UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 15, 2021
ESPORTS ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada | 001-39262 | 26-3062752 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification No.) |
13/14 Penthouse Office, Mannarino Road
Birkirkara, Malta, BKR 9080
(Address of principal executive offices)
356 2713 1276
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | GMBL | The Nasdaq Stock Market LLC | ||
Common Stock Purchase Warrants | GMBLW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Explanatory Note
On July 15, 2021, Esports Entertainment Group, Inc. (the “Company”), filed a Current Report on Form 8-K (the “Initial Report”) to report the amendment and closing of a share sale and purchase agreement (the “Gameday Purchase Agreement”), by and among the Company, and Gameday Group Plc, a limited liability company incorporated in Malta (the “Gameday Group”) to acquire the business-to-consumer operations of Bethard Group Limited (“Bethard Business”), a business owned by GameDay Group that includes the sports betting and online casino operating assets of the Bethard, Fastbet and Betive brands with licenses to operate in Sweden, Spain, Malta and Ireland.
Prior to the closing, certain assets of the Bethard Business were contributed to Prozone Limited (“Prozone”), a limited liability company incorporated in Malta in a pre-close restructuring of Bethard Group Limited operations. At closing of the acquisition, the Company acquired all of the issued and outstanding ordinary shares of Prozone.
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Initial Report to provide financial statements of Bethard Group Limited, and the pro forma financial statements of the Company required by Item 9.01 of Form 8-K. No other modifications to the Initial Report are being made by this Amendment. This Amendment should be read in connection with the Initial Report, which provides a more complete description of the Purchase Agreements and transactions contemplated thereby.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Bethard Group Limited
The audited financial statements of Bethard Group Limited as of and for the years ended December 31, 2020 and 2019, together with the related notes to the financial statements, are included as Exhibit 99.1 to this Current Report.
The unaudited condensed financial statements of Bethard Group Limited as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020, together with the related unaudited notes to the financial statements, are included as Exhibit 99.2 to this Current Report and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma combined financial statements of Company as of March 31, 2021 and for the year ended June 30, 2020, and the nine months ended March 31, 2021, together with the related notes to the unaudited pro forma condensed combined financial information, are included as Exhibit 99.3 to this Current Report and are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ESPORTS ENTERTAINMENT GROUP, INC. | ||
Dated: August 12, 2021 | By: | /s/ Grant Johnson |
Grant Johnson | ||
Chief Executive Officer |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Form 8-K/A of Esports Entertainment Group, Inc. of our report dated May 20, 2021, which includes an explanatory paragraph as to Bethard Group Limited’s ability to continue as a going concern, with respect to our audits of the financial statements of Bethard Group Limited as of December 31, 2020 and 2019, and for the years then ended.
We also hereby consent to the inclusion in this Form 8-K/A of Esports Entertainment Group, Inc. of our review report dated August 12, 2021, which includes explanatory paragraphs as to Bethard Group Limited’s ability to continue as a going concern and its condensed balance sheet as of December 31, 2020, with respect to our reviews of the condensed financial statements of Bethard Group Limited, which comprise the condensed balance sheet as of March 31, 2021, and the related condensed statements of operations and comprehensive income (loss) and shareholder’s equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes.
/s/ Friedman LLP | |
Marlton, New Jersey | |
August 12, 2021 |
Exhibit 99.1
BETHARD GROUP LIMITED
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS’ REPORT
DECEMBER 31, 2020 AND 2019
BETHARD GROUP LIMITED
INDEX TO FINANCIAL STATEMENTS
To
the Board of Directors
of Bethard Group Limted
We have audited the accompanying financial statements of Bethard Group Limited (the “Company”), which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of operations and comprehensive income (loss), shareholder’s equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bethard Group Limited as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant working capital and accumulated deficits raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
/s/ Friedman LLP | |
Marlton, New Jersey | |
May 20, 2021 |
1 |
BETHARD GROUP LIMITED
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 1,624,518 | $ | 1,437,329 | ||||
Restricted cash | 4,582,278 | 4,333,888 | ||||||
Deposit receivables | 8,330,315 | 4,209,493 | ||||||
Trade and other receivables | 391,228 | 343,565 | ||||||
Prepaid expenses | 68,228 | 112,051 | ||||||
Due from related parties | 1,531,010 | 11,189,086 | ||||||
Value added tax receivable | 231,222 | - | ||||||
Total current assets | 16,758,799 | 21,625,412 | ||||||
Equipment, net | 42,776 | 78,772 | ||||||
Other assets: | ||||||||
Intangible assets, net | 349,163 | 600,443 | ||||||
Operating lease right-of-use asset | - | 863,847 | ||||||
Investment related party bonds | 9,874,771 | 9,242,924 | ||||||
Other receivables | 160,478 | - | ||||||
Total other assets | 10,384,412 | 10,707,214 | ||||||
Total assets | $ | 27,185,987 | $ | 32,411,398 | ||||
LIABILITIES AND SHAREHOLDER’S (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Trade payables and accrued liabilities | $ | 1,693,266 | $ | 2,276,040 | ||||
Player liability | 3,510,669 | 3,814,027 | ||||||
Jackpot provision | 1,071,609 | 519,861 | ||||||
Due to related parties | 17,865,928 | 14,685,100 | ||||||
Value added tax payable | - | 8,370,836 | ||||||
Lease liability, current portion | - | 426,579 | ||||||
Total current liabilities | 24,141,472 | 30,092,443 | ||||||
Non-current liabilities: | ||||||||
Lease liability, net of current portion | - | 454,521 | ||||||
Total non-current liabilities | - | 454,521 | ||||||
Total liabilities | 24,141,472 | 30,546,964 | ||||||
Shareholder’s equity: | ||||||||
Common stock, $1.067280 par; 240,000 shares authorized, issued and outstanding | 256,147 | 256,147 | ||||||
Additional paid-in capital | 18,615,585 | 18,615,585 | ||||||
Accumulated deficit | (16,262,757 | ) | (17,265,592 | ) | ||||
Accumulated other comprehensive income | 435,540 | 258,294 | ||||||
Total shareholder’s equity | 3,044,515 | 1,864,434 | ||||||
Total liabilities and shareholder’s equity | $ | 27,185,987 | $ | 32,411,398 |
See accompanying notes to the financial statements.
2 |
BETHARD GROUP LIMITED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, | ||||||||
2020 | 2019 | |||||||
Gaming revenue, net | $ | 44,876,812 | $ | 40,685,601 | ||||
Costs and expenses: | ||||||||
Gaming expenses | 39,165,380 | 40,442,076 | ||||||
Sales and marketing expenses | 16,852 | 2,342,426 | ||||||
Administrative expenses | 4,442,434 | 6,449,239 | ||||||
Amortization of right-of-use asset | 349,209 | 435,986 | ||||||
Bad debt expense | 48,661 | 4,400,065 | ||||||
Total costs and expenses | 44,022,536 | 54,069,792 | ||||||
Income (loss) from operations | 854,276 | (13,384,191 | ) | |||||
Other income (expense): | ||||||||
Related party management fees | 175,650 | 112,556 | ||||||
Rental income - related parties | 283,361 | 362,716 | ||||||
Gain on lease termination | 18,619 | - | ||||||
Gain on disposal of equipment | 34,260 | - | ||||||
Interest expense | (29,666 | ) | (883,391 | ) | ||||
Realized foreign transaction gain (loss) | (333,665 | ) | 289,547 | |||||
Total other income (expense) net | 148,559 | (118,572 | ) | |||||
Income (loss) before provision for income taxes | 1,002,835 | (13,502,763 | ) | |||||
Provision for income taxes net of valuation allowance | - | - | ||||||
Net income (loss) | $ | 1,002,835 | $ | (13,502,763 | ) | |||
Other comprehensive income: | ||||||||
Foreign currency translation gain | 177,246 | 53,021 | ||||||
Comprehensive income (loss) | $ | 1,180,081 | $ | (13,449,742 | ) |
See accompanying notes to the financial statements.
3 |
BETHARD GROUP LIMITED
STATEMENTS OF SHAREHOLDER’S EQUITY (DEFICIT)
Common
Stock |
Common
Stock |
Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance, January 1, 2019 | 240,000 | $ | 256,147 | $ | - | $ | (3,762,829 | ) | $ | 205,273 | $ | (3,301,409 | ) | |||||||||||
Net loss | - | - | - | (13,502,763 | ) | - | (13,502,763 | ) | ||||||||||||||||
Additional paid-in capital from transfer of intangible asset (see Note 4) | - | - | 18,615,585 | - | - | 18,615,585 | ||||||||||||||||||
Foreign currency translation gain | - | - | - | - | 53,021 | 53,021 | ||||||||||||||||||
Balance, December 31, 2019 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (17,265,592 | ) | $ | 258,294 | $ | 1,864,434 | ||||||||||||
Net income | - | - | - | 1,002,835 | - | 1,002,835 | ||||||||||||||||||
Foreign currency translation gain | - | - | - | - | 177,246 | 177,246 | ||||||||||||||||||
Balance, December 31, 2020 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (16,262,757 | ) | $ | 435,540 | $ | 3,044,515 |
See accompanying notes to the financial statements.
4 |
BETHARD GROUP LIMITED
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 1,002,835 | $ | (13,502,763 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Bad debt expense | 48,661 | 4,400,065 | ||||||
Gain on disposal of equipment | (34,260 | ) | - | |||||
Gain on lease termination | (18,619 | ) | - | |||||
Depreciation and amortization | 761,661 | 781,417 | ||||||
Amortization of right-of-use asset | 349,209 | 435,986 | ||||||
Changes in operating assets and liabilities: | ||||||||
Deposit receivables | (3,651,753 | ) | 136,340 | |||||
Trade and other receivables | (23,033 | ) | 3,517,423 | |||||
Prepaid expenses | 49,048 | 4,046,851 | ||||||
Due from related parties | 866,609 | (979,655 | ) | |||||
Value added tax (receivable) payable | 274,339 | - | ||||||
Operating lease right-of-use liability | (348,149 | ) | (418,780 | ) | ||||
Other receivables | (152,888 | ) | - | |||||
Trade payables and accrued liabilities | (703,439 | ) | 387,148 | |||||
Player liability | (537,404 | ) | 471,070 | |||||
Jackpot provision | 491,793 | 211,227 | ||||||
Due to related parties | 2,073,982 | 3,006,449 | ||||||
Net cash provided by operating activities | 448,592 | 2,492,778 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of intangibles | (443,739 | ) | (947,189 | ) | ||||
Proceeds from sale of equipment | 34,260 | - | ||||||
Purchase of equipment | - | (12,270 | ) | |||||
Net cash used in investing activities | (409,479 | ) | (959,459 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds received from transfer of intangible assets | - | 12,629,319 | ||||||
Principal payments on note payable | - | (11,125,141 | ) | |||||
Net cash provided by financing activities | - | 1,504,178 | ||||||
Net increase in cash | 39,113 | 3,037,497 | ||||||
Cash and restricted cash, beginning of year | 5,771,217 | 2,820,391 | ||||||
Foreign currency effects | 396,466 | (86,671 | ) | |||||
Cash and restricted cash, end of year | $ | 6,206,796 | $ | 5,771,217 | ||||
Reconciliation to amounts on balance sheets: | ||||||||
Cash | $ | 1,624,518 | $ | 1,437,329 | ||||
Restricted cash | 4,582,278 | 4,333,888 | ||||||
Total cash and restricted cash | $ | 6,206,796 | $ | 5,771,217 | ||||
Cash paid during the year for: | ||||||||
Interest | $ | 29,666 | $ | 883,391 | ||||
Non-cash investing and financing activities: | ||||||||
Additional paid in capital from transfer of intangible asset (see Note 4) | $ | - | $ | 18,615,585 | ||||
Right-of-use asset obtained in exchange for operating lease obligation | $ | - | $ | 863,847 | ||||
Termination of operating lease | $ | 896,805 | $ | - | ||||
VAT Liability on transfer of intangible asset to affiliate | $ | - | $ | 8,833,117 | ||||
VAT Set off with affiliated related to transfer of intangible asset | $ | 8,833,117 | $ | - |
See accompanying notes to the financial statements.
5 |
BETHARD GROUP LIMITED
DECEMBER 31, 2020 AND 2019
NOTE 1 – NATURE OF OPERATIONS
Bethard Group Limited, a limited liability company, and has elected to be taxed as a corporation (the “Company”) was founded in 2015 and incorporated in Malta. The Company is 100% owned by Gameday Group plc (“Gameday Group”), registered in Malta, and is a fellow subsidiary to Together Gaming Solutions plc (“TGS”). TGS is the Business to Business (B2B) service provider arm of the Group and owner of the Group’s key intellectual property assets.
The Company is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with online casino (“iGaming”), sports betting (“Sportsbook”), and daily fantasy sports (“DFS”). The Company is mainly engaged in the business of remote gaming and to enable, facilitate and aid gaming with regards to the said remote gaming products. The Company provides users with online casino access through its “iGaming” software platform.
The Company operates and interacts with several related parties, which are related through the same ownership, described in the financial statements herein. The Company entered into agreements with related parties, in which the related parties operate remote gaming websites, as disclosed in Note 4.
