief Operating Officer at Auckland Real Estate Co. from 2021 to 2022 and as Chief Financial Officer at the Qatar and Abu Dhabi Investment Company (a sovereign wealth fund owned investment company) from 2014 to 2020. From 2012 to 2014 he was a Director of his own consultancy business, NZ Pacific Investments, in New Zealand. From 2009 to 2012 he held senior management positions including General Manager Finance (New Zealand); Head of Finance and Operations Americas (United States); and Head of Change Management (Australia) at Commonwealth Bank of Australia Group. From 2007 to 2008, Mr. Mathews was a Director in Product Control at ABN Amro Bank in London. From 2002 to 2006 he held various senior financial controller positions at Royal Bank of Scotland Group in London. From 1998 to 2002 he was an Assistant Vice President at Credit Suisse First Boston investment bank in London and the Bahamas. From 1994 to 1998, he was an Assistant Manager at KPMG in London. He has a joint honors undergraduate degree in Economics and Politics from the University of Bristol in the United Kingdom and is a fellow of the Institute of Chartered Accountants in England and Wales. Mr. Matthews was selected to serve as a director due to his extensive financial experience and valuable operational and strategic insights to the Board’s decision-making process from his term as Chief Financial Officer of the Company.
Jennifer Pace
Ms. Pace has been the Chief People Officer of the Company since September 2022. Previously, Ms. Pace was the Senior Vice President of Human Resources and Administration since September 2022. Ms. Pace combines over two and a half years of experience in iGaming/gaming senior management following a 22-year career in the financial services sector. Ms. Pace was the Vice President of Payments and People Operations of the Company from April 2020 to September 2022 and the Head of Payments of the Company from January to April 2020. She was also the company secretary for Western Union Business Solutions from February to December 2018 and for Western Union Malta Holdings Limited and Western Union Malta Ltd from December 2017 to December 2018. From November 2014 to December 2018, she was a director of Western Union Business Solutions, Western Union Malta Holdings Limited and Western Union Malta Ltd. From 2011 through 2018, Ms. Pace was the country manager for Western Union Business Solutions, a financial services and B2B payments company. From 2009 to 2011, she was country manager Malta/Cyprus & Lebanon for Travelex Financial Services Ltd, a company involved in financial services and B2B Payments. From 1992 to 2000, she was a business development manager and FX Trader of Thomas Cook Financial Services Ltd, a financial services Business to Business and Business to Customer company that focused on foreign exchange. Ms. Pace is also currently a director of Esports Entertainment (Malta) Ltd, Prozone Ltd, BHGES PLC., all iGaming licensed companies. Ms. Pace holds a level 3 CISI Finance and Financial Management Services qualification, Level 3 and an MQF Level 7 (MA equivalent) in Advanced Employment Law.
Lydia Roy
Ms. Roy has been Group General Counsel and Compliance, Corporate Secretary for the Company since February 2022. Ms. Roy joined the Company in 2022 as Head of Legal, Esports. Prior to joining the Company, Ms. Roy served as senior counsel for Flutter Entertainment- The Stars Group Brand from 2017 to 2022, and several multinational corporations ranging from gaming, logistics and security. Ms. Roy received a bachelor’s degree in Political Science and Sociology from the University of Ottawa. She received a J.D. and L.L.L from the University of Ottawa Law School. Ms. Roy is a member of the Law Society of Ontario in Canada and a member of the Massachusetts Bar. She is licensed to practice in Ontario Canada, Massachusetts and Florida as Authorized House Counsel Florida Bar.
Michael Villani
Mr. Villani has served as the Company’s Chief Financial Officer since August 2023, and interim Chief Financial Officer since January 2023. Mr. Villani joined the Company in February 2022 as its Financial Controller. Prior to joining the Company, Mr. Villani worked as a Director in the Deal Advisory practice of KPMG supporting clients with technical accounting, buy-side and sell-side transactions, initial public offerings (IPOs) and SEC reporting. Mr. Villani worked a total of 18 years at KPMG LLP, with 9 years in the Deal Advisory practice and 9 years in the audit practice. Mr. Villani was also previously employed as the Chief Financial Officer of a Geneva-based hedge fund and has held other senior accounting level roles at public companies. Mr. Villani is a CPA and is a graduate of Pace University, magna cum laude.
Ms. Jones Blackhurst and Messrs. Alden, Lim and Soper, are independent directors as that term is defined in Section 5605(a)(2) of the Nasdaq rules.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Board Composition and Director Independence
Our Common Stock and warrants are listed on The Nasdaq Capital Market. Under the rules of Nasdaq, “independent” directors must make up a majority of a listed company’s Board of Directors. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable Nasdaq rules. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.
Our Board of Directors consists of five members. The directors will serve until our next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term is defined in Rule 5605(a)(2) of the Nasdaq rules.
In making the determination of whether a member of the Board of Directors is independent, our Board of Directors considers, among other things, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions.” The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our Board of Directors affirmatively determined that Ms. Jones Blackhurst and Messrs. Alden, Lim and Soper are qualified as independent and do not have any material relationships with us that might interfere with exercising independent judgment.
Board Committees
Our Board of Directors has established an Audit Committee and a Compensation, Nominating and Corporate Governance Committee. Each committee has its own charter, which is available on our website at https://esportsentertainmentgroup.com/governance-documents/. Each of the board committees has the composition and responsibilities described below.
Members will serve on these committees until their resignation or until otherwise determined by our Board of Directors.
Our independent directors noted above are independent within the meaning of the Nasdaq rules.
The members of each committee are, as follows:
Audit Committee: Mr. Alden, Ms. Jones Blackhurst and Mr. Lim. Mr. Alden serves as Chair.
Compensation, Nominating and Corporate Governance Committee: Ms. Jones Blackhurst, Mr. Alden and Mr. Lim. Ms. Jones Blackhurst serves as Chair.
Audit Committee
The Audit Committee oversees the Company’s accounting and financial reporting processes and oversees the audit of the Company’s consolidated financial statements and the effectiveness of our internal control over financial reporting. The specific functions of this Committee include, but are not limited to:
● selecting and recommending to our Board of Directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm;
● approving the fees to be paid to the independent registered public accounting firm;
● helping to ensure the independence of the independent registered public accounting firm;
● overseeing the integrity of our financial statements;
● preparing an audit committee report as required by the SEC to be included in our annual proxy statement;
● resolving any disagreements between management and the auditors regarding financial reporting;
● reviewing with management and the independent auditors any correspondence with regulators and any published reports that raise material issues regarding the Company’s accounting policies;
● reviewing and approving all related-party transactions; and
● overseeing compliance with legal and regulatory requirements.
