UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:March 31,September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number:000-55954

ESPORTS ENTERTAINMENT GROUP, INC.

(Exact name of registrant as specified in its charter)

170 Pater House, Psaila St

Birkirkara BKR 9077 Malta

(Address of principal executive offices)

Registrant’s telephone number, including area code:356 2757 7000

(Former name or former address if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒[X] No ☐[  ]

��

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒[X] No ☐[  ]

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐[  ]

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐[  ] No ☒[X]

As of May 15,November 11, 2020, there were 9,673,64812,895,412 shares of common stock, par value $0.001 issued and outstanding.

ESPORTS ENTERTAINMENT GROUP, INC.

Quarterly Report on Form 10-Q for the Quarter ended March 31,September 30, 2020

TABLE OF CONTENTS

INDEX TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Part I – Financial Information

Item 1 – Condensed Consolidated Financial Statements (Unaudited).

Esports Entertainment Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

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

Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

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

Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Changes in Stockholders Equity (Deficit)

For the Three Months Ending September 30, 2020 and 2019

(Unaudited)

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

Esports Entertainment Group, Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)

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

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31,September 30, 2020

(Unaudited)

(Expressed in U.S. dollars)

Note 1 – Nature of Operations

Esports Entertainment Group, Inc. (formerly VGambling Inc.) (the “Company”) was incorporated in the state of Nevada on July 22, 2008. On April 18, 2017, the majority of the shareholders of the Company’s common stock voted to approve a change of the name of the Company from VGambling, Inc. to Esports Entertainment Group, Inc.

TheEsports is the competitive playing of video games by amateur and professional teams for cash prizes. Esports typically takes the form of organized, multiplayer video games that include real-time strategy, fighting, first-person shooter and multiplayer online battle arena games. As of March 20, 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 operatesto 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 online gambling platform focused purely on the esports industry. Utilizing our peer-to-peer wagering system, we offer real money betting exchange style wagering on esports events from around the world in aand secure environment. A betting exchange allows players to bet against one another rather than a bookmaker. Players can offer odds to, or request odds from, other players who wish to wager. Where traditional bookmakers risk going head-to-head with gamblers on markets, a betting exchange takes on no risk on the particular outcome of an event. Instead, a betting exchange provides the platform for its customers to match bets against one another and takes a small commission on winnings. Betting exchanges are becoming an increasingly integral part of the global gambling landscape, in many cases enabling customers to obtain better odds, more transparency and an experience that feels intuitively fairer. Further, the platform also facilitates gambling through “pool betting” whereby a group of people, be it a fan base of a team or a player or a group of friends and family, can pay a fixed price into a “pool” and then make a selection on an outcome, related to a tournament or game in esport. After the event has finished, those that selected the winner get an equal share of the pool.

At the current time, under 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 200K registered players at the end of calendar year 2019.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

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.

International Market Expansion

We received a Gaming Service License (“License”) for online pool betting from the Malta Gaming Authority (“MGA”).The MGA isin April 2020, established a long established authoritybrick and mortar office in such jurisdiction and anticipate commencing online gaming operations in that sets standards for gambling practices acrossjurisdiction in 2020, both on the world with emphasis on safeguarding playersVie.gg and promoting responsible gambling. As an MGA license holder weArgyll Brands. We expect that residents of a number of both European Union and non-EU countries will be able to benefit from onshore status in Europe as Maltese registered operators can advertise across the European Union.place bets on our website.

We do not accept wagersAlthough 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 at this time. of certain European Union member countries to place bets on our website.

Note 2 – Liquidity

The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations. The Company has incurred recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. The Company’s activities are subject to significant risks and uncertainties, including failing to obtain the licenses required to operate its gambling business, failing to secure the additional funding required to fully operationalize the Company’s business, and the risk of existing or future competitors offering similar or more advanced technology.

As of MarchOn July 31, 2020, the Company had an accumulated deficitconsummated the closing of $22,400,446 and a working capital deficiency of $13,985,840. The Company has not generated any revenues during the nine months ended March 31, 2020 and 2019. These factors raised substantial doubt regardingArgyll Purchase Agreement. As consideration for the Company’s ability to continue as a going concern, which has been alleviated by the execution of management’s plans. On April 15, 2020,Acquired Companies, the Company raised approximately $7,000,000(i) paid AHG $1,250,000 in net proceeds from its Offering (see subsequent events)cash (the “Cash Purchase Price”) of which $500,000 was previously paid; (ii) issued to AHG 650,000 shares of common stock of the Company (the “Consideration Shares”); and (iii) issued to AHG warrants to purchase up to 1,000,000 shares of common stock of the Company at an exercise price of $8.00 per share (the “Consideration Warrants” together with the Cash Purchase Price and the Consideration Shares the “Purchase Price”). The funds receivedConsideration Warrants are exercisable for a term of three (3) years.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in the Offering are expected to be enough to satisfy the Company’s current obligations to continue operations at least for the next twelve months from the date of this filing.U.S. dollars)

There have been recent outbreaks in several countries, including the United States, of the highly transmissible and pathogenic coronavirus (“COVID-19”). TheAt this date, we cannot fully predict the impact of the COVID-19 outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activityon our financial results and operations and we continue to closely monitor the economies and financial markets of many countries, including the United States. An outbreak of communicable diseases, or the perception that such an outbreak could occur, and thesituation. The measures taken by the governments of countries affected could adversely affect the Company’s business, financial condition, and results of operations.

Esports Entertainment Group, Inc.

Notes We intend to continue to be nimble in our commercial approach and explore all options with respect to how we can best minimize the Unaudited Interim Condensed Consolidated Financial Statementsnegative impact of COVID-19 on our business.

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

Note 32 – Summary of Significant Accounting Policies

A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows:

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed on Form 10-K of the Company for the annual period ended June 30, 2019.2020. The consolidated balance sheet as of June 30, 20192020 was derived from the audited consolidated financial statements as of and for the year then ended. The condensed consolidated statements include the accounts of the Company and its wholly owned subsidiaries Esports Services Antigua Ltd., Vie Esports Services B.V., Esports Services (Malta) Limited and Esports Entertainment (Malta) Ltd.subsidiaries. All material intercompany transactions and balances have been eliminated on consolidation.

The Company’s financial statements are prepared using the accrual basis of accounting in accordance and the Company’s functional and reporting currency is the U.S. dollar.

Reclassifications

Certain reclassificationsprior year amounts have been made to the prior period condensed consolidated financial statementsreclassified to conform to the current period presentation.