NOTE 2 – LIQUIDITY AND GOING CONCERN
Going Concern: The financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern. For the year ended December 31, 2020, the Company had net income of $1,002,835 and net cash provided by operating activities of $448,592. However, as of December 31, 2020, the Company had $1,624,518 in non-restricted cash, which won’t be sufficient to fund the operations and strategic objectives of the Company over the next twelve months from the date of issuance of these financial statements. In addition, the accumulated deficit as of December 31, 2020 and 2019 was $(16,262,757) and $(17,265,592), respectively. The Company also had negative working capital as of December 31, 2020 and 2019 of $(7,382,673) and $(8,467,031), respectively.
In October 2020, Gameday Group signed a non-binding letter of intent, regarding the potential sale of certain business assets of the Company and TGS. Management cannot provide assurance that the transaction will close and as a result there is substantial doubt that the Company can continue as a going concern for the next twelve months from the date of the issuance of the report.
COVID-19: As a result of the continued spread of the COVID-19 beginning in March of 2020, economic uncertainties have arisen. There have not been any significant impacts to operations and the Company’s revenue generating operations are still continuing. Management believes the Company’s operations and its customer base will continue to not be materially impacted as a result of COVID-19. However, there may be economic uncertainties which could negatively impact the Company, and that potential impact is unknown at this time.
6 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Variable Interest Entities
In accordance with Accounting Standards Codification 810, the Company considers certain affiliates to be Variable Interest Entities (“VIE”). Generally, a VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
In October 2018, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). ASU 2018-17 permits a private company (the reporting entity) to elect an alternative not to apply variable interest entity (“VIE”) guidance if (a) the reporting entity and the legal entity are under common control; (b) the reporting entity and the legal entity are not under common control of a public business entity; (c) the legal entity under common control is not a public business entity; and (d) the reporting entity does not directly or indirectly have a controlling financial interest in the legal entity when considering the General Subsection of Topic 810. The Company determined certain affiliates meet all the criteria of ASU 2018-17 and have elected not to evaluate these entities for potential consolidation. As December 31, 2020 and 2019 the Company’s loss exposure is $1,531,010 and $11,189,085, respectively. The Company’s fellow subsidiary TGS, does not meet the required exception as noted within the ASU, due to it being a publicly traded company. Management evaluated the relationship and noted that although TGS is a variable interest entity, the Company is not the primary beneficiary and therefore is not required to consolidate.
Functional and Presentation Currency
The functional currency of the company is the Euro. The reporting currency reflected in the financial statements is the United States (“US”) Dollar. Assets and liabilities in the accompanying financial statements are translated into US dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive gain (loss) account in shareholder’s equity. Cash flows are also translated at average translation rates for the periods; therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
7 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Functional and Presentation Currency (continued)
Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any transaction exchange gains and losses are included in other income (expense) in the statements of operations and comprehensive income (loss).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to allowances for doubtful accounts, useful lives and impairment considerations of equipment and intangible assets, right-of-use lease asset and the related operating lease liability, and income taxes. Actual results could differ from those estimates.
Cash and Restricted Cash
The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The Company has no cash equivalents. Restricted cash as of December 31, 2020 and 2019 is $4,582,278 and $4,333,888, respectively, which is attributable to amounts due to players as required by the Malta Gaming Authority.
Other Receivables
Other receivables are recorded for amounts due from other parties for jackpot contributions and from parties other than suppliers. Other receivables are recorded at their estimated realizable value. Bad debts are provided for on the allowance method based on historical experience and management’s evaluation of outstanding receivables at the end of the year. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of the individual accounts.
Deposit Receivables
User deposit receivables are stated at the amount the Company expects to collect from a payment processor. These arise due to the timing differences between a user’s deposit and the receipt of the payment from the payment processor into the Company’s bank accounts. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. No allowance was required for the years ended December 31, 2020 and December 31,2019 respectively.
Prepaid Expenses
Prepaid expenses consist of services paid for which the Company has not yet received the benefit. These are recorded when cash is paid and amortized to the appropriate expense as the service has been delivered and benefit received.
8 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amounts Due from Related Parties
Amounts due from related parties, are accounted for in the Company’s balance sheets at their outstanding amounts due. Balances are classified as current for amounts due on demand or if payment is due within one year or less. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. Management recorded an allowance on the Amounts due from Related Parties of $226,963 and $194,114 at December 31, 2020 and 2019, respectively.
Equipment
Equipment is recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from three to ten years. Major repairs that significantly extend the life of the asset or replacements of equipment are capitalized. Maintenance repairs and minor replacements are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in the statement of operations.
Intangible Assets
Intangible assets are stated at cost. Amortization expense is recognized on a straight-line basis over the estimated useful life of three years. Intangible assets are comprised of capitalized internally developed software. Intangible assets are initially measured at cost. This comprises the directly attributable cost of preparing the assets for their intended use.
Impairment of Long-lived Assets
The Company reviews long-lived assets, including definite-lived intangible assets, for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. During the years ended December 31, 2020 and 2019, there was no impairment expense recorded for long-lived assets.
Investment Related Party Bonds
Investment related party bonds are accounted for in the Company’s balance sheets at the outstanding principal balance, plus accrued interest. The Company has elected to account for the bond as a held-to-maturity investment. Interest income is accrued at the contractual rate of interest over the term of the bond. The accrual of interest is discontinued when management believes, after considering collection efforts and other factors, the amount ultimately to be collected will be insufficient to cover the additional interest payments. The Company designates bonds as non-performing at such time as (i) the bond has a maturity default; or (ii) in the opinion of management, it is probable the Company will be unable to collect all amounts due according to the contractual terms (see Note 4). The Company provides for an allowance if the amounts to be received are considered uncollectible. The balances are written off against the allowance when they are determined to be uncollectible based on management assessment of the outstanding balances.
9 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amounts Due to Related Parties
Outstanding amounts due to related parties, are accounted for in the Company’s balance sheets at their outstanding amounts due. Balances are classified as current if payment is due on demand or within one year or less (see Note 4).
Trade and other payables
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Leases
The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842 - Leases. Under Topic 842, the Company determines whether an arrangement is or contains a lease at inception or modification of a contract. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of the identified asset means the lessee has both the right to obtain substantially all economic benefits from the use of the asset and the right to direct the use of the asset. Upon adoption of ASC 842, the Company elected the practical expedient package and therefore elected to retain the ASC 840 lease classification and terms conclusions up to the implementation date of ASC 842.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date for the arrangements with a term of 12 months or longer and are initially measured based on the present value of lease payments over the defined lease term. The measurement of the operating lease ROU assets also includes any prepaid lease payments made and is net of lease incentives. If the implicit interest rate to be applied to the determination of the present value of lease payments over the lease term is not readily determinable, the Company estimates the incremental borrowing rate based on the information available at the commencement date. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases which the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the ROU asset and lease liability. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term. Refer to Note 8 for details of leasing arrangements.
In addition, the Company was the lessor under one non-cancelable operating lease for its facility office space which was cancelled during 2020 (see Note 8). The lease arrangement included minimum base rent. Rent is recorded on a straight-line basis over the term of the lease.
10 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Value Added Tax Receivable or Payable
Revenue is reported net of value added tax (“VAT”) when applicable. The VAT is based on German and Irish Casino gaming revenue, and the rates are 21% and 23% respectively, for customers playing non-live casino games. Furthermore, VAT payable at the standard rate of 18% is based on related party management services provided by the company in Malta (see Note 4). VAT receivable at the standard rate of 18% are based on local supplies relating to company expenses.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated value. The carrying value of cash, receivables, prepaid expenses, trade and other payables, jackpot provision, and player liabilities approximate fair value because of the immediate or short-term nature of the financial instruments. The carrying value of short and long-term debt approximates fair value based on discounting the projected cash flows using market rates available for similar maturities. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these financial instruments.
Advertising
The Company expenses advertising costs as incurred, which are included in sales and marketing expenses on the statements of operations and comprehensive income (loss). Sales and advertising expense was $16,852 and $2,342,426 for the years ended December 31, 2020 and 2019, respectively.
Revenue and Cost Recognition
The Company accounts for revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes; (1) Identifying contracts with customers, (2) Identifying performance obligations within those contracts, (3) Determining the transaction price, (4) Allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) Recognizing revenue when or as each performance obligation is satisfied.
The transaction price in a gaming contract is the difference between gaming wins and losses, Net Gaming Revenue (“NGR”), not the total amount wagered Gross Gaming Revenue (“GGR”). Sales and other taxes collected on behalf of governmental authorities are accounted for on a net basis.
The Company accrues the incremental amount of progressive jackpots as the progressive game is played, and the progressive jackpot amount increases, with a corresponding reduction to revenues. Free play and other incentives to customers related to gaming play are recorded as a reduction of revenue on the statements of operations and comprehensive income (loss).
11 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (continued)
Costs of revenues include licensing fees and revenue share agreement to a related party. Disclosures related to the terms of the revenue share agreement with a related party is included in Note 4. The Company evaluates bets that users place on websites owned by third party brands in order to determine whether it is acting as the principal or as the agent when providing services, which the Company considers in determining if revenue should be reported gross or net. An entity is a principal if it has the ability to direct the use of and obtain substantially all the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. For the revenue share arrangement, the Company is the principal as it controls which customers are allowed to wager on the set; therefore, any expenses related to revenue share are included in gaming costs and expenses on the statements of operations and comprehensive income (loss).
Gaming transactions involve three performance obligations: for ordinary bets placed, players receiving free spin and deposit matches, and gaming revenues with respect to jackpot games.
The Company applies a practical expedient by accounting for gaming contracts on a portfolio basis, as such contracts share similar characteristics. The effects on the Company’s financial statements under this approach do not differ materially versus under an individual contract basis.
Revenues allocated to gaming performance obligations are recognized when gaming occurs as such activities are settled immediately.
Revenues allocated to jackpot games, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Revenues allocated to free spins and deposit matches are recognized at the time these bonuses are subsequently wagered.
A difference may exist between the timing of cash receipts from players and the recognition of revenues, resulting in a contract or contract-related liability. In general, the Company has two types of such liabilities: (1) player liability and (2) jackpot provision liability as elaborated below. These liabilities are generally expected to be recognized as revenues within one year and are recorded within other current liabilities.
Contract and Contract Related Liabilities
● | Player Liability - Player liability represents the total amount of money within a player’s gaming account which belongs to the player. It ultimately represents the total amount that a player can withdraw at any given time. | |
The player liability includes two types of bonuses which are standard in the gaming industry: (i) Free spin, whereby free spins of slot games are awarded without withdrawing a bet amount from the player’s account (ii) Deposit match bonus in which the Company will match the player’s deposit up to a certain specified percentage or amount. As these rewards are at the discretion of the Company, they are recorded as a reduction of revenue upon redemption. |
12 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contract and Contract Related Liabilities (continued)
These bonuses represent consideration payable to a customer and therefore are treated as a reduction of the transaction price for the wagering transaction when considering NGR. The Company records liabilities for amounts due to users of which the balance consists of user deposits, user winnings and nondiscretionary incentives awarded less user withdrawals and user losses. As of December 31, 2020 and 2019, contract liabilities related to player liability on the balance sheets were $3,510,669 and $3,814,027, respectively. | ||
● | Jackpot Provision - The jackpot provision liability for progressive jackpots is maintained separately from the player liability in order to account for probable future amounts due to players as a result of jackpot winnings. | |
Jackpots are programmed to be paid out randomly across the Company’s online casino. The jackpot amount available for winning increases with each bet on a jackpot eligible slot. On these, a portion of every bet loss goes toward the jackpot. Once a player wins the jackpot, the jackpot amount will reset. The starting amount the jackpot resets to is different across the various jackpot slots and brands depending on game type. The jackpots are considered network jackpots, therefore one player winning a jackpot affects all players on the network. Thus, all participating casinos are pooling into the same jackpot. If one player wins the jackpot, then the jackpot resets across the entire online casino. The jackpot liability is accrued monthly based on the contribution to the jackpot provision for the month as described above. In addition, at month end, the jackpot cost, together with other bonuses and compensations from the regular player liability account, are netted against gross gaming revenue in order to derive NGR. As of December 31, 2020 and 2019, contract liabilities related to the jackpot provision on the balance sheets were $1,071,609 and $519,861, respectively. |
Income Taxes
The Company accounts for income taxes using ASC Topic 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
13 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (continued)
ASC 740-10 “Accounting for Uncertainty in Income Taxes” clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Management does not believe there are any uncertain tax positions for the years ended December 31, 2020 and 2019. If any interest or penalties were to arise, they would be accounted for under administrative expenses on the statements of operations and comprehensive income (loss).
Concentrations Related to Credit Risk and Vendors
The Company operates in various countries. This subjects the Company to be exposed to currency risk, particularly related to Swedish Krona and Great British Pounds. The Company does not take out forward exchange contract or options to hedge against currency fluctuations, which means that currency movement could have a negative impact on the Company’s financial position and earnings. The Company’s credit risk arises mainly on cash at banks, deposit receivables, and amounts due from related parties.