Compensation, Nominating and Corporate Governance Committee
During the year ended June 30, 2023, the Board merged the Compensation Committee and the Nominating and Corporate Governance Committee into the Compensation, Nominating and Corporate Governance Committee (the “CNCG Committee”) to streamline the operations of the Board.
The CNCG Committee is responsible for setting compensation levels for the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and all other Named Executive Officers (“NEOs”) of the Company and members of the Company’s Board of Directors, establishes compensation, incentive and benefit plans for such individuals and approves payments under such incentive plans. In addition, the Committee is responsible for developing and implementing policies and procedures that relate to the Board’s responsibilities for general corporate governance including Board organization, membership and evaluation to meet its fiduciary obligations to Esports Entertainment Group, Inc. and its shareholders.
The Committee will have the following duties and responsibilities:
Compensation Levels for Named Executive Officers and Directors
● Establish compensation packages for the Company’s CEO, CFO, and other NEOs and directors with consideration of pay ranges for comparable positions in similar size companies. Data for such comparisons is obtained from nationwide surveys conducted by independent compensation consulting firms and from reviewing other companies’ compensation information included in their proxy statements.
● Set compensation for the Company’s CEO, CFO, and other NEOs within competitive ranges considering performance related factors including the Company’s overall results during the past year and its performance relative to a budgeted plan or stated goals and objectives. Consideration also is given to an individual’s contribution to the Company and the accomplishments of departments for which that individual has management responsibility as well as potential for future contributions to the Company.
● The Committee will review and approve goals and objectives of the CEO, CFO and other NEOs in consultation with the full Board, evaluate CEO, CFO, and other NEOs and directors’ performance in light of those objectives, and set CEO, CFO and other NEOs compensation levels consistent with those objectives.
● The Committee will review and approve the consideration paid to non-employee directors for any annual retainers and/or meeting fees. No member of the Committee will act to fix his or her own compensation except for uniform compensation paid to all directors for their services as such.
● The Committee will review and approve compensation packages for new NEOs and directors and termination or severance packages for the same and may also approve compensation for other company employees as requested by management.
● The Committee will review and approve the awards made under any executive officer bonus plan and provide an appropriate report to the Board.
Compensation Plans
● Review the competitiveness of the Company’s executive compensation programs and director compensation to: (a) attract and retain qualified individuals, (b) provide motivation to achieve the Company’s business objectives, and (c) align the interest of key leadership with the long-term interests of the Company’s shareholders.
● Review trends in management and director compensation, oversee the development of new compensation plans and, when necessary, approve the revision of existing plans.
● Review and make recommendations concerning long-term incentive compensation plans, including the use of stock options and other equity-based plans. Except as otherwise delegated by the Board, the Committee will act on behalf of the Board as the “Committee” established to administer equity-based and employee benefit plans, and as such will discharge any responsibilities imposed on the Committee under those plans, including making and authorizing grants, in accordance with the terms of those plans.
● Evaluation and selection of recipients of stock awards and options, establishing the timing of grants, and setting the option exercise price within the terms of the Option Plan, if any.
Resource Planning
● Ensures compensation policies are designed to attract and retain highly skilled individuals, reward outstanding individual performance, encourage cooperative team efforts and provide an incentive to enhance long term stockholder value.
● Review and discuss with the Board and senior officers’ plans for officer development and corporate succession plans for the CEO, CFO and other NEOs.
● Review periodic reports from management on matters relating to the Company’s personnel appointments and practices.
● Produce an annual Report of the Committee on Executive and Director Compensation for the Company’s annual proxy statement.
Nominating
● Sole authority to retain and terminate any search firm, at the company’s expense, to be used to identify director candidates and has the sole authority to approve any such firm’s fees and other retention and termination terms.
● Determine the skills and qualifications in accordance with search criteria required of potential directors, identify, screen potential candidates and make recommendations to the Board of Directors to fill vacancies on the Board. Full Board approval is required for nominees to stand for election at the annual meeting of the shareholders.
● Annually, evaluate candidates to be nominated to serve on the Board and recommend the slate of nominees to stand for election at the annual meeting of the shareholders. In evaluating candidates, the committee shall take into account the following: whether a candidate is independent, relevant experience, leadership qualities, diversity, and ability to represent shareholders.
● Annually review and recommend to the Board for approval the appointment of directors to Board committees and the selection of the Chair for each committee.
Corporate Governance
● Develop and recommend to the Board for approval a set of corporate governance principles and practices applicable to the company and review such principles annually and recommend amendments as necessary.
● Oversee the evaluation of the Board and its committees, which may include developing and recommending an annual review process.
● Annually review the Committee’s Charter to assess adequacy and update and/or amend as appropriate.
Code of Ethics
We have adopted a code of ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code is available on our corporate website at www. http://esportsentertainmentgroup.com/governance-documents. We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.
Board Diversity
We seek diversity in experience, viewpoint, education, skill, and other individual qualities and attributes to be represented on our Board of Directors. We believe directors should have various qualifications, including individual character and integrity; business experience; leadership ability; strategic planning skills, ability, and experience; requisite knowledge of our industry and finance, accounting, and legal matters; communications and interpersonal skills; and the ability and willingness to devote time to our company. We also believe the skill sets, backgrounds, and qualifications of our directors, taken as a whole, should provide a significant mix of diversity in personal and professional experience, background, viewpoints, perspectives, knowledge, and abilities. Nominees are not to be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The assessment of prospective directors is made in the context of the perceived needs of our Board of Directors from time to time.
All of our directors have held high-level positions in business or professional service firms and have experience in dealing with complex issues. We believe that all our directors are individuals of high character and integrity, are able to work well with others, and have committed to devote sufficient time to the business and affairs of our company. In addition to these attributes, the description of each director’s background set forth above indicates the specific qualifications, skills, perspectives, and experience necessary to conclude that each individual should continue to serve as a director of our company.
Board and Committee Meetings
Our Board of Directors held twenty formal board meetings, six formal Audit Committee meetings, one formal Compensation, Nominating and Corporate Governance Committee meeting and three formal Compensation Committee meetings during year ended June 30, 2023. Our Board of Directors held eleven formal board meetings and four formal Audit Committee meetings during year ended June 30, 2022.
