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Equity structure was adjusted for all periods presented using the exchange ratio, 1.3352, established in the Go-Public Merger Agreement with Mer Telemanagement Solutions Ltd. to reflect the number of shares of SharpLink, Inc. (the accounting acquiree) issued in the reverse acquisition.
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ 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: 001-41962
SHARPLINK GAMING, INC.
(Exact name of registrant as specified in its charter)
Delaware | 87-4752260 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
333 Washington Avenue North, Suite 104 Minneapolis, Minnesota | 55401 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (612) 293-0619
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
Common Stock | | SBET | | The Nasdaq Capital Market, LLC |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None.
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 14, 2024, there were 3,585,350 shares of Common Stock issued and outstanding.
PART I. |
FINANCIAL INFORMATION |
ITEM 1. |
FINANCIAL STATEMENTS |
SHARPLINK GAMING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | September 30, 2024 | | | | | |
| | (unaudited) | | | December 31, 2023 | |
Assets | | | | | | | | |
Current Assets | | | | | | | | |
Cash | | $ | 1,850,206 | | | $ | 2,487,481 | |
Accounts receivable, net of allowance for credit losses of $0 | | | 457,077 | | | | 415,119 | |
Unbilled receivables | | | - | | | | 12,000 | |
Prepaid expenses and other current assets | | | 328,992 | | | | 383,295 | |
Due from Rsports Interactive, Inc. | | | 16,710 | | | | - | |
Current assets from discontinued operations | | | 243,141 | | | | 67,805,379 | |
Total current assets | | | 2,896,126 | | | | 71,103,274 | |
| | | | | | | | |
Equipment, net | | | 4,624 | | | | 8,792 | |
Intangible assets, net | | | 14,406 | | | | 168,112 | |
Total assets | | $ | 2,915,156 | | | $ | 71,280,178 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts payable and accrued expenses | | $ | 743,585 | | | $ | 1,463,699 | |
Line of credit | | | - | | | | 6,345,978 | |
Current portion of long-term debt | | | - | | | | 645,571 | |
Current portion of convertible debenture, net of discount of $0 and $283,335, respectively, warrant discount of $0 and $831,746, respectively, accrued interest of $0 and $299,648, respectively | | | - | | | | 4,395,753 | |
Current liabilities from discontinued operations | | | 151,428 | | | | 66,396,883 | |
Total current liabilities | | | 895,013 | | | | 79,247,884 | |
| | | | | | | | |
Long-Term Liabilities | | | | | | | | |
Deferred tax liability | | | - | | | | 7,155 | |
Debt, less current portion | | | - | | | | 1,424,908 | |
Total liabilities | | | 895,013 | | | | 80,679,947 | |
| | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | |
Stockholders’ Equity | | | | | | | | |
Series A-1 preferred stock, $0.0001 par value; authorized shares: 260,000; issued and outstanding shares: 7,202; liquidation preference: $116,997 | | | 1 | | | | 1,440 | |
Series B preferred stock, $0.0001 par value; authorized shares: 370,000; issued and outstanding shares: 12,481; liquidation preference: $529,122 | | | 1 | | | | 2,496 | |
Common stock, $0.0001 par value; authorized shares 100,000,000; issued and outstanding shares: 3,585,350 and 2,863,734, respectively | | | 343 | | | | 572,770 | |
Treasury stock, 90 common shares at cost | | | (29,000 | ) | | | (29,000 | ) |
Additional paid-in capital | | | 78,955,110 | | | | 77,909,981 | |
Accumulated deficit | | | (76,906,312 | ) | | | (87,857,456 | ) |
Total stockholders’ equity (deficit) | | | 2,020,143 | | | | (9,399,769 | ) |
Total liabilities and stockholders’ equity | | $ | 2,915,156 | | | $ | 71,280,178 | |
See accompanying notes to these condensed consolidated financial statements
SHARPLINK GAMING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Revenues | | $ | 881,690 | | | $ | 1,349,331 | | | $ | 2,838,908 | | | $ | 3,925,618 | |
Cost of revenues | | | 709,045 | | | | 958,665 | | | | 2,098,921 | | | | 2,743,551 | |
Gross profit | | | 172,645 | | | | 390,666 | | | | 739,987 | | | | 1,182,067 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Selling, general, and administrative expenses | | | 970,080 | | | | 1,795,057 | | | | 4,426,835 | | | | 5,977,327 | |
Operating loss | | | (797,435 | ) | | | (1,404,391 | ) | | | (3,686,848 | ) | | | (4,795,260 | ) |
| | | | | | | | | | | | | | | | |
Other income and expense | | | | | | | | | | | | | | | | |
Interest income | | | 16,178 | | | | 20,440 | | | | 48,206 | | | | 31,682 | |
