Filed Pursuant to Rule 424(b)(5)
Registration No. 333-252370
PROSPECTUS SUPPLEMENT
(To the Prospectus dated February 5, 2021)
1,000,000 Shares of Common Stock
Pre-funded Warrants to Purchase 4,167,959
Shares of Common Stock
ESPORTS ENTERTAINMENT GROUP, INC.
We are offering 1,000,000 shares of our common stock
(the “Common Stock”), $0.001 par value per share, directly to an institutional investor pursuant to this prospectus supplement
and the accompanying base prospectus.
We are also offering pre-funded warrants (the “Pre-funded
Warrants”) directly to the same investor to purchase up to an aggregate of 4,167,959 shares of common stock (and the shares
of common stock issuable from time to time upon exercise of the Pre-funded Warrants) whose purchase of common stock in this offering
would otherwise result in the investor, together with its affiliates and certain related parties, beneficially owning more than 4.99%
(or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering.
The Pre-funded Warrants will give the investor, the opportunity to purchase, if the investor so chooses, Warrants in lieu of common stock
that would otherwise result in the investor’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%)
of our outstanding common stock. Each Pre-funded Warrant entitles the investor to purchase one share of our common stock at an exercise
price of $0.001 per share. The purchase price of each Pre-funded Warrant is equal to the price per share of common stock being sold to
the public in this offering, minus $0.001. The Pre-funded Warrants will be immediately exercisable and will be exercisable for five years
from the date of issuance and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. There is no established
public trading market for the Pre-funded Warrants, and we do not expect a market to develop. We do not intend to apply for listing
of the Pre-funded Warrants on any securities exchange or nationally recognized trading system. Without an active trading market,
the liquidity of the Pre-funded Warrants will be limited.
See “Description of the Securities that we are
Offering” in this prospectus for more information.
Our common stock presently trades on the Nasdaq Capital
Market under the symbol “GMBL.” On August 15, 2023, the last reported sale price of our common stock was $0.1989
per share.
We currently have two classes of Common Stock Purchase
Warrants that trade on the Nasdaq Capital Market under the symbols “GMBLW” and “GMBLZ.”
Our Common Stock Purchase Warrants that have an exercise
price of $425.00 per share and expire in April 2025 trade under the symbol GMBLW and, on August 15, 2023, the last reported sale
price of our GMBLW warrants was $0.025 per warrant.
Our Common Stock Purchase Warrants that have an exercise
price of $100.00 per share and expire in March 2027 trade under the symbol GMBLZ and, on August 15, 2023, the last reported sale
price of our GMBLZ warrants was $0.0085 per warrant.
No underwriter or other third-party has been engaged
to facilitate the sale of the shares and Pre-funded warrants.
Pursuant to General Instruction I.B.6 of Form S-3,
in no event will we sell our securities in a public primary offering with a value exceeding more than one-third of the aggregate market
value of our voting and non-voting common equity held by non-affiliates in any 12-month period as long as the aggregate market value
of our outstanding voting and non-voting common equity held by non-affiliates is less than $75,000,000. Calculated in accordance with
General Instruction I.B.6 of Form S-3, the aggregate market value of our outstanding common stock held by non-affiliates, or the public
float, was $37,308,094 based upon 22,340,176 shares of our outstanding stock held by non-affiliates at the
per share price of $1.67 on June 16, 2023, which was the highest closing price within the last 60 days prior to the date
of this filing. One-third of our public float, calculated in accordance with General Instruction I.B.6 of Form S-3 as of August 14,
2023, is equal to $12,436,031. We have offered and sold $2,316,686 in securities pursuant to General
Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including the date of this prospectus supplement.
Investing in our securities involves a high degree
of risk. You should carefully read and consider the “Risk Factors” beginning on page S-17 of this prospectus supplement.
The information in this prospectus supplement
is not complete and may be amended or supplemented from time to time. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus supplement is not an offer to sell these securities,
and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement
is truthful or complete. Any representation to the contrary is a criminal offense.
|
|
|
Per Share |
|
|
|
Per Pre-Funded Warrant |
|
|
|
Total |
|
Public offering price |
|
$ |
0.1935 |
|
|
$ |
0.1925 |
|
|
$ |
995,832 |
|
Proceeds, before expenses, to us |
|
$ |
0.1935 |
|
|
$ |
0.1925 |
|
|
$ |
995,832 |
|
The amount of the offering proceeds to us presented
in this table does not give effect to any exercise of the warrants being issued in this offering.
We expect to deliver the shares of common stock and
the Pre-funded Warrants on or about August 17, 2023.
The date of this prospectus supplement is August
15, 2023
TABLE OF CONTENTS
Prospectus Supplement
Prospectus
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying base
prospectus form part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, which we refer
to as the SEC, using a “shelf” registration process. This document contains two parts. The first part consists of this prospectus
supplement, which provides you with specific information about this offering. The second part, the accompanying base prospectus dated
February 5, 2021, provides more general information, some of which may not apply to this offering. Generally, when we refer only to the
“prospectus,” we are referring to both parts combined. This prospectus supplement may add, update or change information contained
in the accompanying base prospectus. To the extent that any statement we make in this prospectus supplement is inconsistent with statements
made in the accompanying base prospectus or any documents incorporated by reference herein or therein, the statements made in this prospectus
supplement will be deemed to modify or supersede those made in the accompanying base prospectus and such documents incorporated by reference
herein and therein.
In this prospectus supplement, “EEG,”
the “Company,” “Esports,” “we,” “us,” “our” and similar terms refer
to Esports Entertainment Group, Inc., a Nevada corporation, and its consolidated subsidiaries. References to our “common stock”
refer to the common stock of Esports Entertainment Group, Inc.
All references in this prospectus supplement to our
consolidated financial statements include, unless the context indicates otherwise, the related notes.
The industry and market data and other statistical
information contained in the documents we incorporate by reference in the prospectus are based on management’s own estimates, independent
publications, government publications, reports by market research firms or other published independent sources, and, in each case, are
believed by management to be reasonable estimates. Although we believe these sources are reliable, we have not independently verified
the information.
You should rely only on the information contained
in or incorporated by reference in this prospectus supplement, the accompanying base prospectus and in any free writing prospectus that
we have authorized for use in connection with this offering. We have not authorized any other person to provide you with any information
that is different. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that
the information in this prospectus supplement, the accompanying base prospectus, the documents incorporated by reference in the accompanying
base prospectus, and in any free writing prospectus that we have authorized for use in connection with this offering, is accurate only
as of the date of those respective documents. Our business, financial condition, results of operations and prospects may have changed
since those dates. You should read this prospectus supplement, the accompanying base prospectus, the documents incorporated by reference
in the accompanying base prospectus, and any free writing prospectus that we have authorized for use in connection with this offering,
in their entirety before making an investment decision. You should also read and consider the information in the documents to which we
have referred you in the sections of the accompanying base prospectus titled “Where You Can Find More Information” and “Incorporation
by Reference of Certain Documents.” We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where
offers and sales are permitted. The distribution of this prospectus supplement and the offering of the securities in certain jurisdictions
may be restricted by law. Persons outside the United States who come into possession of this prospectus supplement must inform themselves
about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus supplement outside
the United States. This prospectus supplement does not constitute, and may not be used in connection with, an offer to sell, or a solicitation
of an offer to buy, any securities offered by this prospectus supplement by any person in any jurisdiction in which it is unlawful for
such person to make such an offer or solicitation.
We further note that the representations, warranties
and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference in the accompanying
base prospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of
allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover,
such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing the current state of our affairs.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
The information included or incorporated by reference
into this prospectus supplement and the accompanying base prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or Exchange Act. These forward-looking statements that relate to future events or 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 differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking
statements. 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. 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. Actual results may differ materially from those expressed or implied in such forward-looking
statements as a result of various factors. We do not undertake, and we disclaim, any obligation to update any forward-looking statements
or to announce any revisions to any of the forward-looking statements, except as required by law. Certain factors that could cause results
to be materially different from those projected in the forward-looking statements include, but are not limited to, statements about:
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our ability to maintain compliance with the continued listing requirements of the Nasdaq Stock Market LLC (“Nasdaq”); |
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our history of accumulated deficits, recurring losses and negative cash flows from operating activities; |
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we may be unable to achieve or sustain profitability or remain a going concern; |
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the impact of the amount
and terms of our new Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and Series D Convertible
Preferred Stock (the “Series D Preferred Stock”), as described in this prospectus supplement on our financial
condition and the market prices of our securities; |
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the impact of any future reverse stock split on the liquidity of our securities; |
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litigation or legal proceedings involving the Company; |
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any statements of the plans, strategies and objectives of management for future operations; |
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any statements concerning proposed new products, services or developments; |
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any statements regarding future economic conditions or performance; |
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our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; |
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our estimates regarding the sufficiency of our cash resources and our need for additional funding; and |
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our intended use of the
net proceeds from the offering of shares of common stock and pre-funded warrants to purchase shares of common stock under this
prospectus. |
We urge you to consider these factors before
investing in our securities. The forward-looking statements included in this prospectus supplement, the accompanying base
prospectus and any other offering material, or in the documents incorporated by reference into this prospectus supplement, the
accompanying base prospectus and any other offering material, are made only as of the date of the prospectus supplement, the
accompanying base prospectus, any other offering material or the incorporated document. For more detail on these and other risks,
please see “Risk Factors” in this prospectus supplement, the accompanying base prospectus, our Financial Statements and
Supplementary Data for the year ended June 30, 2022 and Management’s Discussion and Analysis of Financial Condition and
Results of Operations on Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, on August 17, 2023,
our Annual Report on Form 10-K for our fiscal year ended June 30, 2022 filed with the SEC on October 13, 2022, and our Quarterly
Reports on Form 10-Q for the quarters ended September 30, 2022, December 31, 2022 and March 31, 2023 filed with the SEC on November
14, 2022, February 21, 2023 and May 22, 2023, respectively.
IMPORTANT EXPLANATORY NOTE
As disclosed in more detail in this prospectus supplement,
effective February 22, 2023, we completed a one-for-one-hundred (1-for-100) reverse stock split of our issued and outstanding shares
of common stock without a corresponding reduction in the total number of authorized shares of our common stock (the “Reverse Stock
Split”). All references to shares of our common stock in this prospectus supplement refer to the number of shares of common
stock after giving effect to the Reverse Stock Split and are presented as if the Reverse Stock Split had occurred at the beginning of
the earliest period presented.
TRADEMARKS AND COPYRIGHTS
We own or have rights to trademarks or trade names
that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we
own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations
for such products. This prospectus supplement may also contain trademarks, service marks and trade names of other companies, which
are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products
in this prospectus supplement is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship
of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus supplement are
listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to
our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
PROSPECTUS SUPPLEMENT SUMMARY
The following information is only a summary of more detailed information included elsewhere in, or incorporated by reference in, this prospectus supplement
and the accompanying base prospectus, and should be read together with the information contained or incorporated by reference
in other parts of this prospectus supplement and the accompanying base prospectus. This summary highlights selected information
about us and this offering. This summary may not contain all of the information that may be important to you. Before making a decision
to invest in our securities, you should read carefully all of the information contained in or incorporated by reference into this prospectus
supplement and the accompanying base prospectus, including the information set forth under the caption “Risk Factors”
in this prospectus supplement and the accompanying base prospectus as well as the documents incorporated herein by reference,
which are described under “Where You Can Find More Information” and “Information Incorporated by Reference” in
this prospectus supplement.
About Esports Entertainment Group, Inc.
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. The Company is developing a wagering platform where players and fans alike may engage in peer-to-peer skill-based
betting, and gamers can bet on their ability to beat other gamers in a betting exchange environment and fans and spectators have the ability
to bet on their favorite gamers to win real cash and prizes.
Corporate History
Esports Entertainment Group, Inc. 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 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, and sold Bethard on February 24, 2023. The Company also disposed of Helix on June 10, 2022 and exited the EGL business
as of June 30, 2023. 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.
Our Business
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 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:
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● |
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. |
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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. GGC has a presence on six continents, primarily in North America and Europe. |
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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:
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● |
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. |
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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:
Online Esports Tournament Play
EEG intends to offer players from around the world,
including the United States (unless prohibited in a state or international jurisdiction) the ability to enter and participate in online
video game tournaments and win cash prizes, via our enhanced EGL tournament platform. Online esports tournament play consists of two or
more people playing against each other in a game from their personal phones or computers, where such players do not necessarily have to
be playing in real time. These events could be held over the course of a day, a week or even a month and the winner will be the one with
the top score or the fastest time at the conclusion of the event. Cash-based tournaments involving games of skill are not considered gambling
in most U.S. states because the generally accepted definition of gambling involves three specific things: (1) the award of a prize, (2)
paid-in consideration (meaning entrants pay to compete) and (3) an outcome determined on the basis of chance. As a result, games of skill
are not generally subject to the same laws and regulations as our esports event wagering service. We expect participants in our tournaments
being able to enter and play against each other with prize money distributed to the last remaining competitors. We anticipate creating
tournament content for sale and distribution to the betting industry while also sometimes collecting a tournament entry fee for our tournaments,
as well as a percentage of total winnings that are paid to users (typically 10% of the entry fees) and thus none of their money will be
at risk or otherwise dependent on the outcome. We intend to offer users a wide selection of video games of skill to be played online for
real money in groups, both large and small, or major tournaments. We believe using the tournament platform to penetrate the U.S. market
will allow us to grow our brand within the esports community and create valuable content for sale to the betting and gambling industry.
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 Platform
According to Zion Market Research’s, the online
gambling market represents one of the fastest growing segments of the gambling industry. Zion Market Research estimated the size of the
global online gambling market in 2021 was in excess of $61.5 billion and is projected to reach $114.4 billion by 2028.
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:
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Educating sports betting consumers and gamers to bet on esports; |
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Sponsoring professional esports teams and tournaments that have a global reach and to generate content for sale; |
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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; |
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Using a multichannel approach focused on acquiring and retaining customers; and |
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Utilizing multiple social media platforms to promote our wagering business including, but not limited to, Facebook, 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
Certain Estimated Unaudited Results for the
Year Ended June 30, 2023
Based on a preliminary review of our results for
the year ended June 30, 2023, set forth below are certain preliminary estimates of unaudited selected financial data for the year ended
June 30, 2023. Our audited consolidated financial statements for the year June 30, 2023 are not yet available. The following information
reflects our preliminary estimates based on currently available information, is not a comprehensive statement of our financial results,
and is subject to change. We have provided ranges, rather than specific amounts, for the preliminary estimates of the unaudited financial
data described below primarily because our financial closing procedures for the year ended June 30, 2023 are not yet complete. These
estimates should not be viewed as a substitute for our full audited financial statements prepared in accordance with generally accepted
accounting principles in the United States, or GAAP. Further, our preliminary estimated results are not necessarily indicative of the
results to be expected for any future period. See the sections titled “Cautionary Statements Regarding Forward-Looking Information”
and “Risk Factors” in this prospectus supplement, our filings with the SEC for additional information regarding factors
that could result in differences between the preliminary estimated ranges of certain of our unaudited financial data presented below
and the actual audited financial data we will report for the year ended June 30, 2023. Our independent registered public accountants
have not audited, reviewed, compiled or performed any procedures with respect to this financial information. Accordingly, our independent
registered public accountants do not express an opinion or provide any form of assurance with respect thereto.
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|
Year Ended June 30, 2023 Estimated (Unaudited) |
|
|
|
Low |
|
|
High |
|
Net Revenue |
|
$ |
22,000,000 |
|
|
$ |
23,000,000 |
|
Operating expenses(1) |
|
$ |
(62,000,000 |
) |
|
$ |
(63,000,000 |
) |
Total other income (expense), net(1) |
|
$ |
(8,000,000 |
) |
|
$ |
(9,000,000 |
) |
(1) |
The amounts in the table above are preliminary, and exclude the effects, if any, resulting from the evaluation of the recoverability of the Company’s Goodwill and Intangible Assets, for the year ended June 30, 2023. Any reductions to revenue or increases in expenses may cause Total Stockholders Equity to fall below the Nasdaq minimum continued listing requirement of $2,500,000. 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. |
Reverse Stock Split
On January 26, 2023, the Company’s shareholders
approved and granted the Company’s board of directors (the “Board”) discretionary authority to select the ratio for
the Reverse Stock Split ranging from one-for-twenty (1-for-20) to one-for-one-hundred (1-for-100). Prior to effecting the Reverse Stock
Split, the Board selected the Reverse Stock Split ratio of one-for-one-hundred (1-for-100). On February 22, 2023, the Company completed
the Reverse Stock Split. The Board approved the Reverse Stock Split with the objective of regaining compliance with Nasdaq’s $1.00
minimum bid price requirement. As a result of the Reverse Stock Split, every 100 shares of common stock issued and outstanding as of the
effective date were automatically combined into one share of common stock. The Reverse Stock Split did not change the terms of the common
stock. Outstanding warrants, equity-based awards and other outstanding equity rights were proportionately adjusted by dividing the shares
of common stock underlying the securities by 100 and multiplying the exercise/conversion price, as the case may be, by 100. The Reverse
Stock Split also applied to common stock issuable upon the conversion of the Company’s Senior Convertible Note, dated February 22,
2022 (the “Senior Convertible Note”), with the Conversion Price, as defined in the Senior Convertible Note, being subject
to adjustment under the terms of the Senior Convertible Note and the Amendment (as defined below). The Company’s 10% outstanding
Series A Cumulative Redeemable Convertible Preferred Stock (“10% Series A Cumulative Redeemable Convertible Preferred Stock”)
was not affected by the Reverse Stock Split.
Sale of Bethard Business and Amendment and Waiver
to Senior Convertible Note
On February 24, 2023, (the “Bethard Closing
Date”), the Company, pursuant to a stock purchase agreement (the “Purchase Agreement”) dated February 14, 2023 with
Gameday Group PLC, a Malta company (“Purchaser”), completed the divestiture of Prozone Limited, a Malta company containing
the online casino and sportsbook business, including the Bethard brand (the “Bethard Business”), that is licensed in Malta
and Sweden (together, the sale of Prozone Limited with the Bethard Business herein referred to as the “Sale of the Bethard Business”).
The purchase consideration was determined by the Company to be $8.09 million comprised of cash received on the Bethard Closing Date of
€1.65 million ($1.74 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 €5.87 million ($6.19 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. The Purchaser further assumed net working capital of the Bethard Business consisting
primarily of accounts payable and accrued liabilities estimated to be €1.24 million ($1.31 million using exchange rates at the Bethard
Closing Date). The Company recognized a loss on disposal of the Bethard Business of $8.60 million.
On February 16, 2023, the Company entered into an
Amendment and Waiver Agreement (“Amendment”) with the holder of the Senior Convertible Note (the “Holder”) as
a condition to the closing of the sale of the Bethard Business. The Amendment required the Company to deposit 50% of the proceeds from
the Sale of the Bethard Business in a bank account in favor of the Holder. The Amendment required the Company to deposit 50% of the proceeds
of any permitted future sale of assets or any subsequent debt or equity offer or sale (a “Securities Transaction”) and 100%
of the proceeds of any additional indebtedness incurred in the future, into such bank account in favor of the Holder, or, at the option
of the Holder, redeem amounts under the Senior Convertible Note using such proceeds. 50% of the proceeds received from the Sale of the
Bethard Business, or €0.83 million ($0.87 million using exchange rates in effect on the Closing Date) was deposited into a bank account
in favor of the Holder.
The Amendment also modified the Senior Convertible
Note to increase the principal balance by $2.95 million, for fees of $0.45 million and converted accrued liabilities of $2.50 million.
The Amendment further provided for a voluntary reduction in the Conversion Price (as defined in the Senior Convertible Note) when, among
other things, the Company issues or is deemed to issue common stock in a future registered offering at a price below the Conversion Price
then in effect, to the lower issuance price in such offering, subject to certain exceptions. The Amendment also provided rights to the
Holder to participate in future Securities Transactions for a period of two years from the later of the date of the Amendment and the
date that no payment amounts due to the Holder remain outstanding.
Senior Convertible Note and Debt for Common
Equity Conversions
On February 22, 2022, the Company exchanged the existing
senior convertible note (the “Old Senior Convertible Note”) with a remaining principal of $29.15 million, with the Senior
Convertible Note in the aggregate principal of $35.0 million. On September 19, 2022 as part of the Company’s September 2022 Offering
of shares of common stock and warrants to purchase common stock, the Company remitted to the Holder an amount of $2.78 million from the
proceeds therefrom, reducing the Senior Convertible Note principal balance to $32.22 million as recorded in the unaudited condensed consolidated
balance sheet as of December 31, 2022. As part of the registered direct offering of 70,650 shares of common stock and pre-funded warrants
to purchase 178,500 shares of common stock that we completed with the Holder on December 22, 2022 (the “December 2022 Registered
Direct Offering”), the Company paid the Holder an amount equal to $1.07 million for interest due and interest prepaid through February
28, 2023. The Company had not maintained its compliance with certain debt covenants and was in default under the terms of the Senior Convertible
Note up until the conversion on April 28, 2023 into Series C Preferred Stock
discussed below.
On January 27, 2023, the Company received the written
consent of the Holder to lower the conversion price of the Senior Convertible Note to 90% of the lowest volume weighted average price
(“VWAP”) (as defined in the Senior Convertible Note) of the common stock for a trading day during the five (5) consecutive
trading day period ending, and including, the applicable date that the conversion price is lowered for purposes of a conversion (as adjusted
for stock splits, stock dividends, stock combinations, recapitalizations and similar events during such measuring period) until further
written notice to the holder from the Company.
From January 27, 2023 through April 28, 2023, the
date of the Senior Convertible Note was converted into Series C Preferred Stock, we and the Holder of our Senior Convertible Note effected
debt for equity exchanges under the Senior Convertible Note. Pursuant to the debt for equity exchanges, the Holder exchanged $19.26 million
in aggregate principal amount of the Senior Convertible Note for an aggregate of 2,242,143 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 five (5)
consecutive trading day period ending, and including, the applicable date that the conversion price was lowered for purposes of a conversion,
in accordance with Section 7(g) of the Senior Convertible Note (the “Exchanges”) and recorded a loss on extinguishment of
the senior convertible note of $3.62 million.
Following the Exchanges and the
impact of the Amendment, our indebtedness pursuant to the Senior Convertible Note was reduced by $16.31 million, and $15.91 million in
aggregate principal amount of the Senior Convertible Note remained outstanding prior to the redemption of an additional $0.68 million
discussed below.
Agreement to Exchange Senior Convertible Note
to New Series C Convertible Preferred Stock
On April 19, 2023, the Company entered into an agreement
with the Holder (the “Note to Preferred Stock Exchange Agreement”) to exchange the $15.23 million 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.
As discussed above, prior to the issuance of the Series
C Preferred Stock the principal balance of the Senior Convertible Note dated February 22, 2023 had been reduced from an aggregate principal
amount of $35.00 million to $15.23 million in a series of transactions that included conversions of debt for equity and repayments to
the Holder. As also discussed above, the Company further amended the Senior Convertible Note agreement in connection with the Sale of
the Bethard Business. The Senior Convertible Note, however, was terminated upon issuance of the Series C Preferred Stock. The principal
balance converted into the new Series C Preferred Stock includes the redemption of $0.68 million that was paid by the Company using funds
from the Sale of the Bethard Business deposited in a bank account in favor of the Holder. On April 19, 2023, the Company paid $0.75 million
to the Holder to redeem the $0.68 million of principal, as well as settle a portion of the related redemption premium of $0.05 million
and accrued interest of $0.17 million. The balance due to the Holder of $0.15 million was paid on May 1, 2023.
The terms and provisions of the Series C Convertible
Preferred Stock were set forth in a Series C Convertible Preferred Stock Certificate of Designations (the “Series C Certificate
of Designations”), filed and effective with the Secretary of State of the State of Nevada in connection with the closing on April
28, 2023.
The exchange of the Senior Convertible Note into the
Series C Preferred Stock extinguished the Senior Convertible Note and the related debt liability outstanding of $15.23 million and eliminated
the related derivative liability that had a fair value of $1.96 million ($1,862 million approximate cash liability, as of March 31, 2023,
calculated under the terms of the Senior Convertible Note), as of March 31, 2023.
The Series C Certificate of Designations contemplates
that the Series C Preferred Stock are convertible into common stock (the “Conversion Shares”) at the option of the holder
of Series C Preferred Stock 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 shall be determined by dividing (x) the Conversion Amount (as defined below)
of a share of Series C Preferred Stock 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, 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. “Conversion Price” shall mean $2.50, subject to adjustment as provided in the Series C Certificate
of Designations. “Alternate Conversion Price” shall mean with respect to any Alternate Conversion that price which shall be
the lowest of (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.
The Company shall not be allowed to effect the conversion
of any of the Series C Preferred Stock held by the holder of Series C Preferred Stock, and such holder of Series C Preferred Stock shall
not have the right to convert any of the Series C Preferred Stock held by such holder of Series C Preferred Stock pursuant to the terms
and conditions of the Series C Certificate of Designations to the extent that after giving effect to such conversion, such holder of Series
C Preferred Stock 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.
Dividends on the Series C Preferred Stock accrue daily
at a rate equal to 8.0% per annum, increasing 0.50% each 135 day anniversary from the date of issuance and shall be 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
hereunder (including, without limitation, upon any required payment upon any Bankruptcy Triggering Event, as defined in the Series C Certificate
of Designations).
Under Section 4(e)(iii) of the Series C Certificate
of Designations, in the event that the Alternate Conversion Price (as defined above and herein) falls below the Floor Price (as defined
above and herein) 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) 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.
From May 8, 2023 through August 14, 2023, the
Holder converted $9.1 million in Series C Preferred Stock for 18,983,934 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, offset by the aggregate Alternate Conversion Floor Amount of approximately $3.6 million and accrued dividends of $0.2
million. The balance of Series C Preferred Stock was reduced to approximately $10.0 million as of August 14, 2023. The alternate
conversion Floor Adjustment was recorded as a deemed dividend and will be presented on the consolidated statement of operations as
an addition to the net loss available to common stockholders.
