UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported):
___________________________
(Exact name of registrant as specified in its charter)
___________________________
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code:
(Former Name or Former Address, if Changed Since Last Report)
___________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
| The
|
EXPLANATORY NOTE
On December 1, 2021, Esports Technologies, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial Report”) with the Securities and Exchange Commission (“SEC”) announcing it had closed the transaction pursuant to the Share Purchase Agreement (the “Acquisition Agreement”) with Aspire Global plc, a company incorporated under the laws of Malta (“Aspire”), Aspire Global International Limited, a company incorporated under the laws of Malta, AG Communications Limited, a company incorporated under the laws of Malta, Aspire Global 7 Limited, a company incorporated under the laws of Malta (collectively the “Aspire Related Companies”), and Karamba Limited, a limited liability company incorporated and existing under the laws of Malta (“Karamba”) whereby Esports Malta agreed to acquire all of the issued and outstanding shares of Karamba (the “Acquisition”). In the Initial Report, the Company indicated that it intended to provide the required Item 9.01(a) Financial Statements of Business Acquired and Item 9.01(b) Pro Forma Financial Information through an amendment to the Initial Report no later than 71 days from the date on which such Initial Report was required to be filed.
Pursuant to the Acquisition Agreement, among other things, the following transactions and deliverables occurred at the Closing: (i) Aspire and the Aspire Related Companies transferred to Karamba all the business to consumer (“B2C”) assets, certain liabilities, and operations as set forth in the Acquisition Agreement (the “Assets”); (ii) Aspire (and the Aspire Related Companies) assigned or transferred to Karamba all key and material contracts for services that are necessary for the operation of the Assets; (iii) Esports Malta acquired all of the shares in Karamba; (iv) Esports Malta entered into an agreement with Aspire whereby Aspire will provide continuation of services related to certain employees which are believed to be essential to the integration and operation of the Assets (the “Transitional Services Agreement”) for a transition period subsequent to the Closing and up to 90 days thereafter; (v) Karamba (as then fully owned by Esports Malta) entered into four-year business to business white label operator services agreements collectively covering regulated and unregulated markets, based upon a migration plan in accordance with applicable laws (collectively the “Operator Services Agreement” and the “Migration Plan”, respectively).
In accordance with the terms and subject to the conditions of the Acquisition Agreement, the total acquisition price was €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 (the “Note”); and (iii) 186,838 shares of Company common stock, which were valued at €5,000,000 (based on the weighted average per-share price of the ten trading days prior to the execution date of the Acquisition Agreement (the “Exchange Shares”). The Company agreed, within 45 days as of the Closing, to file with the Securities and Exchange Commission (“SEC”) a registration statement to register the resale of the Exchange Shares.
This Amendment No. 1 to Current Report on Form 8-K/A (“Amendment No. 1”) amends the Initial Report to provide the financial statements and pro forma financial information referred to in parts (a) and (b) of Item 9.01 below relating to the Acquisition that were previously omitted from the Initial Report as permitted by Item 9.01(a)(3) and 9.01(b)(2). This Amendment No. 1 does not amend any other item of the Initial Report and all other information previously reported in or filed with the Initial Report is hereby incorporated by reference to this Amendment No. 1. This Amendment No. 1 should be read in connection with the Initial Report.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of businesses or funds acquired.
The following carve-out combined audited financial statements of Aspire B2C Business acquired by Karamba Limited (with independent auditors' report thereon) are attached hereto as Exhibit 99.1 and incorporated by reference herein:
| · | Carve-out combined balance sheets as of September 30, 2021 and 2020 | |
| · | Carve-out combined statements of comprehensive income for the years ended September 30, 2021 and 2020 | |
| · | Carve-out combined statements of changes in net parent investment for the years ended September 30, 2021 and 2020 | |
| · | Carve-out combined statements of cash flows for the years ended September 30, 2021 and 2020 | |
| · | Notes to carve-out combined financial statements. |
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information of the Company and Karamba Limited is attached hereto as Exhibit 99.2 and incorporated by reference hereto:
| · | Unaudited Pro Forma Combined Balance Sheet as of September 30, 2021 | |
| · | Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended September 30, 2021. |
(d) Exhibits.
| Exhibit No. | Description |
| 23.1 | Consent of Ziv Haft, Certified Public Accountants, Isr., BDO Member Firm |
| 99.1 | Carve-out combined audited financial statements of the B2C Business acquired by Karamba Limited |
| 99.2 | Unaudited pro forma information of Esports Technologies, Inc. and Aspire Global plc. - B2C Business (Karamba Limited) |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 2 |
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ESPORTS TECHNOLOGIES, INC. | |
| Date: January 21, 2022 | |
| By: /s/ Jim Purcell | |
| Jim Purcell | |
| Chief Financial Officer |
| 3 |
Exhibit 23.1
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-262228) and Form S-8 (No. 333-256062) of Esports Technologies, Inc. of our report dated January 21, 2022, relating to the carve-out combined financial statements of the Aspire Global plc. - B2C Business as of and for the years ended September 30, 2021 and 2020 appearing in this Current Report on Form 8-K/A.
