ESPORTS ENTERTAINMENT GROUP INC

Note 1 –Nature of Operations

Esports Entertainment Group, Inc. (the “Company”) 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. 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”). 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. 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.

In the prior year ended June 30, 2023, 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 its UK license and deconsolidated its Argyll operating entities due to liquidation and loss of control of the entities, with Argyll Entertainment being deconsolidated on March 27, 2023 and Argyll Productions being deconsolidated on June 9, 2023. The Company sold its Spanish iGaming operations on January 18, 2023, sold the Bethard business on February 24, 2023 and exited the EGL business as of June 30, 2023. The core businesses of the Company include Lucky Dino of EEG iGaming and GGC of EEG Games (seeReportable Segments).

On February 13, 2024, the Company announced it was voluntarily delisting from the Nasdaq Capital Markets, LLC (“Nasdaq”). On February 16, 2024, the Company received notice from Nasdaq that it was being suspended on Nasdaq on opening of trading on February 21, 2024. As a result of the suspension, on February 21, 2024 the Company began trading on the Over the Counter Market (the “OTC”). On February 27, 2024, the Company filed a Form 25 with the SEC to effect the delisting of its securities from Nasdaq. The Company is now subject to listing requirements of the OTC and is trading on the OTCQB tier level of the OTC.

Note 2 –Summary of Significant Accounting Policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Pursuant to the rules and regulations of the SEC, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full fiscal year. The unaudited condensed consolidated financial statements should be read along with the Annual Report filed on Form 10-K of the Company for the annual period ended June 30, 2023. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Effective February 22, 2023, the Company completed a one-for-one-hundred (1-for-100) reverse stock split of the Company’s issued and outstanding common stock (the “Reverse Stock Split February 2023”). Effective December 22, 2023, the Company completed aone-for-four-hundred (1-for-400) reverse stock split of the Company’s issued and outstanding common stock (the “Reverse Stock Split December 2023”). The Reverse Stock Split January 2023 and the Reverse Stock Split December 2023 are together referred to as the “Reverse Stock Splits”. All references to shares of the Company’s common stock in the unaudited condensed consolidated financial statements and related notes refer to the number of shares of common stock after giving effect to the Reverse Stock Splits and are presented as if the Reverse Stock Splits had occurred at the beginning of the earliest period presented.

Reportable Segments

The Company operatestwo complementary business segments:

EEG iGaming

EEG iGaming includes the Company’s iGaming casino and other functionality and services for iGaming customers. Currently, the Company operates the business to consumer segment primarily in Europe. iDefix, proprietary technology acquired in connection with the acquisition of Lucky Dino, is a Malta Gaming Authority (“MGA”) licensed iGaming platform with payments, payment automation manager, bonusing, loyalty, compliance and casino integrations that services Lucky Dino.

Alongside the esports focused platform, EEG owns and operates five online casino brands of Lucky Dino Gaming Limited and Hiidenkivi Estonia OU, its wholly-owned subsidiary (collectively referred to as “Lucky Dino”), licensed by the MGA on its in-house built iDefix casino-platform. We currently hold one Tier-1 gambling license in Malta. Our Lucky Dino business provides 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.

These segments consider the organizational structure of the Company and the nature of financial information available and are reviewed by the chief operating decision maker to assess performance and make decisions about resource allocations.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the determination of the fair value for derivative instruments.

Liquidity and Going Concern

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these unaudited condensed consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The Company has determined that certain factors raise substantial doubt about its ability to continue as a going concern for a least one year from the date of issuance of these unaudited condensed consolidated financial statements.

The Company considered that it had an accumulated deficit of $206,114,689 as of March 31, 2024 and that it has had a history of recurring losses from operations and recurring negative cash flows from operations as it has prepared to grow its esports business through acquisition and new venture opportunities. At March 31, 2024, the Company had $957,112 of available cash on-hand and net current liabilities of $7,821,552. Net cash used in operating activities for the nine months ended March 31, 2024 was $5,550,732, which includes a net loss of $24,688,784.

The Company also considered its current liquidity as well as future market and economic conditions that may be deemed outside the control of the Company as it relates to obtaining financing and generating future profits.

In determining whether the Company can overcome the presumption of substantial doubt about its ability to continue as a going concern, the Company may consider the effects of any mitigating plans for additional sources of financing. The Company identified additional financing sources it believes, depending on market conditions, may be available to fund its operations and drive future growth, which includes:

These above plans are likely to require the Company to place reliance on several factors, including favorable market conditions, to access additional capital in the future. These plans were therefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

The amount of available cash on hand on May 21, 2024, one business day preceding this filing, was approximately $600,000.

Restricted Cash

Restricted cash includes cash reserves maintained for compliance with gaming regulations that require adequate liquidity to satisfy the Company’s liabilities to customers. Restricted cash also can include amounts held in escrow related to the execution of the an escrow agreement (as defined in Note 12) with an independent third-party escrow agent, that was entered into concurrent with a settlement agreement, dated October 6, 2023 (as defined in Note 12), pursuant to which Redemption Proceeds (as defined in Note 12) received from each closing of “at the market” sales from the Equity Distribution Agreement (as defined in Note 12) were deposited into a non-interest bearing escrow account. As of March 31, 2024 and June 30, 2023, there was $66,903 and $168,304, respectively, in restricted cash related to the liabilities to customers. There wereno amounts held in escrow as of March 31, 2024 or June 30, 2023.

Derivative financial instruments

The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required (Note 9). The Company can make an accounting policy election on the allocation order and choose the policy that management determines is most favorable. The Company elected to reclassify outstanding instruments based on allocating the unissued shares to contracts with the latest inception date resulting in the contracts with the earliest inception date being recognized as liabilities first.

The Company evaluates its convertible notes, equity instruments and warrants, to determine if those contracts or embedded components of those contracts qualify as derivatives (Note 9). The result of this accounting treatment is that the fair value of the embedded derivative is recorded at fair value each reporting period and recorded as a liability in the balance sheet. In the event the fair value is recorded as a liability (Note 14), the change in fair value is recorded in the condensed consolidated statements of operations as other income or expense (Note 14).

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to a liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with their host instrument. The Company records the fair value of the remaining embedded derivative at each balance sheet date and records the change in the fair value of the remaining embedded derivative as other income or expense in the consolidated statements of operations.

Earnings Per Share

Basic income (loss) per share is calculated using the two-class method. Under the two-class method, basic income (loss) is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period excluding the effects of any potentially dilutive securities. Diluted income (loss) per share is computed similar to basic income (loss) per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potential common shares had been issued if such additional common shares were dilutive. Diluted income (loss) per share includes the effect of potential common shares, such as the Company’s preferred stock, notes, warrants and stock options, to the extent the effect is dilutive. As the Company had net losses attributable to common stockholders for all the periods presented, basic and diluted loss per share are the same, and additional potential common shares have been excluded, as their effect would be anti-dilutive.

The following securities were excluded from weighted average diluted common shares outstanding for the three and nine months ended March 31, 2024 and 2023 because their inclusion would have been antidilutive:

The table includes the number of shares of common stock potentially issuable upon a conversion of the Series C Convertible Preferred Stock (the “Series C Preferred Stock”), and Series D Convertible Preferred Stock (the “Series D Preferred Stock”) into shares of common stock. The table also includes any shares of common stock that would be issuable upon conversion of the Series D Preferred Stock issuable upon exercise of the preferred warrants issued in the Series D Preferred Stock offering. The conversion price used to estimate the number of common stock issuable for the Series C Preferred Stock, Series D Preferred Stock and common stock issuable on conversion of Series D Preferred Stock issuable from exercise of Series D Preferred Stock warrants (the “Series D Preferred Warrants”), was 90% of the Company’s Closing Price of $0.854 on March 31, 2024. Issuances of shares of common stock upon conversion of the Series D Preferred Stock and Common Warrants.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity (HTM) debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company adopted this standard as of July 1, 2023. The adoption of this guidance did not have a material impact on the accompanying unaudited condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. The guidance is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company adopted this standard as of July 1, 2023. The adoption of this guidance did not have a material impact on the accompanying unaudited condensed consolidated financial statements.

