8-K
ESPORTS ENTERTAINMENT GROUP, INC. (GMBL)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 13, 2022
ESPORTS
ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 001-39262 | 26-3062752 |
|---|---|---|
| (State<br> or other jurisdiction of<br><br> <br>incorporation<br> or organization) | (Commission<br><br> <br>File<br> Number) | (IRS<br> Employer<br><br> <br>Identification<br> No.) |
BLOCK
6,
TRIQ
PACEVILLE,
ST.
JULIANS STJ 3109
MALTA
(Address of principal executive offices)
356
2713 1276
(Registrant’s telephone number, including area code)
NotApplicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written<br> communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting<br> material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common<br> Stock | GMBL | The<br> Nasdaq Stock Market LLC |
| Common<br> Stock Purchase Warrants | GMBLW | The<br> Nasdaq Stock Market LLC |
| 10.0%<br> Series A Cumulative Redeemable Convertible Preferred Stock | GMBLP | The<br> Nasdaq Stock Market LLC |
| Common<br> Stock Purchase Warrants | GMBLZ | The<br> Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item2.02 Results of Operations and Financial Condition.
On October 13, 2022, Esports Entertainment Group, Inc. (the “Company”) issued a press release announcing the Company’s financial and operating results for the fourth quarter ended June 30, 2022. A copy of the press release is furnished with this Current Report on Form 8-K as Exhibit 99.1 and incorporated herein by reference.
The information in Item 2.02 and Item 9.01, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
Item9.01 Financial Statements and Exhibits.
| Exhibit<br><br> <br>Number | Exhibit Description |
|---|---|
| 99.1 | Press Release dated October 13, 2022 |
| 104 | Cover<br> Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: October 14, 2022
| ESPORTS ENTERTAINMENT GROUP, INC. | |
|---|---|
| By: | /s/ Grant Johnson |
| Name: | Grant<br> Johnson |
Exhibit99.1
EsportsEntertainment Group Reports Fiscal 2022
FourthQuarter Revenue of $11.7 Million
Hoboken, New Jersey--(Newsfile Corp. - October 13, 2022) - Esports Entertainment Group, Inc. (NASDAQ: GMBL) (NASDAQ: GMBLP) (NASDAQ: GMBLW) (NASDAQ: GMBLZ) (or the “Company”) today announced its financial results for the fiscal 2022 fourth quarter ended June 30, 2022.
FiscalFourth Quarter 2022 Financial Results
| ● | Net<br> revenue of $11.7 million, an increase of $2.9 million compared to fiscal 4Q ‘21, and<br> a 25.4% sequential decrease from net revenue of $15.7 million in fiscal 3Q ‘22. |
|---|---|
| ● | Gross<br> profit of $6.8 million, an increase of $1.6 million compared to fiscal 4Q ‘21, and<br> a 27.8% sequential decrease from $9.4 million in fiscal 3Q ‘22. |
| ● | Gross<br> margin of 58.0% compared to 59.0% in fiscal 4Q ‘21. |
| ● | GAAP<br> net loss to common shareholders of $4.1 million, or a loss of $0.10 per share, inclusive<br> of a $7.9 million asset impairment charge and a benefit recognized for changes in fair value<br> of the derivative and warrant liabilities of $14.0 million. This compares to a net loss of<br> $4.8 million, or a loss of $0.23 per share in fiscal 4Q ‘21, and a net loss to common<br> shareholders of $63.8 million, or a loss of $2.11 per share, in fiscal 3Q ‘22 inclusive<br> of a $38.6 million asset impairment charge and $20.6 million for a derivative debt liability. |
| ● | Non-GAAP<br> adjusted EBITDA* loss of $6.5 million, inclusive of a $7.9 million asset impairment charge,<br> $2.5 million for depreciation and amortization, and a benefit recognized of $14.0 million<br> for the change in fair value of derivative and warrant liabilities. This compares to an adjusted<br> EBITDA loss of $5.5 million in fiscal 4Q ‘21 and an adjusted EBITDA loss of $7.3 million<br> in fiscal 3Q22. |
| ● | As<br> of June 30, 2022, the Company had total cash and cash equivalents of $2.5 million. |
*Reconciliation on non-GAAP financial measures provided in the tables of this press release.