Interest expense | | | - | | | | (318,977 | ) | | | (324,518 | ) | | | (789,842 | ) |
Other income | | | - | | | | - | | | | 297,387 | | | | - | |
Change in fair value of convertible debenture and warrant liabilities | | | - | | | | (324,205 | ) | | | 255,819 | | | | (1,002,242 | ) |
Total other income (expense) | | | 16,178 | | | | (622,742 | ) | | | 276,894 | | | | (1,760,402 | ) |
| | | | | | | | | | | | | | | | |
Net loss before income taxes | | | (781,257 | ) | | | (2,027,133 | ) | | | (3,409,954 | ) | | | (6,555,662 | ) |
Income tax (expense) | | | (6,735 | ) | | | (314 | ) | | | (55,513 | ) | | | (35,027 | ) |
Net loss from continuing operations | | | (787,992 | ) | | | (2,027,447 | ) | | | (3,465,467 | ) | | | (6,590,689 | ) |
Net income (loss) from discontinued operations, net of tax | | | (97,139 | ) | | | (822,100 | ) | | | 14,467,733 | | | | (2,523,754 | ) |
Net income (loss) | | $ | (885,131 | ) | | $ | (2,849,547 | ) | | $ | 11,002,266 | | | $ | (9,114,443 | ) |
| | | | | | | | | | | | | | | | |
Numerator for basic and diluted net loss per share: | | | | | | | | | | | | | | | | |
Net loss from continuing operations available to common stockholders | | $ | (787,992 | ) | | $ | (2,027,660 | ) | | $ | (3,510,086 | ) | | $ | (6,641,183 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) from discontinued operations available to common stockholders | | | (97,139 | ) | | | (822,100 | ) | | | 14,467,733 | | | | (2,523,754 | ) |
| | | (885,131 | ) | | | (2,849,760 | ) | | | 10,957,647 | | | | (9,164,937 | ) |
| | | | | | | | | | | | | | | | |
Denominator for net loss per share: | | | | | | | | | | | | | | | | |
Basic weighted average shares for continuing and discontinued operations | | | 3,510,319 | | | | 2,863,607 | | | | 3,338,549 | | | | 2,736,583 | |
Diluted weighted average shares for discontinued operations | | | 4,234,112 | | | | 2,863,607 | | | | 4,062,342 | | | | 2,736,583 | |
Net earnings (loss) per share: | | | | | | | | | | | | | | | | |
Net loss from continuing operations per share - basic | | $ | (0.22 | ) | | $ | (0.71 | ) | | $ | (1.05 | ) | | $ | (2.43 | ) |
Net income (loss) from discontinued operations per share – basic | | $ | (0.03 | ) | | $ | (0.29 | ) | | $ | 4.33 | | | $ | (0.92 | ) |
Net income (loss) per share - basic | | $ | (0.25 | ) | | $ | (1.00 | ) | | $ | 3.28 | | | $ | (3.35 | ) |
Net loss from continuing operations per share - diluted | | $ | (0.22 | ) | | $ | (0.71 | ) | | $ | (1.05 | ) | | $ | (2.43 | ) |
Net income (loss) from discontinued operations per share – diluted | | $ | (0.03 | ) | | $ | (0.29 | ) | | $ | 3.56 | | | $ | (0.92 | ) |
Net income (loss) per share - diluted | | $ | (0.25 | ) | | $ | (1.00 | ) | | $ | 2.51 | | | $ | (3.35 | ) |
See accompanying notes to these condensed consolidated financial statements
SHARPLINK GAMING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE three and nine months ended September 30, 2024 and 2023
(UNAUDITED)
|
|
Common/Ordinary shares |
|
|
Series A-1 preferred stock |
|
|
Series B preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In |
|
|
Treasury |
|
|
Accumulated |
|
|
shareholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
stock |
|
|
deficit |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2022 |
|
|
2,688,541 |
|
|
$ |
537,731 |
|
|
|
6,630 |
|
|
$ |
1,326 |
|
|
|
12,481 |
|
|
$ |
2,496 |
|
|
$ |
76,039,605 |
|
|
$ |
(29,000 |
) |
|
$ |
(73,565,641 |
) |
|
$ |
2,986,517 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,823,738 |
) |
|
|
(2,823,738 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
152,034 |
|
|
|
- |
|
|
|
- |
|
|
|
152,034 |
|
Warrants issued in conjunction with convertible debenture |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,174,229 |
|
|
|
- |
|
|
|
- |
|
|
|
1,174,229 |
|
Dividends on Series B preferred stock in Series A-1 preferred stock |
|
|
- |
|
|
|
- |
|
|
|
250 |
|
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
(50 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance, March 31, 2023 |
|
|
2,688,541 |
|
|
|
537,731 |
|
|
|
6,880 |
|
|
|
1,376 |
|
|
|
12,481 |
|
|
|
2,496 |
|
|
|
77,365,818 |
|
|
|
(29,000 |
) |
|
|
(76,389,379 |
) |
|
|
1,489,042 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,441,158 |
) |
|
|
(3,441,158 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
167,630 |
|
|
|
- |
|
|
|
- |
|
|
|
167,630 |
|
Deemed dividends on Series B preferred stock anti-dilutive provision |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,633 |
|
|
|
- |
|
|
|
(48,633 |
) |
|
|
- |
|
Dividends on Series B preferred stock in Series A-1 preferred stock |
|
|
- |
|
|
|
- |
|
|
|
250 |
|