Recently Issued Accounting Standards

In December 2023, the FASB issued ASU 2023-09,Income Taxes—Income Taxes (Topic 740): Improvements to Income Tax Disclosures(“ASU 2023-09”). ASU 2023-09 modifies the rules on income tax disclosures to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The amendments are intended to address investors’ requests for income tax disclosures that provide more information to help them better understand an entity’s exposure to potential changes in tax laws and the ensuing risks and opportunities and to assess income tax information that affects cash flow forecasts and capital allocation decisions. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. All entities are required to apply the guidance prospectively but have the option to apply it retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its unaudited condensed consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its unaudited condensed consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03,Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards Codification Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its unaudited condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the 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 –Other Receivables

The components of other receivables are as follows:

Note 4 –Prepaid Expenses and Other Current Assets

The components of prepaid expenses and other current assets are as follows:

Note 5 –Equipment

The components of equipment are as follows:

Depreciation expense was $0 and $19,194 for the three months ended March 31, 2024 and 2023 and $8,757 and $55,506 for the nine months ended March 31, 2024 and 2023, respectively. All Equipment depreciation expense was for the EEG iGaming segment.

During the three and nine months ended March 31, 2024, the Company recognized a total impairment charge of $0 and $13,192, respectively on its Equipment long-lived assets. All Equipment asset impairment charges were for the EEG iGaming segment. There wereno impairment charges on Equipment long-lived assets identified for the three and nine months ended March 31, 2023.

Note 6 –Goodwill and Intangible Assets

A summary of the changes in the balance of goodwill by segment is as follows:

Previously, at December 31, 2023, the Company concluded that impairment indicators existed considering that the Company delisted from Nasdaq, had management changes in the EEG iGaming segment and continued to see revenues decline in the EEG iGaming segment and they were significantly down from levels seen in the previous year and in the previous quarters and EEG Games segment was not performing at the level previously expected. This, the decline in the Company’s stock price and other factors were determined to be a triggering event and the long-lived assets of the Company were quantitatively tested for impairment.

The Company performed its impairment tests on its long-lived assets, including its definite-lived intangible assets using an undiscounted cash flow analysis to determine if the cash flows expected to be generated by the asset groups over the estimated remaining useful life of the primary assets were sufficient to recover the carrying value of the asset groups, which were determined to be at the business component level. Based on the circumstances described above during the nine months ended March 31, 2024, the Company determined that the EEG Games asset group was recoverable under the undiscounted cash flow recoverability test but the EEG iGaming asset group was not recoverable. Accordingly, the Company estimated the fair value of its EEG iGaming individual long-lived assets to determine if any asset impairment charges were present. The Company’s estimation of the fair value of the definite-lived intangible assets considering the current results and impacts expected from the delisting from Nasdaq and concluded that the fair values of the EEG iGaming intangibles were no longer recoverable and at December 31, 2023, recognized impairment totaling $1,380,280 for tradename, $2,546,981 for developed technology and software, $4,252,423 for player relationships and $252,094 for internal-use software. The table below reflects the adjusted gross carrying amounts for these intangible assets. There were no asset impairment charges for long-lived assets, including definite-lived intangible assets, for the three months ended March 31, 2024.

During the three months ended March 31, 2023 the Company recognized loss on disposal of businesses that included $2,116,882 of goodwill for the Bethard Business. There wereno asset impairment charges for long-lived assets, including definite-lived intangible assets, for the three and nine months ended March 31, 2023.

Further, in accordance with ASC 350, for goodwill, the Company performed a goodwill impairment test, which compared the estimated fair value of each reporting unit to its respective carrying values. The estimated fair value of each reporting unit was derived primarily by utilizing a discounted cash flows analysis. The results of the impairment test performed as of December 31, 2023, indicated that the carrying value of the iGaming and GGC reporting units exceeded their estimated fair values determined by the Company. At December 31, 2023, the Company recognized goodwill impairments of $3,556,340 for the iGaming Malta reporting unit of the EEG iGaming segment, and $979,832 for the GGC reporting unit, in the EEG Games segment, totaling $4,536,172 in asset impairment charges in the unaudited condensed consolidated statements of operations. This impaired all the remaining goodwill of the Company.

Similarly, in the prior fiscal year, at December 31, 2022, the Company recognized goodwill impairments of $14,500,000 for the iGaming Malta reporting unit of the EEG iGaming segment, and goodwill of $1,635,000 for the GGC reporting unit, in the EEG Games segment, totaling $16,135,000 in asset impairment charges in the unaudited condensed consolidated statements of operations.

In total, as described in detail above, the Company recorded $0 and $12,967,950 of goodwill and intangible asset impairment charges for the three and nine months ended March 31, 2024, respectively, and $0 and $16,135,000 of goodwill asset impairment charges for the three and nine months ended March 31, 2023, respectively.

The assumptions used in the cost and undiscounted and discounted cash flow analyses require significant judgment, including judgment about appropriate growth rates, and the amount and timing of expected future cash flows. The Company’s forecasted cash flows were based on the current assessment of the markets and were based on assumed growth rates expected as of the measurement date. The key assumptions used in the cash flows were revenue growth rates, operating expenses and gross margins and the discount rates in the discounted cash flows. The assumptions used consider the current early growth stage of the Company. The industry markets are currently at volatile levels and future developments are difficult to predict. The Company believes that its procedures for estimating future cash flows for each reporting unit, asset group and intangible asset are reasonable and consistent with current market conditions as of the testing date. If the markets that impact the Company’s business continue to deteriorate, the Company could recognize further long-lived asset impairment charges.

The table below reflects the adjusted gross carrying amounts for these intangible assets. The intangible amounts comprising the intangible asset balance are as follows:

During the three months and nine months ended March 31, 2024, the Company recorded amortization expense for its intangible assets of $248,575 and $2,402,823, respectively. The amortization for EEG iGaming segment was $0 and $1,657,097, and for the EEG Games segment was $248,575 and $745,726, for the three and nine months ended March 31, 2024, respectively. During the three months and nine months ended March 31, 2023, the Company recorded amortization expense for its intangible assets of $1,600,399 and $5,352,961, respectively. The amortization for EEG iGaming segment was $1,351,833 and $4,607,244, and for the EEG Games segment was $248,566 and $745,717, for the three and nine months ended March 31, 2023, respectively.

The estimated future amortization related to definite-lived intangible assets is as follows:

Note 7 –Accounts Payable and Accrued Expenses

The components of accounts payable and accrued expenses are as follows:

Note 8 –Related Party Transactions

The Company’s Chief Executive Officer owns less than 5% of Oddin.gg, a vendor of the Company, that was owed $0 and $47,895 by the Company as of March 31, 2024 and June 30, 2023, respectively. The Company incurredno cost of revenue to Oddin.gg for the three and nine months ended March 31, 2024 and $0 and $72,107 cost of revenue for the three and nine months ended March 31, 2023. On October 3, 2023, the Company signed an agreement to integrate the Oddin.gg esports iFrame solution that is expected to allow the Company to offer esports wagering to its iGaming customers. The integration of the Oddin.gg’s esports iFrame solution has been completed by the Company and is expected to be utilized towards the end of fiscal 2024. The agreement requires the Company to pay Oddin.gg a revenue share based on the net gaming revenues generated from esports wagering.

