UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number: 001-40334

EBET, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada

85-3201309

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

197 E. California Ave. Ste. 302, Las Vegas, NV		89104
(Address of Principal Executive Offices)		(Zip Code)

(888) 411-2726

(Registrant's Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	EBET	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 16,447,163 shares of common stock outstanding on August 7, 2022.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to those described under the “Risk Factors” section and include, among other things:

	·	our ability to successfully integrate our asset acquisitions;

	·	our ability to introduce new enhancements to our website on the timeline we have indicated;

	·	our ability to obtain additional funding to develop additional services and offerings and to service our debt obligations;

	·	compliance with obligations under intellectual property licenses with third parties;

	·	market acceptance of our new offerings;

	·	competition from existing online offerings or new offerings that may emerge;

	·	our ability to establish or maintain collaborations, licensing or other arrangements;

	·	our ability and third parties’ abilities to protect intellectual property rights;

	·	our ability to adequately support future growth; and

	·	our ability to attract and retain key personnel to manage our business effectively.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

EBET, Inc.

FORM 10-Q

For the Quarter Ended June 30, 2022

INDEX

				Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements		4

		a)	Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021	4
		b)	Consolidated Statements of Operations for the Three and nine Months Ended June 30, 2022 and 2021	5
		c)	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended June 30, 2022 and 2021	6
		d)	Consolidated Statements Cash Flows for the Nine Months Ended June 30, 2022 and 2021	7
		e)	Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26

	Item 4.	Controls and Procedures		26

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		27

	Item 1A.	Risk Factors		27

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27

	Item 3.	Defaults Upon Senior Securities		27

	Item 4.	Mine Safety Disclosure		27

	Item 5.	Other Information		27

	Item 6.	Exhibits		28

SIGNATURE				29

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements.

EBET, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,			September 30,
	2022			2021

ASSETS
Current assets:
Cash	$	6,888,479		$	9,064,859
Accounts receivable, net		1,618,957			21,636
Prepaid expenses and other current assets		2,256,849			690,637
Right of use asset, operating lease, current portion		164,821			170,512

Total current assets		10,929,106			9,947,644

Long term assets:
Fixed assets, net		1,109,118			85,334
Right of use asset, operating lease		30,473			172,915
Intangible assets - license agreement, net		1,152,147			1,616,088
Intangible assets - domain names, net		2,241,052			2,240,510
Goodwill		32,667,115			–
Acquired intangibles, net		30,992,788			–

Total assets	$	79,121,799		$	14,062,491

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	12,352,125		$	1,721,103
Current lease liabilities		164,820			170,511
Derivative liabilities		233,397			–
Borrowings		1,606,891			1,396,133
Liabilities to users		1,403,889			58,789
Total current liabilities		15,761,122			3,346,536

Long-Term Liabilities
Borrowings		32,244,969			463,925

Total liabilities		48,006,091			3,810,461

COMMITMENTS AND CONTINGENCIES		–			–

Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 40,967 and 0 issued and outstanding as of June 30, 2022 and September 30, 2021, respectively		41			–
Common stock; $0.001 par value, 100,000,000 shares authorized 16,172,954 and 13,315,414 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively		16,172			13,315
Additional paid-in capital		85,193,567			26,834,354
Accumulated other comprehensive (deficit) income		(4,476,394	)		53,911
Accumulated deficit		(49,617,678	)		(16,649,550	)
Total stockholders’ equity		31,115,708			10,252,030

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	79,121,799		$	14,062,491

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EBET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2022			2021			2022			2021

Revenue	$	18,168,515		$	41,356		$	44,311,030		$	85,984
Cost of revenue		(10,918,796	)		–			(27,537,479	)		(24,724	)

Gross profit		7,249,719			41,356			16,773,551			61,260

Operating expenses:
Sales and marketing expenses		9,262,851			964,836			22,711,724			1,238,780
Product and technology expenses		1,115,165			1,176,848			3,270,328			2,286,228
Acquisition costs		–			139,235			2,240,147			139,235
General and administrative expenses		3,863,298			1,340,042			12,454,493			4,123,163
Total operating expenses		14,241,314			3,620,961			40,676,692			7,787,406