Reverse Stock-Split

All share The Company reclassified taxes payable from accounts payable and per share amounts have been presented to give retroactive effect to a 1 for 15 reverse stock-split that occurred in January 2020.accrued expenses and sales and marketing from general and administrative.

Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average numberUse of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.estimates

The following securities were excludedpreparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from weighted average diluted common shares outstanding for the ninethose estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, and all highly liquid debt instruments purchased with an original maturity of three months ended March 31,or less. As at September 30, 2020 and 2019 because their inclusion would have been antidilutive.June 30, 2020 there were no cash equivalents. At times, cash deposits may exceed FDIC-insured limits. At September 30, 2020 and June 30, 2020, the amount the Company had on deposit funds that exceeded the FDIC-insured limits were approximately $8,500,000 and $12,000,000, respectively.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

RecentPrepaid Expenses

Prepaid expenses consist of stock based compensation, consulting and insurance and services paid in advance, for which the Company has not yet received the benefit.

Equipment

Equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably.

Repairs and maintenance costs are charged to the statements of operations, during the year in which they are incurred.

Depreciation is provided for over the estimated useful life of the asset as follows:

Useful lives and residual values are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The cost and accumulated depreciation of assets retired or sold are removed from the respective accounts and any gain or loss is recognized in operations.

Business Acquisition Accounting Pronouncements

The Company applies the acquisition method of accounting for business acquisitions. The Company allocates the purchase price of our business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill.

Goodwill and Intangible Assets

The Company has implementedrecorded intangible assets, including goodwill, in connection with business acquisitions. Estimated useful lives of amortizable intangible assets are determined by management based on an assessment of the period over which the asset is expected to contribute to future cash flows. The allocation of intangible assets impacts the amounts allocable to goodwill.

In accordance with U.S. GAAP for goodwill and other indefinite-lived intangibles, the Company tests these assets for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. For the purposes of that assessment, the Company has determined to assign assets acquired in business combinations to a single reporting unit including all new accounting pronouncements that aregoodwill and indefinite-lived intangible assets acquired in effect and that may impact its financial statements.business combinations.

Operating Leases

In February 2016, the FASB issued Accounting Standards Codification (ASC) 842,ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective July 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted allthe following practical expedients and elected the following accounting policies related to this standard:standard update:

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

●The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.

As a result of the above, the adoption of ASC 842 did not have a material effect on the consolidated financial statements. The Company will review for the existence of embedded leases in future agreements.

Adoption of this standard did not resultresulted in the recognition of operating lease right-of-use assets or liabilityof $367,513 and lease liabilities of $236,807 on the consolidated balance sheet as of JulyAugust 1, 2019. The Company’s accounting for finance leases remained substantially unchanged.2020 as part of the acquisition of LHE Enterprises Limited. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 10.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying amount exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.

Internal-Use Software

Capitalized internal-use software costs include external consulting fees, payroll and payroll-related costs and stock-based compensation for employees in the Company’s development and information technology groups who are directly associated with, and who devote time to, the Company’s internal-use software projects. Capitalization begins when the planning stage is complete and the Company commits resources to the software project, and continues during the application development stage. Capitalization ceases when the software has been tested and is ready for its intended use. Costs incurred during the planning, training and post-implementation stages of the software development life-cycle are expensed as incurred.

Income Taxes

The Company accounts for income taxes under ASC 740 “Income Taxes,” which codified SFAS 109, “Accounting for Income Taxes” and FIN 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

FASB issued ASC 740-10 “Accounting for Uncertainty in Income Taxes”. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Derivative Instruments

The Company evaluates its convertible notes and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Paragraph 815-10-05-4 of the Codification and Paragraph 815-40-25 of the Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In June 2018,circumstances where the FASB issuedembedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current to correspond with its host instrument.

The Company marks to market the fair value of the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.

The Company utilizes the Monte Carlo Method that values the liability of the debt conversion feature derivative financial instruments and derivative warrants based on exercise contingencies. The reason the Company selected the lattice binomial model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models.

Fair Value of Financial Instruments

ASC 820 “Fair Value Measurement” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices that are observable for asset or liability or indirectly; and

Level 3 – inputs that are not based on observable market data.

The carrying amounts of the Company’s financial instruments including cash, amounts receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities, and due to shareholder approximate their fair values due to their short-term nature.

Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

The following securities were excluded from weighted average diluted common shares outstanding for the three months ended September 30, 2020 and 2019 because their inclusion would have been antidilutive.

Foreign Currency Translation

Monetary assets and liabilities are translated from British pound sterling, Euros, and Canadian dollars into U.S. dollars, which is the functional currency of the Company, at the year-end exchange rate, while foreign currency expenses are translated at the exchange rate in effect on the date of the transaction. The resultant gains or losses are included in the statement of operations. Non-monetary items are translated at historical rates.

Stock-based compensation

The Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including employee stock options under the Company’s stock plans based on estimated fair values.

ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods in the Company’s statement of operations and comprehensive loss. The Company recognizes share-based award forfeitures as they occur rather than estimated by applying a forfeiture rate due to lack of historical experience.

The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, “Compensation – Stock Compensation”. Therefore, the measurement of compensation expense for all stock awards granted are at the fair value on the date of grant and recognition of compensation expense is based on the related service periods for awards expected to vest, which is typically the performance period. The Company has adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements– Stock Compensation. There was no accounting impact related to Nonemployee Share-Based Payment Accounting, which simplifies the accountingadoption of ASU 2018-07.

All issuances of stock options or other equity instruments to non-employees as consideration for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share- based payment transactions in which a grantor acquires goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. The Company recognizes compensation expense for the fair value of non-employee awards based on the straight-line method over the requisite service period of each award. The Company estimates the fair value of stock options granted as equity awards using a Black-Scholes options pricing model.

Advertising

Advertising consist primarily of online search and advertising, trade shows, marketing fees, and other promotional expenses. Online search and advertising costs, which are expensed as incurred, include online advertising media such as banner ads and pay-per-click payments to search engines. Advertising expense for the three months ended September 30, 2020 and 2019 was approximately $315,000 and $26,000, respectively.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Revenue Recognition

The Company generates revenue from end-users (“customers”) placing bets on its online gambling sites it operates for its brands. The Company recognizes revenue through the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The performance obligations in the contract are the settlements of each individual bet. The transaction price is the total Gross Gaming Revenue of the transactions settled, less any bonuses accrued with them, less any profit share required to be used or consumed inpaid to the externally owned brands, net of amounts hedged to offset potential losses.

