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Prospectus
Supplement
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SUBJECT
TO COMPLETION
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Filed
Pursuant to Rule 424(b)(5)
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(to
Prospectus February 5, 2021)
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Registration
No. 333-252370
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ESPORTS
ENTERTAINMENT GROUP, INC.
2,000,000
Shares of Common Stock
We
are offering 2,000,000 shares of our common stock, par value $0.0001 per share (the “Common Stock”), at a price of
$15.00 per share. We will receive gross proceeds of $30,000,000 from this offering.
We
have engaged Maxim Group LLC and Joseph Gunnar & Co. LLC, or the placement agents, as our exclusive placement agents in connection
with this offering. The placement agents have agreed to use reasonable best efforts to place the securities offered by this prospectus
supplement. The placement agents have no obligation to buy any of the securities from us or to arrange for the purchase or sale
of any specific number or dollar amount of securities. We have agreed to pay the placement agents the fees set forth in the table
below.
Our
common stock is traded on the NASDAQ Capital Market under the symbol “GMBL.” and our Unit A Warrants trade are traded
on the NASDAQ Capital Market under the symbol “GMBLW”. The last reported sale price of our common stock and our Unit
A Warrants on the Nasdaq Capital Market on February 12, 2021, was $15.00 per share and $10.85 per Unit A Warrant, respectively.
The
aggregate market value of our outstanding common stock held by non-affiliates is $209,734,396.80 based on 15,038,503 shares of
outstanding common stock, of which 3,577,607 are held by affiliates, and a per share price of $18.30 based on the closing sale
price of our common stock on February 10, 2021. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell our
common stock in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period
so long as our public float remains below $75,000,000. We have not offered any securities pursuant to General Instruction I.B.6.
of Form S-3 during the prior 12 calendar month period that ends on and includes the date of this prospectus.
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Public offering price
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$
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15.00
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$
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30,000,000
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Placement Agents’ fees(1)
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$
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0.975
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$
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1,950,000
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Proceeds, before expenses, to us
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$
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14.025
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$
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28,050,000
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(1)
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In
addition, we have agreed to reimburse the placement agents for certain out-of-pocket expenses. See “Plan of
Distribution” beginning on page S-38 of this prospectus supplement for additional information with respect to
the compensation we will pay the placement agents and other expenses that will be incurred.
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Investing
in our securities involves a high degree of risk, including that the trading price of our common stock has been subject to
volatility. See “Risk Factors” beginning on page S-10 of this prospectus supplement, page 11 of the accompanying
base prospectus and under similar headings in the documents incorporated by reference into this prospectus supplement and the
accompanying base prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus supplement. Any representation to the contrary is a criminal offense.
Delivery
of the shares of Common Stock is expected to be made on or about February 16, 2021, subject to customary closing conditions.
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Placement
Agent
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Placement
Agent
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Maxim
Group LLC
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Joseph
Gunnar & Co. LLC
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The
date of this prospectus supplement is February 16, 2021
Table
of Contents
Prospectus
Supplement
Prospectus
No
dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus
supplement or the accompanying prospectus. You must not rely on any unauthorized information or representations. This prospectus
supplement and the accompanying prospectus are an offer to sell only the securities offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in this prospectus supplement and the accompanying
prospectus is current only as of their respective dates.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the U.S. Securities
and Exchange Commission, or SEC, utilizing a “shelf” registration process. This document is in two parts. The first
part is this prospectus supplement, which describes the specific terms of this offering and also adds to and updates information
contained in the accompanying prospectus and the documents incorporated by reference herein. The second part, the accompanying
prospectus, provides more general information. Generally, when we refer to this prospectus, we are referring to both parts of
this document combined. To the extent there is a conflict between the information contained in this prospectus supplement and
the information contained in the accompanying prospectus or any document incorporated by reference therein filed prior to the
date of this prospectus supplement, you should rely on the information in this prospectus supplement; provided that if any statement
in one of these documents is inconsistent with a statement in another document having a later date-for example, a document incorporated
by reference in the accompanying prospectus-the statement in the document having the later date modifies or supersedes the earlier
statement.
We
further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including,
in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation,
warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made.
Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state
of our affairs.
You
should rely only on the information contained in this prospectus supplement or the accompanying prospectus, or incorporated by
reference herein. We have not authorized, and the placement agents have not authorized, anyone to provide you with information
that is different. The information contained in this prospectus supplement or the accompanying prospectus, or incorporated by
reference herein or therein is accurate only as of the respective dates thereof, regardless of the time of delivery of this prospectus
supplement and the accompanying prospectus or of any sale of our Common Stock. It is important for you to read and consider all
information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference
herein and therein, in making your investment decision. You should also read and consider the information in the documents to
which we have referred you in the sections entitled “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference” in this prospectus supplement and in the accompanying prospectus, respectively.
We
are offering to sell, and seeking offers to buy, the securities offered by this prospectus supplement only in jurisdictions where
offers and sales are permitted. The distribution of this prospectus supplement and the accompanying prospectus and the offering
of the securities offered by this prospectus supplement in certain jurisdictions may be restricted by law. Persons outside the
United States who come into possession of this prospectus supplement and the accompanying prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the Common Stock and the distribution of this prospectus supplement
and the accompanying prospectus outside the United States. This prospectus supplement and the accompanying prospectus do not constitute,
and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this
prospectus supplement and the accompanying prospectus by any person in any jurisdiction in which it is unlawful for such person
to make such an offer or solicitation.
When
used herein, “Esports”, “EEG”, “we”, “us” or “our” or the “Company”
refers to Esports Entertainment Group, Inc., a Nevada corporation, and our subsidiaries.
SPECIAL
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled “Risk
Factors.” All statements other than statements of historical fact contained in this prospectus, including statements regarding
future events, our future financial performance, business strategy and plans and objectives of management for future operations,
are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,”
“believes,” “can,” “continue,” “could,” “estimates,” “expects,”
“intends,” “may,” “plans,” “potential,” “predicts,” “should,”
or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking
statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are
only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk
Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed
in or suggested by the forward-looking statements.
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following information below is only a summary of more detailed information included elsewhere in, or incorporated by reference
in, this prospectus supplement and the accompanying base prospectus, and should be read together with the information contained
or incorporated by reference in other parts of this prospectus supplement and the accompanying base prospectus. This summary highlights
selected information about us and this offering. This summary may not contain all of the information that may be important to
you. Before making a decision to invest in our common stock, you should read carefully all of the information contained in or
incorporated by reference into this prospectus supplement and the accompanying base prospectus, including the information set
forth under the caption “Risk Factors” in this prospectus supplement and the accompanying base prospectus as well
as the documents incorporated herein by reference, which are described under “Where you can Find More Information”
and “Incorporation of Certain Documents by Reference” in this prospectus supplement.
Our
Business
Corporate
History
Esports
Entertainment Group, Inc. was formed in the State of Nevada on July 22, 2008 under our prior name Virtual Closet, Inc. Virtual
Closet, Inc. changed its name to DK Sinopharma, Inc. on June 6, 2010. DK Sinopharma, Inc. changed its name to VGambling, Inc.
on August 12, 2014. On or about April 24, 2017, VGambling, Inc. changed its name to Esports Entertainment Group, Inc. Our company
was engaged in a number of different enterprises up until May 20, 2013, when, pursuant to the terms of the Share Exchange Agreement,
we acquired all of the outstanding capital stock of H&H Arizona Corporation in exchange for 3,333,334 shares of our common
stock. From May 2013 until August 2018, our operations were limited to designing, developing and testing our wagering systems.
We launched our online esports wagering website (www.vie.gg) in August 2018.
Business
Overview
Esports
is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form
of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter and multiplayer online battle
arena games. As of December 2020, the three largest selling esports games were Dota 2, League of Legends (each multiplayer
online battle arena games) and Counter Strike: Global Offensive (a first-person shooter game). Other popular games include
Smite, StarCraft II, Call of Duty¸ Heroes of the Storm, Hearthstone and Fortnite.
Esports also includes games which can be played, primarily by amateurs, in multiplayer competitions on the Sony PlayStation, Microsoft
Xbox and Nintendo Switch. Most major professional esports events and a wide range of amateur esports events are broadcast live
via streaming services including twitch.tv, azubu.tv, ustream.tv and youtube.com.
Esports
Entertainment Group is a diversified operator of esports, sports and igaming businesses with a global footprint. Our strategy
is to build and acquire betting and related platforms in the businesses of igaming and sports betting, and lever them into the
rapidly growing esports business. Our tag line is ‘‘Play, Watch, Bet’’. In esports, we are creating and
assembling best-in-class technologies to generate profit from the various elements of esports competition and betting. We are
primarily focused on three verticals, (i): esports entertainment, (ii) esports wagering, and (iii) iGaming and traditional sports
betting. We believe focusing on these verticals positions the Company to take advantage of a trending and expanding marketplace
in esports with the rise of competitive gaming as well as the legalization of online gambling in the United States.
Esports
Entertainment:
Our
esports entertainment vertical includes any activity that we pursue within esports that does not include real-money wagering.
Right now, the main component of this pillar is our skill-based tournament platform This allows us to engage and monetize players
across 41 states where skill-based gambling is legal as well as create relationships with players that can eventually migrate
into our real-money wagering platforms.
Esports
Wagering:
Our
goal is to be a leader in the large and rapidly growing sector of esports real-money wagering, offering fans the ability to wager
on professional esports events in a licensed and secure environment. From February 2021, under the terms of our Maltese Gaming
Authority (MGA) license, we are now able to accept wagers from residents of over 180 jurisdictions including Canada, Germany,
New Zealand and South Africa, on their ‘‘Vie.bet’’ platform
On
August 20, 2020, we announced our entry into a multi-year partnership with Twin River Worldwide Holdings, Inc (NYSE: TRWH), now
Bally’s Corporation (NYSE: BALY), to launch our proprietary mobile sports betting product, ‘‘Vie.gg’,
in the state of New Jersey. We intend to have our platform, which was previously licensed in Curacao, live in the state during
April 2021 or soon thereafter.
iGaming
and Traditional Sports Betting:
The
goal of our iGaming and traditional Sports Betting vertical is to provide profitable growth and access to strategic licenses in
jurisdictions that we can cross-sell into our Vie.bet platform. On July 7, 2020, we entered into a stock purchase agreement (the
“Argyll Purchase Agreement”), by and among the Company, LHE Enterprises Limited (“LHE”), and AHG Entertainment,
LLC (“AHG”) whereby, upon closing on July 31, 2020, the Company acquired all of the outstanding capital stock of LHE
and its subsidiaries, (i) Argyll Entertainment AG, (ii) Nevada Holdings Limited and (iii) Argyll Productions Limited (collectively
the “Acquired Companies” or “Argyle”). AHG is licensed and regulated by the UK Gambling Commission and
the Irish Revenue Commissioners to operate online sportsbook and casino sites in the UK and Ireland, respectively. Argyll has
a flagship brand, www.sportnation.bet, as well as two white label brands, www.redzone.bet and www.uk.fansbet.com (collectively
the “Argyll Brands”), with over 300,000 registered players at the end of calendar year 2020.
We
believe that as the size of the market and the number of esports enthusiasts continues to grow, so will the number of esports
enthusiasts who gamble on events, which would likely increase the demand for our platform.
Recent
Developments
Appointment
of Chief Compliance Officer
On
July 1, 2020, the Company entered into an employment agreement (the “Lefevre Employment Agreement”) with Mr. Adrien
Lefevre, whereby Mr. Lefevre was appointed to serve as Chief Risk & Compliance Officer of the Company (the “CCO Appointment”).
On February 10, 2021, the Company’s board of directors acknowledged the role of Chief Business Officer as constituting an
executive officer position.
Helix
Holdings, LLC Purchase Agreement
On
January 22, 2021, the Company entered into an equity purchase agreement (the “Helix Purchase Agreement”), by and among
the Company, Helix Holdings, LLC, a limited liability company incorporated under the laws of Delaware (“Helix”), and
the equity holders of Helix (the “Helix Equity Holders”), whereby the Company will acquire from the Helix Equity Holders
all of the issued and outstanding membership units of Helix (the “Helix Units”), making Helix a wholly owned subsidiary
of the Company.
As
consideration for the Helix Units, the Company agreed to pay the Helix Equity Holders $17,000,000 (the “Helix Purchase Price”),
to be paid fifty percent (50%) in shares of Common Stock (the “Helix Share Consideration”), and fifty percent (50%)
in cash (the “Helix Cash Consideration”). The per share price of the Common Stock issuable as Helix Share Consideration
shall be the Closing Base Price minus the Discount. “Closing Base Price” means the volume weighted average price (“VWAP”)
of the Common Stock during the thirty (30) trading days immediately preceding the date of the closing under the Helix Purchase
Agreement (the “Closing”). “Discount” equals the greater of (A) and (B) minus the lesser of (A) and (B)
multiplied by 0.25 where (A) is the VWAP of the common stock during the thirty (30) trading days immediately preceding October
26, 2020 (which was $4.54 per share) multiplied by 1.25(which is $5.675); and (B) is the Closing Base Price.
The
Closing under the Helix Purchase Agreement is subject to the simultaneous closing under an equity purchase agreement (the “GGC
Purchase Agreement”) among the Company, ggCircuit LLC, an Indiana limited liability company (“GGC”) and the
equity holders of GGC (the “GGC Equity Holders”), the principal terms of which are described below. The Closing is
also subject to (i) the completion of an opinion (the “Fairness Opinion”) respecting the fairness of the consideration
to be paid by the Company and received by the Helix Equity Holders and the GGC Equity Holders pursuant to the Helix Purchase Agreement
and the GGC Purchase Agreement from a financial point of view; (ii) an audit, as of and for the two years ending December 31,
2019, and a financial review, for the nine month periods ended September 30, 2019 and 2020, of Helix and affiliated entities;
and (iii) the approval of the Company’s shareholders to the issuance of the Helix Share Consideration and GGC Share Consideration(as
defined below) in satisfaction of NASDAQ Rule 5635(a).
The
parties to the Helix Purchase Agreement may terminate the Helix Purchase Agreement, among other reasons, if (i) the Fairness Opinion
does not support an aggregate purchase price for Helix and GGC of $43,000,000 and, based thereon, the Company is no longer willing
to pay the Helix Purchase Price, or (ii) the Closing has not occurred on or before May 14, 2021 or such later date as may be mutually
agreed to by the parties. The Company can also terminate the Helix Purchase Agreement if (i) upon completion of its legal, financial,
tax and commercial due diligence of Helix and affiliated entities, it is not satisfied, with the results thereof; (ii) the audit
and/or review of Helix and affiliated entities cannot be completed due to fraud, material accounting errors or otherwise or if
the results of the audit or the review are materially and adversely different from the financial information provided by Helix
and the Helix Equity Holders to the Company prior to the execution of the Helix Purchase Agreement.
In
connection with the negotiation of the Helix Purchase Agreement, the Company advanced an aggregate of $400,000 to Helix during
2020 in the form of loans (the “Helix Loans”). Upon execution of the Helix Purchase Agreement, the Company paid Helix
an additional $400,000 to be used for operating expenses pending the Closing (the “Operating Expense Payments”). If
the Closing takes place on or prior to May 14, 2021, the Company will receive a full credit against the Helix Purchase Price for
the Helix Loans and if the Closing takes place prior to April 30, 2021 the Company will receive a full credit against the Helix
Purchase Price for the Operating Expense Payments. If Closing takes place after April 30, 2021, but on or prior to May 14, 2021,
the Company shall receive a credit against the Helix Purchase Price for 60% of the Operating Expense Payments. If the transaction
does not close, depending on the reason, a portion of the Helix Loans and the Operating Expense Payments may be forgiven.
The
Helix Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions
of a similar nature.
ggCIRCUIT
LLC Purchase Agreement
On
January 22, 2021, the Company entered into the GGC Purchase Agreement whereby the Company will acquire from the GGC Equity Holders
all of the issued and outstanding membership units of GGC (the “GGC Units”), making GGC a wholly owned subsidiary
of the Company.
As
consideration for the GGC Units, the Company agreed to pay the GGC Equity Holders $26,000,000 (the “GGC Purchase Price”)
to be paid fifty percent (50%) in shares of Common Stock (the “GGC Share Consideration”), and fifty percent (50%)
in cash (the “GGC Cash Consideration”) The per share price of the Common Stock issuable as GGC Share Consideration
shall be the Closing Base Price minus the Discount. “Closing Base Price” means the volume weighted average price (“VWAP”)
of the Common Stock during the thirty (30) trading days immediately preceding the Closing. “Discount” equals the greater
of (A) and (B) minus the lesser of (A) and (B) multiplied by 0.25 where (A) is the VWAP of the common stock during the thirty
(30) trading days immediately preceding October 26, 2020 (which was $4.54 per share) multiplied by 1.25 (which is $5.675); and
(B) is the Closing Base Price.
The
Closing under the GGC Purchase Agreement is subject to the simultaneous closing under the Helix Purchase Agreement. The Closing
is also subject to (i) the completion of the Fairness Opinion; (ii) an audit, as of and for the two years ending December 31,
2019, and a financial review, for the nine month periods ended September 30, 2019 and 2020, of GGC and affiliated entities; and
(iii) the approval of the Company’s shareholders to the issuance of the GGC Share Consideration and Helix Share Consideration
in satisfaction of NASDAQ Rule 5635(a).
The
parties to the GGC Purchase Agreement may terminate the GGC Purchase Agreement, among other reasons, if (i) the Fairness Opinion
does not support an aggregate purchase price for Helix and GGC of $43,000,000 and, based thereon, the Company is no longer willing
to pay the GGC Purchase Price, or (ii) the Closing has not occurred on or before May 14, 2021 or such later date as may be mutually
agreed to by the parties. The Company can also terminate the GGC Purchase Agreement if (i) upon completion of its legal, financial,
tax and commercial due diligence of GGC and affiliated entities, it is not satisfied, with the results thereof; (ii) the audit
and/or review of GGC and affiliated entities cannot be completed due to fraud, material accounting errors or otherwise or if the
results of the audit or the review are materially and adversely different from the financial information provided by GGC and the
GGC Equity Holders to the Company prior to the execution of the GGC Purchase Agreement.
In
connection with the negotiation of the GGC Purchase Agreement, the Company advanced an aggregate of $600,000 to GGC during 2020
in the form of loans (the “GGC Loans”). Upon execution of the GGC Purchase Agreement, the Company paid GGC an additional
$600,000 to be used for operating expenses pending the Closing (the “Operating Expense Payments”). If the Closing
takes place on or prior to May 14, 2021, the Company will receive a full credit against the GGC Purchase Price for the GGC Loans
and if the Closing takes place prior to April 30, 2021, the Company will receive a full credit against the GGC Purchase Price
for the Operating Expense Payments. If Closing takes place after April 30, 2021, but on or prior to May 14, 2021, the Company
shall receive a credit against the GGC Purchase Price for 60% of the Operating Expense Payments. If the transaction does not close,
depending on the reason, a portion of the GGC Loans and the Operating Expense Payments may be forgiven.
The
GGC Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions
of a similar nature.
Phoenix
Purchase Agreement
On
December 21, 2020, the Company entered into a share purchase agreement (the “Phoenix Purchase Agreement”), by and
among the Company, Phoenix Games Network Limited, a company registered in England and Wales (“Phoenix”), and the shareholders
of Phoenix (the “Phoenix Shareholders” and, together with Phoenix, the “Sellers”), whereby the Company
acquired from the Sellers all of the issued and outstanding share capital of Phoenix (the “Phoenix Shares”). Pursuant
to the Phoenix Purchase Agreement, as consideration for the Phoenix Shares, the Company agreed to pay the Sellers: (i) GBP £1,000,000
(the “Original Cash Consideration”); and (ii) shares of Common Stock in the aggregate value of GBP£3,000,000
(the “Original Share Consideration” and, together with the Cash Consideration, the “Original Purchase Price”),
subject to adjustment based on certain revenue milestones as outlined therein.
On
January 21, 2021, the Company and Sellers, having met all conditions precedent, consummated the closing for the Phoenix Shares
pursuant to the terms of the Phoenix Purchase Agreement. The Original Purchase Price was adjusted at closing and as consideration
for the Phoenix Shares, the Company paid the Sellers: (i) GBP £350,000 (US $493,495.35) (the “Closing Cash Consideration”);
and (ii) 292,211 shares of common stock of the Company, par value $0.001 per share (aggregate value of $1,927,647.49) (the “Closing
Share Consideration” and, together with the Cash Closing Consideration, the “Closing Purchase Price”). The Closing
Cash Consideration was paid in US Dollars and was calculated in accordance with the applicable exchange rate on the Closing Date
(as such term is defined in the Phoenix Purchase Agreement). The Sellers shall remain eligible to receive the remainder of the
Original Purchase Price upon Phoenix meeting the aforementioned Revenue Targets by May 16, 2021.
Lucky
Dino Purchase Agreement
On
December 14, 2020, the Company, via its wholly owned subsidiary, Esports Entertainment (Malta) Limited (“EEL”), entered
into an asset purchase agreement (the “Lucky Dino Purchase Agreement”), by and among EEL, Lucky Dino Gaming Limited,
a company registered in Malta (“Lucky Dino”), and Hiidenkivi Estonia OU, a company registered in Estonia (“HEOU”
and, together with Lucky Dino, the “Lucky Dino Sellers”) whereby EEL will purchase from the Lucky Dino Sellers substantially
all the assets and will assume certain specified liabilities of the Sellers’ business of real money online casino gaming
(the “Acquired Business”).
As
consideration for the Acquired Business, the Company agreed to pay the Lucky Dino Sellers EUR €25,000,000 (the “Lucky
Dino Purchase Price”) subject to certain adjustments set forth in the Lucky Dino Purchase Agreement.
The
Lucky Dino Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions
of this nature. The closing of the transactions contemplated by the Lucky Dino Purchase Agreement is subject to certain conditions,
including, among other things, the completion of an audit of Lucky Dino and HEOU.
OFFERING
SUMMARY
This
summary highlights certain information about this offering and selected information contained elsewhere in or incorporated by
reference into this prospectus supplement. This summary is not complete and does not contain all of the information that you
should consider before deciding whether to invest in shares of our Common Stock. For a more complete understanding of our
company and this offering, we encourage you to read and consider carefully the more detailed information in this prospectus
supplement and the accompanying prospectus, including the information incorporated by reference into this prospectus
supplement and the accompanying prospectus, and the information referred to under the heading “RISK FACTORS” in
this prospectus supplement on page S-10 and on page 11 of the accompanying prospectus, and in the documents incorporated by
reference into this prospectus supplement and the accompanying prospectus.
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Issuer
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Esports Entertainment Group, Inc.
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Common stock offered by us
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2,000,000 shares at a purchase price of $15.00 per share.
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Common stock outstanding prior to the offering
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15,038,503 shares
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Common stock to be outstanding after this offering
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17,038,503 shares
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Common Stock Trading symbol
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Our Common Stock and Unit A Warrants are quoted for trading on Nasdaq under the symbols “GMBL”, and “GMBLW”, respectively.
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Use of proceeds
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We intend to use the net proceeds from the offering for general corporate purposes, including strategic acquisitions and working capital. See “Use of Proceeds.”
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Risk factors
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This investment involves a high degree of risk. See “Risk Factors” and other information included or incorporated by reference in this prospectus supplement beginning on page S-10 and the accompanying base prospectus beginning on page 11 for a discussion of certain factors you should carefully consider before deciding to invest in shares of our common stock.
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The
number of shares of common stock to be outstanding after this offering excludes the following as of February 15, 2021:
● 457,009
shares of Common Stock issuable upon exercise of outstanding options with a weighted average exercise price of $5.42 per share;
● 3,502,930
shares of Common Stock issuable upon exercise of warrants outstanding as of February 15, 2021, having a weighted average
exercise price of $5.11 per share; and
● 683,854
shares reserved for future issuances under our equity compensation plans
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth
and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working
capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,”
“estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,”
“expects,” “management believes,” “we believe,” “we intend” or the negative of
these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,”
as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products,
market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome
of contingencies such as legal proceedings and financial results.
Examples
of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy,
business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important
assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the
cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions
and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning
future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations
may prove to be incorrect.
