Esports Entertainment Group, Inc 10-Q for FY2021 Q3

Esports Entertainment Group, Inc. (GMBL)

10-Q 2021-05-17 For: 2021-03-31

Added on April 06, 2026

About this 10-Q

Esports Entertainment Group, Inc filed this 10-Q on May 17, 2021, covering the quarter ended March 31, 2021 (FY2021 Q3).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $5.4M
Net loss: $12.44M; compared with a net loss of $6.31M a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered Symbol(s)
Common Stock	GMBL	The Nasdaq Stock Market LLC
Common Stock Purchase Warrants	GMBLW	The Nasdaq Stock Market LLC

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[ ]

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2021 and June 30, 2020	1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended March 31, 2021 and 2020	2-3

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended March 31, 2021 and 2020	4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 and 2020	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3. Quantitative and Qualitative Disclosures about Market Risk	34

Item 4. Controls and Procedures	34

PART II: OTHER INFORMATION

Item 1. Legal Proceedings	35

Item 1A. Risk Factors	35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3. Defaults Upon Senior Securities	36

Item 4. Mine Safety Disclosures	36

Item 5. Other Information	36

Item 6. Exhibits	36

Signatures	37

	March 31,			June 30,
	2021			2020

ASSETS

Current assets
Cash	$	16,880,683		$	12,353,307
Restricted cash		3,428,366			-
Accounts receivable, net		153,011			-
Receivables reserved for users		1,486,024			-
Loans receivable		2,000,000			-
Other receivables		920,115			-
Deposit on business acquisition		-			500,000
Prepaid expenses and other current assets		1,423,581			263,345
Total current assets		26,291,780			13,116,652

Equipment, net		80,904			8,041
Operating lease right-of-use asset		546,012			-
Intangible assets, net		27,810,029			2,000
Goodwill		16,992,199			-
Other non-current assets		1,290,353			6,833

TOTAL ASSETS	$	73,011,277		$	13,133,526

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses	$	5,305,176		$	811,549
Liabilities to customers		3,218,798			-
Deferred revenue		145,091			-
Liabilities to be settled in stock		-			927,855
Notes payable - current		158,141			-
Operating lease liability - current		240,725			-
Contingent consideration		300,000			-
Total current liabilities		9,367,931			1,739,404

Notes payable		186,898			-
Deferred income taxes		1,729,138			-
Operating lease liability		322,205			-

Total liabilities		11,606,172			1,739,404

Commitments and contingencies (Note 13)

Stockholders’ equity
Preferred stock $0.001 par value; 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock $0.001 par value; 500,000,000 shares authorized, 20,166,740 and 11,233,223 shares issued and outstanding as of March 31, 2021 and June 30, 2020, respectively		20,167			11,233
Additional paid-in capital		104,417,852			31,918,491
Accumulated deficit		(42,077,212	)		(20,535,602	)
Accumulated other comprehensive loss		(955,702	)		-
Total stockholders’ equity		61,405,105			11,394,122

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	73,011,277		$	13,133,526

	Three Months Ended March 31,						Nine Months Ended March 31,
	2021			2020			2021			2020

Net revenue	$	5,398,708		$	-		$	7,983,293		$	-

Operating costs and expenses:
Cost of revenue		2,321,620			-			4,249,889			-
Sales and marketing		2,399,200			84,249			4,891,688			184,175
General and administrative		6,291,388			466,809			14,082,111			1,728,695
Total operating expenses		11,012,208			551,058			23,223,688			1,912,870

Operating loss		(5,613,500	)		(551,058	)		(15,240,395	)		(1,912,870	)

Other income (expense):
Interest expense		-			(23,479	)		-			(2,285,792	)
Net amortization of debt discount and premium on convertible debt		-			(674,946	)		-			(1,225,205	)
Change in fair value of derivative liabilities		-			(6,952,798	)		-			(5,865,451	)
Change in fair value of warrant liability		(5,358,313	)		-			(4,729,924	)		-
Change in fair value of contingent consideration		(1,305,804	)		-			(1,305,804	)		-
Loss on extinguishment of debt		-			-			-			(2,795,582	)
Gain on warrant exchange		-			1,894,418			-			1,894,418
Other non-operating income (loss)		(165,464	)		32			(265,486	)		(25,779	)