On August 15, 2023, as part of the Settlement
Agreement (as described below), the Company triggered the anti-dilution down round price protection provisions of the Series C
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 Preferred Stock, the Company recorded a deemed dividend within stockholders’ deficit associated with
the reduction in conversion price in effect prior to the Settlement Agreement (as described below) from $0.44 to the conversion
price as defined below, of $6.7 million based on the incremental value to the Series C Preferred Stock 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. The incremental value was determined by computing the additional shares
the Series C Preferred Stock would receive based on the conversion price reduction multiplied by the estimated fair value of common
stock of $0.1935.
Securities Purchase Agreement and Series D Preferred
Stock
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 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 (the “Common Warrants”),
and (iii) preferred warrants to purchase 4,300 shares of our Series D Preferred Stock at a price of $1,000 per share (the “Preferred
Warrants”), for a total gross proceeds to the Company of $4.3 million before deducting underwriting discounts and commissions.
The terms and provisions of the Series D Preferred
Stock were set forth in a Series D Convertible Preferred Stock Certificate of Designations (the “Series D Certificate of Designations”),
filed and effective with the Secretary of State of the State of Nevada in connection with the closing on May 22, 2023.
The Series D Certificate of Designations contemplates
that the Series D Preferred Stock will be convertible into common stock (the “Conversion Shares”) at the option of the holder
of Series D Preferred Stock 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 D Preferred Stock shall be determined by dividing (x) the Conversion Amount (as defined below)
of a share of Series D Preferred Stock 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 D Preferred Stock, 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
D Certificate of Designations. “Conversion Price” shall mean $3.00. “Alternate Conversion Price” shall mean 90%
of the lowest VWAP (as defined in the Series D Certificate of Designations) of the 10 trading days ending and including the date of conversion.
“Floor Price” shall mean $0.39. 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 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, the Company is
obligated to use its reasonable best efforts to obtain such stockholder approval by August 15, 2023, which will not be achievable.
The Company shall not be allowed to effect the conversion
of any of the Series D Preferred Stock held by the holder of Series D Preferred Stock, and such holder of Series C Preferred Stock shall
not have the right to convert any of the Series D Preferred Stock held by such holder of Series D Preferred Stock pursuant to the terms
and conditions of the Series D Certificate of Designations to the extent that after giving effect to such conversion, such holder of Series
D Preferred Stock 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.
Pursuant to a Registration Rights Agreement (the “Registration
Rights Agreement”) between the Holder and the Company, the Company granted certain registration rights to the Investor. The Registration
Rights Agreement requires the Company to file a registration statement covering the resale of the shares of common stock underlying the
shares of Series D Preferred Stock to be issued in the offering and the shares of common stock issued upon exercise of the Common Warrants.
The Registration Rights Agreement also covers the shares of common stock issuable on conversion of any shares of Series D Preferred Stock
issued upon exercise of the Preferred Warrants. Under the Registration Rights Agreement, such amount to be registered shall equal 200%
of all such shares plus the shares that could be issued upon conversion of the dividends accruing on the Series D Preferred Stock through
the second anniversary of the closing of the offering of Series D Preferred Stock, assuming a conversion price equal to the Floor Price.
The Company was to have filed the registration statement within 60 days from the closing of the transactions contemplated by the Securities
Purchase Agreement, or July 21, 2023, and cause the registration statement to be declared effective within 120 days after the closing
of the transactions contemplated by the Securities Purchase Agreement. As a result of the Company’s delay in filing such registration
statement, the Company is obligated under the Registration Rights Agreement to pay the holder of the registrable securities an amount
in cash equal to 0.5% of the Investor’s purchase price in the Series D Preferred Stock offering for the filing failure and also
on every thirty-day anniversary of such filing failure, if any, until cured. The Registration Rights Agreement contains mutual customary
indemnification provisions among the parties and requires the Company to make certain cash payments in the event the Company fails to
file and/or maintain the effectiveness of a required registration statement.
Dividends on the Series D Preferred Stock will accrue
daily at a rate equal to 8.0% per annum, increasing 0.50% each 135 day anniversary from the date of issuance and shall be 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
hereunder (including, without limitation, upon any required payment upon any Bankruptcy Triggering Event).
Under Section 4(e)(iii) of the Series D Certificate
of Designations, in the event that the Alternate Conversion Price (as defined above and herein) falls below the Floor Price (as defined
above and herein) 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 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 of the date hereof, no amounts are due under the Series D
Preferred Stock.
On August 15, 2023, as part of the Settlement
Agreement (as described below), the Company triggered the anti-dilution down round price protection provisions of the Series D
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 Preferred Stock, the Company recorded a deemed dividend within stockholders’
deficit associated with the reduction in conversion price in effect prior to the Settlement Agreement (as described below) from
$0.39 to the conversion price as defined below, of $2.6 million based on the incremental value to the Series D
Preferred Stock 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. The incremental value was determined by
computing the additional shares the Series D Preferred Stock would receive based on the conversion price reduction multiplied by the
estimated fair value of common stock of $0.1935.
Settlement Agreement
On August 15, 2023, the Company entered into a
settlement agreement (“Settlement Agreement”) with the Holder to issue common stock in partial settlement of Registration
Rights Fees payable (“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 Preferred Stock and common warrants, despite the Company’s best efforts to avoid such delay. As of August 15, 2023, the Company
is obligated to pay to the Holder a Registration Delay Payment 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 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 (7) 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 (10) 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 Preferred Stock and Series D Preferred Stock such that the issuances of any settlement shares
in accordance with the 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 Preferred Stock and Series D 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 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 Settlement Agreement)) and (y) 90% of the lowest
VWAP of the Common Stock during the ten (10) consecutive trading day period ending and including such applicable conversion date under
the terms of the Series C Preferred Stock or Series D Preferred Stock, as applicable.
The Settlement Agreement further provides that,
notwithstanding anything in the applicable Certificate of Designations for the Series C Preferred Stock or Certificate of Designations
for the Series D Preferred Stock to the contrary, with respect to any given conversion of any Series C Preferred Stock or Series D 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 Preferred Stock and Series D Preferred Stock) shall
be deemed to have occurred with respect to such conversion of the Series C Preferred Stock or Series D Preferred Stock, as applicable.
Other Sales and Restructurings in the iGaming
business
We have initiated a process to evaluate the strategic
options for the iGaming business, including exploring the sale of iGaming assets due to increasing regulatory burdens and competition.
Our new Chief Executive Officer was tasked with assessing the value of the iGaming assets and determining next steps. The Company has
taken the following actions:
Sale of Spanish iGaming Operations
On January 18, 2023, the Company sold its Spanish
iGaming operations, including its Spanish iGaming license. The Company received approximately $1.2 million in proceeds and $1.0 million
in cash from the return of a deposit held with the Spanish regulator. Sixty-five percent (65%) of the proceeds and cash received were
remitted to the Holder as required. The Company recognized a gain on disposal of the Spanish iGaming operations of $1.11 million.
Closure of Argyll and vie.gg
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 UK Gambling Commission (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 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 Argyll Entertainment of $3.29
million.
On October 28, 2022, the Company determined that it
would close down its vie.gg New Jersey operations and exit its transactional waiver from the New Jersey Division of Gaming Enforcement.
The exit of the transactional waiver is complete and this did not have a material adverse effect on our results of operations.
Exit of EGL business
On June 30, 2023, the Company sold its EGL business,
a provider of online tournaments (through the EGL tournament platform) to a member of the EGL management team for $0.25 million. The exit
of EGL is not expected to have a material adverse effect on our results of 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
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. 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, we received notice from the Panel
updating its remaining conditions as follows:
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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; |
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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 |
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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).
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 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 Argyll Entertainment
of $3.29 million.
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.
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.
Corporate Information
Our principal executive office address is Block 6,
Triq Paceville, St. Julians, Malta, STJ 3109. Our telephone number is +356 2713-1276. Our website is www.esportsentertainmentgroup.com.
The information contained in our website is not a part of this prospectus supplement.
THE OFFERING
The following summary contains basic information about
this offering. The summary is not intended to be complete. You should read the full text and more specific details contained elsewhere
in this prospectus supplement. See “Description of the Securities that we are Offering.”
Issuer |
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Esports Entertainment Group, Inc. |
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Securities Offered; Offering Price |
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We are offering 1,000,000
shares of Common Stock, for a price of $0.1935 per share directly to an institutional investor. |
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We are also offering Pre-funded
Warrants to purchase up to 4,167,959 shares of our Common Stock (and the shares of Common Stock issuable from time to time
upon exercise of the Pre-Funded Warrants). Each Pre-funded Warrant entitles the investor to purchase one share of our Common Stock
at an initial exercise price of $0.1935, with all but $0.001 per share of such exercise price, which we refer to herein as
the “remaining exercise price”, prepaid to us at the closing of this offering. |
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Cashless Exercise of Pre-funded Warrants |
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The Pre-funded Warrants may be exercised, at the option of the purchaser, on a cashless basis pursuant to their terms. |
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Beneficial Ownership Limitations of Pre-funded Warrants |
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The Pre-funded Warrants may not be exercised to the extent they cause the purchaser of the Pre-funded Warrants to become a “beneficial owner” of more than 4.99% of our Common Stock for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the “Beneficial Ownership Limitation”). The Beneficial Ownership Limitation may be increased at the discretion of the purchaser of the Pre-funded Warrants to any percentage less than or equal to 9.99% of our Common Stock upon 91 calendar days’ notice or decreased at any time. |
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Exercise Period of Pre-funded Warrants |
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The Pre-funded Warrants
will be issuable into shares of Common Stock immediately upon issuance. The Pre-funded Warrants will be exercisable until the
fifth annual anniversary of August 16, 2023. |
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Common Stock Outstanding Immediately Before This Offering |
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22,367,628 |
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Common Stock Outstanding Immediately After This Offering |
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23,367,628 |
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Common Stock Outstanding Immediately After This Offering Assuming All Of The Pre-funded Warrants Issued In This Offering Are Exercised |
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27,535,587 |
Exchange Listing |
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Our common stock trades on Nasdaq under the symbol
“GMBL.” On August 15, 2023, the last reported sale price of our common stock was $0.1989 per share.
We currently have two classes of Common Stock Purchase
Warrants that trade on Nasdaq under the symbols “GMBLW” and “GMBLZ.”
Our Common Stock Purchase Warrants that have
an exercise price of $425.00 per share and expire in April 2025 trade under the symbol GMBLW. On August 15, 2023, the last
reported sale price of our GMBLW warrants was $0.025 per warrant.
Our Common Stock Purchase Warrants that have
an exercise price of $100.00 per share and expire in March 2027 trade under the symbol GMBLZ. On August 15, 2023, the last
reported sale price of our GMBLZ warrants was $0.0085 per warrant.
There is no established public trading market
for the Pre-funded Warrants in this offering, and we do not expect a market to develop. Without an active trading market,
the liquidity of the Pre-funded Warrants from this offering will be limited. In addition, we do not intend to list the Pre-funded
Warrants from this offering on the Nasdaq Capital Market, any other national securities exchange or any
other trading system. |
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Use of Proceeds |
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We will have broad discretion
in the use of the remaining net proceeds following the payment of offering expenses. The balance of the net proceeds will
be used for working capital and general corporate purposes. See “Use of Proceeds.” |
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Risk Factors |
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This investment involves
a high degree of risk. See “Risk Factors” and other information included or incorporated by reference in this prospectus
supplement and the accompanying base prospectus for a discussion of certain factors you should carefully consider before deciding
to invest in our securities. |
RISK
FACTORS
Investing in
our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully
the risks described below and discussed under the sections captioned “Risk Factors” contained in our Annual Report on
Form 10-K for our fiscal year ended June 30, 2022 filed with the SEC, on October 13, 2022, which is incorporated by reference into
this prospectus supplement and the accompanying base prospectus in their entirety, together with other information in this
prospectus supplement, the accompanying base prospectus, the information and documents incorporated by reference herein and therein,
and in our subsequent Quarterly Reports on Form 10Q. If any of these risks actually occur, our business, financial condition,
results of operations or cash flow could be seriously harmed. This could cause the trading price of our common stock to decline,
resulting in a loss of all or part of your investment.
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 Preferred Stock and
Series D Preferred Stock, we have an accumulated deficit of $180,635,674 as of March 31, 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 and cash equivalents are 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 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 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:
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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; |
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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 |
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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).
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.
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; the liquidity of our common stock may be adversely effected.
We
effected the Reverse Stock Split of our outstanding common stock. The liquidity of the shares of our common stock may 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 as a result of the Reverse Stock Split.
Following the 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.
If
we implement a second reverse stock split, the liquidity of our common stock may be 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 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 Preferred Stock and the Series D Preferred Stock give the Holder many of the certain rights, including the ability to
convert at will the Series C Preferred Stock and the Series D Preferred Stock to shares of our common stock at a discount to the closing
market price 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 Preferred Stock and Series D 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 Preferred Stock
and Series D 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 Preferred Stock and Series D 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 above and herein) falls below the Floor Price (as defined above and herein) 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 of the date hereof, we have increased such dividends by an aggregate
Alternate Conversion Floor Amount of $3.6 million to the holder of the Series C Preferred Stock. No such amounts are due under the Series
D Preferred Stock.
From
May 8, 2023 through August 14, 2023, the Holder converted $9.1 million in Series C Preferred Stock for 18,983,934 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, offset by the aggregate Alternate Conversion Floor Amount of approximately $3.6 million and accrued dividends
of $0.2 million. The balance of Series C Preferred Stock was reduced to approximately $10.0 million as of August 14, 2023. 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.
We
have provided a summary of the material terms of the Series C Preferred Stock and the Series D Preferred Stock under the heading, “Description
of Capital Stock – Preferred Stock” in this prospectus supplement.
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 equity requirement 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 cause 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:
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actual
or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar
to us; |
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changes
in the market’s expectations about our operating results; |
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success
of competitors; |
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lack
of adjacent competitors; |
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our
results failing to meet the expectation of securities analysts or investors in a particular period; |
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changes
in financial estimates and recommendations by securities analysts concerning us or the industries in which we operate in general; |
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our
ability to market new and enhanced products and services on a timely basis; |
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commencement
of, or involvement in, litigation involving us; |
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changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
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the
volume of shares of our common stock by our directors, executive officers or significant stockholder or the perception that such
sales could occur; and |
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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 March 31, 2023, we had outstanding options to purchase up to 32,324 shares of our common stock including an award of 25,000 time-based
stock options with our CEO, for options to purchase a total of 32,324 shares of common stock. In addition, as of March 31, 2023, we had
outstanding warrants to purchase up to approximately 562,006 shares of our common stock outstanding as of March 31, 2023. 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. In addition, in the future we may 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
may 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 may 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 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 Preferred Stock and/or Series D 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.
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 authorizes 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 Preferred Stock and Series D 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 could assign to holders of preferred stock could affect the residual value of our common
stock.
Our
Amended and Restated Articles of Incorporation allows 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 value 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 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 five years from issuance, or November 15, 2026, at which point we must redeem the shares of 10% Series A Cumulative Redeemable
Convertible Preferred Stock in cash.
Dividends
on the 10% Series A Cumulative Redeemable Convertible Preferred Stock accrue daily and are cumulative from the date of issuance. The
dividends on the 10% Series A Cumulative Redeemable Convertible Preferred Stock are payable monthly in arrears on the last day of each
calendar month, when, as and if declared by our Board, at the rate of 10.0% per annum. In the event the dividends are not paid in cash,
the dividends shall continue to accrue at a dividend rate of 10.0%.
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 Interim
CFO of the Company, who is 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 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 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 Preferred Stock and the Series D Preferred Stock, respectively. These designated the rights, preferences,
privileges and restrictions of the shares of Series C Preferred Stock and the Series D Preferred Stock.
The
exchange of the Senior Convertible Note into the Series C Preferred Stock extinguished the Senior Convertible Note and the related debt
liability outstanding of $15,230,024 into 15,230 shares of Series C Preferred Stock, $0.001 par value per share, for a price of $1,000
per share.
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 contemplated a direct offering to the Investor
of (i) 4,300 shares of 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 total gross proceeds to the Company of approximately $4,260,000.
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 shall be determined by dividing (x) the Conversion
Amount (as defined below) of a share of Series C Preferred Stock 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, 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. “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 of 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 will 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 be 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
Note to Exchange Agreement and the Securities Purchase Agreement contain 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 closing, as more fully described in the
Note to Exchange Agreement and Securities Purchase Agreement. These agreements contains customary representations and warranties and
certain indemnification rights and obligations of the parties.
Risks
Related to this Offering
Management
will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively.
We
will have broad discretion in the use of the remaining net proceeds upon the payment of offering expenses. The balance of the net proceeds
will be used for working capital and general corporate purposes. Our failure to apply these funds effectively could have a material adverse
effect on our business and cause the price of our Common Stock to decline.
You
will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.
As
of March 31, 2023, our net tangible book value (deficit) was approximately $(24,547,425), or approximately $(7.52) per share. Since the
effective price per share of our common stock being offered in this offering is substantially higher than the net tangible book value
per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock you
purchase in this offering. Based on the public offering price of $0.1935 per share of common stock being sold in this offering,
and our net tangible book value per share as of March 31, 2023, if you purchase shares of common stock in this offering, you will suffer
immediate and substantial dilution of $0.29 per share with respect to the net tangible book value of the common stock. See the
section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if you purchase common stock
in this offering.
You
may experience future dilution as a result of future equity offerings and other issuances of our common stock or other securities. In
addition, this offering and future equity offerings and other issuances of our common stock or other securities may adversely affect
the price of our common stock.
In
order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into
or exchangeable for our common stock (such as warrants, convertible debt or preferred stock) at prices that may not be the same as the
price per share in this offering. We may not be able to sell shares of common stock or other securities in any other offering at a price
per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares of
common stock or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell
additional shares of our common stock or securities convertible into common stock in future transactions may be higher or lower than
the price per share in this offering. In addition, we are issuing Pre-funded Warrants to purchase shares of common stock as part
of this offering. The sale of shares of common stock and Pre-funded Warrants in this offering and any future sales of a substantial
number of shares of our common stock and warrants in the public market, or the perception that such sales may occur, could adversely
affect the price of our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock and warrants
or the availability of those shares of common stock and warrants for sale will have on the market price of our common stock.
A
large number of shares issued in this offering may be sold in the market following this offering, which may depress the market price
of our common stock.
A
large number of shares issued in this offering and upon exercise of warrants may be sold in the market following this offering, which
may depress the market price of our common stock. Sales of a substantial number of shares of our common stock in the public market following
this offering could cause the market price of our common stock to decline. If there are more shares of our common stock offered for sale
than buyers are willing to purchase, then the market price of our common stock may decline to a market price at which buyers are willing
to purchase the offered shares of our common stock and sellers remain willing to sell the shares. All of the securities issued in the
offering will be freely tradable without restriction or further registration under the Securities Act.
There
is no public market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop.
There
is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market
to develop. In addition, we do not intend to apply to list the Pre-funded Warrants on any national securities exchange or other
nationally recognized trading system. Without an active market, the liquidity of the Pre-Funded Warrants will be limited.
The
Pre-funded Warrants in this offering are speculative in nature.
The
Pre-funded Warrants offered in this offering do not confer any rights of common stock ownership on their holders, such as voting
rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed
price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Pre-funded Warrants may
exercise their right to acquire the common stock and pay an exercise price of $0.001 per share, until the fifth annual
anniversary of August 16, 2023, after which date any unexercised warrants will expire and have no further value. There can be no
assurance that the market price of the common stock will ever equal or exceed the exercise price of the Pre-funded Warrants, and
consequently, whether it will ever be profitable for holders of the Pre-funded Warrants to exercise the Pre-funded
Warrants.
Holders
of the common warrants and Pre-funded Warrants will not have rights of holders of our common stock until such Pre-funded Warrants
are exercised.
Until
holders of common warrants and Pre-funded Warrants acquire shares of our common stock upon exercise of the Pre-funded
Warrants, holders of the Pre-funded Warrants will have no rights with respect to the shares of our common stock
underlying such securities. Upon exercise of the Pre-funded Warrants, the holders will be entitled to exercise the rights of
a holder of our common stock only as to matters for which the record date occurs after the exercise.
Risks
Related to Our Business
Since
we have a limited operating history and limited history of revenue producing operations, it is difficult for potential investors to evaluate
our business.
While
we were incorporated under the laws of Nevada in July 2008, we did not begin to commence revenue generating operations until July 2020
with the acquisition of Argyll (which closed down its licensed remote gambling operation during December 2022 and is being wound down
with Argyll Entertainment being declared bankrupt by the Swiss Court on March 27, 2023). Since that acquisition, we also acquired several
businesses including FLIP, Lucky Dino, GGC, Helix (of which the Helix game center assets were sold on June 10, 2022), Bethard (which
was sold on February 24, 2023) and EGL (which was sold on June 30, 2023). Prior to these acquisitions, our operations focused primarily
on the design, development and testing of our wagering systems. We continue to be subject to all the risks and uncertainties inherent
in a new business and sale of new products and services. As a result, we still must establish many corporate functions necessary to operate
our business, including finalizing our administrative structure, continuing our product development, assessing and expanding our marketing
activities, implementing financial systems and controls and personnel recruitment. Accordingly, you should consider our prospects in
light of the costs, uncertainties, delays, and difficulties frequently encountered by companies that are in a development stage. You
should carefully consider the risks and uncertainties that a company, such as ours, with a limited operating history will face. In particular,
you should consider that we cannot provide assurance that we will be able to:
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continue
to operate as a going concern |
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remain
listed on Nasdaq; |
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successfully
implement or execute our current business plan; |
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maintain
our management team; |
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raise
sufficient funds in the capital markets to effectuate our business plan; |
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attract,
enter into or maintain contracts with, and retain customers; or |
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compete
effectively in the extremely competitive environment in which we operate. |
If
we cannot successfully accomplish the foregoing objectives, our business may not succeed.
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 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 prospectus supplement and accompanying
base prospectus, 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 2022 and 2021. As of June 30, 2022, and 2021, our accumulated deficit was $149,140,426 and $46,908,336, respectively,
and as of March 31, 2023 our accumulated deficit was $180,635,674. These factors, among others, raised substantial doubt about our ability
to continue as a going concern.
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 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:
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licenses
and/or permits; |
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findings
of suitability; |
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documentation
of qualifications, including evidence of financial stability; and |
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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 recognized a gain on disposal of Argyll Entertainment of
$3,288,060. 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.
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 $6.5 million for the three months ended March 31, 2022 to approximately $2.5 million for the three months
ended March 31, 2023. Net revenues for our Lucky Dino business represented approximately 59% of our consolidated net revenues for the
three months ended March 31, 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.
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 through this prospectus 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.
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.
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.
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.
Public
health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.
The
novel coronavirus (“COVID-19”) emerged in December 2019 and has since adversely impacted global commercial activity, disrupted
supply chains and contributed to significant volatility in financial markets. The ongoing impacts of the COVID-19 pandemic has introduced
material uncertainty and risk with respect to us and our performance, especially as it relates to in-person attendance at events and
game centers.
We
have previously indicated that a significant or prolonged decrease in consumer spending on entertainment or leisure activities may have
an adverse effect on demand for our product offerings, including in-person access to game centers and tournaments, reducing cash flows
and revenues, and thereby materially harming our business, financial condition and results of operations.
The
ultimate impact of the COVID-19 pandemic on other areas of the business will depend on future developments, which are uncertain and may
result in an extended period of continued business disruption and reduced operations. A materially disruptive resurgence of COVID-19
cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on
where infection rates are highest. Any resulting financial impact cannot be reasonably estimated at this time but may have a material
adverse impact on our business, financial condition and results of operations. We will continue to monitor developments relating to disruptions
and uncertainties caused by COVID-19.
USE
OF PROCEEDS
We
estimate that the net proceeds from the issuance and sale of shares of Common Stock and Pre-funded Warrants to purchase common stock
excluding the exercise price in this offering will be approximately $866,000, after deducting the estimated offering expenses
payable by us and assuming no exercise of the Pre-funded Warrants.
We
will have broad discretion in the use of the remaining net proceeds following the payment of offering expenses. We intend to use
the remaining net proceeds of this offering for working capital and general corporate purposes to support ongoing business operations.
CAPITALIZATION
The
following table sets forth our capitalization as of March 31, 2023. All references to shares of our common stock, refer to the number
of shares of common stock after giving effect to the Reverse Stock Split:
|
● |
On
an actual basis; |
|
● |
On
a pro forma basis to give effect to: |
|
(i) |
The
exchange of the remaining outstanding balance of $15,230,024 of the Senior Convertible Note into the Series C Preferred Stock pursuant
to the Note to Exchange Agreement entered into April 19, 2023. The exchange extinguished the Senior Convertible Note and the related
debt liability outstanding, and also eliminated the related derivative liability that had a fair value of $1,963,933 as of March
31, 2023; |
|
(ii) |
The
issuance of Series D Preferred Stock pursuant to the Securities Purchase Agreement entered into with the Holder on April 30, 2023.