/s/ Ziv Haft
Ziv Haft
Certified Public Accountants, Isr.
BDO Member Firm
January 21, 2022
Tel Aviv, Israel
Exhibit 99.1
ASPIRE GLOBAL PLC - B2C BUSINESS
CARVE-OUT COMBINED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021 AND 2020
CONTENTS
| Page | |
| Independent Auditors' Report | 2-3 |
| Carve-out Combined Balance Sheets | 4 |
| Carve-out Combined Statements of Comprehensive Income | 5 |
| Carve-out Combined Statements of Changes in Net Parent Investment | 6 |
| Carve-out Combined Statements of Cash Flows | 7 |
| Notes to the Carve-out Combined Financial Statements | 8-11 |
| 1 |
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Aspire Global plc
Opinion
We have audited the carve-out combined financial statements of Aspire Global plc - B2C Business, which comprise the carve-out combined balance sheets as of September 30, 2021 and 2020, and the statements of comprehensive income, changes in net parent investment and cash flows for the years then ended, and the related notes to the carve-out combined financial statements. (Collectively referred to as the “carve-out combined financial statements”)
In our opinion, the accompanying carve-out combined financial statements present fairly, in all material respects, the financial position of Aspire Global plc - B2C Business as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Aspire Global plc – B2C Business and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1B, the B2C Business was an integrated business of Aspire Global plc and was not a stand-alone entity. The accompanying carve-out combined financial statements present the historical financial position, results of operations, changes in net assets and cash flows of the Aspire Global plc - B2C Business as it was historically conducted. The financial information included herein may not necessarily reflect the combined financial position, results of operations, changes in net investment and cash flows of the Aspire Global plc - B2C Business in the future or what they would have been if the Aspire Global plc - B2C Business been a separate, stand-alone entity during the periods presented.
Responsibilities of Management for the Carve-out Combined Financial Statements
Management is responsible for the preparation and fair presentation of the carve-out combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of carve-out combined financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the carve-out combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the carve-out combined financial statements are issued or available to be issued.
Auditor’s Responsibilities for the Audit of the Carve-out Combined Financial Statements
Our objectives are to obtain reasonable assurance about whether the carve-out combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the carve-out combined financial statements.
| 2 |
In performing an audit in accordance with GAAS, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. | |
| · | Identify and assess the risks of material misstatement of the carve-out combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in carve-out combined financial statements. | |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Aspire Global plc - B2C Business internal control. Accordingly, no such opinion is expressed. | |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the carve-out combined financial statements. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Ziv Haft
Ziv Haft
Certified Public Accountants (Isr.)
BDO Member Firm
January 21, 2022
Tel Aviv, Israel
| 3 |
Aspire Global plc - B2C Business
Carve-Out Combined Balance Sheets
(in thousands)
| September 30, 2021 | September 30, 2020 | |||||||
| Current assets | ||||||||
| Unbilled income - Aspire Global plc | € | 2,562 | € | 2,386 | ||||
| Receivable from Aspire Global plc | 526 | 169 | ||||||
| Income taxes receivable | 3,296 | 2,865 | ||||||
| Other | 43 | 70 | ||||||
| Total assets and current assets | € | 6,427 | € | 5,490 | ||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | 2,542 | 2,129 | ||||||
| Income taxes payable | 3,846 | 3,343 | ||||||
| Total current liabilities | 6,388 | 5,472 | ||||||
| Non-Current Liabilities | ||||||||
| Employee benefits | 39 | 18 | ||||||
| Total non-current liabilities | 39 | 18 | ||||||
| Total liabilities | 6,427 | 5,490 | ||||||
| Commitments and contingencies | ||||||||
| Net parent investment | – | – | ||||||
| Total liabilities and net assets | € | 6,427 | € | 5,490 | ||||
The accompanying notes are an integral part of these Carve-Out Combined Financial Statements.
| 4 |
Aspire Global plc - B2C Business
Carve-Out Combined Statements of Comprehensive Income
(in thousands)
| Fiscal Year Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues (including EU VAT) | € | 69,283 | € | 47,769 | ||||
| EU VAT | (3,679 | ) | (3,966 | ) | ||||
| Net revenues | 65,604 | 43,803 | ||||||
| Distribution expenses | 20,524 | 16,188 | ||||||
| Gaming duties | 10,480 | 2,807 | ||||||
| Sales and marketing expenses | 25,267 | 17,393 | ||||||
| General and administrative expenses | 2,467 | 2,418 | ||||||
| 58,738 | 38,806 | |||||||
| Operating income | 6,866 | 4,997 | ||||||
| Finance expenses | (49 | ) | – | |||||
| Finance income | – | 39 | ||||||
| Income before income taxes | 6,817 | 5,036 | ||||||
| Income taxes expenses | (341 | ) | (254 | ) | ||||
| Comprehensive and net income | € | 6,476 | € | 4,782 | ||||
The accompanying notes are an integral part of these Carve-Out Combined Financial Statements.