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
(50 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance, June 30, 2023 |
|
|
2,688,541 |
|
|
|
537,731 |
|
|
|
7,130 |
|
|
|
1,426 |
|
|
|
12,481 |
|
|
|
2,496 |
|
|
|
77,582,031 |
|
|
|
(29,000 |
) |
|
|
(79,879,170 |
) |
|
|
(1,784,486 |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,849,547 |
) |
|
|
(2,849,547 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
170,116 |
|
|
|
- |
|
|
|
- |
|
|
|
170,116 |
|
Issuance of ordinary shares for cashless exercised warrants |
|
|
121,479 |
|
|
|
24,296 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(24,296 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of ordinary shares to SportsHub shareholders which were previously reserved for future issuance |
|
|
23,714 |
|
|
|
4,743 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,743 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deemed dividend on Series B preferred stock anti-dilutive provision |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dividends on Series B preferred stock in Series A-1 preferred stock |
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
(14 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance, September 30, 2023 |
|
|
2,833,734 |
|
|
$ |
566,770 |
|
|
|
7,202 |
|
|
$ |
1,440 |
|
|
|
12,481 |
|
|
$ |
2,496 |
|
|
$ |
77,723,094 |
|
|
$ |
(29,000 |
) |
|
$ |
(82,728,717 |
) |
|
$ |
(4,463,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2023 |
|
|
2,863,734 |
|
|
$ |
572,770 |
|
|
|
7,202 |
|
|
|
1,440 |
|
|
|
12,481 |
|
|
|
2,496 |
|
|
|
77,909,981 |
|
|
|
(29,000 |
) |
|
|
(87,857,456 |
) |
|
|
(9,399,769 |
) |
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,350,356 |
|
|
|
12,350,356 |
|
Domestication equity adjustment - Note 1 |
|
|
- |
|
|
|
(572,476 |
) |
|
|
- |
|
|
|
(1,439 |
) |
|
|
- |
|
|
|
(2,495 |
) |
|
|
576,410 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
42,152 |
|
|
|
- |
|
|
|
- |
|
|
|
42,152 |
|
Shares issued for vested restricted stock |
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
108,000 |
|
|
|
- |
|
|
|
- |
|
|
|
108,000 |
|
Issuance of common stock for exercise of warrants |
|
|
266,667 |
|
|
|
27 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
159,973 |
|
|
|
- |
|
|
|
- |
|
|
|
160,000 |
|
Warrant settlement agreement - Note 8 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(900,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(900,000 |
) |
Issuance of common stock for exchange of warrants - Note 8 |
|
|
156,207 |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
210,879 |
|
|
|
- |
|
|
|
(6,503 |
) |
|
|
204,391 |
|
Warrant exchange agreement - deemed dividend - Note 8 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44,619 |
|
|
|
- |
|
|
|
(44,619 |
) |
|
|
- |
|
Warrant exchange agreement, issuance of pre-funded warrants - Note 8 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
287,150 |
|
|
|
- |
|
|
|
- |
|
|
|
287,150 |
|
Balance, March 31, 2024 |
|
|
3,361,608 |
|
|
|
336 |
|
|
|
7,202 |
|
|
|
1 |
|
|
|
12,481 |
|
|
|
1 |
|
|
|
78,439,164 |
|
|
|
(29,000 |
) |
|
|
(75,558,222 |
) |
|
|
2,852,280 |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(462,959 |
) |
|
|
(462,959 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43,052 |
|
|
|
- |
|
|
|
- |
|
|
|
43,052 |
|
Shares issued for vested restricted stock |
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
104,800 |
|
|
|
- |
|
|
|
- |
|
|
|
104,800 |
|
Shares sold for cash |
|
|
71,200 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
71,349 |
|
|
|
- |
|
|
|
- |
|
|
|
71,356 |
|
Warrant exchange amendment - Note 8 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
152,386 |
|
|
|
- |
|
|
|
- |
|
|
|
152,386 |
|
Balance, June 30, 2024 |
|
|
3,507,808 |
|
|
$ |
343 |
|
|
|
7,202 |
|
|
$ |
1 |
|
|
|
12,481 |
|
|
$ |
1 |
|
|
$ |
78,810,751 |
|
|
$ |
(29,000 |
) |
|
$ |
(76,021,181 |
) |
|
$ |
2,760,915 |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(885,131 |
) |
|
|
(885,131 |
) |
Shares issued for vested restricted stock |
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
104,800 |
|
|
|
- |
|
|
|
- |
|
|
|
104,800 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
39,559 |
|
|
|
- |
|
|
|
- |
|
|
|
39,559 |
|
Issuance of common stock for exercise of warrants |
|
|
2,542 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance, September 30, 2024 |
|
|
3,585,350 |
|
|
$ |
343 |
|
|
|
7,202 |
|
|
$ |
1 |
|
|
|
12,481 |
|
|
$ |
1 |
|
|
$ |
78,955,110 |
|
|
$ |
(29,000 |
) |
|
$ |
(76,906,312 |
) |
|
$ |
2,020,143 |
|
See accompanying notes to these condensed consolidated financial statements.
