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 June 30, ~~2021~~2022

☐	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: 001-40334

~~Esports Technologies,~~EBET, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada

85-3201309

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

197 E. California Ave. Ste. 302, Las Vegas, NV		89104
(Address of Principal Executive Offices)		(Zip Code)

~~(702)~~(888) ~~481-1779~~411-2726

(Registrant's Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	EBET	The NASDAQ Stock Market LLC

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 ☒ 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 ☒ 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.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☒

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

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

The registrant had ~~13,231,333~~16,447,163 shares of common stock outstanding on August ~~9, 2021.~~

7, 2022.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to those described under the “Risk Factors” section and include, among other things:

	·	our ability to successfully integrate our asset acquisitions;

	·	our ability to introduce new enhancements to our website on the timeline we have indicated;


	·	our ability to obtain additional funding to develop additional services and ~~offerings;~~offerings and to service our debt obligations;


	·	compliance with obligations under intellectual property licenses with third parties;


	·	market acceptance of our new offerings;


	·	competition from existing online offerings or new offerings that may emerge;


	·	our ability to establish or maintain collaborations, licensing or other arrangements;


	·	our ability and third parties’ abilities to protect intellectual property rights;


	·	our ability to adequately support future growth; and


	·	our ability to attract and retain key personnel to manage our business effectively.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

~~Esports Technologies,~~EBET, Inc.

FORM 10-Q

For the Quarter Ended June 30, ~~2021~~2022

INDEX

				Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements		4

		a)	Consolidated Balance Sheets as of June 30, ~~2021~~2022 and September 30, ~~2020~~2021	4
		b)	Consolidated Statements of Operations for the Three and ~~Nine~~nine Months Ended June 30, 2022 and ~~2020~~2021	5
		c)	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	6
		d)		e)	Consolidated Statements Cash Flows for the Nine Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	7
		e)		f)	Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1621

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		1926

	Item 4.	Controls and Procedures		2026

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		2127

	Item 1A.	Risk Factors		2127

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
				27

	Item 3.	Defaults Upon Senior Securities		2227

	Item 4.	Mine Safety Disclosure		2227

	Item 5.	Other Information		2227

	Item 6.	Exhibits		2228

SIGNATURE				2329

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements.

~~ESPORTS TECHNOLOGIES,~~EBET, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,			September 30,
	2022			2021

ASSETS
Current assets:
Cash	$	6,888,479		$	9,064,859
Accounts receivable, net		1,618,957			21,636
Prepaid expenses and other current assets		2,256,849			690,637
Right of use asset, operating lease, current portion		164,821			170,512

Total current assets		10,929,106			9,947,644

Long term assets:
Fixed assets, net		1,109,118			85,334
Right of use asset, operating lease		30,473			172,915
Intangible assets - license agreement, net		1,152,147			1,616,088
Intangible assets - domain names, net		2,241,052			2,240,510
Goodwill		32,667,115			0
Acquired intangibles, net		30,992,788			0

Total assets	$	79,121,799		$	14,062,491

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	12,352,125		$	1,721,103
Current lease liabilities		164,820			170,511
Derivative liabilities		233,397			0
Borrowings		1,606,891			1,396,133
Liabilities to users		1,403,889			58,789
Total current liabilities		15,761,122			3,346,536

Long-Term Liabilities
Borrowings		32,244,969			463,925

Total liabilities		48,006,091			3,810,461

COMMITMENTS AND CONTINGENCIES		–			–

Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 40,967 and 0 issued and outstanding as of June 30, 2022 and September 30, 2021, respectively		41			0
Common stock; $0.001 par value, 100,000,000 shares authorized 16,172,954 and 13,315,414 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively		16,172			13,315
Additional paid-in capital		85,193,567			26,834,354
Accumulated other comprehensive (deficit) income		(4,476,394	)		53,911
Accumulated deficit		(49,617,678	)		(16,649,550	)
Total stockholders’ equity		31,115,708			10,252,030

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	79,121,799		$	14,062,491

June 30, September 30,
2021 2020

ASSETS
Current assets:
Cash $ 12,459,191 $ 0
Accounts receivable, net 0 33,839
Deferred financing costs 0 50,000
Prepaid expenses 708,148 0
Other current assets 26,387 0

Total current assets 13,193,726 83,839

Long term assets:
Software and equipment, net 86,436 0
Intangible assets - cryptocurrency 955 44,562
Intangible assets - domain names, net 2,239,606 2,239,606
Intangible assets - license agreements, net 1,772,484 0

Total assets $ 17,293,207 $ 2,368,007

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 767,066 $ 55,760
Accounts payable, related party 0 152,888
Convertible notes payable, net of discount 1,086,311 0
Liabilities to users 18,824 8,809
Total current liabilities 1,872,201 217,457

Convertible notes payable, net of discount 0 116,667
Other long-term liabilities, net of discount 453,178 422,409

Total liabilities 2,325,379 756,533

COMMITMENTS AND CONTINGENCIES

Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 0 issued and outstanding 0 0
Common stock; $0.001 par value, 100,000,000 shares authorized, 13,111,155 and 7,340,421 shares issued and outstanding as of June 30, 2021, and September 30, 2020, respectively 13,111 7,340
Additional paid-in capital 25,488,245 3,053,660
Accumulated deficit (10,533,528 ) (1,449,526 )
Total stockholders’ equity 14,967,828 1,611,474

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,293,207 $ 2,368,007

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

EBET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2022			2021			2022			2021

Revenue	$	18,168,515		$	41,356		$	44,311,030		$	85,984
Cost of revenue		(10,918,796	)		0			(27,537,479	)		(24,724	)

Gross profit		7,249,719			41,356			16,773,551			61,260

Operating expenses:
Sales and marketing expenses		9,262,851			964,836			22,711,724			1,238,780
Product and technology expenses		1,115,165			1,176,848			3,270,328			2,286,228
Acquisition costs		0			139,235			2,240,147			139,235
General and administrative expenses		3,863,298			1,340,042			12,454,493			4,123,163
Total operating expenses		14,241,314			3,620,961			40,676,692			7,787,406

Income (loss) from operations		(6,991,595	)		(3,579,605	)		(23,903,141	)		(7,726,146	)

Other expenses:
Interest expense		(1,920,553	)		(368,001	)		(5,734,873	)		(1,335,621	)
Foreign currency loss		(66,552	)		(10,005	)		(62,794	)		(22,235	)
Total other expense		(1,987,105	)		(378,006	)		(5,797,667	)		(1,357,856

Loss before provision for income taxes		(8,978,700	)		(3,957,611	)		(29,700,808	)		(9,084,002	)
Provision for income taxes		0			0			0			0

Net loss	$	(8,978,700	)	$	(3,957,611	)	$	(29,700,808	)	$	(9,084,002	)

Preferred stock dividends		(1,416,242	)		0			(3,267,319	)		0
Net loss attributable to common shareholders		(10,394,942	)		(3,957,611	)		(32,968,127	)		(9,084,002	)

Net loss per common share – basic	$	(0.70	)	$	(0.38	)	$	(2.31	)	$	(0.85	)
Net loss per common share – diluted	$	(0.70	)	$	(0.38	)	$	(2.31	)	$	(0.85	)

Weighted average common shares outstanding – basic		14,842,497			10,549,765			14,267,461			10,650,966
Weighted average common shares outstanding – diluted		14,842,497			10,549,765			14,267,461			10,650,966

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

~~ESPORTS TECHNOLOGIES,~~

EBET, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CHANGES IN SHAREHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

Three Months Ended Nine Months Ended
June 30, June 30,
2021 2020 2021 2020

Revenue $ 41,356 $ 63,740 $ 85,984 $ 141,618
Cost of revenue 0 (27,971 ) (24,724 ) (80,138 )

Gross profit 41,356 35,769 61,260 61,480

Operating expenses:
Sales and marketing expenses 964,836 0 1,238,780 0
Product and technology expenses 1,176,848 0 2,286,228 15,635
Acquisition costs 139,235 0 139,235 0
General and administrative expenses 1,340,042 64,685 4,123,163 93,116
Total operating expenses 3,620,961 64,685 7,787,406 108,751

Income (loss) from operations (3,579,605 ) (28,916 ) (7,726,146 ) (47,271 )

Other expenses:
Interest expense (368,001 ) 0 (1,335,621 ) 0
Foreign currency loss (10,005 ) 1,262 (22,235 ) 1,262
Total other expense (378,006 ) 1,262 (1,357,856 ) 1,262

Income (loss) before provision for income taxes (3,957,611 ) (27,654 ) (9,084,002 ) (46,009 )
Provision for income taxes 0 0 0 0

Net income (loss) $ (3,957,611 ) $ (27,654 ) $ (9,084,002 ) $ (46,009 )

Net income (loss) per common share – basic and diluted $ (0.38 ) $ (0.00 ) $ (0.85 ) $ (0.01 )

Weighted average common shares outstanding – basic and diluted 10,549,765 7,340,421 10,650,966 7,340,421


	Common stock				Preferred Stock
	Number of				Number of				Additional paid-in			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		capital			Income			deficit			Total

Balance at September 30, 2020		7,340,421	$	7,340		–	$	–	$	3,053,660		$	–		$	(1,449,526	)	$	1,611,474
Shares issued for cash, net		2,000,000		2,000		–		–		3,646,071			–			–			3,648,071
Stock-based compensation		683,334		683		–		–		1,321,343			–			–			1,322,026
Shares issued due to conversion of notes payable		375,000		375		–		–		187,125			–			–			187,500
Stock warrants issued for asset acquisition		–		–		–		–		57,252			–			–			57,252
Net loss		–		–		–		–		–			–			(2,750,731	)		(2,750,731	)
Balance at December 31, 2020		10,398,755		10,398		–		–	$	8,265,451			–			(4,200,257	)		4,075,592

Shares issued for cash, net		250,014		251		–		–		719,435			–			–			719,686
Stock-based compensation		–		–		–		–		700,000			–			–			700,000
Net loss		–		–		–		–		–			–			(2,375,660	)		(2,375,660	)
Balance at March 31, 2021		10,648,769		10,649		–		–	$	9,684,886			–			(6,575,917		$	3,119,618

Shares and warrants issued for cash, net		2,400,000		2,400		–		–		13,511,800			–			–			13,514,200
Shares issued for intangible assets		–		–		–		–		1,456,650			–			–			1,456,650
Cashless exercise of warrants		62,386		62		–		–		(62	)		–			–			–
Stock-based compensation		–		–		–		–		834,971			–			–			834,971
Net loss		–		–		–		–		–			–			(3,957,611	)		(3,957,611	)
Balance at June 30, 2021		13,111,155		13,111		–		–	$	25,488,245			–			(10,533,528	)		14,967,828


Balance at September 30, 2021		13,315,414	$	13,315		–		–	$	26,834,354		$	53,911		$	(16,649,550	)	$	10,252,030
Shares & warrants issued for cash, net		–		–		37,700		38		37,699,962			–			–			37,700,000
Shares issued to Aspire Global plc		186,838		187		–		–		13,326,565			–			–			13,326,752
Cashless exercise of warrants		244,346		244		–		–		(244	)		–			–			–
Shares issued for conversion of debt		423,141		423		–		–		112,077			–			–			112,500
Exercise of stock options for cash		2,000		2		–		–		5,998			–			–			6,000
Stock-based compensation		20,000		20		–		–		1,435,296			–			–			1,435,316
Preferred share dividends		–		–		484		–		483,817			–			(483,817	)		–
Issuance costs		–		–		–		–		(2,100,000	)		–			–			(2,100,000	)
Net loss		–		–		–		–		–			–			(8,881,038	)		(8,881,038	)
Comprehensive income		–		–		–		–		–			187,428			–			187,428
Balance at December 31, 2021		14,191,739	$	14,191		38,184	$	38	$	77,797,825		$	241,339		$	(26,014,405	)	$	52,038,988

Cashless exercise of warrants and RSU		225,091		225		–		–		(225	)		–			–			–
Stock-based compensation		–		–		–		–		1,814,607			–			–			1,814,607
Preferred share dividends		–		–		1,367		2		1,367,258			–			(1,367,260	)		–
Net loss		–		–		–		–		–			–			(11,841,071	)		(11,841,071	)
Comprehensive income		–		–		–		–		–			(1,156,825	)		–			(1,156,825	)
Balance at March 31, 2022		14,416,830	$	14,416		39,551	$	40	$	80,979,465		$	(915,486	)	$	(39,222,736	)	$	40,855,699
Shares & warrants issued for cash, net		977,659		978		–		–		3,499,022			–			–			3,500,000
Cashless exercise of warrants and RSU		178,465		178		–		–		(178	)		–			–			–
Shares issued for conversion of debt		600,000		600		–		–		299,400			–			–			300,000
Stock-based compensation		–		–		–		–		1,091,167			–			–			1,091,167
Preferred share dividends		–		–		1,416		1		1,416,241			–			(1,416,242	)		–
Issuance costs		–		–		–		–		(2,091,550	)		–			–			(2,091,550	)
Net loss		–		–		–		–		–			–			(8,978,700	)		(8,978,700	)
Comprehensive income		–		–		–		–		–			(3,560,908	)		–			(3,560,908	)
Balance at June 30, 2022		16,172,954	$	16,172		40,967	$	41	$	85,193,567		$	(4,476,394	)	$	(49,617,678	)	$	31,115,708

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

~~ESPORTS TECHNOLOGIES,~~

EBET, INC.

CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS' EQUITY~~CASH FLOWS

FOR THE ~~THREE AND~~ NINE MONTHS ENDED JUNE 30, 2022 and 2021 ~~AND 2020~~

(Unaudited)

Common stock Additional
Number of paid-in Accumulated
Shares Amount capital deficit Total

Balance at September 30, 2019 7,340,421 $ 7,340 $ 953,660 $ (876,271 ) $ 84,729

Net loss – – – (23,428 ) (23,428 )

Balance at December 31, 2019 7,340,421 7,340 953,660 (899,699 ) 61,301

Net income – – – 5,073 5,073

Balance at March 31, 2020 7,340,421 7,340 953,660 (894,626 ) 66,374

Net loss – – – (27,654 ) (27,654 )

Balance at June 30, 2020 7,340,421 $ 7,340 $ 953,660 $ (922,280 ) $ 38,720

Balance at September 30, 2020 7,340,421 $ 7,340 $ 3,053,660 $ (1,449,526 ) $ 1,611,474

Shares issued for cash, net 2,000,000 2,000 3,646,071 – 3,648,071

Stock-based compensation 683,334 683 1,321,343 – 1,322,026

Shares issued due to conversion of notes payable 375,000 375 187,125 – 187,500

Stock warrants issued for asset acquisition – – 57,252 – 57,252

Net loss – – – (2,750,731 ) (2,750,731 )

Balance at December 31, 2020 10,398,755 10,398 8,265,451 (4,200,257 ) 4,075,592

Shares and warrants issued for cash, net 250,014 251 719,435 – 719,686

Stock-based compensation – – 700,000 – 700,000

Net loss – – – (2,375,660 ) (2,375,660 )

Balance at March 31, 2021 10,648,769 10,649 $ 9,684,886 $ (6,575,917 ) $ 3,119,618

Shares and warrants issued for cash, net 2,400,000 2,400 13,511,800 – 13,514,200

Shares issued for intangible assets – – 1,456,650 – 1,456,650

Cashless exercise of warrants 62,386 62 (62 ) – –

Stock-based compensation – – 834,971 – 834,971

Net loss – – – (3,957,611 ) (3,957,611 )

Balance at June 30, 2021 13,111,155 $ 13,111 $ 25,488,245 $ (10,533,528 ) $ 14,967,828


	For the Nine Months Ended June 30,
	2022			2021

Cash flow from operating activities:
Net loss	$	(29,700,808	)	$	(9,084,002	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount, issuance costs		1,319,608			1,187,913
Depreciation and amortization expense		4,770,509			178,339
Stock-based compensation		4,341,090			2,856,997
Gain on cryptocurrency settlement					5,665
Derivative (gain)/loss		233,397			0
Foreign exchange (gain)/loss		50,377			0
Changes in operating assets and liabilities:
Accounts receivable		(1,597,324	)		(35,252	)
Prepaid expenses and other		(1,566,211	)		(623,026	)
Accounts payable and accrued liabilities		11,853,570			775,277
Accounts payable - related parties		0			(152,888	)
Liabilities to users		1,345,100			(8,432	)
Net cash used in operating activities		(8,950,692	)		(4,899,409	)

Cash flow from investing activities:
Purchase of fixed assets		(1,141,449	)		(103,259	)
Cash paid for business combinations		(56,229,526	)		0
Purchase of other long term assets		0			(420,098	)
Net cash used by investing activities		(57,370,975	)		(523,357	)

Cash flow from financing activities:
Proceeds from debt issuance, net of issuance costs		27,130,837			0
Proceeds from equity issuance, net of issuance costs		37,014,450			17,881,957
Net cash provided by financing activities		64,145,287			17,881,957

NET CHANGE IN CASH		(2,176,380	)		12,459,191
CASH AT BEGINNING OF PERIOD		9,064,859			0
CASH AT END OF PERIOD	$	6,888,479		$	12,459,191

Supplemental disclosure of cash flow information:
Cash paid for interest	$	0		$	0

Non-cash transactions
Preferred shares issued for dividends	$	3,267,319		$	0
Stock warrants issued in connection with Senior Notes	$	7,661,382		$	0
Stock warrant issued for asset acquisition	$	0		$	57,282
Stock issued for conversion of notes payable	$	412,500		$	187,500
Stock issuable for intangible asset	$	0		$	1,456,650

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

~~ESPORTS TECHNOLOGIES, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~FOR THE NINE MONTHS ENDED JUNE 30, 2021 and 2020~~

~~(Unaudited)~~

For the Nine Months Ended
June 30,

2021 2020
Cash flow from operating activities:
Net loss $ (9,084,002 ) $ (46,009 )
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount 1,187,913 0
Depreciation and amortization expense 178,339 0
Stock-based compensation 2,856,997 0
Bad debt expense 50,932 0
Gain on cryptocurrency settlement (45,267 ) (1,369 )
Changes in operating assets and liabilities:
Accounts receivable (35,252 ) (125,553 )
Prepaid expenses and other (623,026 ) 0
Accounts payable and accrued liabilities 775,277 0
Accounts payable - related parties (152,888 ) 105,118
Liabilities to users (8,432 ) 96
Net cash used in operating activities (4,899,409 ) (67,717 )

Cash flow from investing activities:
Purchase of software and equipment (103,259 ) 0
Purchase of other long-term assets (420,098 ) 0
Net cash used by investing activities (523,357 ) 0

Cash flow from financing activities:
Proceeds from equity issuance, net of costs of capital 17,881,957 0
Net cash provided by financing activities 17,881,957 0

NET CHANGE IN CASH 12,459,191 (67,717 )
CASH AT BEGINNING OF PERIOD 0 67,717
CASH AT END OF PERIOD $ 12,459,191 $ 0

Supplemental disclosure of cash flow information:
Cash paid for interest $ 0 $ 0
Cash paid for income taxes $ 0 $ 0

Non-cash transactions
Stock warrant issued for asset acquisition $ 57,282 $ 0
Stock issued for conversion of notes payable $ 187,500 $ 0
Stock issuable for intangible asset $ 1,456,650 $ 0

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

~~ESPORTS TECHNOLOGIES,~~EBET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN

Organization

~~Esports Technologies,~~EBET, Inc. (“~~Esports Tech”~~EBET” or “the Company”) was formed on September 24, 2020 as a Nevada corporation. ~~Esports Tech~~EBET is a technology company ~~creating and~~ operating platforms focused on igaming including casino, sportsbook and esports ~~and competitive gaming.~~events. The Company operates under a Curacao gaming sublicense and ~~can~~under a strategic partnership with Aspire Global plc (“Aspire”) allowing EBET to provide online betting services to various countries around the world. ~~The majority of~~On May 5, 2022, the ~~Company’s customers are based in the Philippines. The Company’s consolidated financial statements include~~Company changed its ~~accounts and the accounts of its 100% owned subsidiaries, namely~~name to EBET, Inc. from Esports Technologies, Inc.

On September 24, 2020, ESEG Limited (“ESEG”) was acquired by Global E-Sports Entertainment Group, LLC (“Global E-Sports”), in exchange for 50% of the membership interest in Global E-Sports held by the former owners of ESEG. The remaining 50% interest of Global E-Sports is held by EBET. Prior to this transaction both ESEG ~~Limited~~and Global E-Sports shared common ownership. This transaction was accounted for as a combination of entities under common control and as such both operations have been combined from their inception. In addition, on September 24, 2020, EBET executed a Share Exchange Agreement (“~~ESEG”~~Share Exchange”) resulting in the acquisition of 100% of the membership interest of Global E-Sports in exchange for the issuance of 7,340,421 shares of common stock.

Pursuant to the Share Exchange, the merger between Global E-Sports and ~~Gogawi Entertainment Group (“Gogawi”) (collectively referred to~~the Company was accounted for as a reverse merger. Under this method of accounting, EBET was treated as the ~~“Company,” “we,” “our,” or “us”).~~“acquired” company for financial reporting purposes. The net assets of Global E-Sports ~~a Nevada limited liability company, was incorporated in Nevada on June 28, 2016. ESEG, a Belize company was incorporated on~~are stated at historical cost, with no goodwill or other intangible assets recorded.

Acquisition of the B2C business of Aspire Global plc

On October ~~31, 2016. Gogawi, a Cypress company was incorporated on December 8, 2018 and has always been a wholly owned subsidiary of ESEG. On December 8, 2020,~~1, 2021, the Company, ~~incorporated Esportsbook~~and Esports Product Technologies ~~Limited~~Malta Ltd. (“~~Esportsbook”~~Esports Malta”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Aspire and various Aspire group companies to acquire all of the issued and outstanding shares of Karamba Limited. The total acquisition price was €65,000,000 paid as follows: (i) cash amount of €50,000,000; (ii) €10,000,000, payable in ~~Ireland as a wholly-owned subsidiary~~accordance with the terms of ~~Esports Tech. All amounts included in this Form 10-Q~~an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which are ~~expressed in U.S. Dollars, unless otherwise noted.~~valued at €5,000,000 (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement (the “Exchange Shares”). See Notes 3, 4 and 5 for additional information.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recurring losses and generated negative cash flows from operations since inception. In April 2021, the Company completed its Initial Public Offering (“IPO”) and issued 2,400,000 shares of common stock for gross cash proceeds of $$14,400,000, receiving net proceeds of $13,514,200. The Company's forecasts for 2022 and beyond indicate that it we will need additional funding in order to have sufficient financial resources to continue to settle its debts as they fall due. The Company has taken significant measures to increase the profitability of its business in the short term. These actions include optimizing the efficiency of marketing campaigns, reducing the total number of employees and contractors by approximately 45 positions, terminating software and other immaterial contracts as well as generally reducing the operating costs of the business. These efforts have also resulted in an increased focus on the Company’s i-gaming business and a significant reduction in the investment of the Company’s esports products and technologies. As a result of the Company’s actions as referenced above, it does not expect to launch its esports products in the short or medium term. In making this assessment, the Directors considered the going concern status for a period of at least 12 months from the date of signing the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Impact of COVID-19

The outbreak of the 2019 novel coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread, has severely impacted the U.S. and world economies. Economic recessions, including those brought on by the COVID-19 outbreak may have a negative effect on the demand for the Company’s products and the Company’s operating results. The range of possible impacts on the Company’s business from the coronavirus pandemic could include: (i) changing demand for the Company’s online betting products; and (ii) increasing contraction in the capital markets.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed in the preparation of the consolidated financial statements are as follows:

Basis of Presentation

The accompanying unaudited financial statements of the Company, include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles accepted in the United States (“U.S. GAAP”) for interim unaudited financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary in order to make the condensed financial statements not misleading. Operating results for the ~~three and~~ nine months ended June 30, ~~2021,~~2022, are not necessarily indicative of the final results that may be expected for the year ended September 30, ~~2021.~~2022. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited consolidated financial statements for the year ended September 30, ~~2020~~2021 included in our Form ~~S-1~~10-K filed with the SEC. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form ~~S-1,~~10-K, have been omitted. All intercompany accounts, transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

Business combinations

The Company accounts for business combinations under the acquisition method of accounting, in accordance with ASC 805, which requires assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. Any fair value of purchase consideration in excess of the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The fair values of the assets acquired, and liabilities assumed are determined based upon the valuation of the acquired business and involve management making significant estimates and assumptions.

Accounts Receivable

Accounts receivables are recorded at amortized cost, less any allowance for doubtful accounts. Accounts receivable consists primarily of amounts due from our platform provider.

Intangible Assets

~~Cryptocurrencies~~

There is currently no specific guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

~~Cryptocurrencies held are accounted for as an indefinite-lived intangible asset under ASC 350,~~ ~~Intangible – Goodwill and Other~~. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

The Company uses its cryptocurrencies to pay vendors and users. The Company also receives payments on its receivables and player deposits in cryptocurrency. Gains and losses realized upon settlement of cryptocurrencies are also recorded in general and administrative expense in our consolidated statements of operations.

Other Intangible Assets

The Company’s other intangible ~~asset~~assets consist of customer relationships, trademarks and internet domain ~~names, which~~names. Certain intangible assets have a defined useful life and others are anclassified as indefinite-lived ~~intangible.~~intangible assets. Other intangible assets with a defined useful life are amortized over their estimated useful economic lives on a straight-line basis. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

See Note 3 for intangible assets acquired in a business acquisition transaction.

Liabilities to Users

The Company records liabilities for user account balances at a given reporting period based on deposits made by players either to the Company or the sales affiliate, less any losses on wagers and payout made to players. Liabilities to users amounts are not required to be backed by cash reserves of the Company.