Important
factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking
statements include, but are not limited to:
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in the market acceptance of our products;
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increased
levels of competition;
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changes
in political, economic or regulatory conditions generally and in the markets in which we operate;
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our
relationships with our key customers;
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our
ability to retain and attract senior management and other key employees;
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our
ability to quickly and effectively respond to new technological developments;
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our
ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of
others and prevent others from infringing on the proprietary rights of the Company; and
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other
risks, including those described in the “Risk Factors” discussion of this prospectus.
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We
operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us
to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor
may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements
in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with
forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements
speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly
update any of them in light of new information, future events, or otherwise.
RISK
FACTORS
Investing
in our Common Stock involves a high degree of risk. Before deciding whether to invest in our Common Stock, you should consider
carefully the risks and uncertainties and assumptions discussed under the heading “Risk Factors” included in our most
recent annual report on Form 10-K and most recent Form 10-Q which are on file with the SEC and are incorporated
herein by reference, and which may be amended, supplemented or superseded from time to time by other reports we file with the
SEC in the future. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that
could have material adverse effects on our future results. If any of these risks actually occurs, our business, business prospects,
financial condition or results of operations could be seriously harmed. This could cause the trading price of our Common Stock
to decline, resulting in a loss of all or part of your investment. Please also read carefully the section above entitled “Cautionary
Note Regarding Forward-Looking Statements.”
Risks
Related to Our Business
We
are a development stage company with a limited operating history.
While
we were incorporated under the laws of Nevada in July 2008, we did not begin to engage in our current business until May 2013
and our operations since that time have been mostly limited to designing, developing and testing our wagering systems. We have
had de minimis revenues to date. Consequently, we are subject to all the risks and uncertainties inherent in a new business and
in connection with the development and sale of new products and services. As a result, we still must establish many corporate
functions necessary to operate our business, including finalizing our administrative structure, continuing our product development,
assessing and expanding our marketing activities, implementing financial systems and controls and personnel recruitment. Accordingly,
you should consider the Company’s prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered
by companies in this early stage of development. You should carefully consider the risks and uncertainties that a company, such
as ours, with a limited operating history will face. In particular, you should consider that we cannot provide assurance that
we will be able to:
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successfully
implement or execute our current business plan;
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maintain
our management team;
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raise
sufficient funds in the capital markets to effectuate our business plan;
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attract,
enter into or maintain contracts with, and retain customers; and/or
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compete
effectively in the extremely competitive environment in which we operate.
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If
we cannot successfully accomplish any of the foregoing objectives, our business may not succeed.
We
have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to
achieve or sustain profitability
To
date, we have recorded de minimis revenues from the sale of our products. If we are unable to generate revenues, we will not be
able to achieve and maintain profitability. Beyond this, we may incur significant losses in the future for a number of reasons
including other risks described in this document, and we may encounter unforeseen expenses, difficulties, complications, delays
and other unknown events. Accordingly, we may not ever be able to achieve profitability. We incurred negative cash flows from
operating activities and recurring net losses in fiscal years 2020 and 2019. As of June 30, 2020, and 2019, our accumulated deficit
was $20,535,602 and $10,184,187, respectively. These factors, among others, raised substantial doubt about our ability to continue
as a going concern, which has been alleviated by the execution of management’s plans. On April 16, 2020, the Company raised
approximately $7,000,000 in net proceeds from its public offering. Additionally, the Company raised approximately $7,000,000 from
the exercise of warrants and over-allotments during the year ended June 30, 2020.
We
will require additional financing and cannot be certain that such additional financing will be available on reasonable terms when
required, or at all.
As
of September 30, 2020, we had cash of approximately $9,000,000, While this amount is sufficient to continue with operating activities
for at least the next 12 months, we anticipate that we will need to raise additional capital to fund our operations while we implement
and execute our business plan and acquisition strategy. We currently do not have any contracts or commitments for additional financing.
In addition, any additional equity financing may involve substantial dilution to the existing shareholders. There can be no assurance
that such additional capital will be available, on a timely basis, or on terms acceptable to the Company. Failure to obtain such
additional financing could result in delay or indefinite postponement of operations or the further development of its business
with the possible loss of such properties or assets. If adequate funds are not available or are not available on acceptable terms,
the Company may not be able to fund its business or the expansion thereof, take advantage of strategic acquisitions or investment
opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed could have a material
adverse effect on the Company’s business, results of operations, cash flow, financial condition and prospects.
The
gaming and interactive entertainment industries are intensely competitive. Esports faces competition from a growing number of
companies and, if Esports is unable to compete effectively, its business could be negatively impacted.
There
is intense competition amongst gaming solution providers. There are a number of established, well financed companies producing
both land-based and online gaming and interactive entertainment products and systems that compete with the products of the Company.
As some of our competitors have financial resources that are greater than Esports’, they may spend more money and time on
developing and testing products, undertake more extensive marketing campaigns, adopt more aggressive pricing policies or otherwise
develop more commercially successful products than the Company, which could impact the Company’s ability to win new marketing
contracts and renew our existing ones. Furthermore, new competitors may enter the Company’s key market areas. If the Company
is unable to obtain significant market presence or if it loses market share to its competitors, the Company’s results of
operations and future prospects would be materially adversely affected. There are many companies with already established relationships
with third parties, including gaming operators that are able to introduce directly competitive products and have the potential
and resources to quickly develop competitive technologies. The Company’s success depends on its ability to develop new products
and enhance existing products at prices and on terms that are attractive to its customers.
There
has also been consolidation among the Company’s competitors in the esports and gaming industry. Such consolidation could
result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable
them to offer more competitive pricing models, gain a larger market share of customers, expand product offerings and broaden their
geographic scope of operations.
Risks
that impact our customers may impact us.
Because
we generate website traffic through our affiliate marketing program, if participants in our affiliate marketing program see a
slowdown in business or website traffic it may lead to fewer visitors on our website, which could have an adverse effect on our
business.
Because
four of our directors and a substantial portion of our assets are located in jurisdictions other than the United States and Canada,
you may have no effective recourse against the directors not located in the United States and Canada for misconduct and may not
be able to enforce judgment and civil liabilities against these directors.
Four
of our directors and a substantial portion of our assets are or may be located in jurisdictions outside the U.S. As a result,
a person may not be able to affect service of process within the U.S. on our directors and officers. A person also may not be
able to recover against them on judgments of U.S. courts or to obtain original judgments against them in foreign courts, including
judgments predicated upon civil liability provisions of the U.S. federal securities laws.
We
operate in a very competitive business environment and if we do not adapt our approach and our products to meet this competitive
environment, our business, results of operations or financial condition could be adversely impacted.
There
is intense competition in the gaming management and gaming products industry which is characterized by dynamic customer demand
and rapid technological advances. Today, there are many systems providers in the U.S. and abroad offering casinos and gaming operators
“total solution” casino management and table games management systems. As a result, we must continually adapt our
approach and our products to meet this demand and match technological advances and if we cannot do so, our business results of
operations or financial condition may be adversely impacted. Conversely, the development of new competitive products or the enhancement
of existing competitive products in any market in which we operate could have an adverse impact on our business, results of operations
or financial condition. If we are unable to remain dynamic in the face of changes in the market, it could have a material adverse
effect on our business, results of operations or financial condition.
We
are vulnerable to additional or increased taxes and fees.
We
believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary reasons that
certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees
in addition to the normal federal, state, provincial and local income taxes and such taxes and fees may be increased at any time.
From time to time, legislators and officials have proposed changes in tax laws or in the administration of laws affecting the
gaming industry. Many states and municipalities, including ones in which we operate, are currently experiencing budgetary pressures
that may make it more likely they would seek to impose additional taxes and fees on our operations. It is not possible to determine
the likelihood or extent of any such future changes in tax laws or fees, or changes in the administration of such laws; however,
if enacted, such changes could have a material adverse impact on our business.
The
legalization of online real money gaming in the United States and our ability to predict and capitalize on any such legalization
may impact our business.
Nevada,
Delaware, New Jersey and Pennsylvania have enacted legislation to legalize online real money gaming. In recent years, California,
Mississippi, Hawaii, Massachusetts, Iowa, Illinois, New York, Washington D.C. and West Virginia have considered such legislation.
If a large number of additional states or the Federal government enact online real money gaming legislation and we are unable
to obtain the necessary licenses to operate online real money gaming websites in United States jurisdictions where such games
are legalized, our future growth in real money gaming could be materially impaired.
States
or the Federal government may legalize online real money gaming in a manner that is unfavorable to us. Several states and the
Federal government are considering draft laws that require online casinos to also have a license to operate a brick-and mortar
casino, either directly or indirectly through an affiliate. If, like Nevada and New Jersey, state jurisdictions enact legislation
legalizing online real money casino gaming subject to this brick-and-mortar requirement, we may be unable to offer online real
money gaming in such jurisdictions if we are unable to establish an affiliation with a brick-and-mortar casino in such jurisdiction
on acceptable terms.
In
the online real money gaming industry, a significant “first mover” advantage exists. Our ability to compete effectively
in respect of a particular style of online real money gaming in the United States may be premised on introducing a style of gaming
before our competitors. Failing to do so (“move first”) could materially impair our ability to grow in the online
real money gaming space. We may fail to accurately predict when online real money gaming will be legalized in significant jurisdictions.
The legislative process in each state and at the Federal level is unique and capable of rapid, often unpredictable change. If
we fail to accurately forecast when and how, if at all, online real money gaming will be legalized in additional state jurisdictions,
such failure could impair our readiness to introduce online real money gaming offerings in such jurisdictions which could have
a material adverse impact on our business.
Our
business is subject to online security risk, including security breaches, and loss or misuse of our stored information as a result
of such a breach, including customers’ personal information, could lead to government enforcement action or other litigation,
potential liability, or otherwise harm our business.
We
receive, process, store and use personal information and other customer data. There are numerous federal, state and local laws
regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other
third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release
or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation
or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us which
could have an adverse impact on our business. In the area of information security and data protection, many states have passed
laws requiring notification to customers when there is a security breach for personal data, such as the 2002 amendment to California’s
Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined
and difficult to practically implement. The costs of compliance with these types of laws may increase in the future as a result
of changes in interpretation or changes in law. Any failure on our part to comply with these types of laws may subject us to significant
liabilities.
Third
parties we work with, such as vendors, may violate applicable laws or our policies, and such violations may also put our customers’
information at risk and could in turn have an adverse impact on our business. We are also subject to payment card association
rules and obligations under each association’s contracts with payment card processors. Under these rules and obligations,
if information is compromised, we could be liable to payment card issuers for the associated expense and penalties. If we fail
to follow payment card industry security standards, even if no customer information is compromised, we could incur significant
fines or experience a significant increase in payment card transaction costs.
Security
breaches, computer malware and computer hacking attacks have become more prevalent in our industry. Many companies, including
ours, have been the targets of such attacks. Any security breach caused by hacking which involves efforts to gain unauthorized
access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other
computer equipment, and the inadvertent transmission of computer viruses could harm our business. Though it is difficult to determine
what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security
and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain
existing players and attract new players.
If
unauthorized disclosure of the source code we currently license we could potentially lose future trade secret protection for that
source code. This could make it easier for third parties to compete with our products by copying functionality which could adversely
affect our revenue and operating margins. Unauthorized disclosure of source code also could increase security risks.
Because
the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often
are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative
measures. We have developed systems and processes that are designed to protect customer information and prevent data loss and
other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor;
however, such measures cannot provide absolute security.
Risks
related to our reliance on third party technology, platforms and software (“third-party software”), and any failures,
errors, defects or disruptions in such third-party software could diminish our brand and reputation, subject us to liability,
disrupt our business and adversely affect our operating results and growth prospects.
We
rely on third party software that is critical to the performance of our platform and offerings and to user satisfaction, the principal
suppliers being Askott for our vie.gg website and SB Tech for our Argyll Brands.
If
there is any interruption to the third-party software provided by these suppliers or their products or services are not as scalable
as anticipated or at all, or if there are problems in upgrading such products or services, our business could be adversely affected,
and we may be unable to find adequate replacement services on a timely basis or at all and/or at a reasonable price. Additionally,
third-party software may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their
launch. If a particular product offering is unavailable when end users attempt to access it or navigation through our platforms
is slower than they expect, users may be unable to place their bets and may be less likely to return to our platforms as often,
if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience
of our users, harm our reputation, cause our users to stop utilizing our platforms, divert our resources and delay market acceptance
of our offerings, any of which could result in legal liability to us or harm our business, financial condition, results of operations
and prospects. Moreover, end users are discriminating about the nature of the products offered and our suppliers do not provide
new and improved products on a regular basis, we may lose market share.
There
is a risk that if the contracts with such third parties are terminated and not renewed, or not renewed on favourable terms, or
if they do not get the level of support (in terms of updates and technical assistance) they require as we grow, this will materially
impact upon our financial condition and performance going forward. There may be circumstances in which we wish to terminate our
arrangements with such suppliers due to poor performance or other reasons but we are unable to do so. Any such circumstance may
have a material adverse effect on our reputation, business, financial condition and results of operations.
We
are dependent upon such software suppliers defending any challenges to their intellectual property; any litigation that arises
as a result of such change could materially impact upon us and, following even if legal actions were successfully defended, such
actions could disrupt our business in the interim, divert management time and result in significant cost and expense for us. Further,
any negative publicity related to any of our third-party partners, including any publicity related to regulatory concerns, could
adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
As
a condition of an ongoing licence, permit or other authorisation required for their business, a key supplier to the Company may
determine that a condition of the ongoing use of their products and services, or the continuation of the licence, is that the
Company should block custom from certain territories, which may cause business disruption and loss should the Company either need
to switch suppliers at short notice or discontinue business in certain territories, either permanently (while such suppliers are
necessary) or pending the expiry of contract notice periods and/or the sourcing of alternative suppliers.
We
rely on other third-party data and live-streaming providers for real-time and accurate data and/or live streams for sporting events,
and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business,
financial condition and results of operations could be adversely affected.
We
rely on third-party sports data and live streaming providers to obtain accurate information regarding schedules, results, performance
and outcomes of sporting events and the live streaming of such events, such as horse racing. We rely on this data to determine
when and how bets are settled. We have experienced, and may continue to experience, errors in this data and/or streaming feed
which may result in us incorrectly settling bets. If we cannot adequately resolve the issue with our end users, our end users
may have a negative experience with our offerings, our brand or reputation may be negatively affected and our users may be less
inclined to continue or resume utilizing our products or recommend our platform to other potential users. As such, a failure or
significant interruption in our service would harm our reputation, business and operating results.
Furthermore,
if any of our data and/or live streaming partners terminates its relationship with us or refuses to renew its agreement with us
on commercially reasonable terms, we would need to find an alternate provider, and may not be able to secure similar terms or
replace such providers in an acceptable time frame. Any of these risks could increase our costs and adversely affect our business,
financial condition and results of operations. Further, any negative publicity related to any of our third-party partners, including
any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased
regulatory or litigation exposure.
We
may be subject to the payment of contributions or fees to sporting bodies or rights holders for the use of their data.
Gambling
operators can be liable to make contributions to sporting bodies whether under regulations or agreement, such as The Horserace
Betting Levy Board in the UK, as a way of ensuring certain revenues generated from betting on sports are used to benefit those
sports or related interests. We may also be required to pay royalties or other types of levy to the organisers of sporting events,
or the rights holders in respect of such, to offer betting markets on such events. Any requirement to pay additional levies, fees
or royalties would have a material adverse effect on our business. In all such cases, the level of any such levy, fee or royalty
will be outside the control of the Company. The Company cannot predict with any certainty what future payments may be required
for the success of their business in the future and what other additional resources will need to be made available to address
the conditions which impose fees, royalties or other levies, as well as sports integrity issues.
The
success, including win or hold rates, of existing or future online betting and casino gaming products depends on a variety of
factors and is not completely controlled by us.
The
sports betting and casino gaming industries are characterized by an element of chance. Accordingly, our Argyll Brands employ theoretical
win rates to estimate what a certain type of sports bet or game, on average, will win or lose in the long run. Net win is impacted
by variations in the hold percentage (the ratio of net win to total amount wagered), or actual outcome, on our games and sports
betting we offer to our users. We use the hold percentage as an indicator of a casino game’s or sports bet’s performance
against its expected outcome. Although each game or sports bet generally performs within a defined statistical range of outcomes,
actual outcomes may vary for any given period. In addition to the element of chance, win rates (hold percentages) may also (depending
on the game involved) be affected by the spread of limits and factors that are beyond our control, such as an end user’s
skill, experience and behavior, the mix of games played, the financial resources of users, the volume of bets placed and the amount
of time spent gambling. As a result of the variability in these factors, the actual win rates on our online casino games and sports
bets may differ from the theoretical win rates we have estimated and could result in the winnings of our casino game’s or
sports bet’s users exceeding those anticipated. The variability of win rates (hold rates) also have the potential to negatively
impact our financial condition, results of operations, and cash flows.
Participation
in the sports betting industry exposes us to trading, liability management and pricing risk. We may experience lower than expected
profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any
particular event and/or any failure of its sports risk management processes.
Our
fixed-odds betting products involve betting where winnings are paid on the basis of the stake placed and the odds quoted. Odds
are determined with the objective of providing an average return to the Company over a large number of events and therefore, over
the long term, gross win percentage is expected to remain fairly constant. However, there can be significant variation in gross
win percentage event-by-event and day-by-day. As a result, in the short term, there is less certainty of generating a positive
gross win, and we may experience significant losses with respect to individual events or betting outcomes, in particular if large
individual bets are placed on an event or betting outcome or series of events or betting outcomes. Odds compilers and risk managers
are capable of human error, thus even allowing for the fact that a number of betting products are subject to capped pay-outs,
significant volatility can occur. In addition, it is possible that there may be such a high volume of trading during any particular
period that even automated systems would be unable to address and eradicate all risks. Any significant losses on a gross-win basis
could have a material adverse effect on our business, financial condition and results of operations. In addition, if a jurisdiction
where we hold or wish to apply for a license imposes a high turnover tax for betting (as opposed to a gross-win tax), this too
would impact profitability, particularly with high value/low margin bets, and likewise have a material adverse effect on our business.
We
are required to comply with applicable anti-money laundering and countering the financing of terrorism legislation a breach of
which could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
The
Company receive deposits and other payments from customers in the normal course of their business. The receipt of monies from
customers imposes anti-money laundering and other obligations and potential liabilities on the Company. Compliance with all such
laws and regulations creates complex regulatory obligations which involves a risk of large financial penalties (in not being fully
compliant) and additional potential burdens (in being fully compliant). While the Company has processes in place regarding customer
profiling and the identification of customers’ source of funds, such processes may fail or prove to be inadequate whether
in respect of the source of customers’ funds or otherwise. Any such failure or inadequacy could have a material adverse
effect on the Company’s financial position and impact upon its licensing obligations.
Handling,
or any form of facilitating the use of criminal property, is a crime in all jurisdictions in which the Company takes material
custom (and going forward will take material custom). In instances where no local licensing regime is in place and there is doubt
in connection with the legality of the remote supply of gambling services, there is a risk that the authorities will claim that
money movements in connection with gambling amounts to money laundering, irrespective of whether the intention is actually to
launder money (i.e. to disguise or conceal its provenance). This gives rise to a risk that when monies are held in (or moved into)
certain territories, authorities may wish to freeze their onward payment, seek to trace money movements into different jurisdictions
and recover the relevant sums. This would give rise to conflicts of law issues (not all the definitions of what comprises criminal
property are identical in all jurisdictions) and what may not amount to money laundering in one jurisdiction may satisfy the definition
in that other territory. There is a risk that should any such claim be brought and be successful, significant funds may have to
be repatriated to the jurisdiction bringing a claim, which would have a significant impact on the profitability of the Company.
We
are subject to payment-related risks, such as risk associated with the fraudulent use of credit or debit cards which could have
adverse effects on our business due to chargebacks from customers
We
allow funding and payments to accounts using a variety of methods, including electronic funds transfer (“EFT”), and
credit and debit cards. As we continue to introduce new funding or payment options to our players, we may be subject to additional
regulatory and compliance requirements. We also may be subject to the risk of fraudulent use of credit or debit cards, or other
funding and/or payment options. For certain funding or payment options, including credit and debit cards, we may pay interchange
and other fees which may increase over time and, therefore, raise operating costs and reduce profitability. We rely on third parties
to provide payment-processing services and it could disrupt our business if these companies become unwilling or unable to provide
these services to us. We are also subject to rules and requirements governing EFT which could change or be reinterpreted to make
it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines
and higher transaction fees or possibly lose our ability to accept credit or debit cards, or other forms of payment from customers
which could have a material adverse impact on our business.
Chargebacks
occur when customers seek to void credit card or other payment transactions. Cardholders are intended to be able to reverse card
transactions only if there has been unauthorized use of the card or the services contracted for have not been provided. In our
business, customers occasionally seek to reverse online gaming losses through chargebacks. We place great emphasis on control
procedures to protect from chargebacks; however, these control procedures may not be sufficient to protect us from adverse effects
on our business or results of operations. Public health epidemics or outbreaks, such as COVID-19, could materially and adversely
impact our business.
In
December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak
was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries
and infections have been reported globally. Due to the outbreak of Covid-19, almost all major sports events and leagues were postponed
or put-on hold, for the period of Apr 2020-June 2020. The cancelation of major sports events had a significant short-term negative
effect on betting activity globally. As a result, iGaming operators faced major short-term losses in betting volumes. To date
online casino operations have generally continued as normal without any noticeable disruption due to the Covid-19 outbreak. The
virus’s expected effect on online casino activity globally is expected to be overall positive or neutral. Travel restrictions
and border closures have not materially impacted our ability to manage and operate the day to day functions of our business. Management
has been able to operate in a virtual setting. However, if such restrictions become more severe, they could negatively impact
those activities in a way that would harm our business over the long term. Travel restrictions impacting people can restrain our
ability to operate, but at present we do not expect these restrictions on personal travel to be material to our business operations
or financial results.
The
ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information
which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that
governments, or the Company, may direct, which may result in an extended period of continued business disruption and reduced operations.
Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business,
financial condition and results of operations.
Our
profitability depends upon many factors for which no assurance can be given.
Profitability
depends upon many factors, including the ability to develop and maintain valuable products and services, our ability to identify
and obtain the rights to additional products to add to our existing product line, success and expansion of our sales programs,
expansion of our customer base, obtaining the right balance of expense levels and the overall success of our business activities.
Operating Income will be earned during the next 12 months, buoyed by the Argyll acquisition, but even if we do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable
would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product
offerings or even continue our operations. A decline in the value of our stock could also cause you to lose all or part of your
investment.
Future
cash flows fluctuations may affect our ability to fund our working capital requirements or achieve our business objectives in
a timely manner.
Our
working capital requirements and cash flows are expected to be subject to quarterly and yearly fluctuations, depending on such
factors as timing and size of capital expenditures, levels of sales and collection of receivables, customer payment terms and
supplier terms and conditions. We expect that a greater than expected slow-down in capital spending by our customers may require
us to adjust our current business model. As a result, our revenues and cash flows may be materially lower than we expect and we
may be required to reduce our capital expenditures and investments or take other measures in order to meet our cash requirements.
We may seek additional funds from liquidity-generating transactions and other conventional sources of external financing (which
may include a variety of debt, convertible debt and/or equity financings). We cannot provide any assurance that our net cash requirements
will be as we currently expect. Our inability to manage cash flow fluctuations resulting from the above factors could have a material
adverse effect on our ability to fund our working capital requirements from operating cash flows and other sources of liquidity
or to achieve our business objectives in a timely manner.
Our
business may be materially and adversely affected by increased levels of debt.
In
order to finance our business or to finance possible acquisitions we may incur significant levels of debt compared to historical
levels, and we may need to secure additional sources of funding, which may include debt or convertible debt financing, in the
future. A high level of debt, arduous or restrictive terms and conditions relating to accessing certain sources of funding, failure
to meet the financial and/or other covenants in our credit and/or support facilities and any significant reduction in, or access
to, such facilities, poor business performance or lower than expected cash inflows could have adverse consequences on our ability
to fund our business operations. Other effects of a high level of debt include the following:
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may have difficulty borrowing money in the future or accessing sources of funding;
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we
may need to use a large portion of our cash flows from operating activities to pay principal and interest on our indebtedness,
which would reduce the amount of cash available to finance our operations and other business activities;
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a
high debt level, arduous or restrictive terms and conditions, or lower than expected cash flows would make us more vulnerable
to economic downturns and adverse developments in our business; and
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if
operating cash flows are not sufficient to meet our operating expenses, capital expenditures and debt service requirements
as they become due, we may be required, in order to meet our debt service obligations, to delay or reduce capital expenditures
or the introduction of new products and services, sell assets and/or forego business opportunities including acquisitions,
research and development projects or product design enhancements.