The Company reimbursed the former Chief Executive Officer for office rent and related expenses. The Company incurred no charges to the former Chief Executive Officer for office expense reimbursement for the three and nine months ended March 31, 2024. The Company incurred charges owed to the former Chief Executive Officer for office expense reimbursement of $0 and $1,200 for the three and nine months ended March 31, 2023, respectively. The former Chief Executive Officer was terminated by the Board from his position as Chief Executive Officer on December 3, 2022. The former Chief Executive Officer resigned from the Board on December 23, 2022. Other than the remaining amount of the legal settlement of $300,000 remaining to be paid (as described in Note 10), there were no amounts payable to the former Chief Executive Officer as of March 31, 2024 and June 30, 2023.

On May 4, 2017, the Company entered into a services agreement and a referral agreement with Contact Advisory Services Ltd., an entity that is partly owned by a member of the Board of Directors. The Company incurred general and administrative expenses of $17,945 and $30,138 for three and nine months ended March 31, 2024, respectively, and $4,255 and $10,776 for three and nine months ended March 31, 2023, respectively, in accordance with these agreements. As of March 31, 2024 and June 30, 2023, there was approximately $10,100 and $12,700 amounts payable to Contact Advisory Services Ltd, respectively.

The Company’s Chief Operating Officer was previously its former Chief Financial Officer and Chief Operating Officer and his services as the former Chief Financial Officer and Chief Operating Officer were previously retained through a consultancy agreement dated April 2, 2022 and an employment agreement dated April 2, 2022. The Company remitted monthly payments to its former Chief Financial Officer of NZD 36,995 ($23,524 translated using the exchange rate in effect at June 30, 2022) under the consultancy agreement and $500 per month under the employment agreement. In connection with this appointment the Company provided a one-time issuance of 2,000 shares of Common Stock to the former Chief Financial Officer and Chief Operating Officer. The former Chief Financial Officer and Chief Operating Officer resigned from his roles on December 31, 2022, and the consultancy agreement and employment agreement were terminated. He later rejoined the Company as the Chief Operating Officer on May 29, 2023 under a new employment agreement and subsequently resigned from his position as Chief Operating Officer, effective April 30, 2024, and remains in his position as a member of the Company’s Board of Directors.

Note 9 –Debt

Secured Note Purchase Agreement and Secured Note

On March 7, 2024, the Company entered into an agreement (the “Secured Note Purchase Agreement”) and a Secured Promissory Note Agreement (the “Secured Note Agreement”), with the holder of its Series C Preferred Stock and Series D Preferred Stock (the “Holder”), pursuant to which the Company issued the Holder a secured promissory note (the “Secured Note”) for approximately $1,420,000 (the “Secured Note”), including $15,000 of issuance costs. The key terms of the Secured Note Agreement include:

If an event of default occurs, including, failure to pay, breach of representatives and warranties, bankruptcy, breach of covenants described in the Secured Note, commencement of proceeding by the Company against the Holder, as defined in the Secured Note Agreement occurs, the Holder can declare the entire principal amount and all accrued and unpaid interest and all other amounts payable, immediately dueand payable, and the amount to be collected may be subject to a 12.0% per annum default rate.

The Secured Note Purchase Agreement contains representations of the parties that are generally customary of this type of transaction. The Company also agreed to indemnify the Holder of the Secured Note for certain matters described in the Secured Note Purchase Agreement.

Components of Long-Term Debt

The components of the Company’s long-term debt follows:

The maturities of long-term debt are as follows:

Senior Convertible Note

In the year ended June 30, 2022, on February 22, 2022, the Company exchanged the existing senior convertible note (the “Old Senior Convertible Note”) with a remaining principal of $29,150,001, with the Senior Convertible Note in the aggregate principal of $35,000,000.

On September 19, 2022 as part of the Company’s September 2022 Offering (defined below) of shares of common stock and warrants to purchase common stock, the Company remitted to the Holder an amount of $2,778,427 from the proceeds reducing the Senior Convertible Note principal balance to $32,221,573.

On December 19, 2022, as part of the Registered Direct Offering (Note 12) the Company paid the Holder an amount equal to $1,073,343 for interest due and interest prepaid through February 28, 2023.

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, in accordance with Section 7(g) of the Senior Convertible Note (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 to Series C Preferred Stock, pursuant to the debt for equity exchanges, and after increasing the Senior Convertible Note by $2,950,010, for fees of $450,010 and converted accrued liabilities of $2,500,000 pursuant to an amendment and waiver dated February 16, 2023 (the “Amendment”) related to the sale of the Bethard Business, the Holder exchanged $19,261,583 in aggregate principal amount of the Senior Convertible Note for an aggregate of 2,242,143 shares of our common stock, at the lowered conversion prices (the “Exchanges”) and recorded a loss on extinguishment of the Senior Convertible Note of $3,616,372 related to the conversions. Following the Exchanges and the impact of the Amendment, $15,910,000 in aggregate principal amount of the Senior Convertible Note remained outstanding until April 28, 2023, when it was converted to the Series C Preferred Stock.

Senior Convertible Note Make-Whole Derivative Liability

Prior to the conversion of the Senior Convertible Note into the Series C Preferred Stock on April 28, 2023, the make-whole provision in the Senior Convertible Note was a derivative liability. This considered that the Company had obtained debt waivers from the Holder for its breaches of debt covenants. The Company’s historical stock price had also traded at levels significantly in excess of the Conversion Floor Price.

On April 28, 2023, the date of the conversion of the Senior Convertible Note into the Series C Preferred Stock the derivative liability was eliminated and no balance is recorded in the unaudited condensed consolidated balance sheet at March 31, 2024 and June 30, 2023. No amounts were recognized in the three and nine months ended March 31, 2024 due to the elimination of the Senior Convertible Note derivative liability. The Company recognized a change in fair value of derivative liability on Senior Convertible Note of a loss of $1,163,979 and a gain of $7,435,687 in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2023.

Series C Convertible Preferred Stock and Series D Convertible Preferred Stock Make-Whole Derivative Liability Warrants

The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required. The Company can make an accounting policy election on the allocation order and choose the policy that management determines is most favorable. The Company elected to reclassify outstanding instruments based on allocating the unissued shares to contracts with the latest inception date resulting in the contracts with the earliest inception date being recognized as liabilities first. Due to the issuances of shares during the nine months ended March 31, 2024, and the lack of authorized and unissued shares available, the Company was required to assess its classification of its equity instruments during this period. On December 5, 2023 the Company determined it did not have enough authorized and unissued shares to satisfy the Series C Preferred Stock and using the last contract entered into sequencing election. Due to this the amounts of the carrying amount of the Series C Preferred Stock was reclassed to Mezzanine equity in the unaudited condensed consolidated balance sheet and the Company determined that a derivative related to the Series C conversion feature was required (the “Original Series C Derivative”). Subsequently, on the delisting from Nasdaq, the Series D Preferred Stock was reclassed to Mezzanine equity in the condensed consolidated balance sheet and the Company determined that a separate derivative related to the Series D conversion feature was also required (the “Original Series D Derivative”). On March 7, 2024, with the amendments to the to the Series C Preferred Stock and Series D Preferred Stock Certificates of Designations, the Company determined that a compound derivative related to the conversion features and certain triggering events was required for the Series C Preferred Stock (the “New Series D Derivative”) and the Series D Preferred stock (the “New Series D Derivative”), (the New Series C Derivative and the New Series D Derivative are together referred to as the “New Derivatives”) and the Original Series C Derivative and the Original Series D Derivative were extinguished. The New Series C Derivative, the New Series D Derivative, the Original Series C Derivative and the Original Series D Derivative were recorded at fair value using a Monte-Carlo method with assumptions that fluctuate based on the Company’s share price, market capitalization, assets carrying value, and the Company’s estimates of the discount rate, risk-free rate, remaining term of the conversion features and credit and non-performance risk. The valuation of Original Series C Derivative and the Original Series D Derivative and the derivative are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value measurements. A liability of $1,820,000 was recorded on December 5, 2023 on the initial recognition the Original Series C Derivative. The fair value of the Original Series C Derivative on March 7, 2024 was $2,663,586, resulting in a loss of $306,888 and $2,126,888 (Note 14) for the three and nine months ended March 31, 2024, being recorded in change in fair value of derivative liability (Note 14) in the unaudited condensed consolidated statement of operations. The Original Series C Derivative was extinguished on March 7, 2024, with the remaining balance of $2,663,586 (Note 14) being recorded to additional paid-in capital (Note 14) in the unaudited condensed consolidated balance sheet. On February 20, 2024, the date the Company was delisted from Nasdaq, a liability of $422,141 was recorded on the initial recognition the Original Series D Derivative. The fair value of the Original Series D Derivative on March 7, 2024 was $572,502, resulting in a loss of $150,361 (Note 14) being recorded in change in fair value of derivative liability (Note 14). The Original Series D Derivative was extinguished with the remaining balance of $572,502 (Note 14) being recorded to additional paid-in capital (Note 14) in the unaudited condensed consolidated balance sheet. Subsequent to the Amendment, on March 7, 2024, the Company recorded the fair value liability for the New Derivatives of $345,263 (Note 14), with $224,762 recorded for the New Series C Derivative and $102,501 recorded for the New Series D Derivative. The fair value of the New Derivatives on March 31, 2024 was $351,011 (Note 14), with a fair value of $228,504 for the New Series C Derivative and a fair value of $122,507 for the New Series D Derivative and the of loss $5,748 (Note 14) recorded in change in fair value of derivative liability (Note 14) in the unaudited condensed consolidated statement of operations. The total change in fair value of derivative liability loss in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2024, was $462,997 and $999,695, respectively.