Income (loss) from operations		(6,991,595	)		(3,579,605	)		(23,903,141	)		(7,726,146	)

Other expenses:
Interest expense		(1,920,553	)		(368,001	)		(5,734,873	)		(1,335,621	)
Foreign currency loss		(66,552	)		(10,005	)		(62,794	)		(22,235	)
Total other expense		(1,987,105	)		(378,006	)		(5,797,667	)		(1,357,856

Loss before provision for income taxes		(8,978,700	)		(3,957,611	)		(29,700,808	)		(9,084,002	)
Provision for income taxes		–			–			–			–

Net loss	$	(8,978,700	)	$	(3,957,611	)	$	(29,700,808	)	$	(9,084,002	)

Preferred stock dividends		(1,416,242	)		–			(3,267,319	)		–
Net loss attributable to common shareholders		(10,394,942	)		(3,957,611	)		(32,968,127	)		(9,084,002	)

Net loss per common share – basic	$	(0.70	)	$	(0.38	)	$	(2.31	)	$	(0.85	)
Net loss per common share – diluted	$	(0.70	)	$	(0.38	)	$	(2.31	)	$	(0.85	)

Weighted average common shares outstanding – basic		14,842,497			10,549,765			14,267,461			10,650,966
Weighted average common shares outstanding – diluted		14,842,497			10,549,765			14,267,461			10,650,966

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EBET, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)


	Common stock				Preferred Stock
	Number of				Number of				Additional paid-in			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		capital			Income			deficit			Total

Balance at September 30, 2020		7,340,421	$	7,340		–	$	–	$	3,053,660		$	–		$	(1,449,526	)	$	1,611,474
Shares issued for cash, net		2,000,000		2,000		–		–		3,646,071			–			–			3,648,071
Stock-based compensation		683,334		683		–		–		1,321,343			–			–			1,322,026
Shares issued due to conversion of notes payable		375,000		375		–		–		187,125			–			–			187,500
Stock warrants issued for asset acquisition		–		–		–		–		57,252			–			–			57,252
Net loss		–		–		–		–		–			–			(2,750,731	)		(2,750,731	)
Balance at December 31, 2020		10,398,755		10,398		–		–	$	8,265,451			–			(4,200,257	)		4,075,592

Shares issued for cash, net		250,014		251		–		–		719,435			–			–			719,686
Stock-based compensation		–		–		–		–		700,000			–			–			700,000
Net loss		–		–		–		–		–			–			(2,375,660	)		(2,375,660	)
Balance at March 31, 2021		10,648,769		10,649		–		–	$	9,684,886			–			(6,575,917		$	3,119,618

Shares and warrants issued for cash, net		2,400,000		2,400		–		–		13,511,800			–			–			13,514,200
Shares issued for intangible assets		–		–		–		–		1,456,650			–			–			1,456,650
Cashless exercise of warrants		62,386		62		–		–		(62	)		–			–			–
Stock-based compensation		–		–		–		–		834,971			–			–			834,971
Net loss		–		–		–		–		–			–			(3,957,611	)		(3,957,611	)
Balance at June 30, 2021		13,111,155		13,111		–		–	$	25,488,245			–			(10,533,528	)		14,967,828


Balance at September 30, 2021		13,315,414	$	13,315		–		–	$	26,834,354		$	53,911		$	(16,649,550	)	$	10,252,030
Shares & warrants issued for cash, net		–		–		37,700		38		37,699,962			–			–			37,700,000
Shares issued to Aspire Global plc		186,838		187		–		–		13,326,565			–			–			13,326,752
Cashless exercise of warrants		244,346		244		–		–		(244	)		–			–			–
Shares issued for conversion of debt		423,141		423		–		–		112,077			–			–			112,500
Exercise of stock options for cash		2,000		2		–		–		5,998			–			–			6,000
Stock-based compensation		20,000		20		–		–		1,435,296			–			–			1,435,316
Preferred share dividends		–		–		484		–		483,817			–			(483,817	)		–
Issuance costs		–		–		–		–		(2,100,000	)		–			–			(2,100,000	)
Net loss		–		–		–		–		–			–			(8,881,038	)		(8,881,038	)
Comprehensive income		–		–		–		–		–			187,428			–			187,428
Balance at December 31, 2021		14,191,739	$	14,191		38,184	$	38	$	77,797,825		$	241,339		$	(26,014,405	)	$	52,038,988

