As filed with the U.S. Securities and Exchange Commission on March 30, 2020

Registration No. 333-231167

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM S-1/A

(Amendment No. 5)
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

_________________

ESPORTS ENTERTAINMENT GROUP, INC.

(Exact name of registrant as specified in charter)

_________________

 

Nevada

 

7900

 

26-3062752

   
   

(State or other jurisdiction
of incorporation)

 

(Primary Standard Classification
Code Number)

 

(IRS Employer
I.D. Number)

   

170 Pater House, Psaila Street
Birkirkara, Malta, BKR 9077
(268) 562-9111
(Address and telephone number of principal executive offices)

_________________

(Address of principal place of business or intended principal place of business)

_________________

Grant Johnson
Chief Executive Officer
170 Pater House, Psaila Street
Birkirkara, Malta, BKR 9077
(268) 562-9111

(Name, address, including zip code, and telephone number including area code, of agent for service)

_________________

With copies to:

 

Joseph M. Lucosky, Esq.
Lawrence Metelitsa, Esq.
Lucosky Brookman LLP
101 Wood Avenue South, 5
th Floor
Woodbridge, NJ 08830
Tel. No.: (732) 395
-4400
Fax No.: (732) 395-4401

 

Steven D. Uslaner, Esq.
Mark F. Coldwell, Esq.
Littman Krooks LLP
655 Third Avenue, 20
th Floor
New York, NY 10017
Tel. No.: (212) 490
-2020
Fax No.: (212) 490
-2990

   

_________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. £

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. £

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

 

Large-Accelerated Filer

 

£

 

Accelerated Filer

 

£

   

Non-Accelerated Filer

 

S

 

Smaller Reporting Company

 

S

           

Emerging Growth Company

 

£

 

Title of Each Class of Securities to be Registered

 

Proposed
Maximum
Aggregate
Offering
Price
(1)

 

Amount of
Registration
Fee
(1)

Units(2)

 

$

11,500,000

(3)

 

$

1,492.70

 

Common Stock, par value $0.001, included in the units(4)

 

 

(6)

 

 

(6)

Warrants to Purchase Common Stock, included in the units(5)

 

 

(6)

 

 

(6)

Shares of Common Stock issuable upon exercise of the Warrants included in the units(4)(5)

 

$

23,000,000

(3)

 

 

2,985.40

 

Representatives’ Warrant to Purchase Common Stock(7)

 

 

N/A

 

 

 

N/A

 

Shares of Common Stock issuable upon exercise of Representatives’ Warrant(4)

 

$

1,437,500

 

 

 

186.59

 

Total

 

$

35,937,500

 

 

$

4,664.69

(8)

____________

(1)      Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

(2)      Each unit consists of one share of common stock, $0.001 par value per share, and two warrants each to purchase one share of common stock, $0.001 par value per share.

(3)      Includes units and shares of common stock and/or warrants to purchase common stock the underwriters have the option to purchase to cover over-allotments, if any.

(4)      Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.

(5)      The warrants are exercisable at a per share price equal to the public offering price.

(6)      Included in the price of the units. No fee required pursuant to Rule 457(g) under the Securities Act.

(7)      In accordance with Rule 457(g) under the Securities Act, because the shares of the Registrant’s common stock underlying the Warrants and Representative’s warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.

(8)      $3,451.87 previously paid.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION

 

DATED MARCH 30, 2020

2,000,000 Units

   
   

   

Esports Entertainment Group, Inc.

   

We are offering 2,000,000 units, with each unit consisting of one share of our common stock, $0.001 par value per share and two warrants (“Unit A Warrant” and “Unit B Warrant”), each to purchase one share of our common stock. We anticipate a public offering price between $4.00 and $6.00 per unit. The shares of common stock and the warrants comprising the units are immediately separable and will be issued separately in this offering. The warrants included in the units are exercisable immediately and have an exercise price of $5.00 per share (100% of the public offering price based on an assumed initial offering price of $5.00 per unit, the mid-point of the anticipated price range). The Unit A Warrants will be listed for trading as described below and will expire five years from the date of issuance. We do not intend to list the Unit B Warrants for trading on any stock market or exchange and such warrants will expire 12 months from the date of issuance. All share and per-share information, as well as all financial information, contained in this prospectus has been adjusted to give effect to the one-for-fifteen (1-for-15) reverse stock split, which was effective at the commencement of trading of our common stock on January 28, 2020. Furthermore, the 2,000,000 unit amount referenced above is based on the units being sold at the mid-point of the estimated offering price range of $5.00 per unit and such unit amount shall change if the unit price is less than $5.00 in such manner to maintain the gross proceeds at $10 million. For instance, if the unit price is $4.00 per unit, the number of units to be sold in the offering shall be 2,500,000. The units will not be issued or certificated. Purchasers will receive only shares of common stock and warrants. The shares of common stock and warrants may be transferred separately, immediately upon issuance. The offering also includes the shares of common stock issuable from time to time upon exercise of the warrants.

Our common stock is presently quoted on OTC Markets Group Inc. OTCQB quotation system (the “OTCQB”) under the trading symbol “GMBLD”. We have applied to have our common stock and Unit A Warrants listed on The Nasdaq Capital Market under the symbols “GMBL” and “GMBLW,” respectively. No assurance can be given that our application will be approved. On March 26, 2020, the last reported sale price for our common stock on the OTCQB was $3.75. There is no established public trading market for the warrants. No assurance can be given that a trading market will develop for the Unit A Warrants on the Nasdaq Capital Market. Quotes for shares of our common stock on the OTCQB may not be indicative of the market price on The Nasdaq Capital Market.

AHG Entertainment Group, an affiliate of Argyll Entertainment AG (an entity that we may be acquiring as described in this prospectus) has indicated an interest in purchasing $1 million of units in this Offering. However, because an indication of interest is not a binding agreement or commitment to purchase, the underwriters may determine to sell more, fewer or no units in this offering to AHG Entertainment Group, or AHG Entertainment Group may determine to purchase more, fewer or no shares in this offering.”

The actual offering price per unit was negotiated between Maxim Group LLC and Joseph Gunnar & Co. LLC (the “Underwriters”) and us at the time of pricing. The market price of our common stock is only one of several factors that was considered in determining the actual offering price. See “Underwriting — Market Information.”

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Per Unit(1)

 

Total

Public offering price

 

$

   

$

 

Underwriting discounts and commissions(2)

 

$

   

$

 

Proceeds to us, before expenses

 

$

   

$

 

(1)       The public offering price and underwriting discount in respect of the Units corresponds to (i) a public offering price per share of common stock of $____ and (ii) a public offering price per warrant of $0.001. Each unit consists of one share of common stock and two warrants, each to purchase one share of common stock.

(2)       Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Maxim Group LLC, the representative of the underwriters. See “Underwriting” for a description of compensation payable to the Underwriters.

We have granted a 45-day option to the representative of the underwriters to purchase up to 300,000 additional shares of our common stock and/or 600,000 additional warrants to purchase shares of common stock to be offered by us, solely to cover over-allotments, if any. If the underwriters exercise their right to purchase additional shares and/or warrants to cover over-allotments in full, we estimate that we will receive gross proceeds of $11,500,000 from the sale of approximately 2,300,000 units being offered, at an assumed public offering price of $5.00 per unit, the mid-point of the range described on the cover of this prospectus, and net proceeds of $         after deducting $         for underwriting discounts and commissions. The securities issuable upon exercise of the underwriter option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.

The underwriters expect to deliver our shares and warrants to purchasers in the offering on or about ______, 2020.

Lead Book-Running Manager

 

Co-Book-Running Manager

Maxim Group LLC

 

Joseph Gunnar & Co.

The date of this prospectus is _______ __, 2020

 

TABLE OF CONTENTS

 

Page

PROSPECTUS SUMMARY

 

1

RISK FACTORS

 

14

USE OF PROCEEDS

 

41

MARKET FOR OUR COMMON STOCK

 

42

CAPITALIZATION

 

43

DILUTION

 

44

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

46

BUSINESS

 

51

MANAGEMENT

 

60

EXECUTIVE COMPENSATION

 

65

PRINCIPAL SHAREHOLDERS

 

71

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

72

DESCRIPTION OF SECURITIES

 

74

UNDERWRITING

 

78

TRANSFER AGENT AND REGISTRAR

 

88

LEGAL MATTERS

 

88

EXPERTS

 

88

INDEMNIFICATION

   

WHERE YOU CAN FIND MORE INFORMATION

 

88

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-1

You should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.

i

PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under the heading “Risk Factors”; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our fiscal year end is June 30 and our fiscal years ended June 30, 2019 and June 30, 2018 are sometimes referred to herein as fiscal years 2019 and 2018, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,” or “our Company,” “EEG,” and “Esports” refer to Esports Entertainment Group, Inc., a Nevada corporation, and its wholly owned subsidiaries.