Annual Meeting Attendance
We encourage each of our directors to attend annual meetings of stockholders. To that end, and to the extent reasonably practicable, we will schedule a meeting of our Board of Directors on the same day as our annual meeting of stockholders.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
For the year ended June 30, 2023, our named executive officers (“Named Executive Officers” or “NEOs”) were:
● Alex Igelman, Chief Executive Officer
● Damian Mathews, Chief Operating Officer and Director
● Jennifer Pace, Chief Human Resources Officer
● Lydia Roy, Group General Counsel, Compliance and Corporate Secretary
● Michael Villani, Chief Financial Officer
● John Brackens, Chief Information Officer and Chief Technology Officer, through May 2023
● Grant Johnson, Chief Executive Officer, through December 2022
The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our Chief Executive Officer (Principal Executive Officer or PEO) and our two most highly compensated executive officers other than the Principal Executive Officer during fiscal years 2023 and 2022 (collectively, the “Named Executive Officers”) who served in such capacities. We have included the former Chief Executive Officer and the former Chief Information Officer and Chief Technology Officer, who resigned from their positions during the year. We also included Damian Mathews, who resigned from his position as Chief Financial Officer and Chief Operating Officer on December 31, 2022 and later rejoined the Company as the Chief Operating Officer on May 29, 2023.
Name and Principal Position Year Salary
($)
Bonus Stock
Awards ($)(1)
Option
Awards
($)(1)
Other
Annual
Compensation ($)
All Other
Compensation
($)
Total
($)
Alex Igelman, $ 150,000 - 184,000 84,312 - - $ 418,312
Chief Executive Officer (2) $ - - - - - - $ -
Damian Mathews, $ 173,334 - - - - - $ 173,334
Chief Financial Officer and Chief Operating Officer (3) $ 68,811 - 142,400 160,054 - 11,500 $ 382,765
Lydia Roy, $ 250,000 - - - - - $ 250,000
Group General Counsel, Compliance and Corporate Secretary (4) $ 205,000 - - 107,769 - - $ 312,769
Michael Villani, $ 227,500 - - - - - $ 227,500
Chief Financial Officer and Financial Controller (5) $ 205,000 - - 106,702 - - $ 311,702
John Brackens, $ 175,000 - - - - 66,667 $ 241,667
Former Chief Information Officer and Chief Technology Officer (6) $ 200,000 - - 164,321 - - $ 364,321
Grant Johnson, $ 125,000 - - - - - $ 125,000
Former Chief Executive Officer and President (7) $ 300,000 - - 164,321 - 14,800 $ 479,121
(1) For awards of stock and options, the aggregate grant date fair value was computed in accordance with ASC 718 on the date of grant.
(2) Mr. Igelman has an annual salary of $300,000. Mr. Igelman was appointed Chief Executive Officer of the Company on January 3, 2023. In connection with his appointment, he received inducement equity awards outside the Company’s Esports Entertainment Group, Inc. 2020 Equity Incentive Plan in accordance with Nasdaq Listing Rule 5635(c)(4). Mr. Igelman was granted an award of 25,000 shares of common stock at $7.36 grant price and an award of 25,000 time-based stock options at $3.37 on January 3, 2023.
(3) Mr. Mathews has an annual salary of $280,000 following his appointment as Chief Operating Officer on May 29, 2023. Previously, Mr. Mathews earned a salary of $300,000 in his role as Chief Financial Officer and Chief Operating Officer until his resignation from those positions on December 31, 2022. During the year ended June 30, 2022, and in connection with his appointment as Chief Financial Officer on April 4, 2022, Mr. Mathews was issued 2,000 shares of Common Stock at $71.00 grant price. As part of his role as non-executive director Mr. Mathews received director fees of $11,500 and was issued 300 stock options at $533.51 fair value grant price during the year ended June 30, 2022.
(4) Ms. Roy has an annual salary of $250,000. Ms. Roy was appointed Group General Counsel, Compliance and Corporate Secretary for the Company from February 2022. Ms. Roy joined the Company in 2021 as Head of Legal, Esports. During the year ended June 30, 2022, Ms. Roy was issued 202 stock options at a $533.51 fair value grant price.
(5) Mr. Villani has an annual salary of $227,500 during the year ended June 2023 and $205,000 during the year ended June 30, 2022. Mr. Villani was appointed Interim Chief Financial Officer and Financial Controller on January 6, 2023 and subsequently as permanent Chief Financial Officer on August 29, 2023. During the year ended June 30, 2022, Mr. Villani was issued 200 stock options at $533.51 fair value grant price.
(6) Mr. Brackens has an annual salary of approximately $200,000. Mr. John Brackens has served as the Company’s Chief Information Officer (CIO) and Chief Technology Officer (CTO) from September 20, 2019 to May 15, 2023. During the year ended June 30, 2022, Mr. Brackens was issued 308 stock options at $533.51 fair value grant price.
(7) Mr. Johnson had an annual salary of $300,000. During the year ended June 30, 2022, Mr. Johnson was issued 308 stock options at $534.00 fair value grant price. All other compensation includes $4,800 for office rent reimbursement and $10,000 for car allowance.
Employment Agreements
Alex Igelman
On December 23, 2022, Esports Entertainment Group, Inc. (the “Company”) announced the appointment of Alex Igelman as Chief Executive Officer, effective January 3, 2023. Mr. Igelman joins the Company with more than 30 years of experience in the gaming industry. He is a gaming lawyer and the co-founder of FairP2P and Esports Capital Corp., entities which have been leaders in their respective sectors. During his career, Mr. Igelman worked across the gambling and gaming industry in a variety of senior leadership positions.
In connection with Mr. Igelman’s appointment as Chief Executive Officer, Mr. Igelman and the Company entered into an employment agreement (the “Agreement”) on December 22, 2022, which provides for a base salary of $300,000 and the grant of common stock and stock options. These stock awards are being granted as inducement equity awards outside the Company’s Esports Entertainment Group, Inc. 2020 Equity Incentive Plan in accordance with Nasdaq Listing Rule 5635(c)(4). Pursuant to the terms of the Agreement, subject to the commencement of his employment, the Company will grant Mr. Igelman an award of 25,000 shares of common stock and an award of 25,000 time-based stock options. Mr. Igelman’s shares of common stock may not be sold or transferred until the six-month anniversary of the date of grant. Mr. Igelman’s stock options will vest in equal quarterly installments over a one-year period subject to his continued employment with the Company on the applicable vesting dates. The stock awards are subject to the terms of an award agreement outlining the specific terms of the stock awards. Mr. Igelman may also participate in the executive stock option plan consistent with other C-level officers. Mr. Igelman is eligible to earn an annual bonus of 50% of his base salary, subject to satisfaction of goals and objectives to be set each year by the Board of Directors (the “Board”).