Loss before income taxes		(12,443,080	)		(6,307,831	)		(21,541,610	)		(12,216,261	)

Income tax		-			-			-			-

Net loss	$	(12,443,080	)	$	(6,307,831	)	$	(21,541,610	)	$	(12,216,261	)

Basic and diluted loss per common share	$	(0.73	)	$	(1.02	)	$	(1.54	)	$	(2.04	)
Weighted average number of common shares outstanding, basic and diluted		16,950,275			6,183,944			13,974,197			5,989,619

	Three Months Ended March 31,						Nine Months Ended March 31,
	2021			2020			2021			2020

Net Loss	$	(12,443,080	)	$	(6,307,831	)	$	(21,541,610	)	$	(12,216,261	)

Other comprehensive loss:
Foreign currency translation loss		(892,953	)		-			(955,702	)		-

Total comprehensive loss	$	(13,336,033	)	$	(6,307,831	)	$	(22,497,312	)	$	(12,216,261	)

	Common Stock				Additional paid-in		Accumulated			Accumulated other comprehensive
	Shares		Amount		capital		Deficit			income (loss)			Total

Balance as at July 1, 2020		11,233,223	$	11,233	$	31,918,491	$	(20,535,602	)	$	-		$	11,394,122
Stock issued upon the exercise of warrants		275,463		276		1,024,648		-			-			1,024,924
Stock issued for Argyll acquisition		650,000		650		3,801,850		-			-			3,802,500
Stock issued for FLIP acquisition		93,808		94		499,906		-			-			500,000
Stock issued for services		291,256		291		1,873,551		-			-			1,873,842
Stock based compensation		-		-		36,035		-			-			36,035
Foreign exchange translation		-		-		-		-			941			941
Net loss		-		-		-		(1,808,493	)		-			(1,808,493	)
Balance as at September 30, 2020		12,543,750		12,544		39,154,481		(22,344,095	)		941			16,823,871
Stock issued upon the exercise of warrants		844,408		844		3,232,274		-			-			3,233,118
Stock issued for services		191,736		192		982,579		-			-			982,771
Stock based compensation		-		-		296,148		-			-			296,148
Foreign exchange translation		-		-		-		-			(63,690	)		(63,690	)
Net loss		-		-		-		(7,290,037	)		-			(7,290,037	)
Balance as at December 31, 2020		13,579,894		13,580		43,665,482		(29,634,132	)		(62,749	)		13,982,181
Common stock issued in equity financing, net of issuance costs		2,000,000		2,000		27,338,000		-			-			27,340,000
Stock issued for EGL acquisition		292,511		293		2,193,540		-			-			2,193,833
Stock issued for FLIP acquisition		93,808		94		1,717,527		-			-			1,717,621
Stock options and warrant exercises		4,154,522		4,155		28,724,385		-			-			28,728,540
Stock issued for services		46,005		45		433,912		-			-			433,957
Stock based compensation		-		-		345,006		-			-			345,006
Foreign exchange translation		-		-		-		-			(892,953	)		(892,953	)
Net loss		-		-		-		(12,443,080	)		-			(12,443,080	)
Balance as at March 31, 2021		20,166,740	$	20,167	$	104,417,852	$	(42,077,212	)	$	(955,702	)	$	61,405,105

Balance as at July 1, 2019	5,849,208	$	5,849	$	5,185,380		$	(10,184,187	)	$	-	$	(4,992,958	)
Common stock and warrants issued for services	16,667		17		(17	)		-			-		-
Stock based compensation	-		-		55,672			-			-		55,672
Net loss	-		-		-			(2,839,784	)		-		(2,839,784	)
Balance as at September 30, 2019	5,865,875		5,866		5,241,035			(13,023,971	)		-		(7,777,070	)
Common stock issued for services	8,889		9		57,991			-			-		58,000
Common stock issued for waiver agreement	5,435		5		26,897			-			-		26,902
Warrants exercised for cash	4,444		4		9,996			-			-		10,000
Non-cash warrant exercised	53,027		53		1,222,549			-			-		1,222,602
Stock based compensation	-		-		45,397			-			-		45,397
Net loss	-		-		-			(3,068,646	)		-		(3,068,646	)
Balance as at December 31, 2019	5,937,670		5,937		6,603,864.79			(16,092,617	)		-		(9,482,815	)
Common stock issued for warrant exchange	288,722		289		1,688,735			-			-		1,689,024
Warrants exercised for cash	40,001		40		89,960			-			-		90,000
Stock based compensation	-		-		45,270			-			-		45,270
Effect of 1 for 15 reverse stock split	613		1		-			-			-		1
Net loss	-		-		-			(6,307,831	)		-		(6,307,831	)
Balance as at March 31, 2020	6,267,006	$	6,267	$	8,427,830		$	(22,400,448	)	$	-	$	(13,966,351	)

