UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (Commission | (IRS Employer | ||
| incorporation or organization) | File Number) | Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(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 communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
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| Pre-commencement 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 | ||
Convertible Preferred Stock |
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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. ☐
Explanatory Note
This Amendment No. 1 amends the Current Report on Form 8-K filed on May 26, 2023 (the “Original Form 8-K”) by Esports Entertainment Group, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”) reporting that the Company issued a press release providing a business update for the third quarter ended March 31, 2023, and the closing of the Company’s offering of its Series D Convertible Preferred Stock to an institutional investor.
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Original Form 8-K to provide a voluntary unaudited pro forma condensed consolidated balance sheet of the Company to reflect the effects of the Company’s closing of the (1) exchange of its Senior Convertible Note for Series C Convertible Preferred Stock with the investor on April 28, 2023, and (2) offering of its Series D Convertible Preferred Stock. No other modifications to the Original Form 8-K are being made by this Amendment. This Amendment should be read in connection with the Original Form 8-K and the Current Report on Form 8-K filed on May 1, 2023, which provide a more complete description of the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock and related transactions with the investor.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2023, and the notes related thereto are filed as Exhibit 99.1 to this report.
Exhibit Number |
Exhibit Description | |
| 99.1 | Unaudited pro forma condensed consolidated balance sheet of Esports Entertainment Group, Inc., as of March 31, 2023, and the notes related thereto. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Forward-Looking Statements
The information contained herein includes forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These statements relate to future events or to our strategies, targeted markets, and 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, including, the ability to effectuate debt for equity exchanges, the conversion prices, the timing and other terms of such exchanges. 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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, and those discussed in other documents we file with the SEC, including our ability to regain compliance with Nasdaq Listing Rules and stay listed on Nasdaq, our obligations under our preferred stock outstanding, and our ability to continue as a going concern. 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, unless required by law. The safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 protects companies from liability for their forward-looking statements if they comply with the requirements of such Act.
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: May 31, 2023
| ESPORTS ENTERTAINMENT GROUP, INC. | ||
| By: | /s/ Michael Villani | |
| Name: | Michael Villani | |
| Title: | Interim Chief Financial Officer and Controller | |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On April 19, 2023, the Company entered into an agreement with the holder of the Company’s Senior Convertible Note (the “Holder”) to exchange the $15,230,024 in aggregate principal amount of the Senior Convertible Note outstanding into the new Series C Convertible Preferred Stock (the “Series C Preferred Stock”) as part of the Company’s approved plan of compliance with the Nasdaq Listing Rules.
Prior to the conversion into the Series C Preferred Stock, the Company redeemed $679,976 of the $15,910,000 aggregate principal amount previously outstanding on the Senior Convertible Note. On April 19, 2023, the Company paid $750,000 to the Holder to redeem $679,976 in aggregate principal amount of the Senior Convertible Note and settle the related redemption premium of $51,450 and accrued interest of $168,574, with the additional $150,000 subsequently paid. On April 28, 2023, the Company consummated the exchange of the Senior Convertible Note into Series C Preferred Stock. The exchange resulted in the extinguishment of the Senior Convertible Note and eliminated the related derivative liability that had a fair value of $1,963,933 as of March 31, 2023.
On April 30, 2023, the Company entered into a Securities Purchase Agreement with the Holder. The Securities Purchase Agreement contemplated a direct offering to the Investor of (i) 4,300 shares of new Series D Convertible Preferred Stock (the “Series D Preferred Stock”), $0.001 par value per share, 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 $4,260,000 before deducting underwriting discounts and commissions. On May 22, 2023, the Company closed the offering of the Series D Preferred Stock.
As a result of the Series C Preferred Stock and Series D Preferred Stock transactions (collectively referred to as “the transactions”), the Company voluntarily prepared the below unaudited pro forma condensed consolidated balance sheet based on historical financial information of the Company at March 31, 2023. The accompanying unaudited pro forma condensed consolidated balance sheet gives effect to the transactions as if they had occurred on March 31, 2023.
