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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, 2023
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: 000-28950
SHARPLINK GAMING LTD.
(Exact name of registrant as specified in its charter)
| Israel | 98-1657258 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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333 Washington Avenue North, Suite 104, Minneapolis, Minnesota |
55401 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (347) 913-3316
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Ordinary Shares | SBET | The Nasdaq Capital Market |
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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 13, 2023, there were 2,863,734 Ordinary Shares, nominal value NIS 0.60 per share, issued and outstanding.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
SHARPLINK GAMING LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2023 |
December 31, 2022 |
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| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 49,309,668 | $ | 39,324,529 | ||||
| Restricted cash | 14,874,585 | 11,132,957 | ||||||
| Accounts receivable | 1,394,340 | 776,530 | ||||||
| Unbilled receivables | 128,879 | 47,000 | ||||||
| Contract assets | 99,410 | 219,116 | ||||||
| Deferred prize expense | 5,349,300 | 356,158 | ||||||
| Prepaid expenses and other current assets | 1,770,813 | 744,275 | ||||||
| Current assets from discontinued operations | 389,000 | 1,310,000 | ||||||
| Total current assets | 73,315,995 | 53,910,565 | ||||||
| Investment, cost | 200,000 | 200,000 | ||||||
| Equipment, net | 61,796 | 60,218 | ||||||
| Right-of-use asset - operating lease | 264,381 | 230,680 | ||||||
| Intangibles | ||||||||
| Intangible assets, net | 3,970,213 | 3,727,933 | ||||||
| Goodwill | 6,916,095 | 6,916,095 | ||||||
| Total assets | $ | 84,728,480 | $ | 65,045,491 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 2,584,120 | $ | 2,125,707 | ||||
| Contract liabilities | 8,448,201 | 2,166,451 | ||||||
| Prize liability | 11,585,038 | 6,061,434 | ||||||
| Customer deposits | 49,147,991 | 42,171,589 | ||||||
| Line of credit | 8,745,034 | 4,120,651 | ||||||
| Current portion of long-term debt | 1,054,954 | 1,018,918 | ||||||
| Current portion of convertible debt, net of discount | 4,372,963 | - | ||||||
| Current portion of lease liability | 56,369 | 31,070 | ||||||
| Current liabilities from discontinued operations | 821,498 | 1,215,213 | ||||||
| Total current liabilities | 86,816,168 | 58,911,033 | ||||||
| Long-Term Liabilities | ||||||||
| Deferred tax liability | 24,689 | 6,206 | ||||||
| Debt, less current portion | 2,142,338 | 2,931,698 | ||||||
| Lease liability, less current portion | 209,202 | 210,037 | ||||||
| Total liabilities | 89,192,397 | 62,058,974 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Equity | ||||||||
| Series A-1 preferred stock, NIS 0.60 par value; authorized shares: 260,000; issued and outstanding shares: 7,202 and 6,630, respectively; liquidation preference: $117,009 and $138,414, respectively | 1,440 | 1,326 | ||||||
| Series B preferred stock, NIS 0.60 par value; authorized shares: 370,000; issued and outstanding shares: 12,481 liquidation preference: $529,122 and $595,245, respectively | 2,496 | 2,496 | ||||||
| Ordinary shares, NIS 0.60 par value; authorized shares 9,290,000 issued and outstanding shares: 2,833,734 and 2,688,541, respectively | 566,770 | 537,731 | ||||||
| Treasury stock, nine ordinary shares at cost | (29,000 | ) | (29,000 | ) | ||||
| Additional paid-in capital | 77,723,094 | 76,039,604 | ||||||
| Accumulated deficit | (82,728,717 | ) | (73,565,641 | ) | ||||
| Total stockholders’ equity (deficit) | (4,463,917 | ) | 2,986,517 | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 84,728,480 | $ | 65,045,491 | ||||
See accompanying notes to these condensed consolidated financial statements.