The Agreement is at-will and either the Company or Mr. Igelman may terminate the employment at any time for any reason or no reason with 90 days advanced written notice. Upon termination of Mr. Igelman’s employment because of disability, the Company shall pay or provide Mr. Igelman, subject to continued compliance with applicable restrictive covenants, (i) any unpaid base fee and any accrued vacation through the date of termination; (ii) any unpaid annual bonus accrued with respect to the fiscal year ending on or preceding the date of termination; (iii) reimbursement for any unreimbursed expenses properly incurred through the date of termination; and (iv) any accrued benefits. Upon the termination of Mr. Igelman’s employment because of death, Mr. Igelman’s estate shall be entitled to any accrued benefits. Upon the termination of Mr. Igelman’s employment by the Company for cause or by either party in connection with a failure to renew the employment agreement, subject to continued compliance with applicable restrictive covenants, the Company shall pay Mr. Igelman any accrued benefits.
Damian Mathews
On May 29, 2023, the Company entered into an agreement with agreement with Mr. Mathews to serve as the Company’s Chief Operating Officer. Mr. Mathews salary is approximately $280,000 per annum paid in monthly payments in NZD. The employment agreement with Mr. Mathews is for one year and is automatically extended for an additional one year term unless the Company or Mr. Mathews provides written notice within 60 days notice prior to the end of the current employment term. Mr. Mathews is eligible to earn an annual employee stock option bonus in such amount, if any, as determined in the sole discretion of the Board. Mr. Mathews participates in the executive stock option plan consistent with other C-level officers. The employment agreement with Mr. Mathews may be terminated with or without cause. Upon termination Mr. Mathews’ employment because of disability, the Company shall pay or provide Mr. Mathews (i) any unpaid base fee and any accrued vacation through the date of termination; (ii) any unpaid annual bonus accrued with respect to the fiscal year ending on or preceding the date of termination; (iii) reimbursement for any unreimbursed expenses properly incurred through the date of termination; and (iv) any Accrued Benefits. Upon the termination of Mr. Mathews’ employment because of death, Mr. Mathews’ estate shall be entitled to any Accrued Benefits. Upon the termination of Mr. Mathews’ employment by the Company for cause or by either party in connection with a failure to renew the employment agreement, the Company shall pay Mr. Mathews any Accrued Benefits.
Lydia Roy
On February 7, 2022, the Company appointed Ms. Roy Group General Counsel, Compliance and Corporate Secretary. In connection with the appointment, Ms. Roy received a base salary of $250,000. The employment agreement with Ms. Roy is for one year and is automatically extended for an additional one-year term unless the Company or Ms. Roy provides written notice within 60 days notice prior to the end of the current employment term. Ms. Roy is eligible to earn an annual employee stock option bonus in such amount, if any, as determined in the sole discretion of the Board. Ms. Roy is also eligible to participate in the executive stock option plan consistent with other executive officers. The employment agreement with Ms. Roy may be terminated with or without cause. Upon termination Ms. Roy’s employment because of disability, the Company shall pay or provide Ms. Roy (i) any unpaid base fee and any accrued vacation through the date of termination; (ii) any unpaid annual bonus accrued with respect to the fiscal year ending on or preceding the date of termination; (iii) reimbursement for any unreimbursed expenses properly incurred through the date of termination; and (iv) any Accrued Benefits. Upon the termination of Ms. Roy’s employment because of death, Ms. Roy’s estate shall be entitled to any Accrued Benefits. Upon the termination of Ms. Roy’s employment by the Company for cause or by either party in connection with a failure to renew the employment agreement, the Company shall pay Ms. Roy any Accrued Benefits.
Michael Villani
Effective August 29, 2023, Esports Entertainment Group, Inc. (the “Company”) announced the appointment of Michael Villani, 47, as the permanent Chief Financial Officer, from his previous role as Interim Chief Financial Officer and Financial Controller. Mr. Villani serves as the Company’s Principal Financial Officer. In connection with Mr. Villani’s appointment as the Chief Financial Officer, Mr. Villani and the Company entered into an employment agreement (the “Agreement”) on August 29, 2023, which provides for a base salary of $250,000. Mr. Villani may also participate in the executive stock option plan consistent with other C-level officers. Mr. Villani is eligible to earn an annual discretionary bonus, subject to satisfaction of goals and objectives to be set each year by the Board.
The Agreement is at-will and either the Company or Mr. Villani may terminate the employment at any time, with or without Cause (as defined in the Agreement), or for any or no Cause, with 90 days advance written notice required to be provided by Mr. Villani to the Company. Upon termination of Mr. Villani’s employment, other than for Cause, the Company shall pay or provide Mr. Villani, subject to continued compliance with applicable restrictive covenants, three months’ salary continuation to be paid in accordance with the Company’s payroll practices.
Outstanding Equity Awards at June 30, 2023
The following table summarizes the outstanding equity award holdings held by our named executive officers and directors as of June 30, 2023. The shares issuable upon exercise of options as well as the option exercise price have been adjusted for the one-hundred-to-one reverse split completed by the Company on February 22, 2023.
Name Grant date Shares
issuable
upon exercise
of options Option
exercise
price ($)
Option
expiration
date
Non-Executive Directors:
Alan Alden, October 8, 2020 $ 482.00 January 7, 2026
Director (1) October 1, 2021 $ 671.00 October 1, 2026
Jan Jones Blackhurst N/A - - N/A
Director and Chair of the Board (2)
Chul Wong Lim, October 8, 2020 $ 482.00 January 7, 2026
Director (3) October 1, 2021 $ 671.00 October 1, 2026
Robert Soper, N/A - - N/A
Director (4)
Named-Executive Officers:
Alex Igelman, January 3, 2023 25,000 $ 7.36 January 3, 2033
Chief Executive Officer (5)
Damian Mathews, October 8, 2020 $ 482.00 January 7, 2026
Chief Operating Officer and Director (6) October 1, 2021 $ 671.00 October 1, 2026
Jennifer Pace, October 8, 2020 $ 482.00 January 7, 2026
Chief People Officer (7) October 1, 2021 $ 671.00 October 1, 2026
Lydia Roy, October 1, 2021 $ 671.00 October 1, 2026
Group General Counsel, Compliance and Corporate Secretary (8)
Michael Villani, October 1, 2021 671.00 October 1, 2026
Chief Financial Officer (9)
(1) Mr. Alden was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. and Chair of the Compensation Committee from October 1, 2020.
(2) Ms. Jones Blackhurst was appointed as Non-Executive Director of Esports Entertainment Group, Inc. from May 3, 2022 and as Chair of the Board of Director from December 3, 2022. Ms. Jones Blackhurst has not been issued stock or options in connection with her appointments at the Company.
(3) Mr. Lim was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. and a member of the Compensation Committee from October 1, 2020.
(4) Mr. Soper was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. from June 6, 2023. Mr. Soper has not been issued stock or options in connection with his appointment at the Company.
(5) Mr. Igelman was appointed Chief Executive Officer of the Company from January 3, 2023. Mr. Igelman received the options in connection with his appointment.