FiscalFourth Quarter 2022 and Recent Operating and Financial Highlights
| ● | Sold<br> 30 million shares of common stock and warrants for a combined offering price of $0.25, raising<br> gross proceeds of approximately $7.5 million. |
|---|---|
| ● | Appointed<br> John Brackens, as well as independent directors Jan Jones Blackhurst and Kaitesi Munroe,<br> to the Company’s Board of Directors. |
| ● | Sold<br> the assets related to the Helix esports game centers for total purchase consideration of<br> approximately $1.2 million comprised of cash and liabilities assumed by the purchaser. |
| ● | Signed<br> a non-binding letter of intent to sell the Spanish iGaming operations, including the Spanish<br> iGaming license. |
| ● | Received<br> a letter from Nasdaq notifying the Company it was not in compliance with the minimum bid<br> price rule in Nasdaq Listing 5550(a)(2). The Company intends to submit an appeal to Nasdaq<br> which stays the delisting and suspension of the Company’s securities pending a decision<br> of the Nasdaq Hearings Panel. |
| ● | Announced<br> the resignations of Stuart Tilly from his position as Chief Operations Officer as well as<br> from the Company’s Board of Directors, along with Mark Nielsen, an independent director. |
| ● | Held<br> the inaugural launch of the new player-versus-player skill-based betting platform at the<br> Hard Rock Casino in Atlantic City, bringing to market the only skill-based betting platform<br> which has attained regulatory approval for use in the state of New Jersey. |
During the fiscal fourth quarter, the Company began a strategic review focused on its operations and overall efficiency to help improve its short-term performance while setting it a path for a long-term success. The Company implemented a number of initiatives including a reduction of its workforce, the removal of duplicative functions, de-emphasizing parts of the business which do not support its long-term strategic plans, and implementing a more ROI-focused approach to marketing spend, among others. These changes have already resulted in a reduction of the monthly cash burn rate.
The Company also continues to work through various options intended to monetize its non-strategic assets and improve its ability to adequately support all aspects of the business. These efforts have resulted in the sale of the Helix esports centers, a transaction that has eliminated excess cost and has mitigated risk of having to invest and incur cost associated with operating and owning real estate. The Company also entered into a letter of intent to sell its Spanish iGaming business as it looks to focus on its core iGaming markets.
Esports Entertainment Group ended fiscal 2022 with approximately $2.5 million in available cash, $35.0 million of principal outstanding under its Senior Convertible Note that matures in June of 2023, and $7.8 million in cumulative redeemable convertible preferred shares. The Company’s $20 million ATM equity program expired in September 2022 and the Company does not plan to sign a new agreement at this time.
Grant Johnson, CEO of Esports Entertainment Group, commented, “We are pleased with the initial positive impact of our restructuring efforts and the progress we are making in our strategic pivot towards further leveraging our esports assets, including BETGROUND, our proprietary esports player-versus-player skill betting platform. However, there is still much work to be done and many challenges ahead to right-size the business, lower our cash burn and further reduce our debt and our reliance on capital raises.”
AboutEsports Entertainment Group
Esports Entertainment Group (NASDAQ: GMBL) (EEG) is a full-service esports and online betting company. EEG focuses on three verticals: Games, iGaming, and Technology. EEG Games provides a wide array of services and infrastructure for businesses to engage esports and gaming communities around the world including Esports Gaming League (EGL), which hosts a community of more than 350,000 gamers on its proprietary tournament platform EGL.tv. EEG iGaming includes a number of award-winning brands covering traditional online sports book wagering needs as well as a multinational casino operator. EEG Technology builds next-generation platforms, features, and services for Millennials, Gen Z consumers, and brands looking to connect with these demographics. EEG has offices in New Jersey, Estonia, the UK and Malta. For more information, visit www.esportsentertainmentgroup.com.
Forward-LookingStatements
The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.
MediaInquires
eeg@kcsa.com
InvestorRelations Inquiries
JCIR
Joseph Jaffoni, James Leahy, Norberto Aja
(212) 835-8500
gmbl@jcir.com
EsportsEntertainment Group, Inc.