Series D Preferred Stock Warrants

On May 22, 2023, as part of the offering to the Holder of Series D Preferred Stock, the Company issued Common Warrants to purchase 3,583 shares of our common stock at a price of $784 per share and preferred warrants to purchase 4,300 shares of our Series D Preferred Stock at a price of $1,000 per share.

On February 20, 2024, the last day the Company traded on Nasdaq, the Company assessed the classification of its equity-linked instruments and determined whether the Company had enough authorized and unissued shares to satisfy the Series D Preferred Warrants after consideration of the last contract entered into sequencing election. This resulted in the Series D Preferred Warrants being classified as a liability on this date. The fair value as of February 20, 2024, of the Series D Preferred Warrants waszero, due to the value of the Series C Preferred Stock and Series D Preferred Stock and related derivative liabilities and the credit and non-performance risk assumptions taken by the Company. The fair value of the Series D Preferred Warrants, as of March 31, 2024, was a liability of $625,908, with the change in fair value of warrant liability of $625,908 recorded as a loss in the condensed consolidated statement of operations for the three and nine months ended March 31, 2024. See Note 14 for additional disclosures related to the change in the fair value of the warrant liabilities.

September 2022 Warrants

On September 19, 2022, the Company completed, an equity offering in which it sold 750 units at $10,000 consisting of one share of Common Stock and one warrant for a total of 750 September 2022 Warrants with an exercise price of $10,000 (the “September 2022 Offering”). The Company also sold a further 90 September 2022 Warrants in an overallotment with an exercise price of $10,000 issued to the underwriters of the offering on September 19, 2022.

The September 2022 Warrants may be exercised at any time after issuance for one share of Common Stock of the Company at an exercise price of $10,000. The September 2022 Warrants also contain a beneficial ownership limitation of 4.99% which may be increased up to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to the Company of such increase. The warrants are not callable by the Company.

The Company determined the September 2022 Warrants should be classified as a liability as the warrants are redeemable for cash in the event of a fundamental transaction, as defined in the Warrant Agreement, pursuant to which the September 2022 Warrants were purchased, which includes a change in control. The Company has recorded a liability for the September 2022 Warrants at fair value on the issuance date with subsequent changes in fair value reflected in earnings. On September 19, 2022, the date of the Common Stock issuance, the Company determined the total fair value of the September 2022 Warrants to be $5,286,288. On March 31, 2024 and June 30, 2023, the Company determined the total fair value of the September 2022 Warrants to be $0 and $251,876, respectively. The change in fair value of the September 2022 Warrants liability recorded in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2024 were gains of $0 and $251,876, respectively. The change in fair value of the September 2022 Warrants liability recorded in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2023 were gains of $1,565,215 and $4,584,049, respectively. See Note 14 for additional disclosures related to the change in the fair value of the warrant liabilities.

March 2022 Warrants

On March 2, 2022, the Company completed the March 2022 Offering, an equity offering in which it sold 375 units at $40,000 consisting of one share of Common Stock and one warrant for a total of 375 March 2022 Warrants with an exercise price of $40,000. The Company also sold a further 56 March 2022 Warrants in an overallotment with an exercise price of $40,000 issued to the underwriters of the offering on April 1, 2022.

The March 2022 Warrants may be exercised at any time after issuance for one share of Common Stock of the Company at an exercise price of $40,000. The March 2022 Warrants are callable by the Company should the volume weighted average share price of the Company exceed $120,000 for each of 20 consecutive trading days following the date such warrants become eligible for exercise. The March 2022 Warrants also contain a beneficial ownership limitation of 4.99% which may be increased up to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to the Company of such increase.

The Company determined the March 2022 Warrants should be classified as a liability as the warrants are redeemable for cash in the event of a fundamental transaction, as defined in the Common Stock Purchase Warrant Agreement pursuant to which the March 2022 Warrants were purchased, which includes a change in control. The Company has recorded a liability for the March 2022 Warrants at fair value on the issuance date with subsequent changes in fair value reflected in earnings. On March 2, 2022, the date of the Common Stock issuance, the Company determined the total fair value of the March 2022 Offering Warrants to be $9,553,500 and on the date of the Common Stock issuance, the Company determined the total fair value of the April 2022 Overallotment to be $607,500. On March 31, 2024 and June 30, 2023, the Company determined the total fair value of the March 2022 Warrants to be $25,875 and $113,850, respectively. The change in fair value of the March 2022 Warrants liability recorded in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2024, were gains of $60,375 and $87,975, respectively. The change in fair value of the March 2022 Warrants liability recorded in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2023, were a loss of $169,050 and a gain of $1,728,450, respectively. See Note 14 for additional disclosures related to the change in the fair value of the warrant liabilities.

Series A and Series B Warrants

On June 2, 2021, the Company issued 50 Series A Warrants and 50 Series B Warrants (the Series B Warrants expired June 2, 2023) to the holder of the Old Senior Convertible Note. The Exchange Agreement pursuant to which the Old Senior Convertible Note was exchanged for the Senior Convertible Note, the Note to Preferred Stock Exchange Agreement and conversion to the Series C Preferred Stock did not impact the Series A Warrants and Series B Warrants previously issued and outstanding. The Series A Warrants may be exercised at any time after issuance for one share of Common Stock of the Company at an exercise price of $700,000. The Series A Warrants are callable by the Company should the volume weighted average share price of the Company exceed $1,300,000 for each of 30 consecutive trading days following the date such warrants become eligible for exercise. The Series A Warrants also contain a beneficial ownership limitation of 4.99% which may be increased up to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to the Company of such increase.

The Company determined the Series A and Series B Warrants should be classified as a liability as the warrants are redeemable for cash in the event of a fundamental transaction, as defined in the Senior Convertible Note, which includes a change in control. The Company has recorded a liability for the Series A Warrants and Series B Warrants at fair value on the issuance date with subsequent changes in fair value reflected in earnings. At March 31, 2024 and June 30, 2023, the Company determined the total fair value of the Series A Warrants to be $0 (Series B Warrants expired June 2, 2023). There wasno change in the fair value of the Series A Warrants liability recorded in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2024. The change in fair value of the Series A Warrants and Series B Warrants liability recorded in the unaudited condensed consolidated statements of operations for the three and nine months ended months ended March 31, 2023 were gains of $16,777 and $122,730, respectively. See Note 14 for additional disclosures related to the change in the fair value of the warrant liabilities.