Except as otherwise indicated in this prospectus, all common stock and per share information and all exercise prices with respect to our warrants reflect, on a retroactive basis, a 1-for-15 reverse stock split of our common stock, which became effective on the OTCQB on January 28,2020. Unless otherwise stated, this prospectus assumes the over-allotment option of the underwriters has not been exercised, unless otherwise indicated.

Business Overview

Esports is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter, and multiplayer online battle arena games. As of March 20, 2019, the three largest selling esports games are Dota 2, League of Legends (both multiplayer online battle arena games) and Counter Strike: Global Offensive (a first-person shooter game). Other popular games include Smite, StarCraft II, Call of Duty¸ Heroes of the Storm, Hearthstone and Fortnite. Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions on the Sony PlayStation, Microsoft Xbox and WII Nintendo systems. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv, azubu.tv, ustream.tv and youtube.com.

Esports Entertainment Group, Inc. (“Esports,” “EEG,” “we,” “us,” “our,” or the “Company”) operates a licensed online gambling platform focused purely on the esports industry. Utilizing our peer-to-peer wagering system, we offer real money betting exchange style wagering on esports events from around the world in a secure environment. A betting exchange allows players to bet against one another rather than a bookmaker. Players can offer odds to, or request odds from, other players who wish to wager. Where traditional bookmakers risk going head-to-head with gamblers on markets, a betting exchange takes on no risk on the particular outcome of an event. Instead, a betting exchange provides the platform for its customers to match bets against one another and takes a small commission on winnings. Betting exchanges are becoming an increasingly integral part of the global gambling landscape, in many cases enabling customers to obtain better odds, more transparency and an experience that feels intuitively fairer. Further, the platform also facilitates gambling through “pool betting” whereby a group of people, be it a fan base of a team or a player or a group of friends and family, can pay a fixed price into a “pool” and then make a selection on an outcome, related to a tournament or game in esport. After the event has finished, those that selected the winner get an equal share of the pool.

At the current time, under our existing Curacao license, we are able to accept wagers from residents of over 149 jurisdictions including Canada, Japan, Germany and South Africa. We do not accept wagers from United States residents at this time. We have applied for an online gaming service license from the Malta Gaming Authority. If our application is approved and a license is issued, we expect that residents in a number of European Union member states will be able to place bets on our website. We are also able to accept payments from additional third party payment providers. Money Matrix, a licensed regulated financial institution and our third party payment platform, updates the jurisdictions we are able to accept bets from on a real time basis as these changes occur.

Although official competitions have long been a part of video game culture, participation and spectatorship of such events have seen a global surge in popularity over the last few years with the rapid growth of online streaming. The advent of online streaming technology has turned esports into a global industry that includes professional players and teams competing in major events that are simultaneously watched in person in stadiums, and by online viewers, which regularly exceed 1,000,000 viewers for major tournaments. Much like how there is a worldwide gaming market

1

for the sports industry, there has now developed a worldwide gaming market for the esports industry. The impact has been so significant that many video game developers are now building features into their games designed to facilitate competition.

According to Newzoo, a global leader in esports, games and mobile intelligence, it is expected that the total global esports audience will reach 453.8 million in 2019. Esports Enthusiasts, which are people who watch professional esports content at least once a month, will make up 201.2 million of the total up from 143.2 million in 2017, with a compound annual growth rate (“CAGR”) (2017-2022) of +15.7% to reach almost 297 million in 2022. The global average revenue per Esports Enthusiast, which includes not only gaming revenue, but also sponsorships advertising and all other esports related revenues, is projected to be $5.45 in 2019, up +8.9% from $5.00 in 2018. The number of occasional esports viewers, (people who watch professional esports content less than once a month), is expected to reach 252.6 million in 2019, up from 221.6 million in 2018, and is projected to grow with a CAGR of +12.6% to surpass 347 million in 2022. The number of people who are aware of esports worldwide is expected to reach 1.8 billion in 2019, up from 1.6 billion in 2018. China is expected to contribute most to global esports awareness, with 500.2 million people aware of esports in 2019. The increasing prominence of esports as a mainstream entertainment industry is driving the growth in awareness in most regions. Audience and awareness growth in the emerging regions of Latin America, Middle East and Africa, Southeast Asia, and Rest of Asia is largely driven by improving IT infrastructure and urbanization. We believe the rise of new franchises, such as Player Unknown’s Battlegrounds or PubG, is an important global growth factor as the influx of millennials should continue to drive the growth of the esports industry’s audience and in turn, the esports gaming industry.

In 2018, there were 737 major esports events that generated an estimated $54.7 million in ticket revenues, up from $32 million in 2016, but down from $58.9 million in 2017. The total prize money of all esports events held in 2018 reached $150.8 million, after breaking the $100 million mark for the first time in 2017. The League of Legends World Championship was 2018’s biggest tournament by live viewership hours on Twitch, with 53.8 million hours. It also produced $1.9 million in ticket revenues. The Overwatch League was the most-watched league by live viewership hours on Twitch, generating 79.5 million hours.

According to Statista, the amounts wagered on esports betting is expected to grow from $315 million in 2015 to $23.5 billion in 2020. Forbes magazine projects fans of esports will wager $23 billion on professional esports events by 2020.

We believe that as the size of the market and the number of Esports Enthusiasts continues to grow, so will the number of Esports Enthusiasts who gamble on events, which would likely increase the demand for our platform.

Competitive Advantages/Operational Strengths

We believe the following strengths position us for sustainable growth:

Management Team and Key Personnel Experience:    Our board of directors includes senior managers with extensive experience in online gambling, esports, information technology, compliance, regulation, accounting and finance. Our officers and senior managers include individuals with extensive experience in online gambling, esports, information technology, marketing, business development, payment processing, compliance, regulation, accounting, finance and customer service.

Licensed Technology/IP:    We have entered into a White Label Services Agreement dated December 12, 2019 (the “Askott Agreement”) with a subsidiary of Askott Entertainment Inc. (“Askott”) whereby Esports has secured a non-exclusive license to “white label” Askott’s proprietary software and systems as the platform through which we run our business (the “Platform”). The Askott Agreement is described under “Recent Developments”.

We believe this Platform provides us with a first mover advantage as it offers what we believe to be the widest variety of betting options available for esports wagering, including bet exchange wagering. The Platform requires complex code and very skilled development, as opposed to just using the software used for bookie style wagering which is widely available and easily reproduced. Accordingly, we believe the complexity of our Platform offers a higher barrier to entry than standard wagering platforms.

Askott is a full-service development company focused on the esports and iGaming space with offices in Canada, Cyprus, Malta, Curacao and Ukraine. Askott has experience in the iGaming space and has invested significant capital over a seven year span in developing its software and systems, and has been involved in various segments of the iGaming

2

space, including but not limited to, developing solutions for hosting, payment, security and mobile needs. Askott provides us with a next generation iGaming software platform targeting the esports industry. Our decision to engage with Askott is due, in part, to Askott’s approach to software development which focuses on integrating gamification, personalization, and live engagement to develop a state of the art gaming platform. We believe our Platform allows us to offer the most diversified and complete betting options, including pools and exchange betting and, in the future, fixed odds betting, while also providing us the opportunity to further develop fantasy options such as skins (digital assets used by gamers to give them competitive advantages in the games they are playing such as upgrade in game equipment or weaponry). We believe that by offering a wide array of options to consumers we will be able attract and retain our clients more effectively. We believe that having a first mover advantage with our Platform gives us a strategic advantage over our competition in that it will give us a chance to build a loyal customer following as well allow us the flexibility to customize that user experience for our consumers as the market continues to grow and change.

