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, 2023

☐	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

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.)

3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV		89169
(Address of Principal Executive Offices)		(Zip Code)

(888) 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 300,183,243 shares of common stock outstanding on August 14, 2023.

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 operate under the gaming licenses of third-party entities;

	·	our ability to satisfy our debt obligations during the period provided to us pursuant to the forbearance agreement under which we are operating, or to obtain additional waivers until we are able to do so;

	·	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.

EBET, Inc.

FORM 10-Q

For the Quarter Ended June 30, 2023

INDEX

				Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Unaudited Financial Statements		4

		a)	Consolidated Balance Sheets as of June 30, 2023 and September 30, 2022	4
		b)	Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2023 and 2022	5
		c)	Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended June 30, 2023 and 2022	6
		d)	Consolidated Statements Cash Flows for the Nine Months Ended June 30, 2023 and 2022	7
		e)	Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		34

	Item 4.	Controls and Procedures		34

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		35

	Item 1A.	Risk Factors		35

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36

	Item 3.	Defaults Upon Senior Securities		36

	Item 4.	Mine Safety Disclosure		36

	Item 5.	Other Information		36

	Item 6.	Exhibits		37

SIGNATURES				38

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EBET, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,			September 30,
	2023			2022

ASSETS
Current assets:
Cash	$	1,437,787		$	5,486,210
Accounts receivable, net		994,312			1,647,345
Prepaid expenses and other current assets		1,464,448			1,772,332
Derivative asset		–			1,116,153
Right of use asset, operating lease, current portion		22,740			129,975

Total current assets		3,919,287			10,152,015

Long term assets:
Fixed assets, net		347,817			546,408
Intangible assets, net		10,279,418			27,545,329
Goodwill		16,805,753			30,657,460

Total assets	$	31,352,275		$	68,901,212

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	9,073,412		$	13,384,906
Current lease liabilities		–			129,974
Borrowings, current portion		39,385,951			21,202,585
Warrant liabilities		260,238			–
Liabilities to users		1,018,626			1,272,308
Total current liabilities		49,738,227			35,989,773

Long-term liabilities
Borrowings, net of current portion		546,634			11,145,863

Total liabilities		50,284,861			47,135,636

COMMITMENTS AND CONTINGENCIES		–			–

Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 32,367 and 37,700 issued and outstanding as of June 30, 2023 and September 30, 2022, respectively		32			38
Common stock; $0.001 par value, 500,000,000 shares authorized 34,218,213 and 16,654,573 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively		34,218			16,654
Additional paid-in capital		102,785,259			91,941,757
Accumulated other comprehensive income (loss)		462,306			(7,365,129	)
Accumulated deficit		(122,214,401	)		(62,827,744	)
Total stockholders’ equity (deficit)		(18,932,586	)		21,765,576

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	31,352,275		$	68,901,212

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,
	2023			2022			2023			2022

Revenue	$	7,974,517		$	18,168,515		$	33,962,971		$	44,311,030
Cost of revenue		(4,203,293	)		(10,918,796	)		(19,314,114	)		(27,537,479	)

Gross profit		3,771,224			7,249,719			14,648,857			16,773,551

Operating expenses:
Sales and marketing expenses		1,980,211			9,262,851			8,660,841			22,711,724
Product and technology expenses		280,201			1,115,165			816,309			3,270,328
Acquisition costs		–			–			–			2,240,147
Impairment loss		32,653,626			–			32,653,626			–
General and administrative expenses		3,585,489			3,863,298			10,365,751			12,454,493
Total operating expenses		38,499,527			14,241,314			52,496,527			40,676,692

Loss from operations		(34,728,303	)		(6,991,595	)		(37,847,670	)		(23,903,141	)

Other expenses:
Interest expense		(9,824,363	)		(1,790,520	)		(15,543,788	)		(5,531,757	)
Loss on derivative		–			(130,033	)		(142,187	)		(203,116	)
Change in fair value of warrant liabilities		1,034,400			–			1,034,400			–
Foreign currency gain (loss)		(212,132	)		(66,552	)		(2,800,593	)		(62,794	)
Total other expense		(9,002,095	)		(1,987,105	)		(17,452,168	))		(5,797,667	)

Loss before provision for income taxes		(43,730,398	)		(8,978,700	)		(55,299,838	)		(29,700,808	)
Provision for income taxes		–			–			–			–

Net loss		(43,730,398	)		(8,978,700	)		(55,299,838	)		(29,700,808	)

Preferred stock dividends		(992,274	)		(1,416,242	)		(4,086,819	)		(3,267,319	)
Net loss attributable to common shareholders		(44,722,672	)		(10,394,942	)		(59,386,657	)		(32,968,127	)