Impairment of Long-Lived Assets

Long-lived assets consist of software and equipment, finite-lived acquired intangible assets, such as license agreements, and indefinite-lived assets such as internet domain names. Long-lived assets are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Impairment expense is recognized to the extent an asset’s expected undiscounted future cash flows are less than the asset’s carrying amount.

Leases

The Company accounts for leases under ASC 842. The Company assesses whether a contract contains a lease on its execution date. If the contract contains a lease, lease classification is assessed upon its commencement date under ASC 842. For leases that are determined to qualify for treatment as operating leases, rent expense is recognized on a straight-line basis over the lease term. Leases that are determined to qualify for treatment as finance leases recognize interest expense as determined using the effective interest method with corresponding amortization of the right-of-use assets. For leases with terms of 12 months and greater, an asset and liability are initially recorded at an amount equal to the present value of the unpaid lease payments over the lease term. In determining the lease term for each lease, the Company includes options to extend the lease when it is reasonably certain that the option will be exercised. The Company uses the interest rate implicit in the lease, when known, or its estimated incremental borrowing rate, which is derived from information available at the lease commencement date including prevailing financial market conditions, in determining the present value of the unpaid lease payments.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers, which was adopted on October 1, 2018 using the modified retrospective method. ASC Topic 606 requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC Topic 606 had no impact to the Company’s comparative consolidated financial statements. Revenue is recognized based on the following five step model:

•·	Identification of the contract with a customer


•·	Identification of the performance obligations in the contract


•·	Determination of the transaction price


•·	Allocation of the transaction price to the performance obligations in the contract


•·	Recognition of revenue when, or as, the Company satisfies a performance obligation

No single customer exceeded more than 10% of revenue during the three ~~and nine~~ months ended June 30, ~~2021~~2022 and 2020. In addition, no disaggregation of revenue is required because all current revenue is generated from gaming revenue.

Performance Obligations

The Company operates an online betting platform allowing users to place wagers on a variety of live sporting events and esports events. Each wager placed by users create a single performance obligation for the Company to administer each event wagered. Gross gaming revenue is the aggregate of gaming wins and losses based on results of each event that customers wager bets on. Variable commission fees are paid to sales affiliates based on a percentage of revenue generated from the affiliate. The commissions rebated to affiliates are recorded as a reduction to gross gaming revenue.

Cost of Revenue

Cost of revenue consists of third-party costs associated with the betting software platform and ~~amortization~~gaming taxes.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of ~~capitalized~~expenses associated with customer related acquisition costs, advertising and related software, ~~costs.~~strategic league and team partnerships and costs related to free to play contests, and the compensation of sales and marketing personnel, including stock-based compensation expenses. Advertising costs are expensed as incurred. Advertising costs incurred was $434,465 and $0 for the nine months ended June 30, 2022 and 2021, respectively.

Product and Technology Expenses

Product and technology expenses consist primarily of expenses which are not subject to capitalization or otherwise classified within Cost of Revenue. Product and Technology expenses include software licenses, depreciation of hardware and software and costs related to the compensation of product and technology personnel, including stock-based compensation.

General and Administrative Expenses

General and administrative expenses include costs related to the compensation of the Company’s administrative functions, insurance costs, professional fees and consulting expense.

Income Taxes

Deferred taxes are determined utilizing the "asset and liability" method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, when it's more likely than not that deferred tax assets will not be realized in the foreseeable future. Deferred tax liabilities and assets are classified as current or non-current based on the underlying asset or liability or if not directly related to and asset or liability based on the expected reversal dates of the specific temporary differences.

Fair value of financial instruments

The Company discloses fair value measurements for financial and non-financial assets and liabilities measured at fair value. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but are corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Foreign Currency

The Company’s reporting currency is the U.S. Dollar. Certain subsidiaries of the Company have a functional currency other than the U.S. Dollar, and are translated to the Company’s reporting currency at each reporting date. Non-monetary items are translated at historical rates. Monetary assets and liabilities are translated from British pounds and Euro into U.S. Dollars, at the period-end exchange rate, while foreign currency expenses are translated at the exchange rate in effect on the date of the transaction. The net effect of translation is reflected as other comprehensive income. The gains or losses on transactions denominated in currencies other than an entity’s functional currency are included in the consolidated statement of operations.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. When assessing goodwill for impairment, the Company uses qualitative and if necessary, quantitative methods in accordance with FASB ASC Topic 350, Goodwill. The Company also considers its enterprise value and if necessary, discounted cash flow model, which involves assumptions and estimates, including the Company’s future financial performance, weighted average cost of capital and interpretation of currently enacted tax laws.

Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the Company’s financial results, a significant decline in the Company’s enterprise value relative to its book value, an unanticipated change in competition of the Company’s market share and a significant change in the Company’s strategic plans.

Recently Issued Accounting Pronouncements

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 does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.

NOTE 3 – BUSINESS COMBINATIONS

Acquisition of the B2C business of Aspire Global plc

On October 1, 2021, in order to accelerate the growth and expand market access for our product offerings, the Company and Esports Malta entered into the “Acquisition Agreement” with Aspire, Aspire Global International Limited, AG Communications Limited, Aspire Global 7 Limited (collectively the “Aspire Related Companies”), and Karamba Limited (“Karamba”) whereby Esports Malta acquired all of the issued and outstanding shares of Karamba. The total acquisition price, paid at the closing of the acquisition of the Karamba shares, was €65,000,000 paid as follows: (i) a cash amount of €50,000,000; (ii) €10,000,000, paid in accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which were valued at €5,000,000 (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement). The transaction closed on November 29, 2021.

The Note provides for an interest rate of 10% per annum. The maturity date of the Note is the earlier of that date which is four years from the issuance date or a liquidity event. The Note requires repayment of the principal amount plus any accrued interest in three equal installments, payable annually starting on the second anniversary after issuance. No interest payment shall be due until that date which is the last day of the end of the second anniversary of issuance should the Note remain unpaid at such time. Should the Note remain unpaid at the second anniversary, the total accrued interest due at that time shall be paid at the second-year anniversary for accrued interest for the period from the issuance date through the second-year anniversary date. Thereafter, and on each anniversary date thereafter, the interest due for the prior annual period shall be paid. Notwithstanding the foregoing, if the Company owes greater than $15.0 million under the credit agreement with CP BF Lending, LLC entered into in connection with the acquisition (See Note 4 – Borrowings – Senior Notes, then then the parties agree that the Company shall repay any principal amount plus any accrued interest due through the issuance of Company common stock in lieu of any cash payment and the amount of said common stock shares to be issued by the Company shall be determined by using the Conversion Price as defined below. Should an event of default occur on the Note, then at the election of Aspire, either (i) the Operator Services Agreement will be amended such that the fees payable shall increase by 5% during the continuation of the event of default, or (ii) Aspire may elect to convert the entire outstanding principal amount plus any accrued interest into fully-paid and non-assessable shares of common stock of the Company at a price per share based on the weighted-average per-share price for the ten days prior to the date of the occurrence of the event of default (“Conversion Price”). In no event shall the Conversion Price be lower than $18.00 per share (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof) and the total maximum number of common stock shares that may be issued to Aspire upon any such conversion in the aggregate shall be 650,000 shares (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof).

The acquired assets were recorded at their estimated fair values. The purchase price allocation is preliminary, and as additional information becomes available, the Company may further revise the preliminary purchase price allocation, including the fair value of identified intangible assets, during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material.

The purchase price of this acquisition was allocated on a preliminary basis as follows:

Schedule of allocation of purchase price
	Fair Value
Trademarks	$	21,836,528
Customer relationships		16,162,202
Goodwill		35,620,270
Total	$	73,619,000

Useful life is the period over which an asset is expected to add to the future cash flows of an entity. Useful life for identifiable assets is generally estimated using a modified straight-line method or a usage period. The Company has determined that the useful life of the trademarks vary from 5 years to an indefinite life and determined that the useful life of the Customer Relationships was three years.

Goodwill represents the excess of the gross considerations transferred over the fair value of the underlying net assets acquired and liabilities assumed. Goodwill recognized is not deductible for local tax purposes.

Upon completing the acquisition of Aspire, the company incurred the following costs:

Schedule of acquisition costs
Debt issuance costs		3,372,889
Equity issuance costs		4,184,000
Transaction expenses		2,472,533
Total acquisition expenses	$	10,029,422

Debt issuance costs relate to costs associated with acquiring the loan from the CP BF Lending LLC. These have been recorded as reduction of the face value of the debt and are amortized over the life of the loan. Equity issuance costs relate to the costs associated with the private placement. These have been recorded as reduction of the equity proceeds. Transactions costs relate to all direct and indirect costs associated with the acquisition, and expensed as incurred.

NOTE 4 – BORROWINGS

The following is a summary of borrowings outstanding as at June 30, 2022 and September 30, 2021:

Schedule of borrowings outstanding
				June 30, 2022														September 30, 2021
	Contractual Interest			Principal outstanding balance		Principal outstanding balance		Unamortized debt discount			Accrued Interest		Issuance costs			Carrying amount		Principal outstanding balance		Unamortized debt discount			Carrying amount
	rate		Cur	Local		USD		USD			USD		USD			USD		USD		USD			USD
Senior notes		15%	USD		30,000,000		30,000,000		(6,767,554	)		177,951		(2,687,937	)		20,722,460		0		0			0
Note due to Aspire		10%	EUR		10,000,000		10,387,000		0			637,793		0			11,024,793		0		0			0
Convertible notes		10%	USD		1,606,891		1,606,891		0			0		0			1,606,891		1,912,500		(516,366	)		1,396,134
Other		0%	USD		675,000		675,000		(177,284	)		0		0			497,716		675,000		(211,076	)		463,924
Total borrowings							42,668,891		(6,944,838	)		815,744		(2,687,937	)		33,851,860		2,587,500		(727,442	)		1,860,058

Current																	1,606,891							1,396,133
Long-term																	32,244,969							463,925
Total borrowings																	33,851,860							1,860,058

Senior Notes

On November 29, 2021, the Company entered into a credit agreement (the “Credit Agreement”) with CP BF Lending, LLC (“Lender”), pursuant to which the Lender agreed to make a single loan to the Company of $30,000,000 (the “Loan”). The Loan bears interest on the unpaid principal amount at a rate per annum equal to 15.0% as follows: (1) cash interest on the unpaid principal amount of the Loan at a rate equal to 14.0% per annum, plus (2) payable-in-kind interest (“PIK Interest”) on the unpaid principal amount of the Loan at a rate equal to 1.0% per annum. The Company paid to Lender on the closing date a non-refundable origination fee in an amount equal to $750,000.

The Loan matures in 36 months, provided that the Company may receive two 12-month extensions of the maturity date by paying to the Lender (1) an extension fee equal to 1.0% of the unpaid principal balance of the Loan as of the date of such extension, and (2) all reasonable and documented out-of-pocket fees and expenses paid or incurred by Lender, in each case in connection with the extension request, including but not limited to fees and expenses for appraisals, collateral exams and audits, and legal counsel. The foregoing extension right is subject to, among other items, (i) the Loan not being in default, (ii) the representations and warranties contained in Credit Agreement being true and correct; and (iii) the Lender granting its written approval thereof in its sole discretion.

The Loan may be prepaid by the Company at any time. In addition, the Credit Agreement provides that in the event there shall be excess cash flow from the Aspire Business (as such concept is defined in the Credit Agreement) for any calendar month, commencing with the month ended December 31, 2022, the Company shall apply such excess cash flow amount to prepay the outstanding principal balance of the Loan; provided that no such prepayment shall be required once the unpaid principal balance of the Loan has been reduced to $15,000,000.

The Credit Agreement requires the Company to meet certain financial covenants commencing June 30, 2022. The Loan is secured by all of the assets of the Company and its subsidiaries. The Loan may be accelerated by the Lender upon an event of default, which in addition to customary events of default include: (i) if (1) any of the Company or its subsidiaries shall fail to maintain in full force and effect any gaming approval (as defined in the Credit Agreement) required for the operation of its business or (2) any gaming regulator shall impose any condition or limitation on any of the foregoing entities that could be reasonably expected to have a material adverse effect; or (ii) the suspension from trading or failure of the Company’s common stock to be trading or listed on the Nasdaq exchange for a period of three consecutive trading days.

As of June 30, 2022, the Company had not maintained compliance with the covenants of the Senior Notes and obtained a waiver from its lender which waiver is contingent on the completion of an equity raise of $3.5 million, which was completed in June 2022 . In consideration for obtaining a waiver from the compliance with certain covenants, the Company agreed to amend the Senior Notes such that $5 million of principle loan balance becomes convertible at $3.58 per share commencing after the Company raises the $5,000,000 of common equity (including the foregoing $3.5 million).