The Securities Purchase Agreement was closed on May 22, 2023, and resulted in the issuance (i) 4,300 shares of 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 with an estimated fair value at issuance of $2,818,154, 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 net proceeds to the Company of $3,959,000
after deducting placement fees and expenses; |
|
(iii) |
The
cash redemption of $679,976 of the $15,910,000 outstanding under the Senior Convertible Note following the Exchanges and the impact
of the Amendment and Exchanges prior to the conversion of the remaining amount of the Senior Convertible Note into Series C Preferred
Stock. On April 19, 2023, the Company paid $750,000 to the Holder to redeem the $679,976 and to settle a portion of the amounts due
to the Holder related redemption premium of $51,450 and accrued interest of $168,574. The remaining $150,000 was paid to the Holder
on May 1, 2023, resulting in a total of $900,000 paid to the Holder of which $34,911 was paid from Cash and $865,089 was paid from
Restricted cash; |
|
(iv) |
The
exchange of $9,031,408 in Series C Preferred Stock for 18,983,934 shares of our common stock during the period from
May 8, 2023 through August 14, 2023 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, offset by the aggregate Alternate Conversion Floor Amount
of $3,634,521 and accrued dividends of $204,415; and |
|
(v) |
This
issuance of 10,000 shares of common stock on August 15, 2023 as part of the partial settlement of RRA Fees at $0.10 a share for $1,000
and a fair value of $1,935 and the issuance of 111,391 shares of common stock on June 30, 2023 to settle payables of $131,330. |
|
● |
On
a pro forma, as adjusted basis to give effect to: |
|
(i) |
The
sale of 1,000,000 shares of common stock and 4,167,959 Pre-funded Warrants in this offering at the public offering price of
$0.1935 per share, after fees and other estimated offering expenses payable by us; but giving no effect to the exercise
of the Pre-funded Warrants; |
|
(ii) |
The
payment of $130,000 in offering expenses. |
This
capitalization table should be read in conjunction with our audited consolidated financial statements and accompanying notes and Management’s
Discussion and Analysis of Financial Condition and Results of Operations, on Current Report on Form 8-K filed with the Securities and
Exchange Commission, or SEC, on August 17, 2023 and other financial information included in this prospectus supplement or incorporated
by reference into this prospectus supplement.
| |
As of March 31, 2023 | |
| |
Actual (Unaudited) | | |
Pro Forma, (Unaudited) | | |
Pro Forma, As Adjusted (Unaudited) | |
Assets: | |
| | | |
| | | |
| | |
Cash | |
$ | 1,875,758 | | |
$ | 5,799,847 | | |
$ | 6,665,679 | |
Restricted cash | |
$ | 972,986 | | |
$ | 107,897 | | |
$ | 107,897 | |
Liabilities: | |
| | | |
| | | |
| | |
Derivative liability (1) | |
$ | 1,963,933 | | |
$ | - | | |
$ | - | |
Warrant liability (2) | |
$ | 1,043,789 | | |
$ | 1,043,789 | | |
$ | 1,043,789 | |
Debt: | |
| | | |
| | | |
| | |
Senior convertible note | |
$ | 15,910,000 | | |
$ | - | | |
$ | - | |
Notes payable and other long-term debt | |
| 25,723 | | |
| 25,723 | | |
| 25,723 | |
Total Debt | |
$ | 15,935,723 | | |
$ | 25,723 | | |
$ | 25,723 | |
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 actual; pro forma; and pro forma, as adjusted, respectively | |
$ | 8,007,162 | | |
$ | 8,007,162 | | |
$ | 8,007,162 | |
Stockholders’ equity: | |
| | | |
| | | |
| | |
Preferred stock, $0.001 par value; 10,000,000 shares authorized | |
$ | - | | |
$ | - | | |
$ | - | |
Series C Convertible Preferred
Stock, $0.001 par value, 20,000 authorized, 6,894 shares issued and outstanding at March 31, 2023 pro forma; and pro forma,
as adjusted, respectively (3) | |
| - | | |
| 10,037,552 | | |
| 10,037,552 | |
Series D Convertible Preferred Stock, $0.001 par value, 10,000 authorized, 4300 shares issued and outstanding at March 31, 2023 pro forma; and pro forma, as adjusted, respectively(3) | |
| | | |
| 1,140,846 | | |
| 1,140,846 | |
Common stock $0.001 par value; 500,000,000 shares authorized, 3,262,303 shares issued and outstanding as of March 31, 2023 actual,
22,367,628 shares outstanding as of March 31, 2023 pro forma and 23,367,628 shares issued and outstanding as of March
31, 2023 pro forma, as adjusted | |
| 3,262 | | |
| 22,368 | | |
| 23,368 | |
Additional paid-in capital(4) | |
| 171,821,858 | | |
| 179,946,754 | | |
| 180,811,586 | |
Accumulated deficit | |
| (180,635,674 | ) | |
| (178,893,700 | ) | |
| (178,893,700 | ) |
Accumulated other comprehensive loss | |
| (4,792,746 | ) | |
| (4,792,746 | ) | |
| (4,792,746 | ) |
Total stockholders’ equity (deficit) | |
$ | (13,603,300 | ) | |
$ | 7,461,074 | | |
$ | 8,326,906 | |
Total capitalization | |
$ | 10,339,585 | | |
$ | 15,493,959 | | |
$ | 16,359,791 | |
(1) |
The
Company has recorded a derivative liability at March 31, 2023 for the alternate conversion feature embedded within the Senior Convertible
Note of $1,963,933. The amount of the derivative liability, representing estimated amounts that may have been due to the Holder of
the Senior Convertible Note under the provisions of the agreement was determined using a Monte Carlo valuation model. The inputs
to the valuation model considered the share price of the Company, its market capitalization as well as the Company’s estimates
of credit and non-performance risk. The conversion of the Senior Convertible Note to the Series C Preferred Stock extinguished the
Senior Convertible Note and related debt outstanding of $15,230,024 and further eliminated the related derivative liability that
had a fair value of $1,963,933 as of March 31, 2023 ($1,862,000,000 approximate cash liability, as of March 31, 2023, calculated
under the terms of the Senior Convertible Note). |
(2) |
The
warrant liability at March 31, 2023 includes the fair value of 336,000 warrants that had been issued by us in the offering of common
stock and warrants on September 19, 2022, the fair value of 172,500 warrants that had been issued by us in the offering of common
stock and warrants on March 2, 2022, as well as the fair value of 40,000 warrants issued to the Holder of our Senior Convertible
Note on May 28, 2021. At March 31, 2023, the warrants issued in connection with the offering on September 19, 2022 had an estimated
fair value of $702,239, the warrants issued in connection with the offering on March 2, 2022 had an estimated fair value of $341,550,
and the 40,000 warrants issued to the Holder of the Senior Convertible Note, consisting of 20,000 Series A Warrants and 20,000 Series
B Warrants, were estimated to no longer have value. The Company has determined that the pre-funded warrants issued in
connection with this offering will be equity classified. |
(3) |
The
aggregate liquidation preference for the Series C Preferred Stock and Series D Preferred Stock is defined in the Certificates 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. |
(4) |
Due to the down round price protection provision on the
Series C Preferred Stock and Series D Preferred Stock, the Company recorded a deemed dividend within additional paid-in capital (as
stockholders’ equity is in a deficit) associated with the reduction in conversion price in effect prior to the Settlement
Agreement from previous conversion price in effect to the conversion price as adjusted by the Settlement Agreement, of
$9,382,909 based on the incremental value to the Holder due to the conversion price reduction. |
Except
as otherwise noted, all information in this prospectus reflects and assumes supplement reflects and assumes the exercise of all
the Pre-funded Warrants in this offering. The foregoing table excludes the number of shares of common stock potentially issuable upon a
conversion of the Series C Preferred Stock and Series D Preferred Stock into shares of common stock. The foregoing table also
excludes the number of shares of common stock issuable upon exercise of the Common Warrants issued in the Series D Preferred Stock
offering and excludes any shares of common stock that would be issuable upon exercise and conversion of the preferred warrants
issued in the Series D Preferred Stock offering. 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 require approval by the
Company’s stockholders pursuant to the rules and regulations of the Nasdaq Stock Market.
In
addition, the table excludes the following as of March 31, 2023:
● |
32,324
shares of common stock issuable upon the exercise of outstanding stock options with a weighted average exercise price of $149.52
as of March 31, 2023; |
● |
835,950
shares of 10% Series A Cumulative Redeemable Convertible Preferred Stock that are each convertible into one share of common stock
at a conversion price of $17.50 per common share as of March 31, 2023; |
● |
562,006
shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $180.73 as of
March 31, 2023; and |
● |
14,695
shares reserved for future issuances under our equity compensation plan or other issuances to employees as of March 31, 2023. |
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On
February 24, 2023, the Company, pursuant to a Purchase Agreement dated February 14, 2023 with the Gameday Group PLC, a Malta company,
completed the divestiture of Prozone Limited, a Malta company containing the online casino and sportsbook business, including the Bethard
brand, that is licensed in Malta and Sweden. The purchase consideration was determined by the Company to be $8,090,965, comprised of
cash received on the Closing Date of €1,650,000 ($1,739,882 using exchange rates in effect on the Closing Date), holdback consideration,
of €150,000 ($158,171 using exchange rates in effect on the Closing Date) and the Company’s settlement of its contingent consideration
liability of €5,872,989 ($6,192,912 using exchange rates in effect on the Closing Date) that had originated from its acquisition
of the Bethard Business on July 13, 2021. The Purchaser further assumed net working capital of the Bethard Business consisting primarily
of accounts payable and accrued liabilities estimated to be €1,176,242 ($1,240,317 using exchange rates at the Closing Date).
The
Sale of the Bethard Business was determined to be a disposition of a significant business of the Company. As a result, the Company prepared
the below unaudited pro forma condensed consolidated financial statements included herein in accordance with Article 11 of Regulation
S-X and based on historical financial information of the Company. The accompanying unaudited pro forma condensed consolidated statement
of operations for the nine month period ended March 31, 2023 and the year ended June 30, 2022 gives effect to the Sale of the Bethard
Business as if it had occurred on July 1, 2021, the beginning of the earliest period presented. Transaction accounting adjustments for
the Sale of the Bethard Business are not reflected in the accompanying unaudited pro forma condensed consolidated balance sheet as the
transaction closed on February 24, 2023 and was included in the unaudited consolidated balance sheet of the Company at March 31, 2023.
The
accompanying unaudited pro forma condensed consolidated financial information includes pro forma adjustments that are directly attributable
to the Sale of the Bethard Business 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,
included in the Quarterly Report on Form 10-Q filed with the SEC on May 22, 2023; |
|
|
(ii) |
our audited consolidated financial statements and accompanying
notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in
our latest Annual Report on Form 10-K and our Current Report on Form 8-K filed with the SEC on August 17, 2023; |
|
|
(iii) |
the
disclosure that the Company had entered into a share purchase agreement with Gameday Group PLC dated February 14, 2023, and also
an Amendment and Waiver Agreement, dated February 16, 2023, regarding its Senior Convertible Note, to complete the Sale of the Bethard
Business, included in the Current Report on Form 8-K filed with the SEC on February 17, 2023; |
|
|
(iv) |
the disclosure regarding the Holder of the Senior Convertible
Note’s effectuation of debt for equity exchanges, included in the Current Report on Form 8-K filed with the SEC on February
6, 2023 and the Current Report on Form 8-K filed with the SEC on May 22, 2023; |
|
|
(v) |
the
exchange of the $15,230,024 in aggregate principal amount remaining under the Senior Convertible Note into the new Series C Preferred
Stock, included in the Current Report on Form 8-K filed with the SEC on April 20, 2023; and |
|
|
(vi) |
The
issuance of Series D Preferred Stock pursuant to the Securities Purchase Agreement entered into with the Holder on April 30, 2023,
and that further closed on May 22, 2023, resulting in the issuance of (i) 4,300 shares of 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 with an estimated fair value at issuance of $2,818,154, 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 net proceeds to the Company of $3,959,000 after deducting
placement fees and expenses, which is included in the Form 8-K filed with the SEC on May 1, 2023 and the Current Report on Form 8-K
filed with the SEC on May 26, 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 Sale of the Bethard Business been completed
as of the date and for the periods presented. The actual financial position and results of operations 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 these unaudited pro forma condensed combined financial
statements and are subject to change as additional information becomes available and analyses are performed.
All
references to share and per share amounts of our common stock give effect to the Reverse Stock Split.
Esports
Entertainment Group, Inc.
Consolidated
Balance Sheet
March
31, 2023
(Unaudited)
| |
Historical | | |
Transaction Accounting Adjustments | | |
Other Transaction Accounting Adjustments | | |
Notes | | |
Pro Forma | |
ASSETS | |
| | | |
| | | |
| | | |
| | |
| | |
Current assets | |
| | | |
| | | |
| | | |
| | |
| | |
Cash | |
$ | 1,875,758 | | |
$ | - | | |
$ | 3,924,089 | | |
(e)(f) | | |
$ | 5,799,847 | |
Restricted cash | |
| 972,986 | | |
| - | | |
| (865,089 | ) | |
(e) | | |
| 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 | | |
| - | | |
| 3,059,000 | | |
| | |
| 8,507,355 | |
| |
| | | |
| | | |
| | | |
| | |
| | |
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 | | |
$ | - | | |
$ | 3,059,000 | | |
| | |
$ | 27,493,561 | |
| |
| | | |
| | | |
| | | |
| | |
| | |
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | |
| | | |
| | | |
| | | |
| | |
| | |
Current liabilities | |
| | | |
| | | |
| | | |
| | |
| | |
Accounts payable and accrued expenses | |
$ | 8,895,070 | | |
$ | - | | |
$ | (131,441 | ) | |
(l) | | |
$ | 8,763,629 | |
Liabilities to customers | |
| 798,952 | | |
| - | | |
| - | | |
| | |
| 798,952 | |
Deferred revenue | |
| 1,275,971 | | |
| - | | |
| - | | |
| | |
| 1,275,971 | |
Senior convertible note | |
| 15,910,000 | | |
| - | | |
| (15,910,000 | ) | |
(e)(g) | | |
| - | |
Derivative liability | |
| 1,963,933 | | |
| - | | |
| (1,963,933 | ) | |
(g) | | |
| - | |
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 | | |
| - | | |
| (18,005,374 | ) | |
| | |
| 10,963,463 | |
| |
| | | |
| | | |
| | | |
| | |
| | |
Warrant liability | |
| 1,043,789 | | |
| - | | |
| - | | |
| | |
| 1,043,789 | |
Operating lease liability - non-current | |
| 18,073 | | |
| - | | |
| - | | |
| | |
| 18,073 | |
Total liabilities | |
| 30,030,699 | | |
| - | | |
| (18,005,374 | ) | |
| | |
| 12,025,325 | |
| |
| | | |
| | | |
| | | |
| | |
| | |
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 | |
| 8,007,162 | | |
| - | | |
| - | | |
| | |
| 8,007,162 | |
Series B redeemable preferred stock, $0.001 par value, 1,000 authorized, 1,000 shares issued and outstanding | |
| - | | |
| - | | |
| - | | |
| | |
| - | |
Stockholders’ equity | |
| | | |
| | | |
| | | |
| | |
| - | |
Preferred stock $0.001 par value; 10,000,000 shares authorized | |
| - | | |
| - | | |
| - | | |
| | |
| - | |
Series C Convertible Preferred Stock, $0.001 par value; 20,000 authorized, 6,894 shares issued
and outstanding at March 31, 2023, pro forma | |
| - | | |
| - | | |
| 10,037,552 | | |
(g)(h) | | |
| 10,037,552 | |
Series D Convertible Preferred Stock, $0.001 par value, 4,300 shares issued and outstanding at March 31, 2023, pro forma | |
| - | | |
| - | | |
| 1,140,846 | | |
(i) | | |
| 1,140,846 | |
Common stock $0.001 par value; 500,000,000 shares authorized, 3,262,303 shares issued and outstanding as of March 31, 2023, historical,
and common stock $0.001 par value; 500,000,000 shares authorized, 22,367,628 shares issued and outstanding March 31, 2023
Pro forma | |
| 3,262 | | |
| - | | |
| 19,106 | | |
(h)(l) | | |
| 22,368 | |
Additional paid-in capital | |
| 171,821,858 | | |
| - | | |
| 8,124,896 | | |
(h)(i)(l)(m) | | |
| 179,946,754 | |
Accumulated deficit | |
| (180,635,674 | ) | |
| - | | |
| 1,741,974 | | |
(e)(g) | | |
| (178,893,700 | ) |
Accumulated other comprehensive loss | |
| (4,792,746 | ) | |
| - | | |
| - | | |
| | |
| (4,792,746 | ) |
Total stockholders’ equity | |
| (13,603,300 | ) | |
| - | | |
| 21,064,374 | | |
| | |
| 7,461,074 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 24,434,561 | | |
$ | - | | |
$ | 3,059,000 | | |
| | |
$ | 27,493,561 | |
The
accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Esports
Entertainment Group, Inc.
Consolidated
Statement of Operations
For
The Nine Months Ended March 31, 2023
(Unaudited)
| |
Historical | | |
Transaction Accounting Adjustments | | |
Notes | | |
Other Transaction Accounting Adjustments | | |
Notes | |
Pro Forma |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
|
Net revenue | |
$ | 20,190,663 | | |
$ | (5,298,715 | ) | |
(a) | | |
$ | - | | |
| |
$ |
14,891,948 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Operating costs and expenses: | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Cost of revenue | |
| 7,414,814 | | |
| (2,537,481 | ) | |
(a) | | |
| - | | |
| |
|
4,877,333 |
|
Sales and marketing | |
| 5,217,584 | | |
| (1,660,397 | ) | |
(a) | | |
| - | | |
| |
|
3,557,187 |
|
General and administrative | |
| 24,399,888 | | |
| (3,837,959 | ) | |
(a) | | |
| - | | |
| |
|
20,561,929 |
|
Loss (gain) on disposal of businesses, net | |
| 4,198,362 | | |
| (8,601,414 | ) | |
(b) | | |
| | | |
| |
|
(4,403,052 |
) |
Asset impairment charges | |
| 16,135,000 | | |
| - | | |
| | |
| - | | |
| |
|
16,135,000 |
|
Total operating expenses | |
| 57,365,648 | | |
| (16,637,251 | ) | |
| | |
| - | | |
| |
|
40,728,397 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Operating income (loss) | |
| (37,174,985 | ) | |
| 11,338,536 | | |
| | |
| - | | |
| |
|
(25,836,449 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Other income (expense): | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Interest expense | |
| (2,490,696 | ) | |
| - | | |
| | |
| 2,486,997 | | |
(j) | |
|
(3,699 |
) |
Gain on termination of lease | |
| 799,901 | | |
| - | | |
| | |
| - | | |
| |
|
799,901 |
|
Loss on extinguishment of Senior Convertible Note | |
| (3,616,372 | ) | |
| - | | |
| | |
| 3,616,372 | | |
(j) | |
|
- |
|
Change in fair value of derivative liability on Senior Convertible Note | |
| 7,435,687 | | |
| - | | |
| | |
| (7,435,687 | ) | |
(j) | |
|
- |
|
Change in fair value of warrant liability | |
| 6,435,229 | | |
| - | | |
| | |
| (122,730 | ) | |
(j) | |
|
6,312,499 |
|
(Loss) gain on contingent consideration | |
| (2,864,551 | ) | |
| 2,864,551 | | |
(c) | | |
| - | | |
| |
|
- |
|
Other non-operating income (loss) | |
| (19,085 | ) | |
| - | | |
| | |
| - | | |
| |
|
(19,085 |
) |
Total other income (expense), net | |
| 5,680,113 | | |
| 2,864,551 | | |
| | |
| (1,455,048 | ) | |
| |
|
7,089,616 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Loss before income taxes | |
| (31,494,872 | ) | |
| 14,203,087 | | |
| | |
| (1,455,048 | ) | |
| |
|
(18,746,833 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Income tax benefit (expense) | |
| (376 | ) | |
| - | | |
| | |
| - | | |
| |
|
(376 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss | |
$ | (31,495,248 | ) | |
$ | 14,203,087 | | |
| | |
$ | (1,455,048 | ) | |
| |
$ |
(18,747,209 |
) |
Dividend on 10% Series A cumulative redeemable convertible preferred stock | |
| (601,884 | ) | |
| - | | |
| | |
| - | | |
| |
|
(601,884 |
) |
Accretion of 10% Series A cumulative redeemable convertible preferred stock to redemption value | |
| (225,782 | ) | |
| - | | |
| | |
| - | | |
| |
|
(225,782 |
) |
Dividend on Series C Convertible Preferred Stock | |
| - | | |
| - | | |
| | |
| (1,083,139 | ) | |
(k) | |
|
(1,083,139 |
) |
Dividend on Series D Convertible Preferred Stock | |
| - | | |
| - | | |
| | |
| (275,236 | ) | |
(k) | |
|
(275,236 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss attributable to common stockholders | |
$ | (32,322,914 | ) | |
$ | 14,203,087 | | |
| | |
$ | (2,813,423 | ) | |
| |
$ |
(20,933,250 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss per common share: | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Basic and diluted loss per common share | |
$ | (27.72 | ) | |
| | | |
| | |
| | | |
| |
$ |
(1.03 |
) |
Weighted average number of common shares outstanding, basic and diluted (1) | |
| 1,166,201 | | |
| | | |
| | |
| | | |
| |
|
20,271,526 |
|
(1) |
The
weighted average number of common shares outstanding, basic and diluted were adjusted for the issuance of common stock of 18,983,934
from conversions of Series C Preferred Stock and 121,391 from the settlement of payables and fees as if they occurred
on July 1, 2021. |
The
accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Esports
Entertainment Group, Inc.
Consolidated
Statement of Operations
For
The Year Ended June 30, 2022
(Unaudited)
| |
Historical | | |
Transaction Accounting Adjustments | | |
Notes | | |
Other Transaction Accounting Adjustments | | |
Notes | | Pro Forma |
|
| |
| | |
| | |
| | |
| | |
| |
|
|
|
Net revenue | |
$ | 58,351,650 | | |
$ | (16,580,702 | ) | |
(a) | | |
$ | - | | |
| | $ |
41,770,948 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Operating costs and expenses: | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Cost of revenue | |
| 24,164,661 | | |
| (6,460,964 | ) | |
(a) | | |
| - | | |
| | |
17,703,697 |
|
Sales and marketing | |
| 25,728,220 | | |
| (5,362,056 | ) | |
(a) | | |
| - | | |
| | |
20,366,164 |
|
General and administrative | |
| 51,321,978 | | |
| (7,175,538 | ) | |
(a) | | |
| 1,935 | | |
(l) | | |
44,148,375 |
|
Loss (gain) on disposal of businesses, net | |
| - | | |
| 8,601,414 | | |
(b) | | |
| - | | |
| | |
8,601,414 |
|
Asset impairment charges | |
| 46,498,689 | | |
| - | | |
| | |
| - | | |
| | |
46,498,689 |
|
Total operating expenses | |
| 147,713,548 | | |
| (10,397,144 | ) | |
| | |
| 1,935 | | |
| | |
137,318,339 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Operating loss | |
| (89,361,898 | ) | |
| (6,183,558 | ) | |
| | |
| (1,935 | ) | |
| | |
(95,547,391 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Other income (expense): | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Interest expense | |
| (6,423,039 | ) | |
| - | | |
| | |
| 6,406,679 | | |
(j) | | |
(16,360 |
) |
Loss on conversion of Senior Convertible Notes | |
| (5,999,662 | ) | |
| - | | |
| | |
| 5,999,662 | | |
(j) | | |
- |
|
Loss on extinguishment of senior convertible note | |
| (28,478,804 | ) | |
| - | | |
| | |
| 28,478,804 | | |
(j) | | |
- |
|
Change in fair value of derivative liability on Senior Convertible Note | |
| (10,882,241 | ) | |
| - | | |
| | |
| 10,882,241 | | |
(j) | | |
- |
|
Change in fair value of warrant liability | |
| 31,468,270 | | |
| - | | |
| | |
| (23,377,270 | ) | |
(j) | | |
8,091,000 |
|
Change in fair value of contingent consideration | |
| 2,355,308 | | |
| (2,355,308 | ) | |
(c) | | |
| - | | |
| | |
- |
|
Other non-operating income (loss) | |
| (584,466 | ) | |
| - | | |
| | |
| - | | |
| | |
(584,466 |
) |
Total other income (expense), net | |
| (18,544,634 | ) | |
| (2,355,308 | ) | |
| | |
| 28,390,116 | | |
| | |
7,490,174 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Loss before income taxes | |
| (107,906,532 | ) | |
| (8,538,866 | ) | |
| | |
| 28,388,181 | | |
| | |
(88,057,217 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Income tax benefit (expense) | |
| 5,674,442 | | |
| (5,671,861 | ) | |
(d) | | |
| - | | |
| | |
2,581 |
|
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss | |
$ | (102,232,090 | ) | |
$ | (14,210,727 | ) | |
| | |
$ | 28,388,181 | | |
| | $ |
(88,054,636 |
) |
Dividend on 10% Series A cumulative redeemable convertible preferred stock | |
| (501,570 | ) | |
| - | | |
| | |
| - | | |
| | |
(501,570 |
) |
Accretion of 10% Series A cumulative redeemable convertible preferred stock to redemption value | |
| (182,046 | ) | |
| - | | |
| | |
| - | | |
| | |
(182,046 |
) |
Dividend on Series C Convertible Preferred Stock | |
| - | | |
| - | | |
| | |
| (1,449,544 | ) | |
(k) | | |
(1,449,544 |
) |
Dividend on Series D Convertible Preferred Stock | |
| - | | |
| - | | |
| | |
| (377,993 | ) | |
(k) | | |
(377,993 |
) |
Deemed dividend on make whole provision on Series C Preferred Stock | |
| | | |
| | | |
| | |
| (3,634,521 | ) | |
(h) | | |
(3,634,521 |
) |
Deemed dividend from down round provision on Series C Convertible Preferred
Stock and Series D Convertible Preferred Stock | |
| - | | |
| - | | |
| | |
| (9,382,909 | ) | |
(m) | | |
(9,382,909 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss attributable to common stockholders | |
$ | (102,915,706 | ) | |
$ | (14,210,727 | ) | |
| | |
$ | 13,543,214 | | |
| | $ |
(103,583,219 |
) |
| |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Net loss per common share: | |
| | | |
| | | |
| | |
| | | |
| |
|
|
|
Basic and diluted loss per common share | |
$ | (356.27 | ) | |
| | | |
| | |
| | | |
| | $ |
(5.34 |
) |
Weighted average number of common shares outstanding, basic and diluted (1) | |
| 288,870 | | |
| | | |
| | |
| | | |
| | |
19,394,195 |
|
(1) |
The
weighted average number of common shares outstanding, basic and diluted were adjusted for the issuance of common stock of 18,983,934
from conversions of Series C Preferred Stock and 121,391 from the settlement of payables and fees as if they occurred
on July 1, 2021. |
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 Transaction
On
February 24, 2023, (“Closing Date”), the Company, pursuant to a stock purchase agreement (“Purchase Agreement”)
dated February 14, 2023 with and Gameday Group PLC, a Malta company (“Purchaser”), completed the divestiture of Prozone Limited,
a Malta company containing the online casino and sportsbook business, including the Bethard brand (the “Bethard Business”),
that is licensed in Malta and Sweden (and together the sale of Prozone Limited with the Bethard Business herein referred to as the “Sale
of the Bethard Business).” The purchase consideration was determined by the Company to be $8,090,965 comprised of cash received
on the Closing date of €1,650,000 ($1,739,882 using exchange rates in effect on the Closing Date), holdback consideration, of €150,000
($158,171 using exchange rates in effect on the Closing Date) and the Company’s settlement of its contingent consideration liability
of €5,872,989 ($6,192,912 using exchange rates in effect on the Closing Date) that had originated from its acquisition of the Bethard
Business on July 13, 2021. The Purchaser further assumed net working capital of the Bethard Business consisting primarily of accounts
payable and accrued liabilities estimated to be €1,238,552 ($1,306,021 using exchange rates at the Closing Date).