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SHARPLINK GAMING LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2023 |
September 30, 2022 |
September 30, 2023 |
September 30, 2022 |
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| Revenues | $ | 3,269,924 | $ | 1,292,674 | $ | 9,917,671 | $ | 4,940,264 | ||||||||
| Cost of revenues | 2,133,604 | 1,104,695 | 6,472,399 | 4,034,837 | ||||||||||||
| Gross profit | 1,136,320 | 187,979 | 3,445,272 | 905,427 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general, and administrative expenses | 3,595,072 | 2,105,178 | 11,014,991 | 8,664,818 | ||||||||||||
| Goodwill and intangible asset impairment expenses | - | - | - | 4,726,000 | ||||||||||||
| Total operating expenses | 3,595,072 | 2,105,178 | 11,014,991 | 13,390,818 | ||||||||||||
| Operating loss | (2,458,752 | ) | (1,917,199 | ) | (7,569,719 | ) | (12,485,391 | ) | ||||||||
| Other income and expense | ||||||||||||||||
| Interest income | 541,784 | 6,922 | 1,191,046 | 30,424 | ||||||||||||
| Interest expense | (450,577 | ) | (32,397 | ) | (1,167,940 | ) | (86,815 | ) | ||||||||
| Other expense | (5,347 | ) | - | (81,990 | ) | - | ||||||||||
| Change in fair value of convertible debenture | (324,205 | ) | - | (1,002,243 | ) | - | ||||||||||
| Total other income and expense | (238,345 | ) | (25,475 | ) | (1,061,127 | ) | (56,391 | ) | ||||||||
| Net loss before income taxes | (2,697,097 | ) | (1,942,674 | ) | (8,630,846 | ) | (12,541,782 | ) | ||||||||
| Provision for income tax expenses | 4,450 | 300 | 41,600 | 1,000 | ||||||||||||
| Net loss from continuing operations | (2,701,547 | ) | (1,942,974 | ) | (8,672,446 | ) | (12,542,782 | ) | ||||||||
| Net loss from discontinued operations, net of tax | (148,000 | ) | (104,633 | ) | (441,997 | ) | (1,360,286 | ) | ||||||||
| Net loss | $ | (2,849,547 | ) | $ | (2,047,607 | ) | $ | (9,114,443 | ) | $ | (13,903,068 | ) | ||||
| Numerator for basic and diluted net loss per share: | ||||||||||||||||
| Net loss from continuing operations available to ordinary shareholders | $ | (2,701,760 | ) | $ | (1,945,221 | ) | $ | (8,722,940 | ) | $ | (12,550,870 | ) | ||||
| Net loss from discontinued operations available to ordinary shareholders | (148,000 | ) | (104,633 | ) | (441,997 | ) | (1,360,286 | ) | ||||||||
| Total Numerator for basic net loss per share | (2,849,760 | ) | (2,049,854 | ) | (9,164,937 | ) | (13,911,156 | ) | ||||||||
| Denominator for basic and diluted net loss per share: | ||||||||||||||||
| Weighted average shares outstanding | 2,863,607 | 2,361,974 | 2,736,583 | 2,361,974 | ||||||||||||
| Net loss per share - Basic and diluted | ||||||||||||||||
| Net loss from continuing operations per share | $ | (0.94 | ) | $ | (0.82 | ) | $ | (3.19 | ) | $ | (5.31 | ) | ||||
| Net loss from discontinued operations per share | (0.05 | ) | (0.04 | ) | (0.16 | ) | (0.58 | ) | ||||||||
| Net loss per share | $ | (0.99 | ) | $ | (0.86 | ) | $ | (3.35 | ) | $ | (5.89 | ) | ||||
See accompanying notes to these condensed consolidated financial statements.
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SHARPLINK GAMING LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
| Additional | Total | |||||||||||||||||||||||||||||||||||||||
| Ordinary shares | Series A-1 preferred stock | Series B preferred stock | Paid-In | Treasury | Accumulated | shareholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | stock | deficit | equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 2,236,615 | $ | 447,346 | 5,474 | $ | 1,094 | 12,481 | $ | 2,496 | $ | 72,101,783 | $ | (29,000 | ) | $ | (58,332,263 | ) | $ | 14,191,456 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (7,044,529 | ) | (7,044,529 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | 380,685 | - | - | 380,685 | ||||||||||||||||||||||||||||||
| Dividends on Series B preferred stock in Series A-1 preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 2,236,615 | 447,346 | 5,474 | 1,094 | 12,481 | 2,496 | 72,482,468 | (29,000 | ) | (65,376,792 | ) | 7,527,612 | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (4,810,932 | ) | (4,810,932 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | 1,864,841 | - | - | 1,864,841 | ||||||||||||||||||||||||||||||
| Dividends on Series B preferred stock in Series A-1 preferred stock | - | - | 407 | 82 | - | - | (82 | ) | - | - | - | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 2,236,615 | $ | 447,346 | 5,881 | $ | 1,176 | 12,481 | $ | 2,496 | $ | 74,347,227 | $ | (29,000 | ) | $ | (70,187,724 | ) | $ | 4,581,521 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (2,047,607 | ) | (2,047,607 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | 108,333 | - | - | 108,333 | ||||||||||||||||||||||||||||||
| Dividends on Series B preferred stock in Series A-1 preferred stock | - | - | 250 | 50 | - | - | (50 | ) | - | - | - | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 2,236,615 | $ | 447,346 | 6,131 | $ | 1,226 | 12,481 | $ | 2,496 | $ | 74,455,510 | $ | (29,000 | ) | $ | (72,235,331 | ) | $ | 2,642,247 | |||||||||||||||||||||
| 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 dividend 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 | ) | ||||||||||||||||||||
See accompanying notes to these condensed consolidated financial statements.