Cashless exercise of warrants and RSU		225,091		225		–		–		(225	)		–			–			–
Stock-based compensation		–		–		–		–		1,814,607			–			–			1,814,607
Preferred share dividends		–		–		1,367		2		1,367,258			–			(1,367,260	)		–
Net loss		–		–		–		–		–			–			(11,841,071	)		(11,841,071	)
Comprehensive income		–		–		–		–		–			(1,156,825	)		–			(1,156,825	)
Balance at March 31, 2022		14,416,830	$	14,416		39,551	$	40	$	80,979,465		$	(915,486	)	$	(39,222,736	)	$	40,855,699
Shares & warrants issued for cash, net		977,659		978		–		–		3,499,022			–			–			3,500,000
Cashless exercise of warrants and RSU		178,465		178		–		–		(178	)		–			–			–
Shares issued for conversion of debt		600,000		600		–		–		299,400			–			–			300,000
Stock-based compensation		–		–		–		–		1,091,167			–			–			1,091,167
Preferred share dividends		–		–		1,416		1		1,416,241			–			(1,416,242	)		–
Issuance costs		–		–		–		–		(2,091,550	)		–			–			(2,091,550	)
Net loss		–		–		–		–		–			–			(8,978,700	)		(8,978,700	)
Comprehensive income		–		–		–		–		–			(3,560,908	)		–			(3,560,908	)
Balance at June 30, 2022		16,172,954	$	16,172		40,967	$	41	$	85,193,567		$	(4,476,394	)	$	(49,617,678	)	$	31,115,708

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EBET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2022 and 2021

(Unaudited)


	For the Nine Months Ended June 30,
	2022			2021

Cash flow from operating activities:
Net loss	$	(29,700,808	)	$	(9,084,002	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount, issuance costs		1,319,608			1,187,913
Depreciation and amortization expense		4,770,509			178,339
Stock-based compensation		4,341,090			2,856,997
Gain on cryptocurrency settlement					5,665
Derivative (gain)/loss		233,397			–
Foreign exchange (gain)/loss		50,377			–
Changes in operating assets and liabilities:
Accounts receivable		(1,597,324	)		(35,252	)
Prepaid expenses and other		(1,566,211	)		(623,026	)
Accounts payable and accrued liabilities		11,853,570			775,277
Accounts payable - related parties		–			(152,888	)
Liabilities to users		1,345,100			(8,432	)
Net cash used in operating activities		(8,950,692	)		(4,899,409	)

Cash flow from investing activities:
Purchase of fixed assets		(1,141,449	)		(103,259	)
Cash paid for business combinations		(56,229,526	)		–
Purchase of other long term assets		–			(420,098	)
Net cash used by investing activities		(57,370,975	)		(523,357	)

Cash flow from financing activities:
Proceeds from debt issuance, net of issuance costs		27,130,837			–
Proceeds from equity issuance, net of issuance costs		37,014,450			17,881,957
Net cash provided by financing activities		64,145,287			17,881,957

NET CHANGE IN CASH		(2,176,380	)		12,459,191
CASH AT BEGINNING OF PERIOD		9,064,859			–
CASH AT END OF PERIOD	$	6,888,479		$	12,459,191

Supplemental disclosure of cash flow information:
Cash paid for interest	$	–		$	–

Non-cash transactions
Preferred shares issued for dividends	$	3,267,319		$	–
Stock warrants issued in connection with Senior Notes	$	7,661,382		$	–
Stock warrant issued for asset acquisition	$	–		$	57,282
Stock issued for conversion of notes payable	$	412,500		$	187,500
Stock issuable for intangible asset	$	–		$	1,456,650

The accompanying notes are an integral part of these unaudited consolidated financial statements.

EBET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN

Organization

EBET, Inc. (“EBET” or “the Company”) was formed on September 24, 2020 as a Nevada corporation. EBET is a technology company operating platforms focused on igaming including casino, sportsbook and esports events. The Company operates under a Curacao gaming sublicense and under a strategic partnership with Aspire Global plc (“Aspire”) allowing EBET to provide online betting services to various countries around the world. On May 5, 2022, the Company changed its name to EBET, Inc. from Esports Technologies, Inc.