2.
Transaction Accounting Adjustments
(a) |
Represents
the removal of historical revenues and expenses directly attributed to the Sale of the Bethard Business. |
|
|
(b) |
Represents
the loss on the Sale of the Bethard Business. |
|
|
(c) |
Represents
a release of the Company’s obligation to pay the remaining Contingent consideration – current and Contingent consideration
– non-current, liabilities which originated from the acquisition of the Bethard Business. The effects of the change in fair
value of contingent consideration related to the Bethard Business, being an expense of $2,864,551 for the nine months ended March
31, 2023 and a benefit of $2,355,308 for the year ended June 30, 2022, were removed from the pro forma unaudited condensed
consolidated statements of operations for each respective period. |
|
|
(d) |
Represents
a reversal of an income tax benefit that was previously recorded based on the tax attributes of the Bethard Business. The Company
had previously recorded a reduction in the valuation allowance in the amount of $5,671,861 during the year ended June 30, 2022 based
on the deferred tax liabilities of the Bethard Business, and their impact on the Company’s estimate of realizability of its
deferred tax assets. |
3.
Other Transaction Accounting Adjustments
Since
March 31, 2023, the Company has entered into transactions that were not directly attributable to the Sale of the Bethard Business but
were determined to be material for investors and users of the pro forma condensed combined financial statements. In accordance with Article
11 of Regulation S-X, these transactions are included as other transaction accounting adjustments, and are described below.
(e) |
Prior
to the conversion of the Senior Convertible Note into Series C Preferred Stock, the Company redeemed $679,976 of the $15,910,000
outstanding under 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 to settle a portion of the amounts due to the Holder related
redemption premium of $51,450 and accrued interest of $168,574. The remaining $150,000 was paid to the Holder on May 1, 2023, resulting
in a total of $900,000 paid to the Holder of which $34,911 was paid from Cash and $865,089 was paid from Restricted cash. |
|
|
(f) |
The
Company entered into a Securities Purchase Agreement on April 30, 2023 and subsequently closed the offering of the Series D Preferred
Stock May 22, 2023, resulting in the issuance of (i) 4,300 shares of 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
with an estimated fair value at issuance of $2,818,154, 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 net proceeds to the Company of $3,959,000 after deducting placement fees and expenses. |
|
|
(g) |
The
outstanding balance of the Senior Convertible Note of $15,230,024 was exchanged for Series C Preferred Stock pursuant to the Note
to Exchange Agreement entered into April 19, 2023. The exchange extinguished the Senior Convertible Note and the related debt liability
outstanding and eliminated the related derivative liability that had a fair value of $1,963,933 ($1,862,000,000 approximate cash
liability, as of March 31, 2023, calculated under the terms of the Senior Convertible Note). |
|
|
(h) |
The
exchange of $9,031,408 in Series C Preferred Stock for 18,983,934 shares of our common stock during the period from
May 8, 2023 through August 14, 2023 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, offset by the aggregate Alternate Conversion
Floor Amount of $3,634,521 and accrued dividends of $204,415. The Alternate Conversion Floor Amount was recorded as a
deemed dividend and is presented on the unaudited pro forma condensed consolidated statement of operations for the year ended June
30, 2022, as if it occurred on July 1, 2021, as an addition to the net loss available to common stockholders. |
|
|
(i) |
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
after deducting placement fees and expenses of $3,959,000, as further reduced by the fair value the Common Warrants issued with the
Series D Preferred Stock that were determined to have a preliminarily fair value of $2,818,154 using Black Scholes valuation method.
This resulted in a preliminary estimate of fair value recorded for the Series D Preferred Stock on May 22, 2023 of $1,440,846. The
preliminary estimate of fair value of the Common Warrants of $2,818,154 also resulted in an increase additional paid-in capital in
the unaudited pro forma balance sheet. |
|
|
(j) |
Represents
the removal of historical amounts recorded in the unaudited pro forma condensed consolidated statements of operations related
to the Senior Convertible Note, which was extinguished pursuant to the Securities Purchase Agreement dated April 19, 2023. |
|
|
(k) |
The
recognition of the 8% dividend on the Series C Preferred Stock and Series D Preferred Stock with a 0.5% rate increase every 135 days
from the issuance, for the nine and twelve month periods. |
|
|
(l) |
This
issuance of 10,000 shares of common stock on August 15, 2023 as part of the partial settlement of RRA Fees at $0.10 a share for
$100 and a fair value of $1,935 and the issuance of 111,391 shares of common stock on June 30, 2023 to settle payables of $131,330. |
|
|
(m) |
Due to the round down price protection provision on the
Series C Preferred Stock and Series D Preferred Stock, the Company recorded a deemed dividend within additional paid-in capital (as
stockholders’ equity is in a deficit) associated with the reduction in conversion price in effect prior to the Settlement
Agreement from previous conversion price in effect to the conversion price as adjusted by the Settlement Agreement, of
$9,382,909 based on the incremental value to the Holder due to the conversion price reduction. This incremental value has also been
presented on the unaudited pro forma condensed consolidated statement of operations for the year ended June 30, 2022, as if it
occurred on July 1, 2021, as an addition to the net loss available to common stockholders. The incremental value was determined by
computing the additional shares the Series C Preferred Stock and Series D Preferred Stock would receive based on the conversion
price reduction multiplied by the estimated fair value of common stock of $0.1935. |
DILUTION
A
purchaser of our shares of our common stock in this offering will be diluted immediately to the extent of the difference between the
offering price per share and the as adjusted net tangible book value per share of our common stock upon closing of this offering. The
dilution calculated herein is assuming that the Holder’s Redemption Amounts have not been waived. Our historical net tangible book
value as of March 31, 2023, was a deficit of $(24,547,425), or approximately $(7.52) per share of outstanding common stock, based on
3,262,303 shares of common stock outstanding as of March 31, 2023. Net tangible book value per share of our common stock is determined
at any date by subtracting total liabilities from the amount of total assets, excluding goodwill, intangible assets and right of use
assets, and dividing this amount by the number of shares of common stock deemed to be outstanding as of that date.
Pro
forma net tangible book value per share gives effect to net tangible book value of our common stock at March 31, 2023 as well as (i)
the exchange of the Senior Convertible Note into Series C Preferred Stock in the amount of $15,230,024, (ii) the issuance of Series D
Preferred Stock for net proceeds of $3,959,000, as determined from the gross proceeds at closing of $4,300,000 less placement agent fees
of $301,000 and $40,000 of other fees, (iii) redemption of the Senior Convertible Note in the amount of $679,976 prior to the exchange
of the Senior Convertible Note into Series C Preferred Stock, (iv) elimination of a derivative liability in connection with the exchange
of the Senior Convertible Note into Series C Preferred Stock, (v) conversions of the Series C Preferred Stock into common stock resulting
in the issuance of 18,983,934 shares of common stock subsequent to March 31, 2023, and (iv) the issuance of 121,391 shares
of common stock on June 30, 2023 to settle payables and fees. After giving effect to these transactions, our pro forma net tangible
book value as of March 31, 2023 would have been a deficit of $(3,483,051), or $(0.16) per share.
After
giving effect to the sale of shares of our common stock at the offering price of $0.1935 per share to this offering, our as adjusted
net tangible book value as of March 31, 2023 would have been a deficit of approximately $(2,617,219) or approximately $(0.10)
per share based on 27,535,587 shares of our as adjusted common stock outstanding as of March 31, 2023. This amount represents
an immediate increase in net tangible book value of $7.42 per share of our common stock to our existing stockholders and an immediate
dilution of $0.29 per share of our common stock to new investors purchasing securities in this offering, as illustrated in the
following table:
The
following table illustrates this dilution:
Public
offering price per share |
|
|
|
|
|
$ |
0.1935 |
|
Net
tangible book value per share as of March 31, 2023 |
|
$ |
(7.52 |
) |
|
|
|
|
Pro
forma increase attributable to pro forma adjustments |
|
$ |
7.36 |
|
|
|
|
|
Pro
forma negative net tangible book value per share as of March 31, 2023 |
|
$ |
(0.16 |
) |
|
|
|
|
Increase
in net tangible book value per share in this offering |
|
$ |
0.06 |
|
|
|
|
|
As
adjusted net tangible book value per share, after this offering |
|
$ |
|
|
|
|
(0.10 |
) |
Dilution
per share to new investors in this offering |
|
$ |
|
|
|
$ |
0.29 |
|
DESCRIPTION
OF CAPITAL STOCK
Capital
Stock
Our
authorized capital stock consists of 500,000,000 shares of common stock, with a par value of $0.001 per share, and 10,000,000 shares
of blank check preferred stock. As of August 15, 2023, there were 22,367,628 shares of our common stock issued and outstanding. As of August 15,
2023, there were 835,950 shares of 10% Series A Cumulative Redeemable Convertible Preferred Stock, 6,894 shares of Series C Preferred Stock
and 4,300 shares of Series D Preferred Stock outstanding.
Common
Stock
Our
common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors.
Except as otherwise required by law or provided in any resolution adopted by our Board with respect to any series of preferred stock,
the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved
by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common
stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. The
holders of thirty-three and 34/100 percent (33.34%) of the issued and outstanding voting shares at any meeting shall constitute a quorum
for the transaction of business at a meeting of the corporation. If there is less than a quorum, the meeting may be adjourned to another
time, or place required by law. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to our Amended and Restated Articles of Incorporation. Our Amended and
Restated Articles of Incorporation do not provide for cumulative voting in the election of directors.
Subject
to any preferential rights of any outstanding series of preferred stock created by our Board from time to time, the holders of shares
of our common stock will be entitled to such cash dividends as may be declared from time to time by our Board from funds available therefore.
Subject
to any preferential rights of any outstanding series of preferred stock created from time to time by our Board, upon liquidation, dissolution
or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to
such holders.
In
the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted
into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled
to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock
have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
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.
Preferred
Stock
Our
Board is authorized by our Amended and Restated Articles of Incorporation to divide the authorized shares of our preferred stock into
one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares
of all other series and classes. Our Board is authorized, within any limitations prescribed by law and our Amended and Restated Articles
of Incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of
any series of preferred stock including, but not limited to, the following:
|
1. |
The
number of shares constituting that series and the distinctive designation of that series, which may be by distinguishing number,
letter or title; |
|
2. |
The
dividend rate on the shares of that series, whether dividends will be cumulative, and if so, from which date(s), and the relative
rights of priority, if any, of payment of dividends on shares of that series; |
|
3. |
Whether
that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; |
|
4. |
Whether
that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board determines; |
|
5. |
Whether
or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption, including the date
or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; |
|
6. |
Whether
that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund; |
|
7. |
The
rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that series; and |
|
8. |
Any
other relative rights, preferences and limitations of that series. |
The
Board has designated four classes of Preferred Shares, 10% Series A Cumulative Redeemable Convertible Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. 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. The following summary of the 10% Series A Cumulative Redeemable Convertible Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock should be read together with the detailed descriptions of
the rights and limitations of such class provided in the respective certificates of designations.
10%
Series A Cumulative Redeemable Convertible Preferred Stock:
On
November 10, 2021, the Company designated 1,725,000 shares of preferred stock as 10% Series A Cumulative Redeemable Convertible Preferred
Stock (“10% Series A Cumulative Redeemable Convertible Preferred Stock”), with a par value of $0.001 per share and liquidation
value of $11.00. On November 11, 2021, the Company announced that it 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 800,000 shares were
issued at $10 a 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.
Conversion
Each
share of 10% Series A Cumulative Redeemable Convertible Preferred Stock is convertible into one share of the Company’s 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 five years from issuance, or November 15, 2026, at which point the Company must redeem the shares
of 10% Series A Cumulative Redeemable Convertible Preferred Stock in cash.
Dividends
Dividends
on the 10% Series A Cumulative Redeemable Convertible Preferred Stock accrue daily and are cumulative from the date of issuance. The
dividends on the 10% Series A Cumulative Redeemable Convertible Preferred Stock are payable monthly in arrears on the last day of each
calendar month, when, as and if declared by the Company’s Board, at the rate of 10.0% per annum. In the event the dividends are
not paid in cash, the dividends shall continue to accrue at a dividend rate of 10.0%.
Redemption
and Liquidation
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 10% Series A Cumulative Redeemable Convertible Preferred Stock includes a change of control
put option which allows the holders of the 10% Series A Cumulative Redeemable Convertible Preferred Stock to require the Company to repurchase
such holders’ shares in cash in an amount equal to the initial purchase price plus accrued dividends. The 10% Series A Cumulative
Redeemable Convertible Preferred Stock is contingently redeemable upon certain deemed liquidation events, such as a change in control.
Because a deemed liquidation event could constitute a redemption event outside of the Company’s control, all shares of preferred
stock have been presented outside of permanent equity in mezzanine equity on the consolidated balance sheets.
The
10% Series A Cumulative Redeemable Convertible Preferred Stock is not mandatorily redeemable, but rather is only contingently redeemable,
and given that the redemption events are not certain to occur, the shares have not been accounted for as a liability. As the 10% Series
A Cumulative Redeemable Convertible Preferred Stock is contingently redeemable on events outside of the control of the Company, all shares
of 10% Series A Cumulative Redeemable Convertible Preferred Stock have been presented outside of permanent equity in mezzanine equity
on the consolidated balance sheets.
Voting
Rights
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.
Series
C Convertible Preferred Stock:
The
following are the principal terms of the Series C Preferred Stock, which are contained in the Series C Certificate of Designations that
was filed with the Secretary of State of the State of Nevada on April 28, 2023, which amended our Amended and Restated Certificate of
Incorporation. The following description is a summary of the material terms of the Series C Preferred Stock and the Series C Certificate
of Designations. It does not purport to be complete and is qualified in all respects by the terms of the Series C Certificate of Designations.
We urge you to read the Series C Certificate of Designations in full because it, and not this description, defines the rights of the
holder of Series C Preferred Stock and the relative rights of the holders of our common stock.
On
April 19, 2023, the Company’s Board of Directors approved the designation of 20,000 shares of preferred stock as Series C Preferred
Stock, with a par value of $0.001 per share.
Ranking
The
Series C Preferred Stock, with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution and
winding up of the Company, ranks equal to the 10% Series A Cumulative Redeemable Convertible Preferred Stock and senior to all common
stock of the Company unless the Required Holder consents to the creation of other capital stock of the Company that is senior or equal
in rank to the Series C Preferred Stock.
Adjustments
In
the event that the Company grants, issues or sells (or enters into any agreement to grant, issue or sell), or is deemed to have granted,
issued or sold, any shares of common stock, but excluding certain excluded issuances as described in the Series C Certificate of Designation,
for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately
prior to such granting, issuance or sale or deemed granting, issuance or sale (the foregoing a “Dilutive Issuance”), then,
immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance
Price, subject to certain exceptions described in the Series C Certificate of Designations.
If
the Company effects any stock split, stock dividend, recapitalization or otherwise or any combination, reverse stock split or otherwise
then in each such case the calculations with respect to the Conversion Price and similar terms shall be adjusted accordingly, all as
more fully described in the Series C Certificate of Designations. If there occurs any stock split, stock dividend, stock combination
recapitalization or other similar transaction involving the common stock (each, a “Stock Combination Event”, and such date
thereof, the “Stock Combination Event Date”) and the Event Market Price (as defined below) is less than the Conversion Price
then in effect (after giving effect to the automatic adjustment above), then on the sixteenth (16th) trading day immediately following
such Stock Combination Event Date, the Conversion Price then in effect on such sixteenth (16th) trading day (after giving effect to the
automatic adjustment above) shall be reduced to the Event Market Price. “Event Market Price” means, with respect to any Stock
Combination Event Date, 80% of the quotient determined by dividing (x) the sum of the VWAP (as defined in the Series C Certificate of
Designation) of the common stock for each of the three (3) lowest trading days during the twenty (20) consecutive trading day period
ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Stock Combination Event Date,
divided by (y) three (3).
Purchase
Rights
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 “Purchase Rights”),
then each holder of Series C Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder of Series C Preferred Stock could have acquired if such holder of Series C Preferred Stock had held
the number of shares of common stock acquirable upon complete conversion of all the Series C Preferred Stock held by such holder of Series
C Preferred Stock 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 Purchase Rights; subject to certain limitations on beneficial ownership.
Conversion
The
Series C Preferred Stock is 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 shall be determined by dividing (x) the Conversion Amount (as defined below) of a share of Series C Preferred Stock
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, 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. “Conversion
Price” shall mean $2.50. “Alternate Conversion Price” shall mean 90% of the lowest VWAP (as defined in the Series C
Certificate of Designations) of the 10 trading days ending and including the date of conversion. “Floor Price” shall mean
$0.44.
Liquidation
In
the event of a liquidation, the holders of Series C Preferred Stock 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 common stock or other junior stock, but pari passu with any parity stock then
outstanding, such as the Series A Preferred Stock, 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.
In
addition, the Company will provide the holders of Series C Preferred Stock with notice of certain triggering events (each a “Triggering
Event”) or if a holder of Series C Preferred Stock may become aware of a Triggering
Event as a result of which the holder of Series C Preferred Stock may choose to convert
the Series C Preferred Stock they hold into Conversion Shares at the Series C Alternate Conversion Price for the Triggering Event Conversion
Right Period.
Each
of the following is a “Triggering Event” and each of the events in clauses (x), (xi), and (xii), is a “Bankruptcy Triggering
Event”:
(i)
the suspension from trading or the failure of the common stock to be trading or listed (as applicable) on an Eligible Market for a period
of three (3) consecutive Trading Days;
(ii)
the Company’s failure (A) to cure a Conversion Failure by delivery of the required number of shares of common stock within five
(5) Trading Days after the applicable Conversion Date or exercise date (as the case may be) or (B) notice, written or oral, to any holder
of Series C Preferred Stock, including, without limitation, by way of public announcement or through any of its agents, at any time,
of its intention not to comply, as required, with a request for conversion of any Preferred Shares into shares of common stock that is
requested in accordance with the provisions of the Series C Certificate of Designations, other than pursuant to Section 4(d). of
the Series C Certificate of Designations;
(iii)
the Board fails to declare any Dividend to be paid on the applicable Dividend Date in accordance with Section 3 of the Certificate of
Designations;
(iv)
the Company’s failure to pay to any holder of Series C Preferred Stock any Dividend on any Dividend Date (whether or not declared
by the Board) or any other amount when and as due under the Certificate of Designations (including, without limitation, the Company’s
failure to pay any redemption payments or amounts hereunder), the Note to Preferred Stock Exchange Agreement or any other Transaction
Document or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated
hereby and thereby (in each case, whether or not permitted pursuant to the NRS), except, in the case of a failure to pay Dividends and
Late Charges when and as due, in each such case only if such failure remains uncured for a period of at least two (2) Trading Days
(v)
other than as specifically set forth in another clause of Section 5(a) of the Series C Certificate of Designations, the Company or any
Subsidiary breaches any representation or warranty or any covenant or other term or condition of the Note to Preferred Exchange Agreement,
except, in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period
of two (2) consecutive Trading Days;
(vi)
the Company fails for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy
the current public information requirement under Rule 144(c) or (y) the Company has ever been an issuer described in Rule 144(i)(1)(i)
or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) and any such
failure remains uncured for a period of two (2) consecutive Trading Days;
(vii)
except to the extent the Company is in compliance with Section 11(b). of the Series C Certificate of Designation, at any time
following the fifth (5th) consecutive day that a holder of Series C Preferred Stock’s Authorized Share Allocation (as defined in
Section 11(a). of the Series C Certificate of Designations) is less than the number of shares of common stock that such holder
of Series C Preferred Stock would be entitled to receive upon a conversion, in full, of all of the shares then held by such holder of
Series C Preferred Stock (without regard to any limitations on conversion set forth in the Series C Certificate of Designation);
(viii)
the Company fails to remove any restrictive legend on any certificate or any shares of common stock issued to the applicable holder of
Series C Preferred Stock upon conversion or exercise (as the case may be) of any Securities held by such holder of Series C Preferred
Stock as and when required by such Securities, unless otherwise then prohibited by applicable federal securities laws, and any such failure
remains uncured for at least five (5) days;
(ix)
the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $500,000 of indebtedness
for borrowed money of the Company or any of its Subsidiaries, excluding any indebtedness for borrowed money in which no cash payment
is required at such time pursuant to a forbearance agreement in full force and effect or any applicable grace period under the terms
of such indebtedness for borrowed money;
(x)
bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party (other than Argyll
Entertainment and Argyll Productions), shall not be dismissed within thirty (30) days of their initiation;
(xi)
the commencement by the Company or any Subsidiary (other than Argyll Entertainment and Argyll Productions) of a voluntary case or proceeding
under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in
respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it,
or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any
other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as
they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action or the taking of any
action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign
law;
(xii)
the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar
law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any
Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance
of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed
and in effect for a period of thirty (30) consecutive days;
(xiii)
a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Company and/or any
of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged, settled or stayed
pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment which
is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $500,000 amount set forth
above so long as the Company provides each holder of Series C Preferred Stock a written statement from such insurer or indemnity provider
(which written statement shall be reasonably satisfactory to each holder of Series C Preferred Stock) to the effect that such judgment
is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance
or indemnity within forty-five (45) days of the issuance of such judgment; or
(xiv)
a knowingly false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that either (A) the
Equity Conditions (as defined in the Preferred Warrants) are satisfied, (B) there has been no Equity Conditions Failure (as defined in
the Preferred Warrants), or (C) as to whether any Triggering Event has occurred.
Company
Optional Redemption
Subject
to certain conditions related to material non-public information, triggering events and other criteria included in the Series C Certificate
of Designations, the Company shall have the right to redeem all, but not less than all, of the Series C Preferred Shares then outstanding
on the Series C Company Optional Redemption Date (as defined in Section 7(a) of the Series C Certificate of Designations) (a “Series
C Company Optional Redemption”). The Series C Preferred Shares subject to redemption pursuant to Section 7(a) shall be redeemed
by the Company in cash at a price equal to the greater of (i) the Conversion Amount of the Series C Preferred Shares being redeemed as
of the Company Series C Optional Redemption Date and (ii) the product of (1) the Conversion Rate of an Alternate Conversion of the Series
C Preferred Shares being redeemed as of the Series C Company Optional Redemption Date multiplied by (2) the greatest closing sale price
of the common stock on any trading day during the period commencing on the date immediately preceding the Company Optional Redemption
Notice Date and ending on the trading day immediately prior to the date the Company makes the entire payment required to be made under
Section 7(a) of the Series C Certificate of Designations.
Mandatory
Redemption on Bankruptcy Triggering Event
Upon
any Bankruptcy Triggering Event, the Company shall immediately redeem, in cash, each share of Series C Preferred Stock then outstanding
at a redemption price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) 115% and
(ii) the product of (X) the Conversion Rate (calculated using the lowest Alternate Conversion Price during the period commencing on the
20th trading day immediately preceding such public announcement and ending on the date the Company makes the entire redemption payment
with respect to the Conversion Amount in effect immediately following the date of initial public announcement (or public filing of bankruptcy
documents, as applicable) of such Bankruptcy Triggering Event multiplied by (Y) the product of (1) 115% multiplied by (2) the greatest
closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such Bankruptcy
Triggering Event and ending on the date the Company makes the entire redemption payment required to be made.
Dividends
Dividends
on the Series C Preferred Stock will accrue daily at a rate equal to 8.0% per annum, increasing 0.50% each 135 day anniversary from the
date of issuance and shall be 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 hereunder (including, without limitation, upon any required payment upon any Bankruptcy
Triggering Event).
Beneficial
Ownership Limitation
The
Series C Preferred Stock cannot be converted into common stock if the holder of Series C Preferred
Stock and its affiliates would beneficially own more than 9.99% of the outstanding common stock. However, any holder
of Series C Preferred Stock may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice
to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and
such increase or decrease will apply only to the holder providing notice.
Voting
Rights
The
holders of the Series C Preferred Stock shall have no voting power and no right to vote on any matter at any time, either as a separate
series or class or together with any other series or class of share of capital stock, and shall not be entitled to call a meeting of
such holders of Series C Preferred Stock for any purpose nor shall they be entitled to participate
in any meeting of the holders of common stock except as provided in the Series C Certificate of Designations or as otherwise required
by applicable law). To the extent that under applicable law, the vote of the holder of the Series C Preferred Stock, voting separately
as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the Required
Holders of the shares of the Series C Preferred Stock, voting together in the aggregate and not in separate series unless required under
applicable law, represented at a duly held meeting at which a quorum is presented or by written consent of the Required Holders (except
as otherwise may be required under the applicable law), voting together in the aggregate and not in separate series unless required under
the applicable law, shall constitute the approval of such action by both the class or the series, as applicable. Holders of the Series
C Preferred Stock shall be entitled to written notice of all shareholder meetings or written consents (and copies of proxy materials
and other information sent to shareholders) with respect to which they would be entitled to vote, which notice would be provided pursuant
to the Bylaws and the applicable law.
