EEG(GMBL) - 2023 Q3 - Quarterly Report

Internal Control and Financial Reporting - The company's disclosure controls and procedures were not effective as of the end of the reporting period, with identified material weaknesses in internal controls[375] - Material weaknesses included insufficient period-end financial reporting controls, lack of IT controls evaluation, and inadequate segregation of duties[376] - Remediation plans include establishing an internal audit function, implementing EGRC software, and enhancing IT general controls[378] - The company cannot provide assurance on when the material weaknesses will be fully remediated[379] - The unaudited condensed consolidated financial statements are presented fairly despite the material weaknesses[380] - No changes in internal control over financial reporting materially affected the company during the three months ended March 31, 2023[381] Legal and Regulatory Matters - The company's former CEO filed a lawsuit seeking over $1,000,000 and 2,000 shares of common stock for alleged breach of employment agreement[385] - The company successfully defended its marketing practices in Finland, with no adverse judgments from the Finnish regulator[186] - The company closed its UK gambling operations and surrendered its UK license in December 2022[185] Debt and Equity Transactions - The company sold 2,242,143 shares of common stock to holders of Senior Convertible Notes in exchange for debt principal[391] - The company was in default under the terms of the Senior Convertible Note until its conversion into Series C Preferred Stock on April 28, 2023[392] - The company entered into a Share Purchase Agreement with Gameday Group PLC and Prozone Limited on February 14, 2023[394] - The company redeemed $679,976 of its Senior Convertible Note on April 19, 2023, and converted the remaining $15,230,024 into Series C Convertible Preferred Stock, extinguishing the Senior Convertible Note[39] - The company raised $4,300,000 through the issuance of Series D Preferred Stock, common warrants, and preferred warrants on May 22, 2023[40] - The company exchanged the existing senior convertible note with a remaining principal of $29,150,001 for a new senior convertible note with an aggregate principal of $35,000,000 on February 22, 2022[142] - The company reduced the senior convertible note principal balance to $32,221,573 by remitting $2,778,427 from the proceeds of the September 2022 Offering[142] - The company paid $1,073,343 to the holder for interest due and interest prepaid through February 28, 2023 as part of the Registered Direct Offering[142] - The company converted $19,261,583 of the senior convertible note into 2,242,143 shares of common stock, resulting in a loss on extinguishment of $3,616,372[142] - The company redeemed $679,976 of the senior convertible note on April 19, 2023, settling a total of $750,000 including redemption premium and accrued interest[143] - The company converted the remaining $15,230,024 of the senior convertible note into Series C Convertible Preferred Stock on April 28, 2023[144] - The derivative liability related to the senior convertible note had a fair value of $1,963,933 as of March 31, 2023, with an approximate cash liability of $1,862,000,000[145] - The company accrued additional interest expense of $56,743 and $1,075,069 for the three and nine months ended March 31, 2023, respectively, due to non-compliance with debt covenants[147] - The company estimated it would have been required to issue up to 72,875 shares of common stock under the alternate conversion make-whole provision of the senior convertible note as of March 31, 2023[153] - The company recorded a loss on conversion of senior convertible notes of $5,999,662 for the nine months ended March 31, 2022 due to conversions of $7,500,000 principal into 25,145 shares of common stock[159] - The company estimated a derivative liability of $1,963,933 at March 31, 2023, and $9,399,620 at June 30, 2022, related to the Senior Convertible Note[164] - The make-whole cash liability under the Senior Convertible Note was approximately $1,862,000,000, significantly higher than the fair value of $1,963,933 as of March 31, 2023[164] - The company sold 300,000 units at $25.00 each in the September 2022 Offering, including 300,000 warrants with an exercise price of $25.00[165] - The fair value of the September 2022 Warrants decreased from $5,286,288 on September 19, 2022, to $702,239 on March 31, 2023[167] - The company sold 150,000 units at $100.00 each in the March 2022 Offering, including 150,000 warrants with an exercise price of $100.00[168] - The fair value of the March 2022 Warrants decreased from $9,553,500 on March 2, 2022, to $341,550 on March 31, 2023[170] - The company issued 20,000 Series A Warrants and 20,000 Series B Warrants with an exercise price of $1,750.00 each[171] - The fair value of the Series A and Series B Warrants decreased from $122,730 at June 30, 2022, to $0 at March 31, 2023[173] - The company's long-term debt, including the Senior Convertible Note, was $15,935,723 at March 31, 2023, down from $35,139,538 at June 30, 2022[175] Financial Performance and Liquidity - Net revenue for the quarter ended March 31, 2023 was $4.18 million, a significant decrease from $15.70 million in the same period last year[10] - Total operating expenses