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Esports’
online offerings are part of new and evolving industries, which presents significant uncertainty and business risks.
The
online gaming and interactive entertainment industry, which includes social, casual and mobile gaming and interactive entertainment,
is relatively new and continues to evolve. Whether these industries grow and whether Esports’ online business will ultimately
succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments
(such as the passage of new laws or regulations or the extension of existing laws or regulations to online gaming activities),
taxation of gaming activities, data privacy laws and regulation and other factors that the Company is unable to predict and which
are beyond the Company’s control. Given the dynamic evolution of these industries, it can be difficult to plan strategically,
and it is possible that competitors will be more successful than the Company at adapting to change and pursuing business opportunities.
Additionally, as the online gaming industry advances, including with respect to regulation, the Company may become subject to
additional compliance-related costs. Consequently, the Company cannot provide assurance that its online and interactive offerings
will grow at the rates expected or be successful in the long term.
Several
companies have launched online social casino offerings, and new competitors are likely to continue to emerge, some of which may
be operated by social gaming companies with a larger base of existing users, or by casino operators with more experience in operating
a casino. If our products do not obtain popularity or maintain popularity or fail to grow in a manner that meets management’s
expectations, our results of operations and financial condition could be harmed.
Esports’
success in the competitive gaming and interactive entertainment industries depends in large part on its ability to develop and
manage frequent introductions of innovative products.
The
online gaming and interactive entertainment industries are characterized by dynamic customer demand and technological advances,
including for land-based and online gaming products. As a result, the Company must continually introduce and successfully market
new themes and technologies in order to remain competitive and effectively stimulate customer demand. The process of developing
new products and systems is inherently complex and uncertain. It requires accurate anticipation of changing customer needs and
end user preferences as well as emerging technological trends. If the Company’s competitors develop new content and technologically
innovative products, and Esports fails to keep pace, its business could be adversely affected. Additionally, the introduction
of products embodying new technology and the emergence of new industry standards can render the Company’s existing solutions
obsolete and unmarketable and can exert price pressures on existing solutions. To remain competitive, the Company must invest
resources towards its research and development efforts to introduce new and innovative products with dynamic features to attract
new customers and retain existing customers. If the Company fails to accurately anticipate customer needs and end-user preferences
through the development of new products and technologies, it could lose business to its competitors, which would adversely affect
the Company’s results of operations and financial position.
The
Company intends to continue investing resources toward its research and development efforts. There is no assurance that its investments
in research and development will lead to successful new technologies or timely new products. If a new product does not gain market
acceptance, the Company’s business could be adversely affected. Most directly, if a product is unsuccessful, the Company
could incur losses. Additionally, if the Company cannot efficiently adapt its processes and infrastructure to meet the needs of
its product innovations, its business could be negatively impacted. There is no certainty that the Company’s new products
will attain market acceptance or that its competitors will not more effectively anticipate or respond to changing customer preferences.
In addition, any delays by the Company in introducing new products could negatively impact its operating results by providing
an opportunity for its competitors to introduce new products and gain market share.
The
Company cannot give assurance that it will successfully develop new products or enhance and improve its existing products, that
new products and enhanced and improved existing products will achieve market acceptance or that the introduction of new products
or enhanced existing products by others will not render the Company’s products obsolete. Dynamic customer demand and technological
advances often demand high levels of research and development expenditures in order to meet accelerated product introductions,
and the life cycles of certain products may be short, which could adversely affect the Company’s operating results. In some
cases, the Company’s new products and solutions may require long development and testing periods and may not be introduced
in a timely manner or may not achieve the broad market acceptance necessary to generate significant revenue. The Company’s
inability to develop solutions that meet customer needs and compete successfully against competitors’ offerings could have
a material adverse effect on the Company’s business, financial condition and results of operations.
Our
growth will depend on our ability to attract and retain users, and the loss of our users, failure to attract new users in a cost-effective
manner, or failure to effectively manage our growth could adversely affect our business, financial condition, results of operations
and prospects.
Our
ability to achieve growth in revenue in the future will depend, in large part, upon our ability to attract new users to our offerings,
retain existing users of our offerings and reactivate users in a cost-effective manner. Achieving growth in our community of users
may require us to increasingly engage in sophisticated and costly sales and marketing efforts, which may not make sense in terms
of return on investment. We have used and expect to continue to use a variety of free and paid marketing channels, in combination
with compelling offers and exciting games to achieve our objectives. For paid marketing, we intend to leverage a broad array of
advertising channels, including sponsorships, affiliate networks, social media platforms, such as Facebook, Instagram, Twitter
and Twitch, paid and organic search, and other digital channels, such as mobile display. If the search engines on which we rely
modify their algorithms, change their terms around gaming, or if the prices at which we may purchase listings increase, then our
costs could increase, and fewer users may click through to our website. If links to our website are not displayed prominently
in online search results, if fewer users click through to our website, if our other digital marketing campaigns are not effective,
or if the costs of attracting users using any of our current methods significantly increase, then our ability to efficiently attract
new users could be reduced, our revenue could decline and our business, financial condition and results of operations could be
harmed.
In
addition, our ability to increase the number of users of our offerings will depend on continued user adoption of esports. Growth
in the esports industry and the level of demand for and market acceptance of our product offerings will be subject to a high degree
of uncertainty. We cannot assure that consumer adoption of our product offerings will continue or exceed current growth rates,
or that the industry will achieve more widespread acceptance.
Additionally,
as technological or regulatory standards change and we modify our platforms to comply with those standards, we may need users
to take certain actions to continue playing, such as performing age verification checks or accepting new terms and conditions.
Users may stop using our product offerings at any time, including if the quality of the user experience on our platform, including
our support capabilities in the event of a problem, does not meet their expectations or keep pace with the quality of the customer
experience generally offered by competitive offerings.
Failure
to attract, retain and motivate key employees may adversely affect the Company’s ability to compete and the loss of the
services of key personnel could have a material adverse effect on Esports’ business.
The
Company depends on the services of a few key executive officers. The loss of any of these key persons could have a material adverse
effect on the Company’s business, results of operations and financial condition. The Company’s success is also highly
dependent on its continuing ability to identify, hire, train, motivate and retain highly qualified technical, marketing and management
personnel. Competition for such personnel can be intense, and the Company cannot provide assurance that it will be able to attract
or retain highly qualified technical, marketing and management personnel in the future. Stock options may comprise a significant
component of key employee compensation, and if the Company’s Common Share price declines, it may be difficult to retain
such individuals. Similarly, changes in the Company’s share price may hinder the Company’s ability to recruit key
employees, as they may elect to seek employment with other companies that they believe have better long-term prospects. The Company’s
inability to attract and retain the necessary technical, marketing and management personnel may adversely affect its future growth
and profitability. The Company’s retention and recruiting may require significant increases in compensation expense, which
would adversely affect the Company’s results of operation.
The
leadership of Esports’ Chief Executive Officer, Mr. Grant Johnson (“Mr. Johnson”), has been a critical element
of the Company’s success. The departure, death or disability of Mr. Johnson or other extended or permanent loss of his services,
or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect
on the Company’s business. Esports’ other executive officers and other members of senior management have substantial
experience and expertise in Esports’ business and have made significant contributions to its growth and success. The unexpected
loss of services of one or more of these individuals could also adversely affect the Company. Esports is not protected by key
man or similar life insurance covering members of senior management but is contemplating obtaining key man insurance.
Our
management team has limited experience managing a public company and regulatory compliance may divert our attention from the day-to-day
management of its business.
Our
management team has limited experience managing a publicly-traded company and limited experience complying with the increasingly
complex laws pertaining to public companies. These obligations typically require substantial attention from our senior management
and could divert our attention away from the day-to-day management of our business.
Our
internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley
Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We
have not maintained internal control over financial reporting in a manner that meets the standards of publicly traded companies
required by Section 404 of the Sarbanes-Oxley Act of 2002. The rules governing the standards that must be met for our management
to assess our internal control over financial reporting are complex and require significant documentation, testing and possible
remediation. We might encounter problems or delays in completing the implementation of any changes necessary to make a favorable
assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control
over financial reporting, investors could lose confidence in our financial information and the price of our common stock could
decline.
The
Company’s business is vulnerable to changing economic conditions and to other factors that adversely affect the industries
in which it operates.
The
demand for entertainment and leisure activities tends to be highly sensitive to changes in consumers’ disposable income,
and thus can be affected by changes in the economy and consumer tastes, both of which are difficult to predict and beyond the
control of the Company. Unfavorable changes in general economic conditions, including recessions, economic slowdown, sustained
high levels of unemployment, and increasing fuel or transportation costs, may reduce customers’ disposable income or result
in fewer individuals visiting casinos, whether land-based or online, or otherwise engaging in entertainment and leisure activities,
including gambling. As a result, the Company cannot ensure that demand for its products or services will remain constant. Continued
or renewed adverse developments affecting economies throughout the world, including a general tightening of availability of credit,
decreased liquidity in many financial markets, increasing interest rates, increasing energy costs, acts of war or terrorism, transportation
disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in
stock markets, could lead to a further reduction in discretionary spending on leisure activities, such as gambling. Any significant
or prolonged decrease in consumer spending on entertainment or leisure activities could reduce the Company’s online games,
reducing the Company’s cash flows and revenues. If the Company experiences a significant unexpected decrease in demand for
its products, it could incur losses.
Changes
in ownership of competitors or consolidations within the gaming industry may negatively impact pricing and lead to downward pricing
pressures which could reduce revenue.
A
decline in demand for the Company’s products in the gaming industry could adversely affect its business. Demand for the
Company’s products is driven primarily by the replacement of existing services as well as the expansion of existing online
gaming, and the expansion of new channels of distribution, such as mobile gaming. Additionally, consolidation within the online
gambling market could result in the Company facing competition from larger combined entities, which may benefit from greater resources
and economies of scale. Also, any fragmentation within the industry creating a number of smaller, independent operators with fewer
resources could also adversely affect the Company’s business as these operators might cause a further slowdown in the replacement
cycle for the Company’s products.
Litigation
costs and the outcome of litigation could have a material adverse effect on the Company’s business.
From
time to time, Esports may be subject to litigation claims through the ordinary course of its business operations regarding, but
not limited to, employment matters, security of consumer and employee personal information, contractual relations with suppliers,
marketing and infringement of trademarks and other intellectual property rights. Litigation to defend Esports against claims by
third parties, or to enforce any rights that Esports may have against third parties, may be necessary, which could result in substantial
costs and diversion of Esports’ resources, causing a material adverse effect on its business, financial condition and results
of operations. Aside from the lawsuit and other matters referenced herein under the heading “Legal Proceedings” (which
includes certain allegations made by our former Chief Technology Officer), the Company is not aware of any current material legal
proceedings outstanding, threatened or pending as of the date hereof by or against the Company, given the nature of its business,
it is, and may from time to time in the future be, party to various, and at times numerous, legal, administrative and regulatory
inquiries, investigations, proceedings and claims that arise in the ordinary course of business. Because the outcome of litigation
is inherently uncertain, if one or more of such legal matters were to be resolved against the Company for amounts in excess of
management’s expectations, the Company’s results of operations and financial condition could be materially adversely
affected.
The
Company relies on its internal marketing and branding function, and intends to rely on relationship with ambassadors, distributors,
service providers and channel partners to promote its products and generate revenue, and the failure to maintain and develop these
relationships could adversely affect the business and financial condition of the Company.
The
Company is dependent upon its internal marketing and branding function as well as its ability to establish and develop new relationships
and to build relationships with distributors and service providers on which it will rely to promote its current and future products,
including online gaming services and live events such as potentially creating and hosting live esports tournaments. The Company
cannot provide assurance that it will be successful in maintaining or advancing such internal function or relationship. In addition,
the Company cannot provide assurance that its future distributors and service providers will act in a manner that will promote
the success of the Company’s products and services. Failure by its internal marketing and branding function or channel partners
to promote and support the Company’s products and services or failure by the Company to establish and develop relationships
with ambassadors, distributors and service providers, could adversely affect the Company’s business, results of operations
and financial condition. Even if the Company is successful in maintaining or advancing such internal function or establishing
and developing relationships with distributors or service providers, there is no guarantee that this will result in a growth in
revenue.
Moreover,
if some of the Company’s competitors offer their products and services to distributors on more favorable terms or have more
products or services available to meet their needs, there may be pressure on the Company to reduce the price of its products or
services, failing which the Company’s distributors and service providers may stop carrying its products or services or de-emphasize
the sale of its products and services in favor of the products and services of competitors.
Risks
Related to International Operations
The
risks related to international operations, in particular in countries outside of the United States and Canada, could negatively
affect the Company’s results.
All
of the Company’s operations are conducted in foreign jurisdictions including, but not limited to: Curacao, the United Kingdom,
Switzerland and Malta. It is expected that the Company will derive more than 95% of its revenue from transactions denominated
in currencies other than the United States and the Canadian dollar, and the Company expects that receivables with respect to foreign
sales will continue to account for a significant majority of its total accounts and receivables outstanding. As such, the Company’s
operations may be adversely affected by changes in foreign government policies and legislation or social instability and other
factors which are not within the control of the Company, including, but not limited to, recessions in foreign economies, expropriation,
nationalization and limitation or restriction on repatriation of funds, assets or earnings, longer receivables collection periods
and greater difficulty in collecting accounts receivable, changes in consumer tastes and trends, renegotiation or nullification
of existing contracts or licenses, changes in gaming policies, regulatory requirements or the personnel administering them, currency
fluctuations and devaluations, exchange controls, economic sanctions and royalty and tax increases, risk of terrorist activities,
revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies,
including royalty and tax increases and retroactive tax claims, volatility of financial markets and fluctuations in foreign exchange
rates, difficulties in the protection of intellectual property particularly in countries with fewer intellectual property protections,
the effects that evolving regulations regarding data privacy may have on the Company’s online operations, adverse changes
in the creditworthiness of parties with whom the Company has significant receivables or forward currency exchange contracts, labour
disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations
are conducted. The Company’s operations may also be adversely affected by social, political and economic instability and
by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations
are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, its business may be harmed.
The
Company’s international activities may require protracted negotiations with host governments, national companies and third
parties. Foreign government regulations may favor or require the awarding of contracts to local contractors or require foreign
contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In the event of a dispute arising in
connection with the Company’s operations in a foreign jurisdiction where it conducts its business, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of
the courts of United States or Canada or enforcing American and Canadian judgments in such other jurisdictions. The Company may
also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine
of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by
factors beyond the Company’s control, any of which could have a material adverse effect on it. The Company believes that
management’s experience to date in commercializing its products and solutions in Europe and the Caribbean may be of assistance
in helping to reduce these risks. Some countries in which the Company may operate may be considered politically and economically
unstable.
Doing
business in the industries in which the Company operates often requires compliance with numerous and extensive procedures and
formalities. These procedures and formalities may result in unexpected or lengthy delays in commencing important business activities.
In some cases, failure to follow such formalities or obtain relevant evidence may call into question the validity of the entity
or the actions taken. Management of the Company is unable to predict the effect of additional corporate and regulatory formalities
which may be adopted in the future including whether any such laws or regulations would materially increase Esports’ cost
of doing business or affect its operations in any area.
Esports
may in the future enter into agreements and conduct activities outside of the jurisdictions where it currently carries on business,
which expansion may present challenges and risks that Esports has not faced in the past, any of which could adversely affect the
results of operations and/or financial condition of Esports.
The
Company is subject to foreign exchange and currency risks that could adversely affect its operations, and the Company’s
ability to mitigate its foreign exchange risk through hedging transactions may be limited.
The
Company expects that it will derive in excess of 95% of its revenues in currencies other than the United States and Canadian dollar;
however, a substantial portion of the Company’s operating expenses are incurred in United States dollars. Fluctuations in
the exchange rate between the U.S. dollar, the Euro and other currencies may have a material adverse effect on the Company’s
business, financial condition and operating results. The Company’s consolidated financial results are affected by foreign
currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated
transactions denominated in currencies other than United States and Canadian dollars and from the translation of foreign-currency-denominated
balance sheet accounts into United States and Canadian dollar-denominated balance sheet accounts. The Company is exposed to currency
exchange rate fluctuations because portions of its revenue and expenses are denominated in currencies other than the United States
and Canadian dollar, particularly the Euro. In particular, uncertainty regarding economic conditions in Europe and the debt crisis
affecting certain countries in the European Union pose risk to the stability of the Euro. Exchange rate fluctuations could adversely
affect the Company’s operating results and cash flows and the value of its assets outside of United States and Canada. If
a foreign currency is devalued in a jurisdiction in which the Company is paid in such currency, then the Company’s customers
may be required to pay higher amounts for the Company’s products, which they may be unable or unwilling to pay.
While
the Company may enter into forward currency swaps and other derivative instruments intended to mitigate the foreign currency exchange
risk, there can be no assurance the Company will do so or that any instruments that the Company enters into will successfully
mitigate such risk. If the Company enters into foreign currency forward or other hedging contracts, the Company would be subject
to the risk that a counterparty to one or more of these contracts defaults on its performance under the contracts. During an economic
downturn, a counterparty’s financial condition may deteriorate rapidly and with little notice, and the Company may be unable
to take action to protect its exposure. In the event of a counterparty default, the Company could lose the benefit of its hedging
contract, which may harm its business and financial condition. In the event that one or more of the Company’s counterparties
becomes insolvent or files for bankruptcy, its ability to eventually recover any benefit lost as a result of that counterparty’s
default may be limited by the liquidity of the counterparty. The Company expects that it will not be able to hedge all of its
exposure to any particular foreign currency, and it may not hedge its exposure at all with respect to certain foreign currencies.
Changes in exchange rates and the Company’s limited ability or inability to successfully hedge exchange rate risk could
have an adverse impact on the Company’s liquidity and results of operations.
Privacy
concerns could result in regulatory changes and impose additional costs and liabilities on the Company, limit its use of information,
and adversely affect its business.
Personal
privacy has become a significant issue in Canada, the United States, Europe, and many other countries in which the Company currently
operates and may operate in the future. Many federal, state, and foreign legislatures and government agencies have imposed or
are considering imposing restrictions and requirements about the collection, use, and disclosure of personal information obtained
from individuals. Changes to laws or regulations affecting privacy could impose additional costs and liability on the Company
and could limit its use of such information to add value for customers. If the Company were required to change its business activities
or revise or eliminate services, or to implement burdensome compliance measures, its business and results of operations could
be harmed. In addition, the Company may be subject to fines, penalties, and potential litigation if it fails to comply with applicable
privacy regulations, any of which could adversely affect the Company’s business, liquidity and results of operation.
The
Company’s results of operations could be affected by natural events in the locations in which it operates or where its customers
or suppliers operate.
Esports,
its customers, and its suppliers have operations in locations subject to natural occurrences such as severe weather and other
geological events, including hurricanes, earthquakes, or flood that could disrupt operations. Any serious disruption at any of
Esports’ facilities or the facilities of its customers or suppliers due to a natural disaster could have a material adverse
effect on Esports’ revenues and increase its costs and expenses. If there is a natural disaster or other serious disruption
at any of Esports’ facilities, it could impair its ability to adequately supply its customers, cause a significant disruption
to its operations, cause Esports to incur significant costs to relocate or re-establish these functions and negatively impact
its operating results. While Esports intends to seek insurance against certain business interruption risks, such insurance may
not adequately compensate Esports for any losses incurred as a result of natural or other disasters. In addition, any natural
disaster that results in a prolonged disruption to the operations of Esports’ customers or suppliers may adversely affect
its business, results of operations or financial condition.
Our
quarterly results can fluctuate and if we fail to meet the expectations of analysts or investors, our stock price and the value
of your investment could decline substantially.
The
betting operations of the Company are subject to the seasonal variations dictated by the sporting calendar, which may have an
effect on its financial performance. Traditional sports have an off-season that can cause a corresponding, temporary decrease
in their respective revenues. The Company’s ability to generate revenues is also affected by the scheduling of major events
that do not occur annually.
Cancellation
or curtailment of significant sporting events, for example due to adverse weather, traffic or transport disruption or civil disturbances
or the outbreak of infectious diseases, or the failure of certain sporting teams to qualify for sporting events, may adversely
impact the business, financial condition and results of operations of the Company for the relevant period.
While
we work to integrate newly acquired third party entities, businesses and operations, management’s focus and resources may
be diverted from operational matters and other strategic opportunities.
Successful
integration of third party businesses, operations, technology and personnel (“Acquired Assets”) that the Company may
acquire going forward, may place a significant burden on management and other internal resources. The diversion of management’s
attention and any difficulties encountered in the transition and integration process could harm our business, financial condition,
results of operations and prospects.
Furthermore,
the overall integration of Acquired Assets may result in material unanticipated problems, expenses, liabilities, competitive responses,
and loss of customers and other relationships. The difficulties of combining or integrating Acquired Assets, among others, include
difficulties in integrating operations and systems; conforming standards, controls, procedures and accounting and other policies,
business cultures and compensation structures; assimilating employees, including possible culture conflicts and different opinions
on technical decisions and product roadmaps; managing the expanded operations of a larger and more complex company, including
coordinating a geographically dispersed organization; and keeping existing customers and obtaining new customers. Many of these
factors will be outside our control and any one of them could result in increased costs, decreases in the amount of expected revenues
and diversion of management’s time and energy, which could materially impact our business, financial condition and results
of operations.
We
may also be subject to certain liabilities of Acquired Assets. Any litigation may be expensive and time-consuming and could divert
management’s attention from its business and negatively affect its operating results or financial condition. The outcome
of any litigation cannot be guaranteed and adverse outcomes can affect us negatively. We may also face inquiry and investigation
by governmental authorities, which could in turn lead to fines, as the regulatory landscape of sport betting and gaming changes.
Certain acquisitions may also be subject to governmental approval which cannot be guaranteed and adverse outcomes can affect us
negatively.
Risks
Related to Regulation
The
Company is subject to various laws relating to trade, export controls, and foreign corrupt practices, the violation of which could
adversely affect its operations, reputation, business, prospects, operating results and financial condition.
We
are subject to risks associated with doing business outside of the United States, including exposure to complex foreign and U.S.
regulations such as the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws which generally
prohibit U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining
or retaining business. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions
and other penalties. It may be difficult to oversee the conduct of any contractors, third-party partners, representatives or agents
who are not our employees, potentially exposing us to greater risk from their actions. If our employees or agents fail to comply
with applicable laws or company policies governing our international operations, we may face legal proceedings and actions which
could result in civil penalties, administration actions and criminal sanctions. Any determination that we have violated any anti-corruption
laws could have a material adverse impact on our business. Changes in trade sanctions laws may restrict the Company’s business
practices, including cessation of business activities in sanctioned countries or with sanctioned entities.
Violations
of these laws and regulations could result in significant fines, criminal sanctions against Esports, its officers or its employees,
requirements to obtain export licenses, disgorgement of profits, cessation of business activities in sanctioned countries, prohibitions
on the conduct of its business and its inability to market and sell the Company’s products in one or more countries. Additionally,
any such violations could materially damage the Company’s reputation, brand, international expansion efforts, ability to
attract and retain employees and the Company’s business, prospects, operating results and financial condition.
We
also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations.
Any violation of anti-money laundering laws or regulations by any of our properties could have a material adverse impact on our
business.
The
gaming industry is heavily regulated and failure by the Company to comply with applicable requirements could be disruptive to
its business and could adversely affect its operations.
The
gaming industry is subject to extensive scrutiny and regulation at all levels of government, both domestic and foreign, including
but not limited to, federal, state, provincial, local, and in some instances, tribal authorities. While the regulatory requirements
vary by jurisdiction, most require:
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and/or permits;
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findings
of suitability;
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documentation
of qualifications, including evidence of financial stability; and
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other
required approvals for companies who operate in online gaming or manufacture or distribute gaming equipment and services,
including but not limited to approvals for new products.