| 5 |
Aspire Global plc - B2C Business
Carve-Out Combined Statements of Changes in Net Investment by Aspire Global plc
(in thousands)
| Retained Earnings | Total | |||||||
| Balance at October 1, 2019 | – | – | ||||||
| Comprehensive income: | ||||||||
| Total comprehensive income | 4,782 | 4,782 | ||||||
| Net transfers to Aspire Global plc | (4,782 | ) | (4,782 | ) | ||||
| Balance at September 30, 2020 | – | – | ||||||
| Comprehensive income: | ||||||||
| Total comprehensive income | 6,476 | 6,476 | ||||||
| Net transfers to Aspire Global plc | (6,476 | ) | (6,476 | ) | ||||
| Balance at September 30, 2021 | – | – | ||||||
The accompanying notes are an integral part of these Carve-Out Combined Financial Statements.
| 6 |
Aspire Global plc - B2C Business
Carve-Out Combined Statements of Cash Flows
(in thousands)
| Fiscal Year Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operations | ||||||||
| Net income | € | 6,476 | € | 4,782 | ||||
| Adjustments to reconcile to cash flows from operations: | ||||||||
| Changes in assets and liabilities: | ||||||||
| Unbilled income - Aspire Global plc | (176 | ) | (228 | ) | ||||
| Receivable from Aspire Global plc | (357 | ) | 861 | |||||
| Other current assets | (404 | ) | 1,075 | |||||
| Accounts payable and accrued expenses | 413 | (381 | ) | |||||
| Income tax payables | 503 | (1,292 | ) | |||||
| Employee benefits | 21 | (35 | ) | |||||
| Net cash provided by operating activities | 6,476 | 4,782 | ||||||
| Cash flows from financing activities | ||||||||
| Cash transfers to Aspire Global plc | (6,476 | ) | (4,782 | ) | ||||
| Net cash used in financing activities | (6,476 | ) | (4,782 | ) | ||||
| Changes in cash | ||||||||
| Cash at the beginning of the period | – | – | ||||||
| Cash at the end of the period | € | – | € | – | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for taxes (net of refunds) | € | 269 | € | 441 | ||||
The accompanying notes are an integral part of these Carve-Out Combined Financial Statements.
| 7 |
Aspire Global plc - B2C Business
Notes to the Carve-Out Combined Financial Statements
NOTE 1 - GENERAL
| A. | Nature of Operations |
Aspire Global plc (“Aspire”) is a leading platform supplier and real money gambling operator that has traditionally reported its business in two segments. Aspire provides a full turnkey solution for iGaming operators and reports this activity in its business-to-business segment ("B2B Business") and is a licensed online gambling operator that provides real money betting on sportsbook and casino and reports this activity in its business-to-consumer segment (“B2C Business”). Aspire shares are traded on Nasdaq First North Premier Growth Market in Stockholm, Sweden, under the ticker” ASPIRE”.
The B2C Business, offers a portfolio of distinctive proprietary brands and a best-in-class iGaming experience within casino and sports to a diverse customer base operating across regulated markets. The B2C Business provides hundreds of games developed by Aspire and a game hub with access to thousands of third-party titles, along with a sportsbook.
Karamba is Aspire's leading brand, well known for its wide selection of games an accessible sportsbook with gamification tools, and the high levels of security and convenience expected from a fully licensed operator in regulated markets.
The turnkey solution provided by the B2B Business is a ready-made, customizable gaming engine including the administration of bets, gambling, licenses, customer support and content development, enabling any of its customers to focus entirely on the branding and marketing of the site. The B2B Business provides its turnkey solution to both external customers of Aspire and to the B2C Business.
On October 1, 2021, Esports Technologies, Inc. , and Esports Product Technologies Malta Ltd. (“Esports Malta”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Aspire, Aspire Global International Limited, AG Communications Limited, Aspire Global 7 Limited (collectively the “Aspire Related Companies”), and Karamba Limited whereby Esports Malta will acquire all of the issued and outstanding shares of Karamba Limited. The total acquisition price, payable at the closing of the acquisition of the Karamba Limited shares, will be €65 million payable as follows: (i) a cash amount of €50 million; (ii) €10 million 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 million (based on the weighted-average per-share price of the ten days prior to the execution date of the Acquisition Agreement. The transaction was completed on December 1, 2021, whereby at that date: (i) Aspire and the Aspire Related Companies transferred to Karamba Limited all the B2C Business as set forth in the Acquisition Agreement; (ii) Esports Malta entered into an agreement with Aspire whereby Aspire has provided continuation of services related to certain employees which are believed to be essential to the integration and operation of the B2C Business for a transition period subsequent to the completion date and up to 90 days thereafter; (iii) Karamba Limited entered into four-year business to business white label operator services agreements collectively covering regulated and unregulated markets, based upon a migration plan in accordance with applicable laws.