The Company has a very limited risk in relation to trade receivables since payments from external customers for casino and sports betting are done in advance. However, it has a credit risk with companies providing payments service and banks. To mitigate this risk, the Company works with well-established vendors in the business. Other credit risk to which the Company is exposed include the risk of fraudulent transactions and repayment to customers by banks or other payment service providers.
The Company’s cash accounts are managed by banks with an investment rating of investment grade or better.
The Company relies on a limited number of vendors to support operations. A single related party, WorldClass Services Ltd, is currently the primary provider of web services that allows the Company to host its iGaming, sports betting, and daily fantasy sports offerings. Any interruption in the services provided by this supplier could have a material adverse effect on its business, financial condition, and results of operations. For the year ended December 31, 2020, WorldClass Services Ltd, accounted for 61%, $23,811,513, of the Company’s total gaming expense purchases. For the year ended December 31, 2019, WorldClass Services Ltd accounted for 59%, $24,046,830, of the Company’s total gaming expense purchases. Amounts due to this related party were $4,830,087 and $2,035,076, as of December 31, 2020 and 2019, respectively and are included within amounts due to related parties on the balance sheets (see Note 4).
14 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards
In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU addresses the measurement of credit losses on financial statements and requires issuers to realize current expected credit losses on assets not accounted for at fair value through net income. This can affect financial instruments such as loans, off-balance-sheet credit exposures, and reinsurance receivables. This ASU is effective for interim and annual reporting periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, with early adoption permitted. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.
In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes by removing exceptions regarding intra-period tax allocation of losses and recognition of deferred tax liabilities for equity method investments of a foreign subsidiary. The update aims to put out black and white requirements regarding franchise tax, step up in basis of goodwill, allocation of deferred tax expenses to legal entities in separate financial statements, and the reflection of change in tax laws or rates in annual effective tax rate computation. This update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this update on its financial statements and related disclosures.
15 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES
Amounts Due from and Due to Related Parties
The Company has amounts due from and due to related parties as of December 31, 2020 and 2019 as follows:
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Due from related parties: | ||||||||
Due from Together Gaming Solutions | $ | 233 | $ | 10,821,375 | ||||
Due from other affiliates | 1,757,740 | 561,825 | ||||||
1,757,973 | 11,383,200 | |||||||
Less allowance for doubtful accounts | (226,963 | ) | (194,114 | ) | ||||
Total due from related parties | $ | 1,531,010 | $ | 11,189,086 | ||||
Due to related parties: | ||||||||
Due to parent | $ | 12,301,463 | $ | 11,811,290 | ||||
Due to WorldClass Services Ltd | 4,830,087 | 2,035,076 | ||||||
Due to Gordaman Solutions Ltd | 603,952 | 572,159 | ||||||
Due to other affiliate | 130,426 | 122,080 | ||||||
Due to BHGES PLC | - | 144,495 | ||||||
Total due to related parties | $ | 17,865,928 | $ | 14,685,100 |
Amounts due from related parties and affiliates are unsecured, interest free and repayable on demand. During the years ended December 31, 2020 and 2019, Bad debt expense of $48,661 and $4,400,065, respectively was incurred due to the unlikeliness of recovering the amounts and is included in costs and expenses on the statements of operations and comprehensive income (loss). $4,206,470 of the amount of bad debt expense incurred in 2019 was due to the write-off of amounts due from Worldclass Entertainment Limited N.V. after they were liquidated during 2019.
Revenue Agreements
On April 30, 2019 the Company entered into revenue share agreement with WorldClass Services Ltd (“WorldClass Services”), a fellow subsidiary 100% owned by the Company’s parent. The agreement requires the Company to pay WorldClass Services from the revenue share activity, 0.05% of direct costs, plus total direct costs incurred by WorldClass Services, to the extent that the Company has net gaming revenue is available in that same period. The direct costs relate to the Company performing and carrying out its responsibilities for generating gaming revenue. Costs incurred by the Company during the years ended December 31, 2020 and 2019 amounted to $23,811,513 and $24,046,830, respectively.
16 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Revenue Agreements (continued)
The Company receives a 50% share of the Sverige Casino Limited website domain profits, and 50% is owned by other unrelated third parties under the terms of the Collaboration agreement between the parties. During 2020 and 2019, the domain accumulated net losses, and the share of net losses owed to the Company by the 50% third party owners remained due were written off to bad debt expense at year end due to the unlikeliness of recovering the amounts. Amounts written off to allowance for doubtful accounts due from Sverige Casino Limited during the years ended December 31, 2020 and 2019 was $200,592 and $194,314, respectively.
Management Fees
Beginning in April 30, 2019, the Company entered into an agreement with Together Gaming Solutions (“TGS”), a fellow subsidiary of the Company’s parent, in which the Company receives management fees for management services provided of $14,275 per month. Related party management fee income for the years ending December 31, 2020 and 2019 were $175,650 and $112,556, respectively and is recorded within total revenues on the statements of operations and comprehensive income (loss).
Sublease:
During 2019, the Company subleased a portion of its facilities lease to Raketech and TGS, both related parties. The lease agreement and sublease were both cancelled during the year ended December 31, 2020 (see Note 8). Rental income for the years ended December 31, 2020 and 2019 was $283,361 and $362,716, respectively and is included within other income on the statements of operations.
Transfer of Intangible Assets
On April 30, 2019 the Company and Together Gaming Solutions (TGS) entered into an asset assignment agreement whereby TGS acquired the Brand (the Bethard brand), the Platform (an iGaming IT platform), and the iGaming IT Platform Rights from the Company for a purchase price of $44,856,000 (€40,000,000). The Company assigned to Gameday Group its right to receive $22,988,700 (€20,500,000) of the purchase price due to the Company by TGS in terms of the IP Asset Assignment Agreement (the “Assigned Amount”), and the Parties agreed to enter into an agreement for the purposes of the Company assigning to Gameday Group its right to be paid the Assigned Amount. The Assigned Amount was transferred to shareholders’ equity and was not deemed to be an amount due or still outstanding to the Company.
17 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Transfer of Intangible Assets (continued)
The sale of the intangible assets on April 30, 2019 to TGS resulted in the following:
Investment Related Party Bonds
As part of the settlement of the consideration relating to the sale of intangible asset that took place on April 30, 2019, the Company received a $9,237,981 bond. The bonds carry an annual interest of 5.9% per annum. The Company waived its rights (in favor of TGS) to receive the interest accumulated on these bonds as at December 31, 2019 and December 31, 2020.The bond requires interest only payments through maturity with a lump sum payment due in 2026.
The bond is part of a larger total bond issued of Eur 20,000,000 ($22,410,000 as of July 22, 2019, date of issuance), in the name of a subsidiary company of Gameday Group, specifically TGS, in which the Company obtained $9,237,981 from these available bonds during 2019. The outstanding balance of the note as of December 31, 2020 and 2019 was $9,874,771 and $9,242,924, respectively.
18 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 5 – EQUIPMENT
Equipment as of December 31, 2020 and 2019 consists of the following:
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Computer equipment | $ | 154,604 | $ | 144,711 | ||||
Furniture and fittings | 27,308 | 25,560 | ||||||
181,912 | 170,271 | |||||||
Accumulated depreciation | (139,136 | ) | (91,499 | ) | ||||
$ | 42,776 | $ | 78,772 |
Depreciation expense was $39,424 and $36,665 for the years ended December 31, 2020 and 2019, respectively, and is included in administrative expenses on the statements of operations and comprehensive income (loss).
NOTE 6 – INTANGIBLE ASSETS
Intangible assets as of December 31, 2020 and 2019 consist of the following:
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Mobile app | $ | 2,538,823 | $ | 1,940,407 | ||||
Accumulated amortization | (2,189,660 | ) | (1,339,964 | ) | ||||
$ | 349,163 | $ | 600,443 |
Amortization expense was $722,237 and $744,762 for the years ended December 31, 2020 and 2019, respectively, and is included in administrative expenses on the statements of operations and comprehensive income (loss).
During 2019, the Company sold an intangible asset to a related party (see Note 4).
19 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 7 – TRADE PAYABLES AND ACCRUED LIABILITIES
Trade payables and accrued liabilities payables as of December 31, 2020 and 2019 consist of the following:
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Trade payables | $ | 720,409 | $ | 651,517 | ||||
Accrued expenses | 972,857 | 1,624,523 | ||||||
$ | 1,693,266 | $ | 2,276,040 |
NOTE 8 – LEASES
The Company determines if a contract contains a lease at inception. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. The Company has considered renewal options at the end of its leases and has determined at this time the Company is not reasonably certain to renew the operating leases discussed below. All of the Company’s leases are classified as operating leases.
On May 12, 2016, the Company entered into an agreement to lease the fourth floor of a block; on February 24, 2018 the Company opted to add an additional floor to the existing lease. The lease modifications were accounted for during the initial adoption of ASC 842. On September 1, 2018 the Company entered into a cost sharing agreement with Raketech and TGS, both related parties (see Note 4) to share the cost of the rent. The cost share is shared 50% by Raketech and 25% by TGS. The cost sharing agreement is considered a separate contract from the head lease and classification is done by reference to the right of use asset arising from the head lease, as such is classified as an operating lease.
In 2020 there was a lease modification for the main lease. The modification resulted in the cancellation of the original lease term and creation of a new lease term. The new lease term was for 3 months July through September 2020, the termination date. Rental income relating to the cost sharing agreement for the years ending December 31, 2020 and 2019 was $283,361 and $362,716, respectively and is included within other income on the statements of operations and comprehensive income (loss).
The assets and liabilities from operating leases are recognized based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable.
The Company’s lease does not provide an implicit rate that can be readily determined. Therefore, the Company uses a discount rate based on the estimated incremental borrowing rate of 5.5%.
20 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 8 – LEASES (CONTINUED)
The Company incurred lease expense for the operating lease of $349,209 and $437,155 during the years ending December 31, 2020 and 2019, respectively, which is included within costs and expenses on the statements of operations and comprehensive income (loss). During the year ended December 31, 2020 and 2019, the Company made cash lease payments in the amount of $204,758 and $78,705, respectively. Amounts owed under the cancelled operating lease was $22,992 and $7,427, respectively as of December 31, 2020 and 2019 and is included within trade and other payables on the balance sheets.
The Company elected to terminate the lease in September 2020. During 2020, the Company, affiliate and third party agreed to terminate the lease agreement and sublease agreement. Upon termination of the lease, the Company removed the right-of-use asset and the lease liability and recorded a gain on the lease termination of $18,619 and is included in other income (expense) on the statements of operations and comprehensive income (loss). Since the lease was terminated as of December 31, 2020, there is no remaining future minimum payments under the operating lease.
NOTE 9 – PROVISION FOR INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2020 and December 31, 2019, temporary differences consist primarily of net operating loss carryforwards. Significant components of the Company’s deferred tax assets and liabilities are as follows as of December 31, 2020 and 2019 respectively.
December 31, | December 31, | |||||||
2020 | 2019 | |||||||
Net operating loss carryforward | $ | 6,955,113 | $ | 7,579,071 | ||||
Valuation allowance | (6,955,113 | ) | (7,579,071 | ) | ||||
$ | - | $ | - |
The Company has reported losses from operations on a cumulative basis through the year ended Decmber 31, 2020, as as a result no current income tax expense has been recorded for the years ended December 31, 2020 and December 31, 2019 respectively. Management has provided a full valuation allowance with respect to its net deferred tax assets, since it is more likely than not that the deferred tax assets will not be realized. During the year ended December 31, 2020, the valuation allowance decreased $623,958. During the year ended December 31, 2019 the valuation allowance increased $5,063,535.
21 |
BETHARD GROUP LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 AND 2019
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Company is subject to various ongoing legal proceedings in the ordinary course of its business. Each of these matters is subject to various uncertainties and some of these matters may be resolved unfavorably to the Company. The Company is not a party to any legal proceedings that management believes would have a material adverse effect on the financial statements of the Company.
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through May 20, 2021, the date of issuance of the financial statements.
● | Effective January 1, 2021 the Company entered into a three year lease with monthly lease payments during the rental period ranging from approximately $14,300-$16,700. As a result of entering the lease, as of January 1, 2021 the Company has recorded a lease liability of $468,000 and a corresponding right-of-of use asset of $468,000. | |
● | In relation to the January 1, 2021 lease agreement the Company also entered into a cost sharing agreement with a related party which will result in annual rental income of approximately $86,300 annually. |
22 |
Exhibit 99.2
BETHARD GROUP LIMITED
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS’ REVIEW REPORT
March 31, 2021 AND 2020
BETHARD GROUP LIMITED
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REVIEW REPORT
To the Board of Directors and Stockholder
of Bethard Group Limited
We have reviewed the accompanying condensed financial statements of Bethard Group Limited (the “Company”), which comprise the condensed balance sheet of as of March 31, 2021, and the related condensed statements of operations and comprehensive income (loss), shareholder’s equity, and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes.
Management’s Responsibility for the Financial Information
Management is responsible for the preparation and fair presentation of the condensed interim financial information in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with accounting principles generally accepted in the United States of America.