SHARPLINK GAMING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Includes cash flow activities from both continuing and discontinued operations |
|
Nine Months Ended September 30, |
|
|
|
2024 |
|
|
2023 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
11,002,266 |
|
|
|
(9,114,443 |
) |
Net income (loss) from discontinued operations, net of tax |
|
|
14,467,733 |
|
|
|
(2,523,754 |
) |
Net loss from continuing operations |
|
$ |
(3,465,467 |
) |
|
$ |
(6,590,689 |
) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,592 |
|
|
|
82,374 |
|
Amortization of loan costs |
|
|
- |
|
|
|
8,153 |
|
Amortization of debt discount |
|
|
71,781 |
|
|
|
327,962 |
|
Amortization of prepaid stock issued for services |
|
|
- |
|
|
|
129,000 |
|
Change in fair value |
|
|
(255,819 |
) |
|
|
1,002,243 |
|
Accrued interest on convertible debenture |
|
|
- |
|
|
|
216,987 |
|
Deferred tax expense |
|
|
(7,155 |
) |
|
|
(62,218 |
) |
Stock-based compensation expense |
|
|
112,721 |
|
|
|
204,301 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(29,958 |
) |
|
|
(84,364 |
) |
Unbilled receivables |
|
|
- |
|
|
|
296 |
|
Due from Rsports Interactive, Inc. |
|
|
(16,710 |
) |
|
|
- |
|
Prepaid expenses and other current assets |
|
|
195,957 |
|
|
|
(193,855 |
) |
Accounts payable and accrued expenses |
|
|
(1,048,944 |
) |
|
|
1,054,298 |
|
Contract liabilities |
|
|
- |
|
|
|
35,188 |
|
Customer deposits and other current liabilities |
|
|
- |
|
|
|
50,171 |
|
Net cash used in operating activities – continuing operations |
|
|
(4,434,002 |
) |
|
|
(3,820,153 |
) |
Net cash (used in) provided by operating activities - discontinued operations |
|
|
(17,112,182 |
) |
|
|
10,033,364 |
|
Net cash used in operating activities |
|
|
(21,546,184 |
) |
|
|
6,213,211 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Capital expenditures for equipment |
|
|
(1,719 |
) |
|
|
(12,145 |
) |
Proceeds from sale of intellectual property |
|
|
150,000 |
|
|
|
- |
|
Capital expenditures for internally developed software |
|
|
- |
|
|
|
(201,948 |
) |
Net cash provided by (used in) investing activities – continuing operations |
|
|
148,281 |
|
|
|
(214,093 |
) |
Net cash used in investing activities - discontinued operations |
|
|
(18,857,834 |
) |
|
|
(630,257 |
) |
Net cash used for investing activities |
|
|
(18,709,553 |
) |
|
|
(844,350 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from convertible debenture and purchase warrants |
|
|
(4,148,571 |
) |
|
|
4,000,000 |
|
Proceeds from sale of common stock |
|
|
71,356 |
|
|
|
- |
|
Proceeds from line of credit |
|
|
550,000 |
|
|
|
3,750,000 |
|
Repayment of line of credit |
|
|
(6,900,000 |
) |
|
|
- |
|
Payments on long-term debt |
|
|
(2,070,479 |
) |
|
|
(470,229 |
) |
Proceeds from exercise of warrants |
|
|
160,000 |
|
|
|
- |
|
Net cash generated by (used in) financing activities – continuing operations |
|
|
(12,337,694 |
) |
|
|
7,279,771 |
|
Net cash (used in) generated by financing activities - discontinued operations |
|
|
(5,835,352 |
) |
|
|
583,135 |
|
Net cash generated by (used in) financing activities |
|
|
(18,173,046 |
) |
|
|
7,862,906 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(58,428,783 |
) |
|
|
13,231,767 |
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, beginning of period including discontinued operations |
|
|
60,441,130 |
|
|
|
51,105,486 |
|
Cash and restricted cash, end of period including discontinued operations |
|
|
2,012,347 |
|
|
|
64,337,253 |
|
Less cash from discontinued operations |
|
|
(162,141 |
) |
|
|
(61,634,047 |
) |
Cash and restricted cash, end of period |
|
$ |
1,850,206 |
|
|
$ |
2,703,206 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
485,531 |
|
|
|
485,531 |
|
Cash paid for taxes |
|
|
504,755 |
|
|
|
86,320 |
|
Extension of maturity of operating lease liability |
|
|
- |
|
|
|
77,742 |
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Settlement agreement, liability issued for warrants |
|
|
(900,000 |
) |
|
|
- |
|
Issuance of common stock in exchange of warrants |
|
|
210,879 |
|
|
|
- |
|
Issuance of common stock for vested restricted stock |
|
|
317,600 |
|
|
|
- |
|
Deemed Dividend |
|
|
44,619 |
|
|
|
48,633 |
|
Warrant exchange agreement, issuance of pre-funded warrants |
|
|
287,150 |
|
|
|
- |
|
Warrant exchange amendment, revalue of strike price and removal of repurchase requirement |
|
|
152,386 |
|
|
|
- |
|
Discount on convertible debenture and purchase warrant |
|
|
- |
|
|
|
1,574,229 |
|
Dividends on Series B preferred stock in Series A-1 preferred stock |
|
|
- |
|
|
|
1,861 |
|
See accompanying notes to these condensed consolidated financial statements.