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Compliance
with the various regulations applicable to internet gaming is costly and time-consuming. Regulatory authorities at the non-U.S.,
U.S. federal, state and local levels have broad powers with respect to the regulation and licensing of internet gaming operations
and the Company’s licenses may be revoked, suspended or limited for non-compliance and regulators have the power to impose
substantial fines on us and take other actions, any one of which could have a material adverse effect on our business, financial
condition, results of operations and prospects. These laws and regulations are dynamic and subject to potentially differing interpretations,
and various legislative and regulatory bodies may expand current laws or regulations or enact new laws and regulations regarding
these matters. We will strive to comply with all applicable laws and regulations relating to our business. It is possible, however,
that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may
conflict with other rules. Non-compliance with any such law or regulations could expose us to claims, proceedings, litigation
and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of
which may materially and adversely affect our business.
Any
license, permit, approval or finding of suitability may be revoked, suspended or conditioned at any time. The loss of a license
in one jurisdiction could trigger the loss of a license or affect the Company’s eligibility for a license in another jurisdiction.
The Company may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines
or experience delays related to the licensing process which could adversely affect its operations. The finding of suitability
process may be expensive and time-consuming. The Company’s delay or failure to obtain licenses and approvals in any jurisdiction
may prevent it from distributing its solutions and generating revenues. A gaming regulatory body may refuse to issue or renew
a registration if the Company, or one of its directors, officers, employees or associates: (i) is considered to be a detriment
to the integrity or lawful conduct or management of gaming, (ii) no longer meets a registration requirement, (iii) has breached
or is in breach of a condition of registration or an operational agreement with a regulatory authority, (iv) has made a material
misrepresentation, omission or misstatement in an application for registration or in reply to an enquiry by a person conducting
an audit, investigation or inspection for a gaming regulatory authority, (v) has been refused a similar registration in another
jurisdiction, (vi) has held a similar registration, or license in that province, state or another jurisdiction which has been
suspended, revoked or cancelled, or (vii) has been convicted of an offence, inside or outside of the United States that calls
into question the Company’s honesty or integrity or the honesty or integrity of one of its directors, officers, employees
or associates.
Additionally,
the Company’s services must be approved in some jurisdictions in which they are offered; this process cannot be assured
or guaranteed. Obtaining these approvals is a time-consuming process that can be extremely costly. Even where a jurisdiction regulates
online gaming, it may not be commercially desirable to secure a licence in such a jurisdiction due to tax or other operational
considerations.
A
provider of gaming solutions may pursue corporate regulatory approval with regulators of a particular jurisdiction while it pursues
technical regulatory approval for its gaming solutions by that same jurisdiction. It is possible that after incurring significant
expenses and dedicating substantial time and effort towards such regulatory approvals, that Esports may not obtain either of them.
If the Company fails to obtain the necessary certification, registration, license, approval or finding of suitability in a given
jurisdiction, it would likely be prohibited from distributing its services in that particular jurisdiction altogether. If the
Company fails to seek, does not receive, or receives a revocation of a license in a particular jurisdiction for its games, hardware
or software, then it cannot sell, service or place on a participation or leased basis or license its products in that jurisdiction
and its issued licenses in other jurisdictions may be impacted. Furthermore, some jurisdictions require license holders to obtain
government approval before engaging in some transactions, such as business combinations, reorganizations, stock offerings and
repurchases. The Company may not be able to obtain all necessary registrations, licenses, permits, approvals or findings of suitability
in a timely manner, or at all. Delays in regulatory approvals or failure to obtain such approvals may also serve as a barrier
to entry to the market for the Company’s solutions. If the Company is unable to overcome the barriers to entry, it will
materially affect its results of operations and future prospects. To the extent new gaming jurisdictions are established or expanded,
the Company cannot guarantee it will be successful in penetrating such new jurisdictions or expanding its business in line with
the growth of existing jurisdictions. As the Company enters into new markets, it may encounter legal and regulatory challenges
that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs
associated with the new market opportunity. If the Company is unable to effectively develop and operate within these new markets,
then its business, operating results and financial condition could be impaired. The Company’s failure to obtain the necessary
regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on its business.
To
expand into new jurisdictions, the Company may need to be licensed, obtain approvals of its products and/or seek licensure of
its officers, directors, major shareholders, key employees or business partners. Any delays in obtaining or difficulty in maintaining
regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect the Company’s
opportunities for growth or delay its ability to recognize revenue from the sale or installation of products in any such jurisdictions.
The
Company is subject to regulation affecting internet gaming which varies from one jurisdiction to another and future legislative
and court proceedings pertaining to internet gaming may have a material impact on the operations and financial results of Esports.
Online
gambling is not unequivocally legal in all jurisdictions. The Company is licensed to supply gambling services from
jurisdictions in which it operates but not in every jurisdiction where the customer is located. Some countries have
introduced regulations attempting to restrict or prohibit internet gaming, while others have taken the position that internet
gaming should be regulated and have adopted or are in the process of considering legislation to enable that
regulation.
While
the U.K. and other European countries and territories such as Malta, Alderney and Gibraltar have currently adopted a regime which
permits its licensees to accept wagers from any jurisdiction, other countries, including the United States have, or are in the
process of implementing, regimes which permit only the targeting of the domestic market provided a local license is obtained and
local taxes accounted for. Other European countries and territories continue to defend a licensing regime that protects monopoly
providers and have combined this with an attempt to outlaw all other supplies. By contrast, a number of countries have not passed
legislation in relation to online gambling but may introduce it. Some jurisdictions have not updated legislation focused on land-based
gambling which may be interpreted in an unfavourable way to online gambling. Different jurisdictions have different views to determining
where gambling takes place and which jurisdiction’s law applies and these views may change from time to time.
We
currently block, through IP address filtering, direct access to wagering on our website from the United States and other jurisdictions
that the Company is precluded from supplying its services to pursuant to its gaming licenses. Individuals are required to enter
their age upon gaining access to our platform and any misrepresentation of such users age will result in the forfeiting of his
or her deposit and any withdrawals from such users account requires proof of government issued identification. In addition, our
payment service providers use their own identity and ISP verification software. Despite all such measures, it is conceivable that
that a user, under age, or otherwise could devise a way to evade our blocking measures and access our website from the United
States or any other foreign jurisdiction in which we do not currently permit users to use our services.
Future
legislative and court decisions may have a material impact on the operations and financial results. Therefore, there is a risk
that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities incumbent
monopoly providers, or private individuals, could be initiated against the Company, internet service providers, credit card processors,
advertisers and others involved in the internet gaming industry. Such potential proceedings could involve substantial litigation
expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon the Company or its licensees
or other business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect
on the Company’s business, revenues, operating results and financial condition as well as impact upon the Company’s
reputation.
There
can be no assurance that legally enforceable prohibiting legislation will not be proposed and passed in jurisdictions relevant
or potentially relevant to the Company’s business to legislate or regulate various aspects of the internet or the online
gaming industry (or that existing laws in those jurisdictions will not be interpreted negatively). Compliance with any such legislation
may have a material adverse effect on the Company’s business, financial condition and results of operations, either as a
result of the Company’s determining that a jurisdiction should be blocked, or because a local license may be costly for
the Company or its licensees to obtain and/or such licenses may contain other commercially undesirable conditions.
The
Company may not be able to capitalize on the expansion of online or other forms of interactive gaming or other trends and changes
in the gaming industry, including due to laws and regulations governing these industries.
The
Company participates in the new and evolving interactive gaming industry through its online, social and mobile products. The Company
intends to take advantage of the liberalization of online and mobile gaming, within Canada, the U.S. and internationally; however,
expansion of online and mobile gaming involves significant risks and uncertainties, including legal, business and financial risks.
The success of online and mobile gaming and the Company’s interactive products and services may be affected by future developments
in social networks, including Facebook, mobile platforms, regulatory developments, data privacy laws and other factors that the
Company is unable to predict and are beyond its control. Consequently, the Company’s future operating results relating to
its online gaming products and services are difficult to predict, and Esports cannot provide assurance that its products and services
will grow at expected rates or be successful in the long term.
Additionally,
the Company’s ability to successfully pursue its interactive gaming strategy depends on the laws and regulations relating
to wagering through interactive channels. Internationally, laws relating to online gaming are evolving, particularly in Europe.
To varying degrees, a number of European governments have taken steps to change the regulation of online wagering through the
implementation of new or revised licensing and taxation regimes, including the possible imposition of sanctions on unlicensed
providers. The Company cannot predict the timing, scope or terms of any such state, federal or foreign laws and regulations, or
the extent to which any such laws and regulations will facilitate or hinder its interactive strategy.
The
Company’s ability to operate in its proposed online jurisdictions or expand in new online jurisdictions could be adversely
affected by new or changing laws or regulations, new interpretations of existing laws or regulations, and difficulties or delays
in obtaining or maintaining required licenses or product approvals.
Changes
in existing gaming laws or regulations, new interpretations of existing gaming laws or regulations or changes in the manner in
which existing laws and regulations are enforced, all with respect to online gaming activities, may hinder or prevent the Company
from continuing to operate in those jurisdictions where it currently carries on business, which would harm its operating results
and financial condition. Furthermore, gaming regulatory bodies may from time to time amend the various disclosures and reporting
requirements. If the Company fails to comply with any existing or future disclosure or reporting requirements, the regulators
may take action against the Company which could ultimately include fines, the conditioning, suspension or revocation of approvals,
registrations, permits or licenses and other disciplinary action. It cannot be assured that the Company will be able to adequately
adjust to such potential changes. Additionally, evolving laws and regulations regarding data privacy, cyber security and anti-money
laundering could adversely impact opportunities for growth in Esports’ online business, and could result in additional compliance-related
costs.
Public
opinion can also exert a significant influence over the regulation of the gaming industry. A negative shift in the public’s
perception of gaming could affect future legislation in different jurisdictions. Among other things, such a shift could cause
jurisdictions to abandon proposals to legalize gaming, thereby limiting the number of new jurisdictions into which the Company
could expand. Negative public perception could also lead to new restrictions on or to the prohibition of gaming in jurisdictions
in which the Company currently operates.
Regulations
that may be adopted with respect to the internet and electronic commerce may decrease the growth in the use of the internet and
lead to the decrease in the demand for Esports’ products and services.
In
addition to regulations pertaining to the gaming industry in general and specifically to online gaming, the Company may become
subject to any number of laws and regulations that may be adopted with respect to the internet and electronic commerce. New laws
and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual
property, information security, and the characteristics and quality of online products and services may be enacted. As well, current
laws, which predate or are incompatible with the internet and electronic commerce, may be applied and enforced in a manner that
restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the
context of the internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to
the internet. The adoption of new laws or regulations relating to the internet, or particular applications or interpretations
of existing laws, could decrease the growth in the use of the internet, decrease the demand for Esports’ products and services,
increase Esports’ cost of doing business or could otherwise have a material adverse effect on Esports’ business, revenues,
operating results and financial condition.
Esports
shareholders are subject to extensive governmental regulation and if a shareholder is found unsuitable by a gaming authority,
that shareholder would not be able to beneficially own the Company’s Common Shares directly or indirectly.
In
many jurisdictions, gaming laws can require any of the Company’s shareholders to file an application, be investigated, and
qualify or have his, her or its suitability determined by gaming authorities. Gaming authorities have very broad discretion in
determining whether an applicant should be deemed suitable. Subject to certain administrative proceeding requirements, the gaming
regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration,
finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed
reasonable by the gaming authorities.
Furthermore,
any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming authority, may not hold
directly or indirectly ownership of any voting security or the beneficial or record ownership of any non-voting security or any
debt security of any public corporation which is registered with the relevant gaming authority beyond the time prescribed by the
relevant gaming authority. A violation of the foregoing may constitute a criminal offence. A finding of unsuitability by a particular
gaming authority impacts that person’s ability to associate or affiliate with gaming licensees in that particular jurisdiction
and could impact the person’s ability to associate or affiliate with gaming licensees in other jurisdictions.
Many
jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities
of a gaming company and, in some jurisdictions, non-voting securities, typically 5%, to report the acquisition to gaming authorities,
and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions
for “institutional investors” that hold a company’s voting securities for investment purposes only.
Current
environmental laws and regulations, or those enacted in the future, could result in additional liabilities and costs. Compliance
with these laws could increase Esports’ costs and impact the availability of components required to manufacture its products.
Violation of these laws may subject Esports to significant fines, penalties or disposal costs, which could negatively impact its
results of operations, financial position or cash flows.
Legislative
and regulatory changes could negatively affect our business and the business of our customers.
Legislative
and regulatory changes may affect demand for or place limitations on the placement of our products. Such changes could affect
us in a variety of ways. Legislation or regulation may introduce limitations on our products or opportunities for the use of our
products and could foster competitive products or solutions at our or our customers’ expense. Our business will likely also
suffer if our products became obsolete due to changes in laws or the regulatory framework.
Legislative
or regulatory changes negatively impacting the gaming industry as a whole or our customers in particular could also decrease the
demand for our products. Opposition to gaming could result in restrictions or even prohibitions of gaming operations in any jurisdiction
or could result in increased taxes on gaming revenues. Tax matters, including changes in state, federal or other tax legislation
or assessments by tax authorities could have a negative impact on our business. A reduction in growth of the gaming industry or
in the number of gaming jurisdictions or delays in the opening of new or expanded casinos could reduce demand for our products.
Changes in current or future laws or regulations or future judicial intervention in any particular jurisdiction may have a material
adverse effect on our existing and proposed foreign and domestic operations. Any such adverse change in the legislative or regulatory
environment could have a material adverse effect on our business, results of operations or financial condition.
Risks
Related to Intellectual Property and Technology
Esports’
intellectual property may be insufficient to properly safeguard its technology and brands.
The
Company may apply for patent protection in the United States, Canada, Europe and other countries relating to certain existing
and proposed processes, designs and methods and other product innovations. Patent applications can, however, take many years to
issue and the Company can provide no assurance that any of these patents will be issued at all. If the Company is denied any or
all of these patents, it may not be able to successfully prevent its competitors from imitating its solutions or using some or
all of the processes that are the subject of such patent applications. Such imitation may lead to increased competition within
the finite market for the Company’s solutions. Even if pending patents are issued to the Company, its intellectual property
rights may not be sufficiently comprehensive to prevent its competitors from developing similar competitive products and technologies.
The Company’s success may also depend on its ability to obtain trademark protection for the names or symbols under which
it markets its products and to obtain copyright protection and patent protection of its proprietary technologies, intellectual
property and other game innovations and if the granted patents are challenged, protection may be lost. The Company may not be
able to build and maintain goodwill in its trademarks or obtain trademark or patent protection, and there can be no assurance
that any trademark, copyright or issued patent will provide competitive advantages for Esports or that Esports’ intellectual
property will not be successfully challenged or circumvented by competitors.
Computer
source codes for technology Esports licenses may also receive protection under international copyright laws. As such, EEG, or
the party which it licenses the source code from, may need to initiate legal proceedings following such use to obtain orders to
prevent further use of the source code.
The
Company will also rely on trade secrets, ideas and proprietary know-how. Although the Company generally requires its employees
and independent contractors to enter into confidentiality and intellectual property assignment agreements, it cannot be assured
that the obligations therein will be maintained and honored. If these agreements are breached, it is unlikely that the remedies
available to the Company will be sufficient to compensate it for the damages suffered. In spite of confidentiality agreements
and other methods of protecting trade secrets, the Company’s proprietary information could become known to or independently
developed by competitors. If the Company fails to adequately protect its intellectual property and confidential information, its
business may be harmed, and its liquidity and results of operations may be materially adversely impacted.
The
Company may be subject to claims of intellectual property infringement or invalidity and adverse outcomes of litigation could
unfavorably affect its operating results.
Monitoring
infringement and misappropriation of intellectual property can be difficult and expensive, and the Company may not be able to
detect infringement or misappropriation of its proprietary rights. Although the Company intends to aggressively pursue anyone
who is reasonably believed to be infringing upon its intellectual property rights and who poses a significant commercial risk
to the business, to protect and enforce its intellectual property rights, initiating and maintaining suits against such third
parties will require substantial financial resources. The Company may not have the financial resources to bring such suits, and,
if it does bring such suits, it may not prevail. Regardless of the Company’s success in any such actions, the expenses and
management distraction involved may have a material adverse effect on its financial position.
A
significant portion of the Company’s revenues may be generated from products using certain intellectual property rights,
and EEG’s operating results would be negatively impacted if it was unsuccessful in licensing certain of those rights and/or
protecting those rights from infringement, including losses of proprietary information from breaches of the Company’s cyber
security efforts.
Further,
the Company’s competitors have been granted patents protecting various gaming products and solutions features, including
systems, methods and designs. If the Company’s products and solutions employ these processes, or other subject matter that
is claimed under its competitors’ patents, or if other companies obtain patents claiming subject matter that the Company
uses, those companies may bring infringement actions against it. The question of whether a product infringes a patent involves
complex legal and factual issues, the determination of which is often uncertain. In addition, because patent applications can
take many years to issue, there may be applications now pending of which the Company is unaware, which might later result in issued
patents that the Company’s products and solutions may infringe. There can be no assurance that the Company’s products,
including those with currently pending patent applications, will not be determined to have infringed upon an existing third-party
patent. If any of the Company’s products and solutions infringes a valid patent, the Company may be required to discontinue
offering certain products or systems, pay damages, purchase a license to use the intellectual property in question from its owner,
or redesign the product in question to avoid infringement. A license may not be available or may require EEG to pay substantial
royalties, which could in turn force EEG to attempt to redesign the infringing product or to develop alternative technologies
at a considerable expense. Additionally, the Company may not be successful in any attempt to redesign the infringing product or
to develop alternative technologies, which could force the Company to withdraw its product or services from the market.
The
Company may also infringe other intellectual property rights belonging to third parties, such as trademarks, copyrights and confidential
information. As with patent litigation, the infringement of trademarks, copyrights and confidential information involve complex
legal and factual issues and the Company’s products, branding or associated marketing materials may be found to have infringed
existing third-party rights. When any third-party infringement occurs, the Company may be required to stop using the infringing
intellectual property rights, pay damages and, if it wishes to keep using the third party intellectual property, purchase a license
or otherwise redesign the product, branding or associated marketing materials to avoid further infringement. Such a license may
not be available or may require EEG to pay substantial royalties.
It
is also possible that the validity of any of EEG’s intellectual property rights might be challenged either in standalone
proceedings or as part of infringement claims in the future. There can be no assurance that EEG’s intellectual property
rights will withstand an invalidity claim and, if declared invalid, the protection afforded to the product, branding or marketing
material will be lost.
Moreover,
the future interpretation of intellectual property law regarding the validity of intellectual property by governmental agencies
or courts in the United States, Canada, Europe or other jurisdictions in which EEG has rights could negatively affect the validity
or enforceability of the Company’s current or future intellectual property. This could have multiple negative impacts including,
without limitation, the marketability of, or anticipated revenue from, certain of EEG’s products. Additionally, due to the
differences in foreign patent, trademark, copyright and other laws concerning proprietary rights, the Company’s intellectual
property may not receive the same degree of protection in foreign countries as it would in the United States, Canada, or Europe.
The Company’s failure to possess, obtain or maintain adequate protection of its intellectual property rights for any reason
in these jurisdictions could have a material adverse effect on its business, results of operations and financial condition.
Furthermore,
infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and
the Company may not have the financial and human resources to defend itself against any infringement suits that may be brought
against EEG. Litigation can also distract management from day-to-day operations of the business.
In
addition, the Company’s business is dependent in part on the intellectual property of third-parties. For example, the Company
licenses intellectual property from third parties for use in its gaming products. The future success of the Company may depend
upon its ability to obtain licenses to use new and existing intellectual property and its ability to retain or expand existing
licenses for certain products. If the Company is unable to obtain new licenses or renew or expand existing licenses, it may be
required to discontinue or limit its use of such products that use the licensed marks and its financial condition, operating results
or prospects may be harmed.
The
failure to enforce and maintain our intellectual property rights could enable others to use trademarks used by our business which
could adversely affect the value of the Company.
The
success of our business depends on our continued ability to use our existing tradenames in order to increase our brand awareness.
Argyll owns a European Union registered trade mark for its SportNation brand. As of the date hereof, we do not have any federally
registered trademarks owned by us in relation to the Vie.gg brand, but we plan to pursue registered trademarks for Vie.gg and
the Esports Entertainment Group. The unauthorized use or other misappropriation of any of the foregoing trademarks or tradenames
could diminish the value of our business which would have a material adverse effect on our financial condition and results of
operation.
Compromises
of the Company’s systems or unauthorized access to confidential information or EEG’s customers’ personal information
could materially harm EEG’s reputation and business.
EEG
collects and stores confidential, personal information relating to its customers for various business purposes, including marketing
and financial purposes, and credit card information for processing payments. For example, the Company handles, collects and stores
personal information in connection with its online gaming products. The Company may share this personal and confidential information
with vendors or other third parties in connection with processing of transactions, operating certain aspects of EEG’s business
or for marketing purposes. The Company’s collection and use of personal data is governed by federal, state and provincial
laws and regulations as well as the applicable laws and regulations in other countries in which it operates. Privacy law is an
area that changes often and varies significantly by jurisdiction. EEG may incur significant costs in order to ensure compliance
with the various privacy requirements. In addition, privacy laws and regulations may limit EEG’s ability to market to its
customers.
EEG
intends to assess and monitor the security of collection, storage and transmission of customer information on an ongoing basis.
EEG intends to utilize commercially available software and technologies to monitor, assess and secure its network. However, the
systems currently intended for transmissions and approval of payment card transactions, and the technology utilized in payment
cards themselves, all of which can put payment card data at risk, are determined and controlled by the payment card industry,
not EEG. Although EEG intends to take steps designed to safeguard its customers’ confidential personal information, its
network and other systems and those of third parties, such as service providers, could be compromised by a third-party breach
of EEG’s system’s security or that of a third-party provider or as a result of purposeful or accidental actions of
third parties, EEG’s employees or those employees of a third party. Advances in computer and software capabilities and encryption
technology, new tools and other developments may increase the risk of such a breach. As a result of any security breach, customer
information or other proprietary data may be accessed or transmitted by or to a third party. Despite these measures, there can
be no assurance that EEG is adequately protecting its customers’ information.
Any
loss, disclosure or misappropriation of, or access to, customers’ or other proprietary information or other breach of EEG’s
information security could result in legal claims or legal proceedings, including regulatory investigations and actions, or liability
for failure to comply with privacy and information security laws, including for failure to protect personal information or for
misusing personal information, which could disrupt EEG’s operations, damage its reputation and expose it to claims from
its customers, financial institutions, regulators, payment card associations, employees and other persons, any of which could
have a material adverse effect on EEG’s business, revenues, financial conditions and operations.
Service
interruptions of internet service providers could impair the Company’s ability to carry on its business.
Most
of the Company’s customers will rely on internet service providers to allow the Company’s customers and servers to
communicate with each other. If internet service providers experience service interruptions, communications over the internet
may be interrupted and impair the Company’s ability to carry on business. In addition, the Company’s ability to process
e-commerce transactions depends on bank processing and credit card systems. In order to prepare for system problems, the Company
intends to continuously seek to strengthen and enhance its planned facilities and the capability of its system infrastructure
and support. Nevertheless, any system failure as a result of reliance on third parties, including network, software or hardware
failure, which causes a delay or interruption in the Company’s online services and products and e-commerce services, could
have a material adverse effect on the Company’s business, revenues, operating results and financial condition.
There
is a risk that the Company’s network systems will be unable to meet the growing demand for its online products.
The
growth of internet usage has caused frequent interruptions and delays in processing and transmitting data over the internet. There
can be no assurance that the internet infrastructure or the Company’s own network systems will be able to meet the demand
placed on it by the continued growth of the internet, the overall online gaming and interactive entertainment industry and the
Company’s customers.
The
internet’s viability as a medium for products and services offered by the Company could be affected if the necessary infrastructure
is not sufficient, or if other technologies and technological devices eclipse the internet as a viable channel.
End-users
of the Company’s products and services will depend on internet service providers and the Company’s system infrastructure
(or those of its licensed partners) for access to the Company’s or its licensees’ products and services. Many of these
services have experienced service outages in the past and could experience service outages, delays and other difficulties due
to system failures, stability or interruption.