In connection with the Loan, the Company issued the Lender a warrant (the “Lender Warrant”) to purchase 1,567,840 shares of Company common stock at an exercise price of $25.00 per share expiring on the earlier to occur of (i) five years following the issue date or (ii) the second anniversary of the satisfaction of all obligations of the Company under the Credit Agreement. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock. In addition, the exercise price of the Lender Warrant is subject to “weighted-average” anti-dilution protection for issuances by the Company below the exercise price (other than certain defined exempt issuances), and, upon shareholder approval, which was received on February 9, 2022, the number of shares underlying the Lender Warrant shall also be adjusted for issuances to which the “weighted-average” anti-dilution protection applies. Pursuant to the foregoing anti-dilution provision, in connection with the $3.5 million offering completed in June 2022, the number of shares underlying the warrant increased to 1,654,538 and the exercise price was reduced to $23.69. The Lender will not have the right to exercise any portion of the Lender Warrant if the Lender (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of Company common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Lender Warrant, which beneficial ownership amount, at the election of the Lender may be increased to any other percentage not in excess of 19.99% as specified by the Lender. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for the Company, and will assume all of the Company’s obligations under the Lender Warrant with the same effect as if such successor entity had been named in the Lender Warrant itself.

Note due to Aspire

The Note provides for an interest rate of 10% per annum. The maturity date of the Note will be the earlier of that date which is four years from the issuance date or a liquidity event. The Note will require repayment of the principal amount plus any accrued interest in three equal installments, payable annually starting on the second anniversary after issuance. No interest payment shall be due until that date which is the last day of the end of the second-year anniversary of issuance should the Note remain unpaid at such time. Should the Note remain unpaid at the second-year anniversary, the total accrued interest due at that time shall be paid at the second year anniversary for accrued interest for the period from the issuance date through the second year anniversary date. Thereafter, and on each annual anniversary date thereafter, the interest due for the prior annual period shall be paid. Notwithstanding the foregoing, if the Company owes greater than $15,000,000 under the Credit Agreement, then the parties agree that the Company shall repay any principal amount plus any accrued interest due through the issuance of Company common stock in lieu of any cash payment and the amount of said common stock shares to be issued by the Company shall be determined by using the Conversion Price as defined below. Should an event of default occur on the Note, then at the election of Aspire, either (i) the Operator Services Agreement will be amended such that the fees payable shall increase by 5% during the continuation of the event of default, or (ii) Aspire may elect to convert the entire outstanding principal amount plus any accrued interest into shares of common stock of the Company at a price per share based on the weighted-average per-share price for the ten trading days prior to the date of the occurrence of the event of default (“Conversion Price”). In no event shall the Conversion Price be lower than $18.00 per share (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof) and the total maximum number of shares of common stock that may be issued to Aspire upon any such conversion in the aggregate shall be 650,000 shares (as adjusted for stock splits, stock dividends, or similar events occurring after the date hereof).

Convertible Notes and other

On September 1, 2020, ESEG entered into three promissory notes, with a combined principal amount of $2,100,000. The notes bore interest at the rate of 10% per annum and matured on March 1, 2022 and are now convertible at the noteholder’s option. The Company also agreed to pay two of the lenders a total of $675,000 on September 1, 2025, bearing no interest. The Company issued each of the lenders a conversion option at a fixed price of $0.50 per share and issued 2,015,000 warrants to purchase shares of the Company’s common stock at an exercise price of $0.30 per share, each with a term of five years. The convertible notes bear interest at 10% per annum and mature on March 1, 2022. The holder may convert the note into shares of common stock at any time throughout the maturity date, to the extent and provided that no holder of the notes was or will be permitted to convert such notes so long as it or any of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. The Company determined that the assignment of the notes payable by the subsidiary to the parent company was an extinguishment of the original notes payable due to the addition of a substantive conversion feature, and the Company recognized a loss on extinguishment of $265,779 during the year ended September 30, 2020.

The Company evaluated the conversion option and concluded a beneficial conversion feature was present at issuance. The Company recognized the beneficial conversion feature and relative fair value of the warrants as a debt discount and additional paid in capital. The fair value of the warrants at the grant date was estimated using a Black-Scholes model and the following assumptions: 1) volatility of approximately 85% based on a peer group of companies; 2) dividend yield of 0%; 3) risk-free rate of 0.26%; and 4) an expected term of five years. The $2,100,000 debt discount will be amortized through the maturity date of the convertible notes payable. During the three months ended December 31, 2020, a total of $187,500 of principal was converted into 375,000 shares of common stock. During the nine months ended June 30, 2022, the Company recorded a charge of $2,128,943 in the accompanying consolidated statement of operations from the amortization of its debt discount related to the convertible notes payable and other liabilities described above.

~~NOTE 3 –~~ ~~LONG-LIVED ASSETS~~

~~Software and equipment~~

~~The Company’s software and equipment consisted of the following as of June 30, 2021 and September 30, 2020:~~

Schedule of software and equipment

June 30,
2021

September 30,
2020

Software $ 160,511 $ 0
Total software and equipment 160,511 0
Accumulated depreciation (74,075 ) 0
Software and equipment, net $ 86,436 $ 0

~~On November 5, 2020, the Company entered into an asset purchase agreement with a third party to acquire certain proprietary technology data. The Company made a cash payment of $61,425~~ ~~and granted warrants to purchase~~ ~~32,000~~ ~~shares of common stock at an exercise price of $0.25~~ ~~per share for a period of five years. The fair value of the warrants was estimated to be $57,252~~ ~~as of the grant date. The total consideration paid of $118,677~~ is included as part of software costs within property and equipment on the Company’s consolidated balance sheet. The Company also entered into an employment agreement with the seller, effective November 1, 2020. The employee will be compensated at a rate of $~~110,000~~ ~~per year and will receive a common stock award of~~ ~~100,000~~ ~~shares, which vest annually over four years.~~

~~The software costs above relate to acquired components of the Company’s new platform which is being depreciated over an expected useful life.~~

~~Intangible Assets~~

On September 1, 2020, the Company’s wholly-owned subsidiary, ESEG, entered into domain purchase agreements to acquire the rights to certain domain names from third parties. The cost to acquire the domain names was $~~2,239,606, based on the estimated fair value of the consideration transferred to the sellers. ESEG issued notes payable with a combined principal amount of $2,100,000, which were to mature on~~ ~~March 1, 2022, bearing interest at~~ 10~~%. These notes were exchanged for notes of the Company in September 2020. The Company also agreed to pay a total of $675,000~~ on ~~September 1, 2025, with no interest. The Company estimated discount of these liabilities totaling $535,394~~ at the date of the transaction, to be amortized over the maturity period of the liabilities. The domain names were recorded as an intangible asset with an indefinite useful life. The Company’s management evaluated the domain names at September 30, 2020 and determined no impairment was necessary.

~~The following table presents the activities of the Company’s cryptocurrency holdings for the three and nine months ended June 30, 2021:~~

~~Cryptocurrency activity table~~

Cryptocurrency at September 30, 2020 $ 44,562
Additions of cryptocurrency 36,605
Payments of cryptocurrency (125,480 )
Gain on cryptocurrency 45,268
Cryptocurrency at June 30, 2021 $ 955

~~Additions of cryptocurrency during the nine months ended June 30, 2021 represent settlement of outstanding accounts receivable of $18,158~~ ~~and net deposits from players of~~ $~~18,447. Payments of cryptocurrency during the nine months ended June 30, 2021 included payments of accounts payable and accrued expenses of $63,971 and prepaid expenses of $61,509. Use of cryptocurrency to settle receivables and payables during the period are reflected as a component of changes in operating assets and liabilities in the consolidated statement of cash flows.~~

~~License Agreement~~

~~On October 1, 2020, the Company entered into an option agreement which gave the Company rights to acquire a license for proprietary technology related to online betting. The Company paid~~ ~~$133,770~~ ~~upon execution of the option agreement and paid an additional~~ ~~$286,328~~ ~~in cash and agreed to issue~~ ~~65,000~~ ~~shares of common stock upon exercise of the option on or about May 3, 2021. The shares were issued in July 2021 and had a fair value of~~ ~~$1,456,650~~ ~~at the date of exercise of the option and execution of the license agreement resulting in total value for the license agreement of~~ ~~$1,876,748.~~ ~~During the three and nine months ended June 30, 2021, the Company recognized amortization expense of~~ ~~$104,264~~ ~~included in product and technology expenses.~~

~~NOTE 4 –~~ ~~CONVERTIBLE NOTES PAYABLE AND OTHER LONG-TERM LIABILITIES~~

~~On September 1, 2020, ESEG entered into three promissory notes, with a combined principal amount of $2,100,000. The notes bore interest at the rate of~~ 10~~% per annum and matured on~~ ~~March 1, 2022. The Company also agreed to pay two of the lenders a total of $675,000~~ ~~on September 1, 2025, bearing no interest. The Company estimated total debt discount of these liabilities to be $535,394~~ ~~at the date of the transaction, of which $279,516~~ ~~related to the promissory notes payable, and $255,878~~ related to the other long-term liabilities. The discounts will be amortized over the maturity period of each liability. As of June 30, 2021 and September 30, 2020, the carrying amount of the other long-term liabilities was $~~453,178~~ ~~and $422,409, respectively, which is net of the remaining discount totaling $221,822~~ ~~and $252,591, respectively. The carrying amount of the convertible notes payable and associated discount is further discussed below.~~

On September 26, 2020, the Company assumed the notes payable with principal of $2,100,000 from ESEG. In connection with this assumption, Esports Tech issued each of the lenders a conversion option at a fixed price of $0.50 per share and issued ~~2,015,000~~ ~~warrants to purchase shares of the Company’s common stock at an exercise price of $0.30~~ ~~per share, each with a term of five~~ 5 years. The convertible notes bear interest at 10% per annum and mature on March 1, 2022. The holder may convert the note into shares of common stock at any time throughout the maturity date, to the extent and provided that no holder of the notes was or will be permitted to convert such notes so long as it or any of its affiliates would beneficially own in excess of 4.99% of the Company’s common stock after such conversion. The Company determined that the assignment of the notes payable by the subsidiary to the parent company was an extinguishment of the original notes payable due to the addition of a substantive conversion feature, and the Company recognized a loss on extinguishment of $~~265,779~~ ~~during the year ended September 30, 2020.~~

~~During the three months ended December 31, 2020, a total of $187,500~~ ~~of principal was converted into~~ ~~375,000~~ ~~shares of common stock. As of June 30, 2021, the balance due under these notes, net of unamortized discount of $826,189, is $1,086,311, with accrued interest of $116,774. During the nine months ended June 30, 2021, the Company recorded a charge of $1,187,913~~ ~~in the accompanying consolidated statement of operations from the amortization of its debt discount related to the convertible notes payable and other liabilities described above.~~

NOTE 5 – STOCKHOLDERS’ EQUITY

The Company is currently authorized to issue up to 100,000,000 shares of common stock with a par value of ~~$0.001.~~$0.001. In addition, the Company is authorized to issue 10,000,000 shares of preferred stock with a par value of ~~$0.001.~~$0.001. The specific rights of the preferred stock, when so designated, shall be determined by the board of directors.

June 2022 Private Placement

On June 16, 2022, the Company issued, in a private placement priced at-the-market under Nasdaq rules: (i) 977,657 shares of the Company’s common stock, and (ii) warrants to purchase up to an aggregate of 977,657 shares of common stock. The combined purchase price of one share of common stock and accompanying warrant was $3.58. The gross proceeds to the Company from the private placement were approximately $3.5 million, before deducting fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the warrants.

Acquisition of the B2C segment of Aspire Global plc

On October 1, 2021, in connection with the Acquisition, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “Investors”). Pursuant to the Subscription Agreements, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to such Investors, simultaneous with the closing of the Acquisition Agreement, an aggregate of 37,700 shares of Series A Convertible Preferred Stock (the “Preferred Stock”) for a purchase price of $1,000.00 per share, for aggregate gross proceeds of $37,700,000 (the “Private Placement”). For each share of Preferred Stock issued, the Company issued the Investor a warrant to purchase 150% of the shares of Company common stock underlying the Preferred Stock (the “Warrants”).

Pursuant to the Subscription Agreement, the Company has obtained shareholder approval of the conversion of the Preferred Stock and Warrants into Company common stock in compliance with the rules and regulations of the Nasdaq Stock Market (“Shareholder Approval”).

The Preferred Stockholders are entitled to receive dividends, at a rate of 14.0% per annum, which shall be payable quarterly in arrears on January 1, April 1, July 1 and October 1, beginning on the first such date after the issuance date. With limited exceptions, the Preferred Stockholders will have no voting rights. The dividends can be paid in either cash or in the issuance of additional preferred shares. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company available to shareholders, an amount equal to the greater of: (i) the purchase price for each share of Preferred Stock then held, or (ii) the amount the holders would have received had the holders fully converted the Preferred Stock to Company common stock, in each case, before any distribution or payment shall be made to the holders of the Company’s common stock. The Preferred Stock is convertible into Company common stock at an initial conversion price of $28.00 per share (“Conversion Price”); provided that the Conversion Price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the Conversion Price then in effect. In addition, on December 31, 2022 and April 15, 2023 (each an “Adjustment Date”), the Conversion Price shall be adjusted to the lesser of: (i) the Conversion Price in effect on the Adjustment Date, or (ii) 85% of the average closing price of the Company’s common stock for the fifteen trading days prior to the Adjustment Date.