Auditors’ Responsibility
Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information as a whole. Accordingly, we do not express such an opinion.
Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in accordance with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying condensed interim financial information has been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company’s significant accumulated deficit, working capital deficit, and post year-end sale of its business-to-consumer business raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 2. The interim financial information does not include any adjustments that might result from the outcome of this uncertainty. Our conclusion is not modified with respect to this matter.
Report on Condensed Balance Sheet as of December 31, 2020
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of the Company as of December 31, 2020, and the related statements of operations and comprehensive income (loss), shareholder’s equity (deficit), and cash flows for the year then ended (not presented herein); and in our report dated May 20, 2021, we expressed an unmodified audit opinion on those audited financial statements. In our opinion, the accompanying condensed balance sheet of the Company as of December 31, 2020, is consistent, in all material respects, with the audited financial statements from which it has been derived.
/s/ Friedman LLP
Marlton, New Jersey
August 12, 2021
2 |
UNAUDITED CONDENSED BALANCE SHEETS
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 1,605,173 | $ | 1,624,518 | ||||
Restricted cash | 4,430,358 | 4,582,278 | ||||||
Deposit receivables | 4,843,502 | 8,330,315 | ||||||
Trade and other receivables | 416,870 | 391,228 | ||||||
Prepaid expenses | 162,305 | 68,228 | ||||||
Due from related parties | 5,480,336 | 1,531,010 | ||||||
Value added tax receivable | 191,086 | 231,222 | ||||||
Total current assets | 17,129,630 | 16,758,799 | ||||||
Equipment, net | 35,839 | 42,776 | ||||||
Other assets: | ||||||||
Intangible assets, net | 321,366 | 349,163 | ||||||
Investment related party bonds | 6,141,962 | 9,874,771 | ||||||
Other receivables | 156,984 | 160,478 | ||||||
Total other assets | 6,620,312 | 10,384,412 | ||||||
Total assets | $ | 23,785,781 | $ | 27,185,987 | ||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
Current liabilities: | ||||||||
Trade payables and accrued liabilities | $ | 2,419,022 | $ | 1,693,266 | ||||
Player liability | 3,243,782 | 3,510,669 | ||||||
Jackpot provision | 1,186,576 | 1,071,609 | ||||||
Due to related parties | 12,737,519 | 17,865,928 | ||||||
Total current liabilities | 19,586,899 | 24,141,472 | ||||||
Shareholder’s equity: | ||||||||
Common stock, $1.06728 par; 240,000 shares authorized, issued and outstanding | 256,147 | 256,147 | ||||||
Additional paid-in capital | 18,615,585 | 18,615,585 | ||||||
Accumulated deficit | (15,006,928 | ) | (16,262,757 | ) | ||||
Accumulated other comprehensive income | 334,078 | 435,540 | ||||||
Total shareholder’s equity | 4,198,882 | 3,044,515 | ||||||
Total liabilities and shareholder’s equity | $ | 23,785,781 | $ | 27,185,987 |
See accompanying notes to the unaudited condensed financial statements.
3 |
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
March 31, | March 31, | |||||||
2021 | 2020 | |||||||
Gaming revenue, net | $ | 10,850,835 | $ | 12,478,111 | ||||
Costs and expenses: | ||||||||
Gaming expenses | 8,329,360 | 11,274,177 | ||||||
Administrative expenses | 1,100,401 | 1,135,468 | ||||||
Sales and marketing expenses | 40,173 | 16,601 | ||||||
Amortization of right-of-use asset | - | 189,786 | ||||||
Bad debt expense, related parties | 8,569 | 10,186 | ||||||
Total costs and expenses | 9,478,503 | 12,626,218 | ||||||
Income (loss) from operations | 1,372,332 | (148,107 | ) | |||||
Other income (expense): | ||||||||
Related party management fees | 50,603 | 37,357 | ||||||
Loss on sale of related party bond investment | (235,245 | ) | - | |||||
Interest income | 127,614 | - | ||||||
Realized foreign transaction loss | (59,475 | ) | (395,367 | ) | ||||
Total other expense net | (116,503 | ) | (358,010 | ) | ||||
Income (loss) before provision for income taxes | 1,255,829 | (506,117 | ) | |||||
Provision for income taxes net of valuation allowance | - | - | ||||||
Net income (loss) | $ | 1,255,829 | $ | (506,117 | ) | |||
Other comprehensive income: | ||||||||
Foreign currency translation loss | (101,462 | ) | (31,855 | ) | ||||
Comprehensive income (loss) | $ | 1,154,367 | $ | (537,972 | ) |
See accompanying notes to the unaudited condensed financial statements.
4 |
UNAUDITED CONDENSED STATEMENTS OF SHAREHOLDER’S EQUITY
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common | Common | Paid-In | Accumulated | Comprehensive | ||||||||||||||||||||
Stock | Stock | Capital | Deficit | Income | Total | |||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance, January 1, 2020 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (17,265,592 | ) | $ | 258,294 | $ | 1,864,434 | ||||||||||||
Net loss | - | - | - | (506,117 | ) | - | (506,117 | ) | ||||||||||||||||
Foreign currency translation loss | - | - | - | - | (31,855 | ) | (31,855 | ) | ||||||||||||||||
Balance, March 31, 2020 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (17,771,709 | ) | $ | 226,439 | $ | 1,326,462 | ||||||||||||
Balance, January 1, 2021 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (16,262,757 | ) | $ | 435,540 | $ | 3,044,515 | ||||||||||||
Net income | - | - | - | 1,255,829 | - | 1,255,829 | ||||||||||||||||||
Foreign currency translation loss | - | - | - | - | (101,462 | ) | (101,462 | ) | ||||||||||||||||
Balance, March 31, 2021 | 240,000 | $ | 256,147 | $ | 18,615,585 | $ | (15,006,928 | ) | $ | 334,078 | $ | 4,198,882 |
See accompanying notes to the unaudited condensed financial statements.
5 |
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
March 31, | March 31, | |||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 1,255,829 | $ | (506,117 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Bad debt expense, related parties | 8,569 | 10,186 | ||||||
Loss on sale of related party bond investment | 235,245 | - | ||||||
Depreciation and amortization | 123,106 | 170,812 | ||||||
Amortization of right-of-use asset | - | 189,786 | ||||||
Deposit receivables | 3,400,674 | 72,636 | ||||||
Trade and other receivables | (35,144 | ) | (156,062 | ) | ||||
Prepaid expenses | (229,360 | ) | (128,597 | ) | ||||
Due from related parties | (8,967,046 | ) | (2,850,826 | ) | ||||
Value added tax receivable | 36,113 | (58,369 | ) | |||||
Trade payables and accrued liabilities | 784,599 | (442,939 | ) | |||||
Player liability | (195,934 | ) | (458,050 | ) | ||||
Jackpot provision | 142,285 | (182 | ) | |||||
Due to related parties | (14,902 | ) | 3,130,576 | |||||
Net cash used in operating activities | (3,455,966 | ) | (1,027,146 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of intangibles | (96,151 | ) | (140,805 | ) | ||||
Proceeds from sale of investment related party bonds | 3,514,958 | - | ||||||
Net cash provided by (used in) investing activities | 3,418,807 | (140,805 | ) | |||||
Net cash from financing activities | - | - | ||||||
Net decrease in cash | (37,159 | ) | (1,167,951 | ) | ||||
Cash and restricted cash, beginning of period | 6,206,796 | 5,771,217 | ||||||
Foreign currency effects | (134,106 | ) | (98,907 | ) | ||||
Cash and restricted cash, end of period | $ | 6,035,531 | $ | 4,504,359 | ||||
Reconciliation to amounts on balance sheets: | ||||||||
Cash | $ | 1,605,173 | $ | 703,293 | ||||
Restricted cash | 4,430,358 | 3,801,066 | ||||||
Total cash and restricted cash | $ | 6,035,531 | $ | 4,504,359 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Non-cash investing and financing activities: | ||||||||
Reduction in accrued interest income from sale of related party bonds | $ | 131,043 | $ | - | ||||
Due to related parties advance set off agreement (see Note 3) | $ | 4,861,060 | $ | - |
6 |
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS
Bethard Group Limited, a limited liability company, and has elected to be taxed as a corporation (the “Company”) was founded in 2015 and incorporated in Malta. The Company is 100% owned by Gameday Group plc (“Gameday Group”), registered in Malta, and is a fellow subsidiary to Together Gaming Solutions plc (“TGS”) (collectively the “Group”). TGS is the Business to Business (B2B) service provider arm of the Group and owner of the Group’s key intellectual property assets.
The Company is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with online casino (“iGaming”), sports betting (“Sportsbook”), and daily fantasy sports (“DFS”). The Company is mainly engaged in the business of remote gaming and to enable, facilitate and aid gaming with regards to the said remote gaming products. The Company provides users with online casino access through its “iGaming” software platform.
The Company operates and interacts with several related parties, which are related through the same ownership, described in the unaudited condensed financial statements herein. The Company entered into agreements with related parties, in which the related parties operate remote gaming websites, as disclosed in Note 4.
NOTE 2 – LIQUIDITY AND GOING CONCERN
Going Concern: The unaudited condensed financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”), which contemplate continuation of the Company as a going concern. For the three-month period ended March 31, 2021, the Company had net income of $1,225,829 and net cash used from operating activities of $3,455,966. However, as of March 31, 2021, the Company had $1,605,173 in non-restricted cash, which won’t be sufficient to fund the operations and strategic objectives of the Company over the next twelve months from the date of issuance of these unaudited condensed financial statements. In addition, the accumulated deficit as of March 31, 2021 and December 31, 2020 was $(15,006,928) and $(16,262,757), respectively. The Company also had negative working capital as of March 31, 2021 and December 31, 2020 of $(2,457,269) and $(7,382,673), respectively.
As discussed in Note 11, subsequent to year-end the Company and the Group entered into a share purchase agreement with Esports Entertainment Group, Inc. for the sale of its business to consumer (B2C) business and the Bethard brand for 16 million Euros. The consideration received by the Group will be paid by Gameday Group to the Company as payment of an inter-company receivable due to the Company. The Transaction follows a recent strategic decision by the Group (following industry developments in the B2C market over the past 12 to 18 months) to focus on its B2B business, with TGS at the forefront of this new strategy. To this end, TGS intends to increase its B2B marketing activities and will continue to provide full white label services to third-party branded casino/sportsbook websites, as well as standalone licensing of its proprietary iGaming platform to licensed third-party B2C operators. Following the execution of the transaction substantially all of the Company’s operations will be transferred to Esports Entertainment Group, Inc., accordingly, the Company will not have sufficient operating activities to meet all of its obligations and as a result of the sale and the Company's significant accumulated deficit and working capital deficit there is substantial doubt that the Company can continue as a going concern for the next twelve months from the date of the issuance of the report. (see Note 11)
7 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2 – LIQUIDITY AND GOING CONCERN (CONTINUED)
COVID-19: As a result of the continued spread of the COVID-19 beginning in March of 2020, economic uncertainties have arisen. There have not been any significant impacts to operations and the Company’s revenue generating operations are still continuing. Management believes the Company’s operations and its customer base will continue to not be materially impacted as a result of COVID-19. However, there may be economic uncertainties which could negatively impact the Company, and that potential impact is still unknown at this time.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Condensed Financial Statements Presentation
The accompanying unaudited condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP “) for interim financial information, and on the same basis as the audited financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited condensed financial statements should be read along with the annual audited financial statements of the Company for the annual period ended December 31, 2020.
Variable Interest Entities
In accordance with Accounting Standards Codification 810, the Company considers certain affiliates to be Variable Interest Entities (“VIE”). Generally, a VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
8 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Variable Interest Entities (continued)
In October 2018, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). ASU 2018-17 permits a private company (the reporting entity) to elect an alternative not to apply variable interest entity (“VIE”) guidance if (a) the reporting entity and the legal entity are under common control; (b) the reporting entity and the legal entity are not under common control of a public business entity; (c) the legal entity under common control is not a public business entity; and (d) the reporting entity does not directly or indirectly have a controlling financial interest in the legal entity when considering the General Subsection of Topic 810. The Company determined certain affiliates meet all the criteria of ASU 2018-17 and have elected not to evaluate these entities for potential consolidation. As of March 31, 2021 and December 31, 2020, the Company’s loss exposure is $5,480,336 and $1,531,010, respectively. The Company’s fellow subsidiary TGS, does not meet the required exception as noted within the ASU, due to it being a publicly traded company. Management evaluated the relationship and noted that although TGS is a variable interest entity, the Company is not the primary beneficiary and therefore is not required to consolidate.
Functional and Presentation Currency
The functional currency of the company is the Euro. The reporting currency reflected in the unaudited condensed financial statements is the United States (“US”) Dollar. Assets and liabilities in the accompanying unaudited condensed financial statements are translated into US dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income account in shareholder’s equity. Cash flows are also translated at average translation rates for the periods; therefore, amounts reported on the unaudited condensed statements of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed balance sheets.
Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any transaction exchange gains and losses are included in other income (expense) in the condensed unaudited statements of operations and comprehensive income (loss).