Note 10 –Commitments and contingencies

Commitments

On August 17, 2020, the Company entered into an agreement with Bally’s Corporation, an operator of various online gaming and wagering services in the state of New Jersey, USA, to assist the Company in its entrance into the sports wagering market in New Jersey under the State Gaming Law. The commencement date of the arrangement with Bally’s Corporation was March 31, 2021. The Company paid $1,550,000 and issued 2 shares of Common Stock in connection with the commencement of the arrangement. The Bally’s Corporation agreement extends for 10 years from July 1, 2021, the date of commencement, requiring the Company to pay $1,250,000 and issue 1 share of Common Stock on each annual anniversary date. As of March 31, 2024, the future annual commitments by the Company under this agreement are estimated at $1,250,000 and 1 share of Common Stock payable each year through the year ended June 30, 2030. During each of the three and nine months ended March 31, 2024 and 2023, the Company recorded $340,890 and $1,019,556, and respectively, in sales and marketing expense for its arrangement with Bally’s Corporation. There was approximately $2,266,280 and $1,250,000 in accounts payable and accrued expenses in the unaudited condensed consolidated financial statements outstanding and payable to Bally’s Corporation as of March 31, 2024 and June 30, 2023, respectively. 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. On September 28, 2023, the Company entered into an online wagering and services agreement with Delasport Limited that has an initial term of 18 months with subsequent annual renewals. The agreement has annual commitment of approximately $385,000.

The Company has signed a subscription and operating agreement with Game Fund Partners LLC to support the development of a planned $300,000,000 game fund. Under the agreements, the Company will initially invest approximately $2,000,000 of Company shares into 20% of the general partnership of the fund, and the Company will become part of the management and investment committee that manages an investment fund focused on joint projects and investment vehicles to fuel growth in the areas of gaming, data, blockchain, online gaming, and joint casino hotel investments. The Company has agreed to contribute 3 shares to the fund during the period in which the fund receives total capital commitments of $100,000,000. The Company has agreed to contribute an additional 3 shares to the fund during the period in which the fund reaches total capital commitments of $200,000,000. As of March 31, 2024, the Company has not contributed any shares of its Common Stock to the fund.

In the ordinary course of business, the Company enters into multi-year agreements to purchase sponsorships with professional teams as part of its marketing efforts to expand competitive esports gaming. During the three and nine months ended March 31, 2024, the Company recorded $89,560 and $270,648, respectively, and during the three and nine months ended March 31, 2023, the Company recorded $146,840 and $963,023, respectively, in sales and marketing expense for these arrangements. As of March 31, 2024, the commitments under these agreements are estimated at approximately $70,000 for the remainder of the year ending June 30, 2024 and approximately $225,000 for the year ended June 30, 2025.

Contingencies

On November 7, 2023, the Company entered into a confidential settlement agreement and general release (the “Legal Settlement Agreement”) with Grant Johnson, the former Chairman of the board of directors and Chief Executive Officer of the Company, with respect to all disputes and pending litigation between the Company and Mr. Johnson. Pursuant to the Legal Settlement Agreement, the parties have agreed to settle and resolve any and all disputes between the parties, including without limitation, disputes arising out of or relating to the following litigation:

Pursuant to the Legal Settlement Agreement, Mr. Johnson and the Company settled the Actions and provided a general release of all claims, whether or not raised in the pending litigation, and included mutual non-disparagement agreements. No party admitted any liability by entering into the Legal Settlement Agreement. Pursuant to the Legal Settlement Agreement, the Company has agreed to make an aggregate payment of $500,000 in cash to Mr. Johnson (which among includes attorneys’ fees and costs), comprised of an initial payment of $50,000 beginning approximately thirty (30) days after the signing of the Legal Settlement Agreement, with subsequent payments of $50,000 due on each subsequent thirtieth (30th) day of each month thereafter until fully paid. The case regarding the above Actions and settlement is captioned Grant Johnson v. Esports Entertainment Group, Inc. 1:22-cv-10861 (SDNY). As of March 31, 2024, the Company has recorded $300,000 as a liability in accounts payable and other accrued expenses in the unaudited condensed consolidated balance sheet and an expense of $0 and $500,000 for the three and nine months ended March 31, 2024, in general and administrative expenses in the unaudited condensed consolidated statement of operations.

On March 31, 2022, the Company filed a statement of claim against Metaverse Partners for breach of contract, fraud and defamation. The Company seeks damages in an amount to be determined at the upcoming hearing, but not less than $50,000 plus interest at the statutory rate, and an order directing the defendant to discontinue their extortion and defamation. Subsequently, on May 17, 2022, Metaverse Partners filed counterclaims in arbitration against the Company and former CEO for breach of contract, fraud and defamation claiming damages of not less than $5,000,000. The Company and Metaverse Partners have agreed to an arbitration hearing to take place in June 2024 to resolve any potential disputes pursuant to previous dealings between the companies. At this time we are unable to reasonably estimate a potential liability, if any, and expect to vigorously defend on this matter.

The Company at times may be involved in pending or threatened litigation relating to claims arising from its operations in the normal course of business. Some of these proceedings may result in fines, penalties, judgments or costs being assessed against the Company at some future time.

In determining the appropriate level of specific liabilities, if any, the Company considers a case-by-case evaluation of the underlying data and updates the Company’s evaluation as further information becomes known. Specific liabilities are provided for loss contingencies to the extent the Company concludes that a loss is both probable and estimable. Other than related to the Legal Settlement Agreement discussed above, the Company did not have any liabilities recorded for loss contingencies as of March 31, 2024 and June 30, 2023. However, the results of litigation are inherently unpredictable, and the possibility exists that the ultimate resolution of one or more of these matters could result in a material effect on the Company’s financial position, results of operations or liquidity.

Other than as discussed above, the Company is currently not involved in any other litigation that it believes could have a material adverse effect on the Company’s financial condition or results of operations.

Note 11 –Revenue and Geographic Information

The Company is a provider of iGaming, traditional sports betting and esports services that commenced revenue generating operations during the year ended June 30, 2021 with the acquisitions of Argyll, Flip Sports Limited (“FLIP”), EGL, Lucky Dino, and GGC. The Company acquired Bethard in July 2021 adding to its revenue generating operations. The revenues and long-lived assets of Lucky Dino, Argyll (until November 30, 2022 when no further bets were taken as part of the winding down of the Argyll operations), Bethard (until February 2023 when the operations of Bethard were sold), EGL (until disposed of on June 30, 2023), have been identified as the international operations as they principally service customers in Europe, inclusive of the United Kingdom. The revenues and long-lived assets of GGC principally service customers in the United States. The Company’s remaining businesses of Lucky Dino and GGC are the primary revenue generators for fiscal 2024.

A disaggregation of revenue by type of service for the three and nine months ended March 31, 2024 and 2023 is as follows:

A summary of revenue by geography follows for the three and nine months ended March 31, 2024 and 2023 is as follows:

The Company’s revenue from EEG iGaming is principally recognized at the point in time when gaming occurs. The Company’s EEG Games revenue is recognized at a point in time for hardware and equipment and consulting services typically when a customer obtains control or receives the service and over time for subscriptions, maintenance, licensing and event management using the input method of time lapsed to measure the progress toward satisfying the performance obligation. A summary of revenue recognized at a point in time or over time is for the three months ended March 31, 2024 and 2023 is as follows:

The deferred revenue balances were as follows:

The majority of the deferred revenue at March 31, 2024 is expected to be recognized over the twelve months ending March 31, 2025.