These carve-out combined financial statements reflect the historical financial position, results of operations, changes in net assets and cash flows of Aspire the B2C Business as it was historically conducted.
B. Basis of Presentation
The B2C Business had not constituted a separate legal entity or group and stand-alone financial statements have not previously been prepared for the B2C Business. These carve-out combined financial statements for the B2C Business as of September 30, 2021 and 2020 and for the years then ended include all the B2C Business which have been conducted through certain Maltese entities within Aspire group which also have other activities.
These financial statements have been prepared on a stand-alone basis derived from the financial statements and related accounting records of Aspire group. The accompanying carve-out combined financial statements present the historical financial position, results of operations, changes in net assets and cash flows of the B2C Business as it was historically conducted. The financial information in these financial statements does not necessarily include all the expenses that would have been incurred had the B2C Business operated as a separate stand-alone entity and may not reflect results of operations, financial position and cash flows had the B2C Business been a stand-alone company during the fiscal year ended September 30, 2021 and 2020 or in the future.
| 8 |
Aspire Global plc - B2C Business
Notes to the Carve-Out Combined Financial Statements
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the carve-out combined financial statements, on a consistent basis, unless otherwise stated, are:
| A. | Accounting principles and Use of Estimates |
The carve-out combined financial statements were prepared in conformity with U.S. generally accepted accounting principles ("US GAAP").
The preparation of financial statements in general, and more specifically carve-out combined financial statements, in conformity with US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
| B. | Foreign currency |
The carve-out combined financial statements of the B2C Business are prepared in Euro (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the B2C Business transactions. Transactions not denominated in Euro, are translated into Euro at exchange rates in effect at the date of the transaction during the period and assets and liabilities are translated at period-end exchange rates. Transactions undertaken in currencies other than the functional currency are translated using the exchange rate in effect as of the transaction date and give rise to foreign currency gains and losses.
| C. | Receivable from Aspire |
At the end of each reporting period, the total comprehensive income earned was transferred to Aspire through statements of changes in net parent investment as "Net transfers to Aspire Global plc" and corresponding reduction of retained earnings.
Unbilled income - Aspire Global plc – share of net gaming revenues paid by Aspire in the following reporting period for amounts earned prior to year-end. Cash to be received from Aspire for net gaming revenues net of fees owed to Aspire B2B Business.
Receivable from Aspire– Excess cash generated from operations transferred over comprehensive income transferred (financing), all as of the end of the reporting period.
| D. | Revenue Recognition |
Revenue is recognized provided that it is probable that economic benefits will flow to Aspire and the revenue can be reliably measured. Revenue is recognized in the accounting periods in which the transactions occurred after deduction of certain promotional bonuses granted to customers and VAT, and after adding the fees and charges applied to customer accounts and is measured at the fair value of the consideration received or receivable.
Revenue consists of income from online activities and income generated from foreign exchange commissions on customer deposit and withdrawals and account fees.
The B2C Business is the principal in the transactions with the players while the B2B Business is its service provider in their revenue split arrangement. Therefore, the B2C Business records the income from the online activities (from the players) on a gross basis. The B2B Business applies judgement in determining whether it is acting as principal or agent in these transactions.
| 9 |
Aspire Global plc - B2C Business
Notes to the Carve-Out Combined Financial Statements
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| E. | Distribution expenses |
Distribution expenses represents platform fees to Aspire B2B Business, employment related expenses, processing and content costs.
| F. | Gaming duties |
Gaming Duties relate to gaming taxes imposed by various EU countries.
| G. | Sales and marketing expenses |
Sales and marketing expenses represents customer acquisition and employment related expenses.
| H. | General and administrative expenses |
General and administrative expenses represents professional services, legal and accounting, office and employment related expenses.
| I. | Financial assets |
The B2C Business current assets comprising primarily receivables from Aspire are measured at amortized cost. These assets arise principally from the provision of services to customers. They are initially recognized at fair value.