Affiliate Marketing Program:    Our affiliate marketing program focuses on professional esports teams and individual social media influencers. As part of our efforts to market our online gaming services, we attempt to enter into Affiliate Marketing Agreements with professional esports teams and other influential individuals and groups within esports. As a marketing affiliate, the esports team will provide their fans with a link to our online gaming website, where the fan, if located in a country which allows the fan to place a bet using our gaming platform, can bet on teams playing in esports tournaments. For a player placing a bet through the marketing affiliate’s link to our website, provided such player wins the bet, we pay the marketing affiliate a percentage of the amount we collect from the winning bet. We believe our PvP wagering model reduces any risk of potential loss to the Company. This unique feature allows the Company to attract and retain affiliate marketing partners who participate directly in the revenues generated by their referrals to the Company’s website. In addition, affiliate marketing partners are paid fees between 25% and 35% based on revenue that the affiliate partners generate through their own client base or fan base, depending upon the system they employ. Instead of the Company incurring significant costs related to online advertising, which must be paid for in advance, this system allows us to spend less resources on advertising directly because our affiliate partners market to their own client or fan bases for us. Because our affiliate marketing partners typically have a pool of clients and fan bases already interested in esports and or wagering, we believe this program not only affords the Company savings related to marketing expense, but also serves as an avenue for direct or targeted marketing which would presumably lead to increased traffic on our website.

Growth Strategy

In the future, we intend to expand our services to also offer players the ability to participate in video game tournaments for cash prizes and we intend to expand into additional international markets.

Future Products and Services:

We intend to offer players from around the world, including the United States (except in 13 states in the US and other jurisdictions outside the US which currently prohibit playing games of skill for cash prizes), the ability to enter and participate in online video game tournaments and win cash prizes. Skill based video games are not gambling and therefore are not subject to the same laws and regulations as our esports event wagering service. Participants will be able to enter and play against one another with prize money distributed to the last remaining competitors. We anticipate collecting a tournament entry fee for scheduled tournaments as well as a percentage of total winnings that are paid to users (typically 10%). We intend to offer users a wide selection of video games of skill to be played online for real money for small groups to major tournaments.

We intend to develop, license or acquire from a third party an online skill games tournament play platform. Users will be able to enter and participate in tournaments using their PC, game console or mobile device. Players will play against each other in either ring games (i.e., games for cash on a hand-by-hand basis) or in tournaments (i.e., players play against one another for prize money distributed to the last remaining competitors) or variations thereof. Esports expects to launch online versions of tournament play, initially utilizing simple video games and later more complex video games, under the VIE brand beginning in the second half of 2020.

International Markets:

We have applied for an online gaming service license in Malta, established a brick and mortar office in such jurisdiction and anticipate commencing online gaming operations in that jurisdiction in 2020 pending issuance of the license. In

3

such event, we expect to service the vast majority of the European Union market, with residents of a number of European Union member states being able to place bets on our website. In order to better service the Asian market, we intend to apply for an online gambling license in an Asian jurisdiction and commence online gambling operations in such jurisdiction within the next 12 months. In the future, we may consider obtaining additional country specific gaming licenses should we determine there is sufficient local demand for our services in these markets.

In order to effectively penetrate international markets, we intend to translate our website into several additional languages and to offer customer services and technical support in the local language of key markets.

History

We were formed in the State of Nevada on July 22, 2008 under our prior name Virtual Closet, Inc. Virtual Closet, Inc. changed its name to DK Sinopharma, Inc. on or about June 6, 2010. DK Sinopharma, Inc. changed its name to VGambling, Inc. on August 12, 2014. On or about April 24, 2017, VGambling, Inc. changed its name to Esports Entertainment Group, Inc. Our company was engaged in a number of different enterprises up until May 20, 2013, when, pursuant to the terms of that certain share exchange agreement with H&H Arizona Corporation (the “Share Exchange Agreement”), we acquired all of the outstanding capital stock of H&H Arizona Corporation in exchange for 3,333,334 shares of our common stock. From May 2013 until August 2018, the Company’s operations were limited to designing, developing and testing our wagering systems. We launched our online esports wagering website (www.vie.gg) in August 2018.

Risks Factors

•        We are a development stage company with a history of accumulated deficits, recurring losses and negative cash flows from operating activities and have had de minimis revenues to date. We may be unable to achieve or sustain profitability or continue as a going concern.

•        We are subject to payment-related risks, such as risk associated with the fraudulent use of credit or debit cards which could have adverse effects on our business due to chargebacks from customers.

•        Esports’ online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.

•        Esports’ success in the competitive gaming and interactive entertainment industries depends in large part on its ability to develop and manage frequent introductions of innovative products.

•        Esports’ dependency on customers’ acceptance of its products, and the Company’s inability to meet changing consumer preferences may negatively impact Esports’ business and results of operations.

•        Esports’ betting system and revenues are dependent on a third party software provider. If we lose the support of our current software provider, we would be forced to migrate our business to a new platform or develop our own, in-house software.

•        The risks related to international operations, in particular in countries outside of the United States and Canada, could negatively affect the Company’s results.

•        We may be unable to obtain licenses in new jurisdictions where our customers operate.

Recent Developments

On April 7, 2019, we entered into the Software Transfer Agreement with Swiss Interactive for the purchase of the Licensed Software for consideration of $1,700,000, the consummation of which was contingent upon either the Company’s completion of (i) any private placement offerings or registered public offerings pursuant to which the Company receives proceeds in excess of $6,000,000 or (ii) any private or public offerings in connection with the listing of the Company’s securities on a national securities exchange (“Qualified Offering”). If the Company did not complete a Qualified Offering within six months of the execution date of the transfer agreement, such agreement would become void and the Company and Swiss Interactive would continue to abide by the terms of the existing Betting Gaming Platform Software Agreement entered into with Swiss Interactive Software GmbH on June 12, 2014 (the “Original Software Licensing Agreement”). On November 6, 2019 the Software Transfer Agreement was terminated.

4

In addition, the Company terminated its Original Software Licensing Agreement with Swiss Interactive Software. The Company no longer utilizes the services or software of Swiss Interactive and believes all obligations pursuant to any contracts with Swiss Interactive have been satisfied in full. However, Yan Rozum, our former Chief Technology Officer, director and owner of Swiss Interactive recently contacted the Company and made certain allegations concerning this relationship and other matters. See “Business – Legal Proceedings”.

On August 14, 2019, the Company consummated the initial closing (“Initial Closing”) of a private placement offering (the “Offering”) whereby the Company entered into those certain securities purchase agreements (the “Purchase Agreements”) with four (4) accredited investors (the “Investors”). Pursuant to the Purchase Agreements, the Company issued the Investors those certain convertible promissory notes (each a “Note and together the “Notes”) in the aggregate principal amount of $385,000 (including a 10% original issue discount) and Warrants to purchase 42,778 shares of the Company’s common stock for aggregate gross proceeds of $350,000.

The Notes accrue interest at a rate of 5% per annum and are initially convertible into shares of the Company’s common stock at a conversion price of $9.00 per share, subject to adjustment (the “Conversion Price”). The Notes contain a mandatory conversion mechanism whereby any unpaid principal and accrued interest on the Notes, upon the closing of a Qualified Offering (as defined therein) converts into the securities offered in such a Qualified Offering at the lower of (i) the Conversion Price and (ii) 80% of the offering price in the Qualified Offering. The Notes contain customary events of default (each an “Event of Default”) and mature on August 14, 2020. If an Event of Default occurs, the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Notes will become, at the Note holder’s election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means the sum of 130% of the outstanding principal amount of the Notes plus accrued and unpaid interest, including default interest of 18% per year, and all other amounts, costs, expenses and liquidated damages due in respect of the Notes.

Pursuant to the Purchase Agreements, each Investor received Warrants to purchase such number of shares of common stock as is the number of shares issuable upon conversion of their Note as of the date of issuance. The Warrants are exercisable at a price of $11.25 per share, subject to adjustment from the date of issuance through August 14, 2022.

On August 29, 2019, the Company consummated the second closing (“Second Closing”) of the Offering whereby the Company entered into Purchase Agreements with three (3) additional accredited investors (the “Second Closing Investors”). Pursuant to the Purchase Agreements, the Company issued the Second Closing Investors Notes in the aggregate principal amount of $137,500 (including a 10% original issue discount) and Warrants to purchase 15,278 shares of the Company’s common stock for aggregate gross proceeds of $125,000.

On September 19, 2019, Yan Rozum resigned from his positions as Chief Technology Officer and member of the Board, effective immediately at such date (the “CTO Resignation”).

On September 26, 2019, in connection with the CTO Resignation, the Board appointed Mr. John Brackens, the Company’s current Chief Information Officer (“CIO”), as the Company’s Chief Technology Officer. Mr. Brackens will continue to serve as the Company’s CIO.

On September 26, 2019, in connection with the CTO Resignation, the Board appointed Mr. Christopher Malone, the Company’s Chief Financial Officer, as a member of the Board. The Company has undertaken to include Mr. Malone as a nominee to the Board on the slate of directors to be elected at the next annual meeting of stockholders of the Company, unless Mr. Malone resigns or is otherwise unable to serve as a director at such time.