Without
first obtaining the affirmative vote of the Required Holders, voting together as a single class, the Company shall not: (a) amend or
repeal any provision of, or add any provision to, its Certificate of Incorporation or Bylaws, or file any Certificate of Amendment or
articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences,
rights, privileges or powers, or restrictions provided for the benefit of the Series C Preferred Stock hereunder, regardless of whether
any such action shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase
or decrease (other than by conversion) the authorized number of Series A Convertible Preferred Stock; (c) create or authorize (by reclassification
or otherwise) any new class or series of Senior Preferred Stock or Parity Stock; (d) purchase, repurchase or redeem any shares of Junior
Stock (other than pursuant to the terms of the Company’s equity incentive plans and options and other equity awards granted under
such plans (that have in good faith been approved by the Board)); (e) pay dividends or make any other distribution on any shares of any
Junior Stock; (f) issue any preferred stock other than as contemplated hereby or pursuant to the Underwriting Agreement or the Preferred
Warrants; or (g) whether or not prohibited by the terms of the Series C Preferred Stock, circumvent a right of the Series C Preferred
Stock under the Certificate of Amendment.
Covenants
The
Company is subject to the following covenants under the terms of the Series C Preferred Stock:
(i)
Restriction on Redemption and Cash Dividends. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock (other than Series
A Preferred Stock or as required by the Series C Certificate of Designations).
(ii)
Restricted Issuances. The Company shall not, directly or indirectly, without the prior written consent of the Holder, (a) issue any other
shares of preferred stock (other than as contemplated by the Note to Preferred Exchange Agreement, the Series C Certificate of Designations,
the Series D Certificate of Designations and the Securities Purchase Agreement), (b) issue any other securities that would cause a breach
or default under the Series C Certificate of Designations or (c) issue any other securities at (or with) a new issuance price less than
the conversion price then in effect.
(iii)
Stay, Extension and Usury Laws. To the extent that it may lawfully do so, the Company (A) agrees that it will not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law (wherever or whenever
enacted or in force) that may affect the covenants or the performance of Series C Certificate of Designations; and (B) expressly waives
all benefits or advantages of any such law and agrees that it will not, by resort to any such law, hinder, delay or impede the execution
of any power granted to the holders by the Series C Certificate of Designations, but will suffer and permit the execution of every such
power as though no such law has been enacted.
(iv)
Taxes. The Company and its Subsidiaries shall pay when due all taxes, fees or other charges of any nature whatsoever (together with any
related interest or penalties) now or hereafter imposed or assessed against the Company and its subsidiaries or their respective assets
or upon their ownership, possession, use, operation or disposition thereof or upon their rents, receipts or earnings arising therefrom
(except where the failure to pay would not, individually or in the aggregate, have a material effect on the Company or any of its subsidiaries).
The Company and its subsidiaries shall file on or before the due date therefor all personal property tax returns (except where the failure
to file would not, individually or in the aggregate, have a material effect on the Company or any of its Subsidiaries). Notwithstanding
the foregoing, the Company and its subsidiaries may contest, in good faith and by appropriate proceedings, taxes for which they maintain
adequate reserves therefor in accordance with GAAP.
(v)
PCAOB Registered Auditor. At all times any Series C Preferred Shares remain outstanding, the Company shall have engaged an independent
auditor to audit its financial statements that is registered with (and in compliance with the rules and regulations of) the Public Company
Accounting Oversight Board.
(vi)
Independent Investigation. At the request of any Holder either (x) at any time when a Triggering Event has occurred and is continuing,
(y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any
time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Company shall hire an independent, reputable
investment bank selected by the Company and approved by such Holder to investigate as to whether any breach of the Series C Certificate
of Designations has occurred.
Other
Terms
The
terms of the Series C Preferred Stock prohibit the Company from subsequent financings at a price below the Conversion Price set at the
Preferred Exchange Transaction, unless approved by the holder of Series C Preferred Stock.
The
Holder has the option to require the Company to use 50% of the proceeds from any subsequent financing to redeem the Series C Preferred
Stock at the greater of (a) the Conversion Amount of such Subsequent Placement Optional Redemption Share being redeemed as of the Subsequent
Placement Optional Redemption Date and (b) solely if any Equity Conditions Failure (as defined in the Series C Certificate of Designations)
then exists, the product of (1) the Conversion Rate of an Alternate Conversion of such share being redeemed multiplied by (2) the greatest
closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such the date
of notice of the redemption and ending on the trading day immediately prior to the date the Company makes the entire payment required
to be made.
The
holder of Series C Preferred Stock may convert the Series C Preferred Stock into any subsequent
financing thereby receiving securities issued in such subsequent financing in exchange for cancellation of all or part of the Series
C Preferred Stock.
Series
D Preferred Stock:
The
following are the principal terms of the Series D Preferred Stock, which are contained in the Series D Certificate of Designations that
was filed with the Secretary of State of the State of Nevada on May 22, 2023, which amended our Amended and Restated Certificate of Incorporation.
The following description is a summary of the material terms of the Series D Preferred Stock and the Series D Certificate of Designations.
It does not purport to be complete and is qualified in all respects by the terms of the Series D Certificate of Designations. We urge
you to read the Series D Certificate of Designations in full because it, and not this description, defines the rights of the holder of
Series D Preferred Stock and the relative rights of the holders of our common stock.
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 contemplated a direct offering to the Investor of (i) 4,300 shares of 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
(the “Preferred Warrants”), for a total gross proceeds to the Company of $4.3 million before deducting underwriting discounts
and commissions.
The
Company shall not be allowed to effect the conversion of any of the Series D Preferred Stock held by the holder of Series D Preferred
Stock, and such holder of Series D Preferred Stock shall not have the right to convert any of the Series D Preferred Stock held by such
holder of Series D Preferred Stock pursuant to the terms and conditions of the Series D Certificate of Designations to the extent that
after giving effect to such conversion, such holder of Series D Preferred Stock 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.
The
following are the principal terms of the Series D Preferred Stock, which are contained in the Series D Certificate of Designations.
Ranking
The
Series D Preferred Stock, with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution and
winding up of the Company, ranks equal to the 10% Series A Cumulative Redeemable Convertible Preferred Stock and the Series C Preferred
Stock and is senior to all common stock of the Company unless the Investor consents to the creation of other capital stock of the Company
that is senior or equal in rank to the Series D Preferred Stock.
Adjustments
In
the event that the Company grants, issues or sells (or enters into any agreement to grant, issue or sell), or is deemed to have granted,
issued or sold, any shares of common stock, but excluding certain excluded issuances as described in the Series D Certificate of Designation,
for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately
prior to such granting, issuance or sale or deemed granting, issuance or sale (the foregoing a “Dilutive Issuance”), then,
immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance
Price, subject to certain exceptions described in the Series D Certificate of Designations.
If
the Company effects any stock split, stock dividend, recapitalization or otherwise or any combination, reverse stock split or otherwise
then in each such case the calculations with respect to the Conversion Price and similar terms shall be adjusted accordingly, all as
more fully described in the Series D Certificate of Designations. If there occurs any stock split, stock dividend, stock combination
recapitalization or other similar transaction involving the common stock (each, a “Stock Combination Event”, and such date
thereof, the “Stock Combination Event Date”) and the Event Market Price (as defined below) is less than the Conversion Price
then in effect (after giving effect to the automatic adjustment above), then on the sixteenth (16th) trading day immediately following
such Stock Combination Event Date, the Conversion Price then in effect on such sixteenth (16th) trading day (after giving effect to the
automatic adjustment above) shall be reduced to the Event Market Price. “Event Market Price” means, with respect to any Stock
Combination Event Date, 80% of the quotient determined by dividing (x) the sum of the VWAP (as defined in the Series D Certificate of
Designation) of the common stock for each of the three (3) lowest trading days during the twenty (20) consecutive trading day period
ending and including the trading day immediately preceding the sixteenth (16th) trading day after such Stock Combination Event Date,
divided by (y) three (3).
Purchase
Rights
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 “Purchase Rights”),
then each holder of Series D Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder of Series D Preferred Stock could have acquired if such holder of Series D Preferred Stock had held
the number of shares of common stock acquirable upon complete conversion of all the Series D Preferred Stock held by such holder of Series
D Preferred Stock 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 Purchase Rights; subject to certain limitations on beneficial ownership.
Conversion
The
Series D Certificate of Designations contemplates that the Series D Preferred Stock is convertible into common stock (the “Conversion
Shares”) at the option of the holder of Series D Preferred Stock 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 D Preferred Stock shall be determined by dividing (x)
the Conversion Amount (as defined below) of a share of Series D Preferred Stock 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 D Preferred Stock, 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 D Certificate of Designations. “Conversion Price” shall mean $3.00. “Alternate
Conversion Price” shall mean 90% of the lowest VWAP (as defined in the Series D Certificate of Designations) of the 10 trading
days ending and including the date of conversion. “Floor Price” shall mean $0.39.
Liquidation
In
the event of a liquidation, the holders of Series D Preferred Stock 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 common stock or other junior stock, but pari passu with any parity stock then
outstanding, such as the Series A Preferred Stock, 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.
In
addition, the Company will provide the holders of Series D Preferred Stock with notice of certain triggering events (each a “Triggering
Event”) or if a holder of Series D Preferred Stock may become aware of a Triggering Event as a result of which the holder of Series
D Preferred Stock may choose to convert the Series D Preferred Stock they hold into Conversion Shares at the Series D Alternate Conversion
Price for the Triggering Event Conversion Right Period.
Each
of the following is a “Triggering Event” and each of the events in clauses (x), (xi), and (xii), is a “Bankruptcy Triggering
Event”:
(i)
the suspension from trading or the failure of the common stock to be trading or listed (as applicable) on an Eligible Market for a period
of three (3) consecutive Trading Days;
(ii)
the Company’s failure (A) to cure a Conversion Failure by delivery of the required number of shares of common stock within five
(5) Trading Days after the applicable Conversion Date or exercise date (as the case may be) or (B) notice, written or oral, to any holder
of Series D Preferred Stock, including, without limitation, by way of public announcement or through any of its agents, at any time,
of its intention not to comply, as required, with a request for conversion of any preferred shares into shares of common stock that is
requested in accordance with the provisions of the Series D Certificate of Designations, other than pursuant to Section 4(d). of
the Series D Certificate of Designations;
(iii)
the Board fails to declare any Dividend to be paid on the applicable Dividend Date in accordance with Section 3 of the Certificate of
Designations;
(iv)
the Company’s failure to pay to any holder of Series D Preferred Stock any Dividend on any Dividend Date (whether or not declared
by the Board) or any other amount when and as due under the Certificate of Designations (including, without limitation, the Company’s
failure to pay any redemption payments or amounts hereunder), the Securities Purchase Agreement or any other Transaction Document or
any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and
thereby (in each case, whether or not permitted pursuant to the NRS), except, in the case of a failure to pay Dividends and Late Charges
when and as due, in each such case only if such failure remains uncured for a period of at least two (2) Trading Days
(v)
other than as specifically set forth in another clause of Section 5(a) of the Series D Certificate of Designations, the Company or any
Subsidiary breaches any representation or warranty or any covenant or other term or condition of the Securities Purchase Agreement, except,
in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of
two (2) consecutive Trading Days;
(vi)
the Company fails for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy
the current public information requirement under Rule 144(c) or (y) the Company has ever been an issuer described in Rule 144(i)(1)(i)
or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) and any such
failure remains uncured for a period of two (2) consecutive Trading Days;
(vii)
except to the extent the Company is in compliance with Section 11(b) of the Series D Certificate of Designation, at any time following
the fifth (5th) consecutive day that a holder of Series D Preferred Stock’s Authorized Share Allocation (as defined in Section
11(a) of the Series D Certificate of Designations) is less than the number of shares of common stock that such holder of Series D Preferred
Stock would be entitled to receive upon a conversion, in full, of all of the shares then held by such holder of Series D Preferred Stock
(without regard to any limitations on conversion set forth in the Series D Certificate of Designation);
(viii)
the Company fails to remove any restrictive legend on any certificate or any shares of common stock issued to the applicable holder of
Series D Preferred Stock upon conversion or exercise (as the case may be) of any Securities held by such holder of Series D Preferred
Stock as and when required by such Securities, unless otherwise then prohibited by applicable federal securities laws, and any such failure
remains uncured for at least five (5) days;
(ix)
the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $500,000 of indebtedness
for borrowed money of the Company or any of its Subsidiaries, excluding any indebtedness for borrowed money in which no cash payment
is required at such time pursuant to a forbearance agreement in full force and effect or any applicable grace period under the terms
of such indebtedness for borrowed money;
(x)
bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party (other than Argyll
Entertainment), shall not be dismissed within thirty (30) days of their initiation;
(xi)
the commencement by the Company or any Subsidiary (other than Argyll Entertainment) of a voluntary case or proceeding under any applicable
federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated
a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company
or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition
or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign
proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate
action by the Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a Uniform
Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;
(xii)
the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar
law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any
Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance
of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed
and in effect for a period of thirty (30) consecutive days;
(xiii)
a final judgment or judgments for the payment of money aggregating in excess of $500,000 are rendered against the Company and/or any
of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged, settled or stayed
pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment which
is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $500,000 amount set forth
above so long as the Company provides each holder of Series D Preferred Stock a written statement from such insurer or indemnity provider
(which written statement shall be reasonably satisfactory to each holder of Series D Preferred Stock) to the effect that such judgment
is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance
or indemnity within forty-five (45) days of the issuance of such judgment; or
(xiv)
a knowingly false or inaccurate certification (including a false or inaccurate deemed certification) by the Company that either (A) the
Equity Conditions (as defined in the Preferred Warrants) are satisfied, (B) there has been no Equity Conditions Failure (as defined in
the Preferred Warrants), or (C) as to whether any Triggering Event has occurred.
Company
Optional Redemption
Subject
to certain conditions related to material non-public information, triggering events and other criteria included in the Series D Certificate
of Designations, the Company shall have the right to redeem all, but not less than all, of the Series D Preferred Shares then outstanding
on the Series D Company Optional Redemption Date (as defined in Section 7(a) of the Series D Certificate of Designations) (a “Series
D Company Optional Redemption”). The Series D Preferred Shares subject to redemption pursuant to Section 7(a) shall be redeemed
by the Company in cash at a price equal to the greater of (i) the Conversion Amount of the Series D Preferred Shares being redeemed as
of the Company Series D Optional Redemption Date and (ii) the product of (1) the Conversion Rate of an Alternate Conversion of the Series
D Preferred Shares being redeemed as of the Series D Company Optional Redemption Date multiplied by (2) the greatest closing sale price
of the common stock on any trading day during the period commencing on the date immediately preceding the Company Optional Redemption
Notice Date and ending on the trading day immediately prior to the date the Company makes the entire payment required to be made under
Section 7(a) of the Series D Certificate of Designations.
Mandatory
Redemption on Bankruptcy Triggering Event
Upon
any Bankruptcy Triggering Event, the Company shall immediately redeem, in cash, each share of Series D Preferred Stock then outstanding
at a redemption price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) 115% and
(ii) the product of (X) the Conversion Rate (calculated using the lowest Alternate Conversion Price during the period commencing on the
20th trading day immediately preceding such public announcement and ending on the date the Company makes the entire redemption payment
with respect to the Conversion Amount in effect immediately following the date of initial public announcement (or public filing of bankruptcy
documents, as applicable) of such Bankruptcy Triggering Event multiplied by (Y) the product of (1) 115% multiplied by (2) the greatest
closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such Bankruptcy
Triggering Event and ending on the date the Company makes the entire redemption payment required to be made.
Dividends
Dividends
on the Series D Preferred Stock will accrue daily at a rate equal to 8.0% per annum, increasing 0.50% each 135 day anniversary from the
date of issuance and shall be 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 hereunder (including, without limitation, upon any required payment upon any Bankruptcy
Triggering Event).
Beneficial
Ownership Limitation
The
Series D Preferred Stock cannot be converted into common stock if the holder of Series D Preferred Stock and its affiliates would beneficially
own more than 9.99% of the outstanding common stock. However, any holder of Series D Preferred Stock may increase or decrease such percentage
to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in this limitation will not be effective
until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing notice.
Voting
Rights
The
holders of the Series D Preferred Stock shall have no voting power and no right to vote on any matter at any time, either as a separate
series or class or together with any other series or class of share of capital stock, and shall not be entitled to call a meeting of
such holders of Series D Preferred Stock for any purpose nor shall they be entitled to participate in any meeting of the holders of common
stock except as provided in the Series D Certificate of Designations or as otherwise required by applicable law). To the extent that
under applicable law, the vote of the holder of the Series D Preferred Stock, voting separately as a class or series, as applicable,
is required to authorize a given action of the Company, the affirmative vote or consent of the Investor of the shares of the Series D
Preferred Stock, voting together in the aggregate and not in separate series unless required under applicable law, represented at a duly
held meeting at which a quorum is presented or by written consent of the Investor (except as otherwise may be required under the applicable
law), voting together in the aggregate and not in separate series unless required under the applicable law, shall constitute the approval
of such action by both the class or the series, as applicable. Holders of the Series D Preferred Stock shall be entitled to written notice
of all shareholder meetings or written consents (and copies of proxy materials and other information sent to shareholders) with respect
to which they would be entitled to vote, which notice would be provided pursuant to the Bylaws and the applicable law.
Without
first obtaining the affirmative vote of the Investor, voting together as a single class, the Company shall not: (a) amend or repeal any
provision of, or add any provision to, its Certificate of Incorporation or Bylaws, or file any Certificate of Amendment or articles of
amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences,
rights, privileges or powers, or restrictions provided for the benefit of the Series D Preferred Stock hereunder, regardless of whether
any such action shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase
or decrease (other than by conversion) the authorized number of Series A Convertible Preferred Stock; (c) create or authorize (by reclassification
or otherwise) any new class or series of Senior Preferred Stock or Parity Stock; (d) purchase, repurchase or redeem any shares of Junior
Stock (other than pursuant to the terms of the Company’s equity incentive plans and options and other equity awards granted under
such plans (that have in good faith been approved by the Board)); (e) pay dividends or make any other distribution on any shares of any
Junior Stock; (f) issue any preferred stock other than as contemplated hereby or pursuant to the Underwriting Agreement or the Preferred
Warrants; or (g) whether or not prohibited by the terms of the Series D Preferred Stock, circumvent a right of the Series D Preferred
Stock under the Certificate of Amendment.
Covenants
The
Company is subject to the following covenants under the terms of the Series D Preferred Stock:
(i)
Restriction on Redemption and Cash Dividends. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly
or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on any of its capital stock (other than Series
A Preferred Stock or as required by the Series D Certificate of Designations).
(ii)
Restricted Issuances. The Company shall not, directly or indirectly, without the prior written consent of the Holder, (a) issue any other
shares of preferred stock (other than as contemplated by the Note to Preferred Exchange Agreement, the Series C Certificate of Designations,
the Series D Certificate of Designations and the Securities Purchase Agreement), (b) issue any other securities that would cause a breach
or default under the Series D Certificate of Designations or (c) issue any other securities at (or with) a new issuance price less than
the conversion price then in effect.
(iii)
Stay, Extension and Usury Laws. To the extent that it may lawfully do so, the Company (A) agrees that it will not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law (wherever or whenever
enacted or in force) that may affect the covenants or the performance of Series D Certificate of Designations; and (B) expressly waives
all benefits or advantages of any such law and agrees that it will not, by resort to any such law, hinder, delay or impede the execution
of any power granted to the holders by the Series D Certificate of Designations, but will suffer and permit the execution of every such
power as though no such law has been enacted.
(iv)
Taxes. The Company and its Subsidiaries shall pay when due all taxes, fees or other charges of any nature whatsoever (together with any
related interest or penalties) now or hereafter imposed or assessed against the Company and its subsidiaries or their respective assets
or upon their ownership, possession, use, operation or disposition thereof or upon their rents, receipts or earnings arising therefrom
(except where the failure to pay would not, individually or in the aggregate, have a material effect on the Company or any of its subsidiaries).
The Company and its subsidiaries shall file on or before the due date therefor all personal property tax returns (except where the failure
to file would not, individually or in the aggregate, have a material effect on the Company or any of its Subsidiaries). Notwithstanding
the foregoing, the Company and its subsidiaries may contest, in good faith and by appropriate proceedings, taxes for which they maintain
adequate reserves therefor in accordance with GAAP.
(v)
PCAOB Registered Auditor. At all times any Series D Preferred Shares remain outstanding, the Company shall have engaged an independent
auditor to audit its financial statements that is registered with (and in compliance with the rules and regulations of) the Public Company
Accounting Oversight Board.
(vi)
Independent Investigation. At the request of any Holder either (x) at any time when a Triggering Event has occurred and is continuing,
(y) upon the occurrence of an event that with the passage of time or giving of notice would constitute a Triggering Event or (z) at any
time such Holder reasonably believes a Triggering Event may have occurred or be continuing, the Company shall hire an independent, reputable
investment bank selected by the Company and approved by such Holder to investigate as to whether any breach of the Series D Certificate
of Designations has occurred.
Other
Terms
The
terms of the Series D Preferred Stock prohibit the Company from subsequent financings at a price below the Conversion Price, unless approved
by the holder of Series D Preferred Stock.
The
Holder has the option to require the Company to use 50% of the proceeds from any subsequent financing to redeem the Series D Preferred
Stock at the greater of (a) the Conversion Amount of such Subsequent Placement Optional Redemption Share being redeemed as of the Subsequent
Placement Optional Redemption Date and (b) solely if any Equity Conditions Failure (as defined in the Series D Certificate of Designations)
then exists, the product of (1) the Conversion Rate of an Alternate Conversion of such share being redeemed multiplied by (2) the greatest
closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such the date
of notice of the redemption and ending on the trading day immediately prior to the date the Company makes the entire payment required
to be made.
The
holder of Series D Preferred Stock may convert the Series D Preferred Stock into any subsequent financing thereby receiving securities
issued in such subsequent financing in exchange for cancellation of all or part of the Series D Preferred Stock.
Provisions
in Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws That Would Delay, Defer or Prevent a Change in
Control
Our
Amended and Restated Articles of Incorporation authorize our Board to issue a class of preferred stock commonly known as a “blank
check” preferred stock. Specifically, the preferred stock may be issued from time to time by the Board as shares of one (1) or
more classes or series. Our Board, subject to the provisions of our Amended and Restated Articles of Incorporation and limitations imposed
by law, is authorized to adopt resolutions; to issue the shares; to fix the number of shares; to change the number of shares constituting
any series; and to provide for or change the following: the voting powers; designations; preferences; and relative, participating, optional
or other special rights, qualifications, limitations or restrictions, including the following: dividend rights, including whether dividends
are cumulative; dividend rates; terms of redemption, including sinking fund provisions; redemption prices; conversion rights and liquidation
preferences of the shares constituting any class or series of the preferred stock.
In
each such case, we will not need any further action or vote by our stockholders. One of the effects of undesignated preferred stock may
be to enable the Board to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant
to the Board’s authority described above may adversely affect the rights of holders of common stock. For example, preferred stock
issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full, extended, or limited
voting rights or be entitled to vote far in excess of the number of shares of preferred otherwise issued (as in the class of Class B
Preferred. The preferred might also be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock
may discourage bids for the common stock at a premium, affect the quorum or approval of measures put to stockholders, or may otherwise
adversely affect the market price of the common stock.
Common
Stock Warrants
As
of March 31, 2023, we had 562,006 Common Stock Warrants issued and outstanding entitling the holders to purchase 562,006 shares of our
common stock at prices ranging from $25.00 to $1,750.00.
| |
Outstanding as of March 31, 2023 | | |
Exercise Price | | |
Expiration | |
Material Terms |
September 19, 2022 Common Stock Warrants | |
| 336,000 | | |
$ | 25.00 | | |
September 19, 2027 | |
Redeemable for cash in the event of a fundamental transaction |
March 2, 2022 Common Stock Warrants | |
| 172,500 | | |
$ | 100.00 | | |
March 2, 2027 | |
Redeemable for cash in the event of a fundamental transaction |
June 2, 2021 Series A Warrants | |
| 20,000 | | |
$ | 1,750.00 | | |
June 2, 2025 | |
Redeemable for cash in the event of a fundamental transaction |
June 2, 2021 Series B Warrants | |
| 20,000 | | |
$ | 1,750.00 | | |
June 2, 2023 | |
Redeemable for cash in the event of a fundamental transaction |
Unit A Warrants | |
| 11,368 | | |
$ | 425.00 | | |
April 14, 2025 | |
- |
Unit A Conversion Warrants | |
| 406 | | |
$ | 425.00 | | |
April 14, 2025 | |
- |
Placement Agent Warrants | |
| 1,732 | | |
$ | 531.00 | | |
April 14, 2025 | |
- |
(1) |
Subsequent
to March 31, 2023, on May 22, 2023, as part of the transaction to issue the Series D Preferred Stock, the Company issued 1,433,333
warrants to purchase common stock with an exercise price of $1.96. In the same transaction the Company issued 4,300 warrants to purchase
additional shares of Series D Preferred Stock at an exercise price of $1,000 per share. The Common Warrants and Series D Preferred
Stock Warrants expire in five years. The Common Warrants have a cashless exercise provision. The exercise of the Common Warrants
are subject to a beneficial ownership limitation for the Holder of 4.99%, which may be increased to 9.99% provided that the increase
will not be effective until the 61st day after delivery of a notice to the Company. If and when the Series D Preferred Stock Warrants
are exercised, pursuant to the terms of the Common Warrants, the number of shares of common stock that will be issuable under the
Common Warrants will increase by an amount equal to the aggregate value of the shares of Series D Preferred Stock issued (including
any dividends or other amounts thereon) divided by the Alternate Conversion Price (as defined in the Series D Certificate of Designations).
The Common Warrants and Series D Preferred Stock Warrants contain customary anti-dilution protection for the Holder and anti-dilution
protection in the event of certain dilutive issuances. In addition, the Common Warrants provide the Holder with certain purchase
rights in subsequent issuances or sales of securities by the Company. |
Nevada
Anti-Takeover Laws
Nevada
Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada
corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply.
Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws do not state that these provisions do not apply. The
statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down
certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations
that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and
residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of
these conditions, the statute currently does not apply to our company.
DESCRIPTION
OF THE SECURITIES THAT WE ARE OFFERING
The
following is a summary of certain general provisions of the securities we are offering. It does not, however, purport to be a complete
summary of such terms and conditions, nor to restate the terms of such securities in their entirety regarding all the detailed provisions
pertaining to the securities. You should read the Company’s filings with the Securities and Exchange Commission, including the
Company’s articles of incorporation and form of warrant that will be filed as an exhibit to a Current report on Form 8-K and incorporated
herein, and most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. This summary may not contain all of
the information that is important to you.
Common
Stock
We
are offering 1,000,000 shares of our Common Stock. As of August 14, 2023, our authorized Common Stock consisted of 500,000,000
shares of Common Stock, par value $0.001 per share, of which 22,357,628 shares of Common Stock were outstanding.
The
authorized and unissued shares of common stock are available for issuance without further action by our stockholders, unless such action
is required by applicable law or the rules of any stock exchange on which our securities may be listed. A description of the common stock
we are offering pursuant to this prospectus supplement is set forth under the heading “Description of Capital Stock,”
starting on page 12 of the accompanying base prospectus.
Pre-funded
Warrants
We
are offering the Pre-funded Warrants to purchase up to 4,167,959 shares of our Common Stock. The following summary of certain
terms and provisions of the Pre-funded Warrants that are being offered hereby is not complete and is subject to, and qualified in its
entirety by, the provisions of the Pre-funded Warrants, the form of which was filed as an exhibit to the Form 8-K to be filed
in connection with this offering. Prospective investors should carefully review the Form 8-K and the terms and provisions of the form
of the Pre-funded Warrant for a complete description of the terms and conditions of the Pre-funded Warrants.
Duration
and Exercise Price
Each
Pre-funded Warrant offered hereby will have an exercise price of $0.1935, with all but a nominal initial exercise price per share
equal to $0.001 per share prepaid at the closing of this offering. The Pre-funded Warrants will be exercisable immediately upon issuance
if exercised by paying the aggregate remaining exercise price for the shares of Common Stock being exercised and will expire on the fifth
(5th) annual anniversary of the original issuance date. The exercise price and
number of shares of Common Stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits,
reorganizations or similar events affecting our Common Stock and the exercise price. The Pre-funded Warrants will be issued separately
from the shares of Common Stock offered hereby, and may be transferred separately immediately thereafter.
Exercisability
The
Pre-funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering a duly executed exercise notice
accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise. The Pre-funded Warrants may
also be exercised, at the option of the purchaser, on a cashless basis pursuant to their terms. No fractional shares of Common Stock
will be issued in connection with the exercise of a Pre-funded Warrant. In lieu of fractional shares, we will, at our election, either
pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Call
Option
The
Pre-funded Warrants do not have a Call Option.
Limitations
on Exercise
The
Pre-funded Warrants may not be exercised to the extent they cause the purchaser of the Pre-funded Warrants to become a “beneficial
owner” of more than 4.99% of our common stock for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the “Beneficial
Ownership Limitation”). The Beneficial Ownership Limitation may be increased at the discretion of the purchaser of the Pre-funded
Warrants to any percentage less than or equal to 9.99% of our common stock upon 91 calendar days’ notice or decreased at any time.
Fundamental
Transaction
The
Pre-funded Warrants prohibit us from entering into specified fundamental transactions unless the successor entity assumes all of our
obligations under the Pre-funded Warrants under a written agreement before the transaction is completed and the successor entity is a
publicly traded company. Upon specified corporate events, a Pre-funded Warrant holder will thereafter have the right to receive upon
an exercise such shares, securities, cash, assets or any other property whatsoever which the holder would have been entitled to receive
upon the happening of the applicable corporate event had the Pre-funded Warrant been exercised immediately prior to the applicable corporate
event. If holders of our Common Stock are given a choice as to the securities, cash or property to be received in a fundamental transaction,
then the Holder of the Senior Convertible Note shall be given the same choice as to the consideration it receives upon any exercise of
the Pre-Funded Warrant following such fundamental transaction.
Transferability
Subject
to applicable laws, including federal and state securities law, a Pre-funded Warrant may be transferred at the option of the holder upon
surrender of the Pre-funded Warrant together with the appropriate instruments of transfer.
There
is no established public trading market for the Pre-funded Warrants being offered in this offering and we do not expect an active
trading market to develop. We do not intend to list the on any securities exchange or other trading market. Without an active trading
market, the liquidity of the Pre-funded Warrants will be limited.
Right
as a Stockholder
Except
as otherwise provided in the Pre-funded Warrants or by virtue of such holder’s ownership of shares of our Common Stock,
the holders of the Pre-funded Warrants do not have the rights or privileges of holders of our Common Stock, including any voting
rights, until they exercise their Pre-funded Warrants.
Warrant
Agent
The
Pre-funded Warrants will be issued in registered form under a warrant agency agreement between VStock Transfer LLC, as warrant agent,
and us.
Governing
Law. The Pre-funded Warrants and the warrant agency agreement are governed by New York law.
LEGAL
MATTERS
The
validity of the securities offered hereby has been passed upon for us by Holland & Knight LLP, Miami, Florida, and Westward Law LLC,
Las Vegas, Nevada.
EXPERTS
The consolidated financial statements for
the year ended June 30, 2022 incorporated in this prospectus supplement by reference to the Current Report on Form 8-K filed on
August 17, 2023 have been so incorporated in reliance on the report of Marcum LLP, independent registered public accounting firm,
with regard to the consolidated financial statements of the Company as of June 30, 2022, and for the year then ended, which report
includes an explanatory paragraph related to the substantial doubt about the Company’s ability to continue as a going concern
and an emphasis of matter paragraph related to the adjustments for the reverse stock split, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements for
the year ended June 30, 2021 incorporated in this prospectus supplement by reference to the Current Report on Form 8-K filed on August
17, 2023 have been so incorporated in reliance on the report
of Friedman LLP, independent registered public accounting firm, with regard to the consolidated financial statements of the Company as
of June 30, 2021, and for the year then ended, which report includes an explanatory paragraph related to the substantial doubt about
the Company’s ability to continue as a going concern, given on the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and other reports, proxy statements and other information with the SEC. The SEC maintains a website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers such as our company that file electronically
with the SEC.
Our
website address is https://esportsentertainmentgroup.com. We make available free of charge, through the Investor section of our website,
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. The information on our website, however, is not, and should not be deemed to be, a part of
this prospectus supplement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to “incorporate by reference”
in this prospectus supplement and the accompanying base prospectus certain information we file with the SEC, which means that we may disclose
important information in this prospectus supplement and the accompanying base prospectus by referring you to the document that contains
the information. The information incorporated by reference is considered to be an integral part of this prospectus supplement and the
accompanying base prospectus, and information that we file later with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, until the termination of the offering:
|
● |
our
audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, included in the Current Report on Form 8-K filed with the SEC on August 17, 2023; |
|
● |
our
Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on October 13, 2022; |
|
● |
our
Quarterly Reports on Form 10-Q for the quarters ended September 30, 2022, December 31, 2022 and March 31, 2023, filed with the SEC
on November 14, 2022, February 21, 2023 and May 22, 2023, respectively; |
|
● |
our
Current Reports on Form 8-K filed with the SEC on, October
14, 2022 (second 8-K), October
24, 2022, October
28, 2022, November
3, 2022, December
5, 2022, December
8, 2022, December
12, 2022, December
27, 2022,
December 28, 2022, January
6, 2023, January
27, 2023, February
6, 2023, February
9, 2023, February
13, 2023, February
17, 2023, March
2, 2023, March
15, 2023, March
22, 2023, April
11, 2023. April
20, 2023, May
1, 2023 (first 8-K), May
1, 2023 (second 8-K), May
26, 2023, May
31, 2023 (first 8-K), May
31, 2023 (second 8-K), June
12, 2023, June
14, 2023, June
30, 2023, July
13, 2023, July
19, 2023, July
25, 2023, July
31, 2023, August
4, 2023, August 10, 2023, August 16, 2023 and August 17, 2023; |
|
● |
our
Proxy Statement on Schedule 14A filed with the SEC on December 28, 2022; |
|
● |
the
description of our common stock set forth in the registration statement on Form 8-A, filed with the Securities and Exchange Commission
on April 2, 2020, including any amendments or reports filed for the purposes of updating this description; and |
|
● |
all
documents filed by us with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
on or after the date of this prospectus supplement and before we stop offering the securities covered by this prospectus supplement
and the accompanying base prospectus. |
Notwithstanding the foregoing, information and documents
that we elect to furnish, but not file, or have furnished, but not filed, with the SEC in accordance with SEC rules and regulations, including
any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K,
is not incorporated into this prospectus supplement and the accompanying base prospectus and does not constitute a part hereof.
Any statements contained in a previously filed document
incorporated by reference into this prospectus supplement is deemed to be modified or superseded for purposes of this prospectus supplement
to the extent that a statement contained in this prospectus supplement, or in a subsequently filed document also incorporated by reference
herein, modifies or supersedes that statement.
This prospectus supplement may contain information
that updates, modifies or is contrary to information in one or more of the documents incorporated by reference in this prospectus supplement.
You should rely only on the information incorporated by reference or provided in this prospectus supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the information in this prospectus supplement is accurate as
of any date other than the date of this prospectus supplement or the date of the documents incorporated by reference in this prospectus
supplement.
We will provide to each person, including any beneficial
owner, to whom this prospectus supplement is delivered, upon written or oral request, at no cost to the requester, a copy of any and all
of the information that is incorporated by reference in this prospectus supplement. You may request a copy of these filings, at no cost
to you, by telephoning us at or by writing us at the following address:
Esports Entertainment Group, Inc.
Block 6,
Triq Paceville,
St. Julians STJ 3109
Malta
356-2713-1276
PROSPECTUS
ESPORTS ENTERTAINMENT GROUP, INC.
$100,000,000
Common Stock
Preferred Stock
Debt Securities
Warrants
Rights
Units
We may offer and sell up to $100 million in the aggregate
of the securities identified above from time to time in one or more offerings. This prospectus provides you with a general description
of the securities.
Each time we offer and sell securities, we will provide
a supplement to this prospectus that contains specific information about the offering and the amounts, prices and terms of the securities.
The supplement may also add, update or change information contained in this prospectus with respect to that offering. You should carefully
read this prospectus and the applicable prospectus supplement before you invest in any of our securities.
We may offer and sell the securities described in
this prospectus and any prospectus supplement to or through one or more underwriters, dealers and agents, or directly to purchasers, or
through a combination of these methods. If any underwriters, dealers or agents are involved in the sale of any of the securities, their
names and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth, or will be calculable
from the information set forth, in the applicable prospectus supplement. See the sections of this prospectus entitled “About this
Prospectus” and “Plan of Distribution” for more information. No securities may be sold without delivery of this prospectus
and the applicable prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE
THE “RISK FACTORS” ON PAGE 11 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT
CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our common stock and Unit A Warrants are quoted for
trading on The NASDAQ Capital Market under the symbols “GMBL” and “GMBLW”, respectively. On January 22, 2021,
the last reported sale price of our common stock and Unit A Warrants on The NASDAQ Capital Market was $7.47, and $4.33, per share, and
Unit A Warrant, respectively. The aggregate market value of our outstanding common stock held by non-affiliates is $77,654,751.25 based
on 14,186,740 shares of outstanding common stock, of which 4,294,415 are held by affiliates, and a per share price of $7.85 based on the
closing sale price of our common stock on January 20, 2020. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell
our common stock in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so
long as our public float remains below $75,000,000. We have not offered any securities pursuant to General Instruction I.B.6. of Form
S-3 during the prior 12 calendar month period that ends on and includes the date of this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is February 5, 2021.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement
that we filed with the U.S. Securities and Exchange Commission, or the SEC, using a “shelf” registration process. By using
a shelf registration statement, we may sell securities from time to time and in one or more offerings up to a total dollar amount of $100
million as described in this prospectus. Each time that we offer and sell securities, we will provide a prospectus supplement to this
prospectus that contains specific information about the securities being offered and sold and the specific terms of that offering. The
prospectus supplement may also add, update or change information contained in this prospectus with respect to that offering. If there
is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you should rely on the prospectus
supplement. Before purchasing any securities, you should carefully read both this prospectus and the applicable prospectus supplement,
together with the additional information described under the heading “Where You Can Find More Information; Incorporation by Reference.”
We have not authorized any other person to provide
you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We will
not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus and the applicable prospectus supplement to this prospectus is accurate as of the date on its respective
cover, and that any information incorporated by reference is accurate only as of the date of the document incorporated by reference, unless
we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
When we refer to “Esports,” “EEG,”
“we,” “our,” “us” and the “Company” in this prospectus, we mean Esports Entertainment
Group, Inc., unless otherwise specified. When we refer to “you,” we mean the holders of the applicable series of securities.
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION
BY REFERENCE
Available Information
We file reports, proxy statements and other information
with the SEC. Information filed with the SEC by us can be inspected and copied at the Public Reference Room maintained by the SEC at 100
F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the Public Reference Room of the SEC
at prescribed rates. Further information on the operation of the SEC’s Public Reference Room in Washington, D.C. can be obtained
by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information statements and other
information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov.
Our website address is https://esportsentertainmentgroup.com.
The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are
part of a registration statement that we filed with the SEC and do not contain all of the information in the registration statement. The
full registration statement may be obtained from the SEC or us, as provided below. Forms of the documents establishing the terms of the
offered securities are or may be filed as exhibits to the registration statement. Statements in this prospectus or any prospectus supplement
about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You
should refer to the actual documents for a more complete description of the relevant matters. You may inspect a copy of the registration
statement at the SEC’s Public Reference Room in Washington, D.C. or through the SEC’s website, as provided above.
Incorporation by Reference
The SEC’s rules allow us to “incorporate
by reference” information into this prospectus, which means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, and
subsequent information that we file with the SEC will automatically update and supersede that information. Any statement contained in
a previously filed document incorporated by reference will be deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus modifies or replaces that statement.
We incorporate by reference our documents listed below
and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
which we refer to as the “Exchange Act” in this prospectus, between the date of this prospectus and the termination of the
offering of the securities described in this prospectus. We are not, however, incorporating by reference any documents or portions thereof,
whether specifically listed below or filed in the future, that are not deemed “filed” with the SEC, including any information
furnished pursuant to Items 2.02 or 7.01 of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.
This prospectus and any accompanying prospectus supplement
incorporate by reference the documents set forth below that have previously been filed with the SEC:
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Our Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on October 1, 2020; |
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Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 16, 2020; |
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Our Current Reports on Form 8-K and/or 8-K/A filed with the SEC on August 6, 2020, October 16, 2020, November 24, 2020, December 8, 2020, December 17, 2020, and January 22, 2021; and |
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The description of our Common Stock contained in our Registration Statement on Form S-8, filed with the SEC on November 25, 2020, as amended, and any amendment or report filed with the SEC for the purpose of updating the description. |
All reports and other documents we subsequently file
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering, including all such documents
we may file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement,
but excluding any information furnished to, rather than filed with, the SEC, will also be incorporated by reference into this prospectus
and deemed to be part of this prospectus from the date of the filing of such reports and documents.
THE COMPANY
Corporate History
Esports Entertainment Group, Inc. was formed in the
State of Nevada on July 22, 2008 under our prior name Virtual Closet, Inc. Virtual Closet, Inc. changed its name to DK Sinopharma, Inc.
on June 6, 2010. DK Sinopharma, Inc. changed its name to VGambling, Inc. on August 12, 2014. On or about April 24, 2017, VGambling, Inc.
changed its name to Esports Entertainment Group, Inc. Our company was engaged in a number of different enterprises up until May 20, 2013,
when, pursuant to the terms of the Share Exchange Agreement, we acquired all of the outstanding capital stock of H&H Arizona Corporation
in exchange for 3,333,334 shares of our common stock. From May 2013 until August 2018, our operations were limited to designing, developing
and testing our wagering systems. We launched our online esports wagering website (www.vie.gg) in August 2018.
Business Overview
Esports is the competitive playing of video games
by amateur and professional teams for cash prizes. Esports typically takes the form of organized, multiplayer video games that include
real-time strategy, fighting, first-person shooter and multiplayer online battle arena games. During 2020, the three largest selling esports
games were Dota 2, League of Legends (each multiplayer online battle arena games) and Counter Strike: Global Offensive (a
first-person shooter game). Other popular games include Smite, StarCraft II, Call of Duty¸ Heroes of the
Storm, Hearthstone and Fortnite. Esports also includes games which can be played, primarily by amateurs, in multiplayer
competitions on the Sony PlayStation, Microsoft Xbox and Nintendo Switch. Most major professional esports events and a wide range of amateur
esports events are broadcast live via streaming services including twitch.tv, azubu.tv, ustream.tv and youtube.com.
We are an esports entertainment and online gambling
company primarily focused on three verticals, (i): esports entertainment, (ii) esports wagering, and (iii) iGaming and traditional sports
betting. We believe focusing on these verticals positions the Company to take advantage of a trending and expanding marketplace in esports
with the rise of competitive gaming as well as the legalization of online gambling in the United States.
Esports Entertainment:
Our esports entertainment vertical includes any activity
that we pursue within esports that does not include real-money wagering. Right now, the main component of this vertical is our skill-based
tournament platform. This allows us to engage and monetize players across 41 states where skill-based gambling is legal as well as create
relationships with players that can eventually migrate to our Vie.gg real-money wagering platform.
Esports Wagering:
We intend to be a leader in the large and rapidly
growing sector of esports real-money wagering. Our Vie.gg platform offers fans the ability to wager on professional esports events in
a licensed and secure environment. At the current time, under the terms of our existing Curacao license, we are currently able to accept
wagers from residents of over 149 jurisdictions including Canada, Japan, Germany and South Africa. On April 30, 2020, we received our
gaming service license from the Malta Gaming Authority (MGA). We now expect that residents in a number of European Union member states
will be able to place bets on our website. On August 20, 2020, we announced that we entered into a multi-year partnership with Twin River
Worldwide Holdings, Inc (NYSE: TRWH) to launch our proprietary mobile sports betting product in the state of New Jersey. We intend to
have our platform live in the state by the end of the first quarter of 2021.
iGaming and Traditional Sports Betting:
The goal of our iGaming and traditional Sports Betting
vertical is to provide profitable growth and access to strategic licenses in jurisdictions that we can cross-sell into our Vie.gg platform.
On July 7, 2020, we entered into a stock purchase agreement (the “Argyll Purchase Agreement”), by and among the Company, LHE
Enterprises Limited (“LHE”), and AHG Entertainment, LLC (“AHG”) whereby, upon closing on July 31, 2020, the Company
acquired all of the outstanding capital stock of LHE and its subsidiaries, (i) Argyll Entertainment AG, (ii) Nevada Holdings Limited and
(iii) Argyll Productions Limited (collectively the “Acquired Companies” or “Argyle”). AHG is licensed and regulated
by the UK Gambling Commission and the Irish Revenue Commissioners to operate online sportsbook and casino sites in the UK and Ireland,
respectively. Argyll has a flagship brand, www.SportNation.bet, as well as two white label brands, www.RedZone.bet and www.uk.Fansbet.com
(collectively the “Argyll Brands”), with over 250K registered players at the end of calendar year 2020.
Competitive Advantages/Operational Strengths
We believe the following strengths position us for
sustainable growth:
Management Team and Key Personnel Experience:
Our Board includes senior managers with extensive experience in online gambling, esports, information technology, compliance, regulation,
accounting and finance. Our Officers and management include individuals with extensive experience in online gambling, esports, information
technology, marketing, business development, payment processing, compliance, regulation, accounting, finance and customer service.
Licensed Technology/Proprietary B2C wagering
platform: We have entered into a White Label Services Agreement dated December 12, 2019 (the “Askott Agreement”) with
a subsidiary of Askott Entertainment Inc. (“Askott”) whereby Esports has secured a non-exclusive license to “white label”
Askott’s proprietary software and systems as the platform through which we run our business (the “Platform”). The Platform
requires complex code and very skilled development. Accordingly, we believe the complexity of our Platform offers a higher barrier to
entry than standard wagering platforms. Furthermore, in September 10, 2020, we acquired certain intellectual property assets developed
by FLIP Sports (“Flip Sports”). As part of the acquisition of assets, the Flip employees became employees of Argyll Productions
Ltd, a subsidiary of LHE, with the intention to have them build a best-in-class proprietary esports wagering platform. We believe our
proprietary platform will provide us with a competitive advantage as it offers what we believe to be the widest variety of betting options
available for esports wagering.
Argyll’s “Rewards” Program:
built in-house, and in conjunction with FLIP Sports, provides an industry-leading customer loyalty program, driving above-industry customer
retention rates and player lifetime values. The Program helped earn Argyll the Innovative Start-up of the Year award, at the 2018 EGR
Marketing & Innovation Awards. We believe the platform can be leveraged across all of our verticals.
Affiliate Marketing Program:
Our affiliate marketing program focuses on professional esports teams and individual social media influencers. As part of our efforts
to market our online gaming services, we attempt to enter into “Affiliate Marketing Agreements” with professional esports
teams and other influential individuals and groups within esports. As an “Marketing Affiliate”, the esports team will provide
their fans with a link to our online gaming website, where the fan, if located in a country which allows the fan to place a bet using
our gaming platform, can bet on teams playing in esports tournaments. For a player placing a bet through the marketing affiliate’s
link to our website and provided such player wins the bet, we pay the “Marketing Affiliate” a percentage of the amount we
collect from the winning bet (typically between 25% - 35%).
Growth Strategy
In the future, we intend to:
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expand our Esports services into more of the 41 states where skill-based gambling is legal, enhance the Product offering, as well as create relationships with players that will migrate into our Vie.gg real-money wagering platform. |
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expand our Esports Wagering services into more jurisdictions, utilizing the recently acquired MGA gaming license, as well as the recent multi-year partnership with Twin River Worldwide Holdings, Inc (NYSE: TRWH) to launch our proprietary mobile sports betting product in the state of New Jersey. |
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continue with our M&A strategy in the iGaming and Traditional Sports Betting space, to acquire profitable Operators in different jurisdictions, that will also allow for cross-pollination of services (Sportsbook, Casino and Esports). |
Future Products and Services:
Online Esports Tournament Play
We intend to offer players from around the world,
including the United States (except in 13 states in the US and other jurisdictions outside the US which currently prohibit playing games
of skill for cash prizes), the ability to enter and participate in online video game tournaments and win cash prizes. Online esports tournament
play consists of two or more people playing against each other in a game from their personal phones or computers, where such players do
not necessarily have to be playing in real time. These events could be held over the course of a day, a week or even a month and the winner
will be the one with the top score or the fastest time at the conclusion of the event. Cash-based tournaments involving games of skill
are not considered gambling in most U.S. states because the generally accepted definition of gambling involves three specific things:
(1) the award of a prize, (2) paid-in consideration (meaning entrants pay to compete) and (3) an outcome determined on the basis of chance.
As a result, games of skill are not generally subject to the same laws and regulations as our esports event wagering service. We expect
participants in our tournaments being able to enter and play against each other with prize money distributed to the last remaining competitors.
We anticipate collecting a tournament entry fee for our tournaments, as well as a percentage of total winnings that are paid to users
(typically 10% of the entry fees) and thus none of our money will be at risk or otherwise dependent on the outcome. We intend to offer
users a wide selection of video games of skill to be played online for real money in small groups to major tournaments. The tournament
platform will also serve as a tool to help us determine which markets we are finding the most esports players. We believe using the tournament
platform to penetrate the US market will allow us to grow our brand within the esports community and lead to lower customer-acquisition-costs
for our wagering platform.
US Market Expansion
Currently we do not offer players in the US the ability
to wager on our Vie.gg platform. However, on August 20, 2020, we announced that we entered into a multi-year partnership with Twin River
Worldwide Holdings, Inc (NYSE: TRWH) to launch our proprietary mobile sports betting product in the state of New Jersey. We intend to
have our platform live in the state by the end of the first quarter of 2021. Following our launch in New Jersey, we intend to evaluate
additional jurisdictions in the US that could be commercially viable for further expansion of our Vie.gg platform.
International Market Expansion
We received a Gaming Service License for online pool
betting from the Malta Gaming Authority in April 2020, established a brick and mortar office in such jurisdiction and anticipate commencing
online gaming operations in that jurisdiction in 2020, both on the Vie.gg and Argyll Brands. We expect that residents of a number of both
European Union and non-EU countries will be able to place bets on our website. In the future, we may consider obtaining additional country
specific gaming licenses should we determine there is sufficient local demand for our services in these markets. In order to effectively
penetrate international markets, we intend to translate our website into several additional languages and offer customer service and technical
support in the local language of key markets.
Our Online Wagering Platforms
According to Zion Market Research’s, Online
Gambling & Betting Market by Game Form (Poker, Casino, Sports Betting, Bingo, Lottery, Horse Racing Betting, and Others) and by Component
(Hardware, Software, and Service): Global Industry Perspective, Comprehensive Analysis and Forecast, 2017 – 2024, the online gambling
market represents one of the fastest growing segments of the gambling industry. Zion Market estimated the size of the global online gambling
market in 2018 was in excess of US$45.8 billion and is projected to reach US$94.4 billion by 2024.
Although the Vie.gg brand is focused solely on offering
online wagering on the widest range of esports events broadcast from around the world, the Argyll Brands offer online users traditional
casino style games such as poker, craps or slots, as well as offering online wagering on traditional sporting events such as soccer, horse
racing and football.
All persons 18 years and older can presently place
bets on our online gambling website at www.vie.gg except for residents of the United States and other jurisdictions that the Company is
precluded from supplying its services to pursuant to its gaming licenses.
With respect to our Argyll Brands, wagering is only
permitted by customers in the United Kingdom and Republic of Ireland.