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SHARPLINK GAMING LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| Includes cash flow activities from both continuing and discontinued operations | 2023 | 2022 | ||||||
| Operating activities | ||||||||
| Net loss from continuing operations | $ | (8,672,446 | ) | $ | (12,542,782 | ) | ||
| Net loss from discontinued operations, net of tax | $ | (441,997 | ) | $ | (1,360,286 | ) | ||
| Net loss | $ | (9,114,443 | ) | $ | (13,903,068 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
| Depreciation and amortization | 600,492 | 866,204 | ||||||
| Amortization of loan costs | 8,153 | - | ||||||
| Amortization of warrant and debt discount | 327,962 | - | ||||||
| Amortization of prepaid stock issued for services | 129,000 | - | ||||||
| Change in fair value of convertible debenture | 1,002,243 | - | ||||||
| Accrued interest on convertible debenture | 216,987 | - | ||||||
| Deferred tax expense | 18,483 | 977 | ||||||
| Stock-based compensation expense | 489,780 | 2,353,859 | ||||||
| Non-cash lease expense | (9,237 | ) | - | |||||
| Write-off of amounts related to acquisition of FourCubed | - | 4,726,000 | ||||||
| Gain on disposal of equipment | - | (480 | ) | |||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | (617,810 | ) | 397,857 | |||||
| Unbilled receivable | (81,879 | ) | (12,122 | ) | ||||
| Contract assets | 119,706 | (182,383 | ) | |||||
| Deferred prize expense | (4,993,142 | ) | - | |||||
| Prepaid expenses and other current assets | (1,155,538 | ) | (123,834 | ) | ||||
| Accounts payable and accrued expenses | 458,414 | (485,741 | ) | |||||
| Contract liabilities | 6,281,750 | (13,900 | ) | |||||
| Customer deposits and other current liabilities | 12,585,290 | - | ||||||
| Net cash provided by (used for) operating activities – continuing operations | 6,266,211 | (6,376,631 | ) | |||||
| Net cash provided by (used for) operating activities - discontinued operations | (53,000 | ) | 873,319 | |||||
| Net cash used for operating activities | 6,213,211 | (5,503,312 | ) | |||||
| Investing activities | ||||||||
| Proceeds from sale of equipment | - | 4,993 | ||||||
| Payments relating to the acquisition of FourCubed | - | (441,523 | ) | |||||
| Capital expenditures for equipment | (25,850 | ) | (21,406 | ) | ||||
| Capital expenditures for internally developed software | (818,500 | ) | (135,449 | ) | ||||
| Net cash used for investing activities | (844,350 | ) | (593,385 | ) | ||||
| Net cash used for investing activities – discontinued operations | - | (10,443 | ) | |||||
| Net cash used for investing activities - continuing operations | (844,350 | ) | (603,828 | ) | ||||
| Financing activities | ||||||||
| Net advances to and proceeds from affiliate | - | (61,079 | ) | |||||
| Proceeds from convertible debenture | 4,000,000 | - | ||||||
| Proceeds from debt | - | 3,250,000 | ||||||
| Proceeds from line of credit | 4,629,349 | - | ||||||
| Repayments of debt | (758,943 | ) | (397,993 | ) | ||||
| Payments of debt issue costs | (7,500 | ) | (25,431 | ) | ||||
| Net cash generated by financing activities | 7,862,906 | 2,765,497 | ||||||
| Net change in cash and restricted cash | 13,231,767 | (3,341,643 | ) | |||||
| Cash and restricted cash, beginning of period | 51,105,486 | 7,780,671 | ||||||
| Less cash from discontinued operations | 153,000 | 1,441,873 | ||||||
| Cash and restricted cash, end of period | 64,184,253 | $ | 2,997,155 | |||||
| Reconciliation of Cash and Restricted Cash | ||||||||
| Cash | $ | 49,309,668 | $ | 2,997,115 | ||||
| Restricted cash | 14,874,585 | - | ||||||
| Total cash and restricted cash | $ | 64,184,253 | $ | 2,997,155 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | 485,531 | 80,848 | ||||||
| Cash paid for taxes | 86,320 | 19,916 | ||||||
| Non-cash financing activities | ||||||||
| Deemed dividend on Series B preferred stock | 48,633 | - | ||||||
| Discount on convertible debenture and purchase warrant | 1,574,229 | - | ||||||
| Dividends on Series B preferred stock in Series A-1 preferred stock | 1,861 | 8,088 | ||||||
| Extension of maturity of operating lease liability | 77,742 | - | ||||||
See accompanying notes to these condensed consolidated financial statements.