The accompanying unaudited pro forma condensed consolidated financial information includes pro forma adjustments that are directly attributable to the transactions and are factually supportable. Pro forma adjustments are presented for informational purposes only and are described in the accompanying notes based on information and assumptions currently available at the time of the filing. The accompanying unaudited pro forma condensed consolidated financial information should be read in conjunction with:
| (i) | the historical unaudited condensed consolidated financial statements of the Company for the three and nine months ended March 31, 2023, and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which are included in the in the Quarterly Report on Form 10-Q filed with the SEC on May 22, 2023; |
The unaudited pro forma financial information has been presented for informational purposes only and is not necessarily indicative of what the Company’s results of operations or financial condition would have been had the transactions been completed as of the date presented. The actual financial position may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma transaction accounting adjustments represent management’s estimates based on information available as of the date of the unaudited pro forma balance sheet and are subject to change as additional information becomes available and analyses are performed.
Esports Entertainment Group, Inc.
Consolidated Balance Sheet
March 31, 2023
(Unaudited)
| Historical | Transaction Accounting Adjustments | Notes | Pro Forma | |||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash | $ | 1,875,758 | $ | 4,225,089 | (a),(c) | $ | 6,100,847 | |||||||
| Restricted cash | 972,986 | (865,089 | ) | (a) | 107,897 | |||||||||
| Accounts receivable, net | 469,183 | - | 469,183 | |||||||||||
| Receivables reserved for users | 776,565 | - | 776,565 | |||||||||||
| Other receivables | 384,688 | - | 384,688 | |||||||||||
| Prepaid expenses and other current assets | 969,175 | - | 969,175 | |||||||||||
| Total current assets | 5,448,355 | 3,360,000 | 8,808,355 | |||||||||||
| Equipment, net | 30,075 | - | 30,075 | |||||||||||
| Operating lease right-of-use asset | 106,386 | - | 106,386 | |||||||||||
| Intangible assets, net | 14,370,426 | - | 14,370,426 | |||||||||||
| Goodwill | 4,474,475 | - | 4,474,475 | |||||||||||
| Other non-current assets | 4,844 | - | 4,844 | |||||||||||
| TOTAL ASSETS | $ | 24,434,561 | $ | 3,360,000 | $ | 27,794,561 | ||||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable and accrued expenses | $ | 8,895,070 | $ | - | $ | 8,895,070 | ||||||||
| Liabilities to customers | 798,952 | - | 798,952 | |||||||||||
| Deferred revenue | 1,275,971 | - | 1,275,971 | |||||||||||
| Senior convertible note | 15,910,000 | (15,910,000 | ) | (a),(b) | - | |||||||||
| Derivative liability | 1,963,933 | (1,963,933 | ) | (b) | - | |||||||||
| Current portion of notes payable and other long-term debt | 25,723 | - | 25,723 | |||||||||||
| Operating lease liability - current | 99,188 | - | 99,188 | |||||||||||
| Total current liabilities | 28,968,837 | (17,873,933 | ) | 11,094,904 | ||||||||||
| Warrant liability | 1,043,789 | - | 1,043,789 | |||||||||||
| Operating lease liability - non-current | 18,073 | - | 18,073 | |||||||||||
| Total liabilities | 30,030,699 | (17,873,933 | ) | 12,156,766 | ||||||||||
| 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 March 31, 2023 and March 31, 2023 Pro Forma | 8,007,162 | - | 8,007,162 | |||||||||||
| Stockholders’ equity (deficit) | ||||||||||||||
| Preferred stock $0.001 par value; 10,000,000 shares authorized | ||||||||||||||
| Series C Convertible Preferred Stock, $0.001 par value, 20,000 authorized, 15,230 shares issued and outstanding at March 31, 2023 pro forma | - | 15,230,024 | (b) | 15,230,024 | ||||||||||
| Series D Convertible Preferred Stock, $0.001 par value, 10,000 authorized, 4,300 shares issued and outstanding at March 31, 2023 pro forma | - | 1,441,846 | (c) | 1,441,846 | ||||||||||
| Common stock $0.001 par value; 500,000,000 shares authorized, 3,262,303 shares issued and outstanding as of March 31, 2023 and March 31, 2023 pro forma | 3,262 | - | 3,262 | |||||||||||
| Additional paid-in capital | 171,821,858 | 2,818,154 | (c) | 174,640,012 | ||||||||||
| Accumulated deficit | (180,635,674 | ) | 1,743,909 | (a),(b) | (178,891,765 | ) | ||||||||
| Accumulated other comprehensive loss | (4,792,746 | ) | - | (4,792,746 | ) | |||||||||
| Total stockholders’ equity (deficit) | (13,603,300 | ) | 21,233,933 | 7,630,633 | ||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 24,434,561 | $ | 3,360,000 | $ | 27,794,561 | ||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Esports Entertainment Group, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Description of the Transactions
On April 19, 2023, the Company entered into an agreement with the Holder to convert the $15,230,024 in aggregate principal amount of the Senior Convertible Note outstanding into the new Series C Preferred Stock as part of the Company’s approved plan of compliance with the Nasdaq Listing Rules.