A summary of long-lived assets by geography at March 31, 2024 and June 30, 2023 is as follows:

Note 12 –Equity

Common Stock

The following is a summary of common stock issuances for the nine months ended March 31, 2024:

As discussed below, the Company obtained a partial waiver of the Holder’s Redemption Amounts, for the nine months ended March 31, 2024, the Company sold an aggregate of 515,394 shares through “at the market” (or “ATM”) sales (“ATM Sales”) for gross proceeds of $5,452,460. The net proceeds from these ATM Sales under the ATM equity offering program of approximately $5,248,886 were allocated 50% to the Company, and 50% to the Holder, pursuant to the October Settlement Agreement. Fees paid to the agent related to these ATM Sales were approximately $203,574. As of March 31, 2024, there were no remaining Redemption Proceeds (as defined below) instructed for deposit into the Escrow Account for the Holder. During the three and nine months ended March 31, 2024, there was $2,295,822 of the Redemption Proceeds (as defined below) disbursed from the Escrow Account to the Holder for redemption of $2,609,011 of Series D Preferred Stock and $8,931 in accrued dividends for 2,489 shares of Series D Preferred Stock. As of March 31, 2024, the following these conversions, the number Series D Preferred Stock shares outstanding reduced to 1,811 from 4,300 at June 30, 2023, and $1,903,252 in aggregate amount of the Series D Preferred Stock remained outstanding, offset by a remaining discount of $724,658 that is being amortized on a straight line basis through March 7, 2026.

During the nine months ended March 31, 2024, in connection with the rounding up from the Reverse Stock Split December 2023, the Company issued 81,051 shares of common stock at par value.

The following is a summary of Common Stock issuances for the nine months ended March 31, 2023:

Equity Distribution Agreement

On September 15, 2023, the Company entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim Group”) under which the Company sold, from time to time at its sole discretion, shares of the Company’s common stock, par value $0.001 per share, with aggregate gross sales proceeds of up to $7,186,257 through an ATM equity offering program under which Maxim Group acted as sales agent.

Under the Equity Distribution Agreement, the Company set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Equity Distribution Agreement, Maxim Group sold the shares by methods deemed to be an ATM equity offering as defined in Rule 415 promulgated under the Securities Act, including by means of ordinary brokers’ transactions at market prices, in block transactions or as otherwise agreed by Maxim and us.

The Equity Distribution Agreement provided that Maxim Group was entitled to compensation for its services equal to 3.0% of the gross proceeds of any shares of common stock sold through Maxim Group under the Equity Distribution Agreement. The Company had no obligation to sell any shares under the Equity Distribution Agreement, and could have at any time suspended solicitation and offers under the Equity Distribution Agreement.

The shares were issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-252370) and its registration on Form S-3 MEF (File No. 333-274542). The Company filed a prospectus supplement, dated September 15, 2023, with the SEC in connection with the offer and sale of the shares pursuant to the Equity Distribution Agreement (the “Prospectus Supplement”).

The Equity Distribution Agreement contained customary representations, warranties and agreements of the Company and customary conditions to completing future sale transactions, indemnification rights and obligations of the parties and termination provisions.

As part of the filing of the Equity Distribution Agreement, the Company entered into a waiver agreement (“EDA Waiver”) on September 15, 2023, with the Holder of the Series C Preferred Stock and the Series D Preferred Stock, as a condition to filing the registration statement on Form S-3 MEF on September 15, 2023 and the prospectus supplement on September 15, 2023 for the “at the market” offering. The EDA Waiver allowed the Company to proceed with the initial filing of such registration statement and prospectus supplement with the SEC and not with respect to (x) any subsequent amendment or supplement thereto, (y) the issuance and sale of any of the Company’s securities contemplated by thereby or (z) any future Subsequent Placement (as defined in the Securities Purchase Agreement, dated April 30, 2023, among the Company and the buyers named therein).

The Company is unable to further use the ATM facility due to its voluntary delisting and suspension from Nasdaq and subsequent trading on the OTC.

The Company also entered into a waiver agreement (“October 2023 Waiver”) on October 6, 2023, with the Holder, as a condition to access any net proceeds from the future sale of shares of common stock under the Company’s previously announced ATM equity offering program pursuant to a prospectus supplement that was filed with the SEC on September 15, 2023. The Holder agreed to partially waive its rights to ATM proceeds under the terms of a Subsequent Placement Optional Redemption, as defined in each of the Preferred Stock Certificates of Designations, but only with respect to sales under the ATM equity offering program (“ATM Sales”) and not with respect to any other future Subsequent Placement (as defined in each of the Preferred Stock Certificates of Designations) and, further, only to the extent of a waiver that provide that 50% of the net proceeds from ATM Sales (after deducting the agent’s commissions pursuant to the ATM offering and other reasonable and customary offering expenses) be retained by the Company and the remaining 50% of the net proceeds from ATM Sales be used by the Company to redeem first, the outstanding shares of Series D Preferred Stock and second, the outstanding shares of Series C Preferred Stock (“Redemption Proceeds”), unless the Holder elects to change such allocations (or waive such redemption, in whole or in part, with respect to one or more ATM Sales) as evidenced by a written notice to the Company (“Subsequent Placement Limited Waiver”). Concurrent with the execution of the October 2023 Settlement Agreement, the Company executed an escrow agreement (“Escrow Agreement”) with an independent third-party escrow agent (“Escrow Agent”), pursuant to which Redemption Proceeds received from each closing of ATM Sales shall be promptly deposited into a non-interest bearing escrow account (“Escrow Account”) and disbursed to the Holder under the terms and conditions contained in the August 2023 Settlement Agreement and the Escrow Agreement.

Common Stock Warrants and Preferred Stock Warrants

On August 15, 2023, as described above, the Company closed the August RD SPA agreement with the Holder. The August RD SPA relates to the offering of

On May 22, 2023, as described below, the Company closed the issuance of the Series D Preferred Stock, that included the issuance of

for total gross proceeds to the Company of $4,300,000 before deducting underwriting discounts and commissions of $341,000, for net proceeds of $3,959,000, with the Series D Preferred Warrants to purchase the Series D Preferred Stock as a potential source of additional funds.

Series D Convertible Preferred Stock Common Warrants

The 3,583 Series D Common Warrants may be exercised at any time after issuance for one share of Common Stock of the Company at a price of $784.00 per share. The Series D Common Warrants also contain a beneficial ownership limitation of 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice to the Company of such increase. The warrants are not callable by the Company.

A summary of the common stock warrant activity follows:

Common Stock Options

On September 10, 2020, the Board adopted the 2020 Equity and Incentive Plan (the “2020 Plan”) that provides for the issuance of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to officers, employees, directors, consultants, and other key persons. Under the 2020 Plan, the maximum number of shares of Common Stock authorized for issuance was 38 shares. Each year on January 1, for a period of up to nine years, the maximum number of shares authorized for issuance under the 2020 Plan is automatically increased by 6 shares. At March 31, 2024, there was a maximum of 61 shares of Common Stock authorized for issuance under the 2020 Plan. There were no additional equity awards eligible for issuance from the 2017 Stock Incentive Plan that had been adopted by the Company on August 1, 2017. The outstanding stock options granted under the 2017 Stock Incentive Plan were transferred to the 2020 Plan. As of March 31, 2024, there were 53 shares of Common Stock available for future issuance under the 2020 Plan. On January 3, 2023, separate from the 2020 Plan, the Company issued an award of 63 time-based stock options to the Chief Executive Officer with an exercise price of $2,944 per option. The Chief Executive Officer’s stock options will vest in equal quarterly installments over a one-year period subject to his continued employment with the Company on the applicable vesting dates.