	For the nine months ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(21,541,610	)	$	(12,216,261	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		1,592,487			18,013
Right-of-use asset amortization		94,674			-
Stock-based compensation		3,055,118			448,434
Change in fair value of warrant liability		4,729,924			-
Change in fair value of contingent consideration		1,305,804			-
Net amortization of debt discount and premium on convertible debt		-			1,225,205
Change in the fair market value of derivative liabilities		-			5,865,451
Loss on extinguishment of debt		-			2,795,582
Non-cash interest expense		-			2,064,749
Gain on warrant exchange		-			(1,894,418	)
Other non-cash charges, net		(64,023	)		24,235
Changes in operating assets and liabilities:
Accounts receivable		(9,687	)		-
Receivables reserved for users		(1,475,776	)		-
Other receivables		(344,856	)		-
Prepaid expenses and other current assets		(702,448	)		39,516
Other non-current assets		(79,610	)		-
Accounts payable and accrued expenses		1,508,583			525,521
Liabilities to customers		822,020			-
Deferred revenue		48,227			-
Operating lease liability		(40,423	)		-
Other, net		(1,314	)		-
Net cash used in operating activities		(11,102,910	)		(1,103,973	)

Cash flows from investing activities:
Cash consideration paid for Lucky Dino, net of cash acquired		(28,930,540	)		-
Cash consideration paid for Argyll, net of cash acquired		(728,926	)		-
Cash consideration paid for EGL, net of cash acquired		(477,351	)		-
Cash consideration paid for FLIP		(100,000	)		-
Payments made in connection with loans receivable		(2,000,000	)		-
Purchase of intangible assets		(698,187	)		-
Purchases of equipment		(28,126	)		-
Net cash used in investing activities		(32,963,130	)		-

Cash flows from financing activities:
Proceeds from equity financing, net of issuance costs		27,340,000			-
Proceeds from exercise of stock options and warrants, net of issuance costs		25,506,582			100,000
Repayment of note payable		(69,257	)		-
Proceeds from promissory convertible note		-			1,160,000
Repayment of promissory convertible note		-			(105,000	)
Deferred financing costs		-			(85,000	)
Net cash provided by financing activities		52,777,325			1,070,000

Effect of exchange rate on changes in cash and restricted cash		(755,543	)		-

Net increase (decrease) in cash and restricted cash		7,955,742			(33,973	)

Cash and restricted cash, beginning of period		12,353,307			43,412

Cash and restricted cash, end of period	$	20,309,049		$	9,439

Reconciliation of cash and restricted cash to the unaudited condensed consolidated balance sheets:
	March 31, 2021		March 31, 2020
Cash	$	16,880,683	$	9,439
Restricted cash		3,428,366		-
	$	20,309,049	$	9,439

SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID FOR:
Interest	$	-	$	-
Income taxes	$	-	$	-

SUPPLEMENTAL DISLCOSURE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for Argyll	$	3,802,500	$	-
Change in purchase price consideration related to warrant liability for Argyll acquisition	$	2,738,095
Settlement of Argyll acquisition warrant liability for common stock	$	7,480,000	$	-
Common stock issued for EGL	$	2,193,833	$	-
Contingent consideration payable for EGL	$	300,000	$
Common stock issued for FLIP acquisition at closing	$	411,817	$	-
Settlement of FLIP contingent consideration in common stock	$	500,000	$	-
Share settlement of liabilities to be settled in stock account	$	927,855	$	-
Extinguishment of derivative liability associated with extinguishment of convertible notes	$	-	$	1,426,323
Extinguishment of debt discount associated with extinguishment of convertible notes	$	-	$	1,909,280
Debt discount and derivative liability associated with amended and restated note	$	-	$	1,565,617
Increase in principal amount of convertible debt associated with amended and restated note	$	-	$	660,000
Derivative liability associated with convertible notes entered into	$	-	$	1,136,231
Debt discount associated with convertible notes	$	-	$	1,276,000
Extinguishment of derivative liability associated with cashless warrant exercise	$	-	$	1,222,602
Extinguishment of derivative liability associated with warrant exchange	$	-	$	3,583,442
Original issuance discount of convertible notes	$	-	$	116,000