On September 24, 2020, ESEG Limited (“ESEG”) was acquired by Global E-Sports Entertainment Group, LLC (“Global E-Sports”) in exchange for 50% of the membership interest in Global E-Sports held by the former owners of ESEG. The remaining 50% interest of Global E-Sports is held by EBET. Prior to this transaction both ESEG and Global E-Sports shared common ownership. This transaction was accounted for as a combination of entities under common control and as such both operations have been combined from their inception. In addition, on September 24, 2020, EBET executed a Share Exchange Agreement (“Share Exchange”) resulting in the acquisition of 100% of the membership interest of Global E-Sports in exchange for the issuance of 7,340,421 shares of common stock.

Pursuant to the Share Exchange, the merger between Global E-Sports and the Company was accounted for as a reverse merger. Under this method of accounting, EBET was treated as the “acquired” company for financial reporting purposes. The net assets of Global E-Sports are stated at historical cost, with no goodwill or other intangible assets recorded.

Acquisition of the B2C business of Aspire Global plc

On October 1, 2021, the Company, and Esports Product Technologies Malta Ltd. (“Esports Malta”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Aspire and various Aspire group companies to acquire all of the issued and outstanding shares of Karamba Limited. The total acquisition price was €65,000,000 paid as follows: (i) cash amount of €50,000,000; (ii) €10,000,000, payable in accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which are valued at €5,000,000 (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement (the “Exchange Shares”). See Notes 3, 4 and 5 for additional information.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recurring losses and generated negative cash flows from operations since inception. In April 2021, the Company completed its Initial Public Offering (“IPO”) and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000, receiving net proceeds of $13,514,200. The Company's forecasts for 2022 and beyond indicate that it we will need additional funding in order to have sufficient financial resources to continue to settle its debts as they fall due. The Company has taken significant measures to increase the profitability of its business in the short term. These actions include optimizing the efficiency of marketing campaigns, reducing the total number of employees and contractors by approximately 45 positions, terminating software and other immaterial contracts as well as generally reducing the operating costs of the business. These efforts have also resulted in an increased focus on the Company’s i-gaming business and a significant reduction in the investment of the Company’s esports products and technologies. As a result of the Company’s actions as referenced above, it does not expect to launch its esports products in the short or medium term. In making this assessment, the Directors considered the going concern status for a period of at least 12 months from the date of signing the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Impact of COVID-19

The outbreak of the 2019 novel coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread, has severely impacted the U.S. and world economies. Economic recessions, including those brought on by the COVID-19 outbreak may have a negative effect on the demand for the Company’s products and the Company’s operating results. The range of possible impacts on the Company’s business from the coronavirus pandemic could include: (i) changing demand for the Company’s online betting products; and (ii) increasing contraction in the capital markets.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed in the preparation of the consolidated financial statements are as follows:

Basis of Presentation

The accompanying unaudited financial statements of the Company, include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles accepted in the United States (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary in order to make the condensed financial statements not misleading. Operating results for the nine months ended June 30, 2022, are not necessarily indicative of the final results that may be expected for the year ended September 30, 2022. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited consolidated financial statements for the year ended September 30, 2021 included in our Form 10-K filed with the SEC. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. All intercompany accounts, transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

Business combinations

The Company accounts for business combinations under the acquisition method of accounting, in accordance with ASC 805, which requires assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. Any fair value of purchase consideration in excess of the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The fair values of the assets acquired, and liabilities assumed are determined based upon the valuation of the acquired business and involve management making significant estimates and assumptions.

Accounts Receivable

Accounts receivables are recorded at amortized cost, less any allowance for doubtful accounts. Accounts receivable consists primarily of amounts due from our platform provider.

Intangible Assets

Other Intangible Assets

The Company’s other intangible assets consist of customer relationships, trademarks and internet domain names. Certain intangible assets have a defined useful life and others are classified as indefinite-lived intangible assets. Other intangible assets with a defined useful life are amortized over their estimated useful economic lives on a straight-line basis. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

See Note 3 for intangible assets acquired in a business acquisition transaction.