SHARPLINK GAMING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE three and nine months ended September 30, 2024 and 2023
Note 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by SharpLink Gaming, Inc. (the “Company,” “SharpLink,” “we” or “our”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company, the foregoing statements contain all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company as of September 30, 2024 and December 31, 2023, as well as its results of operations for the three and nine months ended September 30, 2024 and 2023. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements as of that date. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from the estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to rules and regulations of the SEC. Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by GAAP for a complete financial statement presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2024.
Nature of Business
SharpLink, a Delaware corporation, is an online performance marketing company that delivers unique fan activation solutions to its sportsbook and casino partners. Through its global affiliate marketing network, known as PAS.net, SharpLink drives qualified traffic and player acquisitions, retention and conversions to U.S. regulated sportsbooks and global casino gaming partners worldwide. In addition, SharpLink owns a performance marketing platform through which the Company owns and operates U.S. state-specific web domains designed to attract, acquire and drive local sports betting and casino traffic directly to its sportsbook and casino partners which are licensed to operate in each respective state.
Prior to the sale of SharpLink’s Sports Gaming Client Services and SportsHub Gaming Network (“SHGN”) business units in January 2024 to RSports Interactive, Inc. (“RSports”), a Minnesota corporation, (the “Sale of Business”), the SHGN unit owned and operated an online gaming business that primarily facilitated daily and seasonal peer-to-peer fantasy contests for its end users. The SHGN business unit also operated a website that provided a variety of services to private fantasy league commissioners, including secure online payment options, transparent tracking and reporting of transactions, payment reminders, in-season security of league funds and facilitation of prize payouts. SharpLink’s Sports Gaming Client Services game development business was engaged in the provision of fantasy and free-to-play sports game and mobile app development services to a marquis list of customers, which included several of the biggest names in sports and sports betting, including Turner Sports, NBA, NFL, PGA TOUR, NASCAR and BetMGM, among others.
On January 18, 2024, the Company entered into a Purchase Agreement (the “PA”) with RSports to sell the Company’s Sports Gaming Client Services and SHGN business units. See Note 3 for further information regarding the sale of Sports Gaming Client Services and SHGN business units.
On February 13, 2024, SharpLink Gaming Ltd. (“SharpLink Israel” and former parent company) completed its previously announced domestication merger (“Domestication Merger”), pursuant to the terms and conditions set forth in an Agreement and Plan of Merger (the “Domestication Merger Agreement”), dated June 14, 2023 and amended July 24, 2023, among SharpLink Gaming, Inc. (“SharpLink US”), SharpLink Israel, SharpLink Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of subsidiary of SharpLink US (Domestication Merger Sub) . The Domestication Merger was achieved through a merger of Domestication Merger Sub Ltd. with and into SharpLink Israel, with SharpLink Israel surviving the merger and becoming a wholly owned subsidiary of SharpLink US. The Domestication Merger was approved by the shareholders of SharpLink Israel at an extraordinary special meeting of shareholders held on December 6, 2023. SharpLink US’s Common Stock commenced trading on the Nasdaq Capital Market under the same ticker symbol, SBET, on February 14, 2024.
As a result of the Domestication Merger, all SharpLink Israel ordinary shares outstanding immediately prior to the Domestication Merger automatically converted, on a one-for-one basis, into the right to receive, and become exchangeable for, shares of SharpLink US common stock, par value $0.0001 per share (“Common Stock”) and all preferred shares, options and warrants of SharpLink Israel outstanding immediately prior to the Domestication Merger converted into or exchanged for equivalent securities of SharpLink US on a one-for-one basis.