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited condensed financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to allowances for doubtful accounts, useful lives and impairment considerations of equipment and intangible assets, right-of-use lease asset and the related operating lease liability, and income taxes. Actual results could differ from those estimates.
9 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Restricted Cash
The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The Company has no cash equivalents. Restricted cash as of March 31, 2021 and December 31, 2020, is $4,430,358 and $4,582,278, respectively, which is attributable to amounts due to players as required by the Malta Gaming Authority.
Other Receivables
Other receivables are recorded for amounts due from other parties for jackpot contributions and from parties other than suppliers. Other receivables are recorded at their estimated realizable value. Bad debts are provided for on the allowance method based on historical experience and management’s evaluation of outstanding receivables at the end of the year. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of the individual accounts.
Deposit Receivables
User deposit receivables are stated at the amount the Company expects to collect from a payment processor. These arise due to the timing differences between a user’s deposit and the receipt of the payment from the payment processor into the Company’s bank accounts. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. No allowance was required for the as of March 31, 2021 and December 31, 2020, respectively.
Prepaid Expenses
Prepaid expenses consist of services paid for which the Company has not yet received the benefit. These are recorded when cash is paid and amortized to the appropriate expense as the service has been delivered and benefit received.
Amounts Due from Related Parties
Amounts due from related parties, are accounted for in the Company’s unaudited condensed balance sheets at their outstanding amounts due. Balances are classified as current for amounts due on demand or if payment is due within one year or less. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. The Company performs an assessment over the collectivity of these receivables and records and allowance as deemed necessary. Management recorded an allowance on the amounts due from related parties of $222,021 and $226,963 at March 31, 2021 and December 31, 2020, respectively.
Equipment
Equipment is recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from three to ten years. Major repairs that significantly extend the life of the asset or replacements of equipment are capitalized. Maintenance repairs and minor replacements are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in the unaudited condensed statement of operations.
10 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets are stated at cost. Amortization expense is recognized on a straight-line basis over the estimated useful life of three years. Intangible assets are comprised of capitalized internally developed software. Intangible assets are initially measured at cost. This comprises the directly attributable cost of preparing the assets for their intended use.
Impairment of Long-lived Assets
The Company reviews long-lived assets, including definite-lived intangible assets, for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. During the periods ended March 31, 2021 and 2020, there was no impairment expense recorded for long-lived assets.
Investment Related Party Bonds
Investment related party bonds are accounted for in the Company’s unaudited condensed balance sheets at the outstanding principal balance, plus accrued interest. The Company has elected to account for the bond as a held-to-maturity investment. Interest income is accrued at the contractual rate of interest over the term of the bond. The accrual of interest is discontinued when management believes, after considering collection efforts and other factors, the amount ultimately to be collected will be insufficient to cover the additional interest payments. The Company designates bonds as non-performing at such time as (i) the bond has a maturity default; or (ii) in the opinion of management, it is probable the Company will be unable to collect all amounts due according to the contractual terms (see Note 4). The Company provides for an allowance if the amounts to be received are considered uncollectible. The balances are written off against the allowance when they are determined to be uncollectible based on management assessment of the outstanding balances.
Amounts Due to Related Parties
Outstanding amounts due to related parties, are accounted for in the Company’s unaudited condensed balance sheets at their outstanding amounts due. Balances are classified as current if payment is due on demand or within one year or less (see Note 4).
Trade and other payables
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Leases
The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”) Topic 842 - Leases. Under Topic 842, the Company determines whether an arrangement is or contains a lease at inception or modification of a contract. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of the identified asset means the lessee has both the right to obtain substantially all economic benefits from the use of the asset and the right to direct the use of the asset. Upon adoption of ASC 842, the Company elected the practical expedient package and therefore elected to retain the ASC 840 lease classification and terms conclusions up to the implementation date of ASC 842.
11 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leases (continued)
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date for the arrangements with a term of 12 months or longer and are initially measured based on the present value of lease payments over the defined lease term. The measurement of the operating lease ROU assets also includes any prepaid lease payments made and is net of lease incentives. If the implicit interest rate to be applied to the determination of the present value of lease payments over the lease term is not readily determinable, the Company estimates the incremental borrowing rate based on the information available at the commencement date. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases which the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the ROU asset and lease liability. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term. Refer to Note 8 for details of leasing arrangements.
Value Added Tax Receivable or Payable
Revenue is reported net of value added tax (“VAT”) when applicable. The VAT is based on German and Irish casino gaming revenue, and the rates are 21% and 23% respectively, for customers playing non-live casino games. Furthermore, VAT payable at the standard rate of 18% is based on related party management services provided by the Company in Malta (see Note 4). VAT receivable at the standard rate of 18% are based on local supplies relating to Company expenses.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated value. The carrying value of cash, receivables, prepaid expenses, trade and other payables, jackpot provision, and player liabilities approximate fair value because of the immediate or short-term nature of the financial instruments. The carrying value of short and long-term debt approximates fair value based on discounting the projected cash flows using market rates available for similar maturities. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these unaudited condensed financial instruments.
Advertising
The Company expenses advertising costs as incurred, which are included in sales and marketing expenses on the unaudited condensed statements of operations and comprehensive income (loss). Sales and advertising expense was $40,173 and $16,601 for the three-month periods ended March 31, 2021 and 2020, respectively.
12 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition
The Company accounts for revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes; (1) Identifying contracts with customers, (2) Identifying performance obligations within those contracts, (3) Determining the transaction price, (4) Allocating the transaction price to the performance obligation in the contract, which may include an estimate of variable consideration, and (5) Recognizing revenue when or as each performance obligation is satisfied.
The transaction price in a gaming contract is the difference between gaming wins and losses, Net Gaming Revenue (“NGR”), not the total amount wagered Gross Gaming Revenue (“GGR”). Sales and other taxes collected on behalf of governmental authorities are accounted for on a net basis.
The Company accrues the incremental amount of progressive jackpots as the progressive game is played, and the progressive jackpot amount increases, with a corresponding reduction to revenues. Free play and other incentives to customers related to gaming play are recorded as a reduction of revenue on the unaudited condensed statements of operations and comprehensive income (loss).
Costs of revenues include licensing fees and revenue share agreement to a related party. Disclosures related to the terms of the revenue share agreement with a related party is included in Note 4. The Company evaluates bets that users place on websites owned by third party brands in order to determine whether it is acting as the principal or as the agent when providing services, which the Company considers in determining if revenue should be reported gross or net. An entity is a principal if it has the ability to direct the use of and obtain substantially all the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset.
For the revenue share arrangement, the Company is the principal as it controls which customers are allowed to wager on the set; therefore, any expenses related to revenue share are included in gaming costs and expenses on the unaudited condensed statements of operations and comprehensive income (loss).
Gaming transactions involve three performance obligations: for ordinary bets placed, players receiving free spin and deposit matches, and gaming revenues with respect to jackpot games.
The Company applies a practical expedient by accounting for gaming contracts on a portfolio basis, as such contracts share similar characteristics. The effects on the Company’s unaudited condensed financial statements under this approach do not differ materially versus under an individual contract basis.
Revenues allocated to gaming performance obligations are recognized when gaming occurs as such activities are settled immediately.
13 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (continued)
Revenues allocated to jackpot games, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Revenues allocated to free spins and deposit matches are recognized at the time these bonuses are subsequently wagered.
A difference may exist between the timing of cash receipts from players and the recognition of revenues, resulting in a contract or contract-related liability. In general, the Company has two types of such liabilities: (1) player liability and (2) jackpot provision liability as elaborated below. These liabilities are generally expected to be recognized as revenues within one year and are recorded within other current liabilities.
Contract and Contract Related Liabilities
● | Player Liability - Player liability represents the total amount of money within a player’s gaming account which belongs to the player. It ultimately represents the total amount that a player can withdraw at any given time. | |
The player liability includes two types of bonuses which are standard in the gaming industry: (i) Free spin, whereby free spins of slot games are awarded without withdrawing a bet amount from the player’s account (ii) Deposit match bonus in which the Company will match the player’s deposit up to a certain specified percentage or amount. As these rewards are at the discretion of the Company, they are recorded as a reduction of revenue upon redemption. | ||
These bonuses represent consideration payable to a customer and therefore are treated as a reduction of the transaction price for the wagering transaction when considering NGR. The Company records liabilities for amounts due to users of which the balance consists of user deposits, user winnings and nondiscretionary incentives awarded less user withdrawals and user losses. As of March 31, 2021 and 2020, contract liabilities related to player liability on the unaudited condensed balance sheets were $3,243,782 and $3,510,669, respectively. | ||
● | Jackpot Provision - The jackpot provision liability for progressive jackpots is maintained separately from the player liability in order to account for probable future amounts due to players as a result of jackpot winnings. | |
Jackpots are programmed to be paid out randomly across the Company’s online casino. The jackpot amount available for winning increases with each bet on a jackpot eligible slot. On these, a portion of every bet loss goes toward the jackpot. Once a player wins the jackpot, the jackpot amount will reset. The starting amount the jackpot resets to is different across the various jackpot slots and brands depending on game type. The jackpots are considered network jackpots, therefore one player winning a jackpot affects all players on the network. Thus, all participating casinos are pooling into the same jackpot. If one player wins the jackpot, then the jackpot resets across the entire online casino. The jackpot liability is accrued monthly based on the contribution to the jackpot provision for the month as described above. In addition, at month end, the jackpot cost, together with other bonuses and compensations from the regular player liability account, are netted against gross gaming revenue in order to derive NGR. |
14 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (continued)
Contract and Contract Related Liabilities (continued)
As of March 31, 2021 and 2020, contract liabilities related to the jackpot provision on the unaudited condensed balance sheets were $1,186,576 and $1,071,609, respectively.
Income Taxes
The Company accounts for income taxes using ASC Topic 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
ASC 740-10 “Accounting for Uncertainty in Income Taxes” clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s unaudited condensed financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the unaudited condensed financial statements. Management does not believe there are any uncertain tax positions as of March 31, 2021 and December 31, 2020. If any interest or penalties were to arise, they would be accounted for under administrative expenses on the unaudited condensed statements of operations and comprehensive income (loss).
Concentrations Related to Credit Risk and Vendors
The Company operates in various countries. This subjects the Company to be exposed to currency risk, particularly related to Swedish Krona and Great British Pounds. The Company does not take out forward exchange contract or options to hedge against currency fluctuations, which means that currency movement could have a negative impact on the Company’s financial position and earnings. The Company’s credit risk arises mainly on cash at banks, deposit receivables, and amounts due from related parties.
The Company has a very limited risk in relation to trade receivables since payments from external customers for casino and sports betting are done in advance. However, it has a credit risk with companies providing payments service and banks. To mitigate this risk, the Company works with well-established vendors in the business. Other credit risk to which the Company is exposed include the risk of fraudulent transactions and repayment to customers by banks or other payment service providers.
The Company’s cash accounts are managed by banks with an investment rating of investment grade or better.
15 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations Related to Credit Risk and Vendors (continued)
The Company relies on a limited number of vendors to support operations. A single related party, WorldClass Services Ltd (WorldClass Services), is currently the primary provider of web services that allows the Company to host its iGaming, sports betting, and daily fantasy sports offerings. Any interruption in the services provided by this supplier could have a material adverse effect on its business, financial condition, and results of operations. For the three-month period ended March 31, 2021, WorldClass Services, accounted for 64%, $5,366,177, of the Company’s total gaming expense purchases. For the three-month period ended March 31, 2020, WorldClass Services accounted for 59%, $6,673,448, of the Company’s total gaming expense purchases. There were no amounts due to this related party as of March 31, 2021. As of December 31 2020 $4,830,087 was due to this related party, and is included within amounts due to related parties on the unaudited condensed balance sheet (see Note 4).
Recently Issued Accounting Standards
In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU addresses the measurement of credit losses on financial statements and requires issuers to realize current expected credit losses on assets not accounted for at fair value through net income. This can affect financial instruments such as loans, off-balance-sheet credit exposures, and reinsurance receivables. This ASU is effective for interim and annual reporting periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, with early adoption permitted. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.
In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes by removing exceptions regarding intra-period tax allocation of losses and recognition of deferred tax liabilities for equity method investments of a foreign subsidiary. The update aims to put out black and white requirements regarding franchise tax, step up in basis of goodwill, allocation of deferred tax expenses to legal entities in separate financial statements, and the reflection of change in tax laws or rates in annual effective tax rate computation. This update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this update on its financial statements and related disclosures.