Other comprehensive income (loss):
Foreign currency translation income (loss)		142,779			(3,560,908	)		7,827,435			(4,530,305	)
Total other comprehensive income (loss)		142,779			(3,560,908	)		7,827,435			(4,530,305	)

Comprehensive loss	$	(44,580,393	)	$	(13,955,850	)	$	(51,559,222	)	$	(37,498,432	)

Net loss per common share – basic and diluted	$	(1.73	)	$	(0.70	)	$	(2.71	)	$	(2.31	)

Weighted average common shares outstanding – basic and diluted		25,908,005			14,842,497			21,896,714			14,267,461

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

EBET, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022

(Unaudited)


	Preferred stock						Common Stock							Accumulated
	Number of						Number of				Additional paid-in			Other Comprehensive			Accumulated
	Shares			Amount			Shares		Amount		capital			income (loss)			deficit			Total

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		38,184			38			14,191,739		14,191	$	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 loss		–			–			–		–		–			(1,156,825	)		–			(1,156,825	)
Balance at March 31, 2022		39,551			40			14,416,830		14,416		80,979,465			(915,486	)		(39,222,736	)		40,855,699

Common stock and warrants issued for cash		–			–			977,659		978		3,499,022			–			–			3,500,000
Issuance costs		–			–			–		–		(2,091,550	)		–			–			(2,091,550	)
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	)		–
Net loss		–			–			–		–		–			–			(8,978,700	)		(8,978,700	)
Comprehensive loss		–			–			–		–		–			(3,560,908	)		–			(3,560,908	)
Balance at June 30, 2022		40,967		$	41			16,172,54	$	16,172	$	85,193,567		$	(4,476,394	)	$	(49,617,678	)	$	31,115,708

Balance at September 30, 2022		37,700		$	38			16,654,573	$	16,654	$	91,941,757		$	(7,365,129	)	$	(62,827,744	)	$	21,765,576
Stock-based compensation		–			–			20,750		21		503,084			–			–			503,105
Shares issued for conversion of debt		–			–			600,000		600		299,400			–			–			300,000
Preferred share dividends		–			–			–		–		1,536,969			–			(1,536,969	)		–
Net loss		–			–			–		–		–			–			(7,557,765	)		(7,557,765
Comprehensive income		–			–			–		–		–			6,356,110			–			6,356,110
Balance at December 31, 2022		37,700			38			17,275,323		17,275		94,281,210			(1,009,019	)		(71,922,478	)		21,367,026

Common stock issued for cash		–			–			6,372,530		6,373		5,915,609			–			–			5,921,982
Stock-based compensation		–			–			31,500		31		377,664			–			–			377,695
Shares issued for conversion of debt		–			–			1,465,322		1,465		731,196			–			–			732,661
Preferred share dividends		–			–			–		–		1,557,576			–			(1,557,576	)		–
Net loss		–			–			–		–		–			–			(4,011,675	)		(4,011,675	)
Comprehensive income		–			–			–		–		–			1,329,046			–			1,329,046
Balance at March 31, 2023		37,700			38			25,144,675		25,145		102,863,225			320,027			(77,491,729	)		25,716,735

Common stock issued for conversion of preferred stock		(5,333	)		(6	)		9,028,538		9,029		(9,023	)		–			–			–
Stock-based compensation		–			–			45,000		45		233,391			–			–			233,436
Reclassification of common stock warrants as liabilities		–			–			–		–		(1,294,638	)		–			–			(1,294,638	)
Preferred share dividends		–			–			–		–		992,274			–			(992,274	)		–
Net loss		–			–			–		–		–			–			(43,730,398	)		(43,730,398	)
Comprehensive income		–			–			–		–		–			142,779			–			142,779

Balance at June 30, 2023		32,367		$	32			34,218,213	$	34,218	$	102,785,259		$	462,306		$	(122,214,401	)	$	(18,932,586	)

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

EBET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022

(Unaudited)


	For the Nine Months Ended June 30,
	2023			2022

Cash flow from operating activities:
Net loss	$	(55,299,838	)	$	(29,700,808	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount, issuance costs		10,999,866			1,319,608
Amortization of right of use assets		119,563			–
Change in fair value of warrant liabilities		(1,034,400	)		–
Depreciation and amortization expense		5,290,082			4,770,509
Stock-based compensation		1,114,236			4,341,090
Impairment loss		32,653,626			–
Derivative loss		142,187			233,397
Foreign exchange loss		2,806,500			50,377
Changes in operating assets and liabilities:
Accounts receivable		822,257			(1,597,324	)
Prepaid expenses and other		459,915			(1,566,211	)
Accounts payable and accrued liabilities		(5,090,898	)		11,853,570
Current lease liabilities		(141,822	)		–
Liabilities to users		(396,179	)		1,345,100
Net cash used in operating activities		(7,554,905	)		(8,950,692	)