Impairment provisions for receivables, if any, are recognized based on the simplified approach using a provision matrix in the determination of the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables.
| J. | Employee benefits |
The B2C Business primarily employs personnel in Israel and Malta. The B2C Business’s legal commitment for severance and pension payments to its Israeli employees is partially fulfilled by monthly deposits with insurance policies and/or other funds in favor of the employees.
| K. | Fair value measurements |
The fair value measurement hierarchy is based on the inputs to valuation techniques used to measure fair value. The inputs are categorized into three levels, with the highest level which is used first (level 1) given to inputs for which there are unadjusted quoted prices in active markets for identical assets or liabilities, (level 2) inputs are directly or indirectly observable inputs other than quoted prices and the lowest level (level 3) given to unobservable inputs.
| L. | Subsequent events |
In connection with the preparation of these carve-out combined financial statements, the B2C Business and management evaluated subsequent events through January 21, 2022, the date these carve-out combined financial statements were available to be issued.
| 10 |
Aspire Global plc - B2C Business
Notes to the Carve-Out Combined Financial Statements
NOTE 3 – CARVE-OUT CRITERIA AND ASSUMPTIONS
The carve-out combined statements of comprehensive income reflect direct revenues and expenses and allocations of indirect expenses related to certain support functions that are provided on a centralized basis by Aspire. These expenses have been allocated to the B2C Business on the basis of direct usage when identifiable, with others allocated based on relevant data criteria, such as payroll included in distribution expenses and general and administrative expenses as detailed below:
| · | Distribution employment related expenses - applied ratio based on head count proportion. | |
| · | General and administrative expenses - applied ratio based on head count proportion. | |
| · | Income taxes expenses - were calculated based on net 5% Maltese effective tax rate, see Note 4, for additional information. |
Aspire uses a centralized approach to cash management of its operations. The B2C Business is cash positive generating business, any cash excess over comprehensive income earned have been transferred to Aspire through "Net parent investment ". Accordingly, none of the Aspire cash and cash equivalents, has been assigned to the B2C Business in the carve-out combined financial statements.
Management believes the assumptions underlying the carve-out combined financial statements, including the assumptions regarding allocation of expenses, are reasonable.
NOTE 4– INCOME TAXES
Income taxes are calculated in accordance with the tax legislation and applicable tax rate in force at the end of the reporting year in Malta.
Accruals for uncertain tax positions are recorded, if any, when management believes that it is more likely than not that the tax position will not be sustained on examination by the taxing authorities based on the technical merits of the position.
The B2C Business is subject to corporate tax rate in Malta of 35%, however according to Maltese tax regime certain portion of the Maltese tax payable amounts is refundable (30%) upon meeting certain criteria defined under the Maltese tax ordinance inter alia of dividend distributions. Receivable tax amounts are recorded in the "Income taxes receivable balance" on the Balance Sheets.
NOTE 5 - CONTINGENCIES
Aspire is a gaming operator and provides gaming services to players. As part of its ongoing regulatory compliance process, management continues to monitor legal and regulatory developments and their potential impact on Aspire's operations. Given the changing nature of the legal and regulatory landscape of the online gaming industry, Aspire from time to time has been challenged by certain regulatory authorities in respect of its activities in certain jurisdictions.
NOTE 6 – COVID-19
Aspire is carefully monitoring the outbreak and spread of the COVID-19 (coronavirus) across the world. Pro-active measures have been taken in the beginning of the year to reduce the risk for the staff and to ensure business continuity.
| 11 |
Exhibit 99.2
Esports Technologies, Inc. and Aspire Global plc. - B2C Business (Karamba Limited) Unaudited Pro Forma Condensed Consolidated Combined Financial Statements
The following unaudited pro forma condensed consolidated combined balance sheet as of September 30, 2021 and the unaudited pro forma condensed consolidated combined statements of operations for the year ended September 30, 2021 are based on the audited consolidated financial statements of Esports Technologies, Inc. (“Esports,” “we,” “us,” “our” and the “Company”) and the audited carve-out combined financial statements of the Aspire Global plc.- B2C Business acquired by Karamba Limited (“Karamba”) as adjusted to give effect to the November 30, 2021 acquisition of Karamba by Esports (the “Acquisition”). The Acquisition has been accounted for using the acquisition method of accounting and assuming a purchase price of $74,816,000 funded by cash and issuance of the Note and the Company’s common shares.
Under the acquisition method of accounting, the total purchase price presented in the accompanying unaudited pro forma condensed consolidated combined financial statements was allocated to the assets acquired based on their preliminary estimated fair values assuming the transaction occurred on October 1, 2021. The excess of the purchase price over the total of preliminary estimated fair values assigned to tangible and identifiable intangible assets acquired is recognized as goodwill.