Systems,
network or telecommunications failures or cyber-attacks may disrupt the Company’s business and have an adverse effect on
EEG’s results of operations.
Any
disruption in the Company’s network or telecommunications services could affect the Company’s ability to operate its
games and online offerings, which would result in reduced revenues and customer down time. The Company’s network and databases
of business or customer information, including intellectual property, trade secrets, and other proprietary business information
and those of third parties EEG utilizes, will be susceptible to outages due to fire, floods, power loss, break-ins, cyber-attacks,
hackers, network penetration, data privacy or security breaches, denial of service attacks and similar events, including inadvertent
dissemination of information due to increased use of social media. Despite implementation of network security measures and data
protection safeguards by EEG, including a disaster recovery strategy for back office systems, the Company’s servers and
computer resources will be vulnerable to viruses, malicious software, hacking, break-ins or theft, third-party security breaches,
employee error or malfeasance, and other potential compromises. Disruptions from unauthorized access to or tampering with the
Company’s computer systems, or those of third parties EEG utilizes, in any such event could result in a wide range of negative
outcomes, including devaluation of the Company’s intellectual property goodwill and/or brand appeal, increased expenditures
on data security, and costly litigation, and can have a material adverse effect on the Company’s business, revenues, reputation,
operating results and financial condition.
Malfunctions
of third-party communications infrastructure, hardware and software expose Esports to a variety of risks Esports cannot control.
Our
business will depend upon the capacity, reliability and security of the infrastructure owned by third parties over which our offerings
would be deployed. Esports has no control over the operation, quality or maintenance of a significant portion of that infrastructure
or whether or not those third parties will upgrade or improve their equipment. Esports depends on these companies to maintain
the operational integrity of our connections. If one or more of these companies is unable or unwilling to supply or expand our
levels of service in the future, our operations could be adversely impacted. Also, to the extent the number of users of networks
utilizing our future products and services suddenly increases, the technology platform and secure hosting services which will
be required to accommodate a higher volume of traffic may result in slower response times or service interruptions. System interruptions
or increases in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce
the appeal of the networks to users. In addition, users depend on real-time communications; outages caused by increased traffic
could result in delays and system failures. These types of occurrences could cause users to perceive that our products and services
do not function properly and could therefore adversely affect our ability to attract and retain licensees, strategic partners
and customers.
Risks
Related to Our Common Stock
Our
officers, directors and 5% stockholders may exert significant influence over our affairs, including the outcome of matters requiring
stockholder approval.
As
of the date of this prospectus, our officers, directors 5% stockholders collectively have an approximately 48.22% beneficial ownership
of our company. As a result, when acting together, such individuals will have a controlling influence over the election of our
directors and in determining the outcome of any corporate action, including corporate actions requiring stockholder approval,
such as: (i) a merger or a sale of our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to
our articles of incorporation and bylaws. This concentration of voting power and influence could have a significant effect in
delaying, deferring or preventing an action that might otherwise be beneficial to our other stockholders and be disadvantageous
to our stockholders with interests different from those individuals. Certain of these individuals also have significant control
over our business, policies and affairs as officers or directors of our company. Therefore, you should not invest in reliance
on your ability to have any control over our company.
We
currently do not intend to pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment
is if the price of our common stock appreciates.
We
currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements
that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve
a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.
You
may experience dilution of your ownership interest due to the future issuance of additional shares of our common stock.
We
are in a capital intensive business and we do not have sufficient funds to finance the growth of our business or to support our
projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including
sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative
costs of our business. We may in the future issue our previously authorized and unissued securities, resulting in the dilution
of the ownership interests of holders of our common stock. We are currently authorized to issue 500,000,000 shares of common stock
and 10,000,000 shares of preferred stock. Additionally, the Board may subsequently approve increases in authorized common stock.
The potential issuance of such additional shares of common or preferred stock or convertible debt may create downward pressure
on the trading price of our common stock. We may also issue additional shares of common stock or other securities that are convertible
into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other
business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that
such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of
our common shares could make it more difficult to raise funds through future offerings of our common shares or securities convertible
into common shares.
Our
amended and restated certificate of incorporation allows for our board of directors to create new series of preferred stock without
further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our common
stock.
Our
authorized capital includes preferred stock issuable in one or more series. Our board has the authority to issue preferred stock
and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend
rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The
issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions
and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our
outstanding voting securities, which could deprive our holders of common stock of a premium that they might otherwise realize
in connection with a proposed acquisition of our company.
If
and when a larger trading market for our securities develops, the market price of such securities is still likely to be highly
volatile and subject to wide fluctuations, and you may be unable to resell your securities at or above the price at which you
acquired them.
The
stock market in general and the market for smaller health service companies in particular have experienced extreme volatility
that has often been unrelated to the operating performance of particular companies. The market price for our securities may be
influenced by many factors that are beyond our control, including, but not limited to:
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variations
in our revenue and operating expenses;
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market
conditions in our industry and the economy as a whole;
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actual
or expected changes in our growth rates or our competitors’ growth rates;
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developments
or disputes concerning patent applications, issued patents or other proprietary rights;
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developments
in the financial markets and worldwide or regional economies;
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variations
in our financial results or those of companies that are perceived to be similar to us;
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announcements
by the government relating to regulations that govern our industry;
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sales
of our common stock or other securities by us or in the open market;
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changes
in the market valuations of other comparable companies;
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general
economic, industry and market conditions; and
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the
other factors described in this “Risk Factors” section.
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The
trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these
events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities.
In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention
and resources, which could materially and adversely affect our business, operating results and financial condition.
Efforts
to comply with the applicable provisions of Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance
with Section 404 of the Sarbanes-Oxley Act may adversely affect us and the market price of our common stock.
Under
current SEC rules, we have been required to report on our internal control over financial reporting pursuant to Section 404 of
the Sarbanes-Oxley Act, or Section 404, and related rules and regulations of the SEC. We will be required to review on an annual
basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our
internal control over financial reporting. This process may result in a diversion of management’s time and attention and
may involve significant expenditures. We have not maintained internal control over financial reporting in a manner that meets
the standards of publicly traded companies required by Section 404 of the Sarbanes-Oxley Act of 2002. The rules governing the
standards that must be met for our evaluation management to assess our internal control over financial reporting are complex and
require significant documentation, testing and possible remediation. We might encounter problems or delays in completing the implementation
of any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot favorably
assess the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial information
and the price of our common stock could decline.
If
securities or industry analysts do not publish or cease publishing research or reports about us, or publish inaccurate or unfavorable
reports about, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price
and trading volume could decline.
The
trading market for our common stock, to some extent, will be influenced by the research and reports that industry or securities
analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts.
Our
internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley
Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
We
have not maintained internal control over financial reporting in a manner that meets the standards of publicly traded companies
required by Section 404 of the Sarbanes-Oxley Act of 2002. The rules governing the standards that must be met for our management
to assess our internal control over financial reporting are complex and require significant documentation, testing and possible
remediation. We might encounter problems or delays in completing the implementation of any changes necessary to make a favorable
assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control
over financial reporting, investors could lose confidence in our financial information and the price of our common stock could
decline.
Anti-takeover
provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may
affect the trading price of our common stock and warrants.
We
are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay or prevent a change
in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years
after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control
over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:
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authorize
the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover
attempt;
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provide
that vacancies on our board of directors, including newly created directorships, may be filled by a majority vote of directors
then in office;
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place
restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings
of stockholders may be called by our stockholders; do not provide stockholders with the ability to cumulate their votes; and
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provide
that our board of directors or a majority of our stockholders may amend our bylaws.
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Risks Related to this Offering
Since we have broad discretion in
how we use the proceeds from this offering, we may use the proceeds in ways with which you disagree.
We have not allocated specific amounts
of the net proceeds from this offering for any specific purpose, other than we plan to use such net proceeds for working capital,
general corporate purposes and in furtherance of our corporate strategy which may include strategic acquisitions. Accordingly,
our management will have flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our
management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision,
to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that
does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material
adverse effect on our business, financial condition, operating results and cash flow.
Our stock price is volatile, and
your investment may suffer a decline in value.
The closing market price for our common
stock has varied between a high of $18.30 on February 10, 2021, and a low of $2.63 on March 23, 2020, in the twelve-month period
ended February 12, 2021. As a result of fluctuations in the price of our common stock, you may be unable to sell your shares at
or above the price you paid for them. The market price of our common stock is likely to continue to be volatile and subject to
significant price and volume fluctuations in response to market, industry and other factors, including the risk factors described
under the section captioned “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December
31, 2019, our subsequent Quarterly Reports on Form 10-Q and our subsequent Current Reports on Form 8-K, as applicable, all of
which are incorporated by reference in this prospectus supplement in their entirety. The market price of our common stock may
also be dependent upon the valuations and recommendations of the analysts who cover our business. If the results of our business
do not meet these analysts’ forecasts, the expectations of investors or the financial guidance we provide to investors in
any period, the market price of our common stock could decline.
In addition, the stock markets in general
have experienced significant volatility that has often been unrelated to the financial condition or results of operations of particular
companies. These broad market fluctuations may adversely affect the trading price of our common stock and, consequently, adversely
affect the price at which you could sell the shares that you purchase in this offering. In the past, following periods of volatility
in the market or significant price declines, securities class-action litigation has often been instituted against companies. Such
litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources,
which could materially and adversely affect our business, financial condition, results of operations and growth prospects.
Sales of our common stock or other
securities, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if
our business is doing well.
Sales of substantial amounts of our common
stock or other securities, or the perception that these sales may occur, could materially and adversely affect the price of our
common stock and could impair our ability to raise capital through the sale of additional equity securities.
For example, the registration statement
that this prospectus supplement forms a part of allows us to issue any combination of our common stock, preferred stock, warrants,
units, debt securities and subscription rights from time to time until expiry in February 5, 2024 for an aggregate offering price
of up to $100 million, subject to certain limitations.
Depending on a variety of factors, including
market liquidity of our common stock, the sale of shares under this prospectus supplement may cause the trading price of our common
stock to decline given the amount of shares of common stock that is issued or issuable. The sale of a substantial number of shares
of our common stock under this prospectus supplement, or the anticipation of such sales, could cause the trading price of our
common stock to decline or make it more difficult for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise desire.
We may issue debt and equity securities
or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation,
which could negatively affect the value of our common stock.
In the future, we may attempt to increase
our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or
by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term
notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable
for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive
distributions of our available assets before distributions to the holders of our common stock. Because our decision to incur debt
and issue securities in future offerings may be influenced by market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future offerings or debt financings. Further, market conditions could
require us to accept less favorable terms for the issuance of our securities in the future.
If our common stock is delisted, market
liquidity for our common stock could be severely affected and our stockholders’ ability to sell their shares of our common
stock could be limited. A delisting of our common stock from Nasdaq would negatively affect the value of our common stock. A delisting
of our common stock could also adversely affect our ability to obtain financing for our operations and could result in the loss
of confidence in our company.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our Common Stock and do not currently anticipate paying cash dividends in the
foreseeable future. We currently intend to retain our future earnings, if any, for use in our business and therefore do not anticipate
paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
USE
OF PROCEEDS
Based
upon the public offering price of $15.00 per share of Common Stock, we estimate that the net proceeds from the sale of the shares
of Common Stock offered under this prospectus supplement, after deducting placement agents’ fees and commissions and estimated
offering expenses payable by us will be approximately $27,965,000
We
intend to use the net proceeds from this offering for working capital and general corporate purposes including but not limited
to strategic acquisitions. Investors are cautioned, however, that expenditures may vary substantially from these uses. Investors
will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of
this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of cash
generated by our operations, the amount of competition we face and other operational factors. We may find it necessary or advisable
to use portions of the proceeds from this offering for other purposes.
DILUTION
A
purchaser of our shares of our common stock in this offering will be diluted immediately to the extent of the difference between
the offering price per share and the as adjusted net book value per share of our common stock upon closing of this offering.
Our historical net book value as of December 31, 2020, was $13,982,181, or approximately $1.03 per share of outstanding common
stock, based on 13,579,894 shares of common stock outstanding as of December 31, 2020. Net book value per share of our common
stock is determined at any date by subtracting total liabilities from the amount of total assets, and dividing this amount by
the number of shares of common stock deemed to be outstanding as of that date.
After
giving effect to the sale of 2,000,000 shares of our common stock at the offering price of $15.00 per share to this offering,
our as adjusted net book value as of December 31, 2020 would have been approximately $43,982,181, or approximately $2.82
per share of outstanding common stock. This amount represents an immediate increase in net book value of $1.79 per share of our
common stock to our existing stockholders and an immediate dilution of $12.18 per share of our common stock to new investors purchasing
securities in this offering, as illustrated in the following table:
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Public offering price per share
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$
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15
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Net book value per share as of December 31, 2020
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$
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1.03
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Increase in net book value per share in this offering
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$
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1.79
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Adjusted net book value per share as of December 31, 2020
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$
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2.82
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Dilution per share to new investors
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$
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12.18
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The
foregoing table does not take into account further dilution to new investors that could occur upon the exercise of outstanding
options having a per share exercise price less than the per share offering price to the public in this offering.
The
foregoing table excludes the following as of February 15, 2021:
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457,009
shares issuable upon the exercise of outstanding stock options;
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683,854 shares reserved for future issuances under our
equity compensation plans; and
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3,502,930
shares of common stock issuable upon the exercise of outstanding warrants
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DESCRIPTION
OF SECURITIES WE ARE OFFERING
In
this offering, we are offering a maximum of 2,000,000 shares of our common stock. The material terms and provisions of our common
stock are described under the caption “Description of Capital Stock” starting on page 12 of the accompanying base
prospectus.
PLAN
OF DISTRIBUTION
Maxim
Group LLC and Joseph Gunnar & Co. LLC, which we refer to herein as the placement agents, have agreed to act as our exclusive
placement agents in connection with this offering subject to the terms and conditions of the placement agency agreement dated
February 11, 2021. The placement agents are not purchasing or selling any of the shares of our common stock offered by this prospectus
supplement, nor are they required to arrange the purchase or sale of any specific number or dollar amount of shares of our Common
Stock but have agreed to use reasonable best efforts to arrange for the sale of all of the shares of our Common Stock offered
hereby. We entered into a share purchase agreement, dated February 11, 2021 (the “Purchase Agreement”), directly with
the institutional investors in connection with this offering for the sale of an aggregate of 2,000,000 shares of common stock
at an offering price of $15.00 per share. We may not sell the entire amount of shares of our common stock offered pursuant to
this prospectus supplement. We will make offers only to a limited number of qualified institutional buyers and accredited investors.
The placement agents may retain sub-agents and selected dealers in connection with this offering.
We
have agreed to indemnify the placement agents against specified liabilities, including liabilities under the Securities Act, and
to contribute to payments the placement agents may be required to make in respect thereof.
We
expect to deliver the shares being offered pursuant to this prospectus supplement on or about February 16, 2021.
Fees
and Expenses
We
have agreed to pay the placement agents a cash fee equal to 6.5% of the aggregate purchase price of the shares of our common stock
sold in this offering. The following table shows the per share and total cash placement agents’ fees we will pay to the
placement agents in connection with the sale of the shares of our common stock offered pursuant to this prospectus supplement
and the accompanying prospectus, assuming the purchase of all of the shares offered hereby.
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Per Share
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Total
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Public offering price
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$
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15.00
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$
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30,000,000
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Placement Agents’ fees
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$
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0.975
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$
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1,950,000
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Proceeds, before expenses, to us
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$
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14.025
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$
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28,050,000
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We
estimate that the total expenses of the offering payable by us, excluding the placement agents’ fees, will be approximately
$710,000.00, which includes, among other items, up to $85,000 of legal fees and expenses that we have agreed to reimburse the
placement agents in connection with this offering.
Roth
Capital Partners acted as a financial advisor to us in connection with the offering and will receive a financial advisory fee
of 1.5% of the gross proceeds of this offering in connection therewith. Roth Capital Partners is not engaged in, nor affiliated
with, any entity that is engaged in, the solicitation or distribution of this offering.
Each
of the placement agents may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any
commissions received by it and any profit realized on the resale of the securities sold by it while acting as principal might
be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the placement agents would
be required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4)
under the Securities Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing
of purchases and sales of shares of common stock by the placement agents acting as principal. Under these rules and regulations,
the placement agents:
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may not engage in any stabilization activity in connection with our securities; and
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may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other
than as permitted under the Exchange Act, until it has completed its participation in the distribution.
This
prospectus supplement and the accompanying prospectus may be made available in electronic format on websites or through other
online services maintained by the placement agents or their affiliates. Other than this prospectus supplement and the accompanying
prospectus, the information on the placement agents’ website and any information contained in any other website maintained
by the placement agents is not part of this prospectus supplement and the accompanying prospectus or the registration statement
of which this prospectus supplement and the accompanying prospectus form a part, has not been approved and/or endorsed by us or
the placement agents, and should not be relied upon by investors.
The foregoing does not purport to be a complete
statement of the terms and conditions of the placement agents’ engagement agreement and the Purchase agreement. A
copy of the Purchase agreement is included as an exhibit to our Current Report on Form 8-K that will be filed with the
SEC and incorporated by reference into the registration statement of which this prospectus supplement and the accompanying prospectus
form a part. See “Information Incorporated by Reference” and “Where You Can Find More Information.”
No action has been or will be taken in any
jurisdiction (except in the United States) that would permit a public offering of the shares offered by this prospectus
supplement and accompanying prospectus, or the possession, circulation or distribution of this prospectus supplement and accompanying
prospectus or any other material relating to us or the shares offered hereby in any jurisdiction where action for that
purpose is required. Accordingly, the shares offered hereby may not be offered or sold, directly or indirectly, and neither
of this prospectus supplement and accompanying prospectus nor any other offering material or advertisements in connection with
the shares offered hereby may be distributed or published, in or from any country or jurisdiction except in compliance with any
applicable rules and regulations of any such country or jurisdiction. The placement agents may arrange to sell shares offered
by this prospectus supplement and accompanying prospectus in certain jurisdictions outside the United States, either directly
or through affiliates, where they are permitted to do so.
Lock-Ups, Post-Closing Investments and
Variable Rate Transaction Prohibition
Pursuant
to the Purchase Agreement, subject to certain exceptions (“Exempt Issuances”), we have agreed not to (i) issue, enter
into any agreement to issue or announce the issuance or proposed issuance of any shares of our common stock or securities convertible
into our common stock or (ii) file any registration statement or any amendment or supplement thereto, other than this prospectus
supplement or a registration statement on Form S-8, until sixty (60) days after the closing of this offering. Pursuant to the
Purchase Agreement, we have also agreed to not to enter into any “variable rate transactions” as defined in the Purchase
Agreement for a period of sixty (60) days after the closing of this offering.
In
addition, provided that the Purchase Agreement is consummated, in the event investors introduced to the Company by any of the
placement agents in connection with this offering subsequently provides the Company capital via any transaction during the period
commencing on the date hereof and ending twelve months after the Closing Date, the Company shall pay the applicable placement
agent a cash fee of 6.5% of the gross proceeds of any such investments.
In
addition, each of our directors and executive officers has entered into a lock-up agreements. Under the lock-up agreements, the
directors and executive officers may not, directly or indirectly, sell, offer to sell, contract or agree to sell, or grant any
option for the sale (including any short sale), grant any security interest in, pledge, hypothecate, hedge, establish an open
“put equivalent position” (within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act), or otherwise dispose of, or enter into any transaction which is designed to or could be expected to result
in the disposition of, any shares of our common stock or securities convertible into or exchangeable for shares of our common
stock, or publicly announce any intention to do any of the foregoing, without the prior written consent of the placement agents,
for a period of 90 days from the closing date of this offering. These restrictions on future dispositions by our directors and
executive officers are subject to exceptions for (i) one or more bona fide gift transfers of securities to immediate family members
(as defined in Item 404(a) of Regulation S-K under the Exchange Act) who agree to be bound by these restrictions and (ii) transfers
of securities to one or more trusts for bona fide estate planning purposes.
Other
Relationships
The
placement agents and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial
dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary
fees and commissions for these transactions.
Transfer Agent
The transfer agent and registrar for our common stock is VStock
Transfer, LLC with an address at 18 Lafayette Pl, Woodmere, NY 11598.
LEGAL
MATTERS
The
validity of the securities offered hereby has been passed upon for us by Lucosky Brookman LLP. Littman Krooks LLP, New York, New
York is acting as counsel to the placement agents.
EXPERTS
The
consolidated balance sheet of Esports Entertainment Group, Inc. for the years ended June 30, 2020 and June 30, 2019, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended,
have been audited by Rosenberg Rich Baker Berman P.A., an independent registered public accounting firm, as set forth in its report
appearing herein and are included in reliance upon such report given on the authority of said firm as experts in accounting and
auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S-3 under the Securities Act with respect to the shares of Common Stock
we are offering under this prospectus supplement. This prospectus supplement and the accompanying prospectus do not contain all
of the information set forth in the registration statement and the exhibits to the registration statement. We file annual, quarterly
and special reports, proxy statements and other information with the SEC. You may read and copy any documents that we have filed
with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website
at http://www.sec.gov. We also maintain a website at www.esportsentertainmentgroup.com. You may access these materials free of
charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained
on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual
reference only. You may also inspect these documents at our corporate headquarters at 3/14 Penthouse Office, Mannarino Road Birkirkara,
Malta, BKR 9080 356 2713 1276, during normal business hours.
This
prospectus supplement and accompanying prospectus are part of a registration statement (and amendments thereto) that we filed
with the SEC. This prospectus supplement and any subsequent prospectus supplements do not contain all of the information in the
registration statement as permitted by the rules and regulations of the SEC. You can obtain a copy of the registration statement
from the SEC at the address listed above or from the SEC’s web site listed above.
INFORMATION
INCORPORATED BY REFERENCE
The
SEC’s rules allow us to “incorporate by reference” information into this prospectus, which means that we can
disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this prospectus, and subsequent information that we file with the SEC will automatically
update and supersede that information. Any statement contained in a previously filed document incorporated by reference will be
deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus
modifies or replaces that statement.
We
incorporate by reference our documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act” in this prospectus,
between the date of this prospectus and the termination of the offering of the securities described in this prospectus. We are
not, however, incorporating by reference any documents or portions thereof, whether specifically listed below or filed in the
future, that are not deemed “filed” with the SEC, including any information furnished pursuant to Items 2.02 or 7.01
of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.
This
prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously
been filed with the SEC:
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Our
Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on October 1, 2020;
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Our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 16, 2020;
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Our
Current Reports on Form 8-K and/or 8-K/A filed with the SEC on August 6, 2020, October 16, 2020, November 24, 2020, December
8, 2020, December 17, 2020, and January 22, 2021; and
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The
description of our Common Stock contained in our Registration Statement on Form S-8, filed with the SEC on November 25, 2020,
as amended, and any amendment or report filed with the SEC for the purpose of updating the description.
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All
reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering, including all such documents we may file with the SEC after the date of the initial registration
statement and prior to the effectiveness of the registration statement, but excluding any information furnished to, rather than
filed with, the SEC, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from
the date of the filing of such reports and documents.
You
may request a free copy of any of the documents incorporated by reference in this prospectus (other than exhibits, unless they
are specifically incorporated by reference in the documents) by writing or telephoning us at the following address:
Esports
Entertainment Group, Inc.
13/14
Penthouse Office, Mannarino Road
Birkirkara,
Malta, BKR 9080
356
2713 1276
Exhibits
to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus
and any accompanying prospectus supplement.
PROSPECTUS
ESPORTS
ENTERTAINMENT GROUP, INC.
$100,000,000
Common
Stock
Preferred
Stock
Debt
Securities
Warrants
Rights
Units
We
may offer and sell up to $100 million in the aggregate of the securities identified above from time to time in one or more offerings.
This prospectus provides you with a general description of the securities.
Each
time we offer and sell securities, we will provide a supplement to this prospectus that contains specific information about the
offering and the amounts, prices and terms of the securities. The supplement may also add, update or change information contained
in this prospectus with respect to that offering. You should carefully read this prospectus and the applicable prospectus supplement
before you invest in any of our securities.