Cash flow from investing activities:
Purchase of fixed assets		(11,341	)		(1,141,449	)
Cash paid for business combinations		–			(56,229,526	)
Net cash used by investing activities		(11,341	)		(57,370,975	)

Cash flow from financing activities:
Proceeds from settlement of derivative instruments		973,965			–
Repayment of senior note		(5,000,000	)		–
Proceeds from debt issuance, net of issuance costs		–			27,130,837
Proceeds from equity issuance, net of issuance costs		5,921,982			37,014,450
Net cash provided by financing activities		1,895,947			64,145,287

Effect of foreign exchange rates on cash		1,621,876			–

NET CHANGE IN CASH		(4,048,423	)		(2,176,380	)
CASH AT BEGINNING OF PERIOD		5,486,210			9,064,859
CASH AT END OF PERIOD	$	1,437,787		$	6,888,479

Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,064,661		$	2,493,083

Non-cash transactions
Preferred share dividends	$	4,086,819		$	3,267,319
Stock warrants issued in connection with Senior Notes	$	–		$	7,661,382
Reclassification of warrants to liabilities	$	1,294,638		$	–
Shares issued for conversion of preferred stock	$	9,029		$	–
Shares issued for conversion of debt and accrued interest	$	1,032,661		$	412,500

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

EBET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN

Organization

EBET, Inc. (“EBET” or “the Company”) was formed on September 24, 2020 as a Nevada corporation. EBET is a technology company operating platforms focused on i-gaming including casino, sportsbook and esports events. The Company operates under a Curacao gaming sublicense pursuant to a set of agreements with Aspire Global plc (“Aspire”) as a platform provider allowing EBET to provide online betting services to various countries around the world.

Acquisition of the B2C business of Aspire Global plc

On October 1, 2021, the Company, and Esports Product Technologies Malta Ltd. (“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 accordance with the terms of an unsecured subordinated promissory note (the “Note”); and (iii) shares of Company common stock, which are 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 continuation of the Company as a going concern is dependent upon the ability of the Company to obtain equity or debt financings to continue operations. The Company has a history of and expects to continue to report negative cash flows from operations and a net loss. The Company's forecasts for 2023 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, 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, which resulted in the recognition of an impairment loss on certain intangible assets and fixed assets. As a result of the Company’s actions as referenced above, it does not expect to launch its esports products in the foreseeable future. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements and delay planned cash outlays or a combination thereof. Management cannot be certain that such events or a combination thereof can be achieved.

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.

A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for the Company’s products, reducing cash flows and revenues, and thereby materially harming the Company’s business, financial condition and results of operations. In addition, a materially disruptive resurgence of COVID-19 cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on where infection rates are highest. As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, the Company implemented business continuity programs to ensure that employees were safe and that the business continued to function with minimal disruptions to normal work operations while employees worked remotely. The Company will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

Other Events

On April 27, 2023, the Company was notified by its gaming platform operator services provider Aspire that the gaming regulatory authority in Germany had sent a letter received by Aspire on April 25, 2023 stating that Aspire would be required to shut down activity of its gaming operations in Germany effective as of 10 days from receipt of said letter until such time as Aspire was otherwise granted a license to operate in Germany. Aspire informed the Company that although it sought an extension of the requested shutdown deadline, it was not successful in receiving an extension of time and/or any form of other relief from this request. In order to meet the subject German regulator requirement, Aspire shut down its activities in Germany on May 7, 2023 and as a result the gaming websites owned by the Company that operate in Germany were shut down on that date. During the nine months ended June 30, 2023 and 2022 revenue generated in German markets was $9,686,372 and $12,806,072, respectively. During the same periods gross profit contributed from the German markets was $2,775,605 and $2,967,251, respectively.

On June 28, 2023, based on the approval of the Strategic Alternatives Committee, that committee’s favorable recommendation to the Board, and the Board’s subsequent approval, the Company hired Houlihan Lokey Capital, Inc. (“Houlihan”) as the Company’s exclusive financial advisor to provide financial advisory and investment banking services in connection with one or more of a sale, recapitalization, restructuring or any other financial transactions involving the Company. The continued engagement of Houlihan is required by the Lender during the term of the Forbearance Agreement described in Note 4 below.

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 nine months ended June 30, 2023, are not necessarily indicative of the final results that may be expected for the year ended September 30, 2023. 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, 2022 included in our Form 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 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.