The Warrants are exercisable and expire on the fifth anniversary thereafter. The Warrants were initially to be exercisable at an exercise price of $30.00 per share, provided that the exercise price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the exercise price then in effect. Notwithstanding the foregoing anti-dilution provision, in connection with the $3.5 million offering completed in June 2022, the exercise price was reduced to $5.00. The Warrants can be exercised on a cashless basis if there is no effective registration statement registering, or no current prospectus available for, the resale of the ordinary shares underlying the Warrants.

The holders of the Preferred Stock and Warrants will not have the right to convert or exercise any portion of the Preferred Stock and Warrants to the extent that, after giving effect to such conversion, such holder (together with certain related parties) would beneficially own in excess of 4.99% of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.

Shares issued in the prior year

During the three months ended December 31, 2020, the Company received gross cash proceeds of $4,000,000 in exchange for 2,000,000 shares of common stock. In conjunction with this fundraising, broker commission and expenses of $351,929 were paid and 173,625 common stock warrants with an exercise price of $2.00 and a five-year5 term were issued. The fair value of the warrants issued in connection with the financing was estimated to be $228,500 as discussed below.

In January 2021, the Company sold 250,014 shares of common stock to investors for $3 per share, receiving gross proceeds of $750,042. The company paid $30,314 of broker fees and commissions related to this fundraising and issued 8,750 warrants to purchase common stock with an exercise price of $3 per share and a term of 5 years. The fair value of the warrants issued in connection with the financing was estimated to be $228,500 as discussed below.

In ~~February 2021, the Company entered into an agreement with a consultant where the Company agreed to issue warrants to purchase~~ ~~4,166~~ ~~shares of stock with a term of~~ 5 ~~years at an exercise price of $~~3 ~~per share, and paid $37,500~~ ~~of cash for services rendered. The consultant will also receive $50,000 of consideration per year for an additional two years in a combination of cash and common stock warrants.~~

In April 2021, the Company completed its IPO and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000and received net proceeds of $13,514,200after costs of $885,800which were recorded in shareholders’ equity. The Company also issued 168,000common stock warrants with a5 five-year term and exercise price of $7.20to the underwriter. These warrants have an estimated fair value of $5,474,076.

2020 Stock Plan

In December 2020, the Company adopted the ~~Esports Technologies, Inc.~~ 2020 Stock Plan, or the 2020 Plan. The 2020 Plan is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards, stock unit awards and stock appreciation rights to key employees, non-employee directors and consultants.

Under the 2020 Plan, the aggregate value of all compensation granted or paid to any individual for service as a non-employee director with respect to any calendar year, including awards granted under the 2020 Plan and cash fees paid to such non-employee director, will not exceed $300,000 in total value. For purposes of this limitation, the value of awards is calculated based on the grant date fair value of such awards for financial reporting purposes.

The number of shares of the common stock that may be issued under the 2020 Plan is ~~4,000,000~~5,000,000. As of June 30, ~~2021,~~2022, the Company had awarded a total shares ~~3,462,598~~4,065,782 ~~shares~~ under the 2020 Plan, with ~~537,402~~934,218 remaining under the 2020 Plan.

Common Stock Awards

During the nine months ended June 30, ~~2021,~~2022, the Company agreed to award a total of406,600 restricted stock units that convert into common stock to various employees, consultants and officers under the 2020 Plan. Of the restricted stock unit awarded, ~~755,250~~406,600 will vest annually over a period of one to four ~~years, 300,000 will vest upon the completion of various performance goals related to the operations of~~years. At June 30, 2022, the Company ~~and 200,000 shares of common~~had 1,574,200 restricted stock underlying awards made to the Company’s CEO will vest equally upon reaching trailing twelve months revenue of $10 million and $20 million. The Company estimated the fair value of the awards granted prior to the IPO, at $2 per share based on recent sales of common stock. Awards granted after the IPO, the closing price of the Company’s stock on the grant date is used to determine the fair value.

~~In November 2020, the Company entered into four consulting agreements under which the Company issued a total of~~ ~~683,334~~ ~~shares of common stock, which vest equally over terms ranging from three to twelve months.~~units in issuance.

During the ~~three and~~ nine months ended June 30, ~~2021,~~2022, the Company recognized a total of $~~501,716~~ ~~and $1,940,249~~4,341,090 of stock-based compensation expense related to common stock awards and expects to recognize additional compensation cost of $~~5,258,844~~9,950,657 upon vesting of all awards.

Warrants

As discussed above, the Company has issued common stock warrants in connection with its fundraising activities to ~~brokers, an asset purchase agreement~~preference shareholders, its lender and convertible notes issued during the ~~year~~nine months ended ~~September 30, 2020.~~June 31, 2022. The following table summarizes warrant activity during the ~~three and~~ nine months ended June 30, ~~2021:~~ 2022:

Schedule of warrant activity
	Common Stock Warrants						Common Stock Warrants
	Shares			Weighted Average Exercise Price		Weighted average Remaining Life in years	Shares			Weighted Average Exercise Price			Weighted average Remaining Life in years
Outstanding at September 30, 2020	2,015,000		$	0.30		4.24
Outstanding at September 30, 2021								2,199,541		$	0.93			4.04
Granted	386,541			3.63		4.58		4,761,582			22.66			4.53
Cancelled	0			–		–		0			0			–
Expired	0			–		–		0			0			–
Exercised	(66,000	)		(2.00	)	4.33		(895,375	)		(1.84	)		(3.77	)
Outstanding at June 30, 2021	2,335,541		$	0.89		4.29
Exercisable at June 30, 2021	2,335,541		$	0.89		4.29
Outstanding at June 30, 2022								6,065,748		$	17.86			4.24
Exercisable at June 30, 2022								6,065,748		$	17.86			4.25

~~The~~At June 30, 2022, the outstanding and exercisable common stock warrants had an estimated intrinsic value of $~~47,110,395~~6,866,048. The Company estimated the fair value of the warrants using a Black-Scholes option pricing model and the following assumptions: 1) stock price of $2$2 to $3$28.95 per share; 2) dividend yield of 0%0%; 3) risk-free rate of between ~~0.18%~~0.18% and ~~0.81%~~1.18%; 4) expected term of between 2.5 and 5 years; 5) an exercise price of ~~$0.25,~~$0.25, $2 $3, $25, or ~~$7.20~~$28 and 6) expected volatility of ~~between 84.1% and 99.0%~~42.14% based on a peer group of public companies. ~~The warrants granted to brokers in connection with sales of common stock during the nine months ended June 30, 2021, had an estimated fair value of $5,474,076~~ ~~which was reflected as a cost of capital, warrants granted to consultants for services had a fair value of $8,819, and the warrants granted in connection with the asset purchase agreement had an estimated fair value of $57,252~~.

1317

Options

~~During the three months ended June 30, 2021, the Company entered into various agreements with employees and consultants whereby the Company agreed to award a total of~~ ~~96,000~~ ~~common stock options under the 2020 Plan. These awards generally vest over~~ 4 ~~years.~~

~~During the three months ended March 31, 2021, the Company entered into various agreements with employees, consultants and directors whereby the Company agreed to award a total of~~ ~~402,000~~ ~~common stock options, including~~ ~~150,000~~ ~~to two members of the Board of Directors under the 2020 Plan. These awards vest over a period of six months to four years, with~~ ~~20,000~~ ~~options issued to a consultant vesting immediately.~~

~~During the three months ended December 31, 2020, the Company entered into various agreements with employees and consultants whereby the Company agreed to award a total of~~ ~~2,014,348~~ ~~common stock options, including~~ ~~90,000~~ ~~to consultants and~~ ~~100,000~~ ~~to a member of the Board of Directors under the 2020 Plan. Of the total,~~ ~~1,390,000~~ ~~vest equally over periods of between one and four years,~~ ~~70,313~~ ~~vested upon completion of the Company’s IPO,~~ ~~200,000~~ to the Company’s Chief Operating Officer would have vested in the event that the Company’s IPO raised gross proceeds of at least $18 million (as the IPO proceeds were less than $18 million, these shares did not vest), and ~~57,250~~ ~~to the Company’s prior interim CFO vested upon the hiring of the Company’s full time CFO.~~

The following table summarizes option activity during the nine months ended June 30, ~~2021:~~2022:

Schedule of option activity
	Common Stock Options					Common Stock Options
	Shares			Weighted Average Exercise Price	Weighted average Remaining Life in years	Shares			Weighted Average Exercise Price			Weighted average Remaining Life in years
Outstanding at September 30, 2020	0		$	–	–
Outstanding at September 30, 2021							2,344,348		$	2.57			8.39
Granted	2,512,348			1.63	9.09		154,000			11.78			8.95
Cancelled	(220,000	)		0.50	9.81		(26,000	)		(8.73	)		9.33
Expired	0			–	–		0			0			–
Exercised	0			–	–		0			0			–
Outstanding at June 30, 2021	2,292,348		$	1.73	8.61
Exercisable at June 30, 2021	144,348		$	0.96	8.71
Outstanding at June 30, 2022							2,472,348		$	3.08			8.09
Exercisable at June 30, 2022							1,140,348		$	0.84			8.20

During the ~~three and~~ nine months ended June 30, ~~2021,~~2022, the Company recognized stock-based compensation expense of $~~834,971~~ ~~and $2,856,998~~968,401 related to common stock options awarded. The exercisable common stock options had an intrinsic value as of June 30, ~~2021,~~2022, of $~~1,552,573~~1,683,448. The Company expects to recognize an additional $~~4,701,717~~3,465,493 of compensation cost related to stock options expected to vest.

The Company estimated the fair value of the stock options awarded using a Black-Scholes option pricing model and the following assumptions: 1) stock price of $2$3 to $3$31.33 per share; 2) dividend yield of 0%0%; 3) risk-free rate of between ~~0.22%~~0.85% and ~~0.90%~~1.20%; 4) expected term of between 3.5 and 6.25 years; 5) an exercise price between ~~$0.25~~$0.25 and ~~$22.89~~$31.33 and 6) expected volatility of ~~between 82.3% and 95.33%~~42.14% based on a peer group of public companies.

NOTE 6 – LONG-LIVED ASSETS

Fixed Assets

The Company’s fixed assets consisted of the following as of June 30, 2022 and September 30, 2021:

Schedule of fixed assets
	June 30, 2022			September 30, 2021
Software	$	901,551		$	214,996
Furniture and fixtures		408,803			0
Total fixed assets		1,310,354			214,996
Accumulated depreciation		(201,236	)		(129,662	)
Fixed assets, net	$	1,109,118		$	85,334

Intangible Assets

On September 1, 2020, the Company’s wholly-owned subsidiary, ESEG, entered into domain purchase agreements to acquire the rights to certain domain names from third parties. The cost to acquire the domain names was $2,239,606, based on the estimated fair value of the consideration transferred to the sellers. ESEG issued notes payable with a combined principal amount of $2,100,000, which were to mature on March 1, 2022, bearing interest at 10%. These notes were exchanged for notes of the Company in September 2020. The Company also agreed to pay a total of $675,000 on September 1, 2025, with no interest. The Company estimated discount of these liabilities totaling $535,394 at the date of the transaction, to be amortized over the maturity period of the liabilities. The domain names were recorded as an intangible asset with an indefinite useful life. The Company’s management evaluated the domain names at September 30, 2021 and determined no impairment was necessary.

1418

~~NOTE 6 –~~ ~~COMMITMENTS AND CONTINGENCIES~~

On September 2, 2020, the Company entered into a financial advisor agreement with Boustead Securities LLC, the representative of the underwriters in the Company’s initial public offering, to provide services related to fundraising on the Company’s planned public listing. The Company agreed to pay the financial advisor a success fee of 4% of any gross proceeds from any debt financing, and a 7% success fee related to any equity or convertible debt financing, subject to customary approval by the regulatory authorities. In April 2021, the Company completed its IPO and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000. The Company paid underwriting fees of $~~885,800~~ ~~and issued~~ ~~168,000~~ ~~warrants to purchase shares of common stock at a price of $7.20~~ ~~per share for a period of five~~ 5 ~~years.~~

On September 26, 2020, the Company entered into a consulting agreement with a registered foreign broker dealer for fundraising services and paid 10% of any gross proceeds through capital raises from non-US investors introduced by the consultant, up to a maximum payment to the consultant of $200,000 and the consultant also received warrants to purchase shares of the Company’s common stock at an exercise price of $2.00 per share. These warrants were exercised in April 2021 and were converted into ~~62,386~~ ~~shares of the Company stock.~~

NOTE 7 –~~LOSS PER COMMON SHARE~~COMMITMENTS AND CONTINGENCIES

The basic net loss per common share is calculated by dividing the Company's net loss available to common shareholders by the weighted average number of common shares during the year. The diluted net loss per common share is calculated by dividing the Company's net loss available to common shareholders by the diluted weighted average number of common shares outstanding during the year. The diluted weighted average number of common shares outstanding is the basic weighted number of common shares adjusted for any potentially dilutive debt or equity. Common shares issuable under convertible debt, stock options and common stock warrants were excluded from the calculation of diluted net loss per share due to their antidilutive effect.