The Company records revenue as Net Gaming Revenue (“NGR”), which is the difference between the amount of money players wager minus the amount that they win, less any bonus costs. The Company records liabilities for amounts due to users of which the balance consists of user deposits and user winnings less user withdrawals and user losses.

The Company applies a grantor’s own operationspractical expedient by issuing share-based payment awards. The guidance was adopted effective July 1, 2019,accounting for its performance obligations on a portfolio basis as these bets have similar characteristics and the adoptionCompany reasonably expects the effects on the financial statements of this ASU didapplying the revenue recognition guidance to the portfolio will not havediffer materially from that which would result if applying the guidance to an individual bet placed.

The Company grants two types of bonuses which are standard in the gaming industry: (i) Free bet whereby upon making a materialdeposit and get another free bet regardless of the outcome of the first bet (ii) Deposit match bonus in which the Company will match the player’s deposit up to a certain specified percentage or amount. The bonuses typically expire 3-6 months after they are granted. These bonuses represent consideration payable to a customer and therefore are treated as a reduction of the transaction price for the wagering transaction. The transaction price for the bonus is variable based on the percentage of rewards expected to expire.

We evaluate bets that users place on websites owned by third party brands in order to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it has the ability to direct the use of and obtain substantially all the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including any applicable simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Receivables Reserved for Users

User deposit receivables are stated at the amount the Company expects to collect from a payment processor. These arise due to the timing differences between a user’s deposit and the receipt of the payment into the Company’s bank accounts. Receivables also arise as the result of the securitization policies of certain payment processors.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect onand that may impact its consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“Topic 605”), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. Collectively, we refer to Topic 606 as the “new standard.”

We adopted the requirements of the new standard as of July 1, 2020, using the modified retrospective method. The impact of adopting the new standard had no impact on our fiscal 2020 and fiscal 2019 financial statements as revenues is not material and resulted in no cumulative effect adjustment on net income or cash flows. Upon adoption, the Company recorded no contract assets and a contract liability in the amount of $1,258,919. For the three months ended September 30, 2020, the Company recognized approximately $54,000 as revenues in relation to the contract liabilities recorded upon adoption.

We applied the new standard using a practical expedient where all related GAAP changes are made retrospectively to contracts that are not completed contracts at the date of initial application. The Company does not need to restate contracts that begin and are completed within the same annual reporting period.

Recently issued accounting standards

In July 2017, the FASB issued ASUAccounting Standards Update No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815),” which addresses: (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the complexityIndefinite Deferral for Mandatorily Redeemable Financial Instruments of accounting for certain financial instrumentsCertain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round features. The ASU, among other things, eliminatesfeature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. On July 1, 2019, the Company adopted this standard, asentity’s own stock. As a result, freestanding equity-linked financial instruments (or embedded conversion options)features) with down round features may no longer arebe required to be accounted for as a derivative liability at fairliabilities. A company will recognize the value as a result of the existence of a down round feature.feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2017-11 which did not have any impact on the Company’s financial statement presentation or disclosures.

The following are new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2019,2020, and interim periods within those fiscal years, with early adoption permitted. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance to determine the impact it may have on the Company’s financial statements.

In AugustOctober 2018, the FASB issued ASU 2018-13, Fair Value Measurement2018-17, Consolidation (Topic 820). The810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASU 2018-17 eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead, the reporting entity will consider such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU adds new disclosure requirements for Level 3 measurements.indirect interests on a proportionate basis. This ASUupdate is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, it is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of this standard on our consolidated financial statements.

In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years with early adoption permitted for any eliminatedusing the fully retrospective or modified disclosures.retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of this standard on our consolidated financial statements.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. The Company is evaluating the effect of adopting this new accounting guidance to determinedoes not believe that the impact it mayof recently issued standards that are not yet effective will have a material impact on the Company’s financial statements.position or results of operations upon adoption.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31,September 30, 2020

(Unaudited)

(Expressed in U.S. dollars)

Note 3 – Business Acquisitions

Business acquisitions are accounted for under the purchase method of accounting in accordance with ASC 805. The results of operations of the acquired businesses since the date of acquisition are included in the condensed consolidated financial statements of the Company for the three months ended September 30, 2020. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their preliminary estimated fair values as of the date of acquisition, as determined by management. The purchase price allocations are preliminary and a final determination of purchase accounting adjustments, which may be material, will be made upon the finalization of the Company’s integration activities, which are expected to be completed during the fiscal year ending 2021. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The value of the goodwill from this acquisition can be attributed to a number of business factors including, but not limited to, cost synergies expected to be realized and trained technical workforce

Acquisition of LHE Enterprises Limited.

On July 7, 2020, the Company entered into a stock purchase agreement (the “Argyll Purchase Agreement”), between 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”). Argyll Entertainment AG 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, with over 200K registered players at the end of calendar year 2019.

On July 31, 2020, the Company consummated the closing of the Argyll Purchase Agreement. As consideration for the Acquired Companies, the Company (i) paid AHG $1,250,000 in cash (the “Cash Purchase Price”) of which $500,000 was previously paid; (ii) issued to AHG 650,000 shares of common stock of the Company (the “Consideration Shares”); and (iii) issued to AHG warrants to purchase up to 1,000,000 shares of common stock of the Company at an exercise price of $8.00 per share (the “Consideration Warrants” together with the Cash Purchase Price and the Consideration Shares the “Purchase Price”). The Consideration Warrants are exercisable for a term of three (3) years.

The preliminary purchase price allocation of $10,617,784 as of the acquisition completion date of July 31, 2020 is as follows:

The estimated useful life of the identifiable intangible assets is five years. The goodwill is not amortizable for tax purposes. Transaction related costs for the Argyll Purchase Agreement were $77,113

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Pro Forma Operating Results

The following table provides unaudited pro forma results for the three months ended September 30, 2020 and 2019, as if the Argyll Purchase Agreement consummated on July 1, 2019. The pro forma results of operations were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the Argyll Purchase Agreement been made as of July 1, 2019 or results that may occur in the future.

Acquisition of Flip

On September 3, 2020 the Company, entered into an Assignment of Intellectual Property Rights Agreement (the “IP Assignment Agreement”), by and among the Company, AHG and Flip Sports Limited (“Flip”) whereby the Company acquired all intellectual property rights in connection with the software developed by Flip and owned by AHG related to AHG’s online games and rewards platform and all other online software (the “Software”). This includes all works in relation to the same, including, but not limited to the source code of the Software and all technical and functional information and documentation required to operate the Software, all artwork, content and materials used in connection with the Software and any other works in respect of which AHG is the legal and beneficial owner and which are being used in connection with the Software (the “Works” together with the intellectual property rights in the Software the “Assigned Intellectual Property”).