The following represents the change in the par value based on the outstanding ordinary and preferred shares to common and preferred stock after the Domestication Merger on February 13, 2024:
Ordinary Shares | | | | |
Par value for ordinary shares at $0.20 as reported at February 13, 2024 | | $ | 572,770 | |
Par value for common stock at $0.0001 at February 13, 2024 | | | 294 | |
Net change in par value — will be reflected in additional paid-in capital | | $ | 572,476 | |
| | | | |
Preferred Shares | | | | |
Par value for Series A-1 preferred stock at $0.20 par value as reported at February 13, 2024 | | $ | 1,440 | |
Par value for Series A-1 preferred stock at $0.0001 par value as reported at February 13, 2024 | | | 1 | |
Net change in par value — will be reflected in additional paid-in capital | | $ | 1,439 | |
Par value for Series B preferred stock at $0.20 par value as reported at February 13, 2024 | | | 2,496 | |
Par value for Series B preferred stock at $0.0001 par value at February 13, 2024 | | | 1 | |
Net change in par value — will be reflected in additional paid-in capital | | $ | 2,495 | |
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of SharpLink Gaming, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions between consolidated subsidiaries have been eliminated in consolidation.
Reclassifications
Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment in order to conform to the current period presentation. See Note 4. During the nine months ended September 30, 2024, we realigned our organizational structure and resources to more closely align with our strategic priorities. As a result of the change, we have one reportable segment, consisting of Affiliate Marketing, for the purpose of making operational and resource decisions and assessing financial performance. See Note 12 for operating segment.
Functional Currency
The Company’s functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. The resulting monetary assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date. Revenue and expense components are translated to U.S. dollars at weighted-average exchange rates in effect during the period. Foreign currency transaction gains and losses resulting from remeasurement are recognized in other income and expenses within the condensed consolidated statements of operations.
Reverse Share Split
On April 23, 2023, SharpLink Israel effected a one-for-ten (1:10) reverse share split of all the Company’s share capital and adopted amendments to its Memorandum of Association and Second Amended and Restated Articles of Association (“M&AA”), whereby the Company (i) decreased the number of issued and outstanding ordinary shares, nominal value NIS 0.60 per share, from 26,881,244 to 2,688,541; (ii) reduced the total number of the Company’s authorized shares under its M&AA from 92,900,000 shares of ordinary shares, nominal value NIS 0.06 (USD 0.02) per share, to 9,290,000 shares of ordinary shares, nominal value NIS 0.60 (USD 0.20) per share; and (ii) decreased by a ratio of one-for-ten (1:10) the number of retrospectively issued and outstanding shares of ordinary shares. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retrospectively adjusted as of the earliest period presented in the financial statements to reflect the reverse stock split.
Discontinued Operations
In June 2022, SharpLink Israel's Board of Directors approved management to enter into negotiations to sell Israel-based Mer Telemanagement Solutions Ltd. (“MTS” or “Enterprise TEM”). The Company completed the sale of MTS on December 31, 2022. Accordingly, the assets and liabilities of the MTS business are separately reported as assets and liabilities from discontinued operations as of September 30, 2024 and December 31, 2023. The results of operations and cash flows of MTS for all periods are separately reported as discontinued operations.
In December 2023, SharpLink Israel's Board of Directors approved management to enter into a Letter of Intent with RSports to purchase the Company’s Sports Gaming Client Services and SHGN businesses.
In December 2023, SharpLink Israel discontinued its C4 technology due to the lack of market acceptance. C4 technology centered on monetizing our own online audience and our customers’ respective online audiences of U.S. fantasy sports and casual sports fans and casino gaming enthusiasts by converting them into loyal online sports and iGaming bettors.
On January 18, 2024, the Company entered into a PA with RSports to sell the Company’s Sports Gaming Client Services and SHGN business units to RSports. All of the membership interests of Sports Technologies, LLC, a Minnesota limited liability company, Holdings Quinn, LLC, a Delaware limited liability company and SHGN who owns all of the issued membership interests in SportsHub Reserve, LLC, (“SHReserve”), a Minnesota limited liability company; SportsHub PA, LLC, (“SHPA”), a Pennsylvania limited liability company, and SportsHub Holdings, LLC, (“SHHoldings”), a Minnesota limited liability company, and SportsHub Operations, LLC, (“SHOperations”), a Minnesota limited liability company (SHReserve, SHPA, SHHoldings and SHOperations, collectively, the “SHGN Subsidiaries”) were sold for $22,500,000 in an all-cash transaction. The amount of cash received from sale of business, net of cash transferred of $18,857,834, as reflected on the statement of cash flows, reflects the receipt of cash of $22,500,000, net of the cash transferred of $41,357,834. The majority of cash transferred of $41,357,834 was reflected in discontinued operations customer deposits liability and deferred revenue of $36,959,573 and $4,888,704, respectively. See Note 3 for an amendment to the PA agreement and Note 4.
The Company has discontinued operations for the Sports Gaming Client Services and SHGN businesses. See Note 4.
The Company is in the process of closing its legal entities in MTS in order to simplify its legal structure.