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SHARPLINK GAMING LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by SharpLink Gaming Ltd. (the “Company,” “SharpLink,” formerly Mer Telemanagement Services or “MTS”, “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, 2023 and December 31, 2022, its results of operations and cash flows for the nine months ended September 30, 2023 and 2022. The condensed consolidated balance sheet as of December 31, 2022, 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 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, 2022, which are included the Company’s Annual Report on Form 10-K filed with the SEC on April 5, 2023 and the Form 10-K/A filed with the SEC on July 14, 2023.
Nature of Business
The Company is an Israeli-based corporation. SharpLink is a leading online technology company that connects sports fans, leagues and sports websites to relevant and timely sports betting and iGaming content. SharpLink uses proprietary, intelligent, online conversion technology and direct-to-player (“D2P”) performance marketing strategies to convert sports fans into sports bettors and online casino game players for licensed, online sportsbook and casino operators. Further, SharpLink, through its SportsHub Games Network Inc. (“SportsHub”) reporting unit, owns and operates an online gaming business that primarily facilitates daily and seasonal peer-to-peer fantasy contests for its end users. The Company also operates a website that provides 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. SportsHub was acquired by the Company on December 22, 2022.
On July 26, 2021, SharpLink, Inc. completed its merger with Mer Telemanagement Solutions Ltd. (the “MTS Merger”), which changed its name to SharpLink Gaming Ltd. and commenced trading on NASDAQ under the ticker symbol “SBET.” As a result of the MTS Merger, SharpLink, Inc. shareholders owned 86% of the Company, on a fully diluted and as-converted basis, which represented a majority of the voting shares. Additionally, immediately following the closing of the MTS Merger, legacy MTS directors and officers agreed to resign, pursuant to an Agreement and Plan of Merger, dated as of July 26, 2021 (“MTS Merger Agreement”). SharpLink, Inc.’s executives became officers of the Company and new members were appointed to the board of directors. The MTS Merger represented a reverse acquisition in which SharpLink, Inc. was the accounting acquirer and legacy MTS was the accounting acquiree. The Company applied the acquisition method of accounting to the identifiable assets and liabilities of legacy MTS, which were measured at estimated fair value as of the date of the business combination.
Reverse Share Split
On April 23, 2023, the Company 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 ordinary shares, nominal value NIS 0.06 per share, to 9,290,000 ordinary shares, nominal value NIS 0.60 per share; and (ii) decreased by a ratio of one-for-ten (1:10) the number of retrospectively issued and outstanding 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.
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Reclassifications
Certain reclassifications were made to the balance sheet as of December 31, 2022 to conform to the September 30, 2023 method of presentation. Certain reclassifications were made to the consolidated statements of operations for the nine months ended September 30, 2022 to conform to the September 30, 2023 method of presentation. These reclassifications had no effect on reported total current assets, total assets, total current liabilities, total liabilities, total stockholder’s equity, or revenues.
Note 2 - Going Concern
In the pursuit of SharpLink’s long-term growth strategy and the development of its fan activation and conversion software and related businesses, the Company has sustained continued operating losses. During the nine months ended September 30, 2023 and September 30, 2022, the Company had a net loss from continuing operations of $8,672,446 and $12,542,782 respectively; and cash provided by operating activities from continuing operations of $6,266,211 and cash used for operating activities from continuing operations ($6,376,631), respectively. To fund anticipated future planned losses from operations, on February 13, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with Alpha Capital Anstalt (“Alpha”), a current shareholder of the Company, on February 14, 2023, pursuant to which the Company issued to Alpha an 8% Interest Rate, 10% Original Issue Discount, Senior Convertible Debenture (the “Debenture”) in the aggregate principal amount of $4,400,000 for a purchase price of $4,000,000. In addition, on February 13, 2023, SharpLink, Inc., a Minnesota corporation and wholly owned subsidiary of the Company, entered into a Revolving Credit Agreement with Platinum Bank, a Minnesota banking corporation and executed a revolving promissory note of $7,000,000.
The Company is continually evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, equity financing, issuing, or restructuring debt, entering into other financing arrangements, and restructuring operations to increase revenues and decrease expenses. The Company may be unable to access further equity or debt financing when needed or obtain additional liquidity under acceptable terms, if at all. 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.
The unaudited condensed consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
Note 3 - New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The Company adopted ASU 2020-06 on January 1, 2023 and was applied to the Company’s accounting for its convertible debenture and warrants (see Note 8).