Consolidated Balance Sheets
(Unaudited)
| June 30, 2021 | |||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets | |||||
| Cash | 2,517,146 | $ | 19,917,196 | ||
| Restricted cash | 2,292,662 | 3,443,172 | |||
| Accounts receivable, net | 304,959 | 136,681 | |||
| Receivables reserved for users | 2,941,882 | 2,290,105 | |||
| Other receivables | 372,283 | 658,745 | |||
| Prepaid expenses and other current assets | 1,543,053 | 3,264,344 | |||
| Total current assets | 9,971,985 | 29,710,243 | |||
| Equipment, net | 43,925 | 726,942 | |||
| Operating lease right-of-use asset | 164,288 | 1,272,920 | |||
| Intangible assets, net | 30,346,489 | 45,772,555 | |||
| Goodwill | 22,275,313 | 40,937,370 | |||
| Other non-current assets | 2,062,176 | 1,315,009 | |||
| TOTAL ASSETS | 64,864,176 | $ | 119,735,039 | ||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||
| Current liabilities | |||||
| Accounts payable and accrued expenses | 12,344,052 | $ | 8,458,689 | ||
| Liabilities to customers | 4,671,287 | 3,057,942 | |||
| Deferred revenue | 575,097 | 22,110 | |||
| Senior convertible note | 35,000,000 | - | |||
| Derivative liability | 9,399,620 | - | |||
| Current portion of notes payable and other long-term debt | 139,538 | 223,217 | |||
| Operating lease liability - current | 364,269 | 414,215 | |||
| Contingent consideration | 3,328,361 | - | |||
| Total current liabilities | 65,822,224 | 12,176,173 | |||
| Senior convertible note, net of unamortized discount | - | 6,302,504 | |||
| Notes payable and other long-term debt | - | 221,300 | |||
| Warrant liability | 2,192,730 | 23,500,000 | |||
| Deferred income taxes | - | 1,870,861 | |||
| Operating lease liability - non-current | 669,286 | 878,809 | |||
| Total liabilities | 68,684,240 | 44,949,647 | |||
| Commitments and contingencies | |||||
| Mezzanine equity: | |||||
| 10% Series A cumulative redeemable convertible preferred stock, 0.001 par value, 1,725,000 authorized, 835,950 shares issued and outstanding, aggregate liquidation preference 9,195,450 at June 30, 2022 | 7,781,380 | - | |||
| Stockholders’ equity (deficit): | |||||
| Preferred stock 0.001 par value; 10,000,000 shares authorized | - | - | |||
| Common stock 0.001 par value; 500,000,000 shares authorized, 40,922,944 and 21,896,145 shares issued and outstanding as of June 30, 2022 and June 30, 2021, respectively | 40,923 | 21,896 | |||
| Additional paid-in capital | 144,874,173 | 122,341,002 | |||
| Accumulated deficit | (149,140,426 | ) | (46,908,336 | ) | |
| Accumulated other comprehensive loss | (7,376,114 | ) | (669,170 | ) | |
| Total stockholders’ equity (deficit) | (11,601,444 | ) | 74,785,392 | ||
| TOTAL LIABILITIES, MEZZANINE EQUITY<br> AND STOCKHOLDERS’ EQUITY (DEFICIT) | 64,864,176 | $ | 119,735,039 |
All values are in US Dollars.
EsportsEntertainment Group, Inc.
Consolidated Statements of Operations
(Unaudited)
| Three months ended June 30, | Year ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net revenue | $ | 11,712,725 | $ | 8,800,621 | $ | 58,351,650 | $ | 16,783,914 | ||||
| Operating costs and expenses: | ||||||||||||
| Cost of revenue | 4,915,784 | 3,611,428 | 24,164,661 | 7,861,317 | ||||||||
| Sales and marketing | 4,395,797 | 5,146,836 | 25,728,220 | 10,038,524 | ||||||||
| General and administrative | 12,636,041 | 10,528,000 | 51,321,978 | 24,610,511 | ||||||||
| Asset impairment charges | 7,869,379 | - | 46,498,689 | - | ||||||||
| Total operating expenses | 29,817,001 | 19,286,264 | 147,713,548 | 42,510,352 | ||||||||
| Operating loss | 18,104,276 | 10,485,643 | 89,361,898 | 25,726,438 | ||||||||
| Other income (expense): | ||||||||||||
| Interest expense | (1,054,106 | ) | (699,372 | ) | (6,423,039 | ) | (698,973 | ) | ||||
| Loss on conversion of senior convertible note | - | - | (5,999,662 | ) | - | |||||||
| Loss on extinguishment of senior convertible note | - | - | (28,478,804 | ) | - | |||||||