On October 11, 2019, the Company consummated the third closing (“Third Closing”) of the Offering whereby the Company entered into a Purchase Agreement with one (1) additional accredited investor (the “Third Closing Investor”). Pursuant to the Purchase Agreement, the Company issued to the Third Closing Investor a Note in the aggregate principal amount of $137,500 (including a 10% original issue discount) and Warrants to purchase 15,278 shares of the Company’s common stock for aggregate gross proceeds of $125,000.

On October 21, 2019, the Company consummated the fourth closing (“Fourth Closing”) of the Offering whereby the Company entered into a Purchase Agreement with one (1) additional accredited investor (the “Fourth Closing Investor”). Pursuant to the Purchase Agreement, the Company issued to the Fourth Closing Investor a Note in the aggregate principal amount of $66,000 (including a 10% original issue discount) and Warrants to purchase 7,333 shares of the Company’s common stock for aggregate gross proceeds of $60,000.

5

On December 6, 2019, the Company completed the Offering and entered into Purchase Agreements with four (4) additional accredited investors (“Final Closing Investors”). Pursuant to the Purchase Agreements, the Company issued the issued to the Final Closing Investors promissory notes (the “Notes”) in the aggregate principal amount of $550,000 (including a 10% original issue discount) and Warrants to purchase an aggregate of 61,111 shares of the Company’s common stock for aggregate gross proceeds of $500,000.

On December 12, 2019, we entered into the Askott Agreement whereby Esports has secured a non-exclusive license to “white label” Askott’s proprietary software and systems as the platform through which we run our business (the “Platform”). The Askott Agreement has an initial term of thirty-six (36) months and will be automatically renewed in successive one (1) year terms, provided that either party has the ability to terminate the agreement on thirty (30) days written notice following the initial thirty-six (36) month term. The Askott Agreement provides that Askott will make its software platform available to Esports, and Esports will pay a one-time set-up fee of €20,000 and fixed fees at a minimum rate of €9,000 per month. The minimum monthly fee may be increased in the event that Askott adds additional casino games to the Platform, with any such increase to be at a rate of €1,000 per additional game per month, provided that this increase will not apply to the first two casino games added to the Platform.

In addition to the fixed monthly fee, the agreement provides for a tiered revenue sharing structure between Esports and Askott, whereby Esports will share up to a maximum of twenty-percent (20%) of gross revenues generated under the Askott Agreement. The percentage of revenue share is determined based on the monthly gross gaming revenue for each respective product line. As of the date of execution the product lines established were Esportsbook, Parimutuel/Poolbetting, Esports Fantasy and Casino Games (to be launched in 2020).

In the event of a material breach of obligations or any terms of the Askott Agreement by either party, a fifteen day (15) cure period exists from the date of written notice from the non-breach party informing it of such breach and of the intention of such party to terminate the agreement if the breach is not cured.

As of January 17, 2020 the Company entered into Exchange Agreements with 18 of its investors whereby the investors agreed to exchange warrants to purchase an aggregate of 288,722 shares of common stock for 288,722 shares of the Company’s restricted common stock. 17 of the investors also entered into a lock-up agreement with the Company agreeing not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of their common stock issued in exchange for the warrants for a period of 120 days after the date of this prospectus. Further, the Company is in negotiations with certain of these investors relating to entering into additional lock-up agreements with respect to the securities to be issued upon conversion of certain convertible notes upon the closing of this offering, some of which may include “dribble out” provisions pursuant to which such holders will have the ability to sell or otherwise transfer a prescribed number of our shares of common stock during the two month period following the date of this prospectus. No assurance can be provided that we will come to final terms with all of these holders.

On January 30, 2020, we entered into a non-binding letter of intent with LHE Enterprises Limited regarding a potential acquisition of 100% of the share capital of Argyll Entertainment AG and two of its affiliated entities (collectively, “Argyll”). Argyll is a dynamic and entrepreneurial entity that combines a robust traditional sportsbook and casino with new and innovative entertainment, which includes esports wagering. Argyll is licensed in the UK and Ireland with a 30 person staff in offices in central London and is the proud winner of the Innovative Start-up of the Year at the 2018 EGR Marketing & Innovation Awards. The proposed acquisition is consistent with our strategy to pursue add-on acquisitions in the online gambling and gaming space. The parties to the letter of intent have agreed to a binding exclusivity provision that expired on February 29, 2020.

The proposed purchase price reflected in the letter of intent consists of a $1.25 million cash payment, the issuance of 541,667 shares of our common stock (valued at $6.00 per share) and three-year warrants to purchase 1,000,000 shares of our common stock at an initial exercise price of $10.00 per share.

The consummation of the proposed acquisition is subject to numerous conditions and contingencies, including the negotiation and execution of definitive agreements and completion of an audit of the financial statements of Argyll and other customary closing conditions. There cannot be any assurance that: (1) we will complete the proposed acquisition at all; (2) the terms of the transaction will not differ, possibly materially, from the terms described herein; or (3) if we complete the acquisition, we will be able to successfully integrate the acquired operations into our business or the acquired operations will result in increased revenue, profitability or cash flow.

6

Furthermore, in connection with negotiating and consummating definitive agreements with respect to this acquisition, it is our goal to negotiate employment terms with the current Chief Financial Officer of Argyll to become our Chief Financial Officer. This executive has over 15 years of experience working in Senior Finance, COO and Business Management positions within the Financial Services, Online Gambling/Casino and Telecom industries. No assurance can be made that we will be able to come to final terms with respect to securing the services of this seasoned executive in the event the acquisition is consummated.

On February 20, 2020, Christopher Malone resigned from his positions as Chief Financial Officer and member of our Board of Directors (the “Board”) effective immediately (the “CFO Resignation”). Mr. Malone did not resign as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Mr. Malone remains with the Company in his capacity as the newly appointed Vice President of Finance.

On February 20, 2020, in connection with the CFO Resignation, the Board appointed James S. Cardwell as the Company’s part-time Interim Chief Financial Officer.

7

THE OFFERING

Issuer:

 

Esports Entertainment Group, Inc.

Securities offered by us:

 

2,000,000 units each consisting of one share of common stock and two warrants (“Unit A Warrant” and “Unit B Warrant”) each to purchase one share of common stock. Both warrants included within the units are exercisable immediately and have an exercise price of $5.00 per share. (100% of the public offering price of one unit). The Unit A Warrant will expire five years from the date of issuance. The Unit B Warrants will expire 12 months from the date of issuance. The shares of our common stock and each of the warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering. The 2,000,000 unit amount referenced above is based on the units being sold at the mid-point of the estimated offering price range of $5.00 per unit and such unit amount shall change if the unit price is less than $5.00 in such manner to maintain the gross proceeds at $10 million. For instance, if the unit price is $4.00 per unit, the number of units to be sold in the offering shall be 2,500,000.

Assumed Public Offering Price:

 

$5.00 per unit, which is the mid-point of the estimated offering price range described on the cover of this prospectus(1)

Common stock outstanding before the offering:

 


6,260,340 Shares

Common stock to be outstanding after the offering(2):

 


9,307,942, which includes the 2,000,000 units sold in the offering and approximately 1,047,602 shares of common stock issuable upon conversion of indebtedness. Excludes 4,000,000 shares issuable upon exercise of the warrants sold in this offering and any securities that would be issued if the underwriters’ over-allotment option is exercised.

Overallotment option:

 

We have granted the underwriters a 45 day option to purchase up to 300,000 additional shares of our common stock and/or warrants to purchase 600,000 shares of our common stock at a public offering price reflected above, solely to cover over-allotments, if any.

Use of Proceeds:

 

We intend to use the net proceeds of this offering to develop and launch our skill-based video game tournaments for play on mobile devices, PCs and video game consoles, to obtain an online gaming license from, and establish operations in, Malta, to obtain an online gaming license from, and establish operations in, an Asian country to be determined, to upgrade sales and marketing capabilities including but not limited to professional relations and adding additional staff, and for general working capital purposes. See “Use of Proceeds.”

Risk Factors:

 

Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 14 before deciding to invest in our securities.

Trading Symbol:

 

Our common stock is currently quoted on the OTCQB under the trading symbol “GMBL”. We have applied to The Nasdaq Capital Market to list our common stock under the symbol “GMBL” and our Unit A Warrants to trade under the symbol “GMBLW.” We do not intend to list the Unit B Warrants on any stock market or exchange. No assurance can be given that our applications will be approved.