Calculation of earnings per share
Three Months Ended Nine Months Ended
June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Numerator
Net income (loss) $ (3,957,611 ) $ (27,654 ) $ (9,084,002 ) $ (46,009 )
Denominator
Basic and Diluted weighted average common shares 10,549,765 7,340,421 10,650,966 7,340,421 )
Basic and diluted net income (loss) per common share $ (0.38 ) $ (0.00 ) $ (0.85 ) $ (0.01 )

~~NOTE 8 –~~ ~~TRANSACTION WITH RELATED PARTIES~~

~~The Company owed $155,228~~ ~~to Gogawi Inc. (a company controlled by certain initial shareholders of the Company) (see note 1). At~~On September ~~30, 2020 the amounts owed to these related parties was $152,888. The advances are due on demand and are non-interest bearing. In May 2021, the Company repaid the advances in full.~~

~~On November 10,~~2, 2020, the Company entered into ~~an employment~~a financial advisor agreement with ~~Michal Barden, a family member~~Boustead Securities LLC, the representative of the ~~Company’s Chief Operating Officer, to serve as~~underwriters in the Company’s ~~marketing director.~~initial public offering, to provide services related to fundraising on the Company’s planned public listing. The ~~employment agreement provides for an annual salary~~Company agreed to pay the financial advisor a success fee of ~~$132,000,~~4% of any gross proceeds from any debt financing, and a ~~technology allowance of $5,000,~~7% success fee related to any equity or convertible debt financing, subject to customary approval by the regulatory authorities. In April 2021, the Company completed its IPO and ~~an award of 30,000~~issued 2,400,000 shares of common stock ~~in the~~for gross cash proceeds of $14,400,000. The Company ~~vesting in four equal annual installments.~~ paid underwriting fees of $885,800 and issued 168,000 warrants to purchase shares of common stock at a price of $7.20 per share for a period of five 5 years.

Financial Advisor’s Claims

The Company’s previous financial advisor, Boustead Securities LLC (“Advisor”) has alleged a breach by the Company over the termination of their engagement and the timing of the payment and amount of the fees owed to the Advisor among other claims (collectively the “Claims”). The fees the Company expects to pay are accrued in the accompanying balance sheet. On June 2, 2022, the Advisor named EBET in an arbitration proceeding with Financial Industry Regulatory Authority (“FINRA”) in connection with the Claims. The statement of claim alleges damages of $5.7 million and seeks a declaration that the Company be required to utilize the Advisor for a certain follow-on offering pursuant to an alleged right of first refusal between the parties. Arbitration is inherently unpredictable. However, the Company believes that it has meritorious defenses to a portion of the alleged fee claim asserted and to the claim that the Company has any obligations pursuant to a right of first refusal between the parties. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of this matter.

NOTE 8 – LOSS PER COMMON SHARE

Schedule of earnings per share
	Three Months Ended						Nine Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Numerator
Net income (loss)	$	(8,978,700	)	$	(3,957,611	)	$	(29,700,808	)	$	(9,084,002	)
Preferred stock dividends		(1,416,242	)		0			(3,267,319	)		0
Net income (loss) attributable to common stockholders	$	(10,394,942	)	$	(3,957,611	)	$	(32,968,127	)	$	(9,084,002	)

Denominator
Basic and diluted weighted average common shares		14,842,497			10,549,765			14,267,461			10,650,966
Basic and diluted net income (loss) per common share	$	(0.70	)	$	(0.38	)	$	(2.31	)	$	(0.85	)

NOTE 9 –SUBSEQUENT EVENT

Subsequent to quarter end, the Company has taken significant measures to increase the profitability of its business in the short term. These actions include optimizing the efficiency of marketing campaigns, reducing the total number of employees and contractors by approximately 45 positions, terminating software and other immaterial contracts as well as generally reducing the operating costs of the business. While these efforts focus on the goal of attaining profitability of the Company’s business, it is likely to reduce overall revenue growth in the short to medium term. These efforts have also resulted in an increased focus on the Company’s i-gaming business and a significant reduction in the investment of the Company’s esports products and technologies. As a result of the Company’s actions as referenced above, it does not expect to launch its esports products in the short or medium term.

The Company expects to record a restructuring charge of approximately $0.5 million that will include the severance and other costs associated with termination of the employment contracts, consultant contracts and any costs to terminate software licenses and other commitments. The Company is also completing an impairment review of its goodwill and intangible assets and will complete this review before September 30, 2022.

item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this report includes forward-looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words like, believe, expect, estimate, anticipate, intend, project and similar expressions or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Overview

We ~~are~~operate platforms to provide a ~~technology company creating and operating platforms~~real money online gambling experience focused on igaming including casino, sportsbook and esports events. The Company operates under a Curacao gaming sublicense and ~~competitive gaming. Founded~~under a strategic partnership with Aspire Global plc (“Aspire”) allowing EBET to provide online betting services to various countries around the world.

Focus on I-Gaming Operations

Subsequent to quarter end, the Company has taken significant measures to increase the profitability of its business in ~~late 2016,~~the short term. These actions include optimizing the efficiency of marketing campaigns, reducing the total number of employees and contractors by approximately 45 positions, terminating software and other immaterial contracts as well as generally reducing the operating costs of the business. While these efforts focus on the goal of attaining profitability of the Company’s business, it is likely to reduce overall revenue growth in the short to medium term. These efforts have also resulted in an increased focus on the Company’s i-gaming business and a significant reduction in the investment of the Company’s esports products and technologies. As a result of the Company’s actions as referenced above, it does not expect to launch its esports products in the short or medium term.

Acquisition of the B2C business of Aspire Global plc (the “Acquisition”)

On October 1, 2021, the Company, and Esports Product Technologies Malta Ltd. entered into a Share Purchase Agreement with Aspire Global plc, (“Aspire”) and various Aspire group companies to acquire its business to consumer (“B2C”) business. The total acquisition price was €65,000,000 paid as follows: (i) cash amount of €50,000,000; (ii) €10,000,000, payable in accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which were valued at €5,000,000 (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement.

This acquisition expands our ~~focus has been~~product offerings and increases the number of markets in which we can operate. The B2C business offers a portfolio of distinctive proprietary brands to a diverse customer base operating our primary platform, gogawi.com, which is an online esports/sportsbook focused on gamers located in Asia and Latin America. Although we are focused on esports wagering, we also offer iGaming, which isacross regulated markets.

The acquisition of Aspire’s B2C business provides for various strategic benefits, including but not limited to, ownership of Aspire’s portfolio of B2C proprietary online casino and ~~table games such as blackjack, virtual sport computer simulated games~~sportsbook brands consisting of Karamba, Hopa, Griffon Casino, BetTarget, Dansk777, and ~~slot machines, as well as traditional sports betting in jurisdictions in which we are licensed to do so. We currently hold~~GenerationVIP and an enhanced strategic partnership with Aspire that provides the on-line gaming platform and a managed services offering, including customer service, customer on-boarding and payment processing ensuring operational stability and continuity.

Our gaming ~~sublicense~~license from the Curacao Gaming ~~Authority. Under our existing sublicense, we can~~Authority and the licenses made available to us from the Acquisition of the Aspire B2C business allows us to accept casino and sports wagers from residents of more than ~~149~~160 jurisdictions. ~~Historically, virtually all of our wagers have been sourced in the Philippines.~~

Results of Operations

Results of operations in dollars and as a percentage of net revenue were as follows:

Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
$ % $ % $ % $ %

Revenue $ 41,356 100% $ 63,740 100% $ 85,984 100% $ 141,618 100%
Cost of revenue – 0% (27,971 ) (44 )% (24,724 ) (29 )% (80,138 ) (57 )%

Gross profit 41,356 100% 35,769 56% 61,260 71% 61,480 43%

Operating expenses:
Sales and marketing expenses 964,836 2,333% – 0% 1,238,780 1,441% – 0%
Product and technology expenses 1,176,848 2,846% – 0% 2,286,228 2,659% 15,635 11%
Acquisition costs 139,235 337% – 0% 139,235 162% – 0%
General and administrative expenses 1,340,042 3,240% 64,685 101% 4,123,163 4,795% 93,116 66%
Total operating expenses 3,620,961 8,756% 64,685 101% 7,787,406 9,057% 108,751 77%

Income (loss) from operations (3,579,605 ) (8,656 )% (28,916 ) (45 )% (7,726,146 ) (8,986 )% (47,271 ) (33 )%

Other expenses:
Interest expense (368,001 ) (890 )% – 0% (1,335,621 ) (1,553 )% – 0%
Foreign currency loss (10,005 ) (24 )% 1,262 2% (22,235 ) (26 )% 1,262 1%
Total other expense (378,006 ) (914 )% 1,262 2% (1,357,856 ) (1,579 )% 1,262 1%

Income (loss) before provision for income taxes (3,957,611 ) (9,570 )% (27,654 ) (43 )% (9,084,002 ) (10,565 )% (46,009 ) (32 )%
Provision for income taxes – 0% – 0% – 0% – 0%

Net income (loss) $ (3,957,611 ) (9,570 )% $ (27,654 ) (43 )% $ (9,084,002 ) (10,565 )% $ (46,009 ) (32 )%

	Three Months Ended June 30,										Nine Months Ended
	2022					2021					2022					2021
	$			%		$			%		$			%		$			%

Revenue		18,168,515			100%		41,356			100%		44,311,030			100%		85,984			100%
Cost of revenue		10,918,796			60%		0			0%		27,537,479			62%		24,724			29%

Gross profit		7,249,719			40%		41,356			100%		16,773,551			38%		61,260			71%

Operating expenses:
Sales and marketing expenses		9,262,851			51%		964,836			2333%		22,711,724			51%		1,238,780			1441%
Product and technology expenses		1,115,165			6%		1,176,848			2846%		3,270,328			7%		2,286,228			2659%
Acquisition costs		0			0%		139,235			337%		2,240,147			5%		139,235			162%
General and administrative expenses		3,863,298			21%		1,340,042			3240%		12,454,493			28%		4,123,163			4795%
Total operating expenses		14,241,314			78%		3,620,961			8756%		40,676,692			92%		7,787,406			9057%

Income (loss) from operations		(6,991,595	)		(38)%		(3,579,605	)		(8,656)%		(23,903,141	)		(54)%		(7,726,146	)		(8,986)%

Other expenses:
Interest expense		(1,790,519	)		(12)%		(368,001	)		(890)%		(5,531,756	)		(12)%		(1,335,621	)		(1,553)%
Loss on derivatives		(130,034	)		(1)%		0			0%		(203,117	)		(0)%		0			0%
Foreign currency gain/(loss)		(66,552	)		0%		(10,005	)		(24)%		(62,794	)		(0)%		(22,235	)		(26)%
Total other expense		(1,987,105	)		(11)%		(378,006	)		(914)%		(5,797,667	)		(13)%		(1,357,856	)		(1,579)%

Income (loss) before provision for income taxes		(8,978,700	)		(49)%		(3,957,611	)		(9,570)%		(29,700,808	)		(67)%		(9,084,002	)		(10,565)%
Provision for income taxes		0			0%		0			0%		0			0%		0			0%

Net income (loss)		(8,978,700	)		(49)%		(3,957,611	)		(9,570)%		(29,700,808	)		(67)%		(9,084,002	)		(10,565)%

Three Months Ended June 30, ~~2021~~2022 compared to June 30, ~~2020~~2021

Revenue ~~and Gross Profit~~

During the three months ended June 30, ~~2021,~~2022, we generated ~~$41,356~~$18.2 million in revenue ~~and~~an increase from $0.041 million in ~~gross profit. For~~ the ~~three months ended June 30, 2020, we generated $63,740~~same period of the prior year. The increase in revenue ~~and $35,769 in gross profit. The decrease in revenue and gross profit~~ was ~~primarily~~ driven by the ~~disruption~~Acquisition which continues to ~~our~~generate significant revenue in the UK, Germany, Denmark, Ireland, Austria and other regulated markets. The acquisition of the Aspire B2C business stemming from our launching our improved wagering platform and expanding our payment solutions, which delayed launching our marketing campaigns, which reduced our outreach to new and existing customers, thus causing a decreaseaccounted for substantially all of the increase in revenue for the three months ended June 30, ~~2021,~~2022, as compared to the three months ended June 30, ~~2020.~~2021. As a result of the Company’s restructuring of the business to improve its immediate profitability, certain inefficient sales and marketing efforts will be curtailed, which may adversely impact revenue growth in the short to medium term.

Cost of Sales

During the three months ended June 30, 2022, cost of sales was $10.9 million as compared with zero in the same period in the prior year. The increase in cost of sales is due entirely to the Acquisition and is consistent with the increase in revenue and consists primarily of platform fees, which are charged as a percentage of revenue and gaming taxes.