Prior to the conversion into the Series C Preferred Stock, the Company redeemed $679,976 of the $15,910,000 previously outstanding on the Senior Convertible Note following the Exchanges and the impact of the Amendment and Exchanges. On April 19, 2023, the Company paid $750,000 to the Holder to redeem the $679,976 and settle the related redemption premium of $51,450 and accrued interest of $168,574, with the additional $150,000 subsequently paid. The conversion resulted in the extinguishment of the Senior Convertible Note and eliminated the related derivative liability that had a fair value of $1,963,933 as of March 31, 2023.
On April 30, 2023, the Company entered into and on May 22, 2023 subsequently closed a Securities Purchase Agreement with the Holder. The Securities Purchase Agreement contemplates a direct offering to the Investor of (i) 4,300 shares of the new Series D Preferred Stock, $0.001 par value per share, 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 $4,260,000 before deducting underwriting discounts and commissions.
2. Transaction Accounting Adjustments
| (a) | Represents the redemption of $679,976 of the $15,910,000 previously outstanding on the Senior Convertible Note at March 31, 2023. On April 19, 2023, the Company paid $750,000 to the Holder to redeem the $679,976 and settle the related redemption premium of $51,450 and accrued interest of $168,574, with the additional $150,000 subsequently paid; |
| (b) | Represents the conversion of the $15,230,024 of the remaining Senior Convertible Note to Series C Preferred Stock(1) and the elimination derivative liability that had a fair value of $1,963,933 as of March 31, 2023; and |
| (c) | Represents the cash consideration and recognition of the Series D Preferred Stock on the May 22, 2023 closing of a new Series D Preferred Stock(1) of $4,260,000. This resulted in the recognition of the common warrants that were preliminarily valued at $2,818,154 using Black Scholes valuation method as of March 31, 2023, recorded in additional paid in capital sheet and the remaining $1,441,846 was recorded as the fair value of the Series D Preferred Stock in the unaudited pro forma balance sheet. |
| (1) | The aggregate liquidation preference for the Series C Preferred Stock and the Series D Preferred Stock is defined in each Certificate of Designations as - Liquidation, Dissolution, Winding-Up. In the event of a Liquidation Event, the Holders shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its shareholders (the “Liquidation Funds”), before any amount shall be paid to the holders of any of shares of Junior Stock, but pari passu with any Parity Stock then outstanding, an amount per Preferred Share equal to the greater of (A) 125% of the Conversion Amount of such Preferred Share on the date of such payment and (B) the amount per share such Holder would receive if such Holder converted such Preferred Share into Common Stock (at the Alternate Conversion Price then in effect) immediately prior to the date of such payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of Parity Stock, then each Holder and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder and such holder of Parity Stock as a liquidation preference, in accordance with their respective Certificate of Designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Preferred Shares and all holders of shares of Parity Stock. |