16 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES
Amounts Due from and Due to Related Parties
The Company has amounts due from and due to related parties as of March 31, 2021 and December 31, 2020 as follows:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Due from related parties: | ||||||||
Due from WorldClass Services | $ | 3,982,701 | $ | 4,509 | ||||
Due from other affiliates | 1,667,768 | 1,753,231 | ||||||
Due from Together Gaming Solutions | 51,888 | 233 | ||||||
5,702,357 | 1,757,973 | |||||||
Less allowance for doubtful accounts | (222,021 | ) | (226,963 | ) | ||||
Total due from related parties | $ | 5,480,336 | $ | 1,531,010 | ||||
Due to related parties: | ||||||||
Due to parent | $ | 12,019,321 | $ | 12,301,463 | ||||
Due to Gordaman Solutions Ltd | 590,612 | 603,952 | ||||||
Due to other affiliate | 127,586 | 130,426 | ||||||
Due to WorldClass Services Ltd | - | 4,830,087 | ||||||
Total due to related parties | $ | 12,737,519 | $ | 17,865,928 |
Amounts due from related parties and affiliates are unsecured, interest free and repayable on demand. During the periods March 31, 2021 and March 31, 2020, bad debt expense of $8,569 and $10,186, respectively was incurred due to the unlikeliness of recovering the amounts and is included in costs and expenses on the unaudited condensed statements of operations and comprehensive income (loss).
On February 9, 2021, the Company granted TGS an advance of $8,395,871, the proceeds of which were used by TGS to satisfy all of its outstanding obligations as at the date to a supplier. As of February 13, 2021, WorldClass Services owed $9,653,712 to TGS in consideration for the services rendered by TGS in terms of a business development service agreement entered into between the two parties, and the Company owed $4,413,170 to WorldClass Services in terms of a shared conduct agreement entered into between the two parties. By way of an assignment and set-off agreement entered into on February 13, 2021 between the Company, WorldClass Services and TGS, all parties agreed to set-off the loan granted by the Company to TGS, amounting to $8,395,871 against the amounts that the Company owes to WorldClass Services. Following this set-off arrangement, WorldClass Services owes $3,982,701 to the Company as of March 31, 2021.
17 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Revenue Agreements
On April 30, 2019 the Company entered into a revenue share agreement with WorldClass Services. The agreement requires the Company to pay WorldClass Services from the revenue share activity, 0.05% of direct costs, plus total direct costs incurred by WorldClass Services, to the extent that the Company has net gaming revenue is available in that same period. The direct costs relate to the Company performing and carrying out its responsibilities for generating gaming revenue. Costs incurred by the Company during the three-month periods ended March 31, 2021 and 2020 amounted to $5,366,177 and $6,673,448, respectively.
The Company receives a 50% share of the Sverige Casino Limited website domain profits, and 50% is owned by other unrelated third parties under the terms of the Collaboration agreement between the parties. During the periods ending March 31, 2021 and 2020, the domain accumulated net losses, and the share of net losses owed to the Company by the 50% third party owners remained due were written off to bad debt expense due to the unlikeliness of recovering the amounts. Amounts written off to allowance for doubtful accounts due from Sverige Casino Limited during the periods ending March 31, 2021 and 2020 was $8,569 and $10,186, respectively.
Management Fees
Beginning in April 30, 2019, the Company entered into an agreement with TGS, in which the Company receives management fees for management services provided of $14,275 per month. Related party management fee income for the periods ending March 31, 2021 and 2020 were $50,603 and $37,357, respectively and is recorded within other income on the unaudited condensed statements of operations and comprehensive income (loss).
Investment Related Party Bonds
As part of the settlement of the consideration relating to the sale of intangible asset that took place on April 30, 2019, the Company received a $9,237,981 total bond value. The bonds carry an annual interest of 5.9% per annum. In July 2020 the Company waived its rights (in favor of TGS) to receive the original interest payment accumulated on these bonds. The bond requires interest only payments through maturity with a lump sum payment due in 2026.
The bond is part of a larger total bond issued of Eur 20,000,000 ($22,410,000 as of July 22, 2019, date of issuance), in the name of a subsidiary company of Gameday Group, specifically TGS, in which the Company obtained $9,237,981 from these available bonds during 2019. The outstanding balance of the bond as of March 31, 2021 and December 31, 2020 was $6,141,962 and $9,874,771, respectively.
In February 2021, in order to meet certain short-term financing requirements, the Company offered to sell to Calamatta Cuschieri Investment Services Limited (“CC”), a non-related third party, up to 30,000 Bonds and CC was willing to acquire the 30,000 Bonds offered at a price of $117.66 (€97.10) per Bond (the “Bid Price”). After considerations of the Group’s need for short-term financing requirements, the Bid Price and the number of Bonds that were proposed to be sold, as well as the purpose behind the initial subscription of the Bonds, the Company approved to sell 30,000 Bonds at the Bid Price. The bonds were sold on March 3, 2021 for total gross proceeds of $3,514,958 resulting in a loss on the sale of investment related party bonds of $235,245 and is recorded as other income (expense) on the unaudited condensed statements of operations and comprehensive income (loss).
18 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 – TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Company previously waived its interest in respect of all of the Bonds it held on the first interest payment (July 22, 2020) following a resolution of the Board to this effect and an interest waiver letter sent by the Company to TGS. Following the Sale of Bonds, the Company holds 52,379 Bonds as of March 31, 2021. Subsequent to year-end on July 22, 2021, the second interest payment due from the remaining Bonds of $362,376 (the “Second Interest Payment”) was also waived (in favor of TGS). Interest income for the three-month period ending March 31, 2021 was $127,614.
Cost Sharing Agreement
On January 1, 2021 the Company entered into a cost sharing agreement with TGS in relation to the lease agreement entered into by TGS with a third party to lease premises for a period of three years (see Note 8).
NOTE 5 – EQUIPMENT
Equipment as of March 31, 2021 and December 31, 2020 consists of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Computer equipment | $ | 151,237 | $ | 154,604 | ||||
Furniture and fittings | 26,713 | 27,308 | ||||||
177,950 | 181,912 | |||||||
Accumulated depreciation | (142,111 | ) | (139,136 | ) | ||||
$ | 35,839 | $ | 42,776 |
Depreciation expense was $6,178 and $9,524 for the three-month periods ended March 31, 2021 and 2020, respectively, and is included in administrative expenses on the unaudited condensed statements of operations and comprehensive income (loss).
19 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 6 – INTANGIBLE ASSETS
Intangible assets as of March 31, 2021 and December 31, 2020 consist of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Mobile app | $ | 2,577,002 | $ | 2,538,823 | ||||
Accumulated amortization | (2,255,636 | ) | (2,189,660 | ) | ||||
$ | 321,366 | $ | 349,163 |
Amortization expense was $116,928 and $161,288 for the three-month periods ended March 31, 2021 and 2020, respectively, and is included in administrative expenses on the unaudited condensed statements of operations and comprehensive income (loss).
NOTE 7 – TRADE PAYABLES AND ACCRUED LIABILITIES
Trade payables and accrued liabilities payables as of March 31, 2021 and December 31, 2020 consist of the following:
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Trade payables | $ | 1,388,530 | $ | 720,409 | ||||
Accrued expenses | 1,030,492 | 972,857 | ||||||
$ | 2,419,022 | $ | 1,693,266 |
NOTE 8 – LEASES
The Company determines if a contract contains a lease at inception. U.S. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. The Company has considered renewal options at the end of its leases and has determined at this time the Company is not reasonably certain to renew the operating leases discussed below. All of the Company’s leases are classified as operating leases.
20 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 8 – LEASES (CONTINUED)
On May 12, 2016, the Company entered into an agreement to lease the fourth floor of a block; on February 24, 2018 the Company opted to add an additional floor to the existing lease. The lease modifications were accounted for during the initial adoption of ASC 842. On September 1, 2018 the Company entered into a cost sharing agreement with Raketech and TGS, both related parties (see Note 4) to share the cost of the rent. The cost share is shared 50% by Raketech and 25% by TGS. The cost sharing agreement is considered a separate contract from the head lease and classification is done by reference to the right of use asset arising from the head lease, as such is classified as an operating lease.
In July 2020 there was a lease modification for the main lease. The modification resulted in the cancellation of the original lease term and creation of a new lease term. The new lease term was for 3 months July through September 2020, the termination date.
The Company elected to terminate the lease in September 2020. During 2020, the Company, affiliate and third party agreed to terminate the lease agreement and sublease agreement. Since the lease was terminated as of December 31, 2020, there is no remaining future minimum payments under the operating lease.
The Company incurred lease expense for the operating lease of $24,936 during the three-month period ending March 31, 2020, which is included within costs and expenses on the unaudited condensed statements of operations and comprehensive income (loss). Amounts owed under the cancelled operating lease was $22,992 and as of March 31, 2021 and is included within trade and other payables on the unaudited condensed balance sheets.
There was no rental income relating to the cost sharing agreement during the periods ending March 31, 2021 and 2020. There were no recognized assets or liabilities from operating leases as of March 31, 2021 or December 31, 2020 on the unaudited condensed balance sheets.
On January 1, 2021 the Company entered into a cost sharing agreement with TGS in relation to the lease agreement entered into by TGS with a third party to lease premises for a period of three years.
Concurrently, TGS and the Company entered into a cost sharing agreement to share 50% of the cost of the lease. The Company does not control the use of the asset. During the three-month period ending March 31, 2021 total expense of $22,318 was incurred and is recorded within total gaming expenses on the unaudited condensed statements of operations and comprehensive income (loss).
21 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 9 – PROVISION FOR INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of March 31, 2021 and December 31, 2020, temporary differences consist primarily of net operating loss carryforwards. Significant components of the Company’s deferred tax assets and liabilities are as follows as of March 31, 2021 and December 31, 2020 respectively.
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Net operating loss carryforward | $ | 6,714,047 | $ | 6,955,113 | ||||
Valuation allowance | (6,714,047 | ) | (6,955,113 | ) | ||||
$ | - | $ | - |
The Company has reported losses from operations on a cumulative basis through the period ended March 31, 2021, as a result no current income tax expense has been recorded for the periods ended March 31, 2021 and 2020 respectively. Management has provided a full valuation allowance with respect to its net deferred tax assets, since it is more likely than not that the deferred tax assets will not be realized. During the three-month period ended March 31, 2021 and 2020, the valuation allowance decreased $241,066 and $381,084, respectively.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
The Company is subject to various ongoing legal proceedings in the ordinary course of its business. Each of these matters is subject to various uncertainties and some of these matters may be resolved unfavorably to the Company. The Company is not a party to any legal proceedings that management believes would have a material adverse effect on the unaudited condensed financial statements of the Company.
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through August 12, 2021, the date of issuance of the unaudited condensed financial statements.
● | As discussed in Note 2, Gameday Group, as the parent company of the group of companies of which TGS and the Company form a group of affiliated entities (the “Group”) successfully concluded discussions with Esports Entertainment Group, Inc (“Esports”) for the sale of the Group’s Business to Consumer (“B2C”) business to Esports operating under the Bethard, Fastbet and Betive brands of the Company. |
22 |
BETHARD GROUP LIMITED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 11 – SUBSEQUENT EVENTS (CONTINUED)
Esports is a U.S. based, full stack esports and online gambling company fueled by the growth of video-gaming and the ascendance of esports with new generations. Esports maintains offices in New Jersey, the UK and Malta and has its common shares listed in the U.S. on NASDAQ under the symbol “GMBL”.
On May 28, 2021, the Group entered into a Share Sale and Purchase Agreement (the “Purchase Agreement”) with Esports (“Purchaser”) and Gameday Group (the “Seller”) whereby, upon meeting certain conditions as described therein, the Esports would purchase all of the outstanding share capital, 25,101,200 ordinary shares of Prozone Limited from the Seller (the “Shares”).
The Purchase Price for the Shares originally agreed to was to be an amount corresponding to the aggregate of (i) EUR 16,000,000 (the “Closing Payment “); (ii) subject to certain conditions as outlined in the Purchase Agreement, an amount corresponding to 12% of Net Gaming Revenue (as defined in the Purchase Agreement) for 24 months from the date of the closing of the Purchase Agreement (the “Relevant Period “) and payable by the Purchaser to the Seller on a monthly basis (in respect of Net Gaming Revenue generated during the relevant month during the Relevant Period) (the “Additional Payment “); and (iii) subject to certain conditions as outlined in the Purchase Agreement, shares of the Esports’ common stock to be allotted and issued to the Seller by the second year anniversary of the Closing Date, representing an aggregate value of the USD Currency Equivalent of EUR 7,600,000 or such lower amount as may be applicable in accordance with the Purchase Agreement (the “ Share Consideration “, and together with the Closing Payment and the Additional Payment, the “ Purchase Price”).
On July 13, 2021, Esports and the Seller entered into an Amendment Agreement (the “Amendment”) with respect to the Purchase Agreement, pursuant to which the Seller and the Esports agreed to amended the Purchase Agreement, specifically the Purchase Price, as follows: (i) Esports agreed to make a payment of EUR 12,000,000 (the “ First Payment ”) to the Seller by no later than July 13,2021 (the “ First Payment Date ”) and a payment of EUR 4,000,000 (the “Second Payment ”) to the Seller by no later than October 1,2021 (the “ Second Payment Date ”); (ii) Esports agreed to pay Seller an additional EUR 1,000,000 on the First Payment Date, representing a refund to the Seller of an equivalent amount that the Seller has deposited with the Spanish Gaming Authority (DGOJ) as a guarantee for regulatory purposes (the “ Spanish Deposit Amount ”). Further, the Additional Payment, shall be increased from 12% of the Net Gaming Revenue during Relevant Period, effective July 1, 2021, to 15% of Net Gaming Revenue until receipt of the Second Payment, following which it shall be reduced to 12% of Net Gaming Revenue for the remainder of the Relevant Period. The Additional Payment shall be reduced to 10% of Net Gaming Revenue in respect of any relevant jurisdiction where the Esports has not yet acquired the relevant B2C online gambling license for a three month period beginning July 31, 2021 but shall increase to12% for the remainder of the Relevant Period once the relevant license has been acquired by Esports. On July 13, 2021, Esports and the Seller entered into that certain Pledge of Shares Agreement (the “ Pledge Agreement ”),whereby Esports agreed to pledge the Shares in favor of the Seller (the “ Pledge ”) as security for Esports’ obligation to make the Second Payment by no later than the Second Payment Date, including any and all fees and/or expenses which the Seller may incur in the protection or enforcement of its respective rights under the Purchase Agreement (the “ Secured Obligations ”).