On April 30, 2020, the Company received its Gaming
Service License for online pool betting from the Malta Gaming Authority. This allows residents of certain European Union member countries
to place bets on our website.
Once on our websites, a player can place a bet on
a team participating in any number of tournaments which are scheduled to be held in the upcoming weeks. We also maintain 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, we maintain a “frequently asked questions”
section which provides our customers with the ability to easily navigate general questions relating to the website, personal account information,
payment processing, betting rules and procedures as well as tips.
We have agreements with the following third party
companies that provide us with certain services that enable our website to function efficiently:
Money Matrix. MoneyMatrix provides us with
the software we use to receive payments from players. Using MoneyMatrix, a player can select from over 150 payment options (i.e. Skrill,
Astropay) to deposit funds with us for use in placing bets.
Partner Matrix. Partner Matrix provides us
with the software we use to track players placing a bet through an Affiliate’s link to our website.
Money Matrix, Partner Matrix are both paid monthly
for their services to the Company.
Askott Entertainment Inc. The Vie.gg Platform
is hosted from Askott Entertainment Inc., who provides us with a website hosting subscription, and provides e-games, development and IT
services related to the software interface and web design. We will pay the Askott subsidiary a percentage on gaming revenues, this percentage
varies based on the amount of monthly gaming revenues generated but shall not exceed twenty-percent (20%) of monthly gaming revenues but
gradually decreases based on increased revenues. Additionally, we will pay Askott a minimum monthly fee of $9,000 EUR for services which
amount will be subject to increase based on the number of games made available on the Platform.
SB Tech Global – the Argyll Brands use
the SB Tech platform to host their websites, and pay a percentage on both Sportsbook and Casino Gross Gaming revenues, as well as certain
hosting and data feed fees.
Marketing and Sales Initiatives
The Company has several sponsorship marketing agreements
in place for its website as well as an extended marketing agreement with Dignitas, an esports brand owned by Harris Blitzer sports and
entertainment with multiple professional teams playing several titles with over a million fans worldwide. The Company also has an agreement
with Allied Esports to run esports tournaments to promote the brand globally to esports fans.
We are looking to expand into new geographic territories
by obtaining licenses 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. Our 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.
Esports games are played by professional teams, amateur
teams, and individuals. Professional esports teams have their own social media presence, with some of the top professional teams having
millions of fans who follow and interact with the team on a regular basis. A website of a professional esports team usually contains specific
information about the team and lists upcoming tournaments or events in which the team will be participating. As part of our efforts to
market our online gaming services, we attempt to enter into affiliate marketing agreements with professional Esports teams.
As a marketing affiliate, the esports team will promote
our brand in the content they create and on their social media and Website. The fans will be provided with a link to our online gaming
website, where the Fan, if located in a country that allows the fan to place a bet using our gaming platform, can bet on teams playing
in esports tournaments. For a player placing a bet through the team’s link to our website (and provided the player won the bet),
we pay the Affiliate a percentage of the amount we collect from the winning bet. As of December 1, 2020, we had more than 75 esports teams
agreeing to act as our marketing affiliates.
We plan to increase our marketing efforts and awareness
of our websites, www.vie.gg and www.sportnation.bet, as well as future offerings by:
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Educating sports betting consumers to bet on esports and we want gamers to start betting on esports. |
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Sponsoring professional esports teams and tournaments that have a global reach. |
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Working with sports and gaming celebrities and social media influencers who have an interest in video games and esports to generate new customers. We intend to increase our efforts in attracting esports players and other celebrities who have an interest in video games and esports. |
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Using a multichannel approach focused on acquiring and retaining customers we intend to utilize multiple social media platforms to promote the Company’s wagering business including, but not limited to, Facebook Twitter, Instagram, Snapchat, TikTok, Youtube, Twitch, 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. We intend to increase our investments in online advertisements, including esports gambling-related websites. We also intend to continue to invest in optimizing the Company’s website so it will attain a high ranking under key search words or phrases, such as “esports gambling.” |
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. Because many of these competitors focus on delivering one
product, as opposed to a full suite of esports and video gambling products and services that we intend to offer, the competitors may offer
an equivalent or superior product to that of the Company. We expect the number of companies offering products and services in each market
segment to increase. Most of our current competitors, including Unikrn, bet365, William Hill, Betway, and Pinnacle Sports, have far greater
resources than we have.
In the UK, where Argyll is heavily concentrated, the
competition in the online gambling industry is extremely competitive. As of June 2020, the UK Gambling Commission oversaw 3,641 gambling
licenses, held by 2,652 gaming operators, which makes competing for the acquisition and retention of customers, continually challenging.
We believe the following differentiates us from our
competitors:
The Vie.gg brand is focused solely on esports gambling
and 18+ gaming. We will not offer users traditional casino style games like poker, craps or slots nor do we anticipate offering wagering
on traditional sporting events like football or soccer. We are focused solely on delivering the widest selection of content and offering
the widest range of esports events all for real-money wagering.
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Strength of Argyll proposition: |
With the industry reaching saturation point with similar
offers around bonuses and free bets, often with complex terms and conditions, Argyll’s vision and ambition was to launch a totally
unique in-house product, seamlessly in to SportNation.bet, to provide customers with an experience like no other, while tackling one of
the major challenges that any operator faces; retention. That product and concept is our Rewards Program.
Argyll’s Rewards Program offers customers a
simple and genuinely rewarding loyalty scheme, where every bet on the site, win, lose or draw, earns points to redeem into our “Reward
Store”. No turnover requirements, no minimum odds conditions, no new customer or single-use restrictions.
We have developed an in house, turnover based model
to reward customers with points based on their activity. Customers earn points faster by increasing the number of selections in sportsbook
bets, providing an opportunity to increase the rate at which points are earned.
Customers are able to select when and how they want
to redeem. A customer is not bound to certain activity or staking criteria. A customer can decide when and what they want to redeem, which
could either be frequently, or allowing customers to save for a larger item.
As an extension to the already unique Rewards offering
that SportNation provides its users, a range of product enhancements have also been integrated in to SportNation, including live streaming,
responsible gaming and compliance tools and data driven customized journeys. All integrations have been designed and developed in house,
to align with the feel and tone of the site. By combining research and insight with the latest technology to implement real time solutions,
SportNation offers an innovative, safe and responsible product that is tailored to each individual user, on and offsite, from registration
and throughout their customer lifetime.
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 require us to obtain licenses or findings
of suitability from gaming authorities for Esports Entertainment, 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). 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 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 and security of the applicant’s online real-money platform and gaming equipment and related software, as applicable,
and (iii) the past history 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 ours fails to qualify for a license or is found unsuitable (including due to the failure to submit the required documentation)
by a gaming authority, we may deem it necessary, or be required to, sever our 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 us, 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 several states and several more states have enabling legislation pending. We believe that the Supreme Court’s
decision will allow our platform to be used in the United States at some point in the future. We plan to explore expansion of our esports
online wagering platform into the US market place at the appropriate time.
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 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:
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A “person” was engaged in the business of betting or wagering; |
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That person knowingly accepted a financial instrument or proceeds thereof; and |
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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. Therefore, 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.
At the current time, we are able to accept wagers
on our vie.gg website from residents of over 149 jurisdictions including Canada, Japan, Germany and South Africa. We do not accept wagers
from United States residents at this time and therefore the bet or wager on our platform is not “initiated, received, or otherwise
made” in a place where such activity violates preexisting state, federal, or tribal law.
Great Britain
Betting and gaming with respect to customers in Great
Britain (England, Scotland and Wales, but excluding Northern Ireland, the Channel Islands and the Isle of Man) is regulated by the Gambling
Act 2005 (the “2005 Act”). The 2005 Act established the Gambling Commission as the regulator responsible for granting licenses
to operate gambling services as well as overseeing compliance with applicable law and regulation. In 2014, the UK Parliament passed the
Gambling (Licensing and Advertising) Act 2014, which required all remote gambling operators serving customers in Great Britain or advertising
in Great Britain to obtain a license from the Gambling Commission. Our Argyll Brands operate in the UK pursuant to remote operating licenses
issued by the Gambling Commission along with the separate software and “key personnel” individual licenses. Various additional
operating subsidiaries of EEG are endorsed upon the licenses and are hence authorized to carry out the licensed activities on a so-called
“umbrella” basis in addition to the “primary” licensee. The terms of these operating licenses require that the
relevant subsidiaries of EEG must source all gambling software used in connection with British players from the holder of a gambling software
licenses issued by the Gambling Commission. So long as the applicable license fees are paid and the British licenses are not suspended,
revoked or otherwise surrendered, EEG expects that the licenses will remain valid indefinitely.
British regulations require licensed companies to
file quarterly returns as well as a more extensive “annual assurance statement” to provide the Gambling Commission with information
regarding matters such as significant changes in control systems, risk management and governance since the last assurance statement, how
the licensee is addressing gambling by problem and at-risk customers and any improvements that the licensee plans to implement to its
control systems, risk management and governance and/or its approach to addressing problem and at-risk gambling and promoting socially
responsible gambling. The Gambling Commission also subjects its licensees to periodical regulatory compliance visits subsequent to which
recommendations may be issued to the licensee.
Intellectual Property
We have not filed to register any patents, trade names
or trademarks in any jurisdictions in relation to our Vie.gg brand, but we do intend to file applications to register patents, tradenames
or trademarks in the near future.
Argyll owns a European Union registered trade mark
for its SportNation brand.
Our Risks and Challenges
An investment in our securities involves a high degree
of risk. You should carefully consider the risks summarized below. The risks are discussed more fully in the “Risk Factors”
section of this prospectus immediately following this prospectus summary. These risks include, but are not limited to, the following:
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We are a development stage company with a limited operating history. |
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The gaming and interactive entertainment industries are intensely competitive. Esports faces competition from a growing number of companies and, if Esports is unable to compete effectively, its business could be negatively impacted. |
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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 |
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The failure to enforce and maintain our intellectual property rights could enable others to use trademarks used by our business which could adversely affect the value of the Company. |
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The Company may be subject to claims of intellectual property infringement or invalidity and adverse outcomes of litigation could unfavorably affect its operating results. |
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Compromises of the Company’s systems or unauthorized access to confidential information or EEG’s customers’ personal information could materially harm EEG’s reputation and business. |
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There is a risk that the Company’s network systems will be unable to meet the growing demand for its online products. |
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Systems, network or telecommunications failures or cyber-attacks may disrupt the Company’s business and have an adverse effect on EEG’s results of operations. |
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Malfunctions of third-party communications infrastructure, hardware and software expose Esports to a variety of risks Esports cannot control. |
Recent Developments
Lucky Dino Purchase Agreement
On December 14, 2020, the Company, via its wholly
owned subsidiary, Esports Entertainment (Malta) Limited (“EEL”), entered into an asset purchase agreement (the “Lucky
Dino Purchase Agreement”), by and among EEL, Lucky Dino Gaming Limited, a company registered in Malta (“Lucky Dino”),
and Hiidenkivi Estonia OU, a company registered in Estonia (“HEOU” and, together with Lucky Dino, the “Sellers”)
whereby EEL purchased and assumed from the Sellers substantially all the assets and assumed certain specified liabilities of the Sellers’
business of real money online casino gaming (the “Acquired Business”).
As consideration for the Acquired Business, the Company
agreed to pay the Sellers EUR €25,000,000 (the “Lucky Dino Purchase Price”) subject to certain adjustments set forth
in the Lucky Dino Purchase Agreement.
The Lucky Dino Purchase Agreement contains customary
representations, warranties, covenants, indemnification and other terms for transactions of this nature. The closing of the transactions
contemplated by the Lucky Dino Purchase Agreement is subject to certain conditions, including, among other things, the completion of an
audit of Lucky Dino and HEOU.
Phoenix Purchase Agreement
On December 17, 2020, the Company entered into a share
purchase agreement (the “Purchase Agreement”), by and among the Company, Phoenix Games Network Limited, a company registered
in England and Wales (“Phoenix”), and the shareholders of Phoenix (the “Phoenix Shareholders” and, together with
Phoenix, the “Selling Parties”), whereby the Company acquired from the Selling Parties all of the issued and outstanding share
capital of Phoenix (the “Phoenix Shares”). Pursuant to the Purchase Agreement, as consideration for the Phoenix Shares, the
Company agreed to pay the Sellers: (i) GBP £1,000,000 (the “Original Cash Consideration”); and (ii) shares of common
stock of the Company, par value $0.0001 per share, in the aggregate value of GBP£3,000,000 (the “Original Share Consideration”
and, together with the Cash Consideration, the “Original Purchase Price”), subject to adjustment based on certain revenue
milestones as outlined therein.
On January 21, 2021, the Company and Sellers, having
met all conditions precedent, consummated the closing for the Phoenix Shares pursuant to the terms of the Purchase Agreement. The Original
Purchase Price was adjusted at closing and as consideration for the Phoenix Shares, the Company paid the Sellers: (i) GBP £350,000
(US $493,495.35) (the “Closing Cash Consideration”); and (ii) 292,211 shares of common stock of the Company, par value $0.0001
per share (aggregate value of $1,927,647.49) (the “Closing Share Consideration” and, together with the Cash Closing Consideration,
the “Closing Purchase Price”). The Closing Cash Consideration was be paid in US Dollars and was calculated in accordance with
the applicable exchange rate on the Closing Date (as such term is defined in the Purchase Agreement). The Sellers shall remain eligible
to receive the remainder of the Original Purchase Price upon Phoenix meeting the aforementioned Revenue Targets by May 16, 2021.
Pursuant to the Purchase Agreement, the Selling Parties
shall be entitled to receive an additional GBP£2,000,000 if Phoenix has reached certain revenue milestones by the 18 month anniversary
of the Closing Date as further outlined therein.
The Purchase Agreement contains customary representations,
warranties, covenants, indemnification and other terms for transactions of a similar nature.
RISK FACTORS
Investment in any securities offered pursuant to this
prospectus and the applicable prospectus supplement involves risks. You should carefully consider the risk factors incorporated by reference
to our Registration Statement on Form S-1, filed with the SEC on June 19, 2020, as amended, our most recent Annual Report on Form 10-K
and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K we file after the date of this prospectus, and all other
information contained or incorporated by reference into this prospectus, as updated by our subsequent filings under the Exchange Act,
and the risk factors and other information contained in the applicable prospectus supplement before acquiring any of such securities.
The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities.
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
that involve risks and uncertainties, principally in the sections entitled “Risk Factors.” All statements other than statements
of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business
strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking
statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although
we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined
under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of
activity, performance or achievements expressed or implied by these forward-looking statements.
Forward-looking statements should not be read as a
guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance
or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s
good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from what is expressed in or suggested by the forward-looking statements.
Forward-looking statements speak only as of the date
they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except
to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn
that we will make additional updates with respect to those or other forward-looking statements.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of
the securities as set forth in the applicable prospectus supplement.
DESCRIPTION OF CAPITAL STOCK
Introduction
In the discussion that follows, we have summarized
selected provisions of our certificate of incorporation, bylaws and the Nevada Revised Statutes relating to our capital stock. This summary
is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our certificate
of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our bylaws as currently in effect
for provisions that may be important to you.
On January 28, 2020, we effected a 1-for-15 reverse
stock split of our outstanding common stock, which caused our then outstanding common stock to decrease from 93,395,890 to 6,227,006 while
keeping our authorized capitalization unchanged.
Authorized Capital Stock
We are currently authorized to issue up to 510,000,000
shares of capital stock consisting of: 500,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred
stock, par value of $0.001 per share. As of January 21, 2021, 14,186,740 shares of common stock were issued and outstanding and there
were no shares of preferred stock outstanding.
Common Stock
We are authorized to issue 500,000,000 shares of common
stock. Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders.
Cumulative voting is not allowed; hence, the holders of a majority of our outstanding common shares can elect all directors.
Holders of our common stock are entitled to receive
such dividends as may be declared by our board of directors out of funds legally available and, in the event of liquidation, to share
pro rata in any distribution of our assets after payment of liabilities. Our board of directors is not obligated to declare a dividend.
It is not anticipated that dividends will be paid in the foreseeable future.
Holders of our common stock do not have preemptive
rights to subscribe to additional shares if issued. There is no conversion, redemption, sinking fund or similar provisions regarding the
common stock. All outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
We are authorized to issue 10,000,000 shares of preferred
stock. Shares of preferred stock may be issued from time to time in one or more series as may be determined by our board of directors.
The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each
series will be established by the board of directors. Our directors may issue preferred stock with multiple votes per share and dividend
rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock
with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally,
and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions
are not favored by our management. As of the date of this prospectus, we had not issued any shares of preferred stock.
Unit A Warrants
Exercisability. The Unit A Warrants are exercisable
immediately upon issuance and at any time up to the date that is five years from the date of issuance. The Unit A Warrants will be exercisable,
at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full
for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below).
Unless otherwise specified in the warrant, the holder will not have the right to exercise any portion of the warrant if the holder (together
with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after
giving effect to the exercise (or, upon election by a Holder prior to the issuance of any Unit A Warrants, 9.99%), as such percentage
ownership is determined in accordance with the terms of the Unit A Warrants.
Cashless Exercise. In the event that a registration
statement covering shares of common stock underlying the Unit A Warrants, is not available for the issuance of such shares of common stock
underlying the Unit A Warrants, the holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, elect instead
to receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant. In
no event shall we be required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of common
stock underlying the Unit A Warrants.
Certain Adjustments. The exercise price and
the number of shares of common stock purchasable upon the exercise of the Unit A Warrants are subject to adjustment upon the occurrence
of specific events, including stock dividends, stock splits, combinations and reclassifications of our common stock.
Transferability. Subject to applicable laws,
the Unit A Warrants may be transferred at the option of the holders upon surrender of the Unit A Warrants to our Transfer Agent together
with the appropriate instruments of transfer.
Warrant Agent and Exchange Listing. The Unit
A Warrants will be issued in registered form under a warrant agency agreement between VStock Transfer LLC, as warrant agent, and us.
Fundamental Transactions. If, at any time while
the Unit A Warrants are outstanding, (1) we consolidate or merge with or into another corporation and we are not the surviving corporation,
(2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets, (3) any purchase
offer, tender offer or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of our shares
of common stock are permitted to sell, tender or exchange their shares of common stock for other securities, cash or property and has
been accepted by the holders of 50% or more of our outstanding shares of common stock, (4) we effect any reclassification or recapitalization
of our shares of common stock or any compulsory share exchange pursuant to which our shares of common stock are converted into or exchanged
for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or other business combination with another
person or entity whereby such other person or entity acquires more than 50% of our outstanding shares of common stock, each a “Fundamental
Transaction,” then upon any subsequent exercise of the Unit A Warrants, the holder thereof will have the right to receive the same
amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction
if it had been, immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise
of the warrant, and any additional consideration payable as part of the Fundamental Transaction.
Rights as a Stockholder. Except as otherwise
provided in the Unit A Warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does
not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
Beneficial Ownership Limitation. Holder’s
exercise shall be limited 4.99% of the Company’s outstanding common stock (or, upon election by a Holder prior to the issuance of
any Unit A Warrants, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of
shares of common stock issuable upon exercise. The Holder, upon notice to the Company, may increase or decrease the beneficial ownership
limitation provided that the beneficial ownership limitation in no event exceeds 9.99% of the number of shares of the common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon exercise of the warrant held by the Holder. Any increase
in the beneficial ownership limitation will not be effective until the 61st day after such notice is delivered to the Company.
Governing Law. The Unit A Warrants and the
warrant agency agreement are governed by New York law.
Unit B Warrants
Exercisability. The Unit B Warrants are exercisable
immediately upon issuance and at any time up to the date that is one year from the date of issuance. The Unit B Warrants will be exercisable,
at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full
for the number of shares of our common stock purchased upon such exercise. Unless otherwise specified in the Unit B Warrant, the holder
will not have the right to exercise any portion of the Unit B Warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise (or, upon
election by a Holder prior to the issuance of any Unit B Warrants, 9.99%), as such percentage ownership is determined in accordance with
the terms of the Unit B Warrants.
Certain Adjustments. The exercise price and
the number of shares of common stock purchasable upon the exercise of the Unit B Warrants are subject to adjustment upon the occurrence
of specific events, including stock dividends, stock splits, combinations and reclassifications of our common stock.
Transferability. Subject to applicable laws,
the Unit B Warrants may be transferred at the option of the holders upon surrender of the Unit B Warrants to our Transfer Agent together
with the appropriate instruments of transfer.
Fundamental Transactions. If, at any time while
the Unit B Warrants are outstanding, (1) we consolidate or merge with or into another corporation and we are not the surviving corporation,
(2) we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets, (3) any purchase
offer, tender offer or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of our shares
of common stock are permitted to sell, tender or exchange their shares of common stock for other securities, cash or property and has
been accepted by the holders of 50% or more of our outstanding shares of common stock, (4) we effect any reclassification or recapitalization
of our shares of common stock or any compulsory share exchange pursuant to which our shares of common stock are converted into or exchanged
for other securities, cash or property, or (5) we consummate a stock or share purchase agreement or other business combination with another
person or entity whereby such other person or entity acquires more than 50% of our outstanding shares of common stock, each a “Fundamental
Transaction,” then upon any subsequent exercise of the Unit B Warrants, the holder thereof will have the right to receive the same
amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction
if it had been, immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon exercise
of the Unit B Warrant, and any additional consideration payable as part of the Fundamental Transaction.
Rights as a Stockholder. Except as otherwise
provided in the Unit B Warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a Unit B Warrant
does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the Unit
B Warrant.
Beneficial Ownership Limitation. Holder’s
exercise shall be limited 4.99% of the Company’s outstanding common stock (or, upon election by a Holder prior to the issuance of
any Unit B Warrants, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of
shares of common stock issuable upon exercise. The Holder, upon notice to the Company, may increase or decrease the beneficial ownership
limitation provided that the beneficial ownership limitation in no event exceeds 9.99% of the number of shares of the common stock outstanding
immediately after giving effect to the issuance of shares of common stock upon exercise of the Unit B Warrant held by the Holder. Any
increase in the beneficial ownership limitation will not be effective until the 61st day after such notice is delivered to
the Company.
Governing Law. The Unit B Warrants are governed
by New York law.
Unit 1 and Unit 2 Warrants
Upon consummation of the April 2020 Offering, all
the Bridge Notes were mandatorily converted (the “Bridge Note Conversion”). Pursuant to the terms of the Bridge Purchase Agreements,
the Investors received shares of the Company’s common stock at discount to the April 2020 Offering as well as two warrants (the
“Unit 1 Warrants” and “Unit 2 Warrants”) to purchase shares of Common Stock of the Company, with each to purchase
one share of Common Stock with an exercise price per share of $4.25.
The Unit 1 Warrants are substantially the same as
the Unit A Warrants, except that (i) the Unit 1 Warrants are not traded on the Nasdaq; (ii) the Unit 1 Warrants do not contain a cashless
exercise provision; and (iii) there is no warrant agent associated with the Unit 1 Warrants.
The Unit 2 Warrants are substantially the same as
the Unit B Warrants, except that there is no warrant agent associated with Unit 2 Warrants.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock
and preferred stock will be available for future issuance without shareholder approval, except as may be required under the listing rules
of any stock exchange on which our common stock is then listed. We may use additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but
unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise.
Limitation on Directors’ Liability
The Nevada Revised Statutes limits or eliminates the
personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary
duties as directors. Our Amended and Restated Bylaws include provisions that require the company to indemnify our directors or officers
against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’
and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated
Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions
under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors
for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions
do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the
event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal
securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the
costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination with
Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder”
from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder”
is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10%
or more of the corporation’s capital stock entitled to vote.
The NASDAQ Capital Market Listing
Our common stock and Unit A Warrants are quoted for
trading on The NASDAQ Capital Market under the symbols “GMBL” and “GMBLW”, respectively.
Transfer Agent
The transfer agent and registrar for our common stock
is VStock Transfer, LLC with an address at 18 Lafayette Pl, Woodmere, NY 11598.
DESCRIPTION OF DEBT SECURITIES
General
The debt securities that we may offer by this prospectus
consist of notes, debentures, or other evidences of indebtedness. The debt securities may constitute either senior or subordinated debt
securities, and in either case may be either secured or unsecured. Any debt securities that we offer and sell will be our direct obligations.