____________

(1)      The assumed public offering price of $5.00 per unit, the mid-point of the range described on the cover of this prospectus. The actual number of units we will offer will be determined based on the actual public offering price.

(2)     The shares of common stock to be outstanding after this offering is based on 6,260,340 shares outstanding as of March 27, 2020.

8

Lock-up:

 

We and our directors, officers and certain of our principal stockholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 365 days after the date of this prospectus, in the case of our directors and officers, 180 days from the date of this prospectus, in the case of certain of our principal stockholders and 120 days from the date of this prospectus, in the case of certain convertible note holders. In addition, we have reached agreement with certain holders of convertible notes and warrants to restrict the sale or other transfer of the securities to be received upon conversion of their notes upon the closing of this offering, as well as shares of our common stock issued upon the exchange of warrants that were issued in the prior bridge offering. Such agreements vary, with some agreements restricting such sale or transfer for 120 days from the date of this prospectus and other agreements, some of which are still being negotiated, limited to “dribble out” provisions pursuant to which such holders will have the ability to sell or otherwise transfer a prescribed number of our shares of common stock during the two month period following the date of this prospectus. No assurance can be provided that we will come to final terms with all of these holders. See “Underwriting” section on page 78.

NASDAQ listing requirements include, among other things, a stock price threshold. As a result, on January 22, 2020 we filed a Certificate of Amendment to our Certificate of Incorporation to effectuate a 1-for-15 reverse stock split. On January 28, 2020, the reverse stock split was effected on the OTCQB. The shares of common stock to be outstanding after this offering excludes the following:

•        485,661 shares issuable upon exercise of outstanding warrants with a weighted average exercise price of $4.36;

•        166,667 shares of common stock reserved for issuance pursuant to the 2017 stock incentive plan (the “Stock Incentive Plan”);

•        1,047,602 shares of common stock issuable upon conversion of principal and interest owed pursuant to outstanding convertible notes with a weighted average conversion price of $4.00;

•        1,047,602 shares issuable upon exercise of warrants issuable upon conversion of principal and interest owed pursuant to outstanding convertible notes;

•        200,000 shares of common stock issuable upon exercise of warrants to be issued to the underwriters in connection with this offering; and

•        4,000,000 shares of common stock issuable upon exercise of outstanding warrants sold in this offering.

Unless otherwise stated, all information in this prospectus assumes no exercise of the underwriters’ over-allotment option to purchase additional shares and/or warrants.

9

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated statements of operations data for the years ended June 30, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the six months ended December 31, 2019 are not necessarily indicative of our operating results to be expected for the full fiscal year ending June 30, 2020 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited condensed interim consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods. Except as otherwise noted, all share and per share data for the periods shown have been adjusted, on a retroactive basis, to reflect a 1-for-15 reverse stock split, which became effective on January 28, 2020.

SUMMARY STATEMENTS OF OPERATIONS DATA

Esports Entertainment Group, Inc.
Consolidated Statements of Operations and Comprehensive Loss

 

For the Years Ended
June 30,

   

2019

 

2018

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

$

3,014,473

 

 

$

2,005,715

 

   

 

 

 

 

 

 

 

Total operating expenses

 

 

3,014,473

 

 

 

2,005,715

 

   

 

 

 

 

 

 

 

Operating loss

 

 

(3,014,473

)

 

 

(2,005,715

)

   

 

 

 

 

 

 

 

Interest expense

 

 

(5,586,617

)

 

 

(121

)

Amortization expense

 

 

(290,720

)

 

 

 

Change in fair market value of derivative liabilities

 

 

2,520,060

 

 

 

 

Asset write-off

 

 

 

 

 

(22,614

)

Foreign exchange gain (loss)

 

 

100

 

 

 

(212

)

   

 

 

 

 

 

 

 

Loss before income taxes

 

 

(6,371,650

)

 

 

(2,028,662

)

   

 

 

 

 

 

 

 

Income tax expense

 

 

(9,715

)

 

 

 

   

 

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(6,381,365

)

 

$

(2,028,662

)

Basic and diluted loss per common share

 

$

(1.10

)

 

$

(0.37

)

   

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

5,791,145

 

 

 

5,503,523

 

10

Esports Entertainment Group, Inc.
Consolidated Balance Sheets

 

June 30,

   

2019

 

2018

ASSETS

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

43,412

 

 

$

100,167

 

Prepaid expenses and other current assets – related parties

 

 

190,280

 

 

 

15,128

 

Prepaid expenses and other current assets

 

 

213,817

 

 

 

341,000

 

Total current assets

 

 

447,509

 

 

 

456,295

 

   

 

 

 

 

 

 

 

Fixed assets

 

 

16,577

 

 

 

25,443

 

Intangible assets

 

 

81,226

 

 

 

123,601

 

Security deposit

 

 

16,480

 

 

 

4,346

 

   

 

 

 

 

 

 

 

Total assets

 

$

561,792

 

 

$

609,685

 

   

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

607,448

 

 

$

342,016

 

Due to shareholder

 

 

1,551

 

 

 

1,551

 

Convertible note, net of debt discount of $1,909,280 and $0, respectively

 

 

290,720

 

 

 

 

Derivative liabilities

 

 

4,655,031

 

 

 

 

   

 

 

 

 

 

 

 

Total liabilities

 

 

5,554,750

 

 

 

343,567

 

   

 

 

 

 

 

 

 

Shareholders’ equity (deficit)

 

 

 

 

 

 

 

 

Common stock $0.001 par value; 500,000,000 shares authorized, 5,849,208 and 5,572,084 shares issued and outstanding as of June 30, 2019 and 2018, respectively

 

 

5,849

 

 

 

5,572

 

Additional paid-in capital

 

 

4,955,380

 

 

 

3,684,266

 

Equity to be issued

 

 

230,000

 

 

 

379,102

 

Accumulated deficit

 

 

(10,184,187

)

 

 

(3,802,822

)

Total shareholders’ (deficit) equity

 

 

(4,992,958

)

 

 

266,118

 

   

 

 

 

 

 

 

 

Total liabilities and shareholders’ (deficit) equity

 

$

561,792

 

 

$

609,685

 

11

Esports Entertainment Group, Inc.
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

   

2019

 

2018

 

2019

 

2018

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$

668,878

 

 

$

514,781

 

 

$

1,361,812

 

 

$

1,387,560

 

Total operating expenses

 

 

668,878

 

 

 

514,781

 

 

 

1,361,812

 

 

 

1,387,560

 

Operating loss

 

 

(668,878

)

 

 

(514,781

)

 

 

(1,361,812

)

 

 

(1,387,560

)

Interest expense

 

 

(1,550,418

)

 

 

(797,509

)

 

 

(2,262,313

)

 

 

(797,652

)

Net amortization of debt discount and premium on convertible debt

 

 

(840,170

)

 

 

(55,621

)

 

 

(550,259

)

 

 

(55,621

)

Change in fair market value of derivative liabilities

 

 

16,631

 

 

 

(756,053

)

 

 

1,087,347

 

 

 

(756,053

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

(2,795,582

)

 

 

 

Impairment of intangible asset

 

 

(67,131

)

 

 

 

 

 

 

(67,131

)

 

 

 

 

Gain on settlement of debt

 

 

42,896

 

 

 

 

 

 

42,896

 

 

 

 

 

Foreign Exchange Loss

 

 

(1,577

)

 

 

 

 

 

(1,577

)

 

 

 

Loss before income taxes

 

 

(3,068,646

)

 

 

(2,123,964

)

 

 

(5,908,430

)

 

 

(2,996,886

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(3,068,646

)

 

$

(2,123,964

)

 

$

(5,908,430

)

 

$

(2,996,886

)

Basic and diluted loss per common share

 

$

(0.52

)

 

$

(0.37

)

 

$

(1.00

)

 

$

(0.52

)

Weighted average number of common shares outstanding, basic and diluted

 

 

5,924,230

 

 

 

5,811,900

 

 

 

5,893,513

 

 

 

5,749,997

 

12

Esports Entertainment Group, Inc.
Condensed Consolidated Balance Sheets

 

December 31, 2019

 

June 30,
2019

   

(Unaudited)

   

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

53,283

 

 

$

43,412

 

Prepaid expenses and other current assets – related parties

 

 

69,390

 

 

 

190,280

 

Prepaid expenses and other current assets

 

 

154,342

 

 

 

213,817

 

Total current assets

 

 

277,015

 

 

 