Nasdaq Notice
On July 11, 2024, SharpLink received a letter from Nasdaq Listing Qualifications (the "Letter") indicating that the Company is no longer in compliance with the minimum bid price requirement for continued listing set forth in Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. The rules also provide SharpLink a compliance period of 180 calendar days to regain compliance. According to the Letter, the Company has until January 7, 2025 to regain compliance with the minimum bid price requirement. SharpLink can regain compliance if at any time during this 180-day period, the closing bid price of its Common Stock is at least $1.00 for a minimum of ten consecutive business days, in which case SharpLink will be provided with written confirmation of compliance by Nasdaq and this matter will be closed. In the event that the Company fails to regain compliance after the initial 180-day period, SharpLink may then be eligible for additional time if it meets the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will be required to provide written notice of its intention to cure the deficiency during the second compliance period equal to an additional 180 calendar days. If SharpLink cannot demonstrate compliance by the end of the second compliance period, Nasdaq will notify SharpLink that its Common Stock is subject to delisting. The Letter has no immediate effect on SharpLink’s listing or the trading of its Common Stock, and during the grace period, as may be extended, the Company’s Common Stock will continue to trade on The Nasdaq Capital Market under the symbol “SBET.”
Evaluation of Strategic Alternatives
On July 18, 2024, SharpLink announced that its Board of Directors (“Board”) has initiated a formal review process to evaluate strategic alternatives for the Company. The Board and management team are taking a measured approach to considering multiple proposals that have been received by the Company and other proposals it expects to receive. SharpLink has been exploring strategic alternatives that include, but are not limited to, a sale, merger, strategic business combination or other transactions. SharpLink has not set a deadline or definitive timetable for completion of the strategic alternatives review process and there can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. This Accounting Standards Update improves reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. The enhancements under this update require disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, require disclosure of other segment items by reportable segment and a description of the composition of other segment items, require annual disclosures under ASC 280 to be provided in interim periods, clarify use of more than one measure of segment profit or loss by the CODM, require that the title of the CODM be disclosed with an explanation of how the CODM uses the reported measures of segment profit or loss to make decisions, and require that entities with a single reportable segment provide all disclosures required by this update and required under ASC 280. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company anticipates the adoption of ASC 280 will not have a material impact on its condensed consolidated financial statements.
In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. This Accounting Standards Update improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 will become effective at the beginning of our 2025 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact upon our financial position and results of operations.
Note 2 – Going Concern
For the three and nine months ended September 30, 2024 and 2023, the Company had a net loss from continuing operations of $(787,992) and $(2,027,447), respectively, and for the nine months ended September 30, 2024 and 2023, the net loss from continuing operations totaled $(3,465,467) and $(6,590,689) respectively. The Company used cash for operating activities from continuing operations of $(4,434,002) and $(3,820,153) for the nine months ended September 30, 2024 and 2023, respectively.
In January 2024, the Company completed the Sale of our Sports Gaming Client Services and SHGN business units for $22.5 million in an all cash transaction. In connection with the closing of the Sale of Business, SharpLink repaid in full all outstanding term loans and lines of credit with Platinum Bank, together with accrued but unpaid interest and all other amounts due in connection with such repayment under existing credit agreements, totaling an aggregate $14,836,625, and thereby terminated all existing credit facilities with Platinum Bank and discharged the debt on the Company’s balance sheet. In addition, the Company redeemed the outstanding convertible debenture issued to Alpha Capital Anstalt (“Alpha”) for 110% of the outstanding balance, plus accrued and unpaid interest, for $4,484,230 in aggregate, thereby satisfying all obligations under the debenture and discharging the debt on the balance sheet. See Note 8.
On May 1, 2024, Company entered into an ATM Sales Agreement (the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (the “Agent”) pursuant to which the Company may offer and sell, from time to time, through the Agent, as sales agent and/or principal, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $1,676,366, subject to certain limitations on the amount of Common Stock that may be offered and sold by the Company set forth in the ATM Sales Agreement (the “Offering”). The Company is not obligated to make any sales of Shares under the ATM Sales Agreement and any determination by the Company to do so will be dependent, among other things, on market conditions and the Company’s capital raising needs. As of November 14, 2024, SharpLink has raised gross proceeds of $71,343 from sales of Shares under the ATM Sales Agreement.
In addition to funds that may be raised through the ATM Sales Agreement, we may need to raise additional capital to fund the Company’s growth and future business operations. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed to support our business and to respond to business challenges, track and comply with applicable laws and regulations, develop new technology and services or enhance our existing offering, improve our operating infrastructure, enhance our information security systems to combat changing cyber threats and expand personnel to support our business, we may have to delay or reduce the scope of our planned strategic initiatives. Moreover, any additional equity financing that we obtain may dilute the ownership held by our existing shareholders. The economic dilution to our shareholders will be significant if our stock price does not materially increase, or if the effective price of any sale is below the price paid by a particular shareholder. Any debt financing could involve substantial restrictions on activities and creditors could seek additional pledges of some or all of our assets. If we fail to obtain additional funding as needed, we may be forced to cease or scale back operations, and our results, financial conditions and stock price would be adversely affected. As such, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.