(6) Mr. Mathews was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. and Chair of the Audit Committee from October 1, 2020. Mr. Mathews resigned from his role as Non-Executive Director on appointment as Chief Financial Officer on April 2, 2022 and as an Executive Directory. Mr. Mathews also took on the role of Chief Operating Officer on June 1, 2022. Mr. Mathews resigned from his role as Chief Financial Officer and Chief Operating Officer on December 31, 2022 and rejoined the Company as Chief Operating Officer from May 29, 2023. Mr. Mathews remained on the Board of Directors throughout the year and continues to serve as director in addition to his Chief Operating Officer role.
(7) Ms. Pace was appointed Chief People Officer of the Company from September 1, 2022.
(8) Ms. Roy was appointed Group General Counsel, Compliance and Corporate Secretary of the Company from February 7, 2022.
(9) Mr. Villani was appointed Interim Chief Financial Officer and Financial Controller on January 6, 2023 and subsequently as permanent Chief Financial Officer on August 29, 2023.
Stock Incentive Plans
On September 10, 2020, the Board adopted the 2020 Equity and Incentive Plan (the “2020 Plan”) that provides for the issuance of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to officers, employees, directors, consultants, and other key persons. Under the 2020 Plan, the maximum number of shares of Common Stock authorized for issuance was 15,000 shares. Each year on January 1, for a period of up to nine years, the maximum number of shares authorized for issuance under the 2020 Plan is automatically increased by 2,340 shares. At June 30, 2023, there was a maximum of 22,019 shares of Common Stock authorized for issuance under the 2020 Plan. There were no additional equity awards eligible for issuance from the 2017 Stock Incentive Plan that had been adopted by the Company on August 1, 2017. The outstanding stock options granted under the 2017 Stock Incentive Plan were transferred to the 2020 Plan. As of June 30, 2023, there were 16,398 shares of Common Stock available for future issuance under the 2020 Plan. On January 3, 2023, the Company issued an award of 25,000 time-based stock options to the Chief Executive Officer with an exercise price of $7.36 per option outside of the 2020 Plan. The Chief Executive Officer’s stock options will vest in equal quarterly installments over a one-year period subject to his continued employment with the Company on the applicable vesting dates.
Incentive Stock Options
All of our employees are eligible to be granted Incentive Stock Options pursuant to the 2020 Plan as may be determined by our Board which administers the Plan.
Options granted pursuant to the 2020 Plan terminate at such time as may be specified when the option is granted.
The total fair market value of the shares of Common Stock (determined at the time of the grant of the option) for which any employee may be granted options which are first exercisable in any calendar year may not exceed $100,000.
In the discretion of the Board, options granted pursuant to the 2020 Plan may include installment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Board may also accelerate the date upon which any option (or any part of any option) is first exercisable. However, no option, or any portion thereof may be exercisable until one year following the date of grant. In no event shall an option granted to an employee then owning more than l0% of our Common Stock be exercisable by its terms after the expiration of five years from the date of grant, nor shall any other option granted pursuant to 2020 Plan be exercisable by its terms after the expiration of ten years from the date of grant.
Non-Qualified Stock Options
Our employees, directors and officers, and consultants or advisors are eligible to be granted Non-Qualified Stock Options pursuant to 2020 Plan as may be determined by our Board which administers the Plan, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our Common Stock.
Options granted pursuant to 2020 Plan terminate at such time as may be specified when the option is granted.
In the discretion of the Board options granted pursuant to the Plan may include instalment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Board may also accelerate the date upon which any option (or any part of any option) is first exercisable. In no event shall an option be exercisable by its terms after the expiration of ten years from the date of grant.
Stock Bonuses
Our employees, directors and officers, and consultants or advisors are eligible to receive a grant of our shares, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our Common Stock. The grant of the shares rests entirely with our Board which administers the Plan. It is also left to the Board to decide the type of vesting and transfer restrictions which will be placed on the shares.
Employee Pension, Profit Sharing or other Retirement Plan
We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Director Compensation
During the fiscal year ended June 30, 2023, the Non-Executive Directors deferred certain cash payments to repurpose resources to operational matters of the Company. The table below shows the compensation paid to our non-executive directors during the year ended June 30, 2023.
Name Year Fees Earned or
Paid in Cash Stock
Awards(1) Option
Awards(2) Total
Chul Woong Lim (3) $ 10,000 $ - $ - $ 10,000
Alan Alden (4) $ 5,000 $ - $ - $ 5,000
Damian Mathews (5) $ 2,500 $ - $ - $ 2,500
Jan Jones Blackhurst (6) $ - $ - $ - $ -
Kaitesi Munroe (7) $ 10,000 $ - $ - $ 10,000
Robert Soper (8) $ - - $ - $ -
(1) The fair value of stock issued for services computed in accordance with ASC 718 on the date of grant.
(2) The fair value of options granted computed in accordance with ASC 718 on the date of grant.
(3) Mr. Lim was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. and a member of the Compensation Committee (now CNCG Committee) as from October 1, 2020. Mr. Lim was appointed to the Audit Committee effective May 3, 2022.
(4) Mr. Alden was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. as from October 1, 2020. Mr. Alden was appointed to the Nominating and Governance Committee (now CNCG Committee) and as Chair of the Audit Committee on June 1, 2022.
(5) Mr. Mathews was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. and Chair of the Audit Committee as from October 1, 2020. Mr. Mathews resigned from his role as Non-Executive Director on appointment as Chief Financial Officer on April 2, 2022 and as an Executive Director. Mr. Mathews also took on the role of Chief Operating Officer on June 1, 2022. Mr. Mathews resigned from his role as Chief Financial Officer and Chief Operating Officer on December 31, 2022 and rejoined the Company as Chief Operating Officer from May 29, 2023. Mr. Mathews remained on the Board of Directors throughout the year and continues to serve as director in addition to his Chief Operating Officer role.
(6) Ms. Jones Blackhurst was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. from May 3, 2022. Ms. Jones Blackhurst was appointed to the Audit committee effective May 3, 2022, as Chair of the Compensation Committee and as Chair of the Nominating and Governance committee (both now the CNCG Committee) effective May 25, 2022.
(7) Ms. Munroe was appointed as a Non-Executive Director of Esports Entertainment Group, Inc from May 17, 2022. Ms. Munroe was appointed to the Compensation Committee, Nominating and Governance Committee effective June 1, 2022. Ms. Munroe resigned from her position on October 17, 2022.