Liabilities to Users

The Company records liabilities for user account balances at a given reporting period based on deposits made by players either to the Company or the sales affiliate, less any losses on wagers and payout made to players. Liabilities to users amounts are not required to be backed by cash reserves of the Company.

Impairment of Long-Lived Assets

Long-lived assets consist of software and equipment, finite-lived acquired intangible assets, such as license agreements, and indefinite-lived assets such as internet domain names. Long-lived assets are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Impairment expense is recognized to the extent an asset’s expected undiscounted future cash flows are less than the asset’s carrying amount.

Leases

The Company accounts for leases under ASC 842. The Company assesses whether a contract contains a lease on its execution date. If the contract contains a lease, lease classification is assessed upon its commencement date under ASC 842. For leases that are determined to qualify for treatment as operating leases, rent expense is recognized on a straight-line basis over the lease term. Leases that are determined to qualify for treatment as finance leases recognize interest expense as determined using the effective interest method with corresponding amortization of the right-of-use assets. For leases with terms of 12 months and greater, an asset and liability are initially recorded at an amount equal to the present value of the unpaid lease payments over the lease term. In determining the lease term for each lease, the Company includes options to extend the lease when it is reasonably certain that the option will be exercised. The Company uses the interest rate implicit in the lease, when known, or its estimated incremental borrowing rate, which is derived from information available at the lease commencement date including prevailing financial market conditions, in determining the present value of the unpaid lease payments.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on October 1, 2018 using the modified retrospective method. ASC Topic 606 requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC Topic 606 had no impact to the Company’s comparative consolidated financial statements. Revenue is recognized based on the following five step model:

·	Identification of the contract with a customer

·	Identification of the performance obligations in the contract

·	Determination of the transaction price

·	Allocation of the transaction price to the performance obligations in the contract

·	Recognition of revenue when, or as, the Company satisfies a performance obligation

No single customer exceeded more than 10% of revenue during the three months ended June 30, 2022 and 2020. In addition, no disaggregation of revenue is required because all current revenue is generated from gaming revenue.

Performance Obligations

The Company operates an online betting platform allowing users to place wagers on a variety of live sporting events and esports events. Each wager placed by users create a single performance obligation for the Company to administer each event wagered. Gross gaming revenue is the aggregate of gaming wins and losses based on results of each event that customers wager bets on. Variable commission fees are paid to sales affiliates based on a percentage of revenue generated from the affiliate. The commissions rebated to affiliates are recorded as a reduction to gross gaming revenue.

Cost of Revenue

Cost of revenue consists of third-party costs associated with the betting software platform and gaming taxes.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of expenses associated with customer related acquisition costs, advertising and related software, strategic league and team partnerships and costs related to free to play contests, and the compensation of sales and marketing personnel, including stock-based compensation expenses. Advertising costs are expensed as incurred. Advertising costs incurred was $434,465 and $0 for the nine months ended June 30, 2022 and 2021, respectively.

Product and Technology Expenses

Product and technology expenses consist primarily of expenses which are not subject to capitalization or otherwise classified within Cost of Revenue. Product and Technology expenses include software licenses, depreciation of hardware and software and costs related to the compensation of product and technology personnel, including stock-based compensation.

General and Administrative Expenses

General and administrative expenses include costs related to the compensation of the Company’s administrative functions, insurance costs, professional fees and consulting expense.

Income Taxes

Deferred taxes are determined utilizing the "asset and liability" method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, when it's more likely than not that deferred tax assets will not be realized in the foreseeable future. Deferred tax liabilities and assets are classified as current or non-current based on the underlying asset or liability or if not directly related to and asset or liability based on the expected reversal dates of the specific temporary differences.