As consideration for the Assigned Intellectual Property, the Company agreed to pay AHG an aggregate of $1,100,000 (the “Flip Purchase Price”) payable as follows: (a) $100,000 in cash on the Effective Date (“Cash Consideration”); and (b) that certain number of shares the Company’s restricted common stock, equal to $1,000,000 (the “Share Consideration”) at a price per share equal to the 30-day weighted average of the Company’s common stock immediately prior to the effective date, September 3, 2020, in accordance with the following payment schedule (i) that certain number of shares equal to $500,000 issued to AHG on the Effective Date (“Closing Shares”); and (ii) that certain number of shares equal to $500,000 of restricted common stock (the “Post Closing Shares”) issued to AHG on the sixth (6) month anniversary of the Effective Date (“Final Payment Date”), subject to the continued employment of certain key employees of Flip as identified in the IP Assignment Agreement (the “Key Employees”). The cash equivalent amount of the Post Closing Shares shall be reduced by $100,000 per Key Employee no longer with the Company on the Final Payment Date. On September 14, 2020, the Company issued 93,808 in accordance with the agreement.

The preliminary purchase price allocation of $1,100,000 as of the acquisition completion date of September 3, 2020 is as follows:

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

The unaudited pro forma financial results for Flip are immaterial for the three months ending September 30, 2020 and 2019. The estimated useful life of the identifiable intangible assets is five years. The goodwill is amortizable for tax purposes. Transaction related costs for the Flip acquisition were immaterial.

Note 4 – Fixed Assets

Fixed assets as of March 31,September 30, 2020 and June 30, 20192020 consists of the following:

During the ninethree months ended March 31,September 30, 2020 and 2019, the Company recorded total depreciation expense of $6,419$49,096 and $8,963$2,216, respectively.

Note 5 – Intangible Assets

Intangible assets as of March 31,September 30, 2020 and June 30, 20192020 consists the following:

During the ninethree months ended March 31,September 30, 2020 and 2019, the Company recorded total amortization expense of $11,595$217,352 and $37,079,$10,594, respectively.

DuringNote 6 – Loans Receivable

On September 22, 2020, the nine months ended March 31,Company entered into two credit facility agreements with two U.S. corporations (the “Borrowers”). Under the agreements, the Company is willing to make a line of credit available to the Borrowers of up to $1,000,000, in the aggregate. The interest rate is 0%. The credit facility was entered into to make funds available to the Borrowers until the proposed acquisition of the Borrowers by the Company is consummated. The Company has entered into an agreement to acquire the Borrowers. The acquisition is expected to close by fiscal year ending 2021. As of September 30, 2020, the Company had recorded $250,000 as loans receivable in relation to the credit facility agreements.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Note 7 – Other Receivables

Other receivables as of September 30, 2020 consists of the following:

The Company did not have other receivables as of June 30, 2020.

Note 8 – Other Non-Current Assets

Other non-current assets as of September 30, 2020 and 2019,June 30, 2020 consists of the Company recorded total impairment expense of $67,131 and $0, respectively.following:

Note 6.9 – Related Party Transactions

The Company entered into transactions and owes balances related to cash to officers and directors.

a) The Company currently leases office space from the Chief Executive Officer of the Company, Grant Johnson. During the ninethree months ended March 31,September 30, 2020 and 2019, the Company incurred rent of $7,200 for both periods,$1,200 and $0, respectively, charged by its Chief Executive Officer. As of March 31,September 30, 2020 and 2019,June 30, 2020, the Company owed $0 and $3,151,$21,658, respectively, to its Chief Executive Officer related to rent payments.payments and corporate expenses paid on the Company’s behalf.

b) The Company provides an expense advance to David Watt,has entered into a Directorrental agreement and a referral agreement with Contact Advisory Services Ltd, which is partly owned by a member of our board of directors. During the Company. For the ninethree months ended March 31,September 30, 2020 and 2019, the Company had provided an expense advance of $0expensed approximately $17,000 and $18,750,$19,000, respectively, to Mr. Watt. As of Marchin accordance with the agreements.

Note 10 – Leases

In conjunction with acquisition on July 31, 2020, and June 30, 2019, the Company included in prepaid expensesinherited a lease agreement for office space, which had under two years remaining on upon the acquisition. The assets and other current assets – related party was $0 and $16,050 for both periods related to David Watt’s expense advance.liabilities from operating leases are recognized at the acquisition date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

The Company’s operating lease does not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of the acquired Company’s long-term debt at the time of the commencement of the lease, which was 5%.

c) During

The Company’s weighted-average remaining lease term relating to its operating leases is 1.67 years, with a weighted-average discount rate of 5%.

The Company incurred lease expense for its operating leases of $34,505 which was included in “General and administrative expenses,” for the ninethree months ended March 31,September 30, 2020.

At September 30, 2020, and 2019, Swiss Interactive Software GmbH (“Swiss”) charged the Company software consulting fees of $20,505 and $0, respectively,had a right-of-use-asset related to operating leases of $367,513, accumulated amortization related to operating leases of $32,527, both of which are included as right of use asset, net.

The following table presents information about the developmentamount, timing and uncertainty of cash flows arising from the Company’s online gaming website. Mr. Rozum is the controlling shareholderoperating leases as of Swiss and was a director and the CTO of the Company until his resignation on September 19, 2019. As of March 31, 2020 and June 30, 2019, the Company has accrued $36,650 and $93,265, respectively in relation to this agreement.

2020.

d) During the nine months ended March 31, 2020 and 2019, Ardmore Software SP.Z.O.O. (“Ardmore”) charged the Company IT consulting fees of $0 and $243,426, respectively and rent expense, totaling $0 and $35,379, respectively. Mr. Rozum is the controlling shareholder of Ardmore and was a director and the CTO of the Company until his resignation on September 19, 2019. As of March 31, 2020 and June 30, 2019, the Company owed $0 and $53,000, respectively.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

MarchSeptember 30, 2020

(Expressed in U.S. dollars)

Note 11 – Notes Payable

On April 30, 2020, the Company obtained a sterling term loan facility from HSBC, with a limit of £250,000. The loan allowed for a drawdown period up to 60 days following the loan acceptance date, which the Company drew down upon in its entirety on June 5, 2020. The loan is to be repaid on a monthly basis beginning on the thirteenth month following the drawdown date until the date 3 years from the date of the drawdown of the loan (“Final Repayment Date.”). Interest at a rate of 3.49% per annum over the Bank of England Base Rate will be payable on the outstanding principal amount of the loan monthly and on the Final Repayment Date. On September 30, 2020, the Company recorded $26,880 as notes payable, current and $295,680 as notes payable, non – current in relation to the loan.