(8) Mr. Soper was appointed as a Non-Executive Director of Esports Entertainment Group, Inc. from June 6, 2023. Mr. Soper did not receive any payments during the year ended June 30, 2023.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding our voting shares beneficially owned as of October 12, 2023 and is based on 67,329,316 shares of common stock issued and outstanding, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of October 12, 2023. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of October 12, 2023, is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise indicated, each of the stockholders named in the table below, or his or her family members, has sole voting and investment power with respect to such shares of our common stock. Except as otherwise indicated, the address of each of the stockholders listed below is: Block 6, Triq Paceville, St. Julians, Malta, STJ 3109.
The following shows the stock ownership of our named executive officers, directors, and any persons known to us who owns more than 5% of our common stock as of October 12, 2023.
Name and Address of Beneficial Owner
Amount and nature of beneficial ownership Percent of class
Alex Igelman
16 Calvin Chambers Road, Thornhill, Ontario, Canada, L4J 1E7 (1) 43,750 *
Michael Villani
84 Festival Court, White Plains, New York 10603 (2) *
Damian Mathews
69 De Luen Avenue Tindalls Beach, Whangaparaoa Auckland 0930 (3) 2,581 *
John Brackens
The Terraces, Triq is-Simar, Apt.7A, Xemxija St Paul’s Bay, Malta SPB9026 (4) *
Alan Alden
202, Yucca, Swieqi Road Swieqi, SWQ 3454, Malta (5) *
Jan Jones Blackhurst
100 West Liberty Street, 12th Floor Reno, NV, 89501
- *
Chul Woong Lim
204-804 Susaek Rd. 100 Seodaemun-gu Seoul, Korea (6) *
Robert Soper
3061 NW 125th Ave., Sunrise FL 33323
- *
Former Named Executive Officers (7) 35,546 *
All Executive Officers and Directors as a group
84,300 *
%
* less than 1%
(1) Includes 18,750 options to purchase shares of common stock currently exercisable.
(2) Includes 200 options to purchase shares of common stock currently exercisable.
(3) Includes 500 options to purchase shares of common stock currently exercisable.
(4) Includes 708 options to purchase shares of common stock currently exercisable.
(5) Includes 500 options to purchase shares of common stock currently exercisable.
(6) Includes 500 options to purchase shares of common stock currently exercisable.
(7) Includes 34,034 shares of common stock for the former Chief Executive Officer. Also, includes 756 shares of common stock for the former Chief Financial Officer and 756 shares of common stock for the former Chief Operating Officer, based on the most recently available information to the Company.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
Under our written Related Party Transactions Policy, our Group General Counsel, Compliance and Corporate Secretary will review any potential Related Party Transaction to determine if it is subject to the policy. If the Group General Counsel, Compliance and Corporate Secretary determines that it is subject to the policy, the transaction will be referred to our Audit Committee for approval or ratification. Our Company’s policy with regard to related party transactions is for the Audit Committee of the Board to approve any material transactions involving our directors, executive officers or holders of more than 5% of our outstanding capital stock.
Fiscal Years Ended June 30, 2023 and 2022
The Company’s Chief Executive Officer owns less than 5% of Oddin.gg, a vendor of the Company, that was owed $47,895 and $3,359 by the Company as of June 30, 2023 and 2022, respectively. The Company incurred cost of revenue to Oddin.gg of $72,107 and $52,791 for years ended June 30, 2023 and 2022. On October 3, 2023, the Company signed an agreement to integrate the Oddin.gg esports iFrame solution that will allow the Company to offer esports wagering to its iGaming customers. The integration of the Oddin.gg’s esports iFrame solution is expected to be completed by the Company in the first half of fiscal 2024. The agreement requires the Company to pay Oddin.gg a revenue share based on the net gaming revenues generated from esports wagering.
The Company reimbursed the former Chief Executive Officer for office rent and related expenses. The Company incurred charges owed to the former Chief Executive Officer for office expense reimbursement of $2,400 and $4,800 for the years ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and 2022, there were no amounts payable to the former Chief Executive Officer. The former Chief Executive Officer was terminated for cause by the Board from his position as Chief Executive Officer on December 3, 2022. The former Chief Executive Officer resigned from the Board on December 23, 2022.
On May 4, 2017, the Company entered into a services agreement and a referral agreement with Contact Advisory Services Ltd., an entity that is partly owned by a member of the Board. The Company incurred general and administrative expenses of $18,521 and $26,148 for years ended June 30, 2023 and 2022, respectively, in accordance with these agreements. As of June 30, 2023 and 2022, there was approximately $12,700 and $0 amounts payable to Contact Advisory Services Ltd, respectively.
The Company had retained services from a former member of its Board who remained as an advisor to the Company with an annual fee of $60,000. The member was previously retained through a consultancy agreement dated August 1, 2020 and an employment agreement dated June 15, 2020. The consultancy agreement required payments of £18,000 ($21,920 translated using the exchange rate in effect at June 30, 2022) per month to the firm that is controlled by this member of the Board. The individual also received payroll of $500 per month through the employment agreement as Chief Operating Officer. The member resigned from the Board and from his role as Chief Operating Officer on May 31, 2022 and the consultancy agreement and the employment agreement were terminated.
The Company retained the services of its former Chief Financial Officer and Chief Operating Officer through a consultancy agreement dated April 2, 2022 and an employment agreement dated April 2, 2022. The Company remitted monthly payments to its former Chief Financial Officer of NZD 36,995 ($23,524 translated using the exchange rate in effect at June 30, 2022) under the consultancy agreement and $500 per month under the employment agreement. In connection with this appointment the Company provided a one-time issuance of 2,000 shares of Common Stock to the former Chief Financial Officer and Chief Operating Officer. The former Chief Financial Officer and Chief Operating Officer resigned from his roles on December 31, 2022, and the consultancy agreement and employment agreement were terminated. He later rejoined the Company as the Chief Operating Officer on May 29, 2023 under a new employment agreement.
During the year ended June 30, 2022, the Company engaged in transactions with Tilt, LLC a game center operator controlled by the head of GGC. This included net sales to Tilt, LLC in the amount of $222,559 for game center equipment, and amounts paid to Tilt, LLC of $33,600 for equipment leased, $16,589 for services, $20,128 for cryptocurrency mining and $140,000 for purchases of computer inventory. The individual was no longer employed by the Company during the year ended June 30, 2023.
The remainder of the information required by this item is incorporated by reference to “Item 10. Directors, Executive Officers and Corporate Governance - Board Composition and Director Independence” and “- Board Committees.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
Audit Fees. The aggregate fees billed by our independent registered public accounting firms, for professional services rendered for the audit of our annual financial statements for the years ended June 30, 2023 and 2022, including review of our interim financial statements were $946,050 and $968,883, respectively. This includes $399,000 and $547,050 billed from Marcum LLP and Friedman LLP for the year ended June 30, 2023, respectively. All amounts were billed from Friedman LLP for the year ended June 30, 2022.