We
may offer and sell the securities described in this prospectus and any prospectus supplement to or through one or more underwriters,
dealers and agents, or directly to purchasers, or through a combination of these methods. If any underwriters, dealers or agents
are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or discount
arrangement between or among them will be set forth, or will be calculable from the information set forth, in the applicable prospectus
supplement. See the sections of this prospectus entitled “About this Prospectus” and “Plan of Distribution”
for more information. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing
the method and terms of the offering of such securities.
INVESTING
IN OUR SECURITIES INVOLVES RISKS. SEE THE “RISK FACTORS” ON PAGE 11 OF THIS PROSPECTUS AND ANY SIMILAR SECTION
CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our
common stock and Unit A Warrants are quoted for trading on The NASDAQ Capital Market under the symbols “GMBL” and
“GMBLW”, respectively. On January 22, 2021, the last reported sale price of our common stock and Unit A Warrants on
The NASDAQ Capital Market was $7.47, and $4.33, per share, and Unit A Warrant, respectively.
The
aggregate market value of our outstanding common stock held by non-affiliates is $77,654,751.25 based on 14,186,740 shares of
outstanding common stock, of which 4,294,415 are held by affiliates, and a per share price of $7.85 based on the closing sale
price of our common stock on January 20, 2020. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell our
common stock in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period
so long as our public float remains below $75,000,000. We have not offered any securities pursuant to General Instruction I.B.6.
of Form S-3 during the prior 12 calendar month period that ends on and includes the date of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The
date of this prospectus is , 2021.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, using
a “shelf” registration process. By using a shelf registration statement, we may sell securities from time to time
and in one or more offerings up to a total dollar amount of $100 million as described in this prospectus. Each time that we offer
and sell securities, we will provide a prospectus supplement to this prospectus that contains specific information about the securities
being offered and sold and the specific terms of that offering. The prospectus supplement may also add, update or change information
contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus
and the applicable prospectus supplement, you should rely on the prospectus supplement. Before purchasing any securities, you
should carefully read both this prospectus and the applicable prospectus supplement, together with the additional information
described under the heading “Where You Can Find More Information; Incorporation by Reference.”
We
have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We will not make an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. You should assume that the information appearing in this prospectus and the applicable prospectus supplement
to this prospectus is accurate as of the date on its respective cover, and that any information incorporated by reference is accurate
only as of the date of the document incorporated by reference, unless we indicate otherwise. Our business, financial condition,
results of operations and prospects may have changed since those dates.
When
we refer to “Esports,” “EEG,” “we,” “our,” “us” and the “Company”
in this prospectus, we mean Esports Entertainment Group, Inc., unless otherwise specified. When we refer to “you,”
we mean the holders of the applicable series of securities.
WHERE
YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Available
Information
We
file reports, proxy statements and other information with the SEC. Information filed with the SEC by us can be inspected and copied
at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of
this information by mail from the Public Reference Room of the SEC at prescribed rates. Further information on the operation of
the SEC’s Public Reference Room in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a web site that contains reports, proxy and information statements and other information about issuers, such as us, who file electronically
with the SEC. The address of that website is http://www.sec.gov.
Our
website address is https://esportsentertainmentgroup.com. The information on our website, however, is not, and should not
be deemed to be, a part of this prospectus.
This
prospectus and any prospectus supplement are part of a registration statement that we filed with the SEC and do not contain all
of the information in the registration statement. The full registration statement may be obtained from the SEC or us, as provided
below. Forms of the documents establishing the terms of the offered securities are or may be filed as exhibits to the registration
statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is
qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a more
complete description of the relevant matters. You may inspect a copy of the registration statement at the SEC’s Public Reference
Room in Washington, D.C. or through the SEC’s website, as provided above.
Incorporation
by Reference
The
SEC’s rules allow us to “incorporate by reference” information into this prospectus, which means that we can
disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this prospectus, and subsequent information that we file with the SEC will automatically
update and supersede that information. Any statement contained in a previously filed document incorporated by reference will be
deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus
modifies or replaces that statement.
We
incorporate by reference our documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act” in this prospectus,
between the date of this prospectus and the termination of the offering of the securities described in this prospectus. We are
not, however, incorporating by reference any documents or portions thereof, whether specifically listed below or filed in the
future, that are not deemed “filed” with the SEC, including any information furnished pursuant to Items 2.02 or 7.01
of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.
This
prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously
been filed with the SEC:
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Our
Annual Report on Form 10-K for the year ended June 30, 2020, filed with the SEC on October 1, 2020;
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Our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 16, 2020;
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Our
Current Reports on Form 8-K and/or 8-K/A filed with the SEC on August 6, 2020, October 16, 2020, November 24, 2020, December
8, 2020, December 17, 2020, and January 22, 2021; and
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The
description of our Common Stock contained in our Registration Statement on Form S-8, filed with the SEC on November 25, 2020,
as amended, and any amendment or report filed with the SEC for the purpose of updating the description.
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All
reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering, including all such documents we may file with the SEC after the date of the initial registration
statement and prior to the effectiveness of the registration statement, but excluding any information furnished to, rather than
filed with, the SEC, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from
the date of the filing of such reports and documents.
You
may request a free copy of any of the documents incorporated by reference in this prospectus (other than exhibits, unless they
are specifically incorporated by reference in the documents) by writing or telephoning us at the following address:
Esports
Entertainment Group, Inc.
13/14
Penthouse Office, Mannarino Road
Birkirkara,
Malta, BKR 9080
356
2713 1276
Exhibits
to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus
and any accompanying prospectus supplement.
THE
COMPANY
Corporate
History
Esports
Entertainment Group, Inc. was formed in the State of Nevada on July 22, 2008 under our prior name Virtual Closet, Inc. Virtual
Closet, Inc. changed its name to DK Sinopharma, Inc. on June 6, 2010. DK Sinopharma, Inc. changed its name to VGambling, Inc.
on August 12, 2014. On or about April 24, 2017, VGambling, Inc. changed its name to Esports Entertainment Group, Inc. Our company
was engaged in a number of different enterprises up until May 20, 2013, when, pursuant to the terms of the Share Exchange Agreement,
we acquired all of the outstanding capital stock of H&H Arizona Corporation in exchange for 3,333,334 shares of our common
stock. From May 2013 until August 2018, our operations were limited to designing, developing and testing our wagering systems.
We launched our online esports wagering website (www.vie.gg) in August 2018.
Business
Overview
Esports
is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form
of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter and multiplayer online battle
arena games. During 2020, the three largest selling esports games were Dota 2, League of Legends (each multiplayer online
battle arena games) and Counter Strike: Global Offensive (a first-person shooter game). Other popular games include Smite,
StarCraft II, Call of Duty¸ Heroes of the Storm, Hearthstone and Fortnite. Esports also
includes games which can be played, primarily by amateurs, in multiplayer competitions on the Sony PlayStation, Microsoft Xbox
and Nintendo Switch. Most major professional esports events and a wide range of amateur esports events are broadcast live via
streaming services including twitch.tv, azubu.tv, ustream.tv and youtube.com.
We
are an esports entertainment and online gambling company primarily focused on three verticals, (i): esports entertainment, (ii)
esports wagering, and (iii) iGaming and traditional sports betting. We believe focusing on these verticals positions the Company
to take advantage of a trending and expanding marketplace in esports with the rise of competitive gaming as well as the legalization
of online gambling in the United States.
Esports
Entertainment:
Our
esports entertainment vertical includes any activity that we pursue within esports that does not include real-money wagering.
Right now, the main component of this vertical is our skill-based tournament platform. This allows us to engage and monetize players
across 41 states where skill-based gambling is legal as well as create relationships with players that can eventually migrate
to our Vie.gg real-money wagering platform.
Esports
Wagering:
We
intend to be a leader in the large and rapidly growing sector of esports real-money wagering. Our Vie.gg platform offers fans
the ability to wager on professional esports events in a licensed and secure environment. At the current time, under the terms
of our existing Curacao license, we are currently able to accept wagers from residents of over 149 jurisdictions including Canada,
Japan, Germany and South Africa. On April 30, 2020, we received our gaming service license from the Malta Gaming Authority (MGA).
We now expect that residents in a number of European Union member states will be able to place bets on our website. On August
20, 2020, we announced that we entered into a multi-year partnership with Twin River Worldwide Holdings, Inc (NYSE: TRWH) to launch
our proprietary mobile sports betting product in the state of New Jersey. We intend to have our platform live in the state by
the end of the first quarter of 2021.
iGaming
and Traditional Sports Betting:
The
goal of our iGaming and traditional Sports Betting vertical is to provide profitable growth and access to strategic licenses in
jurisdictions that we can cross-sell into our Vie.gg platform. On July 7, 2020, we entered into a stock purchase agreement (the
“Argyll Purchase Agreement”), by and among the Company, LHE Enterprises Limited (“LHE”), and AHG Entertainment,
LLC (“AHG”) whereby, upon closing on July 31, 2020, the Company acquired all of the outstanding capital stock of LHE
and its subsidiaries, (i) Argyll Entertainment AG, (ii) Nevada Holdings Limited and (iii) Argyll Productions Limited (collectively
the “Acquired Companies” or “Argyle”). AHG is licensed and regulated by the UK Gambling Commission and
the Irish Revenue Commissioners to operate online sportsbook and casino sites in the UK and Ireland, respectively. Argyll has
a flagship brand, www.SportNation.bet, as well as two white label brands, www.RedZone.bet and www.uk.Fansbet.com
(collectively the “Argyll Brands”), with over 250K registered players at the end of calendar year 2020.
Competitive
Advantages/Operational Strengths
We
believe the following strengths position us for sustainable growth:
Management
Team and Key Personnel Experience: Our Board includes senior managers with extensive experience in online gambling, esports,
information technology, compliance, regulation, accounting and finance. Our Officers and management include individuals with extensive
experience in online gambling, esports, information technology, marketing, business development, payment processing, compliance,
regulation, accounting, finance and customer service.
Licensed
Technology/Proprietary B2C wagering platform: We have entered into a White Label Services Agreement dated December 12,
2019 (the “Askott Agreement”) with a subsidiary of Askott Entertainment Inc. (“Askott”) whereby Esports
has secured a non-exclusive license to “white label” Askott’s proprietary software and systems as the platform
through which we run our business (the “Platform”). The Platform requires complex code and very skilled development.
Accordingly, we believe the complexity of our Platform offers a higher barrier to entry than standard wagering platforms. Furthermore,
in September 10, 2020, we acquired certain intellectual property assets developed by FLIP Sports (“Flip Sports”).
As part of the acquisition of assets, the Flip employees became employees of Argyll Productions Ltd, a subsidiary of LHE, with
the intention to have them build a best-in-class proprietary esports wagering platform. We believe our proprietary platform will
provide us with a competitive advantage as it offers what we believe to be the widest variety of betting options available for
esports wagering.
Argyll’s
“Rewards” Program: built in-house, and in conjunction with FLIP Sports, provides an industry-leading customer
loyalty program, driving above-industry customer retention rates and player lifetime values. The Program helped earn Argyll the
Innovative Start-up of the Year award, at the 2018 EGR Marketing & Innovation Awards. We believe the platform can be leveraged
across all of our verticals.
Affiliate
Marketing Program: Our affiliate marketing program focuses on professional esports teams and individual social
media influencers. As part of our efforts to market our online gaming services, we attempt to enter into “Affiliate Marketing
Agreements” with professional esports teams and other influential individuals and groups within esports. As an “Marketing
Affiliate”, the esports team will provide their fans with a link to our online gaming website, where the fan, if located
in a country which allows the fan to place a bet using our gaming platform, can bet on teams playing in esports tournaments. For
a player placing a bet through the marketing affiliate’s link to our website and provided such player wins the bet, we pay
the “Marketing Affiliate” a percentage of the amount we collect from the winning bet (typically between 25% - 35%).
Growth
Strategy
In
the future, we intend to:
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expand
our Esports services into more of the 41 states where skill-based gambling is legal, enhance the Product offering, as well
as create relationships with players that will migrate into our Vie.gg real-money wagering platform.
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expand
our Esports Wagering services into more jurisdictions, utilizing the recently acquired MGA gaming license, as well as the
recent multi-year partnership with Twin River Worldwide Holdings, Inc (NYSE: TRWH) to launch our proprietary mobile sports
betting product in the state of New Jersey.
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continue
with our M&A strategy in the iGaming and Traditional Sports Betting space, to acquire profitable Operators in different
jurisdictions, that will also allow for cross-pollination of services (Sportsbook, Casino and Esports).
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Future
Products and Services:
Online
Esports Tournament Play
We
intend to offer players from around the world, including the United States (except in 13 states in the US and other jurisdictions
outside the US which currently prohibit playing games of skill for cash prizes), the ability to enter and participate in online
video game tournaments and win cash prizes. Online esports tournament play consists of two or more people playing against each
other in a game from their personal phones or computers, where such players do not necessarily have to be playing in real time.
These events could be held over the course of a day, a week or even a month and the winner will be the one with the top score
or the fastest time at the conclusion of the event. Cash-based tournaments involving games of skill are not considered gambling
in most U.S. states because the generally accepted definition of gambling involves three specific things: (1) the award of a prize,
(2) paid-in consideration (meaning entrants pay to compete) and (3) an outcome determined on the basis of chance. As a result,
games of skill are not generally subject to the same laws and regulations as our esports event wagering service. We expect participants
in our tournaments being able to enter and play against each other with prize money distributed to the last remaining competitors.
We anticipate collecting a tournament entry fee for our tournaments, as well as a percentage of total winnings that are paid to
users (typically 10% of the entry fees) and thus none of our money will be at risk or otherwise dependent on the outcome. We intend
to offer users a wide selection of video games of skill to be played online for real money in small groups to major tournaments.
The tournament platform will also serve as a tool to help us determine which markets we are finding the most esports players.
We believe using the tournament platform to penetrate the US market will allow us to grow our brand within the esports community
and lead to lower customer-acquisition-costs for our wagering platform.
US
Market Expansion
Currently
we do not offer players in the US the ability to wager on our Vie.gg platform. However, on August 20, 2020, we announced that
we entered into a multi-year partnership with Twin River Worldwide Holdings, Inc (NYSE: TRWH) to launch our proprietary mobile
sports betting product in the state of New Jersey. We intend to have our platform live in the state by the end of the first quarter
of 2021. Following our launch in New Jersey, we intend to evaluate additional jurisdictions in the US that could be commercially
viable for further expansion of our Vie.gg platform.
International
Market Expansion
We
received a Gaming Service License for online pool betting from the Malta Gaming Authority in April 2020, established a brick and
mortar office in such jurisdiction and anticipate commencing online gaming operations in that jurisdiction in 2020, both on the
Vie.gg and Argyll Brands. We expect that residents of a number of both European Union and non-EU countries will be able to place
bets on our website. In the future, we may consider obtaining additional country specific gaming licenses should we determine
there is sufficient local demand for our services in these markets. In order to effectively penetrate international markets, we
intend to translate our website into several additional languages and offer customer service and technical support in the local
language of key markets.
Our
Online Wagering Platforms
According
to Zion Market Research’s, Online Gambling & Betting Market by Game Form (Poker, Casino, Sports Betting, Bingo, Lottery,
Horse Racing Betting, and Others) and by Component (Hardware, Software, and Service): Global Industry Perspective, Comprehensive
Analysis and Forecast, 2017 – 2024, the online gambling market represents one of the fastest growing segments of the gambling
industry. Zion Market estimated the size of the global online gambling market in 2018 was in excess of US$45.8 billion and is
projected to reach US$94.4 billion by 2024.
Although
the Vie.gg brand is focused solely on offering online wagering on the widest range of esports events broadcast from around the
world, the Argyll Brands offer online users traditional casino style games such as poker, craps or slots, as well as offering
online wagering on traditional sporting events such as soccer, horse racing and football.
All
persons 18 years and older can presently place bets on our online gambling website at www.vie.gg except for residents of the United
States and other jurisdictions that the Company is precluded from supplying its services to pursuant to its gaming licenses.
With
respect to our Argyll Brands, wagering is only permitted by customers in the United Kingdom and Republic of Ireland.
On
April 30, 2020, the Company received its Gaming Service License for online pool betting from the Malta Gaming Authority. This
allows residents of certain European Union member countries to place bets on our website.
Once
on our websites, a player can place a bet on a team participating in any number of tournaments which are scheduled to be held
in the upcoming weeks. We also maintain a “how to play” section on the website which provides players with instructional
videos on placing bets as well as other pieces of information that may be beneficial to an inexperienced player or a new user
of our website. Additionally, we maintain a “frequently asked questions” section which provides our customers with
the ability to easily navigate general questions relating to the website, personal account information, payment processing, betting
rules and procedures as well as tips.
We
have agreements with the following third party companies that provide us with certain services that enable our website to function
efficiently:
Money
Matrix. MoneyMatrix provides us with the software we use to receive payments from players. Using MoneyMatrix, a player can
select from over 150 payment options (i.e. Skrill, Astropay) to deposit funds with us for use in placing bets.
Partner
Matrix. Partner Matrix provides us with the software we use to track players placing a bet through an Affiliate’s link
to our website.
Money
Matrix, Partner Matrix are both paid monthly for their services to the Company.
Askott
Entertainment Inc. The Vie.gg Platform is hosted from Askott Entertainment Inc., who provides us with a website hosting subscription,
and provides e-games, development and IT services related to the software interface and web design. We will pay the Askott subsidiary
a percentage on gaming revenues, this percentage varies based on the amount of monthly gaming revenues generated but shall not
exceed twenty-percent (20%) of monthly gaming revenues but gradually decreases based on increased revenues. Additionally, we will
pay Askott a minimum monthly fee of $9,000 EUR for services which amount will be subject to increase based on the number of games
made available on the Platform.
SB
Tech Global – the Argyll Brands use the SB Tech platform to host their websites, and pay a percentage on both Sportsbook
and Casino Gross Gaming revenues, as well as certain hosting and data feed fees.
Marketing
and Sales Initiatives
The
Company has several sponsorship marketing agreements in place for its website as well as an extended marketing agreement with
Dignitas, an esports brand owned by Harris Blitzer sports and entertainment with multiple professional teams playing several titles
with over a million fans worldwide. The Company also has an agreement with Allied Esports to run esports tournaments to promote
the brand globally to esports fans.
We
are looking to expand into new geographic territories by obtaining licenses to operate in those territories. The need for hands-on
implementation in these territories and support will require investment in additional marketing activities, offices, and other
overhead.
We
will also accelerate our expansion if we find complementary businesses that we are able to acquire in other markets. Our marketing
efforts to expand into new territories have included esports team and tournament sponsorship, affiliate marketing, social media
advertising, content creation, and attendance at esports and gaming events in addition to personal contact with other industry
leaders.
Esports
games are played by professional teams, amateur teams, and individuals. Professional esports teams have their own social media
presence, with some of the top professional teams having millions of fans who follow and interact with the team on a regular basis.
A website of a professional esports team usually contains specific information about the team and lists upcoming tournaments or
events in which the team will be participating. As part of our efforts to market our online gaming services, we attempt to enter
into affiliate marketing agreements with professional Esports teams.
As
a marketing affiliate, the esports team will promote our brand in the content they create and on their social media and Website.
The fans will be provided with a link to our online gaming website, where the Fan, if located in a country that allows the fan
to place a bet using our gaming platform, can bet on teams playing in esports tournaments. For a player placing a bet through
the team’s link to our website (and provided the player won the bet), we pay the Affiliate a percentage of the amount we
collect from the winning bet. As of December 1, 2020, we had more than 75 esports teams agreeing to act as our marketing affiliates.
We
plan to increase our marketing efforts and awareness of our websites, www.vie.gg and www.sportnation.bet, as well
as future offerings by:
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Educating
sports betting consumers to bet on esports and we want gamers to start betting on esports.
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Sponsoring
professional esports teams and tournaments that have a global reach.
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Working
with sports and gaming celebrities and social media influencers who have an interest in video games and esports to generate
new customers. We intend to increase our efforts in attracting esports players and other celebrities who have an interest
in video games and esports.
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Using
a multichannel approach focused on acquiring and retaining customers we intend to utilize multiple social media platforms
to promote the Company’s wagering business including, but not limited to, Facebook Twitter, Instagram, Snapchat, TikTok,
Youtube, Twitch, Whatsapp, QQ, WeChat, email and SMS messages and using online advertisements, paid search optimization, and
various social media campaigns to increase our online presence and drive traffic to our website. We intend to increase our
investments in online advertisements, including esports gambling-related websites. We also intend to continue to invest in
optimizing the Company’s website so it will attain a high ranking under key search words or phrases, such as “esports
gambling.”
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Competition
The
online gambling and wagering industry is increasingly competitive. With relatively low barriers to entry, new competitors are
entering the esports wagering and video game tournament segments. In both of these segments, there currently exist several major
competitors. Because many of these competitors focus on delivering one product, as opposed to a full suite of esports and video
gambling products and services that we intend to offer, the competitors may offer an equivalent or superior product to that of
the Company. We expect the number of companies offering products and services in each market segment to increase. Most of our
current competitors, including Unikrn, bet365, William Hill, Betway, and Pinnacle Sports, have far greater resources than we have.
In
the UK, where Argyll is heavily concentrated, the competition in the online gambling industry is extremely competitive. As of
June 2020, the UK Gambling Commission oversaw 3,641 gambling licenses, held by 2,652 gaming operators, which makes competing for
the acquisition and retention of customers, continually challenging.
We
believe the following differentiates us from our competitors:
The
Vie.gg brand is focused solely on esports gambling and 18+ gaming. We will not offer users traditional casino style games like
poker, craps or slots nor do we anticipate offering wagering on traditional sporting events like football or soccer. We are focused
solely on delivering the widest selection of content and offering the widest range of esports events all for real-money wagering.
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Strength
of Argyll proposition:
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With
the industry reaching saturation point with similar offers around bonuses and free bets, often with complex terms and conditions,
Argyll’s vision and ambition was to launch a totally unique in-house product, seamlessly in to SportNation.bet, to provide
customers with an experience like no other, while tackling one of the major challenges that any operator faces; retention. That
product and concept is our Rewards Program.
Argyll’s
Rewards Program offers customers a simple and genuinely rewarding loyalty scheme, where every bet on the site, win, lose or draw,
earns points to redeem into our “Reward Store”. No turnover requirements, no minimum odds conditions, no new customer
or single-use restrictions.
We
have developed an in house, turnover based model to reward customers with points based on their activity. Customers earn points
faster by increasing the number of selections in sportsbook bets, providing an opportunity to increase the rate at which points
are earned.
Customers
are able to select when and how they want to redeem. A customer is not bound to certain activity or staking criteria. A customer
can decide when and what they want to redeem, which could either be frequently, or allowing customers to save for a larger item.
As
an extension to the already unique Rewards offering that SportNation provides its users, a range of product enhancements have
also been integrated in to SportNation, including live streaming, responsible gaming and compliance tools and data driven customized
journeys. All integrations have been designed and developed in house, to align with the feel and tone of the site. By combining
research and insight with the latest technology to implement real time solutions, SportNation offers an innovative, safe and responsible
product that is tailored to each individual user, on and offsite, from registration and throughout their customer lifetime.
Regulations
Affecting our Business
The
offering and operation of online real-money gambling platforms and related software and solutions is subject to extensive regulation
and approval by various national, federal, state, provincial, tribal and foreign agencies (collectively, “gaming authorities”).
Gambling laws require us to obtain licenses or findings of suitability from gaming authorities for Esports Entertainment, including
each of our subsidiaries engaged in these activities, and certain of our directors, officers, employees and in some instances,
significant shareholders (typically beneficial owners of more than 5% of a company’s outstanding equity). The criteria used
by gambling authorities to make determinations as to qualification and suitability of an applicant varies among jurisdictions,
but generally require the submission of detailed personal and financial information followed by a thorough and sometimes lengthy
investigation. Gaming authorities have broad discretion in determining whether an applicant qualifies for licensing or should
be found suitable. Gambling authorities generally look to the following criteria when determining to grant a license or finding
of suitability, including (i) the financial stability, integrity and responsibility of the applicant, (ii) the quality and security
of the applicant’s online real-money platform and gaming equipment and related software, as applicable, and (iii) the past
history of the applicant. Gambling authorities may, subject to certain administrative proceeding requirements, (i) deny an application,
or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, and (ii) fine
any person licensed, registered or found suitable or approved. Notwithstanding the foregoing, some jurisdictions explicitly prohibit
gaming in all or certain forms and we will not market our gambling services in these jurisdictions. If any director, officer or
employee of ours fails to qualify for a license or is found unsuitable (including due to the failure to submit the required documentation)
by a gaming authority, we may deem it necessary, or be required to, sever our relationship with such person, which may include
terminating the employment of any such person. Gambling authorities have the right to investigate any individual or entity having
a material relationship with us, to determine whether such individual or entity is suitable or should be licensed to do business
as a business associate of ours. In addition, certain gambling authorities monitor the activities of the entities they regulate
both in their respective jurisdiction and in other jurisdictions to ensure that these entities are in compliance with local standards
on a worldwide basis.