Note 12 – Commitments and contingencies

Consultant Agreements

On October 1, 2019, the Company entered into a sponsorship agreement with an eSports team (the “Team”) in order to obtain certain sponsorship-related rights, benefits, and opportunities with respect to the eSports team. The term of the contract was from October 1, 2019 to June 30, 2022. The Company agreed to pay the Team $516,000 over the term of the contract and $230,000 worth of common stock. The stock is payable in 12 equal installments on the first day of each month. On August 6, 2020, the Company entered into an amended and restated sponsorship agreement whereby the Company agreed to pay a total of $2,545,000 in cash and $825,000 of common stock in tranches throughout the term of the contract which expires on January 31, 2023. As of September 30, 2020, the Company issued 33,333 shares of common stock to the Team. As of September 30, 2020, the Company has accrued $42,469 as accrued expenses in relation to this agreement. For the three months ended September 30, 2020, the Company has expensed $230,879 in accordance with the agreement. As of September 30, 2020, the Company owed 23,815 shares of common stock to the Team.

(Unaudited)

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

Note 7 – Commitments and contingencies

Swiss Interactive – Related Party

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

On November 6, 2019 the Software Transfer Agreement was terminated.

Consultant Agreements

On June 12, 2014, the Company entered into a Betting Gaming Platform Software Agreement with Swiss Interactive Software GmbH. The monthly fees due under the agreement are based on the percentage of total revenues per month ranging from 5.0% to 10.0%. Monthly fees for platform support and maintenance services are set at a minimum of 2,500 Euros and a maximum of 25,000 Euros. During December 2019, the Betting Gaming Platform Software Agreement was terminated

On August 1, 2017, the Company entered into a consulting agreement with a consultant for compensation of $48,000 per year. If the Company’s generates revenues exceeding $1,000,000 per month for six consecutive months the base annual compensation will increase to $72,000 per year.

On July 13, 2018,17, 2020, the Company entered into an agreement with Twin River Worldwide Holdings, Inc. (“Twin River”) that operates various online gaming and betting services in principle with a third party, tothe state of New Jersey, USA. The organization will assist the Company with an offeringin the operations and support to make available sports wagering to persons in New Jersey under the State Gaming Law. On the skin launch date (the “Launch Date”), which is expected to occur during the fiscal year ending June 30, 2021, the Company will pay the operator $1,500,000 and issue 50,000 shares of common stockstock. On each one-year anniversary of the Company or any other financing. Pursuant to this agreement,Launch Date, the Company advanced $50,000 for expenses which has been included in prepaid expenses aswill pay an additional $1,250,000 and issue 10,000 shares of common stock. The agreement shall have a deferred financing cost asterm of March 31, 2020 and June 30, 2019. Inten years from the event the agreement is terminated, the Company has agreed to reimburse the third party for the full amount of accountable expenses incurred to such date, up to a maximum of $200,000.Launch Date.

Contingencies

In September 2018, Boustead Securities, LLC (“Boustead”) has notified the Companyus via letter of a claim that it owes Bousteadthey were owed $192,664, as well as warrants to purchase 94,5281,417,909 shares of our common stock of the Company, as compensation for their acting as the placement agent for the sale of Companyour securities between June 2017 and 2018. Unless thisThis matter was then brought to JAMS pursuant to an arbitration clause in the placement agent agreement entered into by the Company and Boustead.

The Arbitration is currently scheduled for December 2020.

On August 3, 2020, Tangiers Global, LLC (“Tangiers”) filed a lawsuit in the United States District Court for the District of Nevada, entitled Tangiers Global, LLC, v. VGambling, Inc. et al, Case No. 2:20-cv-01434-APG-DJA. While filed in Nevada, the matter is settled, Boustead has notified usin the process of being transferred to the District of Puerto Rico. The complaint for the lawsuit alleges, among other things, that they planthe Company breached a certain 8% convertible promissory note, dated June 3, 2016, and Common Stock Purchase warrant of the same date.

The Company believes the lawsuit lacks merit and will vigorously challenge the action, in addition, to file any counterclaims that may exist. At this time, the Company is unable to estimate potential damage exposure, if any, related to the litigation.

Note 13 – Revenue Recognition

As a result of the LHE Enterprises Limited, the Company is now revenue generating. Upon the acquisition of LHE Enterprises Limited, the Company recorded no contract assets and contract liabilities in the amount of $1,258,919. For the three months ended September 30, 2020, the Company recognized approximately $54,000 as revenues in relation to the contract liabilities recorded upon adoption. As of September 30, 2020, contract assets were not material.

As of September 30, 2020 contract liabilities were $2,092,802, which are recorded as “Liabilities to customers” in the accompanying consolidated balance sheets. Contract liabilities primarily relate to deposits received from customers where bets were not yet placed.

The Company did not have any contract assets or liabilities as of June 30, 2020.

Disaggregated Revenues

The following table presents our revenues from contracts with customers disaggregated by revenue source:

*The Company entered into a revenue sharing agreement with Rush during the period ending September 30, 2020. The Company provides software, tools and infrastructure for the operation and maintenance of an arbitration claim to resolve this dispute. Management believes this claimonline gaming services to be without merit as it is management’s position that Boustead has been paid in fulloffered on Rush’s website. In return, the Company receives 25% of the related net profits with a minimum of 25,000 British pound sterling per month.

The Company did not have any revenues for the services provided and that no further cash or warrants are owed. The JAMS arbitration was originally scheduled for the end of January 2020 and has since been deferred due to COVID-19. It is our position that we have paid Boustead in full for the services it provided to us. We have denied that we owe Boustead any additional cash or warrants and have filed motions to dismiss these claims as well as filed counterclaims against Boustead. We plan to continue to vigorously defend the Company against these claims.three months ended September 30, 2019

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31,September 30, 2020

(Unaudited)

(Expressed in U.S. dollars)

On December 19, 2018, Mr. Bryan Whatley, filed the first amended complaint against the Company (the “Defendant”) in the United States District Court in the District of Nevada for breach of contract in connection with its acting as a finder to assist the Company in finding potential investors. In their complaint, they sought damages in excess of $85,000 plus warrants to purchase shares of the Company’s common stock. The Company filed an answer to the first amended complaint denying the existence of a contract between the Company and Mr. Whatley, among other things. Management believes this claim to be without merit as it is management’s position that there was no contract. We plan to continue to vigorously defend the Company against this claim. The deadline for Mr. Whatley to respond to the Company’s answer was April 12, 2019, and no such response was filed.