In June 2016 and subsequently amended in March 2022, the FASB issued ASC 326, Financial Instruments – Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments (“ASC 326”), which replaces the existing incurred loss model with a current expected credit loss (“CECL”) model that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company would be required to use a forward-looking CECL model for accounts receivables, guarantees and other financial instruments. The Company adopted ASC 326 on January 1, 2023 and ASC 326 did not have a material impact on its consolidated financial statements as the Company has not had any historical credit losses.
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Note 4 - Additional Balance Sheet Information
Equipment, net
Equipment consists of computers, furniture and fixtures and is presented net of accumulated depreciation of $125,006 and $100,733 as of September 30, 2023 and December 31, 2022, respectively. Depreciation expense for the three months ended September 30, 2023 and 2022 was $8,858 and $5,454 respectively and $24,272 and $18,243 for the nine months ended September 30, 2023 and 2022, respectively.
Intangible assets, net
Intangible assets, net of accumulated amortization as of September 30, 2023 and December 31, 2022 consisted of the following:
Schedule of Intangible Assets
| Weighted-average | ||||||||||||||||
| amortization period | Cost, Net of | Accumulated | ||||||||||||||
| (years) | Impairment | Amortization | Net | |||||||||||||
| Balance, September 30, 2023 | ||||||||||||||||
| Customer relationships | 5 - 10 | $ | 2,643,000 | $ | 586,234 | $ | 2,056,766 | |||||||||
| Acquired technology | 3 - 5 | 1,433,357 | 1,245,668 | 187,689 | ||||||||||||
| Tradenames | 6 | 640,000 | 83,407 | 556,593 | ||||||||||||
| Internally developed software | 5 | 1,145,902 | 435,221 | 710,681 | ||||||||||||
| Software in development | N/A | 458,484 | - | 458,484 | ||||||||||||
| $ | 6,320,743 | $ | 2,350,530 | $ | 3,970,213 | |||||||||||
| Balance, December 31, 2022 | ||||||||||||||||
| Customer relationships | 5 – 10 | $ | 2,643,000 | $ | 280,636 | $ | 2,362,364 | |||||||||
| Acquired technology | 3 - 5 | 1,437,050 | 1,201,739 | 235,311 | ||||||||||||
| Tradenames | 6 | 640,000 | 3,405 | 636,595 | ||||||||||||
| Internally developed software | 5 | 749,147 | 288,530 | 460,617 | ||||||||||||
| Software in development | N/A | 33,046 | - | 33,046 | ||||||||||||
| $ | 5,502,243 | $ | 1,774,310 | $ | 3,727,933 | |||||||||||
Amortization expense on intangible assets was $199,883 and $271,768 for the three months ended September 30, 2023 and 2022, respectively, and $576,220 and $841,983 for the nine months ended September 30, 2023 and 2022, respectively.
Goodwill
Goodwill as of September 30, 2023 and December 31, 2022 consisted of the following:
Schedule of Goodwill
| Sports Gaming Client Services |
Sports Hub Gaming |
Affiliate Marketing Services - International |
Total | |||||||||||||
| Balance as of December 31, 2022 | $ | 381,000 | $ | 4,919,928 | $ | 1,615,167 | $ | 6,916,095 | ||||||||
| Goodwill | - | - | - | - | ||||||||||||
| Less: Impairment charges | - | - | - | - | ||||||||||||
| Balance as of September 30, 2023 | $ | 381,000 | $ | 4,919,928 | $ | 1,615,167 | $ | 6,916,095 | ||||||||
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Note 5 - Acquisitions
SportsHub Games Network, Inc. (“SportsHub”)
Description of the Transaction
On December 22, 2022, SharpLink, through its wholly owned subsidiary, SHGN Acquisition Corp (“Acquirer” or the “Merger Subsidiary”) acquired all of the outstanding capital stock of SportsHub (the “SportsHub Acquisition”), via an Agreement and Plan of Merger, dated as of September 6, 2022 (the “SportsHub Merger Agreement”). In accordance with the terms of the SportsHub Merger Agreement between the Acquirer, SportsHub and an individual acting as the SportsHub stockholders’ representative (the “Stockholder Representative”):
| ● | SharpLink issued an aggregate of 431,926 ordinary shares to the equity holders of SportsHub, on a fully diluted basis, including 377,985 ordinary shares actually issued on December 22, 2022 and an additional aggregate of 53,941 shares being held in escrow as well as shares held in escrow for indemnifiable losses and for the reimbursement of expenses incurred by the Stockholder Representative in performing his duties pursuant to the SportsHub Merger Agreement. An additional aggregate of 40,585 ordinary shares were reserved for future issuance, including 23,714 ordinary shares reserved for SportsHub shareholders who had yet to provide the applicable documentation required in connection with the SportsHub Acquisition and were issued in June 2023 when the documentation was available. 13,975 ordinary shares underlying the options and 2,896 ordinary shares underlying the warrants remain unissued until the options and/or warrants are exercised. | |
| ● | SportsHub merged with and into the Merger Subsidiary, with the Merger Subsidiary remaining as the surviving corporation and wholly owned subsidiary of SharpLink. | |
| ● | SportsHub, which owned 889,380 ordinary shares of SharpLink prior to the SportsHub Acqusition, distributed those shares to its stockholders immediately prior to the consummation of the SportsHub Acqusition. These shares were not part of the purchase consideration. | |
| ● | SharpLink assumed $5,387,850 of SportsHub’s debt as purchase consideration. |
Identification of Accounting Acquirer
The transaction was accomplished through a direct acquisition, whereby SHGN Acquisition Corp effectively acquired all of the outstanding capital stock of SportsHub, as a result of which SHGN Acquisition Corp obtained control over SportsHub. Therefore, SHGN Acquisition Corp has been determined to be the acquirer in the transaction, and SportsHub the acquiree.