447,509

 

Fixed assets

 

 

12,145

 

 

 

16,577

 

Intangible assets

 

 

3,000

 

 

 

81,226

 

Other non-current assets

 

 

6,833

 

 

 

16,480

 

TOTAL ASSETS

 

$

298,993

 

 

$

561,792

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

833,662

 

 

$

607,448

 

Due to shareholder

 

 

1,551

 

 

 

1,551

 

Convertible note

 

 

3,356,054

 

 

 

290,720

 

Derivative liabilities

 

 

5,590,540

 

 

 

4,655,031

 

Total liabilities

 

 

9,781,807

 

 

 

5,554,750

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Common stock $0.001 par value; 500,000,000 shares authorized, 5,937,670 and 5,849,208 shares issued and outstanding as of December 31, 2019 and June 30, 2019, respectively

 

 

5,938

 

 

 

5,849

 

Additional paid-in capital

 

 

6,573,865

 

 

 

4,955,380

 

Equity to be issued

 

 

30,000

 

 

 

230,000

 

Accumulated deficit

 

 

(16,092,617

)

 

 

(10,184,187

)

Total stockholders’ deficit

 

 

(9,482,814

)

 

 

(4,992,958

)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$

298,993

 

 

$

561,792

 

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

13

RISK FACTORS

Investing in our common stock involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our common stock. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.

Risks Related to Our Business

We are a development stage company with a limited operating history.

While we were incorporated under the laws of Nevada in July 2008, we did not begin to engage in our current business until May 2013 and our operations since that time have been mostly limited to designing, developing and testing our wagering systems. We have had de minimis revenues to date. Consequently, we are subject to all the risks and uncertainties inherent in a new business and in connection with the development and sale of new products and services. As a result, we still must establish many corporate functions necessary to operate our business, including finalizing our administrative structure, continuing our product development, assessing and expanding our marketing activities, implementing financial systems and controls and personnel recruitment. Accordingly, you should consider the Company’s prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered by companies in this early stage of development. You should carefully consider the risks and uncertainties that a company, such as ours, with a limited operating history will face. In particular, you should consider that we cannot provide assurance that we will be able to:

•        successfully implement or execute our current business plan;

•        maintain our management team;

•        raise sufficient funds in the capital markets to effectuate our business plan;

•        attract, enter into or maintain contracts with, and retain customers; and/or

•        compete effectively in the extremely competitive environment in which we operate.

If we cannot successfully accomplish any of the foregoing objectives, our business may not succeed.

We have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability or continue as a going concern.

To date, we have recorded de minimis revenues from the sale of our products. If we are unable to generate revenues, we will not be able to achieve and maintain profitability. Beyond this, we may incur significant losses in the future for a number of reasons including other risks described in this document, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not ever be able to achieve profitability. We incurred negative cash flows from operating activities and recurring net losses in fiscal years 2019 and 2018. We had no working capital at the end of each of those years. As of December 31, 2019 and 2018, our accumulated deficit was $16,092,617 and $6,799,708, respectively. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty. In order for us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding. If we are unable to increase revenues or obtain additional financing, we will be unable to continue the development of our products and services and we may have to cease operations. In that event you could lose your entire investment.

Our consolidated financial statements have been prepared on the assumption that we will continue as a going concern. Our independent registered public accounting firms have included an explanatory paragraph in our consolidated financial statements for the fiscal years ended June 30, 2019 and 2018 stating that our operating losses and limited working capital, raise substantial doubt about our ability to continue as a going concern. To date, it has been necessary to rely upon debt and the sale of our equity securities to sustain operations. Our management anticipates that we will require additional capital to fund ongoing operations without taking into account the proceeds from this offering.

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There can be no guarantee that we will be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient. If such additional funding is not obtained, we may be required to scale back or cease operations.

Acquisitions and strategic collaborations, including the proposed Argyll acquisition, may never materialize or may not be successful

We intend to explore a variety of acquisitions and strategic collaborations with existing online gaming and gambling companies and related businesses within our market segment. We cannot predict what form other acquisitions or strategic collaborations might take or when such acquisition will be consummated. We are likely to face significant competition in seeking appropriate acquisitions or strategic collaborators and these acquisitions and strategic collaborations can be complicated and time consuming to negotiate and document. We may not be able to negotiate acquisitions and strategic collaborations, on acceptable terms, or at all, and we are unable to predict when, if ever, we will consummate such acquisitions or strategic collaborations due to the numerous risks and uncertainties associated with them, or whether the Argyll acquisition will be consummated.

We will require additional financing and cannot be certain that such additional financing will be available on reasonable terms when required, or at all.

To date, the Company has relied primarily on equity financing to carry on its business. The Company has limited financial resources, has no operating cash flow and has no assurance that sufficient funding will be available to it to fund its operating expenses and to further develop its business. As of December 31, 2019, we had cash of $53,283. We expect the net proceeds from this offering, along with our current cash position, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. Thereafter, unless we achieve profitability, we anticipate that we will need to raise additional capital to fund our operations while we implement and execute our business plan. We currently do not have any contracts or commitments for additional financing. In addition, any additional equity financing may involve substantial dilution to then existing shareholders. There can be no assurance that such additional capital will be available, on a timely basis, or on terms acceptable to the Company. Failure to obtain such additional financing could result in delay or indefinite postponement of operations or the further development of its business with the possible loss of such properties or assets. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to fund its business or the expansion thereof, take advantage of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed could have a material adverse effect on the Company’s business, results of operations, cash flow, financial condition and prospects.

The gaming and interactive entertainment industries are intensely competitive. Esports faces competition from a growing number of companies and, if Esports is unable to compete effectively, its business could be negatively impacted.

There is intense competition amongst gaming solution providers. There are a number of established, well financed companies producing both land-based and online gaming and interactive entertainment products and systems that compete with the products of the Company. As some of our competitors have financial resources that are greater than Esports’, they may spend more money and time on developing and testing products, undertake more extensive marketing campaigns, adopt more aggressive pricing policies or otherwise develop more commercially successful products than the Company, which could impact the Company’s ability to win new marketing contracts and renew our existing ones. Furthermore, new competitors may enter the Company’s key market areas. If the Company is unable to obtain significant market presence or if it loses market share to its competitors, the Company’s results of operations and future prospects would be materially adversely affected. There are many companies with already established relationships with third parties, including gaming operators that are able to introduce directly competitive products and have the potential and resources to quickly develop competitive technologies. The Company’s success depends on its ability to develop new products and enhance existing products at prices and on terms that are attractive to its customers.

There has also been consolidation among the Company’s competitors in the esports and gaming industry. Such consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive pricing models, gain a larger market share of customers, expand product offerings and broaden their geographic scope of operations.

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Risks that impact our customers may impact us.

Because we generate website traffic through our affiliate marketing program, if participants in our affiliate marketing program see a slowdown in business or website traffic it may lead to fewer visitors on our website, which could have an adverse effect on our business.

Because three of our directors and a substantial portion of our assets are located in jurisdictions other than the United States and Canada, you may have no effective recourse against the directors not located in the United States and Canada for misconduct and may not be able to enforce judgment and civil liabilities against these directors.

Three of our directors and a substantial portion of our assets are or may be located in jurisdictions outside the U.S. As a result, a person may not be able to affect service of process within the U.S. on our directors and officers. A person also may not be able to recover against them on judgments of U.S. courts or to obtain original judgments against them in foreign courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws.

We operate in a very competitive business environment and if we do not adapt our approach and our products to meet this competitive environment, our business, results of operations or financial condition could be adversely impacted.

There is intense competition in the gaming management and gaming products industry which is characterized by dynamic customer demand and rapid technological advances. Today, there are many systems providers in the U.S. and abroad offering casinos and gaming operators “total solution” casino management and table games management systems. As a result, we must continually adapt our approach and our products to meet this demand and match technological advances and if we cannot do so, our business results of operations or financial condition may be adversely impacted. Conversely, the development of new competitive products or the enhancement of existing competitive products in any market in which we operate could have an adverse impact on our business, results of operations or financial condition. If we are unable to remain dynamic in the face of changes in the market, it could have a material adverse effect on our business, results of operations or financial condition.

We are vulnerable to additional or increased taxes and fees.

We believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary reasons that certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to the normal federal, state, provincial and local income taxes and such taxes and fees may be increased at any time. From time to time, legislators and officials have proposed changes in tax laws or in the administration of laws affecting the gaming industry. Many states and municipalities, including ones in which we operate, are currently experiencing budgetary pressures that may make it more likely they would seek to impose additional taxes and fees on our operations. It is not possible to determine the likelihood or extent of any such future changes in tax laws or fees, or changes in the administration of such laws; however, if enacted, such changes could have a material adverse impact on our business.