The unaudited pro forma condensed consolidated combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed consolidated combined financial statements, including the notes thereto, should be read in conjunction with Esports’ historical consolidated financial statements for the year ended September 30, 2021, included in our Annual Report on Form 10-K for the year ended September 30, 2021 and with carve-out combined financial statements of the Aspire Global plc. - B2C Business acquired by Karamba, as of and for the years ended September 30, 2021 and 2020, included in our Current Report on Form 8-K/A.
| 1 |
Esports Technologies, Inc. and Aspire Global plc. - B2C Business (Karamba Limited)
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2021
| Esports | Aspire Global plc. - B2C Business (Karamba | Aspire Global plc. - B2C Business (Karamba | Pro | ||||||||||||||||||
| Technologies, Inc. | Limited) (Euros) | Limited) (USD) | Adjustments | Notes | Forma | ||||||||||||||||
| Assets | |||||||||||||||||||||
| Current assets: | |||||||||||||||||||||
| Cash | $ | 9,064,859 | € | – | $ | – | $ | 2,165,739 | (a) | $ | 11,230,598 | ||||||||||
| Accounts receivable, net | 21,636 | – | – | – | 21,636 | ||||||||||||||||
| Unbilled income - Aspire Global plc | – | 2,562,000 | 2,967,308 | (2,967,308 | ) | (e) | – | ||||||||||||||
| Receivable from Aspire Global plc | – | 526,000 | 609,213 | (609,213 | ) | (e) | – | ||||||||||||||
| Prepaid expenses | 664,250 | – | – | – | 664,250 | ||||||||||||||||
| Right of use asset, operating lease, current portion | 170,512 | – | – | – | 170,512 | ||||||||||||||||
| Other current assets | 26,387 | 3,339,000 | 3,867,230 | (3,867,230 | ) | (e) | 26,387 | ||||||||||||||
| Total current assets | 9,947,644 | 6,427,000 | 7,443,751 | (5,278,012 | ) | 12,113,383 | |||||||||||||||
| Long term assets: | |||||||||||||||||||||
| Software and equipment, net | 85,334 | – | – | – | 85,334 | ||||||||||||||||
| Right of use asset, operating lease | 172,915 | – | – | – | 172,915 | ||||||||||||||||
| Intangible assets - cryptocurrency | 904 | – | – | – | 904 | ||||||||||||||||
| Intangible assets - license agreement, net | 1,616,088 | – | – | – | 1,616,088 | ||||||||||||||||
| Intangible assets - domain names | 2,239,606 | – | – | – | 2,239,606 | ||||||||||||||||
| Intangible assets - trademarks and tradenames | – | – | – | 22,249,022 | (b) | 22,249,022 | |||||||||||||||
| Intangible assets - developed technology | – | – | – | 81,074 | (b) | 81,074 | |||||||||||||||
| Intangible assets - customer relationships | – | – | – | 16,527,514 | (b) | 16,527,514 | |||||||||||||||
| Goodwill | – | – | – | 35,958,390 | (c) | 35,958,390 | |||||||||||||||
| Total assets | $ | 14,062,491 | € | 6,427,000 | $ | 7,443,751 | $ | 69,537,988 | $ | 91,044,230 | |||||||||||
| Liabilities and stockholder's equity | |||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,721,103 | € | 2,542,000 | $ | 2,944,144 | $ | (2,944,144 | ) | (e) | $ | 1,721,103 | |||||||||
| Accounts payable, related party | – | – | – | – | – | ||||||||||||||||
| Current lease liabilities | 170,511 | – | – | – | 170,511 | ||||||||||||||||
| Liabilities to users | 58,789 | – | – | – | 58,789 | ||||||||||||||||
| Income taxes payable | – | 3,846,000 | 4,454,437 | (4,454,437 | ) | (e) | – | ||||||||||||||
| Other liabilities | – | 39,000 | 45,170 | (45,170 | ) | (e) | – | ||||||||||||||
| Total current liabilities | 1,950,403 | 6,427,000 | 7,443,751 | (7,443,751 | ) | 1,950,403 | |||||||||||||||
| Convertible notes payable, net of discount | 1,396,133 | – | – | – | 1,396,133 | ||||||||||||||||
| Other long term liabilities, net of discount | 463,925 | – | – | 38,374,837 | (f) | 38,838,762 | |||||||||||||||
| Total liabilities | 3,810,461 | 6,427,000 | 7,443,751 | 30,931,086 | 42,185,298 | ||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||||||
| Stockholders' equity: | |||||||||||||||||||||
| Preferred Stock $0.001 per value, 10,000,000 shares authorized, 0 issued and outstanding | – | – | – | 38 | (g) | 38 | |||||||||||||||
| Common stock $0.001 par value, 100,000,000 shares authorized, 13,315,414 and 7,340,421 shares issued and outstanding, respectively | 13,315 | – | – | 187 | (g) | 13,502 | |||||||||||||||
| Additional paid-in capital | 26,834,354 | – | – | 41,221,775 | (g) | 68,056,129 | |||||||||||||||
| Accumulated other comprehensive income | 53,911 | – | – | – | 53,911 | ||||||||||||||||
| Accumulated deficit | (16,649,550 | ) | – | – | (2,615,098 | ) | (d) | (19,264,648 | ) | ||||||||||||
| Total stockholders’ equity | 10,252,030 | – | – | 38,606,902 | 48,858,932 | ||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 14,062,491 | € | 6,427,000 | $ | 7,443,751 | $ | 69,537,988 | $ | 91,044,230 | |||||||||||