The Pledge will be released by the Seller upon receipt by the Seller of the Second Payment. The Pledge Agreement constitutes a continuing security for the due and punctual performance of all the Secured Obligations.
On July 13, 2021, Esports and the Seller, having met all conditions precedent in the Amendment consummated the closing for the Shares (the “Closing”). Pursuant to the Amendment, as consideration for the Shares, Esports paid the Seller EUR 12,000,000 at the Closing with the Second Payment and Additional Consideration to follow in accordance with the Amendment. Upon completion of the transaction, substantially all of the Company’s business operations have been transferred to Esports and the only remaining activity will be the Company’s B2C operations.
23 |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On July 13, 2021, Esports Entertainment Group, Inc. (the “Company”) completed the acquisition of the business-to-consumer operations of Bethard Group Limited that provides sportsbook, casino, live casino and fantasy sport betting services with gaming licenses to customers in Sweden, Spain, Malta and Ireland (“Bethard Business”). The initial payment of purchase consideration for the Bethard Business of €17,000,000 (approximately $20,067,871 using exchange rates in effect at the acquisition date) includes €13,000,000 (approximately $15,346,019 using exchange rates in effect at the acquisition date) that was paid in cash at closing and €4,000,000 (approximately $4,721,852 using exchange rates in effect at the acquisition date) payable in cash no later than October 1, 2021 (“Additional Payment Due Date”). The Company is also required to pay additional cash purchase consideration during the 24 month period following the acquisition date equal to 15% of net gaming revenue until the Additional Payment Due Date, with the percentage then decreasing to 10% - 12% of net gaming revenue during subsequent months. The total purchase consideration also includes a payment of up to €7,600,000 (approximately $8,971,519 using exchange rates in effect at the acquisition date) of contingent share consideration should a specific ambassador agreement be successfully assigned to Bethard following the acquisition date.
The accompanying unaudited pro forma condensed combined financial statements (“unaudited pro forma financial information”) has been prepared based on the historical financial statements of the Company and Bethard Group Limited after giving effect to the purchase agreement to acquire the Bethard Business. The pro forma financial information is intended to provide information about how the acquisition of the Bethard Business have affected the Company’s historical financial statements. The unaudited pro forma condensed combined statements of operations for the nine months ended March 31, 2021 and the year ended June 30, 2020, combines the historical consolidated statements of operations of the Company for these periods, derived from the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on May 17, 2021, and Annual Report on Form 10-K filed with the SEC on October 1, 2020, with the respective historical statements of operations of the Bethard Business as if the acquisition of the Bethard Business had occurred on July 1, 2019. The unaudited pro forma condensed combined balance sheet at March 31, 2021 combines the historical consolidated balance sheet of the Company as derived from the Quarterly Report on Form 10-Q filed with the SEC on May 17, 2021, and the historical balance sheet of the Bethard Business as of March 31, 2021 on a pro forma basis as if the acquisition of the Bethard Business occurred on the same balance sheet date.
The Company and the Bethard Business have different fiscal year ends. The historical unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2021 combines the Company’s historical unaudited consolidated statement of operations for the nine months ended March 31, 2021 with the results of the Bethard Business for the nine months ended December 31, 2020 as derived from the historical statement of operations of Bethard Group Limited. The historical unaudited statement of operations of Bethard Group Limited for the nine months ended December 31, 2020 was determined by adding the historical audited statement of operations of Bethard Group Limited for the year December 31, 2020 and subtracting the historical condensed statement of operations for the three months ended March 31, 2020.
The historical unaudited pro forma condensed combined statement of operations for the year ended June 30, 2020 combines the Company’s historical audited consolidated statement of operations for the year ended June 30, 2020 with the results of the Bethard Business for the year ended March 31, 2020, as derived from the historical statement of operations of Bethard Group Limited. The historical unaudited statement of operations of Bethard Group Limited for the year ended March 31, 2020 was determined by adding the historical unaudited condensed statement of operations of Bethard Group Limited for the three months ended March 31, 2020 to its historical audited statement of operations for the year ended December 31, 2019, and then subtracting the historical unaudited condensed statement of operations for the three months ended March 31, 2019.
The unaudited pro forma financial information should be read in conjunction with the accompanying notes to the unaudited pro forma financial information and:
● | the historical unaudited condensed consolidated financial statements of the Company for the three and nine months ended March 31, 2021 included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 17, 2021; |
● | the historical audited financial statements of the Company for the year ended June 30, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on October 1, 2020; |
● | the historical unaudited condensed financial statements of Bethard Group Limited for the three months ended March 31, 2021 and 2020 as included in this Current Report on Form 8-K/A filed with the SEC on August 12, 2021; |
● | the historical audited consolidated financial statements of Bethard Group Limited for the years ended December 31, 2020 and 2019, as included in this Current Report on Form 8-K/A filed with the SEC on August 12, 2021. |
● | the announcement of the entry into a share sale and purchase agreement with Gameday Group Plc, parent company of Bethard Group Limited, as included in the Current Report on Form 8-K filed with the SEC on May 28, 2021. |
● | the announcement to report the closing of a share sale and purchase agreement, as amended on July 13, 2021, with Gameday Group Plc, parent Company of Bethard Group Limited, as included in the Current Report on Form 8-K filed with the SEC on July 15, 2021. |
● | the announcement of the closing of the Convertible Note as included in the Current Report on Form 8-K filed with the SEC on June 1, 2021. |
The unaudited pro forma financial information has been presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition of Bethard occurred on the dates indicated. Further, the unaudited pro forma financial information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma transaction accounting adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.
Esports Entertainment Group, Inc.
Pro Forma Condensed Combined Balance Sheet
March 31, 2021
(Unaudited)
Esports Entertainment Group, Inc.
Pro Forma Condensed Combined Statement of Operations
For the Nine Months ended March 31, 2021
(Unaudited)
Historical | Pro Forma | |||||||||||||||||||||||||||
Esports Entertainment Group, Inc. | Bethard Group Limited | Transaction Accounting Adjustments | Notes | Other Transaction Accounting Adjustments | Notes | Pro Forma Combined | ||||||||||||||||||||||
Net revenue | $ | 7,983,293 | $ | 32,398,701 | $ | (12,290,438 | ) | (h) | $ | - | $ | 28,091,556 | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||||||||
Cost of revenue | 4,249,889 | 27,891,203 | (20,570,401 | ) | (h) | - | 11,570,691 | |||||||||||||||||||||
Sales and marketing | 4,891,688 | 251 | 8,730,545 | (i) | - | 13,622,484 | ||||||||||||||||||||||
General and administrative | 14,082,111 | 3,504,864 | (1,064,328 | ) | (h) | - | 16,522,647 | |||||||||||||||||||||
Total operating expenses | 23,223,688 | 31,396,318 | (12,904,185 | ) | - | 41,715,821 | ||||||||||||||||||||||
Operating loss | (15,240,395 | ) | 1,002,383 | 613,747 | - | (13,624,265 | ) | |||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest expense | - | (29,666 | ) | - | (2,100,000 | ) | (j) | (2,129,666 | ) | |||||||||||||||||||
Net amortization of debt discount and premium on convertible debt | - | - | - | (1,719,375 | ) | (k) | (1,719,375 | ) | ||||||||||||||||||||
Change in fair value of warrant liability | (4,729,924 | ) | - | - | - | (4,729,924 | ) | |||||||||||||||||||||
Change in fair value of contingent consideration | (1,305,804 | ) | - | - | - | (1,305,804 | ) | |||||||||||||||||||||
Other non-operating income | (265,486 | ) | 474,533 | - | - | 209,047 | ||||||||||||||||||||||
Foreign exchange gain (loss) | - | 61,702 | - | - | 61,702 | |||||||||||||||||||||||
Loss before income taxes | (21,541,609 | ) | 1,508,952 | 613,747 | (3,819,375 | ) | (23,238,285 | ) | ||||||||||||||||||||
Income tax | - | - | - | - | - | |||||||||||||||||||||||
Net income (loss) | $ | (21,541,609 | ) | $ | 1,508,952 | $ | 613,747 | $ | (3,819,375 | ) | $ | (23,238,285 | ) | |||||||||||||||
Basic and diluted loss per common share | (1.54 | ) | (1.66 | ) | ||||||||||||||||||||||||
Weighted average number of common shares outstanding, basic and diluted | 13,974,197 | 13,974,197 |
Esports Entertainment Group, Inc.
Pro Forma Condensed Combined Statement of Operations
For the Year Ended June 30, 2020
(Unaudited)
Historical | Pro Forma | |||||||||||||||||||||||||||
Esports Entertainment Group, Inc. | Bethard Group Limited | Transaction Accounting Adjustments | Notes | Other Transaction Accounting Adjustments | Notes | Pro Forma Combined | ||||||||||||||||||||||
Net revenue | $ | - | $ | 46,135,802 | $ | (13,653,726 | ) | (h) | $ | - | $ | 32,482,076 | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||||||||||||||
Cost of revenue | - | 43,660,777 | (30,302,891 | ) | (h) | - | 13,357,887 | |||||||||||||||||||||
Sales and marketing | - | 948,505 | 17,353,580 | (i) | - | 18,302,085 | ||||||||||||||||||||||
General and administrative | 4,049,714 | 10,720,391 | (7,222,271 | ) | (h) | - | 7,547,834 | |||||||||||||||||||||
Total operating expenses | 4,049,714 | 55,329,673 | (20,171,581 | ) | - | 39,207,806 | ||||||||||||||||||||||
Operating loss | (4,049,714 | ) | (9,193,871 | ) | 6,517,855 | - | (6,725,730 | ) | ||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest expense | (1,995,458 | ) | (607,375 | ) | - | (2,792,222 | ) | (j) | (5,395,055 | ) | ||||||||||||||||||
Net amortization of debt discount and premium on convertible debt | (1,156,877 | ) | - | - | (2,292,500 | ) | (k) | (3,449,377 | ) | |||||||||||||||||||
Change in fair value of derivative liabilities | (2,432,302 | ) | - | - | - | (2,432,302 | ) | |||||||||||||||||||||
Loss on extinguishment of debt | (2,795,582 | ) | - | - | - | (2,795,582 | ) | |||||||||||||||||||||
Gain on warrant exchange | 1,894,418 | - | - | - | 1,894,418 | |||||||||||||||||||||||
Other non-operating income | - | 512,478 | - | - | 512,478 | |||||||||||||||||||||||
Impairment of intangible asset | (67,132 | ) | - | - | - | (67,132 | ) | |||||||||||||||||||||
Gain on settlement of debt | 253,588 | - | - | - | 253,588 | |||||||||||||||||||||||
Foreign exchange gain (loss) | 42 | (128,908 | ) | - | - | (128,866 | ) | |||||||||||||||||||||
Loss before income taxes | (10,349,017 | ) | (9,417,676 | ) | 6,517,855 | (5,084,722 | ) | (18,333,560 | ) | |||||||||||||||||||
Income tax | (2,398 | ) | - | - | - | (2,398 | ) | |||||||||||||||||||||
Net income (loss) | $ | (10,351,415 | ) | $ | (9,417,676 | ) | $ | 6,517,855 | $ | (5,084,722 | ) | $ | (18,335,958 | ) | ||||||||||||||
Basic and diluted loss per common share | $ | (1.50 | ) | $ | (2.66 | ) | ||||||||||||||||||||||
Weighted average number of common shares outstanding, basic and diluted | 6,880,321 | 6,880,321 |
Note 1 - Description of Transaction
On July 13, 2021, Esports Entertainment Group, Inc. (the “Company”) completed the acquisition of the business-to-consumer operations of Bethard Group Limited that provides sportsbook, casino, live casino and fantasy sport betting services with gaming licenses to customers in Sweden, Spain, Malta and Ireland (“Bethard Business”). The initial payment of purchase consideration for the Bethard Business of €17,000,000 (approximately $20,067,871 using exchange rates in effect at the acquisition date) includes €13,000,000 (approximately $15,346,019 using exchange rates in effect at the acquisition date) that was paid in cash at closing and €4,000,000 (approximately $4,721,852 using exchange rates in effect at the acquisition date) payable in cash no later than October 1, 2021 (“Additional Payment Due Date”). The Company is also required to pay additional cash purchase consideration during the 24 month period following the acquisition date equal to 15% of net gaming revenue until the Additional Payment Due Date, with the percentage then decreasing to 10% - 12% of net gaming revenue during subsequent months. The total purchase consideration also includes a payment of up to €7,600,000 (approximately $8,971,519 using exchange rates in effect at the acquisition date) of contingent share consideration should a specific ambassador agreement be successfully assigned to Bethard following the acquisition date.