A lack of confidence in the integrity of our core businesses could affect our ability to retain our customers and engage with new customers.

The integrity of the gaming and pari-mutuel (bet exchange and pool style) wagering industries must be perceived as fair to patrons and the public at large. To prevent cheating or erroneous payouts, the necessary oversight processes must be in place to ensure that such activities cannot be manipulated. A loss of confidence in the fairness of our industries could have a material adverse impact on our business.

The legalization of online real money gaming in the United States and our ability to predict and capitalize on any such legalization may impact our business.

Nevada, Delaware, New Jersey and Pennsylvania have enacted legislation to legalize online real money gaming. In recent years, California, Mississippi, Hawaii, Massachusetts, Iowa, Illinois, New York, Washington D.C. and West Virginia have considered such legislation. If a large number of additional states or the Federal government enact online real money gaming legislation and we are unable to obtain the necessary licenses to operate online real money gaming websites in United States jurisdictions where such games are legalized, our future growth in real money gaming could be materially impaired.

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States or the Federal government may legalize online real money gaming in a manner that is unfavorable to us. Several states and the Federal government are considering draft laws that require online casinos to also have a license to operate a brick-and mortar casino, either directly or indirectly through an affiliate. If, like Nevada and New Jersey, state jurisdictions enact legislation legalizing online real money casino gaming subject to this brick-and-mortar requirement, we may be unable to offer online real money gaming in such jurisdictions if we are unable to establish an affiliation with a brick-and-mortar casino in such jurisdiction on acceptable terms.

In the online real money gaming industry, a significant “first mover” advantage exists. Our ability to compete effectively in respect of a particular style of online real money gaming in the United States may be premised on introducing a style of gaming before our competitors. Failing to do so (“move first”) could materially impair our ability to grow in the online real money gaming space. We may fail to accurately predict when online real money gaming will be legalized in significant jurisdictions. The legislative process in each state and at the Federal level is unique and capable of rapid, often unpredictable change. If we fail to accurately forecast when and how, if at all, online real money gaming will be legalized in additional state jurisdictions, such failure could impair our readiness to introduce online real money gaming offerings in such jurisdictions which could have a material adverse impact on our business.

Our business is subject to online security risk, including security breaches, and loss or misuse of our stored information as a result of such a breach, including customers’ personal information, could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.

We receive, process, store and use personal information and other customer data. There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us which could have an adverse impact on our business. In the area of information security and data protection, many states have passed laws requiring notification to customers when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these types of laws may increase in the future as a result of changes in interpretation or changes in law. Any failure on our part to comply with these types of laws may subject us to significant liabilities.

Third parties we work with, such as vendors, may violate applicable laws or our policies, and such violations may also put our customers’ information at risk and could in turn have an adverse impact on our business. We are also subject to payment card association rules and obligations under each association’s contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the associated expense and penalties. If we fail to follow payment card industry security standards, even if no customer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.

Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry. Many companies, including ours, have been the targets of such attacks. Any security breach caused by hacking which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing players and attract new players.

If unauthorized disclosure of the source code we currently license, and expect to own upon the completion of this offering occurs, we could potentially lose future trade secret protection for that source code. This could make it easier for third parties to compete with our products by copying functionality which could adversely affect our revenue and operating margins. Unauthorized disclosure of source code also could increase security risks.

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Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor; however, such measures cannot provide absolute security.

Risks related to our reliance on a white label agreement with Askott Entertainment, Inc.

We have a white label services agreement with a subsidiary of Askott for the license of their software and the platform used to offer our products to customers. This white label agreement has a specified initial term of thirty-six (36) months, which will be automatically renewed in successive one (1) year terms unless either party ends the agreement by giving notice to that effect at least thirty (30) days prior to the end of the term. If we fail to make the payments under this license or if this license is not renewed for any reason, it would cause us significant time and expense to redevelop our operations on a different software platform, which would have a material adverse effect on our business, operating results and financial condition.

This agreement provides us with a non-exclusive, royalty-free, worldwide, non-transferable license to use Askott’s software and games during the term covered by the Askott Agreement. As a result, Askott may grant additional similar licenses to other e-gaming companies, which may include our competitors and as a result our financial condition, operating results or prospects may be harmed. Further, Askott shall retain control over the content, services, games and products presented at and provided by Askott through our website which they host.

In addition, pursuant to the Askott Agreement, Askott is solely responsible for, and we are reliant upon Askott for, hosting our website, payment processing activities, risk management activities, fraud, anti-money laundering screenings and checks, KYC and age verification checks, and the security of Customer’s details and data. Our reliance on Askott to perform these services, and any failure or deficiency in their performance of these services may result in our financial condition, operating results or prospects being harmed.

In the event of a material breach of obligations or any terms of the agreement by either party, a fifteen day (15) cure period exists from the date of written notice from the non-breach party informing it of such breach and of the intention of such party to terminate the agreement if the breach is not cured.

In addition, see the risks in “—Risks Related to Our Intellectual Property” below. These risks are not the only risks inherent in this agreement. You are encouraged to read the complete text of the Askott Agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part.

We are subject to payment-related risks, such as risk associated with the fraudulent use of credit or debit cards which could have adverse effects on our business due to chargebacks from customers

We allow funding and payments to accounts using a variety of methods, including electronic funds transfer (“EFT”), and credit and debit cards. As we continue to introduce new funding or payment options to our players, we may be subject to additional regulatory and compliance requirements. We also may be subject to the risk of fraudulent use of credit or debit cards, or other funding and/or payment options. For certain funding or payment options, including credit and debit cards, we may pay interchange and other fees which may increase over time and, therefore, raise operating costs and reduce profitability. We rely on third parties to provide payment-processing services and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to rules and requirements governing EFT which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees or possibly lose our ability to accept credit or debit cards, or other forms of payment from customers which could have a material adverse impact on our business.

Chargebacks occur when customers seek to void credit card or other payment transactions. Cardholders are intended to be able to reverse card transactions only if there has been unauthorized use of the card or the services contracted for have not been provided. In our business, customers occasionally seek to reverse online gaming losses through chargebacks. We place great emphasis on control procedures to protect from chargebacks; however, these control procedures may not be sufficient to protect us from adverse effects on our business or results of operations.

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Our profitability depends upon many factors for which no assurance can be given.

Profitability depends upon many factors, including the ability to develop and maintain valuable products and services, our ability to identify and obtain the rights to additional products to add to our existing product line, success and expansion of our sales programs, expansion of our customer base, obtaining the right balance of expense levels and the overall success of our business activities. We anticipate that we will generate operating income in the next 12 months although no assurance can be given in this regard. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or even continue our operations. A decline in the value of our stock could also cause you to lose all or part of your investment.

Future cash flows fluctuations may affect our ability to fund our working capital requirements or achieve our business objectives in a timely manner.

Our working capital requirements and cash flows are expected to be subject to quarterly and yearly fluctuations, depending on such factors as timing and size of capital expenditures, levels of sales and collection of receivables, customer payment terms and supplier terms and conditions. We expect the net proceeds from this offering will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months However, a greater than expected slow-down in capital spending by our customers may require us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements. We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity or to achieve our business objectives in a timely manner.

Our business may be materially and adversely affected by increased levels of debt.

In order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure to meet the financial and/or other covenants in our credit and/or support facilities and any significant reduction in, or access to, such facilities, poor business performance or lower than expected cash

inflows could have adverse consequences on our ability to fund our business operations. Other effects of a high level of debt include the following:

•        we may have difficulty borrowing money in the future or accessing sources of funding;

•        we may need to use a large portion of our cash flows from operating activities to pay principal and interest on our indebtedness, which would reduce the amount of cash available to finance our operations and other business activities;

•        a high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable to economic downturns and adverse developments in our business; and

•        if operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures or the introduction of new products and services, sell assets and/or forego business opportunities including acquisitions, research and development projects or product design enhancements.

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Esports’ online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.