Sales and Marketing Expense

Sales and marketing expense was ~~$964,836~~$9.3 million for the three months ended June 30, ~~2021,~~2022, an increase from ~~zero~~$1.0 million in the same period in the prior year. ~~This~~The increase ~~including approximately $311,000~~in sales and marketing expense is driven by increase in revenue from the acquisition of the Aspire B2C business, increase in stock-based compensation and increased levels of staff. Stock-based compensation was ~~a result of adding marketing staff to prepare~~approximately $0.599 million for ~~our outreach campaign related to our new wagering products and services and the initial roll out of our marketing campaigns.~~three-month period ended June 30, 2022. We expect sales and marketing expenses to ~~increase~~decrease in future periods as increase our efficiency of our marketing campaigns ~~increase~~and decrease the number of campaigns in both number and volume.

Product and Technology Expense

Product and technology expense ~~was $1,176,848~~increased to $1.1 million for the three months ended June 30, ~~2021, as compared to zero~~2022, from $1.18 million for the three months ended June 30, ~~2020, as~~2021. The increase is a result of increased hiring of both employees and consultants ~~focused on expanding~~as we increased investment in our product ~~offerings. The~~offerings offset by lower stock-based compensation. Product and technology expense, for the three months ended June 30, ~~2021,~~2022, included payroll-related costs of ~~$487,000,~~approximately $870,000 and stock-based compensation of ~~$156,000 and development costs of $534,000 consisting primarily of contractors.~~$103,000.

General and Administrative Expense

General and administrative expense was ~~$1,340,042~~$3.9 million for the three months ended June 30, ~~2021,~~2022, as compared to ~~$64,685~~$1.3 million for the three months ended June 30, ~~2020.~~2021. The increase in general and administrative expense was mainly attributable to an increase in employee costs from adding new employees, ~~$368,000~~$390,000 of stock-based compensation cost, ~~(of which $164,000 was to outside consultants),~~insurance fees and professional fees ~~of approximately $563,000~~including legal, accounting, investor relations and other professional fees, depreciation and amortization of intangible assets.

Interest and Other Expenses

During the three months ended June 30, ~~2021,~~2022, we recognized interest expense of ~~$368,001,~~$1.8 million, which included amortization of debt discount of ~~$320,320~~$0.8 million related to the convertible debt issued to acquire certain intangible assets consisting of acquired domain ~~names.~~names and our recent loan completed as part of the Acquisition. We also incurred ~~a foreign currency loss~~interest on the term loan completed on November 29, 2021 of ~~$10,005.~~$1.1 million.

Net Income/Loss

Net loss for the three months ended June 30, ~~2021,~~2022, was ~~$3,957,611~~$9.0 million compared to a net loss of ~~$27,654~~$4.0 million for the three months ended June 30, ~~2020.~~2021. The increase in net loss was primarily due to the significant in increase in cost of sales and sales and marketing costs to support the Acquisition as well as increased general and administrative expenses ~~of $1,275,357 described above, an increase in~~ product and technology expenses ~~of $1,176,848~~ as a result of our efforts to develop our new products and ~~services,~~services. Increased interest expense from the issuance of the senior notes, also contributed to the increase in our net loss for the period.

Nine Months Ended June 30, 2022 compared to June 30, 2021

Revenue

During the nine months ended June 30, 2022, we generated $44.3 million in revenue an increase from $0.086million in the same period of the prior year. The increase in revenue was driven by the Acquisition which continues to generate significant revenue in the UK, Germany, Denmark, Ireland, Austria and ~~interest on convertible notes.~~

other regulated markets. The acquisition of the Aspire B2C business accounted for substantially all of the increase in revenue for the nine months ended June 30, 2022, as compared to the nine months ended June 30, 2021.

1723

~~Nine Months Ended June 30, 2021 compared to June 30, 2020~~

~~Revenue and Gross Profit~~Cost of Sales

During the ~~nine-month period~~nine months ended June 30, ~~2021, we generated $85,984~~2022, cost of sales was $37.5 million as compared with $0.025 million in the same period in the prior year. The increase in cost of sales is due entirely to the Acquisition and is consistent with the increase in revenue and ~~$61,260 in gross profit. For the nine-month period ended June 30, 2020, we generated $141,618 in~~consists primarily of platform fees, which are charged as a percentage of revenue and $61,480 in gross profit. The decrease in revenue and gross profit was primarily driven by the disruption to our business stemming from our launching our improved wagering platform and expanding our payment solutions, which delayed launching our marketing campaigns, which reduced our outreach to new and existing customers.gaming taxes.

Sales and Marketing Expense

Sales and marketing expense was ~~$1,238,780~~$22.7 million for the nine months ended June 30, ~~2021,~~2022, an increase from ~~zero~~$1.2 million in the same period in the prior year. ~~This~~The increase ~~including approximately $319,000~~in sales and marketing expense is driven by increase in revenue from the acquisition of the Aspire B2C business, increase in stock-based compensation and increased levels of staff. Stock-based compensation was ~~a result of adding marketing staff to prepare~~approximately $2.4 million for ~~our outreach campaign related to our new wagering products and services and the initial roll out of our marketing campaigns.~~nine-month period ended June 30, 2022. We expect sales and marketing expenses to ~~increase~~decrease in future periods as we increase efficiency of our marketing campaigns ~~increase~~and decrease the number of campaigns in both number and volume.

Product and Technology Expense

Product and technology expense ~~was $2,286,228~~increased to $3.3 million for the nine months ended June 30, ~~2021, as compared to $15,635~~2022, from $2.3 million for the nine months ended June 30, ~~2020.~~2021. The increase is a result of increased hiring of both employees and consultants as we invested in our product offerings. Product and technology expense, ~~was a result~~for the nine months ended June 30, 2022, included payroll-related costs of ~~increasing development activities of our products and services. The increase in product and technology expense was partially attributable to an increase in~~approximately $2.0 million, stock-based compensation of ~~$400,000~~$799,000.

Acquisition Costs

Acquisition costs was $2.2 million for the nine months ended June 30, 2022, as compared to zero for the nine months ended June 30, 2021. Acquisition costs included a non-cash hedging loss of $1.570 million from executing a forward contract on the purchase price of the Acquisition. Acquisition costs also included various legal and ~~investments in new employees and contractors.~~consultant fees associated with completing the Acquisition.

General and Administrative Expense

General and administrative expense ~~$4,123,163~~was $12.5 million for the ~~nine-month period~~nine months ended June 30, ~~2021~~2022, as compared to ~~$93,116~~$4.1 million for the nine ~~month period~~months ended June 30, ~~2020, representing an increase of $4,030,047.~~2021. The increase in general and administrative expense was mainly attributable to an increase in employee costs from adding new employees, $1.1 million of stock-based compensation cost, and professional fees ~~as we prepared for our initial public offering.~~including legal, accounting, investor relations and other professional fees, depreciation and amortization of intangible assets.

Interest and Other Expenses

During the ~~nine-month period~~nine months ended June 30, ~~2021,~~2022, we recognized interest expense of ~~$1,335,621, including~~$5.5 million, which included amortization of debt discount of ~~$1,187,913~~$2.1 million related to the convertible debt issued to acquire certain intangible assets consisting of acquired domain ~~names.~~names and our recent loan completed as part of the Acquisition. We also incurred interest on the term loan completed on November 29, 2021 of $3.2 million.

Net Income/Loss

Net loss for the ~~nine-month period~~nine months ended June 30, ~~2021~~2022, was ~~$9,084,002~~$29.7 million compared to a net loss of ~~$46,009~~$9.1 million for the nine ~~month period~~months ended June 30, ~~2020.~~2021. The increase in net loss was primarily due to ~~interest on convertible notes and~~ the ~~loss on extinguishment of convertible notes described above, which totaled $1,187,913, stock-based compensation of $2,856,997 and an~~significant in increase in ~~payroll related~~cost of sales and sales and marketing costs to support the Acquisition as well as increased general and administrative expenses product and technology expenses as ~~we add~~a result of our efforts to develop our new ~~employees~~products and services. Increased interest expense from the issuance of the senior notes, also contributed to ~~support~~the increase in our ~~growth, as described above.~~net loss for the period.

1824

Liquidity and Capital Resources

On June 30, ~~2021,~~2022, we had cash of ~~$12,459,191,~~$6.9 million, and had working capital deficit of ~~$11,321,525.~~$4.8 million. We have historically funded our operations from proceeds from debt and equity sales, and funds received from customers. The Company's forecasts for fiscal year 2022 indicate that it will need additional funding during such period in order to have sufficient financial resources to continue to settle its debts as they fall due. The Company does not have any commitments for such funding and there is no assurance that it will be able to raise additional financing on favorable terms, if at all.

Acquisition of Aspire Global Business to Consumer (“B2C”) Business

In order to accelerate the growth, on November 29, 2021, we completed the acquisition of Aspire Global’s B2C business for €65,000,000 payable as follows: (i) a cash amount of €50,000,000; (ii) €10,000,000, payable in accordance with the terms of an unsecured subordinated promissory note; and (iii) 186,838 shares of our common stock, which were valued at €5,000,000.

On September 30, 2021, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “Investors”). Pursuant to the Subscription Agreements, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to such Investors, simultaneous with the closing of the Acquisition Agreement, shares of Series A Convertible Preferred Stock (the “Preferred Stock”) for a purchase price of $1,000.00 per share (the “Private Placement”). For each share of Preferred Stock issued, the Company issued the Investor a warrant to purchase 150% of the shares of Company common stock underlying the Preferred Stock (the “Warrants”). The aggregate Private Placement, which was completed on the closing date of the Acquisition Agreement was $37.7 million.

On November 29, 2021, the Company entered a credit agreement (the “Credit Agreement”) with CP BF Lending, LLC (“Lender”), pursuant to which the Lender agreed to make a single loan to the Company of $30.0 million (the “Loan”). The Loan bears interest on the unpaid principal amount at a rate per annum equal to 15.0% as follows: (1) cash interest on the unpaid principal amount of the Loan at a rate equal to 14.0% per annum, plus (2) payable-in-kind interest (“PIK Interest”) on the unpaid principal amount of the Loan at a rate equal to 1.0% per annum. The Company paid to Lender on the closing date a non-refundable origination fee in an amount equal to $750,000.

On June 16, 2022, the Company issued, in a private placement priced at-the-market under Nasdaq rules: (i) 977,657 shares of the Company’s common stock, and (ii) warrants to purchase up to an aggregate of 977,657 shares of common stock. The combined purchase price of one share of common stock and accompanying warrant is $3.58. The gross proceeds to the Company from the private placement were approximately $3.5 million, before deducting fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants.

As of June 30, 2022, the Company had not maintained compliance with the covenants of the Senior Notes and obtained a waiver from its lender which waiver is contingent on the completion an equity raise of $3.5 million, which was completed in June 2022. . In consideration for obtaining a waiver from the compliance with certain covenants, the Company agreed to amend the Senior Notes such that $5 million of principle loan balance becomes convertible at at $3.58 per share commencing after the Company raises the $5,000,000 of common equity (including the foregoing $3.5 million).

During ~~October and November 2020,~~fiscal year September 30, 2021, we completed atwo private ~~placement of 2,000,000~~placements totaling 2,250,000 shares of our common stock for gross proceeds of ~~$4.0 million.~~

~~During January and February 2021, we completed a private placement of 250,014 shares of our common stock at $3.00 per share for gross proceeds of $0.75~~$4.75 million.

In April 2021, the Company completed its IPO and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000. The Company paid underwriting fees and other expenses of $885,800 and issued 168,000 warrants to purchase shares of common stock at a price of $7.20 per share for a period of five years.

As of June 30, 2021, we have incurred an accumulated deficit of ~~$10,533,528~~$39.9 million since inception and have not yet generated any meaningful income from operations.

Cash used in operating activities

Net cash used in operating activities was ~~$4,899,409~~$9.0 million for the nine months ended June 30, ~~2021,~~2022, as compared to cash used in operating activities of ~~$67,717~~$1.9 million for the nine months ended June 30, ~~2020.~~2021. Net cash used in operating activities during the ~~nine months ended June 30, 2021, mainly included~~period were primarily impacted by net losses incurred offset by non-cash items including depreciation and amortization, stock based compensation and amortization of our debt discounts. Net cash used in operations was also a result of our increase in Accounts Receivable due to the growth in our business . Cash flow from operations also benefitted from deferred payments ~~made~~ for ~~employee costs,~~ professional fees to our consultants, attorneys and accountants ~~for services related~~primarily required to ~~completion of our audit, development of our new wagering platform and preparation of our public offering filings.~~complete the Acquisition.