for the quarter were $13.79 million, down from $66.33 million in the prior year period[10] - Net loss for the quarter was $13.19 million, compared to a net loss of $63.57 million in Q1 2022[10] - Cash and cash equivalents decreased to $1.88 million as of March 31, 2023 from $2.52 million at June 30, 2022[8] - Total assets declined to $24.43 million from $64.86 million over the same period[8] - Total liabilities decreased to $30.03 million from $68.68 million[8] - Accumulated deficit increased to $180.64 million as of March 31, 2023 from $149.14 million at June 30, 2022[8] - Basic and diluted loss per common share was $5.76 for the quarter, compared to $210.64 in Q1 2022[10] - Weighted average number of common shares outstanding increased to 2.34 million from 303,087 in the prior year period[10] - The company recorded a $4.20 million loss on disposal of businesses during the quarter[10] - 10% Series A cumulative redeemable convertible preferred stock cash dividend of $200,628 was paid during the period[15][16] - Net loss for the nine months ended March 31, 2023 was $13,193,975[16] - Total stockholders' equity (deficit) as of March 31, 2023 was $(13,603,300)[16] - Common stock and warrants issued in equity financing, net of issuance costs, amounted to $2,146,685[15] - Foreign exchange translation adjustment for the nine months ended March 31, 2023 was $2,573,183[16] - Series B redeemable preferred stock was issued for $1,000 and later redeemed[15][16] - Stock-based compensation expense for the nine months ended March 31, 2023 was $21,079[16] - Conversion of senior convertible note resulted in issuance of 2,242,143 shares of common stock[16] - Accumulated deficit as of March 31, 2023 was $(180,635,674)[16] - Additional paid-in capital as of March 31, 2023 was $171,821,858[16] - Net loss for the period was $552,381[17] - Balance as of September 30, 2021, shows total assets of $219,832 and liabilities of $123,286[17] - Proceeds from issuance of 10% Series A cumulative redeemable convertible preferred stock amounted to $73,731,366[17] - Cash dividend paid on preferred stock was $100,314[17] - Conversion of Senior Convertible Note resulted in $17,018,178,243,437[17] - Issuance of common stock under the ATM, net of issuance costs, was $3,758,415,391,519[17] - Common stock and warrants issued in equity financing, net of issuance costs, amounted to $55,260,510[17] - Stock-based compensation expense was $1,729,401[17] - Foreign exchange translation loss was $791,539[17] - Net loss for the period ending December 31, 2021, was $34,334,629[17] - Net loss for the nine months ended March 31, 2023, was $31,495,248, compared to $98,456,505 for the same period in 2022[21] - Cash flows from operating activities resulted in a net cash used of $11,526,050 for the nine months ended March 31, 2023, compared to $14,100,783 for the same period in 2022[21] - Proceeds from equity financing, net of issuance costs, were $9,001,103 for the nine months ended March 31, 2023, compared to $13,605,000 for the same period in 2022[21] - Cash and restricted cash at the end of the period were $2,848,744 as of March 31, 2023, compared to $12,372,820 as of March 31, 2022[21] - Stock-based compensation for the nine months ended March 31, 2023, was $1,127,070, compared to $3,958,275 for the same period in 2022[21] - Asset impairment charges for the nine months ended March 31, 2023, were $16,135,000, compared to $38,629,310 for the same period in 2022[21] - Proceeds from the sale of Bethard Business and Spanish operations were $1,739,882 and $1,200,000, respectively, for the nine months ended March 31, 2023[21] - Repayment of senior convertible note was $2,778,427 for the nine months ended March 31, 2023[21] - Cash paid for interest was $2,442,673 for the nine months ended March 31, 2023, compared to $1,734,291 for the same period in 2022[25] - Conversion of senior convertible notes to common stock was $19,261,583 for the nine months ended March 31, 2023, compared to $10,652,648 for the same period in 2022[25] - The company completed a 1-for-100 reverse stock split on February 22, 2023, approved by the board and shareholders, with all references to shares adjusted accordingly[31][32] - The company operates two business segments: EEG iGaming, focusing on iGaming casino and sportsbook in Europe, and EEG Games, providing esports entertainment in the US and Europe[33][34] - As of March 31, 2023, the company had an accumulated deficit of $180,635,674, total current assets of $5,448,355, and total current liabilities of $28,968,837, with net cash used in operating activities of $11,526,050 for the nine months ended March 31, 2023[40] - The company faced substantial doubt about its ability to continue as a going concern due to recurring losses, negative cash flows, and liquidity challenges, with $1,875,758 in available cash as of March 31, 2023[38][40] - The company's cash and cash equivalents as of March 31, 2023, included $1,875,758 in cash on hand, with no financial instruments classified as cash equivalents[53] - The company's accounts receivable, primarily from esports events and team management services, had an immaterial allowance for credit losses as of March 31, 2023[55] - User deposit receivables are recorded as receivables reserved for users on the unaudited condensed consolidated balance sheets, with