Debt securities may be issued in one or more series. All debt securities of any one series need not be issued at the same time, and unless
otherwise provided, a series of debt securities may be reopened, with the required consent of the holders of outstanding debt securities,
for issuance of additional debt securities of that series or to establish additional terms of that series of debt securities (with such
additional terms applicable only to unissued or additional debt securities of that series). The form of indenture has been filed as an
exhibit to the registration statement of which this prospectus is a part and is subject to any amendments or supplements that we may enter
into with the trustee(s), however, we may issue debt securities not subject to the indenture provided such terms of debt securities are
not otherwise required to be set forth in the indenture. The material terms of the indenture are summarized below and we refer you to
the indenture for a detailed description of these material terms. Additional or different provisions that are applicable to a particular
series of debt securities will, if material, be described in a prospectus supplement relating to the offering of debt securities of that
series. These provisions may include, among other things and to the extent applicable, the following:
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the title of the debt securities, including, as applicable, whether the debt securities will be issued as senior debt securities, senior subordinated debt securities or subordinated debt securities, any subordination provisions particular to the series of debt securities; |
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any limit on the aggregate principal amount of the debt securities; |
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whether the debt securities are senior debt securities or subordinated debt securities and applicable subordination provisions, if any; |
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whether the debt securities will be secured or unsecured; |
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if other than 100% of the aggregate principal amount, the percentage of the aggregate principal amount at which we will sell the debt securities, such as an original issuance discount; |
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the date or dates, whether fixed or extendable, on which the principal of the debt securities will be payable; |
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the rate or rates, which may be fixed or variable, at which the debt securities will bear interest, if any, the date or dates from which any such interest will accrue, the interest payment dates on which we will pay any such interest, the basis upon which interest will be calculated if other than that of a 360-day year consisting of twelve 30-day months, and, in the case of registered securities, the record dates for the determination of holders to whom interest is payable; |
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the place or places where the principal of and any premium or interest on the debt securities will be payable and where the debt securities may be surrendered for conversion or exchange; |
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whether we may, at our option, redeem the debt securities, and if so, the price or prices at which, the period or periods within which, and the terms and conditions upon which, we may redeem the debt securities, in whole or in part, pursuant to any sinking fund or otherwise; |
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if other than 100% of the aggregate principal amount thereof, the portion of the principal amount of the debt securities which will be payable upon declaration of acceleration of the maturity date thereof or provable in bankruptcy, or, if applicable, which is convertible or exchangeable; |
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any obligation we may have to redeem, purchase or repay the debt securities pursuant to any sinking fund or analogous provisions or at the option of a holder of debt securities, and the price or prices at which, the currency in which and the period or periods within which, and the terms and conditions upon which, the debt securities will be redeemed, purchased or repaid, in whole or in part, pursuant to any such obligation, and any provision for the remarketing of the debt securities; |
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the issuance of debt securities as registered securities or unregistered securities or both, and the rights of the holders of the debt securities to exchange unregistered securities for registered securities, or vice versa, and the circumstances under which any such exchanges, if permitted, may be made; |
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the denominations, which may be in United States Dollars or in any foreign currency, in which the debt securities will be issued, if other than denominations of $1,000 and any integral multiple thereof; |
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whether the debt securities will be issued in the form of certificated debt securities, and if so, the form of the debt securities (or forms thereof if unregistered and registered securities are issuable in that series), including the legends required by law or as we deem necessary or appropriate, the form of any coupons or temporary global security which may be issued and the forms of any other certificates which may be required under the indenture or which we may require in connection with the offering, sale, delivery or exchange of the debt securities; |
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if other than United States Dollars, the currency or currencies in which payments of principal, interest and other amounts payable with respect to the debt securities will be denominated, payable, redeemable or subject to repurchase, as the case may be; |
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whether the debt securities may be issuable in tranches; |
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the obligations, if any, we may have to permit the conversion or exchange of the debt securities into common stock, preferred stock or other capital stock or property, or a combination thereof, and the terms and conditions upon which such conversion or exchange will be effected (including conversion price or exchange ratio), and any limitations on the ownership or transferability of the securities or property into which the debt securities may be converted or exchanged; |
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if other than the trustee under the indenture, any trustees, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the debt securities; |
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any deletions from, modifications of or additions to the events of default with respect to the debt securities or the right of the Trustee or the holders of the debt securities in connection with events of default; |
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any deletions from, modifications of or additions to the covenants with respect to the debt securities; |
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if the amount of payments of principal of, and make-whole amount, if any, and interest on the debt securities may be determined with reference to an index, the manner in which such amount will be determined; |
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whether the debt securities will be issued in whole or in part in the global form of one or more debt securities and, if so, the depositary for such debt securities, the circumstances under which any such debt security may be exchanged for debt securities registered in the name of, and under which any transfer of debt securities may be registered in the name of, any person other than such depositary or its nominee, and any other provisions regarding such debt securities; |
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whether, under what circumstances and the currency in which, we will pay additional amounts on the debt securities to any holder of the debt securities who is not a United States person in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem such debt securities rather than pay such additional amounts, and the terms of any such option; |
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whether the debt securities will be secured by any collateral and, if so, a general description of the collateral and the terms of any related security, pledge or other agreements; |
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the persons to whom any interest on the debt securities will be payable, if other than the registered holders thereof on the regular record date therefor; and |
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any other material terms or conditions upon which the debt securities will be issued. |
Unless otherwise indicated in the applicable prospectus
supplement, we will issue debt securities in fully registered form without coupons and in denominations of $1,000 and in integral multiples
of $1,000, and interest will be computed on the basis of a 360-day year of twelve 30-day months. If any interest payment date or the maturity
date falls on a day that is not a business day, then the payment will be made on the next business day without additional interest and
with the same effect as if it were made on the originally scheduled date. “Business day” means any calendar day that is not
a Saturday, Sunday or legal holiday in New York, New York, and on which the trustee and commercial banks are open for business in New
York, New York.
Unless we inform you otherwise in a prospectus supplement,
each series of our senior debt securities will rank equally in right of payment with all of our other unsubordinated debt. The subordinated
debt securities will rank junior in right of payment and be subordinate to all of our unsubordinated debt.
Unless otherwise indicated in the applicable prospectus
supplement, the trustee will act as paying agent and registrar for the debt securities under the indenture. We may act as paying agent
under the indenture.
The prospectus supplement will contain a description
of United States federal income tax consequences relating to the debt securities, to the extent applicable.
Covenants
The applicable prospectus supplement will describe
any covenants, such as restrictive covenants restricting us or our subsidiaries, if any, from incurring, issuing, assuming or guarantying
any indebtedness or restricting us or our subsidiaries, if any, from paying dividends or acquiring any of our or its capital stock.
Consolidation, Merger and Transfer of Assets
The indenture permits a consolidation or merger between
us and another entity and/or the sale, conveyance or lease by us of all or substantially all of our property and assets, provided that:
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the resulting or acquiring entity, if other than us, is organized and existing under the laws of a United States jurisdiction and assumes all of our responsibilities and liabilities under the indenture, including the payment of all amounts due on the debt securities and performance of the covenants in the indenture; |
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immediately after the transaction, and giving effect to the transaction, no event of default under the indenture exists; and |
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we have delivered to the trustee an officers’ certificate stating that the transaction and, if a supplemental indenture is required in connection with the transaction, the supplemental indenture comply with the indenture and that all conditions precedent to the transaction contained in the indenture have been satisfied. |
If we consolidate or merge with or into any other
entity, or sell or lease all or substantially all of our assets in compliance with the terms and conditions of the indenture, the resulting
or acquiring entity will be substituted for us in the indenture and the debt securities with the same effect as if it had been an original
party to the indenture and the debt securities. As a result, such successor entity may exercise our rights and powers under the indenture
and the debt securities, in our name and, except in the case of a lease, we will be released from all our liabilities and obligations
under the indenture and under the debt securities.
Notwithstanding the foregoing, we may transfer all
of our property and assets to another entity if, immediately after giving effect to the transfer, such entity is our wholly owned subsidiary.
The term “wholly owned subsidiary” means any subsidiary in which we and/or our other wholly owned subsidiaries, if any, own
all of the outstanding capital stock.
Modification and Waiver
Under the indenture, some of our rights and obligations
and some of the rights of the holders of the debt securities may be modified or amended with the consent of the holders of not less than
a majority in aggregate principal amount of the outstanding debt securities affected by the modification or amendment. However, the following
modifications and amendments will not be effective against any holder without its consent:
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a change in the stated maturity date of any payment of principal or interest; |
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a reduction in the principal amount of or interest on any debt securities; |
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an alteration or impairment of any right to convert at the rate or upon the terms provided in the indenture; |
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a change in the currency in which any payment on the debt securities is payable; |
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an impairment of a holder’s right to sue us for the enforcement of payments due on the debt securities; or |
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a reduction in the percentage of outstanding debt securities required to consent to a modification or amendment of the indenture or required to consent to a waiver of compliance with certain provisions of the indenture or certain defaults under the indenture. |
Under the indenture, the holders of not less than
a majority in aggregate principal amount of the outstanding debt securities may, on behalf of all holders of the debt securities:
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waive compliance by us with certain restrictive provisions of the indenture; and |
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waive any past default under the indenture in accordance with the applicable provisions of the indenture, except a default in the payment of the principal of or interest on any series of debt securities. |
Events of Default
Unless we indicate otherwise in the applicable prospectus
supplement, “event of default” under the indenture will mean, with respect to any series of debt securities, any of the following:
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failure to pay interest on any debt security for 30 days after the payment is due; |
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failure to pay the principal of any debt security when due, either at maturity, upon redemption, by declaration or otherwise; |
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failure on our part to observe or perform any other covenant or agreement in the indenture that applies to the debt securities for 90 days after we have received written notice of the failure to perform in the manner specified in the indenture; and |
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certain events of bankruptcy, insolvency or reorganization. |
Remedies Upon an Event of Default
If an event of default occurs and continues, the trustee
or the holders of not less than 25% in aggregate principal amount of the outstanding debt securities of such series may declare the entire
principal of all the debt securities to be due and payable immediately, except that, if the event of default is caused by certain events
in bankruptcy, insolvency or reorganization, the entire principal of all of the debt securities of such series will become due and payable
immediately without any act on the part of the trustee or holders of the debt securities. If such a declaration occurs, the holders of
a majority of the aggregate principal amount of the outstanding debt securities of such series can, subject to conditions, rescind the
declaration.
The indenture requires us to furnish to the trustee
not less often than annually, a certificate from our principal executive officer, principal financial officer or principal accounting
officer, as the case may be, as to such officer’s knowledge of our compliance with all conditions and covenants under the indenture.
The trustee may withhold notice to the holders of debt securities of any default, except defaults in the payment of principal of or interest
on any debt securities if the trustee in good faith determines that the withholding of notice is in the best interests of the holders.
For purposes of this paragraph, “default” means any event which is, or after notice or lapse of time or both would become,
an event of default under the indenture.
The trustee is not obligated to exercise any of its
rights or powers under the indenture at the request, order or direction of any holders of debt securities, unless the holders offer the
trustee satisfactory security or indemnity. If satisfactory security or indemnity is provided, then, subject to other rights of the trustee,
the holders of a majority in aggregate principal amount of the outstanding debt securities may direct the time, method and place of:
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conducting any proceeding for any remedy available to the trustee; or |
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exercising any trust or power conferred upon the trustee. |
The holder of a debt security will have the right
to begin any proceeding with respect to the indenture or for any remedy only if:
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the holder has previously given the trustee written notice of a continuing event of default; |
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the holders of not less than a majority in aggregate principal amount of the outstanding debt securities have made a written request of, and offered reasonable indemnity to, the trustee to begin such proceeding; |
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the trustee has not started such proceeding within 60 days after receiving the request; and |
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no direction inconsistent with such written request has been given to the trustee under the indenture. |
However, the holder of any debt security will have
an absolute right to receive payment of principal of and interest on the debt security when due and to institute suit to enforce this
payment.
Satisfaction and Discharge; Defeasance
Satisfaction and Discharge of Indenture. Unless
otherwise indicated in the applicable prospectus supplement, if at any time,
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we have paid the principal of and interest on all the debt securities of any series, except for debt securities which have been destroyed, lost or stolen and which have been replaced or paid in accordance with the indenture, as and when the same shall have become due and payable, or |
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we have delivered to the trustee for cancellation all debt securities of any series theretofore authenticated, except for debt securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in the indenture, or |
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all the debt securities of such series not theretofore delivered to the trustee for cancellation have become due and payable, or are by their terms are to become due and payable within one year or are to be called for redemption within one year, and we have deposited with the trustee, in trust, sufficient money or government obligations, or a combination thereof, to pay the principal, any interest and any other sums due on the debt securities, on the dates the payments are due or become due under the indenture and the terms of the debt securities, |
then the indenture shall cease to be of further effect
with respect to the debt securities of such series, except for:
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rights of registration of transfer and exchange, and our right of optional redemption; |
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substitution of mutilated, defaced, destroyed, lost or stolen debt securities; |
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rights of holders to receive payments of principal thereof and interest thereon upon the original stated due dates therefor (but not upon acceleration) and remaining rights of the holders to receive mandatory sinking fund payments, if any; |
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the rights, obligations and immunities of the trustee under the indenture; and |
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the rights of the holders of such series of debt securities as beneficiaries thereof with respect to the property so deposited with the trustee payable to all or any of them. |
Defeasance and Covenant Defeasance. Unless
otherwise indicated in the applicable prospectus supplement, we may elect with respect to any debt securities of any series either:
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to defease and be discharged from all of our obligations with respect to such debt securities (“defeasance”), with certain exceptions described below; or |
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to be released from our obligations with respect to such debt securities under such covenants as may be specified in the applicable prospectus supplement, and any omission to comply with those obligations will not constitute a default or an event of default with respect to such debt securities (“covenant defeasance”). |
We must comply with the following conditions before
the defeasance or covenant defeasance can be effected:
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we must irrevocably deposit with the indenture trustee or other qualifying trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the trustee, trust funds in trust solely for the benefit of the holders of such debt securities, sufficient money or government obligations, or a combination thereof, to pay the principal, any interest and any other sums on the due dates for those payments; and |
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we must deliver to the trustee an opinion of counsel to the effect that the holders of such debt securities will not recognize income, gain or loss for federal income tax purposes as a result of defeasance or covenant defeasance, as the case may be, to be effected with respect to such debt securities and will be subject to federal income tax on the same amount, in the same manner and at the same times as would be the case if such defeasance or covenant defeasance, as the case may be, had not occurred. |
In connection with defeasance, any irrevocable trust
agreement contemplated by the indenture must include, among other things, provision for:
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payment of the principal of and interest on such debt securities, if any, appertaining thereto when due (by redemption, sinking fund payments or otherwise), |
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the payment of the expenses of the trustee incurred or to be incurred in connection with carrying out such trust provisions, |
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rights of registration, transfer, substitution and exchange of such debt securities in accordance with the terms stated in the indenture, and |
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continuation of the rights, obligations and immunities of the trustee as against the holders of such debt securities as stated in the indenture. |
The accompanying prospectus supplement may further
describe any provisions permitting or restricting defeasance or covenant defeasance with respect to the debt securities of a particular
series.
Global Securities
Unless otherwise indicated in the applicable prospectus
supplement, each debt security offered by this prospectus will be issued in the form of one or more global debt securities representing
all or part of that series of debt securities. This means that we will not issue certificates for that series of debt securities to the
holders. Instead, a global debt security representing that series will be deposited with, or on behalf of, a securities depositary and
registered in the name of the depositary or a nominee of the depositary. Any such depositary must be a clearing agency registered under
the Exchange Act. We will describe the specific terms of the depositary arrangement with respect to a series of debt securities to be
represented by a global security in the applicable prospectus supplement.
Notices
We will give notices to holders of the debt securities
by mail at the addresses listed in the security register. In the case of notice in respect of unregistered securities or coupon securities,
we may give notice by publication in a newspaper of general circulation in New York, New York.
Governing Law
The particular terms of a series of debt securities
will be described in a prospectus supplement relating to such series of debt securities. Any indentures will be subject to and governed
by the Trust Indenture Act of 1939, as amended, and may be supplemented or amended from time to time following their execution. Unless
otherwise stated in the applicable prospectus supplement, we will not be limited in the amount of debt securities that we may issue, and
neither the senior debt securities nor the subordinated debt securities will be secured by any of our property or assets. Thus, by owning
debt securities, you are one of our unsecured creditors.
Regarding the Trustee
From time to time, we may maintain deposit accounts
and conduct other banking transactions with the trustee to be appointed under the indenture or its affiliates in the ordinary course of
business.
DESCRIPTION OF WARRANTS
We may offer to sell warrants from time to time. If
we do so, we will describe the specific terms of the warrants in a prospectus supplement. In particular, we may issue warrants for the
purchase of common stock, preferred stock and/or debt securities in one or more series. We may also issue warrants independently or together
with other securities and the warrants may be attached to or separate from those securities.
We will evidence each series of warrants by warrant
certificates that we will issue under a separate agreement. We will enter into the warrant agreement with a warrant agent. We will indicate
the name and address of the warrant agent in the applicable prospectus supplement relating to a particular series of warrants.
We will describe in the applicable prospectus supplement
the terms of the series of warrants, including:
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the offering price and aggregate number of warrants offered; |
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the currency for which the warrants may be purchased; |
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if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each such security or each principal amount of such security; |
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if applicable, the date on and after which the warrants and the related securities will be separately transferable; |
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in the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one warrant and the price at, and currency in which, this principal amount of debt securities may be purchased upon such exercise; |
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in the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock, as the case may be, purchasable upon the exercise of one warrant and the price at which these shares may be purchased upon such exercise; |
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the effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants; |
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the terms of any rights to redeem or call the warrants; |
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any provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants; |
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the dates on which the right to exercise the warrants will commence and expire; |
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the manner in which the warrant agreement and warrants may be modified; |
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certain United States federal income tax consequences of holding or exercising the warrants; |
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the terms of the securities issuable upon exercise of the warrants; and |
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any other specific material terms, preferences, rights or limitations of or restrictions on the warrants. |
Holders may exercise the warrants by delivering the
warrant certificate representing the warrants to be exercised together with other requested information, and paying the required amount
to the warrant agent in immediately available funds, as provided in the applicable prospectus supplement. We will set forth in the applicable
prospectus supplement the information that the holder of the warrant will be required to deliver to the warrant agent.
Upon receipt of the required payment and the warrant
certificate properly completed and duly executed at the office of the warrant agent or any other office indicated in the applicable prospectus
supplement, we will issue and deliver the securities purchasable upon such exercise. If a holder exercises fewer than all of the warrants
represented by the warrant certificate, then we will issue a new warrant certificate for the remaining amount of warrants.
Holder will not have any of the rights of the holders
of the securities purchasable upon the exercise of warrants until you exercise them. Accordingly, holder will not be entitled to, among
other things, vote or receive dividend payments or similar distributions on the securities you can purchase upon exercise of the warrants.
The information provided above is only a summary of
the terms under which we may offer warrants for sale. Accordingly, investors must carefully review the applicable warrant agreement for
more information about the specific terms and conditions of these warrants before investing in us. In addition, please carefully review
the information provided in the applicable prospectus supplement, which contains additional information that is important for you to consider
in evaluating an investment in our securities.
DESCRIPTION OF RIGHTS
We may issue rights to our stockholders to purchase
shares of our common stock or preferred stock described in this prospectus. We may offer rights separately or together with one or more
additional rights, preferred stock, common stock, warrants or any combination of those securities in the form of units, as described in
the applicable prospectus supplement. Each series of rights will be issued under a separate rights agreement to be entered into between
us and a bank or trust company, as rights agent. The rights agent for any rights we offer will be set forth in the applicable prospectus
supplement. The rights agent will act solely as our agent in connection with the certificates relating to the rights of the series of
certificates and will not assume any obligation or relationship of agency or trust for or with any holders of rights certificates or beneficial
owners of rights. The following description sets forth certain general terms and provisions of the rights to which any prospectus supplement
may relate. The particular terms of the rights to which any prospectus supplement may relate and the extent, if any, to which the general
provisions may apply to the rights so offered will be described in the applicable prospectus supplement. To the extent that any particular
terms of the rights, rights agreement or rights certificates described in a prospectus supplement differ from any of the terms described
below, then the terms described below will be deemed to have been superseded by that prospectus supplement. We encourage you to read the
applicable rights agreement and rights certificate for additional information before you decide whether to purchase any of our rights.
The prospectus supplement relating to any rights that
we offer will include specific terms relating to the offering, including, among other matters:
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the date of determining the stockholders entitled to the rights distribution; |
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the aggregate number of shares of common stock, preferred stock or other securities purchasable upon exercise of the rights; |
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the exercise price; |
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the aggregate number of rights issued; |
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whether the rights are transferrable and the date, if any, on and after which the rights may be separately transferred; |
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the date on which the right to exercise the rights will commence, and the date on which the right to exercise the rights will expire; |
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the method by which holders of rights will be entitled to exercise; |
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the conditions to the completion of the offering; |
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the withdrawal, termination and cancellation rights; |
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whether there are any backstop or standby purchaser or purchasers and the terms of their commitment; |
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whether stockholders are entitled to oversubscription right; |
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any U.S. federal income tax considerations; and |
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any other terms of the rights, including terms, procedures and limitations relating to the distribution, exchange and exercise of the rights. |
If less than all of the rights issued in any rights
offering are exercised, we may offer any unsubscribed securities directly to persons other than stockholders, to or through agents, underwriters
or dealers or through a combination of such methods, including pursuant to standby arrangements, as described in the applicable prospectus
supplement. In connection with any rights offering, we may enter into a standby underwriting or other arrangement with one or more underwriters
or other persons pursuant to which such underwriters or other persons would purchase any offered securities remaining unsubscribed for
after such rights offering.
DESCRIPTION OF UNITS
We may issue units consisting of any combination of
the other types of securities offered under this prospectus in one or more series. We may evidence each series of units by unit certificates
that we will issue under a separate agreement. We may enter into unit agreements with a unit agent. We will indicate the name and address
of the unit agent in the applicable prospectus supplement relating to a particular series of units.
The following description, together with the additional
information included in any applicable prospectus supplement, summarizes the general features of the units that we may offer under this
prospectus. You should read any prospectus supplement and any free writing prospectus that we may authorize to be provided to you related
to the series of units being offered, as well as the complete unit agreements that contain the terms of the units. Specific unit agreements
will contain additional important terms and provisions and we will file as an exhibit to the registration statement of which this prospectus
is a part, or will incorporate by reference from another report that we file with the SEC, the form of each unit agreement relating to
units offered under this prospectus.
If we offer any units, certain terms of that series
of units will be described in the applicable prospectus supplement, including, without limitation, the following, as applicable:
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the title of the series of units; |
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identification and description of the separate constituent securities comprising the units; |
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the price or prices at which the units will be issued; |
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the date, if any, on and after which the constituent securities comprising the units will be separately transferable; |
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a discussion of certain United States federal income tax considerations applicable to the units; and |
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any other terms of the units and their constituent securities. |
PLAN OF DISTRIBUTION
We may sell the securities from time to time pursuant
to underwritten public offerings, negotiated transactions, block trades or a combination of these methods or through underwriters or dealers,
through agents and/or directly to one or more purchasers. The securities may be distributed from time to time in one or more transactions:
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at a fixed price or prices, which may be changed; |
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at market prices prevailing at the time of sale; |
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at prices related to such prevailing market prices; or |
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at negotiated prices. |
Each time that we sell securities covered by this
prospectus, we will provide a prospectus supplement or supplements that will describe the method of distribution and set forth the terms
and conditions of the offering of such securities, including the offering price of the securities and the proceeds to us, if applicable.
Offers to purchase the securities being offered by
this prospectus may be solicited directly. Agents may also be designated to solicit offers to purchase the securities from time to time.
Any agent involved in the offer or sale of our securities will be identified in a prospectus supplement.
If a dealer is utilized in the sale of the securities
being offered by this prospectus, the securities will be sold to the dealer, as principal. The dealer may then resell the securities to
the public at varying prices to be determined by the dealer at the time of resale.
If an underwriter is utilized in the sale of the securities
being offered by this prospectus, an underwriting agreement will be executed with the underwriter at the time of sale and the name of
any underwriter will be provided in the prospectus supplement that the underwriter will use to make resales of the securities to the public.
In connection with the sale of the securities, we or the purchasers of securities for whom the underwriter may act as agent, may compensate
the underwriter in the form of underwriting discounts or commissions. The underwriter may sell the securities to or through dealers, and
those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from
the purchasers for which they may act as agent. Unless otherwise indicated in a prospectus supplement, an agent will be acting on a best
efforts basis and a dealer will purchase securities as a principal, and may then resell the securities at varying prices to be determined
by the dealer.
Any compensation paid to underwriters, dealers or
agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating
dealers will be provided in the applicable prospectus supplement. Underwriters, dealers and agents participating in the distribution of
the securities may be deemed to be underwriters within the meaning of the Securities Act of 1933, as amended, and any discounts and commissions
received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions.
We may enter into agreements to indemnify underwriters, dealers and agents against civil liabilities, including liabilities under the
Securities Act, or to contribute to payments they may be required to make in respect thereof and to reimburse those persons for certain
expenses.
Any common stock will be listed on the Nasdaq Capital
Market, but any other securities may or may not be listed on a national securities exchange. To facilitate the offering of securities,
certain persons participating in the offering may engage in transactions that stabilize, maintain or otherwise affect the price of the
securities. This may include over-allotments or short sales of the securities, which involve the sale by persons participating in the
offering of more securities than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions
by making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons may stabilize
or maintain the price of the securities by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in the offering may be reclaimed if securities sold by them are repurchased in connection
with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities at
a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
We may engage in at the market offerings into an existing
trading market in accordance with Rule 415(a)(4) under the Securities Act.
In addition, we may enter into derivative transactions
with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable
prospectus supplement so indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus
and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us
or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received
from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions
will be an underwriter and, if not identified in this prospectus, will be named in the applicable prospectus supplement (or a post-effective
amendment). In addition, we may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell
the securities short using this prospectus and an applicable prospectus supplement. Such financial institution or other third party may
transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
We do not make any representation or prediction as
to the direction or magnitude of any effect that the transactions described above might have on the price of the securities. In addition,
we do not make any representation that underwriters will engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
The specific terms of any lock-up provisions in respect
of any given offering will be described in the applicable prospectus supplement.
To comply with applicable state securities laws, the
securities offered by this prospectus will be sold, if necessary, in such jurisdictions only through registered or licensed brokers or
dealers. In addition, securities may not be sold in some states unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.
The underwriters, dealers and agents may engage in
transactions with us, or perform services for us, in the ordinary course of business for which they receive compensation.
LEGAL MATTERS
Lucosky Brookman LLP will pass upon certain legal
matters relating to the issuance and sale of the securities offered hereby on behalf of Esports Entertainment Group, Inc. Additional legal
matters may be passed upon for us or any underwriters, dealers or agents, by counsel that we will name in the applicable prospectus supplement.
EXPERTS
Our consolidated balance sheets as of June 30, 2020
and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of those
two years have been audited by Rosenberg Rich Baker Berman, P.A., an independent registered public accounting firm, as set forth in its
report incorporated by reference and are included in reliance upon such report given on the authority of such firm as experts in accounting
and auditing.
1,000,000 Shares of Common Stock
Pre-funded Warrants to Purchase 4,167,959
Shares of Common Stock
ESPORTS ENTERTAINMENT GROUP, INC.
PROSPECTUS SUPPLEMENT
August 15, 2023
Esports Entertainment (NASDAQ:GMBLP)
過去 株価チャート
から 4 2024 まで 5 2024
Esports Entertainment (NASDAQ:GMBLP)
過去 株価チャート
から 5 2023 まで 5 2024