Note 3 – Sale of Sports Gaming Client Services and SHGN
On January 18, 2024, SharpLink Israel (“Parent Seller”) and SLG1 Holdings, LLC, a Delaware limited liability company and wholly owned subsidiary of SharpLink (“Subsidiary Seller”), SHGN (“SHGN,” and together with Parent Seller and Subsidiary Seller, the “Seller”), a Delaware corporation and wholly owned subsidiary of SharpLink, entered into a Purchase Agreement (the “PA”) with RSports Interactive, Inc., a Minnesota corporation (“Buyer”). The Subsidiary Seller owns all of the outstanding membership interests of Sports Technologies, LLC, a Minnesota limited liability company, Holdings Quinn, LLC, a Delaware limited liability company and SHGN owns all of the issued membership interests in SHReserve, a Minnesota limited liability company; SHPA, a Pennsylvania limited liability company, and SHHoldings LLC, a Minnesota limited liability company, and SHOperations, a Minnesota limited liability company (collectively referred to as the “Targets”). SHHoldings LLC owns all of the membership interests in Virtual Fantasy Games Acquisitions, LLC, a Minnesota limited liability company; LeagueSafe Management, LLC, a Minnesota limited liability company and SportsHub Regulatory, LLC, a Minnesota limited liability company. The PA contemplated the sale of the Company’s Sports Gaming Client Services and SHGN business units to the Buyer, by selling all of the issued and outstanding membership interests of the Targets and the Acquired Subsidiaries for $22,500,000 in an all cash transaction.
On May 8, 2024, SharpLink entered into an amended and fully restated Post Closing Assignment Agreement with RSports, whereby SharpLink and RSports have agreed to amend the PA to exclude the transfer/sale of SHGN and have agreed to the assignment/sale of the Acquired Subsidiaries membership interests in SHReserve and SHPA to be made directly to RSports upon and subsequent to the approval of a petition by the Pennsylvania Gaming Control Board. Based on this amended agreement, the sale of the business is an asset sale for legal and tax purposes instead of an equity sale.
Further, in connection with the Sale of Business, SharpLink entered into a Post Closing Covenant Agreement (the “PCCA”) with the Buyer defining the post-closing terms and conditions relating to certain transfers and assignments of assets subsequent to the closing of the Sale of Business, including:
| ● | Transferring control of all bank accounts held by the Targets to the Buyer; |
| ● | Transferring or cooperating with the application process for all state gaming licenses held by the Targets in connection with the change of control to the Buyer; |
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| ● | Providing the Buyer with an accounting of all funds due to and from and any deferred revenue between Sports Technologies, LLC, SHGN and SharpLink, Inc.; |
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| ● | Assigning to Buyer or its affiliates, or cause the counterparty to consent to, all contracts assumed by the Buyer or its affiliates on or subsequent to the closing based upon change of control provisions; and |
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| ● | Assigning to Buyer or its affiliates all of its intellectual property rights purchased in the PA for the Acquired Subsidiaries or Targets. |
In accordance with the terms of the PCCA, SharpLink will complete all post-closing covenants following the closing as reasonably possible, with the exception of Seller covenants that are dependent on governmental authorities or governmental orders for completion, in which case it will use diligent, good faith efforts to cause the same to be completed as soon as practical. The $14.6 million gain was calculated by measuring the difference between the fair value of consideration received less the carrying amount of assets and liabilities sold in accordance with ASC 810. The gain is preliminary and subject to finalization of post-closing adjustments pursuant to the PA, the Post Closing Assignment Agreement and PCCA Agreement.
In the statement of cashflows for the nine months ended September 30, 2024, the net cash used in investing activities - discontinued operations is due to cash received from the sale of business of $22,500,000, net of the cash transferred of $41,357,834. The majority of the cash transferred of $41,357,834 was reflected in discontinued operations customer deposits liability and deferred revenue of $36,959,573 and $4,888,704, respectively.
During the three and nine months ended September 30, 2024, SharpLink paid RSports $38,816 and $132,413, respectively, for use of accounting service personnel under the PCCA agreement. RSports paid SharpLink $21,929 and $75,083 under the PCCA agreement for the three and nine months ended September 30, 2024, respectively.
Note 4 – Discontinued Operations
In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major impact on an entity’s operations and financial results when the components of an entity meets the criteria in ASC paragraph 205-20-45-10. In the period in which the component meets the held for sale or discontinued operations criteria the major assets, other assets, current liabilities and non-current liabilities shall be reported as a component of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the income (loss) of continuing operations.
Sale of Sports Gaming Client Services and SHGN
As disclosed in Note 3, due to the Sale of Business in January 2024, we ceased our Sports Game Client Services and SHGN segments. The historical results of these business segments have been reflected as discontinued operations in our consolidated financial statements for all periods prior to the closing date of the Sale of Business on January 18, 2024.
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