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. The receivable balance as of September 30, 2022 owed to the Company represents the net amount owed to the Company by Aspire related to the strategic agreement for the Company’s i-gaming platform and is stated at historical cost less any allowance for doubtful accounts. The allowance for doubtful accounts was $0 as of June 30, 2023 and September 30, 2022.

Intangible Assets

The Company’s intangible assets consist primarily of customer relationships, trademarks and internet domain names. Certain intangible assets have a defined useful life and others are classified as indefinite-lived 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.

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. As of June 30, 2023, the Company determined that it’s intangible assets and goodwill were impaired and recognized an impairment loss of $32,653,626.

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.

The Company’s only significant lease is for office space in Malta, which has a two-year lease term beginning August 1, 2021, and is classified as an operating lease. The lease has an option to extend the term for an additional two years with a 10% increase in annual rent. On May 1, 2023, the Company notified the landlord that it will not renew the lease beyond its expiration date of July 31, 2023. The Company paid €176,001 at commencement and owed an additional €160,001 in August 2022. The Company has been making monthly payments of €13,335 on this annual payment. The Company recognized a right of use asset and lease liability of $381,346 at commencement based on the present value of lease payments at commencement and utilizing an estimate incremental borrowing rate of 10%.

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at June 30, 2023 and September 30, 2022:


	June 30, 2023		September 30, 2022
Operating Leases:
Operating lease right-of-use assets	$	22,740	$	129,975
Right of use liability operating lease current portion		–		129,974
Right of use liability operating lease long term		–		–
Total operating lease liabilities	$	–	$	129,974

The Company has no remaining lease payments under its operating lease. Operating lease expense was $43,564 and $42,613 during the nine months ended June 30, 2023 and 2022, respectively. Operating lease expense was $127,174 and $133,231 during the nine months ended June 30, 2023 and 2022, respectively.

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. The user balances are maintained by the Company’s third-party platform provider, and the Company has an asset of an equivalent amount included within Prepaid expense and other current assets on the Company’s consolidated balance sheets.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers, which 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. 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 accounted for more than 10% of revenue for the three and nine months ended June 30, 2023 or 2022. In addition, no disaggregation of revenue is required because all current revenue is generated from gaming revenue.

i-gaming, or online casino, typically includes digital versions of wagering games available in land-based casinos, such as blackjack, roulette and slot machines. For these offerings, the Company functions similarly to land-based casinos, generating revenue through casino hold, as users play against the house. i-gaming revenue is generated from user wagers net of payouts made on users’ winning wagers and incentives awarded to users.

Sportsbook or sports betting involves a user wagering money on an outcome or series of outcomes occurring. When a user’s wager wins, the Company pays the user a pre-determined amount known as fixed odds. Sportsbook revenue is generated by setting odds such that there is a built-in theoretical margin in each sports wagering opportunity offered to users. Sportsbook revenue is generated from users’ wagers net of payouts made on users’ winning wagers and incentives awarded to users.

Performance Obligations

The Company operates an online betting platform allowing users to place wagers on a variety of live sporting events, i-gaming and esports events. Each wager placed by users create a single performance obligation for the Company to administer each event wagered. The performance obligation is satisfied once the event wagered on has been completed. Gross gaming revenue is the aggregate of gaming wins and losses based on results of each event that customers wager bets on.

Transaction Price Considerations

Variability in the transaction price arises primarily due to market-based pricing, cash discounts, revenue sharing and usage-based fees. The Company offers loyalty programs, free plays, deposit bonuses, discounts, rebates and other rewards and incentives to its customers. Revenue for Sportsbook and i-gaming is collected prior to the contest or event and is fixed once the outcome is known. Prizes paid and payouts made to users are recognized when awarded to the player.

Cost of Revenue

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

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of expenses associated with amounts paid to affiliates, advertising and related software, 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. 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 component of marketing expense. Advertising costs are expensed as incurred.

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.

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.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value as of June 30, 2023 and September 30, 2022 based on the three-tier fair value hierarchy:

Fair Value Measurements at June 30, 2023

Level 1

Level 2

Level 3

Assets

Cash

1,437,787

–

Total assets

1,437,787

–

Liabilities

Senior Notes, net of discount

–

26,086,927

–

Note due to Aspire

–

12,617,111

–

Convertible notes payable, net of discount

–

681,891

–

Other notes payable, net of discount

–

546,634

–

Warrant liabilities

–

260,238

Total liabilities

–

39,932,563

260,238

Fair Value Measurements at September 30, 2022

Level 1

Level 2

Level 3

Assets

Cash

5,486,210

–

Derivative asset

–

1,116,153

–

Total assets

5,486,210