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Fair Value Measurements

6 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 17 – Fair Value Measurements

The following financial instruments were measured at fair value on a recurring basis:

		December 31, 2022
		Total				Level 1				Level 2				Level 3
Contingent consideration (Note 12)		$	6,192,912			$	-			$	-			$	6,192,912
Liability for the September 2022 Warrants (Note 11)		$	2,267,454				-				-			$	2,267,454
Liability for the March 2022 Warrants (Note 11)		$	172,500			$	172,500			$	-			$	-
Liability for the Series A and Series B Warrants (Note 11)		$	16,777			$	-			$	-			$	16,777
Derivative liability on Senior Convertible Note (Note 2 and Note 11)		$	799,954			$	-			$	-			$	799,954

		June 30, 2022
		Total				Level 1				Level 2				Level 3
Contingent consideration (Note 12)		$	3,328,361			$	-			$	-			$	3,328,361
Liability for the March 2022 Warrants (Note 11)		$	2,070,000			$	2,070,000			$	-			$	-
Liability for the Series A and Series B Warrants (Note 11)		$	122,730			$	-			$	-			$	122,730
Derivative liability on Senior Convertible Note (Note 2 and Note 11)		$	9,399,620			$	-			$	-			$	9,399,620

A summary of the changes in Level 3 financial instruments for the six months ended December 31, 2022 is as follows:

		Warrant Liability				Contingent Consideration				Derivative liability on Senior Convertible Note
Balance at June 30, 2022		$	122,730			$	3,328,361			$	9,399,620
Fair value of the September 2022 Warrants (Note 11)			5,286,288				-				-
Change in fair value of September 2022 Warrants (Note 11)			(1,482,103	)			-				-
Change in fair value of Series A and Series B Warrants issued with Senior Convertible Note (Note 11)			(105,953	)			-				-
Change in fair value of Bethard contingent consideration liability (Note 12)			-				(179,468	)			-
Change in the fair value of the derivative liability on Senior Convertible Note (Note 2 and Note 11)			-				-				(274,864	)
Balance at September 30, 2022			3,820,962				3,148,893				9,124,756
Change in fair value of September 2022 Warrants (Note 11)			(1,536,732	)			-				-
Loss (gain) on Bethard contingent consideration liability (Note 12)			-				3,044,019				-
Change in the fair value of the derivative liability on Senior Convertible Note (Note 2 and Note 11)			-				-				(8,324,802	)
Balance at December 31, 2022		$	2,284,230				6,192,912				799,954

The September 2022 Warrants were classified as Level 3 as they are plain vanilla warrants and are not callable by the Company (Note 11). The September 2022 Warrants were valued using a Black Scholes valuation model on issuance at September 19, 2022 and for the warrants outstanding at December 31, 2022 with the following assumptions:

		December 31, 2022				September 19, 2022
Contractual term, in years			5.00				5.00
Expected volatility			162	%			167	%
Risk-free interest rate			4.02	%			3.69	%
Dividend yield			-				-
Conversion / exercise price		$	0.25			$	0.25

The March 2022 Warrants were classified as Level 1 as they are publicly traded. They are callable by the Company if certain criteria are met (Note 11). The March 2022 Warrants outstanding at December 31, 2022 and June 30, 2022 were valued using the following assumptions:

		December 31, 2022				June 30, 2022
Contractual term, in years			5.00				5.00
Active market			Nasdaq				Nasdaq
Market price		$	0.01			$	0.12

The Series A and Series B Warrants outstanding at December 31, 2022 and June 30, 2022 are callable by the Company if certain criteria are met (Note 11) and were valued using a Monte Carlo valuation model with the following assumptions:

		December 31, 2022				June 30, 2022
Contractual term, in years			2.00 – 4.00				2.00 – 4.00
Expected volatility			135-190	%			125% – 133	%
Risk-free interest rate			3.96-4.24	%			2.75% – 2.98	%
Dividend yield			-				-
Conversion / exercise price		$	17.50			$	17.50

The value of the derivative liability on the Senior Convertible Note at December 31, 2022 and June 30, 2022 was valued using a nonperformance risk adjusted Monte Carlo valuation model using total assets less goodwill and an estimate of the Company’s total enterprise value with the following valuation assumptions:

		December 31, 2022				June 30, 2022
Contractual term remaining, in years			0.42				0.92
Expected volatility			162.78	%			137.11	%
De-leveraged volatility			32.81	%			62.88	%
Risk-free interest rate			4.55	%			2.72
Dividend yield			—				—
Conversion / exercise price		$	2.1832			$	2.1832

The fair value of a derivative instrument in a liability position includes measures of the Company’s nonperformance risk. Significant changes in nonperformance risk used in the fair value measurement of the derivative liability may result in significant changes to the fair value measurement. The cash liability calculated under the terms of the Senior Convertible Note of approximately $933,000,000 is materially higher than the fair value of the derivative liability of $799,954 calculated at December 31, 2022. The calculated make-whole liability may differ materially from the amount the Company may be required to pay under the Senior Convertible Note. The Company has held non-binding discussions with the Holder to restructure its obligation under the Senior Convertible Note. However, there can be no guarantee that the Company will be able to reach an agreement to restructure the Senior Convertible Note.

The following is information relative to the Company’s derivative instruments in the unaudited condensed consolidated balance sheets as of December 31, 2022 and June 30, 2022:

Derivatives Not Designated as

Hedging Instruments

Balance

Sheet Location

December 31, 2022

June 30, 2022

Derivative liability on Senior Convertible Note (Note 2 and 11)

Derivative liability

$

799,954

$

9,399,620

The effect of the derivative instruments on the unaudited condensed consolidated statements of operations is as follows:

Derivatives Not		Location of Gain or (Loss)		Amount of Gain (Loss) Recognized in Income on Derivatives
Designated as Hedging		Recognized in Income on		Three months ended December 31,								Six months ended December 31,
Instruments		Derivatives		2022				2021				2022				2021
Derivative liability on Senior Convertible Note (Note 2 and 11)		Change in fair value of derivative liability on Senior Convertible Note		$	8,324,802			$	(1,482,621	)		$	8,599,666			$	(1,482,621	)

Assets Measured on a Nonrecurring Basis

Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. This includes the evaluation of long-lived assets, goodwill and other intangible assets for impairment. The Company’s estimates of fair value required it to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact each of the relevant asset groups’ operations in the future and are therefore uncertain. The carrying value of the assets after any impairment approximates fair value.

The Company assesses the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The Company assesses the fair value of goodwill using the income approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant.

The Company uses undiscounted future cash flows of the asset or asset group for equipment and intangible assets. During the three and six months ended December 31, 2022, the Company recognized asset impairment charges to the goodwill of the EEG iGaming Malta reporting unit in the EEG iGaming segment, and to the goodwill of the GGC reporting unit in the EEG Games segment (See Note 6).

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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