an allowance for doubtful accounts recognized as a loss within general and administrative expenses if collection is uncertain[56] - The Company recognized total goodwill asset impairment charges of $16,135,000 in the unaudited condensed consolidated statements of operations for the three months ended December 31, 2022, including $14,500,000 for the iGaming reporting unit and $1,635,000 for the GGC reporting unit[62] - During the three months ended March 31, 2023, the Company sold its Bethard business, reducing goodwill by $2,153,419, with no goodwill impairment charges recognized in the same period[63] - The Company recognized goodwill impairment charges of $23,119,755 during the three and nine months ended March 31, 2022, reducing the goodwill of the Helix, EGL, and GGC reporting units[64] - Intangible assets with determinable lives are amortized over their estimated useful lives: 5 years for player relationships and developed technology/software, 10 years for tradenames, and 2 years for gaming licenses[65] - The Company determined there was no impairment on its long-lived assets during the three and nine months ended March 31, 2023[68] - The Company recognized $13,484,122 for the impairment of the EGL and Helix tradenames and developed technology/software, and the GGC tradename and developed technology during the three and nine months ended March 31, 2021[69] - The jackpot provision liability is an estimate of the amount due to players for progressive jackpot winnings, accrued monthly based on an estimate of the jackpot amount available for winning[71] - The Company incurred charges of $0 and $72,107 for the three and nine months ended March 31, 2023, respectively, related to a vendor owned by the current Chief Executive Officer[127] - The Company accounts for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized, with the provision for income taxes including the effects of any resulting tax reserves[75] - The company recognized a goodwill impairment charge of $16,135,000, with $14,500,000 related to EEG iGaming and $1,635,000 related to EEG Games[114] - The company disposed of the Bethard Business, resulting in a goodwill loss of $2,153,419[114] - Other receivables increased to $384,688 as of March 31, 2023, compared to $372,283 as of June 30, 2022[111] - Prepaid expenses and other current assets decreased to $969,175 as of March 31, 2023, from $1,543,053 as of June 30, 2022[112] - Equipment, net decreased to $30,075 as of March 31, 2023, from $43,925 as of June 30, 2022[113] - The company recognized a loss on disposal of businesses, including $2,116,882 of goodwill for the Bethard Business[114] - The company concluded that goodwill impairment indicators existed due to significant revenue declines in EEG iGaming and underperformance in EEG Games[115] - The company recognized impairment charges totaling $13,484,122 for intangible assets as of March 31, 2022[119] - The company recognized goodwill impairments totaling $23,119,755 as of March 31, 2022[120] - The company's revenue is generated from EEG iGaming, EEG Games Esports, and other services, recognized in accordance with ASC 606[86] - EEG iGaming revenue is derived from customer bets, with Net Gaming Revenue (NGR) calculated as the difference between gaming wins and losses, reduced by nondiscretionary incentives[88] - Revenue from individual wagers is recognized immediately, while revenue from incentives like loyalty points is deferred until redemption[89] - The company records revenue on a gross basis for third-party wagering services, as it controls the service and directs third parties[90] - Data analytics and esports services revenue is recognized over the contract life using the output method, with payment terms typically 30 to 60 days[94] - Esports event management and team services revenue is recognized over the event or contract term, with fixed fees per event or tournament[98][99] - Sales and marketing expenses decreased by $16.1 million (76%) to $5.2 million for the nine months ended March 31, 2023, primarily due to reduced marketing and affiliate costs[349] - The company is evaluating additional financing sources to address potential liquidity concerns and ensure its ability to continue as a going concern[360][365] - Operating lease expenses for the nine months ended March 31, 2023, were $69,597, a significant decrease from $458,949 in the same period in 2022[137] - The company terminated its UCLA lease, recognizing a gain of $799,901, and has no further obligations related to the lease[135] - Notes payable and long-term debt totaled $25,723 as of March 31, 2023, with interest expense of $324 for the three months ended March 31, 2023[139] - The company has future annual commitments of $1,250,000 and 100 shares of Common Stock payable each year through 2030 under the Bally's Corporation agreement[177] - Sales and marketing expenses for esports sponsorships were $146,840 for the three months and $963,023 for the nine months ended March 31, 2023, compared to $1,090,523 and $3,905,728 for the same periods in 2022[179] - The company has future sponsorship commitments of $549,988 for the remainder of FY2023, $433,612 for FY2024, $217,730 for FY2025, and $149,913 for FY2026[179] - Online betting and casino revenues were $3,437,387 for Q3 2023 and $17,571,219 for the nine months ended March 31, 2023,