A summary of the Company’s stock option activity is as follows:

As of March 31, 2024, the weighted average remaining life of the options outstanding was 8.01 years. There are 71 options exercisable at March 31, 2024, with a weighted average exercise price of $33,177. As of March 31, 2024, there was no remaining unamortized stock compensation for stock options.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of blank check preferred stock.

Series C Convertible Preferred Stock and Series D Convertible Preferred Stock

Reclassification of the Series C Convertible Preferred Stock

The Company assesses classification of its equity-linked instruments at each reporting date to determine whether a change in classification between equity and liabilities (assets) is required. The Company can make an accounting policy election on the allocation order and choose the policy that management determines is most favorable. The Company elected to reclassify outstanding instruments based on allocating the unissued shares to contracts with the latest inception date resulting in the contracts with the earliest inception date being recognized as liabilities first. Due to the issuances of shares during the nine months ended March 31, 2024, and the lack of authorized and unissued shares available, the Company was required to assess its classification of its equity instruments during this period. On December 5, 2023 the Company determined it did not have enough authorized and unissued shares to satisfy the Series C Preferred Stock and using the last contract entered into sequencing election. The Company determined that it was required to reclassify the Series C Preferred Stock out of stockholders’ equity and the carrying amount of the Series D Preferred Stock was reclassed to Mezzanine equity in the unaudited condensed consolidated balance sheet and the Company determined that a derivative related to the conversion feature was required. The carrying amount of the Series C Preferred Stock was reclassed to Mezzanine equity in the condensed consolidated balance sheet of $3,524,665, less the $1,820,000 Original Series C Derivative value that was recorded as a discount to the Series C Preferred Stock, that was immediately accreted to the Series C Preferred Stock.

Reclassification of the Series D Convertible Preferred Stock

On February 20, 2024, the last day the Company traded on Nasdaq, the Company assessed the classification of its equity-linked instruments to determine whether the Company had enough authorized and unissued shares to satisfy the Series D Preferred Stock and using the last contract entered into sequencing election. Previous to this date the Series D Preferred Stock was limited by the Nasdaq listing rules on certain instruments. On February 20, 2024 the Company determined it did not have enough authorized and unissued shares to satisfy the Series D Preferred Stock and using the last contract entered into sequencing election. The Company determined that it was required to reclassify the Series D Preferred Stock out of stockholders’ equity and the carrying amount of the Series D Preferred Stock was reclassed to Mezzanine equity in the unaudited condensed consolidated balance sheet and the Company determined that a derivative related to the conversion feature was required consistent with the Series C Preferred Stock. The carrying amount of the Series D Preferred Stock was reclassed to Mezzanine equity in the condensed consolidated balance sheet of $1,759,629, less the $422,141 Original Series D Derivative value that was recorded as a discount to the Series D Preferred Stock, that was immediately accreted to the Series D Preferred Stock.

Agreement to Amend and Restate the Terms of the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock

On March 7, 2024, in connection with the Secured Note Agreement, the Company amended and restated its Series C Preferred Stock and Series D Preferred Stock Certificates of Designations (the “Preferred Stock CODs, as amended and restated”, the transactions are referred to as the “Amendments”), to include the following key amendments:

The Amendments resulted in an extinguishment of the Series C Preferred Stock and the Series D Preferred Stock and they were recorded at their new fair value.

On March 7, 2024, the date of the Amendments, the Series C Preferred Stock was extinguished and recorded to a fair value of $2,191,543, and a gain on extinguishment of $1,132,872 was recorded in additional paid-in capital in the consolidated condensed balance sheet and as a gain on extinguishment in the net loss attributable to common stockholders. The Company also recorded a derivative of $224,762 related to the Series C Preferred Stock. The difference between the fair value and the stated value of the Series C Preferred Stock created a total discount of the $1,357,634 on the Series C Preferred Stock that is accreted on a straight line basis over the two year period to the maturity date of March 7, 2026, up to the stated value of $3,549,177. As of March 31, 2024, $45,254 of the discount was accreted out to the Series C Preferred Stock.

On March 7, 2024, the date of the Amendments, the Series D Preferred Stock was extinguished and recorded to a fair value of $1,153,604, and a gain on extinguishment of $629,145 was recorded in additional paid-in capital in the consolidated condensed balance sheet and as a gain on extinguishment in the net loss attributable to common stockholders. The Company also recorded a derivative of $120,501 related to the Series D Preferred Stock. The difference between the fair value and the stated value of the Series D Preferred Stock created a total discount of the $749,646 on the Series D Preferred Stock that is accreted on a straight line basis over the two year period to the maturity date of March 7, 2026, up to the stated value of $1,903,252. As of March 31, 2024, $24,990 of the discount was accreted out to the Series D Preferred Stock.

During the three and nine months ended March 31, 2024, the Company had recorded dividends in total of $33,832 and $589,421, and Alternate Conversion Floor Amounts (as defined in the Preferred Stock Certificates of Designations) of $0 and $4,805,990 for the Series C Preferred Stock and the Series D Preferred Stock, respectively. The Series C Preferred Stock, had a stated value of $3,549,177 and $14,805,438, with cumulative dividends accrued, including the Alternative Conversion Floor Amounts (as defined in the Preferred Stock Certificates of Designations), in total of $1,774,177 and $204,414, and per share of $1,000 and $14, as of March 31, 2024 and June 30, 2023, respectively. The Series D Preferred Stock, had a total value of $1,903,252 and $4,337,267, with cumulative dividends accrued, (as defined in the Preferred Stock Certificates of Designations), in total of $92,189 and $37,267, and per share of $51 and $9, as of March 31, 2024 and June 30, 2023, respectively.

The incremental value of the Alternate Conversion Floor Amounts make whole provisions of $0 and $4,805,990, for the three and nine months ended March 31, 2024, is presented on the unaudited condensed consolidated statement of operations as an addition to the net loss available to common stockholders.

The August 2023 Settlement Agreement provided 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 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.

As part of the August 2023 Settlement Agreement and the October 2023 Settlement Agreement and subsequent Further Settlements, the Company triggered the anti-dilution down round price protection provisions of the Series C Preferred Stock and Series D Preferred Stock that allows for the conversion at the conversion price described above. 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 stockholders’ equity associated with the reduction in conversion price in effect prior to each settlement to the price of the settlement, as applicable, and as adjusted pursuant to section 9(d)i of the Series C Preferred Stock and Series D Preferred Stock Certificates of Designations whereby the conversion price was set to $2.2997 based off of 80% of the average of the 3 lowest VWAPs during the 16 trading days following the Reverse Stock Split December 2023 date of December 22, 2023. The total incremental value is presented on the unaudited condensed consolidated statement of operations as an addition to the net loss available to common stockholders of $3,586,295 and $23,949,067 in the three and nine months ending March 31, 2024, respectively (as described above). The incremental value was determined by computing the additional shares the Series C Preferred Stock and Series D Preferred Stock that would be received based on the conversion price reduction multiplied by the estimated fair value of common stock of $77.40 as of August 17, 2023, $38.60 as of October 6, 2023, $17.04 as of November 10, 2023, $11.92 as of November 17, 2023, $10.88 as of November 24, 2023, $7.44 as of December 1, 2023 and $2.2997 as of December 19, 2023 (as described above).

Registration Right Agreement

As discussed above, pursuant to a Series D RRA between the Holder and the Company, the Company granted certain registration rights to the Investor. The Series D SPA 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 Series D SPA also covers the conversion of any shares of Series D Preferred Stock issued upon exercise of the Series D Preferred Warrants. The Company was required to file the registration statement within 60 days from the closing of the transactions contemplated by the Series D SPA and cause the registration statement to be declared effective within 120 days after the closing of the transactions contemplated by the Securities Purchase Agreement. The Series D SPA contains mutual customary indemnification provisions among the parties and requires the Company to make certain cash payments in connection with the 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. On the amendment of the Series D Preferred Stock there is no longer a requirement to have the shares registered.