On
May 14, 2018, the Supreme Court of the United States struck down the Professional and Amateur Sports Protection Act, a 1992 law
that barred state-authorized sports gambling with some exceptions and made Nevada the only state where a person could wager on
the results of a single game. Since the Supreme Court’s decision, sports gambling has commenced in several states and several
more states have enabling legislation pending. We believe that the Supreme Court’s decision will allow our platform to be
used in the United States at some point in the future. We plan to explore expansion of our esports online wagering platform into
the US market place at the appropriate time.
The
Unlawful Internet Gambling Enforcement Act of 2006 (“UIEGA”) made it a federal offense, punishable by up to five years
in prison, for a business to accept payments “in connection with the participation of another person in unlawful internet
gambling.” In support of such new prohibitions, the UIGEA uses a variety of terms — some of which are ambiguous or
undefined. Initially, the UIGEA broadly defines a “bet or wager” as: the staking or risking by any person of something
of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding
that the person or another person will receive something of value in the event of a certain outcome.
Further,
a “bet or wager” specifically includes a chance on a lottery or prize awarded predominantly by chance; a “scheme”
as defined in Title 28, U.S.C. § 3702 relating to government-sponsored amateur or professional sports betting and, “any
instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from, an
account with the business of betting or wagering.” While this final prohibition incorporates the term “business of
betting or wagering,” that term is not specifically defined anywhere in the UIGEA. The only reference to that term comes
in § 5362(2), which states: The term “business of betting or wagering” does not include the activities of a financial
transaction provider, or any interactive computer service or telecommunications service.
Nonetheless,
the law does contain specific prohibitions. In order to establish a violation of the UIGEA, it must be shown that:
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A
“person” was engaged in the business of betting or wagering;
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That
person knowingly accepted a financial instrument or proceeds thereof; and
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3.
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That
instrument was accepted (by the person) in connection with the participation of another person in “unlawful Internet
gambling.”
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In
the context of this statute “unlawful Internet gambling” is defined as follows:
To
place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet
where such bet or wager is unlawful under any applicable Federal or State law in the state or tribal lands in which the bet or
wager is initiated, received, or otherwise made.
Therefore,
the UIGEA only applies to online gambling transactions that are already prohibited by other state, federal, or tribal laws. Therefore,
in order for the financial transaction to be prohibited by § 5363 of the UIGEA, the bet or wager must be “initiated,
received, or otherwise made” in a place where such activity (the bet of wager) violates preexisting state, federal, or tribal
law.
At
the current time, we are able to accept wagers on our vie.gg website from residents of over 149 jurisdictions including Canada,
Japan, Germany and South Africa. We do not accept wagers from United States residents at this time and therefore the bet or wager
on our platform is not “initiated, received, or otherwise made” in a place where such activity violates preexisting
state, federal, or tribal law.
Great
Britain
Betting
and gaming with respect to customers in Great Britain (England, Scotland and Wales, but excluding Northern Ireland, the Channel
Islands and the Isle of Man) is regulated by the Gambling Act 2005 (the “2005 Act”). The 2005 Act established the
Gambling Commission as the regulator responsible for granting licenses to operate gambling services as well as overseeing compliance
with applicable law and regulation. In 2014, the UK Parliament passed the Gambling (Licensing and Advertising) Act 2014, which
required all remote gambling operators serving customers in Great Britain or advertising in Great Britain to obtain a license
from the Gambling Commission. Our Argyll Brands operate in the UK pursuant to remote operating licences issued by the Gambling
Commission along with the separate software and “key personnel” individual licenses. Various additional operating
subsidiaries of EEG are endorsed upon the licenses and are hence authorized to carry out the licensed activities on a so-called
“umbrella” basis in addition to the “primary” licensee. The terms of these operating licenses require
that the relevant subsidiaries of EEG must source all gambling software used in connection with British players from the holder
of a gambling software licenses issued by the Gambling Commission. So long as the applicable license fees are paid and the British
licenses are not suspended, revoked or otherwise surrendered, EEG expects that the licenses will remain valid indefinitely.
British
regulations require licensed companies to file quarterly returns as well as a more extensive “annual assurance statement”
to provide the Gambling Commission with information regarding matters such as significant changes in control systems, risk management
and governance since the last assurance statement, how the licensee is addressing gambling by problem and at-risk customers and
any improvements that the licensee plans to implement to its control systems, risk management and governance and/or its approach
to addressing problem and at-risk gambling and promoting socially responsible gambling. The Gambling Commission also subjects
its licensees to periodical regulatory compliance visits subsequent to which recommendations may be issued to the licensee.
Intellectual
Property
We
have not filed to register any patents, trade names or trademarks in any jurisdictions in relation to our Vie.gg brand, but we
do intend to file applications to register patents, tradenames or trademarks in the near future.
Argyll
owns a European Union registered trade mark for its SportNation brand.
Our
Risks and Challenges
An
investment in our securities involves a high degree of risk. You should carefully consider the risks summarized below. The risks
are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary.
These risks include, but are not limited to, the following:
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We
are a development stage company with a limited operating history.
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The
gaming and interactive entertainment industries are intensely competitive. Esports faces competition from a growing number
of companies and, if Esports is unable to compete effectively, its business could be negatively impacted.
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We
have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable
to achieve or sustain profitability
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The
failure to enforce and maintain our intellectual property rights could enable others to use trademarks used by our business
which could adversely affect the value of the Company.
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The
Company may be subject to claims of intellectual property infringement or invalidity and adverse outcomes of litigation could
unfavorably affect its operating results.
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Compromises
of the Company’s systems or unauthorized access to confidential information or EEG’s customers’ personal
information could materially harm EEG’s reputation and business.
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There
is a risk that the Company’s network systems will be unable to meet the growing demand for its online products.
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Systems,
network or telecommunications failures or cyber-attacks may disrupt the Company’s business and have an adverse effect
on EEG’s results of operations.
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Malfunctions
of third-party communications infrastructure, hardware and software expose Esports to a variety of risks Esports cannot control.
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Recent
Developments
Lucky
Dino Purchase Agreement
On
December 14, 2020, the Company, via its wholly owned subsidiary, Esports Entertainment (Malta) Limited (“EEL”), entered
into an asset purchase agreement (the “Lucky Dino Purchase Agreement”), by and among EEL, Lucky Dino Gaming Limited,
a company registered in Malta (“Lucky Dino”), and Hiidenkivi Estonia OU, a company registered in Estonia (“HEOU”
and, together with Lucky Dino, the “Sellers”) whereby EEL purchased and assumed from the Sellers substantially all
the assets and assumed certain specified liabilities of the Sellers’ business of real money online casino gaming (the “Acquired
Business”).
As
consideration for the Acquired Business, the Company agreed to pay the Sellers EUR €25,000,000 (the “Lucky Dino Purchase
Price”) subject to certain adjustments set forth in the Lucky Dino Purchase Agreement.
The
Lucky Dino Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions
of this nature. The closing of the transactions contemplated by the Lucky Dino Purchase Agreement is subject to certain conditions,
including, among other things, the completion of an audit of Lucky Dino and HEOU.
Phoenix
Purchase Agreement
On
December 17, 2020, the Company entered into a share purchase agreement (the “Purchase Agreement”), by and among the
Company, Phoenix Games Network Limited, a company registered in England and Wales (“Phoenix”), and the shareholders
of Phoenix (the “Phoenix Shareholders” and, together with Phoenix, the “Selling Parties”), whereby the
Company acquired from the Selling Parties all of the issued and outstanding share capital of Phoenix (the “Phoenix Shares”).
Pursuant to the Purchase Agreement, as consideration for the Phoenix Shares, the Company agreed to pay the Sellers: (i) GBP £1,000,000
(the “Original Cash Consideration”); and (ii) shares of common stock of the Company, par value $0.0001 per share,
in the aggregate value of GBP£3,000,000 (the “Original Share Consideration” and, together with the Cash Consideration,
the “Original Purchase Price”), subject to adjustment based on certain revenue milestones as outlined therein.
On
January 21, 2021, the Company and Sellers, having met all conditions precedent, consummated the closing for the Phoenix Shares
pursuant to the terms of the Purchase Agreement. The Original Purchase Price was adjusted at closing and as consideration for
the Phoenix Shares, the Company paid the Sellers: (i) GBP £350,000 (US $493,495.35) (the “Closing Cash Consideration”);
and (ii) 292,211 shares of common stock of the Company, par value $0.0001 per share (aggregate value of $1,927,647.49) (the “Closing
Share Consideration” and, together with the Cash Closing Consideration, the “Closing Purchase Price”). The Closing
Cash Consideration was be paid in US Dollars and was calculated in accordance with the applicable exchange rate on the Closing
Date (as such term is defined in the Purchase Agreement). The Sellers shall remain eligible to receive the remainder of the Original
Purchase Price upon Phoenix meeting the aforementioned Revenue Targets by May 16, 2021.
Pursuant
to the Purchase Agreement, the Selling Parties shall be entitled to receive an additional GBP£2,000,000 if Phoenix has reached
certain revenue milestones by the 18 month anniversary of the Closing Date as further outlined therein.
The
Purchase Agreement contains customary representations, warranties, covenants, indemnification and other terms for transactions
of a similar nature.
RISK
FACTORS
Investment
in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. You should carefully
consider the risk factors incorporated by reference to our Registration Statement on Form S-1, filed with the SEC on June 19,
2020, as amended, our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q or Current Reports
on Form 8-K we file after the date of this prospectus, and all other information contained or incorporated by reference into this
prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained
in the applicable prospectus supplement before acquiring any of such securities. The occurrence of any of these risks might cause
you to lose all or part of your investment in the offered securities.
SPECIAL
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve risks and uncertainties, principally in the sections entitled “Risk
Factors.” All statements other than statements of historical fact contained in this prospectus, including statements regarding
future events, our future financial performance, business strategy and plans and objectives of management for future operations,
are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,”
“believes,” “can,” “continue,” “could,” “estimates,” “expects,”
“intends,” “may,” “plans,” “potential,” “predicts,” “should,”
or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking
statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are
only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk
Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements.
Forward-looking
statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications
of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information
available at the time they are made and/or management’s good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual performance or results to differ materially from what is expressed
in or suggested by the forward-looking statements.
Forward-looking
statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements.
USE
OF PROCEEDS
We
intend to use the net proceeds from the sale of the securities as set forth in the applicable prospectus supplement.
DESCRIPTION
OF CAPITAL STOCK
Introduction
In
the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Nevada
Revised Statutes relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions
of Nevada law and is qualified by reference to our certificate of incorporation and our bylaws. You should read the provisions
of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.
On
January 28, 2020, we effected a 1-for-15 reverse stock split of our outstanding common stock, which caused our then outstanding
common stock to decrease from 93,395,890 to 6,227,006 while keeping our authorized capitalization unchanged.
Authorized
Capital Stock
We
are currently authorized to issue up to 510,000,000 shares of capital stock consisting of: 500,000,000 shares of common stock,
par value $0.001 per share and 10,000,000 shares of preferred stock, par value of $0.001 per share. As of January 21, 2021, 14,186,740
shares of common stock were issued and outstanding and there were no shares of preferred stock outstanding.
Common
Stock
We
are authorized to issue 500,000,000 shares of common stock. Holders of our common stock are each entitled to cast one vote for
each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed; hence, the holders of
a majority of our outstanding common shares can elect all directors.
Holders
of our common stock are entitled to receive such dividends as may be declared by our board of directors out of funds legally available
and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our board
of directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Holders
of our common stock do not have preemptive rights to subscribe to additional shares if issued. There is no conversion, redemption,
sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.
Preferred
Stock
We
are authorized to issue 10,000,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one
or more series as may be determined by our board of directors. The voting powers and preferences, the relative rights of each
such series and the qualifications, limitations and restrictions of each series will be established by the board of directors.
Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends
paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of
management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our
management. As of the date of this prospectus, we had not issued any shares of preferred stock.
Unit
A Warrants
Exercisability.
The Unit A Warrants are exercisable immediately upon issuance and at any time up to the date that is five years from the date
of issuance. The Unit A Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a
duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such
exercise (except in the case of a cashless exercise as discussed below). Unless otherwise specified in the warrant, the holder
will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially
own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise
(or, upon election by a Holder prior to the issuance of any Unit A Warrants, 9.99%), as such percentage ownership is determined
in accordance with the terms of the Unit A Warrants.
Cashless
Exercise. In the event that a registration statement covering shares of common stock underlying the Unit A Warrants, is not
available for the issuance of such shares of common stock underlying the Unit A Warrants, the holder may, in its sole discretion,
exercise the warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to us upon
such exercise in payment of the aggregate exercise price, elect instead to receive upon such exercise the net number of shares
of common stock determined according to the formula set forth in the warrant. In no event shall we be required to make any cash
payments or net cash settlement to the registered holder in lieu of issuance of common stock underlying the Unit A Warrants.
Certain
Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the Unit A Warrants
are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications
of our common stock.
Transferability.
Subject to applicable laws, the Unit A Warrants may be transferred at the option of the holders upon surrender of the Unit
A Warrants to our Transfer Agent together with the appropriate instruments of transfer.
Warrant
Agent and Exchange Listing. The Unit A Warrants will be issued in registered form under a warrant agency agreement between
Vstock Transfer LLC, as warrant agent, and us.
Fundamental
Transactions. If, at any time while the Unit A Warrants are outstanding, (1) we consolidate or merge with or into another
corporation and we are not the surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose
of all or substantially all of our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or another individual
or entity) is completed pursuant to which holders of our shares of common stock are permitted to sell, tender or exchange their
shares of common stock for other securities, cash or property and has been accepted by the holders of 50% or more of our outstanding
shares of common stock, (4) we effect any reclassification or recapitalization of our shares of common stock or any compulsory
share exchange pursuant to which our shares of common stock are converted into or exchanged for other securities, cash or property,
or (5) we consummate a stock or share purchase agreement or other business combination with another person or entity whereby such
other person or entity acquires more than 50% of our outstanding shares of common stock, each a “Fundamental Transaction,”
then upon any subsequent exercise of the Unit A Warrants, the holder thereof will have the right to receive the same amount and
kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction
if it had been, immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon
exercise of the warrant, and any additional consideration payable as part of the Fundamental Transaction.
Rights
as a Stockholder. Except as otherwise provided in the Unit A Warrants or by virtue of such holder’s ownership of shares
of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including
any voting rights, until the holder exercises the warrant.
Beneficial
Ownership Limitation. Holder’s exercise shall be limited 4.99% of the Company’s outstanding common stock (or,
upon election by a Holder prior to the issuance of any Unit A Warrants, 9.99%) of the number of shares of the common stock outstanding
immediately after giving effect to the issuance of shares of common stock issuable upon exercise. The Holder, upon notice to the
Company, may increase or decrease the beneficial ownership limitation provided that the beneficial ownership limitation in no
event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon exercise of the warrant held by the Holder. Any increase in the beneficial ownership limitation will
not be effective until the 61st day after such notice is delivered to the Company.
Governing
Law. The Unit A Warrants and the warrant agency agreement are governed by New York law.
Unit
B Warrants
Exercisability.
The Unit B Warrants are exercisable immediately upon issuance and at any time up to the date that is one year from the date
of issuance. The Unit B Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a
duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such
exercise. Unless otherwise specified in the Unit B Warrant, the holder will not have the right to exercise any portion of the
Unit B Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares
of our common stock outstanding immediately after giving effect to the exercise (or, upon election by a Holder prior to the issuance
of any Unit B Warrants, 9.99%), as such percentage ownership is determined in accordance with the terms of the Unit B Warrants.
Certain
Adjustments. The exercise price and the number of shares of common stock purchasable upon the exercise of the Unit B Warrants
are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications
of our common stock.
Transferability.
Subject to applicable laws, the Unit B Warrants may be transferred at the option of the holders upon surrender of the Unit
B Warrants to our Transfer Agent together with the appropriate instruments of transfer.
Fundamental
Transactions. If, at any time while the Unit B Warrants are outstanding, (1) we consolidate or merge with or into another
corporation and we are not the surviving corporation, (2) we sell, lease, license, assign, transfer, convey or otherwise dispose
of all or substantially all of our assets, (3) any purchase offer, tender offer or exchange offer (whether by us or another individual
or entity) is completed pursuant to which holders of our shares of common stock are permitted to sell, tender or exchange their
shares of common stock for other securities, cash or property and has been accepted by the holders of 50% or more of our outstanding
shares of common stock, (4) we effect any reclassification or recapitalization of our shares of common stock or any compulsory
share exchange pursuant to which our shares of common stock are converted into or exchanged for other securities, cash or property,
or (5) we consummate a stock or share purchase agreement or other business combination with another person or entity whereby such
other person or entity acquires more than 50% of our outstanding shares of common stock, each a “Fundamental Transaction,”
then upon any subsequent exercise of the Unit B Warrants, the holder thereof will have the right to receive the same amount and
kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction
if it had been, immediately prior to such Fundamental Transaction, the holder of the number of warrant shares then issuable upon
exercise of the Unit B Warrant, and any additional consideration payable as part of the Fundamental Transaction.
Rights
as a Stockholder. Except as otherwise provided in the Unit B Warrants or by virtue of such holder’s ownership of shares
of our common stock, the holder of a Unit B Warrant does not have the rights or privileges of a holder of our common stock, including
any voting rights, until the holder exercises the Unit B Warrant.
Beneficial
Ownership Limitation. Holder’s exercise shall be limited 4.99% of the Company’s outstanding common stock (or,
upon election by a Holder prior to the issuance of any Unit B Warrants, 9.99%) of the number of shares of the common stock outstanding
immediately after giving effect to the issuance of shares of common stock issuable upon exercise. The Holder, upon notice to the
Company, may increase or decrease the beneficial ownership limitation provided that the beneficial ownership limitation in no
event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of
shares of common stock upon exercise of the Unit B Warrant held by the Holder. Any increase in the beneficial ownership limitation
will not be effective until the 61st day after such notice is delivered to the Company.
Governing
Law. The Unit B Warrants are governed by New York law.
Unit
1 and Unit 2 Warrants
Upon
consummation of the April 2020 Offering, all the Bridge Notes were mandatorily converted (the “Bridge Note Conversion”).
Pursuant to the terms of the Bridge Purchase Agreements, the Investors received shares of the Company’s common stock at
discount to the April 2020 Offering as well as two warrants (the “Unit 1 Warrants” and “Unit 2 Warrants”)
to purchase shares of Common Stock of the Company, with each to purchase one share of Common Stock with an exercise price per
share of $4.25
The
Unit 1 Warrants are substantially the same as the Unit A Warrants, except that (i) the Unit 1 Warrants are not traded on the Nasdaq;
(ii) the Unit 1 Warrants do not contain a cashless exercise provision; and (iii) there is no warrant agent associated with the
Unit 1 Warrants.
The
Unit 2 Warrants are substantially the same as the Unit B Warrants, except that there is no warrant agent associated with Unit
2 Warrants.
Authorized
but Unissued Shares
Our
authorized but unissued shares of common stock and preferred stock will be available for future issuance without shareholder approval,
except as may be required under the listing rules of any stock exchange on which our common stock is then listed. We may use additional
shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions
and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Limitation
on Directors’ Liability
The
Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary
damages for breaches of directors’ fiduciary duties as directors. Our Amended and Restated Bylaws include provisions that
require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer
of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors,
officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any
limiting language regarding director immunity from liability.
The
limitation of liability and indemnification provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may
discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also
have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action,
if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights,
or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s
fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition,
your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement
and damage awards against directors and officers pursuant to these indemnification provisions.
Nevada
Anti-Takeover Statute
We
may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444)
which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless
certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates,
beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled
to vote.
The
NASDAQ Capital Market Listing
Our
common stock and Unit A Warrants are quoted for trading on The NASDAQ Capital Market under the symbols “GMBL” and
“GMBLW”, respectively.
Transfer
Agent
The
transfer agent and registrar for our common stock is VStock Transfer, LLC with an address at 18 Lafayette Pl, Woodmere, NY 11598.
DESCRIPTION
OF DEBT SECURITIES
General
The
debt securities that we may offer by this prospectus consist of notes, debentures, or other evidences of indebtedness. The debt
securities may constitute either senior or subordinated debt securities, and in either case may be either secured or unsecured.
Any debt securities that we offer and sell will be our direct obligations. Debt securities may be issued in one or more series.
All debt securities of any one series need not be issued at the same time, and unless otherwise provided, a series of debt securities
may be reopened, with the required consent of the holders of outstanding debt securities, for issuance of additional debt securities
of that series or to establish additional terms of that series of debt securities (with such additional terms applicable only
to unissued or additional debt securities of that series). The form of indenture has been filed as an exhibit to the registration
statement of which this prospectus is a part and is subject to any amendments or supplements that we may enter into with the trustee(s),
however, we may issue debt securities not subject to the indenture provided such terms of debt securities are not otherwise required
to be set forth in the indenture. The material terms of the indenture are summarized below and we refer you to the indenture for
a detailed description of these material terms. Additional or different provisions that are applicable to a particular series
of debt securities will, if material, be described in a prospectus supplement relating to the offering of debt securities of that
series. These provisions may include, among other things and to the extent applicable, the following:
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the
title of the debt securities, including, as applicable, whether the debt securities will be issued as senior debt securities,
senior subordinated debt securities or subordinated debt securities, any subordination provisions particular to the series
of debt securities;
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any
limit on the aggregate principal amount of the debt securities;
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whether
the debt securities are senior debt securities or subordinated debt securities and applicable subordination provisions, if
any;
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whether
the debt securities will be secured or unsecured;
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if
other than 100% of the aggregate principal amount, the percentage of the aggregate principal amount at which we will sell
the debt securities, such as an original issuance discount;
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the
date or dates, whether fixed or extendable, on which the principal of the debt securities will be payable;
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the
rate or rates, which may be fixed or variable, at which the debt securities will bear interest, if any, the date or dates
from which any such interest will accrue, the interest payment dates on which we will pay any such interest, the basis upon
which interest will be calculated if other than that of a 360-day year consisting of twelve 30-day months, and, in the case
of registered securities, the record dates for the determination of holders to whom interest is payable;
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the
place or places where the principal of and any premium or interest on the debt securities will be payable and where the debt
securities may be surrendered for conversion or exchange;
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whether
we may, at our option, redeem the debt securities, and if so, the price or prices at which, the period or periods within which,
and the terms and conditions upon which, we may redeem the debt securities, in whole or in part, pursuant to any sinking fund
or otherwise;
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if
other than 100% of the aggregate principal amount thereof, the portion of the principal amount of the debt securities which
will be payable upon declaration of acceleration of the maturity date thereof or provable in bankruptcy, or, if applicable,
which is convertible or exchangeable;
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any
obligation we may have to redeem, purchase or repay the debt securities pursuant to any sinking fund or analogous provisions
or at the option of a holder of debt securities, and the price or prices at which, the currency in which and the period or
periods within which, and the terms and conditions upon which, the debt securities will be redeemed, purchased or repaid,
in whole or in part, pursuant to any such obligation, and any provision for the remarketing of the debt securities;
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the
issuance of debt securities as registered securities or unregistered securities or both, and the rights of the holders of
the debt securities to exchange unregistered securities for registered securities, or vice versa, and the circumstances under
which any such exchanges, if permitted, may be made;
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the
denominations, which may be in United States Dollars or in any foreign currency, in which the debt securities will be issued,
if other than denominations of $1,000 and any integral multiple thereof;
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whether
the debt securities will be issued in the form of certificated debt securities, and if so, the form of the debt securities
(or forms thereof if unregistered and registered securities are issuable in that series), including the legends required by
law or as we deem necessary or appropriate, the form of any coupons or temporary global security which may be issued and the
forms of any other certificates which may be required under the indenture or which we may require in connection with the offering,
sale, delivery or exchange of the debt securities;
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if
other than United States Dollars, the currency or currencies in which payments of principal, interest and other amounts payable
with respect to the debt securities will be denominated, payable, redeemable or repurchasable, as the case may be;
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whether
the debt securities may be issuable in tranches;
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the
obligations, if any, we may have to permit the conversion or exchange of the debt securities into common stock, preferred
stock or other capital stock or property, or a combination thereof, and the terms and conditions upon which such conversion
or exchange will be effected (including conversion price or exchange ratio), and any limitations on the ownership or transferability
of the securities or property into which the debt securities may be converted or exchanged;
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if
other than the trustee under the indenture, any trustees, authenticating or paying agents, transfer agents or registrars or
any other agents with respect to the debt securities;
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any
deletions from, modifications of or additions to the events of default with respect to the debt securities or the right of
the Trustee or the holders of the debt securities in connection with events of default;
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any
deletions from, modifications of or additions to the covenants with respect to the debt securities;
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if
the amount of payments of principal of, and make-whole amount, if any, and interest on the debt securities may be determined
with reference to an index, the manner in which such amount will be determined;
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whether
the debt securities will be issued in whole or in part in the global form of one or more debt securities and, if so, the depositary
for such debt securities, the circumstances under which any such debt security may be exchanged for debt securities registered
in the name of, and under which any transfer of debt securities may be registered in the name of, any person other than such
depositary or its nominee, and any other provisions regarding such debt securities;
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whether,
under what circumstances and the currency in which, we will pay additional amounts on the debt securities to any holder of
the debt securities who is not a United States person in respect of any tax, assessment or governmental charge and, if so,
whether we will have the option to redeem such debt securities rather than pay such additional amounts, and the terms of any
such option;
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whether
the debt securities will be secured by any collateral and, if so, a general description of the collateral and the terms of
any related security, pledge or other agreements;
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the
persons to whom any interest on the debt securities will be payable, if other than the registered holders thereof on the regular
record date therefor; and
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any
other material terms or conditions upon which the debt securities will be issued.