The cash portion of the purchase consideration for the Bethard Business was financed by the Company with available cash and through the issuance of a Senior Convertible Note (“Convertible Note”) on June 2, 2021, with an original principal amount (“Original Principal Amount”) of $35,000,000. The Company received proceeds of $32.5 million upon issuance of the Convertible Note, net of debt issuance costs of $2.5 million. The Convertible Note bears interest at a rate of 8% per annum and matures two years following the date of issuance on June 2, 2023. The principal balance due upon maturity of the Convertible Note is $37,100,000, representing a 6% premium to the Original Principal Amount, and this premium is being amortized to interest expense over the term of the Convertible Note. The Convertible Note is convertible at the option of the holder into shares of the Company’s common stock at a conversion price of $17.50 per share.
The Convertible Note was issued with 2,000,000 Series A warrants and 2,000,000 Series B warrants. The Series A warrants were determined to be freestanding warrants because they are legally detachable and separately exercisable. The Series B warrants do not become exercisable until such time as the Convertible Note is redeemed by the Company. The Convertible Note and the Series B warrants were determined to be substantially equivalent to one convertible debt instrument. The Series A and B warrants have an exercise price of $17.50 and the warrants are callable by the Company should the volume weighted average share price of the Company exceed $32.50 for each of 30 consecutive trading days following the date such warrants become eligible for exercise.
Note 2 - Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet gives effect to the purchase of the Bethard Business as if the acquisition occurred on March 31, 2021. The unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2021 and year ended June 30, 2020 give effect to the acquisition of the Bethard Business by the Company on July 1, 2019.
The Company and the Bethard Business have different fiscal year-ends. The Company’s fiscal year ends on June 30, whereas the fiscal year end of the Bethard Business ends on December 31. The unaudited pro forma condensed combined financial information has been prepared utilizing period ends that are within 93 days, as permitted by Rule 11-02 Regulation S-X. The unaudited pro forma condensed combined balance sheet combines the historical unaudited condensed consolidated balance sheet of the Company and the unaudited condensed balance sheet of the Bethard Business at March 31, 2021.
The historical unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2021 combines the Company’s historical unaudited condensed consolidated statement of operations for the nine months ended March 31, 2021 with the results of the Bethard Business for the nine months ended December 31, 2020 as derived from the historical condensed statement of operations of Bethard Group Limited. The historical unaudited condensed statement of operations of Bethard Group Limited for the nine months ended December 31, 2020 was determined by adding the historical audited statement of operations of Bethard Group Limited for the year December 31, 2020 and subtracting the historical condensed statement of operations for the three months ended March 31, 2020.
The historical unaudited pro forma condensed combined statement of operations for the year ended June 30, 2020 combines the Company’s historical audited consolidated statement of operations for the year ended June 30, 2020 with the results of the Bethard Business for the year ended March 31, 2020, as derived from the historical condensed statement of operations of Bethard Group Limited. The historical unaudited condensed statement of operations of Bethard Group Limited for the year ended March 31, 2020 was determined by adding the historical unaudited condensed statement of operations of Bethard Group Limited for the three months ended March 31, 2020 to its historical audited statement of operations for the year ended December 31, 2019, and then subtracting the historical unaudited condensed statement of operations for the three months ended March 31, 2019.
The acquisition of the Bethard Business was determined to qualify as a business combination. The acquisition accounting included in the unaudited pro forma condensed combined financial statements is preliminary and will change in connection with the work being performed by a third-party valuation specialist. While the Company has engaged a valuation specialist to estimate the fair value of identifiable intangible assets, the valuation requires the Company to provide additional information to determine preliminary values. As a result, differences between the acquisition accounting included in the pro forma financial information and the final acquisition accounting could be material.
The Convertible Note also contains a conversion feature and was issued with Series A freestanding warrants that were determined to be liability classified. A determination of fair value for the conversion feature and fair value applicable to the Series A freestanding warrants by the third-party valuation specialist may further result in an increase to the debt discount on the convertible notes and result in additional interest expense resulting from the amortization of the debt discount. In additional, changes to the fair value of the liability classified Series A warrants may further result in income statement volatility. The changes resulting from the determination of a fair value for these features by a third-party valuation specialist could be material.
Note 3 – Accounting Policies
The accounting policies of the Company may vary materially from those of the Bethard Business. During preparation of the unaudited pro forma condensed combined financial information, the Company has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies between the two companies other than the pro forma reclassifications detailed in Note 5. Following the acquisition date, the Company will conduct a final review of the accounting policies of the Bethard Business in order to determine if differences in accounting policies require adjustment or reclassification to the results of operations of the Bethard Business, or reclassification of assets or liabilities to conform to the accounting policies and classifications of the Company. As a result of this review, the Company may identify differences that when adjusted or reclassified, could have a material impact on this unaudited pro forma condensed combined financial information.
Note 4 – Estimated Preliminary Purchase Consideration
The table below presents the total estimated preliminary purchase consideration:
Cash consideration paid at closing | $ | 15,346,019 | ||
Cash consideration payable by October 1, 2021 (Additional Payment Due Date) | 4,721,852 | |||
$ | 20,067,871 | |||
Contingent cash consideration | 7,295,307 | |||
Contingent share consideration | 8,971,519 | |||
Total estimated preliminary purchase consideration | $ | 36,334,697 |
The preliminary estimated contingent cash consideration assumes a cash payment equal to 15% of net gaming revenue for the Bethard Business through the Additional Payment Due Date, estimated to be three months, then reverting to 12% thereafter for the remainder of a two-year period following the acquisition date. The preliminary estimated contingent cash consideration is calculated using the applicable percentages applied to historical net gaming revenue of the Bethard Business for the year ended March 31, 2020 and the annualized revenues of the Bethard Business for the nine month period ended December 31, 2020.
The preliminary estimated contingent share consideration “assumes” in a maximum payout of the contingent share consideration. The sellers of the Bethard Business have up to 6 months to successfully assign the ambassador agreement to receive the contingent share consideration. After 6 months, the contingent share consideration is reduced by €422,222 for each month the contract is not assigned to the Company through the 24 month anniversary. The share consideration included in the total estimated preliminary purchase consideration are estimated using the exchange rates at the date of acquisition. The share consideration is not payable until the 24 month anniversary following the acquisition of the Bethard Business and therefore the contingent share consideration is classified as a noncurrent liability.
The total estimated preliminary purchase consideration may change materially in connection the work being performed by a third-party valuation specialist to determine the fair value of the contingent cash consideration, contingent share consideration, and fair value of service agreements signed during the acquisition period for post-combination services provided by the sellers. The contingent share consideration may also change materially as the Company concludes as to the likelihood that the ambassador agreement can be successfully assigned to the Company.
Note 5 – Reclassification Adjustments
Certain reclassifications have been made to Bethard Group Limited’s historical balance sheets to conform the to the Company’s presentation as follows:
Presentation before reclassification | Presentation after reclassification | March 31, 2021 | ||||
Deposit receivables | Receivables reserved for users | 4,843,502 | ||||
Trade and other receivables | Accounts receivable, net | 416,870 | ||||
Prepaid expenses | Prepaid expenses and other current assets | 162,305 | ||||
Due from related parties | Other receivables | 5,480,336 | ||||
Value added tax receivable | Other receivables | 191,086 | ||||
Investment related party bonds | Other non-current assets | 6,141,962 | ||||
Other receivables | Other non-current assets | 156,984 | ||||
Trade payables and accrued liabilities | Accounts payable and accrued expenses | 2,419,022 | ||||
Player liability | Liabilities to customers | 3,243,782 | ||||
Jackpot provision | Accounts payable and accrued expenses | 1,186,576 | ||||
Due to related parties | Notes payable – current | 12,737,519 | ||||
Common stock, $1.067280 par; 240,000 shares authorized, issued and outstanding | Common stock | 256,147 |
Certain reclassifications have been made to Bethard Group Limited’s historical results of operations to conform to the Company’s presentation as follows:
Presentation before reclassification | Presentation after reclassification |
For the Nine Months ended March 31, 2021 |
For the Year Ended June 30, 2020 |
|||||||
Gaming revenue, net | Net revenue | 32,398,701 | 46,135,802 | |||||||
Gaming expenses | Cost of revenue | 27,891,203 | 43,660,777 | |||||||
Sales and marketing expenses | Sales and marketing | 251 | 948,505 | |||||||
Administrative expenses | General and administrative | 3,306,966 | 5,684,368 | |||||||
Amortization of right-of-use asset | General and administrative | 159,423 | 625,772 | |||||||
Bad debt expense | General and administrative | 38,475 | 4,410,251 | |||||||
Related party management fees | Other non-operating income | 138,293 | 149,762 | |||||||
Rental income - related parties | Other non-operating income | 283,361 | 362,716 | |||||||
Gain on lease modification | Other non-operating income | 18,619 | - | |||||||
Gain on disposal of equipment | Other non-operating income | 34,260 | - | |||||||
Realized foreign transaction gain (loss) | Foreign exchange gain | 61,702 | (128,908 | ) |
Note 6 – Transaction Accounting Adjustments
a) | Represents the total cash consideration paid at closing for the Bethard Business of €13,000,000 (approximately $15,346,019 using exchange rates in effect at the acquisition date) comprised of €12,000,000 (approximately $14,165,556 using exchange rates in effect at the acquisition date) paid in cash for the Bethard Business and €1,000,000 (approximately $1,180,463 using exchange rates in effect at the acquisition date) paid in cash for a regulatory deposit with the Spanish Gaming Authority. The regulatory deposit acquired with the Bethard Business is included in other non-current assets in the unaudited pro forma condensed combined balance sheet at March 31, 2021. |
b) | Represents the remaining cash consideration of €4,000,000 (approximately $4,721,852 using exchange rates in effect at the acquisition date) payable by the Company on or before October 1, 2021. |
c) | Represents the contingent cash and share consideration amounts determined in connection with the total estimated preliminary purchase consideration (Note 4). The estimated contingent cash consideration of $7,295,307 was estimated based on the historical revenues of the Bethard business with 12 months (equal to one-half of the estimated contingent cash consideration) recorded in contingent consideration – current, and the balance recorded as non-current in the unaudited pro forma condensed combined balance sheet at March 31, 2021. The Company estimated the contingent share consideration payable of $8,971,519 at the maximum amount should an ambassador agreement be successfully assigned to the Bethard Business within a 6 month period following the acquisition. The contingent share consideration is classified as non-current as the Company is not required to settle any share consideration payable until 24 months following the acquisition date. |
d) | The unaudited pro forma condensed combined balance sheet at March 31, 2021 was adjusted to exclude the historical assets and liabilities of Bethard Group Limited at March 31, 2021. The Company’s right to any assets of the Bethard Business and its obligations with regards to any liabilities of the Bethard Business commence on the acquisition date. |
e) | Represents the estimate of goodwill resulting from the acquisition of the Bethard Business determined using the purchase consideration of $36,334,697 and net assets acquired of $1,180,463 (representing the regulatory deposit with the Spanish Gaming Authority). The estimate of goodwill is subject to change materially in connection with the work being performed by a third-party valuation specialist as it relates to determination of the fair value for the identifiable intangible assets acquired in the transaction. |
f) | Represents of the elimination of the historical common stock, additional paid-in capital, accumulated deficit, and accumulated other comprehensive income of Bethard Group Limited. |
g) | Represent gross proceeds received from issuance of the Convertible Note of $35,000,000, less debt issuance costs of $2,485,000. The gross proceeds were further reduced by acquisition related costs of $470,420 that were paid with the proceeds from issuance of the Convertible Note. These transaction expenses are recorded in general and administrative expense in the unaudited pro forma condensed combined statement of operations for the year ended June 30, 2020. |
h) | Represents an adjustment to reduce the historical revenues, cost of revenue and general and administrative costs of Bethard Group Limited that were retained by the seller of the Bethard Business and as a result, adjust these amounts to reflect the ongoing activities attributable to the business to consumer operations in the markets to which the Company has acquired gaming licenses. |
i) | Represents an adjustment to reflect the historical sales and marketing of the Bethard Business that includes digital marketing and advertising, affiliate marketing as well as sponsorship related costs of $4,346,507 for the nine months ended March 31, 2021 and $5,657,356 for the year ended March 31, 2020. Sponsorship related costs include the cost of the ambassador agreement as discussed in Note c above. |
j) | The Convertible Note accrues interest at a rate of 8% per annum. Interest expense on the Convertible note included in the unaudited pro form condensed consolidated statement of operations for the nine months ended March 31, 2021 and the year ended June 30, 2020 is $2,100,000 and $2,792,222, respectively. |
k) | Represents the amortization of the debt discount and premium payable on the Original Principal Amount of $1,719,375 and $2,292,500 recorded in the unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2021 and the year ended June 30, 2020, respectively. |