Determining the Acquisition Date
The Acquirer obtained control of SportsHub following the exchange of consideration on December 22, 2022. Thus, the closing date of December 22, 2022 was the acquisition date.
Purchase Price
The purchase price is based on SharpLink’s closing share price of $2.90 on December 22, 2022 and 472,513 of ordinary shares as well as the fair value of Seller’s term loan of $1,267,199 and line of credit of $4,120,651. The following table represents the purchase consideration paid in the SportsHub Acquisition:
Schedule of Purchase Consideration
| Description | Amount | |||
| Fair Value of Equity Consideration | $ | 1,370,287 | ||
| Fair Value of Seller Platinum Line of Credit and Loan | 5,387,850 | |||
| Total Purchase Price | $ | 6,758,137 | ||
Purchase Price Allocation
The SportsHub Acquisition assets and liabilities were measured at fair values as of December 22, 2022, primarily based on the valuation determined by an independent valuation, which were based on income-based method and relief from royalty method. Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions, including royalty rates and customer attrition rates and others. Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates expected as of the acquisition date.
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The fair value of the assets acquired and liabilities assumed as of December 22, 2022 were as follows:
Schedule of Fair Value of Assets Acquired and Liabilities Assumed
| Assets: | ||||
| Cash | $ | 38,255,266 | ||
| Restricted cash | 10,604,004 | |||
| Accounts receivable | 186,712 | |||
| Prepaid expenses and other current assets | 1,916,932 | |||
| Equipment | 11,953 | |||
| Other long-term assets | 95,793 | |||
| Intangible assets | 2,390,000 | |||
| Total Assets | $ | 53,460,660 | ||
| Liabilities: | ||||
| Accrued expenses | $ | 284,345 | ||
| Deferred tax liabilities | 48,775 | |||
| Deferred revenue | 3,574,285 | |||
| Other current liabilities | 47,657,117 | |||
| Other long-term liabilities | 106,705 | |||
| Total liabilities | $ | 51,671,227 | ||
| Net assets acquired, excluding goodwill | $ | 1,789,433 | ||
| Goodwill | 4,968,703 | |||
| Purchase consideration for accounting acquiree | $ | 6,758,137 |
The fair value, as determined by assumptions that market participants would use in pricing the assets, and weighted average useful life of the identifiable intangible assets are as follows:
Schedule of Fair Value Assumption Asset
| Weighted Average |
||||||||
| Fair Value | Useful Life (Years) |
|||||||
| Customer relationships | $ | 1,550,000 | 5 | |||||
| Trade names | 640,000 | 6 | ||||||
| Acquired technology | 200,000 | 5 | ||||||
| $ | 2,390,000 | |||||||
The excess of consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill and derived from the market price of the shares at the time of the SportsHub Acquisition. The goodwill created in the acquisition is not expected to be deductible for tax purposes.
As of September 30, 2023, the calculation and allocation of the purchase price to tangible and intangible assets and liabilities are final as well as the recognition and disclosure over warrant and stock option equity awards, see Notes 11 and 12.
Transaction Costs
SharpLink’s transaction costs incurred in connection with the SportsHub Acquisition were $83,866 for the year ended December 31, 2022. These costs were primarily comprised of professional fees, recorded in selling, general and administrative expenses in the consolidated statement of operations. The transaction costs are not expected to be deductible for tax purposes.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma financial information presents the financial results for the nine months ended September 30, 2022 as if the SportsHub Acquisition had occurred on January 1, 2022. The pro forma financial information includes, where applicable, adjustments for: (i) a reduction in amortization expense of $574,343 would have been recognized related to the acquired intangible assets in 2022 and (ii) transaction costs and other one-time non-recurring costs which increased expenses by $83,866 in 2022.