On April 23, 2019, the Company filed a motion to dismiss with the United States District Court of the State of Nevada. On August 27, 2019, an order that the Defendant’s motion to dismiss was granted.

Note 8 – Convertible Debt

The Notes and the Bridge (each as defined below) were mandatorily converted in full on April 15, 2020 upon consummation of the April Offering.

$2,200,000 Secured Convertible Note

On November 13, 2018 (the “November 2018 Offering”), the Company issued face value $2,200,000 5% Senior Convertible Notes issued at a 10% original issue discount along with 244,445 warrants for net proceeds of $2,000,000 (the “Notes”). Cash fees paid for financing costs were $336,193. The Notes are secured by all of our assets and accrues interest at 5% per annum, payable in cash at maturity. However, the principal amount may be converted at the option of the holder at any time during the term to maturity into shares of our common stock at a conversion price of $9.0 per share subject to adjustment for capital reorganization events and subsequent sales by the Company of shares of its common stock at a price per share below $9.0. The Notes also contain certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. The Company has concluded that the Notes contain an embedded conversion option that is indexed to the Company’s stock which contain an optional cash settlement feature. Therefore, the embedded conversion option is subject to classification in the Company’s financial statement in liabilities at fair value both at inception and subsequently pursuant to ASC 815.

In connection with the issuance of the Note, the Company issued the holders warrants to purchase our common stock. The warrant is exercisable until November 13, 2021 for 244,445 of shares at a purchase price of $11.25 per share subject to adjustment for capital reorganization events and subsequent sales by the Company of shares of its common stock at a price per share below $11.25. The Company has concluded that the Warrants contain an optional cash settlement feature. Therefore, the Warrants are subject to classification in the Company’s financial statement in liabilities at fair value both at inception and subsequently pursuant to ASC 815.

Additionally, the Company issued its placement agents warrants to purchase its common stock. The warrant is exercisable until December 12, 2023 for 48,889 of shares at a purchase price of $11.25 per share subject to adjustment for capital reorganization events and subsequent sales by the Company of shares of its common stock at a price per share below $11.25. The Company has concluded that the Warrants contain an optional cash settlement feature. Therefore, the Warrants are subject to classification in the Company’s financial statement in liabilities at fair value both at inception and subsequently pursuant to ASC 815.

On July 17, 2019, the Company and the investors (the “Investors”) in its November , 2018 Offering entered into Waiver Agreements (the “Waiver Agreements”). Pursuant to the terms of the Waiver Agreement, the Investors waived the exercise of remedies with regard to certain breaches of agreements and any and all events of defaults between the Company and the Investors, including the Notes, Warrants, and Securities Purchase Agreements (the “Transaction Documents”).

In consideration for the Investors entrance into the Waiver Agreements, the Company increased the principal amount of each Note issued in the November 2018 Offering by 30%, in the form of an Amended and Restated Senior Secured Convertible Promissory Note (the “Amended and Restated Note”). Additionally, for its role as lead investor, facilitator and negotiating the terms of the Waiver Agreement, the Company issued to Cavalry Fund I LP warrants to purchase 3,333 shares of Common Stock exercisable on or after October 1, 2019 for a term of three (3) years from such date at an exercise price of $11.25 per share (the “Cavalry Warrant”).

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

The Company evaluated the debt modification for the Amended and Restated Note in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $2,200,000 Secured Convertible Note was written off and the Amended and Restated Note was recorded at fair value as of July 17, 2019. On July 17, 2019 the Company wrote off the remaining principal balance of $2,200,000 and recorded the Amended and Restated Note at fair market value in the amount of $4,476,412. On July 17, 2019, of the $4,476,412 fair market value, $2,860,000 represents the face amount of the Amended and Restated Note and $1,616,412 represents the deemed premium paid for the Amended and Restated Note which was recorded as additional debt principal to be amortized over the remaining life of the Amended and Restated Note. The Company accelerated the remaining amortization of the July 17, 2019 premium on November 19, 2019. For the nine months ended March 31, 2020, the Company recorded a reduction to amortization expense in the amount of $1,616,412 for the amortization of the deemed premium and a loss on extinguishment of debt in the amount of $2,795,582.

On November 19, 2019, the Company and the Investors in its November 2018 Offering have agreed to or entered into subsequent Waiver Agreements (the “November Waiver Agreements”). Pursuant to the terms of the November Waiver Agreement, the Investors agreed to waive the exercise of remedies with regard to any and all events of default between the Company and the Investors, in connection with the Transaction Documents and agreed to extend the maturity of their Notes until February 14, 2020. As of March 31, 2020, the Investors verbally agreed to extend the maturity date until the filing of the Company’s registration statement, which was subsequently filed on April 15, 2020.

In consideration for the Investors entrance into the Waiver Agreements, the Company has agreed to issue to each Investor an additional Warrant (the “Additional Warrant”) to purchase such number of shares of the Company’s Common Stock equal to 5% of the Warrant Shares initially issuable to such Investor under the Warrant issued to such Investor in the November 13, 2018 Offering, as amended. The Additional Warrant shall have an exercise price of $11.25 per share and shall be in form substantially the same as the Warrants issued in the November 13, 2018 Offering, provided that no cashless provision, ratchet provision or piggyback registration provisions shall be contained in the Additional Warrants.

The Company evaluated the debt modification for the Amended and Restated Note in accordance with ASC 470-50 and concluded that the debt did not qualify for debt extinguishment as the 10% cash flow test was not met. As a result, the additional warrants issued in connection with the waiver were fair valued and recorded as a debt discount, and are being amortized to interest expense over the remaining term of the debt. In addition, the Company incurred $50,000 of deferred financing fees in connection with the modification and expensed the fees to interest expense immediately.

These Notes were verbally agreed to be extended at the maturity date. The Notes were mandatorily converted in full on April 15, 2020 upon the consummation of the Company’s public offering of its securities and simultaneous listing on the Nasdaq Capital Market (the “April Offering”).