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Unless
otherwise indicated in the applicable prospectus supplement, we will issue debt securities in fully registered form without coupons
and in denominations of $1,000 and in integral multiples of $1,000, and interest will be computed on the basis of a 360-day year
of twelve 30-day months. If any interest payment date or the maturity date falls on a day that is not a business day, then the
payment will be made on the next business day without additional interest and with the same effect as if it were made on the originally
scheduled date. “Business day” means any calendar day that is not a Saturday, Sunday or legal holiday in New York,
New York, and on which the trustee and commercial banks are open for business in New York, New York.
Unless
we inform you otherwise in a prospectus supplement, each series of our senior debt securities will rank equally in right of payment
with all of our other unsubordinated debt. The subordinated debt securities will rank junior in right of payment and be subordinate
to all of our unsubordinated debt.
Unless
otherwise indicated in the applicable prospectus supplement, the trustee will act as paying agent and registrar for the debt securities
under the indenture. We may act as paying agent under the indenture.
The
prospectus supplement will contain a description of United States federal income tax consequences relating to the debt securities,
to the extent applicable.
Covenants
The
applicable prospectus supplement will describe any covenants, such as restrictive covenants restricting us or our subsidiaries,
if any, from incurring, issuing, assuming or guarantying any indebtedness or restricting us or our subsidiaries, if any, from
paying dividends or acquiring any of our or its capital stock.
Consolidation,
Merger and Transfer of Assets
The
indenture permits a consolidation or merger between us and another entity and/or the sale, conveyance or lease by us of all or
substantially all of our property and assets, provided that:
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the
resulting or acquiring entity, if other than us, is organized and existing under the laws of a United States jurisdiction
and assumes all of our responsibilities and liabilities under the indenture, including the payment of all amounts due on the
debt securities and performance of the covenants in the indenture;
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immediately
after the transaction, and giving effect to the transaction, no event of default under the indenture exists; and
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we
have delivered to the trustee an officers’ certificate stating that the transaction and, if a supplemental indenture
is required in connection with the transaction, the supplemental indenture comply with the indenture and that all conditions
precedent to the transaction contained in the indenture have been satisfied.
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If
we consolidate or merge with or into any other entity, or sell or lease all or substantially all of our assets in compliance with
the terms and conditions of the indenture, the resulting or acquiring entity will be substituted for us in the indenture and the
debt securities with the same effect as if it had been an original party to the indenture and the debt securities. As a result,
such successor entity may exercise our rights and powers under the indenture and the debt securities, in our name and, except
in the case of a lease, we will be released from all our liabilities and obligations under the indenture and under the debt securities.
Notwithstanding
the foregoing, we may transfer all of our property and assets to another entity if, immediately after giving effect to the transfer,
such entity is our wholly owned subsidiary. The term “wholly owned subsidiary” means any subsidiary in which we and/or
our other wholly owned subsidiaries, if any, own all of the outstanding capital stock.
Modification
and Waiver
Under
the indenture, some of our rights and obligations and some of the rights of the holders of the debt securities may be modified
or amended with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding debt securities
affected by the modification or amendment. However, the following modifications and amendments will not be effective against any
holder without its consent:
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a
change in the stated maturity date of any payment of principal or interest;
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a
reduction in the principal amount of or interest on any debt securities;
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an
alteration or impairment of any right to convert at the rate or upon the terms provided in the indenture;
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a
change in the currency in which any payment on the debt securities is payable;
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an
impairment of a holder’s right to sue us for the enforcement of payments due on the debt securities; or
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a
reduction in the percentage of outstanding debt securities required to consent to a modification or amendment of the indenture
or required to consent to a waiver of compliance with certain provisions of the indenture or certain defaults under the indenture.
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Under
the indenture, the holders of not less than a majority in aggregate principal amount of the outstanding debt securities may, on
behalf of all holders of the debt securities:
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waive
compliance by us with certain restrictive provisions of the indenture; and
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waive
any past default under the indenture in accordance with the applicable provisions of the indenture, except a default in the
payment of the principal of or interest on any series of debt securities.
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Events
of Default
Unless
we indicate otherwise in the applicable prospectus supplement, “event of default” under the indenture will mean, with
respect to any series of debt securities, any of the following:
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failure
to pay interest on any debt security for 30 days after the payment is due;
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failure
to pay the principal of any debt security when due, either at maturity, upon redemption, by declaration or otherwise;
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failure
on our part to observe or perform any other covenant or agreement in the indenture that applies to the debt securities for
90 days after we have received written notice of the failure to perform in the manner specified in the indenture; and
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certain
events of bankruptcy, insolvency or reorganization.
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Remedies
Upon an Event of Default
If
an event of default occurs and continues, the trustee or the holders of not less than 25% in aggregate principal amount of the
outstanding debt securities of such series may declare the entire principal of all the debt securities to be due and payable immediately,
except that, if the event of default is caused by certain events in bankruptcy, insolvency or reorganization, the entire principal
of all of the debt securities of such series will become due and payable immediately without any act on the part of the trustee
or holders of the debt securities. If such a declaration occurs, the holders of a majority of the aggregate principal amount of
the outstanding debt securities of such series can, subject to conditions, rescind the declaration.
The
indenture requires us to furnish to the trustee not less often than annually, a certificate from our principal executive officer,
principal financial officer or principal accounting officer, as the case may be, as to such officer’s knowledge of our compliance
with all conditions and covenants under the indenture. The trustee may withhold notice to the holders of debt securities of any
default, except defaults in the payment of principal of or interest on any debt securities if the trustee in good faith determines
that the withholding of notice is in the best interests of the holders. For purposes of this paragraph, “default”
means any event which is, or after notice or lapse of time or both would become, an event of default under the indenture.
The
trustee is not obligated to exercise any of its rights or powers under the indenture at the request, order or direction of any
holders of debt securities, unless the holders offer the trustee satisfactory security or indemnity. If satisfactory security
or indemnity is provided, then, subject to other rights of the trustee, the holders of a majority in aggregate principal amount
of the outstanding debt securities may direct the time, method and place of:
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conducting
any proceeding for any remedy available to the trustee; or
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exercising
any trust or power conferred upon the trustee.
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The
holder of a debt security will have the right to begin any proceeding with respect to the indenture or for any remedy only if:
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the
holder has previously given the trustee written notice of a continuing event of default;
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the
holders of not less than a majority in aggregate principal amount of the outstanding debt securities have made a written request
of, and offered reasonable indemnity to, the trustee to begin such proceeding;
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the
trustee has not started such proceeding within 60 days after receiving the request; and
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no
direction inconsistent with such written request has been given to the trustee under the indenture.
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However,
the holder of any debt security will have an absolute right to receive payment of principal of and interest on the debt security
when due and to institute suit to enforce this payment.
Satisfaction
and Discharge; Defeasance
Satisfaction
and Discharge of Indenture. Unless otherwise indicated in the applicable prospectus supplement, if at any time,
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we
have paid the principal of and interest on all the debt securities of any series, except for debt securities which have been
destroyed, lost or stolen and which have been replaced or paid in accordance with the indenture, as and when the same shall
have become due and payable, or
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we
have delivered to the trustee for cancellation all debt securities of any series theretofore authenticated, except for debt
securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in the
indenture, or
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all
the debt securities of such series not theretofore delivered to the trustee for cancellation have become due and payable,
or are by their terms are to become due and payable within one year or are to be called for redemption within one year, and
we have deposited with the trustee, in trust, sufficient money or government obligations, or a combination thereof, to pay
the principal, any interest and any other sums due on the debt securities, on the dates the payments are due or become due
under the indenture and the terms of the debt securities,
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then
the indenture shall cease to be of further effect with respect to the debt securities of such series, except for:
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rights
of registration of transfer and exchange, and our right of optional redemption;
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substitution
of mutilated, defaced, destroyed, lost or stolen debt securities;
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rights
of holders to receive payments of principal thereof and interest thereon upon the original stated due dates therefor (but
not upon acceleration) and remaining rights of the holders to receive mandatory sinking fund payments, if any;
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the
rights, obligations and immunities of the trustee under the indenture; and
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the
rights of the holders of such series of debt securities as beneficiaries thereof with respect to the property so deposited
with the trustee payable to all or any of them.
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Defeasance
and Covenant Defeasance. Unless otherwise indicated in the applicable prospectus supplement, we may elect with respect to
any debt securities of any series either:
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to
defease and be discharged from all of our obligations with respect to such debt securities (“defeasance”), with
certain exceptions described below; or
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to
be released from our obligations with respect to such debt securities under such covenants as may be specified in the applicable
prospectus supplement, and any omission to comply with those obligations will not constitute a default or an event of default
with respect to such debt securities (“covenant defeasance”).
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We
must comply with the following conditions before the defeasance or covenant defeasance can be effected:
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we
must irrevocably deposit with the indenture trustee or other qualifying trustee, under the terms of an irrevocable trust agreement
in form and substance satisfactory to the trustee, trust funds in trust solely for the benefit of the holders of such debt
securities, sufficient money or government obligations, or a combination thereof, to pay the principal, any interest and any
other sums on the due dates for those payments; and
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we
must deliver to the trustee an opinion of counsel to the effect that the holders of such debt securities will not recognize
income, gain or loss for federal income tax purposes as a result of defeasance or covenant defeasance, as the case may be,
to be effected with respect to such debt securities and will be subject to federal income tax on the same amount, in the same
manner and at the same times as would be the case if such defeasance or covenant defeasance, as the case may be, had not occurred.
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In
connection with defeasance, any irrevocable trust agreement contemplated by the indenture must include, among other things, provision
for:
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payment
of the principal of and interest on such debt securities, if any, appertaining thereto when due (by redemption, sinking fund
payments or otherwise),
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the
payment of the expenses of the trustee incurred or to be incurred in connection with carrying out such trust provisions,
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rights
of registration, transfer, substitution and exchange of such debt securities in accordance with the terms stated in the indenture,
and
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continuation
of the rights, obligations and immunities of the trustee as against the holders of such debt securities as stated in the indenture.
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The
accompanying prospectus supplement may further describe any provisions permitting or restricting defeasance or covenant defeasance
with respect to the debt securities of a particular series.
Global
Securities
Unless
otherwise indicated in the applicable prospectus supplement, each debt security offered by this prospectus will be issued in the
form of one or more global debt securities representing all or part of that series of debt securities. This means that we will
not issue certificates for that series of debt securities to the holders. Instead, a global debt security representing that series
will be deposited with, or on behalf of, a securities depositary and registered in the name of the depositary or a nominee of
the depositary. Any such depositary must be a clearing agency registered under the Exchange Act. We will describe the specific
terms of the depositary arrangement with respect to a series of debt securities to be represented by a global security in the
applicable prospectus supplement.
Notices
We
will give notices to holders of the debt securities by mail at the addresses listed in the security register. In the case of notice
in respect of unregistered securities or coupon securities, we may give notice by publication in a newspaper of general circulation
in New York, New York.
Governing
Law
The
particular terms of a series of debt securities will be described in a prospectus supplement relating to such series of debt securities.
Any indentures will be subject to and governed by the Trust Indenture Act of 1939, as amended, and may be supplemented or amended
from time to time following their execution. Unless otherwise stated in the applicable prospectus supplement, we will not be limited
in the amount of debt securities that we may issue, and neither the senior debt securities nor the subordinated debt securities
will be secured by any of our property or assets. Thus, by owning debt securities, you are one of our unsecured creditors.
Regarding
the Trustee
From
time to time, we may maintain deposit accounts and conduct other banking transactions with the trustee to be appointed under the
indenture or its affiliates in the ordinary course of business.
DESCRIPTION
OF WARRANTS
We
may offer to sell warrants from time to time. If we do so, we will describe the specific terms of the warrants in a prospectus
supplement. In particular, we may issue warrants for the purchase of common stock, preferred stock and/or debt securities in one
or more series. We may also issue warrants independently or together with other securities and the warrants may be attached to
or separate from those securities.
We
will evidence each series of warrants by warrant certificates that we will issue under a separate agreement. We will enter into
the warrant agreement with a warrant agent. We will indicate the name and address of the warrant agent in the applicable prospectus
supplement relating to a particular series of warrants.
We
will describe in the applicable prospectus supplement the terms of the series of warrants, including:
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the
offering price and aggregate number of warrants offered;
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the
currency for which the warrants may be purchased;
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if
applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued
with each such security or each principal amount of such security;
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if
applicable, the date on and after which the warrants and the related securities will be separately transferable;
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in
the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one
warrant and the price at, and currency in which, this principal amount of debt securities may be purchased upon such exercise;
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in
the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock,
as the case may be, purchasable upon the exercise of one warrant and the price at which these shares may be purchased upon
such exercise;
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the
effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants;
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the
terms of any rights to redeem or call the warrants;
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any
provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants;
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the
dates on which the right to exercise the warrants will commence and expire;
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the
manner in which the warrant agreement and warrants may be modified;
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certain
United States federal income tax consequences of holding or exercising the warrants;
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the
terms of the securities issuable upon exercise of the warrants; and
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any
other specific material terms, preferences, rights or limitations of or restrictions on the warrants.
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Holders
may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together with other
requested information, and paying the required amount to the warrant agent in immediately available funds, as provided in the
applicable prospectus supplement. We will set forth in the applicable prospectus supplement the information that the holder of
the warrant will be required to deliver to the warrant agent.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the office of the warrant
agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities purchasable
upon such exercise. If a holder exercises fewer than all of the warrants represented by the warrant certificate, then we will
issue a new warrant certificate for the remaining amount of warrants.
Holder
will not have any of the rights of the holders of the securities purchasable upon the exercise of warrants until you exercise
them. Accordingly, holder will not be entitled to, among other things, vote or receive dividend payments or similar distributions
on the securities you can purchase upon exercise of the warrants.
The
information provided above is only a summary of the terms under which we may offer warrants for sale. Accordingly, investors must
carefully review the applicable warrant agreement for more information about the specific terms and conditions of these warrants
before investing in us. In addition, please carefully review the information provided in the applicable prospectus supplement,
which contains additional information that is important for you to consider in evaluating an investment in our securities.
DESCRIPTION
OF RIGHTS
We
may issue rights to our stockholders to purchase shares of our common stock or preferred stock described in this prospectus. We
may offer rights separately or together with one or more additional rights, preferred stock, common stock, warrants or any combination
of those securities in the form of units, as described in the applicable prospectus supplement. Each series of rights will be
issued under a separate rights agreement to be entered into between us and a bank or trust company, as rights agent. The rights
agent for any rights we offer will be set forth in the applicable prospectus supplement. The rights agent will act solely as our
agent in connection with the certificates relating to the rights of the series of certificates and will not assume any obligation
or relationship of agency or trust for or with any holders of rights certificates or beneficial owners of rights. The following
description sets forth certain general terms and provisions of the rights to which any prospectus supplement may relate. The particular
terms of the rights to which any prospectus supplement may relate and the extent, if any, to which the general provisions may
apply to the rights so offered will be described in the applicable prospectus supplement. To the extent that any particular terms
of the rights, rights agreement or rights certificates described in a prospectus supplement differ from any of the terms described
below, then the terms described below will be deemed to have been superseded by that prospectus supplement. We encourage you to
read the applicable rights agreement and rights certificate for additional information before you decide whether to purchase any
of our rights.
The
prospectus supplement relating to any rights that we offer will include specific terms relating to the offering, including, among
other matters:
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the
date of determining the stockholders entitled to the rights distribution;
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the
aggregate number of shares of common stock, preferred stock or other securities purchasable upon exercise of the rights;
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the
exercise price;
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the
aggregate number of rights issued;
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whether
the rights are transferrable and the date, if any, on and after which the rights may be separately transferred;
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the
date on which the right to exercise the rights will commence, and the date on which the right to exercise the rights will
expire;
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the
method by which holders of rights will be entitled to exercise;
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the
conditions to the completion of the offering;
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the
withdrawal, termination and cancellation rights;
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whether
there are any backstop or standby purchaser or purchasers and the terms of their commitment;
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whether
stockholders are entitled to oversubscription right;
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any
U.S. federal income tax considerations; and
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any
other terms of the rights, including terms, procedures and limitations relating to the distribution, exchange and exercise
of the rights.
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If
less than all of the rights issued in any rights offering are exercised, we may offer any unsubscribed securities directly to
persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, including
pursuant to standby arrangements, as described in the applicable prospectus supplement. In connection with any rights offering,
we may enter into a standby underwriting or other arrangement with one or more underwriters or other persons pursuant to which
such underwriters or other persons would purchase any offered securities remaining unsubscribed for after such rights offering.
DESCRIPTION
OF UNITS
We
may issue units consisting of any combination of the other types of securities offered under this prospectus in one or more series.
We may evidence each series of units by unit certificates that we will issue under a separate agreement. We may enter into unit
agreements with a unit agent. We will indicate the name and address of the unit agent in the applicable prospectus supplement
relating to a particular series of units.
The
following description, together with the additional information included in any applicable prospectus supplement, summarizes the
general features of the units that we may offer under this prospectus. You should read any prospectus supplement and any free
writing prospectus that we may authorize to be provided to you related to the series of units being offered, as well as the complete
unit agreements that contain the terms of the units. Specific unit agreements will contain additional important terms and provisions
and we will file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference
from another report that we file with the SEC, the form of each unit agreement relating to units offered under this prospectus.
If
we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including,
without limitation, the following, as applicable:
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the
title of the series of units;
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identification
and description of the separate constituent securities comprising the units;
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the
price or prices at which the units will be issued;
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the
date, if any, on and after which the constituent securities comprising the units will be separately transferable;
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a
discussion of certain United States federal income tax considerations applicable to the units; and
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any
other terms of the units and their constituent securities.
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PLAN
OF DISTRIBUTION
We
may sell the securities from time to time pursuant to underwritten public offerings, negotiated transactions, block trades or
a combination of these methods or through underwriters or dealers, through agents and/or directly to one or more purchasers. The
securities may be distributed from time to time in one or more transactions:
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at
a fixed price or prices, which may be changed;
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at
market prices prevailing at the time of sale;
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at
prices related to such prevailing market prices; or
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at
negotiated prices.
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Each
time that we sell securities covered by this prospectus, we will provide a prospectus supplement or supplements that will describe
the method of distribution and set forth the terms and conditions of the offering of such securities, including the offering price
of the securities and the proceeds to us, if applicable.
Offers
to purchase the securities being offered by this prospectus may be solicited directly. Agents may also be designated to solicit
offers to purchase the securities from time to time. Any agent involved in the offer or sale of our securities will be identified
in a prospectus supplement.
If
a dealer is utilized in the sale of the securities being offered by this prospectus, the securities will be sold to the dealer,
as principal. The dealer may then resell the securities to the public at varying prices to be determined by the dealer at the
time of resale.
If
an underwriter is utilized in the sale of the securities being offered by this prospectus, an underwriting agreement will be executed
with the underwriter at the time of sale and the name of any underwriter will be provided in the prospectus supplement that the
underwriter will use to make resales of the securities to the public. In connection with the sale of the securities, we or the
purchasers of securities for whom the underwriter may act as agent, may compensate the underwriter in the form of underwriting
discounts or commissions. The underwriter may sell the securities to or through dealers, and those dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for which they
may act as agent. Unless otherwise indicated in a prospectus supplement, an agent will be acting on a best efforts basis and a
dealer will purchase securities as a principal, and may then resell the securities at varying prices to be determined by the dealer.
Any
compensation paid to underwriters, dealers or agents in connection with the offering of the securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers will be provided in the applicable prospectus supplement. Underwriters,
dealers and agents participating in the distribution of the securities may be deemed to be underwriters within the meaning of
the Securities Act of 1933, as amended, and any discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and commissions. We may enter into agreements to indemnify
underwriters, dealers and agents against civil liabilities, including liabilities under the Securities Act, or to contribute to
payments they may be required to make in respect thereof and to reimburse those persons for certain expenses.
Any
common stock will be listed on the Nasdaq Capital Market, but any other securities may or may not be listed on a national securities
exchange. To facilitate the offering of securities, certain persons participating in the offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the securities. This may include over-allotments or short sales of the securities,
which involve the sale by persons participating in the offering of more securities than were sold to them. In these circumstances,
these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their
over-allotment option, if any. In addition, these persons may stabilize or maintain the price of the securities by bidding for
or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating
in the offering may be reclaimed if securities sold by them are repurchased in connection with stabilization transactions. The
effect of these transactions may be to stabilize or maintain the market price of the securities at a level above that which might
otherwise prevail in the open market. These transactions may be discontinued at any time.
We
may engage in at the market offerings into an existing trading market in accordance with Rule 415(a)(4) under the Securities Act.
In
addition, we may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third
parties in privately negotiated transactions. If the applicable prospectus supplement so indicates, in connection with those derivatives,
the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short
sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales
or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives
to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not
identified in this prospectus, will be named in the applicable prospectus supplement (or a post-effective amendment). In addition,
we may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities
short using this prospectus and an applicable prospectus supplement. Such financial institution or other third party may transfer
its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
We
do not make any representation or prediction as to the direction or magnitude of any effect that the transactions described above
might have on the price of the securities. In addition, we do not make any representation that underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued without notice.
The
specific terms of any lock-up provisions in respect of any given offering will be described in the applicable prospectus supplement.
To
comply with applicable state securities laws, the securities offered by this prospectus will be sold, if necessary, in such jurisdictions
only through registered or licensed brokers or dealers. In addition, securities may not be sold in some states unless they have
been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement
is available and is complied with.
The
underwriters, dealers and agents may engage in transactions with us, or perform services for us, in the ordinary course of business
for which they receive compensation.
LEGAL
MATTERS
Lucosky
Brookman LLP will pass upon certain legal matters relating to the issuance and sale of the securities offered hereby on behalf
of Esports Entertainment Group, Inc. Additional legal matters may be passed upon for us or any underwriters, dealers or agents,
by counsel that we will name in the applicable prospectus supplement.
EXPERTS
Our
consolidated balance sheets as of June 30, 2020 and 2019, and the related consolidated statements of operations, stockholders’
equity (deficit), and cash flows for each of those two years have been audited by Rosenberg Rich Baker Berman, P.A., an independent
registered public accounting firm, as set forth in its report incorporated by reference and are included in reliance upon such
report given on the authority of such firm as experts in accounting and auditing.
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