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The pro forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of SportsHub:
Schedule of Business Acquisition Pro Forma Information
| September 30, 2022 |
||||
| Revenues | $ | 8,379,821 | ||
| Loss from continuing operations | (13,873,171 | ) | ||
| Less: dividends accrued on series B preferred stock | (8,088 | ) | ||
| Net loss from continuing operations available to ordinary shareholders | (13,881,259 | ) | ||
| Net income (loss) from discontinued operations, net of tax, available to ordinary shareholders | (1,360,286 | ) | ||
| Net loss available to ordinary shareholders | (15,241,545 | ) | ||
| Basic and diluted: | ||||
| Net loss from continuing operations per share | $ | (5.88 | ) | |
| Net loss from discontinued operations per share | (0.58 | ) | ||
| Net loss per share | $ | (6.45 | ) | |
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the SportsHub Acquisition been completed as of the date indicated or the results that may be obtained in the future.
Note 6 – Line of Credit
The Company, through the SportsHub Acquisition, has available a variable rate (9.0% as of September 30, 2023) bank line of credit for $5,000,000, expiring June 15, 2025. There was $5,000,000 outstanding as of September 30, 2023.
On February 13, 2023, the Company entered into a Revolving Credit Agreement with Platinum Bank (the “Lender”) and executed a variable rate (9.0% as of September 30, 2023) revolving promissory note of $7,000,000, expiring January 26, 2025. As collateral, the Company granted a security interest in and to all of the Company’s right, title and interest in certain assets on account at Platinum Bank, together with all financial assets, security entitlements with respect to such financial assets, investment property, securities and other property, to secure the payment and performance of the revolving credit agreement. There was $3,750,000 outstanding as of as of September 30, 2023. The Company incurred $7,500 in debt issuance costs associated with the revolving note, which are presented net within the line of credit on the balance sheet and amortized on a method which approximates the effective interest method to interest expense on the consolidated statement of operations.
Note 7 - Debt
On January 31, 2022, FourCubed Acquisition Company, LLC (“FCAC”), a wholly owned subsidiary of the Company, entered into a $3,250,000 term loan agreement with Platinum Bank. The agreement bears annual interest at a rate of 4% and requires a fixed monthly payment of $59,854, consisting of principal and interest, through the term loan’s maturity, which is January 31, 2027. The Company capitalized $25,431 of loan initiation fees associated with the agreement which are presented net within debt on the consolidated balance sheet and amortized on a method which approximates the effective interest method to interest expense on the consolidated statement of operations.
The remaining principal balance outstanding on the term loan is $2,238,062 as of September 30, 2023, of which $639,567 is due within the next year. In addition to customary non-financial covenants, the term loan requires FCAC to maintain a minimum quarterly debt service coverage ratio, defined as adjusted EBITDA divided by debt service (interest expense and mandatory debt principal repayment) of 1.20. The Company was in compliance with the debt service coverage ratio as of September 30, 2023.
Included in the SportsHub Acquisition was a $2,000,000 term loan agreement with a financial institution. The agreement bears annual interest at a rate of 5.50% percent and requires a fixed monthly payment of $38,202, consisting of principal and interest, through the term loan’s maturity, which is December 9, 2025. Included in the term loan liability is $29,975 of loan initiation fees associated with the agreement which are presented net within debt on the consolidated balance sheet and amortized on a method which approximates the effective interest method to interest expense on the consolidated statement of operations. The remaining principal balance outstanding on the term loan is $970,986 as of September 30, 2023, of which $415,387 is due within the next year.
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A summary of the debt agreements is noted below:
Schedule of Debt
| September 30, 2023 |
||||
| Note Payable – Bank, $2,000,000 principle, secured by assets of SportsHub | $ | 970,986 | ||
| Note Payable – Bank, $3,250,000 principle, secured by assets of FCAC | 2,238,062 | |||
| Total | 3,209,048 | |||
| Less unamortized debt issuance costs | 11,756 | |||
| Less current portion | 1,054,954 | |||
| Long-term debt | $ | 2,142,338 | ||
The outstanding amount of debt as of September 30, 2023, matures by year as follows:
Schedule of Outstanding Amount of Debt
| Year | Amount | |||
| For the remaining three months ended December 31, 2023 | $ | 259,181 | ||
| 2024 | 1,066,696 | |||
| 2025 | 1,120,612 | |||
| 2026 | 700,256 | |||
| 2027 | 62,303 | |||
| Total | $ | 3,209,048 | ||
The term loan contains a parent company guaranty, which states that the Company will enter into a guaranty agreement in favor of FCAC, pursuant to which the Company will guarantee the repayment of the loan, not later than 30 days following the Company’s anticipated redomicile to the United States, see Note 19.