| 2 |
Esports Technologies, Inc. and Aspire Global plc. - B2C Business (Karamba Limited)
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Twelve Months Ended September 30, 2021
| Esports | Aspire Global plc. - B2C Business (Karamba | Aspire Global plc. - B2C Business (Karamba | Pro | ||||||||||||||||||
| Technologies, Inc. | Limited) (Euros) | Limited) (USD) | Adjustments | Notes | Forma | ||||||||||||||||
| Revenues | $ | 164,807 | € | 65,604,000 | $ | 76,448,341 | $ | – | $ | 76,613,148 | |||||||||||
| Cost of revenue | (37,744 | ) | – | – | – | (37,744 | ) | ||||||||||||||
| Gross Profit | 127,063 | 65,604,000 | 76,448,341 | – | 76,575,404 | ||||||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Distribution expenses | – | 20,524,000 | 23,916,617 | 23,916,617 | |||||||||||||||||
| Gaming duties | – | 10,480,000 | 12,212,344 | 12,212,344 | |||||||||||||||||
| Sales and marketing expenses | 3,221,218 | 25,267,000 | 29,443,635 | – | 32,664,853 | ||||||||||||||||
| Product and technology expenses | 3,103,611 |
– |
– | – | 3,103,611 | ||||||||||||||||
| Acquisition costs | 147,616 | – | – | 2,615,098 | (a) | 2,762,714 | |||||||||||||||
| General and administrative expenses | 7,103,943 | 2,467,000 | 2,874,795 | 5,624,515 | (h) | 15,603,253 | |||||||||||||||
| Total operating expenses | 13,576,388 | 58,738,000 | 68,447,391 | 8,239,613 | 90,263,392 | ||||||||||||||||
| Loss from operations | (13,449,325 | ) | 6,866,000 | 8,000,950 | (8,239,613 | ) | (13,687,988 | ) | |||||||||||||
| Interest expense, net | (1,704,395 | ) | – | – | (5,624,400 | ) | (i) | (7,328,795 | ) | ||||||||||||
| Other finance expense | – | (49,000 | ) | (57,100 | ) | – | (57,100 | ) | |||||||||||||
| Foreign currency gain (loss) | (46,304 | ) | – | – | – | (46,304 | ) | ||||||||||||||
| Total other expense | (1,750,699 | ) | (49,000 | ) | (57,100 | ) | (5,624,400 | ) | (7,432,199 | ) | |||||||||||
| Loss before provision for income taxes | (15,200,024 | ) | 6,817,000 | 7,943,850 | (13,864,013 | ) | (21,120,187 | ) | |||||||||||||
| Provision for income taxes | – | (341,000 | ) | (397,367 | ) | – | (397,367 | ) | |||||||||||||
| Net Income (loss) | (15,200,024 | ) | 6,476,000 | 7,546,483 | (13,864,013 | ) | (21,517,554 | ) | |||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||
| Foreign currency translation | 53,911 | – | – | – | 53,911 | ||||||||||||||||
| Total other comprehensive income | 53,911 | – | – | – | 53,911 | ||||||||||||||||
| Comprehensive loss | $ | (15,146,113 | ) | € | 6,476,000 | $ | 7,546,483 | $ | (13,864,013 | ) | $ | (21,463,643 | ) | ||||||||
| Net loss per common share – basic and diluted | $ | (1.33 | ) | – | – | (74.20 | ) | $ | (1.85 | ) | |||||||||||
| Weighted average common shares outstanding – basic and diluted | 11,397,739 | – | – | 186,838 | (j) | 11,584,577 | |||||||||||||||
| 3 |
Note 1 – Basis of Presentation
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 Global plc, (“Aspire”), Aspire Global International Limited, AG Communications Limited, Aspire Global 7 Limited (collectively the “Aspire Related Companies”), and Karamba Limited (“Karamba”) whereby Esports Malta will acquire all of the issued and outstanding shares of Karamba. The total acquisition price, payable at the closing of the acquisition of the Karamba shares, will be €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 (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”).
Pursuant to the Acquisition Agreement, among other things, the following transactions and deliverables occurred at the Closing: (i) Aspire and the Aspire Related Companies transferred to Karamba all the business to consumer (“B2C”) assets, certain liabilities, and operations as set forth in the Acquisition Agreement (the “Assets”); (ii) Aspire (and the Aspire Related Companies) assigned or transferred to Karamba all key and material contracts for services that are necessary for the operation of the Assets; (iii) Esports Malta acquired all of the shares in Karamba; (iv) Esports Malta entered into an agreement with Aspire whereby Aspire will provide continuation of services related to certain employees which are believed to be essential to the integration and operation of the Assets (the “Transitional Services Agreement”) for a transition period subsequent to the Closing and up to 90 days thereafter; (v) Karamba (as then fully owned by Esports Malta) entered into four-year business to business white label operator services agreements collectively covering regulated and unregulated markets, based upon a migration plan in accordance with applicable laws (collectively the “Operator Services Agreement” and the “Migration Plan”, respectively).