| Change in fair value of derivative liability on senior convertible note | 11,173,431 | - | (10,882,241 | ) | - | |||||||
| Change in fair value of warrant liability | 2,826,350 | 3,180,000 | 31,468,270 | (1,549,924 | ) | |||||||
| Change in fair value of contingent consideration | 404,615 | (442,803 | ) | 2,355,308 | (1,748,607 | ) | ||||||
| Other non-operating income (loss), net | 807,389 | (194,625 | ) | (584,466 | ) | (460,328 | ) | |||||
| Total other income (expense), net | 14,157,679 | 1,843,200 | (18,544,634 | ) | (4,457,832 | ) | ||||||
| Loss before income taxes | 3,946,597 | 8,642,443 | 107,906,532 | 30,184,270 | ||||||||
| Income tax benefit (expense) | 171,012 | 3,811,536 | 5,674,442 | 3,811,536 | ||||||||
| Net loss | $ | 3,775,585 | 4,830,907 | $ | 102,232,090 | 26,372,734 | ||||||
| Dividend on 10% Series A cumulative redeemable convertible preferred <br> stock | (200,628 | ) | - | (501,570 | ) | - | ||||||
| Accretion of 10% Series A cumulative redeemable convertible preferred<br> stock | (73,837 | ) | - | (182,046 | ) | - | ||||||
| Net loss attributable to common stockholders | $ | 4,050,050 | $ | 4,830,907 | $ | 102,915,706 | $ | 26,372,734 | ||||
| Net loss per common share: | ||||||||||||
| Basic and diluted loss per common share | $ | (0.10 | ) | $ | (0.23 | ) | (3.56 | ) | $ | (1.68 | ) | |
| Weighted average number of common shares outstanding, basic and diluted | 40,922,944 | 20,843,905 | 28,886,918 | 15,723,618 |
AdjustedEBITDA
The table below presents a reconciliation of net income, which is determined accordance with US GAAP, to Adjusted EBITDA, an unaudited non-GAAP financial measure:
| Three Months Ended June 30, | Year Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net income (loss) | $ | (3,775,585 | ) | $ | (4,830,907 | ) | $ | (102,232,090 | ) | $ | (26,372,734 | ) |
| Adjusted for: | ||||||||||||
| Interest expense | 1,054,106 | 699,372 | 6,423,039 | 698,973 | ||||||||
| Income tax loss (benefit) | (171,012 | ) | (3,811,536 | ) | (5,674,442 | ) | (3,811,536 | ) | ||||
| Depreciation and amortization | 2,507,132 | 1,891,636 | 12,533,323 | 3,578,797 | ||||||||
| Stock-based compensation | 1,207,378 | 1,074,608 | 5,165,653 | 4,129,726 | ||||||||
| Asset impairment charges | 7,869,379 | - | 46,498,689 | - | ||||||||
| Transaction costs | - | 2,073,641 | 206,034 | 3,509,430 | ||||||||
| Other non-operating income (loss), net | (807,389 | ) | 150,344 | 584,466 | 924,736 | |||||||
| Loss on conversion of senior convertible note | - | - | 5,999,662 | - | ||||||||
| Loss on extinguishment of senior convertible note | - | - | 28,478,804 | - | ||||||||
| Change in fair value of derivative liability | (11,173,431 | ) | - | 10,882,241 | - | |||||||
| Change in fair value of warrant liability | (2,826,350 | ) | (3,180,000 | ) | (31,468,270 | ) | 1,549,924 | |||||
| Change in fair value of contingent consideration | (404,615 | ) | 442,803 | (2,355,308 | ) | 1,748,607 | ||||||
| Total adjusted EBITDA (loss) | $ | (6,520,387 | ) | $ | (5,490,038 | ) | $ | (24,958,199 | ) | $ | (14,044,077 | ) |
Non-GAAPFinancial Measures
To supplement its consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles (GAAP), the Company uses adjusted EBITDA, a non-GAAP financial measure. 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 GAAP. The Company uses this non-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. The non-GAAP financial measure used by the Company in this press release may be different from the methods used by other companies.
We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense, income tax expense or benefit, depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, non-core litigation, settlement and related costs, remeasurement of warrant liabilities, and certain other non-recurring, non-cash or non-core items, as described in the reconciliation below.
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, amortization, and stock-based compensation), 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).