Audit Related Fees. We incurred fees to our independent registered public accounting firms of $351,800 and $245,000 for audit related fees during the fiscal years ended June 30, 2023 and 2022, respectively, which related to filings with the SEC by the Company during the years ended June 30, 2023 and 2022. This includes $331,800 and $20,000 billed from Marcum LLP and Friedman LLP for the year ended June 30, 2023, respectively. All amounts were billed from Friedman LLP for the year ended June 30, 2022.
Tax Fees. We did not incur fees to our independent registered public accounting firms for tax during the fiscal years ended June 30, 2023 and 2022.
All Other Fees. We did not incur fees to our independent registered public accounting firms for products and services provided by the principal accountant, other than the services reported above, during the fiscal years ended June 30, 2023 and 2022.
The Audit Committee pre-approves all auditing services and all permitted non-auditing services (including the fees and terms thereof) to be performed by our independent registered public accounting firm.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements:
Our financial statements and the Report of Independent Registered Public Accounting Firm are included herein on page.
2. Financial Statement Schedules:
The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto on page.
3. Exhibits:
INDEX TO EXHIBITS
Exhibit
Number
Exhibit Description
Incorporated by Reference
Filed or Furnished
Form
Exhibit
Filing Date
Herewith
3.1
Amended and Restated Articles of Incorporation
S-1
3.1
05/02/2019
3.2
Amended and Restated Bylaws
S-1
3.2
05/02/2019
3.3
Certificate of Designation with respect to the 10.0% Series A Cumulative Redeemable Convertible Preferred Stock, par value $0.001 per share, dated November 10, 2021
8-K
3.1
11/16/2021
3.4
Certificate of Designations of Series C Convertible Preferred Stock
8-K
3.1
05/01/2023
3.5
Certificate of Designations of Series D Convertible Preferred Stock
8-K
3.1
05/26/2023
4.1
Form of Indenture relating to the issuance from time to time in one or more series of debentures, notes, bonds, or other evidences of indebtedness
S-3/A
4.1
02/03/2021
4.2
Form of Representative Warrant
S-1
4.1
02/13/2020
4.3
Form of Senior Convertible Note
8-K
4.1
06/01/2021
4.4
Description of Securities
X
4.5
Warrant Agency Agreement by and between Esports Entertainment Group, Inc. and VStock Transfer, LLC including Form of Warrant, dated March 2, 2022
8-K
4.1
03/02/2022
4.6
Warrant Agency Agreement by and between Esports Entertainment Group, Inc. and VStock Transfer, LLC including Form of Warrant, dated September 19, 2022
8-K
4.1
09/19/2022
4.7
Warrant Agency Agreement by and between Esports Entertainment Group, Inc. and VStock Transfer, LLC including Form of Warrant, dated December 21, 2022
8-K
4.1
12/27/2022
4.8
Common Warrants Agreement
8-K
4.1
05/26/2023
4.9
Preferred Warrants Agreement
8-K
4.2
05/26/2023
4.10
Pre-Funded Warrant
8-K
4.1
08/16/2023
10.1
Share Exchange Agreement dated May 20, 2013 by and among Company, Shawn Erickson, H&H Arizona Inc., Next Generation Holdings Trust, and the Shareholder of H&H Arizona Inc.
8-K
10.1
08/07/2014
10.2*
Amended and Restated Employment Agreement with Grant Johnson
10-K
10.9
10/01/2020
10.3*
Employment Agreement with John Brackens
8-K
10.1
05/23/2019
10.4
Form of Director Agreement
8-K
10.1
09/03/2020
10.5
Form of Engagement Agreement with Daniel Marks
10-K
10.27
10/01/2020
10.6
Stock purchase agreement, by and among Esports Entertainment Group, Inc., LHE Enterprises Limited, and AHG Entertainment, LLC
10-K
10.28
10/01/2020
10.7
Form of Warrant issued to AHG Entertainment, LLC
10-K
10.29
10/01/2020
10.8
Assignment of Intellectual Property Rights Agreement, by and among Esports Entertainment Group, Inc., AHG Entertainment Associates, LLC and Flip Sports Limited
10-K
10.30
10/01/2020
10.9
Consulting Agreement, by and among Esports Entertainment Group, Inc. and Rivington Law
10-K
10.31
10/01/2020
10.10
Consulting Agreement, by and between Esports Entertainment Group, Inc. and Rivington Law
8-K
10.1
12/08/2020
10.11
Asset Purchase Agreement, dated December 14, 2020, by and among Esports Entertainment (Malta) Limited, Lucky Dino Gaming Limited, and Hiidenkivi Esonia OU
8-K
10.1
12/17/2020
10.12
Share Purchase Agreement dated December 17, 2020, by and among Esports Entertainment Group, Inc., Phoenix Games Network Limited, and the shareholders of Phoenix Games Network Limited
8-K
10.1
12/21/2020
10.13
Equity Purchase Agreement, dated January 22, 2021, by and between Esports Entertainment Group, Inc. and Helix Holdings, LLC
8-K
10.1
01/27/2021
10.14
Equity Purchase Agreement, dated January 22, 2021, by and between Esports Entertainment Group, Inc. and ggCIRCUIT LLC
8-K
10.2
01/27/2021
10.15
Form of Share Purchase Agreement dated February 11, 2021 between Esports Entertainment Group, Inc. and certain purchasers
8-K
10.1
02/12/2021
10.16
Placement Agent Agreement dated February 11, 2021 by and between Esports Entertainment Group, Inc. , Maxim Group, LLC and Joseph Gunnar& Co.
8-K
10.2
02/12/2021
10.17
Form of Exchange Agreement
S-1
10.24
02/24/2020
10.18
Form of Lock-Up Agreement
S-1
10.25
02/24/2020
10.19
Form of Warrant Agency Agreement including Form of Unit A Warrant
S-1
10.28
03/30/2020
10.20
Form of B Warrant
S-1
10.29
03/30/2020
10.21
Amendment No. 1 to Equity Purchase Agreement, dated May 21, 2021, by and among Esports Entertainment Group, Inc., Helix Holdings, LLC and the equity holders of Helix Holdings, LLC
8-K
10.1
05/26/2021
10.22
Amendment No. 1 to Equity Purchase Agreement, dated May 21, 2021, by and among Esports Entertainment Group, Inc., ggCIRCUIT LLC and the equity holders of ggCIRCUIT LLC
8-K
10.2
05/26/2021
10.23
Share Sale and Purchase Agreement, dated May 25, 2021, between the Company and Gameday Group Plc
8-K
10.1
05/28/2021
10.24
Form of Securities Purchase Agreement.