Cash used in investing activities

Net cash used in investing activities was ~~$523,357~~$57.4 million for the nine months ended June 30, ~~2021, and was~~2022, as compared to cash used in investing activities of $0.2 million for the nine months ended June 30, 2021. Net cash used in investing activities during the period related to the completion of the Acquisition. Also contributing to the cash used in investing activities were purchase of fixed assets of $1.1 million due primarily to opening of our office in Malta and purchase of software assets to support the new wagering ~~platform, and the purchase of long term assets related to intellectual property rights.~~platform.

Cash used provided by financing activities

Net cash provided by financing activities was ~~$17,881,957~~$64,1 million for the nine months ended June 30, ~~2020, and was related~~2022 due to the ~~sale~~issuance of ~~2,000,000 shares~~Preferred Shares and Senior Notes of ~~common stock at $2.00 per share in a private placement, partially offset by costs of capital to brokers of $351,929~~$37.7 million and $30.0 million, respectively as well as ~~private placements of our common stock completed~~the $3.5 million raised in ~~January and February 2021, at $3.00 per share for gross proceeds of $750,000. In April 2021,~~June 2022. Offsetting these amounts were the Company completed its IPO and issued 2,400,000 shares of common stock for gross cash proceeds of $14,400,000. The Company paid underwriting fees and other expenses of $885,800 and issued 168,000 warrants to purchase shares of common stock at a price of $7.20 per share for a period of five years.direct issuance costs.

Off Balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervisions of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of June 30, ~~2021.~~2022.

There were no changes to our internal control over financial reporting during the three months ended June 30, ~~2021,~~2022, that have materially affected, or are reasonable likely to materially effect, our internal controls over financial reporting.

Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ended December 31, 2021. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting.

2026

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~None.~~The Company’s previous financial advisor, Boustead Securities LLC (“Advisor”) has alleged a breach by the Company over the termination of their engagement and the timing of the payment and amount of the fees owed to the Advisor (collectively the “Claims”). The fees the Company expects to pay are accrued in the accompanying balance sheet. On June 2, 2022, the Advisor named EBET in an arbitration proceeding with Financial Industry Regulatory Authority (“FINRA”) in connection with the Claims. The statement of claim alleges damages of $5.7 million and seeks a declaration that the Company be required to utilize the Advisor for a certain follow-on offering pursuant to an alleged right of first refusal between the parties. Arbitration is inherently unpredictable. However, the Company believes that it has meritorious defenses to a portion of the alleged fee claim asserted and to the claim that the Company has any obligations pursuant to a right of first refusal between the parties. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of this matter.

Item 1A. Risk Factors

For a discussion of potential risks or uncertainties, see “Risk Factors” in the Company’s ~~registration statement~~most recent annual report on Form ~~S-1, as amended (File No. 333-254068), on~~10-Kon file with the ~~SEC, and in Item 1A of the Form 10-Q for the quarter ended March 31, 2021.~~SEC. Except as set forth below, there have been no material changes to the risk factors disclosed in such ~~registration statement and Form 10-Q~~annual report.

Future sales of shares by our preferred stockholders could cause our stock price to decline.

On November 29, 2021, in connection with the Acquisition, we issued an aggregate of 37,700 shares of Preferred Stock for a purchase price of $1,000.00 per share, for aggregate gross proceeds of $37,700,000 (the “Private Placement”). For each share of Preferred Stock issued, we issued the investors a warrant to purchase 150% of the shares of common stock underlying the Preferred Stock (the “Warrants”). The Preferred Stock is convertible into common stock at an initial conversion price of $28.00 per share (“Conversion Price”); provided that the Conversion Price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the Conversion Price then in effect. In addition, nine months from the issuance date (the “Adjustment Date”), the Conversion Price shall be adjusted to the lesser of: (i) the Conversion Price in effect on the Adjustment Date, or (ii) 85% of the average closing price of the Company’s common stock for the ~~quarter ended March 31, 2021.~~fifteen trading days prior to the Adjustment Date. The Warrants are initially exercisable at an exercise price of $30.00 per share, provided that the exercise price is subject to anti-dilution protection upon any subsequent transaction at a price lower than the exercise price then in effect. The trading price of our common stock could be adversely impacted if these preferred stockholders sell, or if the market believes such holders may sell, substantial amounts of our common stock in the public market.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~On April 19, 2021, we closed our initial public offering~~There were no sales of ~~2,400,000 shares of common~~ ~~at a price to~~equity securities during the public of $6.00 per share. The gross proceeds from our initial public offering, before deducting underwriting discounts and commissions, was $14.4 million. The offer and sale of all of the shares in the offeringperiod covered by this Quarterly Report that were not registered under the Securities Act ~~pursuant to~~and were not previously reported on a ~~registration statement~~Current Report on Form ~~S-1 (File No. 333-254068), which was declared effective~~8-K filed by the ~~SEC on April 14, 2021. Boustead Securities, LLC acted as underwriter for the offering.~~Company.

There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on April 16, 2021 pursuant to Rule 424(b). No direct or indirect payments were made by us to any of our directors or officers or their associates, to persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. Pending the uses described, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

~~There is no other information required to be disclosed under this item which was not previously disclosed.~~None.

2127

Item 6. Exhibits.

Exhibit Number		Description
3.1		Articles of Merger(incorporated by reference to exhibit 3.1 of the Form 8-K filed May 5, 2022)
3.2		Amended and Restated Bylaws(incorporated by reference to exhibit 3.2 of the Form 8-K filed May 5, 2022)
3.3		Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (incorporated by reference to exhibit 3.1 of the Form 8-K filed June 8, 2022)
4.1		Form of Investor Warrant issued in June 2022 offering (incorporated by reference to exhibit 4.1 of the Form 8-K filed June 8, 2022)
10.1		Form of Securities Purchase Agreement in June 2022 offering (incorporated by reference to exhibit 10.1 of the Form 8-K filed June 8, 2022)
10.2		Note Conversion Option Agreement between EBET, Inc. and CP BF LENDING, LLC (incorporated by reference to exhibit 10.2 of the Form 8-K filed June 8, 2022)
10.3		Amendment to Note Conversion Option Agreement between EBET, Inc. and CP BF LENDING, LLC (incorporated by reference to exhibit 10.1 of the Form 8-K filed June 17, 2022)
31.1*		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
31.2*		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
32.1*(1)		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*(1)		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

____________________

*	Filed herewith.

(1)	The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

2228

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	~~ESPORTS TECHNOLOGIES,~~EBET, INC.

Date: August ~~13, 2021~~15, 2022	By:	/s/ Aaron Speach
		Aaron Speach Chief Executive Officer, President and Director (Principal Executive Officer)


Date: August ~~13, 2021~~15, 2022	By:	/s/ James Purcell
		James Purcell Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

2329


	Common stock				Additional
	Number of				paid-in			Accumulated
	Shares		Amount		capital			deficit			Total

Balance at September 30, 2019		7,340,421	$	7,340	$	953,660		$	(876,271	)	$	84,729

Net loss		–		–		–			(23,428	)		(23,428	)

Balance at December 31, 2019		7,340,421		7,340		953,660			(899,699	)		61,301

Net income		–		–		–			5,073			5,073

Balance at March 31, 2020		7,340,421		7,340		953,660			(894,626	)		66,374

Net loss		–		–		–			(27,654	)		(27,654	)

Balance at June 30, 2020		7,340,421	$	7,340	$	953,660		$	(922,280	)	$	38,720

Balance at September 30, 2020		7,340,421	$	7,340	$	3,053,660		$	(1,449,526	)	$	1,611,474

Shares issued for cash, net		2,000,000		2,000		3,646,071			–			3,648,071

Stock-based compensation		683,334		683		1,321,343			–			1,322,026

Shares issued due to conversion of notes payable		375,000		375		187,125			–			187,500

Stock warrants issued for asset acquisition		–		–		57,252			–			57,252

Net loss		–		–		–			(2,750,731	)		(2,750,731	)

Balance at December 31, 2020		10,398,755		10,398		8,265,451			(4,200,257	)		4,075,592

Shares and warrants issued for cash, net		250,014		251		719,435			–			719,686

Stock-based compensation		–		–		700,000			–			700,000

Net loss		–		–		–			(2,375,660	)		(2,375,660	)

Balance at March 31, 2021		10,648,769		10,649	$	9,684,886		$	(6,575,917	)	$	3,119,618

Shares and warrants issued for cash, net		2,400,000		2,400		13,511,800			–			13,514,200

Shares issued for intangible assets		–		–		1,456,650			–			1,456,650

Cashless exercise of warrants		62,386		62		(62	)		–			–

Stock-based compensation		–		–		834,971			–			834,971

Net loss		–		–		–			(3,957,611	)		(3,957,611	)

Balance at June 30, 2021		13,111,155	$	13,111	$	25,488,245		$	(10,533,528	)	$	14,967,828


	For the Nine Months Ended June 30,
	2021			2020
Cash flow from operating activities:
Net loss	$	(9,084,002	)	$	(46,009	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		1,187,913			0
Depreciation and amortization expense		178,339			0
Stock-based compensation		2,856,997			0
Bad debt expense		50,932			0
Gain on cryptocurrency settlement		(45,267	)		(1,369	)
Changes in operating assets and liabilities:
Accounts receivable		(35,252	)		(125,553	)
Prepaid expenses and other		(623,026	)		0
Accounts payable and accrued liabilities		775,277			0
Accounts payable - related parties		(152,888	)		105,118
Liabilities to users		(8,432	)		96
Net cash used in operating activities		(4,899,409	)		(67,717	)

Cash flow from investing activities:
Purchase of software and equipment		(103,259	)		0
Purchase of other long-term assets		(420,098	)		0
Net cash used by investing activities		(523,357	)		0

Cash flow from financing activities:
Proceeds from equity issuance, net of costs of capital		17,881,957			0
Net cash provided by financing activities		17,881,957			0

NET CHANGE IN CASH		12,459,191			(67,717	)
CASH AT BEGINNING OF PERIOD		0			67,717
CASH AT END OF PERIOD	$	12,459,191		$	0

Supplemental disclosure of cash flow information:
Cash paid for interest	$	0		$	0
Cash paid for income taxes	$	0		$	0

Non-cash transactions
Stock warrant issued for asset acquisition	$	57,282		$	0
Stock issued for conversion of notes payable	$	187,500		$	0
Stock issuable for intangible asset	$	1,456,650		$	0

Schedule of software and equipment
	June 30, 2021			September 30, 2020
Software	$	160,511		$	0
Total software and equipment		160,511			0
Accumulated depreciation		(74,075	)		0
Software and equipment, net	$	86,436		$	0

Cryptocurrency at September 30, 2020	$	44,562
Additions of cryptocurrency		36,605
Payments of cryptocurrency		(125,480	)
Gain on cryptocurrency		45,268
Cryptocurrency at June 30, 2021	$	955

Calculation of earnings per share
	Three Months Ended						Nine Months Ended
	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020

Numerator
Net income (loss)	$	(3,957,611	)	$	(27,654	)	$	(9,084,002	)	$	(46,009	)
Denominator
Basic and Diluted weighted average common shares		10,549,765			7,340,421			10,650,966			7,340,421	)
Basic and diluted net income (loss) per common share	$	(0.38	)	$	(0.00	)	$	(0.85	)	$	(0.01	)

	Three Months Ended June 30,										Nine Months Ended June 30,
	2021					2020					2021					2020
		$		%			$		%			$		%			$		%

Revenue	$	41,356		100%		$	63,740		100%		$	85,984		100%		$	141,618		100%
Cost of revenue		–		0%			(27,971	)	(44	)%		(24,724	)	(29	)%		(80,138	)	(57	)%

Gross profit		41,356		100%			35,769		56%			61,260		71%			61,480		43%

Operating expenses:
Sales and marketing expenses		964,836		2,333%			–		0%			1,238,780		1,441%			–		0%
Product and technology expenses		1,176,848		2,846%			–		0%			2,286,228		2,659%			15,635		11%
Acquisition costs		139,235		337%			–		0%			139,235		162%			–		0%
General and administrative expenses		1,340,042		3,240%			64,685		101%			4,123,163		4,795%			93,116		66%
Total operating expenses		3,620,961		8,756%			64,685		101%			7,787,406		9,057%			108,751		77%

Income (loss) from operations		(3,579,605	)	(8,656	)%		(28,916	)	(45	)%		(7,726,146	)	(8,986	)%		(47,271	)	(33	)%

Other expenses:
Interest expense		(368,001	)	(890	)%		–		0%			(1,335,621	)	(1,553	)%		–		0%
Foreign currency loss		(10,005	)	(24	)%		1,262		2%			(22,235	)	(26	)%		1,262		1%
Total other expense		(378,006	)	(914	)%		1,262		2%			(1,357,856	)	(1,579	)%		1,262		1%

Income (loss) before provision for income taxes		(3,957,611	)	(9,570	)%		(27,654	)	(43	)%		(9,084,002	)	(10,565	)%		(46,009	)	(32	)%
Provision for income taxes		–		0%			–		0%			–		0%			–		0%

Net income (loss)	$	(3,957,611	)	(9,570	)%	$	(27,654	)	(43	)%	$	(9,084,002	)	(10,565	)%	$	(46,009	)	(32	)%