Level 1:	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

	As of March 31,
	2021		2020
Common stock options		481,676		51,941
Common stock warrants		1,415,991		414,549
Convertible notes		—		447,889
Contingently issuable shares		—		2,667
Total		1,897,667		917,046

Cash paid at closing	$	481,386
Share consideration issued at closing		2,193,833
Holdback Consideration		300,000
Total purchase price consideration	$	2,975,219

Cash	$	4,036
Accounts receivable		141,030
Other receivables		32,923
Equipment		11,274
Intangible assets		1,371,789
Goodwill		1,951,233
Other non-current assets		5,382
Accounts payable and accrued expenses		(118,157	)
Deferred revenue		(95,062	)
Deferred income tax liability		(260,640	)
Notes payable		(68,589	)
Total purchase consideration	$	2,975,219

	Useful Life (years)	Fair Value
Tradename	10	$	411,537
Developed technology	5		823,073
Customer relationships	5		137,179
Total		$	1,371,789

Furniture and equipment			5 years
Computer equipment			3 years

Restricted cash	$	1,203,185
Other receivables		131,111
Equipment		13,765
Intangible assets		19,037,840
Operating lease right-of-use asset		371,898
Goodwill		10,641,217
Accounts payable and accrued expenses		(319,149	)
Liabilities to customers		(574,244	)
Operating lease liability		(371,898	)
Total purchase price consideration	$	30,133,725

Cash paid	$	1,250,000
Share consideration issued at closing		3,802,500
Estimated fair value of warrants issued at closing		2,750,076
Total purchase price consideration	$	7,802,576

Cash	$	21,074
Receivables reserved for users		27,777
Other receivables		605,898
Prepaid expenses and other current assets		413,441
Equipment		70,712
Operating lease right-of-use asset		373,016
Intangible assets		7,333,536
Goodwill		4,260,418
Other non-current assets		1,130,034
Accounts payable and accrued expenses		(2,735,109	)
Liabilities to customers		(1,737,106	)
Deferred income tax liability		(1,393,372	)
Operating lease liability		(240,353	)
Notes payable		(327,390	)
Total purchase consideration	$	7,802,576

Developed software	$	550,000
Goodwill		461,817
Total purchase price consideration	$	1,011,817

Fair value of contingent share consideration at September 3, 2020	$	500,000
Change in fair value contingent consideration		1,305,804
Stock issued settlement of contingent share consideration (March 3, 2021)		(1,805,804	)
Fair value of contingent share consideration at March 31, 2021	$	—

	Pro Forma (Unaudited) for the nine months ended March 31,
	2021			2020
Net revenue	$	23,239,740		$	25,844,063
Net loss	$	(20,690,992	)	$	(12,576,014	)
Net loss per common share, basic and diluted	$	(1.03	)	$	(1.41	)

	March 31, 2021		June 30, 2020
Prepaid marketing costs	$	519,480	$	—
Prepaid insurance		9,973		159,941
Prepaid equity		—		100,000
Other prepaid operating costs		244,782		3,404
Prepaid expenses and other current assets	$	774,235	$	263,345

	Nine months ended March 31, 2021
Balance of goodwill, beginning of year	$	—
Acquisitions		17,314,685
Foreign currency translation		(322,486	)
Balance of goodwill, end of period	$	16,992,199

	June 30, 2020		Additions		Amortization			Currency Translation		March 31, 2021
Tradename	$	—	$	3,952,053	$	(128,833	)	$	77,668	$	3,900,888
Gaming licenses		—		1,616,692		(350,842	)		49,425		1,315,275
Player interface		—		2,226,252		(312,838	)		120,033		2,033,447
Developed technology and software		—		6,873,073		(205,213	)		—		6,667,860
Customer and player relationships		—		13,587,255		(569,449	)		148,275		13,166,081
Internal-use software		2,000		732,560		(8,082	)		—		726,478
Total	$	2,000	$	28,987,885	$	(1,575,257	)	$	395,401	$	27,810,029