Private Placement Offerings

On August 14, 2019 and August 29, 2019, the Company consummated the initial closings (“Initial Closings”) of a private placement offering (the “Offerings”) whereby the Company entered into those certain securities purchase agreement (the “August 2019 Purchase Agreements”) with seven (7) accredited investors (the “August Investors”). Pursuant to the August 2019 Purchase Agreements, the Company issued the August Investors those certain convertible promissory notes (the “August Convertible Promissory Notes”) in the aggregate principal amount of $522,500 (including a 10% original issue discount) and warrants (the “August Investor Warrants”) to purchase 58,057 shares of the Company’s common stock for aggregate gross proceeds of $475,000.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

On October 11, 2019 and December 16, 2019, Company consummated additional closings of the Offerings whereby the Company entered into certain securities purchase agreement accredited investors (the “Q2 Closings”). Pursuant to the Q2 Closings, the Company issued the investors those certain convertible promissory notes (the “Q2 Promissory Notes”) in the aggregate principal amount of $753,500 (including a 10% original issue discount) and to purchase 92,278 shares of the Company’s common stock for aggregate gross proceeds of $685,000.

The August Convertible Promissory Notes and Q2 Promissory Notes, together and in the aggregate the (“Bridge Notes”) accrue interest at a rate of 5% per annum and are initially convertible into shares of the Company’s common stock at a conversion price of $9.00 per share, subject to adjustment (the “Conversion Price”). The Bridge Notes contain a mandatory conversion mechanism whereby unpaid principal and accrued interest on the Bridge Notes, upon the closing of a Qualified Offering (as defined therein) converts into the securities offered in such a Qualified Offering at the lower of (i) the Conversion Price and (ii) 80% of the offering price in the Qualified Offering. The Bridge Notes contain customary events of default (each an “Event of Default”) and mature on August 14, 2020, August 29, 2020, October 16, 2020 and December 6, 2020. If an Event of Default occurs, the outstanding principal amount of the Bridge Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing with respect to the Bridge Notes will become, at the holder’s election, immediately due and payable in cash at the “Mandatory Default Amount”. The Mandatory Default Amount means the sum of 130% of the outstanding principal amount of the Bridge Notes plus accrued and unpaid interest, including default interest of 18% per year, and all other amounts, costs, expenses and liquidated damages due in respect of the Bridge Notes.

Pursuant to the Bridge Notes, each investor was entitled to 100% warrant coverage, such that investor in the Bridge Notes received the same number of warrants to purchase shares of Common Stock as is the number of shares of Common Stock initially issuable upon conversion of the Bridge Notes as of the date of issuance. The warrants issued in accordance with the Bridge Notes are exercisable at a price of $11.25 per share, subject to adjustment from the date of issuance through August 14, 2022, August 29, 2022, October 11, 2022 and December 16, 2022.

The Bridge Notes were mandatorily converted in full on April 15, 2020 upon the consummation of the April Offering.

Joseph Gunnar & Co., LLC (the “Placement Agent”) acted as placement agent for the Offerings and received cash compensation of $85,000 and warrants to purchase 20,778 shares of the Company’s common stock, at an initial exercise price of $11.25 per share, subject to adjustment (“Agent Warrants”). The Agent Warrants may be exercised on a “cashless” basis and expire in August 14, 2024 and August 29, 2024.

Accounting for the Amended and Restated Notes and Convertible Promissory Notes

The Company evaluated the terms and conditions of the Amended and Restated Notes and Convertible Promissory Notes issued in the private placement offerings under the guidance of ASC 815. Because the economic characteristics and risks of the equity-linked conversion options are clearly and closely related to a debt-type host and the conversion features contain an optional cash settlement, the conversion features require classification and measurement as derivative financial instruments. Further, these features individually were not afforded the exemption normally available to derivatives indexed to a company’s own stock. Accordingly, our evaluation resulted in the conclusion that this compound derivative financial instrument requires bifurcation and liability classification, at fair value. The compound derivative financial instrument consists of an embedded conversion feature. Current standards contemplate that the classification of financial instruments requires evaluation at each report date.

The following tables reflect the allocation of the purchase on the financing dates:

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

The carrying value of the aggregate secured convertible notes at March 31, 2020 and June 30, 2019 was $4,031,000 and $290,720, respectively.

Discounts and premiums on the convertible notes arise from (i) the allocation of basis to other instruments issued in the transaction, (ii) fees paid directly to the creditor and (iii) initial recognition at fair value, which is greater than face value. Discounts and premiums are amortized through charges to and reductions to amortization of interest expense using the effective interest rate method over the term of the debt agreement. Amortization of debt discounts amounted to $2,841,617 and amortization of debt premium amounted to $1,616,412, which resulted in expense from net amortization in the amount of $1,225,205 during the nine months ended March 31, 2020. During the nine months ended March 31, 2019, the Company recorded amortization of debt discount in the amount of $1,176,324.

Derivative Liabilities

The carrying value of the compound embedded derivative and warrant derivative liabilities are on the balance sheet, with changes in the carrying value being recorded as a change in fair market value of derivative liabilities on the statements of operations and comprehensive loss.

The components of the compound embedded derivative and warrant derivative liabilities as of March 31, 2020 are as follows:

The components of the compound embedded derivative and warrant derivative liabilities as of June 30, 2019 are as follows:

Fair Value Considerations

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

Level 1 valuations: Quoted prices in active markets for identical assets and liabilities.

Level 2 valuations: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.

Level 3 valuations: Significant inputs to valuation model are unobservable.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

Fair Value of Financial Assets and Liabilities Measured on a Recurring BasisNote 14 – Equity

Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of March 31, 2020.

Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheet as of June 30, 2019.

The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended March 31, 2020:

The fair value of the derivative conversion features and warrant liabilities as of March 31, 2020 were calculated using a Monte-Carlo option model valued with the following assumptions:

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments.Preferred Stock

The features embedded inCompany has authorized 10,000,000 shares of preferred stock with a par value of $0.001 per share. There are no preferred shares designated, issued, and outstanding for the secured convertible notesperiods ending September 30, 2020 and the warrants were valued using a Monte Carlo based valuation model. The Monte Carlo valuation technique was utilized because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) that are necessary to fair value these instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, the Company projects and discounts future cash flows applying probability-weighted to multiple possible outcomes. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Because derivative financial instruments are initially and subsequently carried at fair values, the Company’s income will reflect the volatility in these estimate and assumption changes.June 30, 2020.

Note 9 – Common Stock

Issued Common Stock

During the ninethree months ended March 31, 2019,September 30, 2020, the Company issued 110,667281,626 shares of its common stock related to the exercise warrantsfor services rendered with a weighted average exercise pricefair market value of $2.55$6.46 per share.