The online gaming and interactive entertainment industry, which includes social, casual and mobile gaming and interactive entertainment, is relatively new and continues to evolve. Whether these industries grow and whether Esports’ online business will ultimately succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such as the passage of new laws or regulations or the extension of existing laws or regulations to online gaming activities), taxation of gaming activities, data privacy laws and regulation and other factors that the Company is unable to predict and which are beyond the Company’s control. Given the dynamic evolution of these industries, it can be difficult to plan strategically, and it is possible that competitors will be more successful than the Company at adapting to change and pursuing business opportunities. Additionally, as the online gaming industry advances, including with respect to regulation, the Company may become subject to additional compliance-related costs. Consequently, the Company cannot provide assurance that its online and interactive offerings will grow at the rates expected or be successful in the long term.

Several companies have launched online social casino offerings, and new competitors are likely to continue to emerge, some of which may be operated by social gaming companies with a larger base of existing users, or by casino operators with more experience in operating a casino. If our products do not obtain popularity or maintain popularity or fail to grow in a manner that meets management’s expectations, our results of operations and financial condition could be harmed.

Esports’ success in the competitive gaming and interactive entertainment industries depends in large part on its ability to develop and manage frequent introductions of innovative products.

The online gaming and interactive entertainment industries are characterized by dynamic customer demand and technological advances, including for land-based and online gaming products. As a result, the Company must continually introduce and successfully market new themes and technologies in order to remain competitive and effectively stimulate customer demand. The process of developing new products and systems is inherently complex and uncertain. It requires accurate anticipation of changing customer needs and end user preferences as well as emerging technological trends. If the Company’s competitors develop new content and technologically innovative products, and Esports fails to keep pace, its business could be adversely affected. Additionally, the introduction of products embodying new technology and the emergence of new industry standards can render the Company’s existing solutions obsolete and unmarketable and can exert price pressures on existing solutions. To remain competitive, the Company must invest resources towards its research and development efforts to introduce new and innovative products with dynamic features to attract new customers and retain existing customers. If the Company fails to accurately anticipate customer needs and end-user preferences through the development of new products and technologies, it could lose business to its competitors, which would adversely affect the Company’s results of operations and financial position.

The Company intends to continue investing resources toward its research and development efforts. There is no assurance that its investments in research and development will lead to successful new technologies or timely new products. If a new product does not gain market acceptance, the Company’s business could be adversely affected. Most directly, if a product is unsuccessful, the Company could incur losses. Additionally, if the Company cannot efficiently adapt its processes and infrastructure to meet the needs of its product innovations, its business could be negatively impacted. There is no certainty that the Company’s new products will attain market acceptance or that its competitors will not more effectively anticipate or respond to changing customer preferences. In addition, any delays by the Company in introducing new products could negatively impact its operating results by providing an opportunity for its competitors to introduce new products and gain market share.

The Company cannot give assurance that it will successfully develop new products or enhance and improve its existing products, that new products and enhanced and improved existing products will achieve market acceptance or that the introduction of new products or enhanced existing products by others will not render the Company’s products obsolete. Dynamic customer demand and technological advances often demand high levels of research and development expenditures in order to meet accelerated product introductions, and the life cycles of certain products may be short, which could adversely affect the Company’s operating results. In some cases, the Company’s new products and solutions may require long development and testing periods and may not be introduced in a timely manner or may not achieve the broad market acceptance necessary to generate significant revenue. The Company’s inability to develop solutions that meet customer needs and compete successfully against competitors’ offerings could have a material adverse effect on the Company’s business, financial condition and results of operations.

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Our Interim Chief Financial Officer is employed on a part-time basis

Given the current size of the Company and our operations, we have hired our Interim Chief Financial Officer, James S. Cardwell, on a part-time basis. In addition to his role as Interim Chief Financial Officer, Mr. Cardwell works for an accounting practice providing outsourced chief financial officer services for other companies. While we believe that Mr. Cardwell will devote adequate time to the Company to perform the role and duties of our Interim Chief Financial Officer, we cannot guarantee that he will continue to do so in the future. Additionally, while we do not believe that Mr. Cardwell currently faces any conflicts of interest, including conflicts in allocating time to the Company, Mr. Cardwell may face conflicts of interest in the future. If Mr. Cardwell cannot devote adequate time to the Company to fulfill his role and duties as Interim Chief Financial Officer or if any conflicts of interest arise, it could have a material adverse impact on our Company.

Failure to attract, retain and motivate key employees may adversely affect the Company’s ability to compete and the loss of the services of key personnel could have a material adverse effect on Esports’ business.

The Company depends on the services of a few key executive officers. The loss of any of these key persons could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company’s success is also highly dependent on its continuing ability to identify, hire, train, motivate and retain highly qualified technical, marketing and management personnel. Competition for such personnel can be intense, and the Company cannot provide assurance that it will be able to attract or retain highly qualified technical, marketing and management personnel in the future. Stock options may comprise a significant component of key employee compensation, and if the Company’s Common Share price declines, it may be difficult to retain such individuals. Similarly, changes in the Company’s share price may hinder the Company’s ability to recruit key employees, as they may elect to seek employment with other companies that they believe have better long-term prospects. The Company’s inability to attract and retain the necessary technical, marketing and management personnel may adversely affect its future growth and profitability. The Company’s retention and recruiting may require significant increases in compensation expense, which would adversely affect the Company’s results of operation.

The leadership of Esports’ Chief Executive Officer, Mr. Grant Johnson (“Mr. Johnson”), has been a critical element of the Company’s success. The departure, death or disability of Mr. Johnson or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on the Company’s business. Esports’ other executive officers and other members of senior management have substantial experience and expertise in Esports’ business and have made significant contributions to its growth and success. The unexpected loss of services of one or more of these individuals could also adversely affect the Company. Esports is not protected by key man or similar life insurance covering members of senior management but is contemplating obtaining key man insurance upon closing of the offering.

Our management team has limited experience managing a public company and regulatory compliance may divert our attention from the day-to-day management of its business.

Our management team has limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. These obligations typically require substantial attention from our senior management and could divert our attention away from the day-to-day management of our business.

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

We have not maintained internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404 of the Sarbanes-Oxley Act of 2002. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We expect to begin the process of reviewing, documenting and testing our internal control over financial reporting after completion of this offering. We might encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information and the price of our common stock could decline.

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The Company is a holding company with its only asset being direct and indirect ownership of its operating subsidiaries.

As a holding company, we do not have any material non-financial assets other than our direct and indirect ownership of our operating subsidiaries. We have no independent means of generating revenue. To the extent that we will need funds beyond our own financial resources to pay liabilities or to fund operations, we may have to borrow or otherwise raise funds sufficient to meet these obligations and operate our business and, thus, our liquidity and financial condition could be materially adversely affected.

We currently do not maintain insurance coverage, and any claims against us may result in our incurring substantial costs and a diversion of resources.

We do not currently hold directors and officers liability insurance, although we do expect to obtain coverage at the conclusion of this offering. We do not maintain key-man life insurance on any of our senior management or key personnel, business interruption insurance, employer’s liability insurance or liability insurance. If and when we do obtain insurance coverage, it may be insufficient to cover any claim. Any liability or damage to, or caused by, our facilities or our personnel beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.

The Company’s business is vulnerable to changing economic conditions and to other factors that adversely affect the industries in which it operates.

The demand for entertainment and leisure activities tends to be highly sensitive to changes in consumers’ disposable income, and thus can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond the control of the Company. Unfavorable changes in general economic conditions, including recessions, economic slowdown, sustained high levels of unemployment, and increasing fuel or transportation costs, may reduce customers’ disposable income or result in fewer individuals visiting casinos, whether land-based or online, or otherwise engaging in entertainment and leisure activities, including gambling. As a result, the Company cannot ensure that demand for its products or services will remain constant. Continued or renewed adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in many financial markets, increasing interest rates, increasing energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, could lead to a further reduction in discretionary spending on leisure activities, such as gambling. Any significant or prolonged decrease in consumer spending on entertainment or leisure activities could reduce the Company’s online games, reducing the Company’s cash flows and revenues. If the Company experiences a significant unexpected decrease in demand for its products, it could incur losses.

Changes in ownership of competitors or consolidations within the gaming industry may negatively impact pricing and lead to downward pricing pressures which could reduce revenue.

A decline in demand for the Company’s products in the gaming industry could adversely affect its business. Demand for the Company’s products is driven primarily by the replacement of existing services as well as the expansion of existing online gaming, and the expansion of new channels of distribution, such as mobile gaming. Additionally, consolidation within the online gambling market could result in the Company facing competition from larger combined entities, which may benefit from greater resources and economies of scale. Also, any fragmentation within the industry creating a number of smaller, independent operators with fewer resources could also adversely affect the Company’s business as these operators might cause a further slowdown in the replacement cycle for the Company’s products.