Fair value of financial instruments

The Company discloses fair value measurements for financial and non-financial assets and liabilities measured at fair value. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but are corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Foreign Currency

The Company’s reporting currency is the U.S. Dollar. Certain subsidiaries of the Company have a functional currency other than the U.S. Dollar, and are translated to the Company’s reporting currency at each reporting date. Non-monetary items are translated at historical rates. Monetary assets and liabilities are translated from British pounds and Euro into U.S. Dollars, at the period-end exchange rate, while foreign currency expenses are translated at the exchange rate in effect on the date of the transaction. The net effect of translation is reflected as other comprehensive income. The gains or losses on transactions denominated in currencies other than an entity’s functional currency are included in the consolidated statement of operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. When assessing goodwill for impairment, the Company uses qualitative and if necessary, quantitative methods in accordance with FASB ASC Topic 350, Goodwill. The Company also considers its enterprise value and if necessary, discounted cash flow model, which involves assumptions and estimates, including the Company’s future financial performance, weighted average cost of capital and interpretation of currently enacted tax laws.

Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the Company’s financial results, a significant decline in the Company’s enterprise value relative to its book value, an unanticipated change in competition of the Company’s market share and a significant change in the Company’s strategic plans.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.

NOTE 3 – BUSINESS COMBINATIONS

Acquisition of the B2C business of Aspire Global plc

On October 1, 2021, in order to accelerate the growth and expand market access for our product offerings, the Company and Esports Malta entered into the “Acquisition Agreement” with Aspire, Aspire Global International Limited, AG Communications Limited, Aspire Global 7 Limited (collectively the “Aspire Related Companies”), and Karamba Limited (“Karamba”) whereby Esports Malta acquired all of the issued and outstanding shares of Karamba. The total acquisition price, paid at the closing of the acquisition of the Karamba shares, was €65,000,000 paid as follows: (i) a cash amount of €50,000,000; (ii) €10,000,000, paid in accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which were valued at €5,000,000 (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement). The transaction closed on November 29, 2021.

The Note provides for an interest rate of 10% per annum. The maturity date of the Note is the earlier of that date which is four years from the issuance date or a liquidity event. The Note requires repayment of the principal amount plus any accrued interest in three equal installments, payable annually starting on the second anniversary after issuance. No interest payment shall be due until that date which is the last day of the end of the second anniversary of issuance should the Note remain unpaid at such time. Should the Note remain unpaid at the second anniversary, the total accrued interest due at that time shall be paid at the second-year anniversary for accrued interest for the period from the issuance date through the second-year anniversary date. Thereafter, and on each anniversary date thereafter, the interest due for the prior annual period shall be paid. Notwithstanding the foregoing, if the Company owes greater than $15.0 million under the credit agreement with CP BF Lending, LLC entered into in connection with the acquisition (See Note 4 – Borrowings – Senior Notes, then then the parties agree that the Company shall repay any principal amount plus any accrued interest due through the issuance of Company common stock in lieu of any cash payment and the amount of said common stock shares to be issued by the Company shall be determined by using the Conversion Price as defined below. Should an event of default occur on the Note, then at the election of Aspire, either (i) the Operator Services Agreement will be amended such that the fees payable shall increase by 5% during the continuation of the event of default, or (ii) Aspire may elect to convert the entire outstanding principal amount plus any accrued interest into fully-paid and non-assessable shares of common stock of the Company at a price per share based on the weighted-average per-share price for the ten days prior to the date of the occurrence of the event of default (“Conversion Price”). In no event shall the Conversion Price be lower than $18.00 per share (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof) and the total maximum number of common stock shares that may be issued to Aspire upon any such conversion in the aggregate shall be 650,000 shares (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof).

The acquired assets were recorded at their estimated fair values. The purchase price allocation is preliminary, and as additional information becomes available, the Company may further revise the preliminary purchase price allocation, including the fair value of identified intangible assets, during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material.

The purchase price of this acquisition was allocated on a preliminary basis as follows:


	Fair Value
Trademarks	$	21,836,528
Customer relationships		16,162,202
Goodwill		35,620,270
Total	$	73,619,000

Useful life is the period over which an asset is expected to add to the future cash flows of an entity. Useful life for identifiable assets is generally estimated using a modified straight-line method or a usage period. The Company has determined that the useful life of the trademarks vary from 5 years to an indefinite life and determined that the useful life of the Customer Relationships was three years.

Goodwill represents the excess of the gross considerations transferred over the fair value of the underlying net assets acquired and liabilities assumed. Goodwill recognized is not deductible for local tax purposes.