Duringshare or $1,819,601 in the nine months ended March 31, 2019,aggregate. Of the Company issued 84,444281,626 shares of its common stock related equity to be issued, for the exercise of warrants in a previous period with an exercise price of $2.55 per share. The Company recorded these shares as equity to be issued at June 30, 2018 and did not receive any cash proceeds during the nine months ended March 31, 2019. For the nine months ended March 31, 2019, the Company recorded $220,602 as a reduction in equity to be issued.

During the nine months ended March 31, 2019, the Company issued 13,778117,450 shares of its common stock related to a subscription agreement entered into in a previous period. The Company recorded these shares as equity to be issued at June 30, 2018 and did not receive any cash proceeds during the nine months ended March 31, 2019. For the nine months ended March 31, 2019, the Company recorded $31,000 as a reduction in equity to be issued.

During the nine months ended March 31, 2019, the Company issued 11,000 shares of its common stockwere related to services received in a previous period. The Company recorded these shares as equityliabilities to be issuedsettled in stock at June 30, 2018.2020 with a fair market value of $927,855 in the aggregate. For the six monthsperiod ended December 31, 2018,September 30, 2020, the Company recorded $127,500$927,855 as a reduction of current liabilities and increase to additional paid-in capital.

During the three months ended September 30, 2020, the Company issued 275,463 shares of common stock for the exercise of warrants with a weighted average exercise price of $3.72 per share or $1,024,924 in the aggregate. Of the 275,463 shares of common stock issued, 20,000 shares of common stock were related to an exercise in the previous period. The Company recorded these shares at June 30, 2020 with a fair market value of $4.25 per share or $85,000. For the three months ended September 30, 2020, the Company recorded $85,000 as a reduction in equity to be issued and $6,000 as stock based compensation.issued.

During the ninethree months ended March 31, 2019, the Company issued 6,667 shares of common stock related to an employment agreement of an officer of the Company. For the nine months ended March 31, 2019, the Company recorded $60,000 as stock based compensation in relation to the employment agreement

During the nine months ending March 31, 2019, the Company issued 2,222 shares of its common stock in relation to a sponsorship agreement and recorded stock based compensation in the amount of $21,999 in relation to the agreement.

During the nine months ended March 31,September 30, 2020, the Company issued 53,028 shares of its common stock upon the exercise of warrants upon a cashless exercise.

During the nine months ended March 31, 2020, the Company issued 44,445 shares of its common stock upon the exercise of warrants and received cash proceeds of $100,000.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)

On November 19, 2019, the Company and the Investors in its November 2018 Offering entered into subsequent Waiver Agreements (the “November Waiver Agreements”). Pursuant to the terms of the November Waiver Agreement, the Investors agreed to waive the exercise of remedies with regard to any and all events of default between the Company and the Investors, in connection with the Transaction Documents and agreed to extend the maturity of their Notes until February 14, 2020. As of March 31, 2020, the Investors verbally agreed to extend the maturity. The Company issued 5,435650,000 shares of common stock in relation to the November Waiver Agreements. These Notes were mandatorily convertedLHE Enterprises Limited acquisition. The Company recorded these shares at fair market value in full upon the consummationamount of $3,802,500 (see Note 3). Additionally, the April OfferingCompany issued 9,630 shares as a finder’s fee in relation to the acquisition. The Company expensed these shares as general and administrative in the amount of $54,232.

In consideration for the Investors entrance into the Waiver Agreements,On September 14, 2020, the Company has agreed to issue to each Investor an additional Warrant (the “Additional Warrant”) to purchase such number ofissued 93,808 shares of common stock in relation to the Company’s Common Stock equal to 5%Flip acquisition. The Company recorded these shares at fair market value on the date of the Warrant Shares initially issuable to such Investor under the Warrant issued to such Investorgrant in the November 13, 2018 Offering, as amended. The Additional Warrant shall have an exercise priceamount of $11.25 per share and shall be in form substantially the same as the Warrants issued in the November 2018 Offering, provided that no cashless provision, ratchet provision or piggyback registration provisions shall be contained in the Additional Warrants.$500,000 (see Note 3).

During the ninethree months ended March 31, 2020,September 30, 2019, the Company issued 16,667 shares of its common stock related to a consulting agreement dated June 4, 2019. These shares were recorded as equity to be issued at June 30, 2019, and during the ninethree months ended March 31, 2020,September 30, 2019, the Company recorded $200,000 as a reduction to equity to be issued. As of March 31, 2020,September 30, 2019, the Company recorded a prepaid expense in the amount of $125,000$166,667 related to the value of the common stock granted for future services to be rendered.

Note 10 –Common Stock Warrants

Warrant Exchange

On January 17,During the three months ended September 30, 2020, the Company entered into Exchange Agreements with eighteen of its investors whereby the investors agreed to exchange warrantsissued a warrant to purchase an aggregate of 288,7221,000,000 shares of common stock for 288,722 shares ofin relation to the Company’s common stock (the “Warrant Exchange”).LHE Enterprises Limited acquisition. The warrant is exercisable at $8.00 per share and expires on July 31, 2023. The Company recorded $1,894,418 asthe warrant at fair market value of $5,488,171 (see Note 3). The warrant contains a cash settlement feature which results in a warrant liability. For the period ending September 30, 2020, the Company recorded a warrant liability of $3,387,218 in relation to the cash settlement feature. For the three months ending September 30, 2020, the Company recorded a gain on Warrant Exchange which represents the differencechange in the fair value of the exchanged warrantswarrant liability in the amount of $3,583,442 and$2,100,953. The Company valued the fair value ofwarrant using the common stock issued in the amount of $1,689,024. The Exchange Agreements were entered into in order to extinguish the derivative liability associatedBlack-Scholes option pricing model with the warrants.following terms on July 31, 2020: (a) exercise price of $8.00, (b) volatility rate of 187.40%, (c) discount rate of 0.48%, (d) term of three years, and (e) dividend rate of 0%. The Company valued the warrant using the Black-Scholes option pricing model with the following terms on September 30, 2020: (a) exercise price of $8.00, (b) volatility rate of 183.25%, (c) discount rate of 0.28%, (d) term of 2 years and 10 months, and (e) dividend rate of 0%.

Esports Entertainment Group, Inc.

Notes to the Consolidated Financial Statements

September 30, 2020

(Expressed in U.S. dollars)

A summary of the Company’s warrant activities is as follows:

There were 138,612 warrants exercised during the nine months ended March 31, 2020. The intrinsic value of the warrants exercised during the nine months March 31, 2020 and 2019 was $49,334 and $1,274,000, respectively.

Esports Entertainment Group, Inc.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

(Expressed in U.S. dollars)