	March 31, 2021		June 30, 2020
Marketing receivables from revenue partners	$	482,882	$	—
Receivable from revenue sharing arrangement		295,230		—
Other		142,003		—
Other receivables	$	920,115	$	—

	March 31, 2021		June 30, 2020
Deposit for gaming duties	$	755,501	$	—
iGaming deposits with service providers		438,128		—
Rent deposit		91,257		6,833
Other		5,467		—
Other non-current assets	$	1,290,353	$	6,833

	For the three months ended March 31, 2021
ROU assets obtained in exchange for lease liabilities	$	626,935
Weighted average remaining useful life (years)		4.36
Weighted average discount rate		5	%

Fiscal 2021	$	92,446
Fiscal 2022		185,051
Fiscal 2023		68,811
Fiscal 2024		71,493
Fiscal 2025		74,282
Thereafter		136,750
Total lease payments		628,833
Less: imputed interest		65,903
Present value of lease liabilities	$	562,930

Operating lease liability – current (current liability)		$	240,725
Operating lease liability (non-current liability)		$	322,205

	For the three months ended March 31, 2021		For the nine months ended March 31, 2021
Online betting and casino revenues	$	5,225,053	$	7,650,840
Other services		173,655		332,453
Total	$	5,398,708	$	7,983,293

	For the three months ended March 31, 2021		For the nine months ended March 31, 2021
United States	$	124,059	$	280,974
International		5,274,649		7,702,319
Total	$	5,398,708	$	7,983,293

●	On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors resulting in the raise of $30,000,000 in gross proceeds for the Company. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell, in a registered direct offering, an aggregate of 2,000,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share at a price of $15.00 per Share. The offering was consummated on February 16, 2021, at which time the Company received net proceeds of $27,340,000.

●	During the nine months ended March 31, 2021, the Company issued 650,000 shares of common stock as a component of the purchase consideration for Argyll. The Company recorded the issuance of these shares at fair value in the amount of $3,802,500 (see Note 3).

●	On January 17, 2020 the Company entered into Exchange Agreements with eighteen of its investors whereby the investors agreed to exchange warrants to purchase an aggregate of 288,722 shares of common stock for 288,722 shares of the Company’s common stock (the “Warrant Exchange”). The Company recorded $1,894,418 as a gain on Warrant Exchange which represents the difference in the fair value of the exchanged warrants in the amount of $3,583,442 and the fair value of the common stock issued in the amount of $1,689,024. The Exchange Agreements were entered into in order to extinguish the derivative liability associated with the warrants.

●	On October 8, 2019, the Company issued 41,779 shares of its common stock upon the exercise of 79,444 warrants in a cashless exercise.

●	On October 9, 2019, the Company issued 11,248 shares of its common stock upon the exercise of 21,389 warrants in a cashless exercise.

●	During the nine months ended March 31, 2020, the Company issued 53,028 shares of its common stock in a cashless exercise of warrants.

●	During the nine months ended March 31, 2020, the Company issued 44,445 shares of common stock for the exercise of warrants with a weighted average exercise price of $2.25 per share or $100,000 in the aggregate.

●	During the nine months ended March 31, 2020, the Company issued 8,889 shares of its common stock for services rendered with a weighted average fair value of $6.52 per share or $58,000 in the aggregate.

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Intrinsic Value
Outstanding and Exercisable, June 30, 2020		5,276,592		$	4.28
Warrants issued from Over-allotment		418,800			4.25
Warrants issued for acquisition of Argyll		1,000,000			8.00
Exercised		(5,271,060	)		4.88
Expired or cancelled		(8,341	)		4,25
Outstanding and Exercisable, March 31, 2021		1,415,991		$	4.64		0.22	$	14,678,888

	Number of Options			Weighted Average Exercise Price
Outstanding, June 30, 2020		51,942		$	10.50
Granted		436,400		$	4.96
Exercised		(3,333	)	$	10.50
Cancelled		(3,333	)	$	10,50
Outstanding, March 31, 2021		481,676		$	5.48