Upon completing the acquisition of Aspire, the company incurred the following costs:

Schedule of acquisition costs
Debt issuance costs		3,372,889
Equity issuance costs		4,184,000
Transaction expenses		2,472,533
Total acquisition expenses	$	10,029,422

Debt issuance costs relate to costs associated with acquiring the loan from the CP BF Lending LLC. These have been recorded as reduction of the face value of the debt and are amortized over the life of the loan. Equity issuance costs relate to the costs associated with the private placement. These have been recorded as reduction of the equity proceeds. Transactions costs relate to all direct and indirect costs associated with the acquisition, and expensed as incurred.

NOTE 4 – BORROWINGS

The following is a summary of borrowings outstanding as at June 30, 2022 and September 30, 2021:

Schedule of borrowings outstanding
				June 30, 2022														September 30, 2021
	Contractual Interest			Principal outstanding balance		Principal outstanding balance		Unamortized debt discount			Accrued Interest		Issuance costs			Carrying amount		Principal outstanding balance		Unamortized debt discount			Carrying amount
	rate		Cur	Local		USD		USD			USD		USD			USD		USD		USD			USD
Senior notes		15%	USD		30,000,000		30,000,000		(6,767,554	)		177,951		(2,687,937	)		20,722,460		–		–			–
Note due to Aspire		10%	EUR		10,000,000		10,387,000		–			637,793		–			11,024,793		–		–			–
Convertible notes		10%	USD		1,606,891		1,606,891		–			–		–			1,606,891		1,912,500		(516,366	)		1,396,134
Other		0%	USD		675,000		675,000		(177,284	)		–		–			497,716		675,000		(211,076	)		463,924
Total borrowings							42,668,891		(6,944,838	)		815,744		(2,687,937	)		33,851,860		2,587,500		(727,442	)		1,860,058

Current																	1,606,891							1,396,133
Long-term																	32,244,969							463,925
Total borrowings																	33,851,860							1,860,058

Senior Notes

On November 29, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with CP BF Lending, LLC (“Lender”), pursuant to which the Lender agreed to make a single loan to the Company of $30,000,000 (the “Loan”). The Loan bears interest on the unpaid principal amount at a rate per annum equal to 15.0% as follows: (1) cash interest on the unpaid principal amount of the Loan at a rate equal to 14.0% per annum, plus (2) payable-in-kind interest (“PIK Interest”) on the unpaid principal amount of the Loan at a rate equal to 1.0% per annum. The Company paid to Lender on the closing date a non-refundable origination fee in an amount equal to $750,000.

The Loan matures in 36 months, provided that the Company may receive two 12-month extensions of the maturity date by paying to the Lender (1) an extension fee equal to 1.0% of the unpaid principal balance of the Loan as of the date of such extension, and (2) all reasonable and documented out-of-pocket fees and expenses paid or incurred by Lender, in each case in connection with the extension request, including but not limited to fees and expenses for appraisals, collateral exams and audits, and legal counsel. The foregoing extension right is subject to, among other items, (i) the Loan not being in default, (ii) the representations and warranties contained in Credit Agreement being true and correct; and (iii) the Lender granting its written approval thereof in its sole discretion.

The Loan may be prepaid by the Company at any time. In addition, the Credit Agreement provides that in the event there shall be excess cash flow from the Aspire Business (as such concept is defined in the Credit Agreement) for any calendar month, commencing with the month ended December 31, 2022, the Company shall apply such excess cash flow amount to prepay the outstanding principal balance of the Loan; provided that no such prepayment shall be required once the unpaid principal balance of the Loan has been reduced to $15,000,000.

The Credit Agreement requires the Company to meet certain financial covenants commencing June 30, 2022. The Loan is secured by all of the assets of the Company and its subsidiaries. The Loan may be accelerated by the Lender upon an event of default, which in addition to customary events of default include: (i) if (1) any of the Company or its subsidiaries shall fail to maintain in full force and effect any gaming approval (as defined in the Credit Agreement) required for the operation of its business or (2) any gaming regulator shall impose any condition or limitation on any of the foregoing entities that could be reasonably expected to have a material adverse effect; or (ii) the suspension from trading or failure of the Company’s common stock to be trading or listed on the Nasdaq exchange for a period of