Series E Redeemable Preferred Stock

On January 5, 2024, the Company entered into a Subscription and Investment Representation Agreement with a former member of management, pursuant to which the Company agreed to issue and sell one hundred (100) shares of the Company’s Series E Redeemable Preferred Stock, par value $0.001 per share, for $10 per share in cash (the “Series E Preferred Stock”). The sale closed on January 5, 2024.

On January 5, 2024, the Company filed a certificate of designations (the “Series E Certificate of Designations”) 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 Series E Preferred Stock. The Certificate of Designation provided that one hundred (100) shares of Series E Preferred Stock will have 6,000,000 votes each and will vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any proposal of an amendment to the Company’s articles of incorporation to increase the authorized shares of Common Stock (the “Authorized Share Increase Proposal”) or any proposal to adjourn the annual or special meeting related to an Authorized Share Increase Proposal, if applicable.

Stock-Based Compensation

During the three and nine months ended March 31, 2024, the Company recorded stock-based compensation expense of $0 and $42,156, respectively, for the amortization of stock options and the issuance of Common Stock to employees and contractors for services which has been recorded as general and administrative expense in the unaudited condensed consolidated statements of operations. During the three and nine months ended March 31, 2023, the Company recorded stock-based compensation expense of $0 and $1,127,070, respectively, for the amortization of stock options and the issuance of Common Stock to employees and contractors for services which has been recorded as general and administrative expense in the unaudited condensed consolidated statements of operations.

As of March 31, 2024, there wasno remaining unamortized stock compensation for stock options. No options were granted during the three or nine months ended March 31, 2024.

Note 13 –Other Non-Operating Income (Loss), Net

Other non-operating income (loss), net, for the three and nine months ended March 31, 2024 and 2023 was as follows:

Note 14 –Fair Value Measurements

The following financial instruments were measured at fair value on a recurring basis:

A summary of the changes in Level 3 financial instruments for the nine months ended March 31, 2024 and the year ended June 30, 2023 is as follows:

The contingent consideration was settled on February 24, 2023, as part of the disposal of the Bethard Business and the derivative liability were eliminated on the April 28, 2023, on the conversion of the Senior Convertible Note to the Series C Preferred Stock (Note 9). Derivative liabilities were recorded on the Series C Preferred Stock and Series D Preferred Stock as the Company did not have enough authorized and unissued shares to settle all the outstanding balance (Note 9). The Original Series C Derivative liability and the Original Series D Derivative liability were extinguished on the Amendment and the New Series C Derivative liability and the New Series D Derivative liability were recorded (Note 9).

The Series D Preferred Stock Warrants were classified as Level 3 as they are not publicly traded (Note 9). The Series D Preferred Stock Warrants were valued using a Monte Carlo valuation model for the warrants outstanding at February 20, 2024 on the delisting and March 31, 2024 with the following assumptions:

On February 20, 2024 the Series D Preferred Stock Warrants hadzero value due to the value of the Series C Preferred Stock and Series D Preferred Stock and related derivative liabilities and the credit and non-performance risk assumptions.

The September 2022 Warrants were classified as Level 3 as they are plain vanilla warrants and are not callable by the Company (Note 9). The September 2022 Warrants were valued using a Black Scholes valuation model for the warrants outstanding at March 31, 2024 and June 30, 2023 with the following assumptions:

The March 2022 Warrants were classified as Level 1 as they are publicly traded. They are callable by the Company if certain criteria are met (Note 9). The March 2022 Warrants outstanding at March 31, 2024 and June 30, 2023 were valued using the following trading price information:

The Series A Warrants outstanding at March 31, 2024 and June 30, 2023 were valued using a Monte Carlo valuation model with the following assumptions:

The Series B Warrants expired on June 2, 2023.

The value of the Original Series C Derivative liability on the Series C Preferred Stock at March 7, 2024, the date of the Amendment and December 5, 2023, the date of reclassification of the Series C Preferred Stock, was valued using a nonperformance risk adjusted Monte Carlo valuation model using total assets with the following valuation assumptions:

The value of the Original Series D Derivative liability on the Series D Preferred Stock at March 7, 2024, the date of the Amendment and February 20, 2024, the date of reclassification of the Series D Preferred Stock, was valued using a nonperformance risk adjusted Monte Carlo valuation model using total assets with the following valuation assumptions:

The value of the derivative liability on the Series C Preferred Stock and Series D Preferred Stock at March 31, 2024 and March 7, 2024, subsequent to the Amendment, were valued using a nonperformance risk adjusted Monte Carlo valuation model using total assets with the following valuation assumptions:

The fair value of a derivative instrument in a liability position includes measures of the Company’s nonperformance risk. Significant changes in nonperformance risk used in the fair value measurement of the derivative liability may result in significant changes to the fair value measurement. The calculated make-whole liability may differ materially from the amount the Company may be required to pay under the Series C Preferred Stock and Series D Preferred Stock.

The following is information relative to the Company’s derivative instruments in the unaudited condensed consolidated balance sheet as of March 31, 2024:

The effect of the derivative instruments on the unaudited condensed consolidated statements of operations is as follows:

Assets Measured on a Nonrecurring Basis

Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. This includes the evaluation of long-lived assets, goodwill and other intangible assets for impairment. The Company’s estimates of fair value required it to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain.

The Company assesses the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates goodwill for impairment at least annually or when triggering events occur. The Company assesses the fair value of goodwill using the income approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant.

The Company uses undiscounted future cash flows of the asset or asset group for equipment and intangible assets. The Company estimated the fair value when conducting the long-lived asset impairment tests primarily using an income approach and used a variety of unobservable inputs and underlying assumptions consistent with those discussed above for purposes of the Company’s goodwill impairment test (See Note 5 and Note 6).

Note 15 –Segment Information

The Company operates its business and reports its results through two complementary operating and reportable segments: EEG iGaming and EEG Games, in accordance with ASC Topic 280, Segment Reporting.

EEG iGaming includes the Company’s iGaming casino. Currently, the Company operates the business to consumer segment primarily in Europe.

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.

Operating segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The CODM assesses a combination of metrics such as revenue and Adjusted Segment EBITDA to evaluate the performance of each operating and reportable segment.

The Company utilizes Adjusted Segment EBITDA (as defined below) as its measure of the performance of its operating segments. The following table highlights the Company’s revenues and Adjusted Segment EBITDA for each reportable segment and reconciles Adjusted Segment EBITDA on a consolidated basis to net loss. Total capital expenditures for the Company were not material to the consolidated financial statements.

A measure of segment liabilities has not been currently provided to the Company’s CODM and therefore is not shown below. Segment assets are shown due to the significant asset impairment charges recorded during the nine months ended March 31, 2024. The following tables present the Company’s segment information:

Note 16 –Income Taxes

During the three and nine months ended March 31, 2024, and the year ended June 30, 2023, the Company recorded no material current taxes, remained in a cumulative loss position in all jurisdictions, and maintained a full valuation allowance position against any deferred tax assets in the jurisdictions it operated in, thus recording no deferred tax benefits or expenses.

Note 17 –Subsequent Events

Resignation of Chief Financial Officer, Chief Operating Officer and Chief People Officer

In connection with cost reductions and streamlining of business operations at the Company, Michael Villani, Chief Financial Officer, Damian Mathews, Chief Operating Officer, and Jenny Pace, Chief People Officer resigned from their respective positions with the Company, effective April 30, 2024. Mr. Mathews shall remain in his position as a member of the Company’s Board of Directors. The resignations of Mr. Villani, Mr. Mathews and Ms. Pace were not the result of any disagreements with the Company on any matter relating to the Company’s operations, policies, or practices.