8-K
10.1
06/01/2021
10.25
Form of Registration Rights Agreement
8-K
10.2
06/01/2021
10.26
Form of Warrant
8-K
10.3
06/01/2021
10.27
Form of Subsidiary Guarantee
8-K
10.4
06/01/2021
10.28
Indemnification Escrow Agreement, dated June 1, 2021, by and among Esports Entertainment Group, Inc., Helix Holdings, LLC, the equity holders of Helix Holdings, LLC and Lucosky Brookman LLP
8-K
10.1
06/07/2021
10.29
Assignment of Membership Interest, dated June 1, 2021, by and between Esports Entertainment Group, Inc. and the equity holders of Helix Holdings, LLC
8-K
10.2
06/07/2021
10.30
Form of Helix Employment Agreement
8-K
10.3
06/07/2021
10.31
Form of Helix and GGC Non-Compete, Non-Solicitation and Non-Disclosure Agreement
8-K
10.4
06/07/2021
10.32
Indemnification Escrow Agreement, dated June 1, 2021, by and among Esports Entertainment Group, Inc., ggCIRCUIT LLC, the equity holders of ggCIRCUIT, LLC and Lucosky Brookman LLP
8-K
10.5
06/07/2021
10.33
Assignment of Membership Interest, dated June 1, 2021, by and between Esports Entertainment Group, Inc. and the equity holders of ggCIRCUIT LLC
8-K
10.6
06/07/2021
10.34
October 2022 Waiver
10-K
10.34
10/13/2022
10.35
Form of Amendment Agreement, dated July 13, 2021, between the Company and Gameday Group Plc.
8-K
10.1
07/15/2021
10.36
Form of Pledge of Shares Agreement, dated July 13, 2021, between Esports Entertainment Group, Inc., Gameday Group Plc., and Prozone Limited.
8-K
10.2
07/15/2021
10.37
Form of Side Letter dated July 13, 2021
8-K
10.3
07/15/2021
10.38
Director Agreement by and between the Company and Mr. Nielsen dated October 21, 2021
8-K
10.1
10/22/2021
10.39
Form Director Agreement
8-K
10.1
05/04/2022
10.40
Form Director Agreement
8-K
10.1
05/19/2022
10.41
Asset Purchase Agreement, dated June 10, 2022, by and between Esports Entertainment Group, Inc. and SCV CAPITAL, LLC
8-K
10.1
06/16/2022
10.42
Assignment and Assumption Agreement, dated June 10, 2022, by and between Esports Entertainment Group, Inc. and SCV CAPITAL, LLC
8-K
10.2
06/16/2022
10.43
Trademark License Agreement, dated June 10, 2022, by and between Esports Entertainment Group, Inc. and SCV CAPITAL, LLC
8-K
10.3
06/16/2022
10.44*
Employment Agreement, and addendums thereto, dated December 17, 2018, by and between Esports Entertainment Group, Inc. and Jennifer Pace
8-K
10.1
08/31/2022
10.45*
Director Agreement, dated August 25, 2022, by and between Esports Entertainment Group, Inc. and John Brackens
8-K
10.2
08/31/2022
10.46
Securities Purchase Agreement, dated December 21, 2022
8-K
10.1
12/27/2022
10.47
Subscription and Investment Representation Agreement, dated December 20, 2022
8-K
10.2
12/27/2022
10.48*
Employment Agreement with Alex Igelman
S-1
10.44
01/13/2023
10.49
Form of Letter of Consent between the Company and the Holder of the Senior Convertible Note
8-K
10.1
01/27/2023
10.50
Share Purchase Agreement dated February 14, 2023 by and among Esports Entertainment Group, Inc. and Gameday Group PLC
8-K
10.1
02/17/2023
10.51
Amendment and Waiver Agreement dated February 16, 2023 by and among Esports Entertainment Group, Inc. and Alto Opportunity Master Fund, SPC-Segregated Master Portfolio B
8-K
10.2
02/17/2023
10.52
Securities Purchase Agreement, dated April 30, 2023, Series D Preferred Stock
10-Q
10.4
05/22/2023
10.53
Registration Rights Agreement, dated May 22, 2023
8-K
10.1
05/26/2023
10.54
Employment Agreement, dated May 28, 2023, by and between the Company and Damian Mathews
X
10.55
Employment Agreement, dated August 29, 2023, by and between the Company and Michael Villani
X
10.56
Equity Distribution Agreement, dated as of September 15, 2023, between Esports Entertainment Group, Inc. and Maxim Group LLC
8-K
1.1
09/18/2023
10.57
Waiver dated September 15, 2023 by and among Esports Entertainment Group, Inc. and Alto Opportunity Master Fund, SPC-Segregated Master Portfolio B
8-K
10.1
09/18/2023
21.1
Subsidiaries of Esports Entertainment Group, Inc.
X
23.1
Consent of Marcum LLP
X
31.1
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
X
31.2
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))
X
32.1
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2
Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
99.1
Audited consolidated financial statements of Helix as of and for the years ended December 31, 2020 and 2019, together with the related notes to the financial statements.
8-K/A1
99.1
08/12/2021
99.2
Audited consolidated financial statements of GGC as of and for the years ended December 31, 2020 and 2019, together with the related notes to the financial statements.
8-K/A1
99.2
08/12/2021
99.3
Unaudited consolidated financial statements of Helix as of and for the years ended March 31, 2022 and December 31, 2020 and for the three months ended March 31, 2022 and 2020 together with the related unaudited notes to the condensed financial statements.
8-K/A1
99.3
08/12/2021
99.4
Unaudited consolidated financial statements of GGC as of and for the years ended March 31, 2022 and December 31, 2020 and for the three months ended March 31, 2022 and 2020 together with the related unaudited notes to the condensed financial statements.
8-K/A1
99.4
08/12/2021
99.5
Unaudited Pro Forma Combined Financial Statements of Esports Entertainment group, Inc. as of March 31, 2022 and for the year ended June 30, 2020 and the nine months ended March 31, 2022.
8-K/A1
99.5
08/12/2021
99.6
Audited financial statements of Bethard Group Limited as of and for the years ended December 31, 2020 and 2019, together with the related notes to the financial statements.
8-K/A2
99.1
08/12/2021
99.7
Unaudited condensed financial statements of Bethard Group Limited as of March 31, 2022 and December 31, 2020 and for the three months ended March 31, 2022 and 2020 together with the related unaudited notes to the condensed financial statements.
8-K/A2
99.2
08/12/2021
101.INS
Inline XBRL Instance Document
X
101.SCH
Inline XBRL Taxonomy Extension Schema
X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
X
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Management contracts or compensation plans or arrangements in which directors or executive officers are/were eligible to participate.