The unaudited pro forma condensed consolidated combined balance sheet as of September 30, 2021, and the unaudited pro forma condensed consolidated combined statements of operations for the year ended September 30, 2021, are based on the historical financial statements of Esports after giving effect to our acquisition of Karamba (the “Acquisition”) using the acquisition method of accounting. In conjunction with the Acquisition, we may incur future restructuring expenses and transaction costs that are not included in the pro forma condensed consolidated combined financial statements.
The unaudited pro forma condensed consolidated combined balance sheet as of September 30, 2021, is presented as if the Acquisition occurred on September 30, 2021. The unaudited pro forma condensed consolidated combined statements of operations for the year ended September 30, 2021, are presented as if the Acquisition occurred on October 1, 2020.
The unaudited pro forma condensed consolidated combined financial information is based on estimates and assumptions which have been made solely for purposes of developing such pro forma information.
Note 2 – Preliminary purchase price allocation
On October 1, 2021, Esports acquired Karamba for total consideration of approximately $74,816,000, consisting of $57,950,000 cash, a seller Note of $11,244,000, and 186,838 shares of common stock valued at $5,622,000. The following table represents the allocation of the preliminary purchase consideration for the assets acquired based on their preliminary estimated fair values:
| Trademarks and tradenames | $ | 22,249,022 | ||
| Developed technology | 81,074 | |||
| Customer relationships | 16,527,514 | |||
| Goodwill | 35,958,390 | |||
| Total assets acquired/purchase price | $ | 74,816,000 |
| 4 |
Note 3 – Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited condensed consolidated combined financial information:
Adjustments to the unaudited pro forma condensed consolidated combined balance sheet
| (a) | Reflects the following adjustments to cash: |
| USD | ||||
| Cash payment to sellers | $ | (57,950,000 | ) | |
| Subscription agreement proceeds (g) | 37,700,000 | |||
| Credit agreement proceeds (f) | 30,000,000 | |||
| Payments for debt issuance costs | (2,869,163 | ) | ||
| Equity issuance costs | (2,100,000 | ) | ||
| Transaction expenses | (2,615,098 | ) | ||
| $ | 2,165,739 | |||
| (b) | The developed technology and customer relationship intangible assets have been estimated using a cost approach and the trademarks and tradenames intangible asset has been estimated using the relief from royalty method. The fair values and preliminary estimated useful lives of the identifiable intangible assets acquired are as follows: |
| Estimated | Fair | |||||
| Intangible Assets | Useful Life | Value | ||||
| Trademarks and tradenames | Indefinite | $ | 22,249,022 | |||
| Developed technology | 1 years | 81,074 | ||||
| Customer relationships | 3 years | 16,527,514 | ||||
| $ | 38,857,610 | |||||
| (c) | Reflects $35,958,390 of goodwill which represents the excess of the purchase price over the preliminary estimated fair value of the assets acquired as shown in Note 2. |
| (d) | Reflects $2,615,098 in transaction expenses consisting primarily of legal and other professional fees not already reflected in Esports’s historical financials. These acquisition related costs are expensed as incurred and reduce retained earnings. |
| (e) | Pursuant to the Acquisition Agreement, Aspire and the Aspire Related Companies were to transfer to Karamba all the business to consumer (“B2C”) assets, certain liabilities, and operations as set forth in the Acquisition Agreement and Aspire (and its related entities) will assign or transfer to Karamba all key and material contracts for services that are necessary for the operation of the Assets. As a result of this arrangement, no tangible assets or liabilities acquired by Esports. |
| (f) | Represents credit agreement liability of $30,000,000 and seller promissory note of $11,244,000, less debt issuance costs of $2,869,163 |
| (g) | Represents issuance of 186,838 common stock to sellers valued at $5,622,000 and the issuance of 37,700 Series A Convertible Preferred Stock to investors for $37,700,000. |
Adjustments to the unaudited pro forma condensed consolidated combined statements of operations
| (h) | Reflects the estimated additional amortization expense related to the valuation of acquired intangible assets discussed in Note 2 of $5,624,515 for the year ended September 30, 2021. |
| (i) | Reflects the estimated interest expense related to the $11,244,000 seller note and $30,000,000 credit agreement |
| (j) | Addition to basic and diluted weighted average number of shares outstanding to reflect the 186,838 common shares issued as part of the Acquisition consideration. |
| 5 |
-8?20$3;8T.P6BP^0"X99K>]9!:G