Note 8 - Convertible Debenture and Warrant
Convertible Debenture, at Fair Value
The Company accounts for convertible debentures using an amortized cost model. The discount for warrants, the Original Issuance Discount (“OID”) and the initial allocation of fair value of compound derivatives reduce the initial carrying amount of the convertible notes. The carrying value is accreted to the stated principal amount at contractual maturity using the effective-interest method with a corresponding charge to interest expense. Debt discounts are presented on the consolidated balance sheets as a direct deduction from the carrying amount of that related debt.
The Company made an irrevocable election at the time of issuance of the Debenture to record the Debenture at its fair value (the “Fair Value Option”) with changes in fair value recorded through the Company’s consolidated statements of operations within other income (expense) at each reporting period. The Fair Value Option provides the Company a measurement basis election for financial instruments on an instrument-by-instrument basis.
On February 14, 2023, the Company entered into the SPA with Alpha, a current shareholder of the Company, pursuant to which the Company issued to Alpha, an 8% Interest Rate, 10% Original Issue Discount, Senior Convertible Debenture (the “Debenture”) in the aggregate principal amount of $4,400,000 for a purchase price of $4,000,000 on February 15, 2023. The Debenture is convertible, at any time, and from time to time, at Alpha’s option, into ordinary shares of the Company (the “Conversion Shares”), at an initial conversion price equal to $7.00 per share, subject to adjustment as described below and in the Debenture (the “Conversion Price”). In addition, the Conversion Price of the Debenture was subject to an initial reset immediately prior to the Company’s filing of a registration statement covering the resale of the underlying shares to the lower of $7.00 and the average of the five Nasdaq Official Closing Prices immediately preceding such date (the “Reset Price”). The registration statement on Form S-1 (file No.: 333-271396) was filed on April 21, 2023, and as a result, the Reset Price is now $4.1772. The initial adjustment of the Conversion Price to the Reset Price had a floor price of $3.00 (the “Floor Price”).
Commencing November 1, 2023 and continuing on the first day of each month thereafter until the earlier of (i) February 15, 2026 (the “Maturity Date”) and (ii) the full redemption of the Debenture (each such date, a “Monthly Redemption Date”), the Company will redeem $209,524 plus accrued but unpaid interest, and any amounts then owing under the Debenture (the “Monthly Redemption Amount”). The Monthly Redemption Amount will be paid in cash; provided, that the Company may elect to pay all or a portion of a Monthly Redemption Amount in ordinary shares of the Company, based on a conversion price equal to the lesser of (i) the then Conversion Price of the Debenture and (ii) 80% of the average of the VWAPs (as defined in the Debenture) for the five consecutive trading days ending on the trading day that is immediately prior to the applicable Monthly Redemption Date. The Company may also redeem some or all of the then outstanding principal amount of the Debenture at any time for cash in an amount equal to the then outstanding principal amount of the Debenture being redeemed plus accrued but unpaid interest, liquidated damages and any amounts then owing under the Debenture. These monthly redemption and optional redemptions are subject to the satisfaction of the Equity Conditions (as defined in the Debenture).
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The Debenture initially accrues interest at the rate of 8% per annum for the first 12 months from the February 15, 2023, at the rate of 10% per annum for the ensuing 12 months, and thereafter until Maturity, at the rate of 12%, Interest may be paid in cash or ordinary shares of the Company or a combination thereof at the option of the Company; provided that interest may only be paid in shares if the Equity Conditions (as defined in the Debenture) have been satisfied, including Shareholder Approval. The Debenture includes a beneficial ownership blocker of 9.99%. The Debenture provides for adjustments to the Conversion Price in connection with stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain Fundamental Transactions. In the event the Company, at any time while the Debentures is outstanding, issues or grants any right to re-price, ordinary shares or any type of securities giving rights to obtain ordinary shares at a price below the Conversion Price, Alpha shall be extended full-ratchet anti-dilution protection (subject to customary Exempt Transaction issuances), and such reset shall not be limited by the Floor Price.
At the time of execution, on February 14, 2023, the Company recorded an initial debt discount of $383,333 based on the allocation of fair value for the Debenture, which will be amortized into interest expense over term of the Debenture. For the period from February 14 through September 30, 2023, the Company recognized ($1,002,243) change in fair value of the convertible Debenture which is reflected in Other income and expense in the condensed consolidated statement of operations and $83,333 for the amortization of the OID, which is included in interest expense on the condensed consolidated statement of operations.
Purchase Warrant
On February 15, 2023, the Company also issued to Alpha a warrant (the “Warrant”) to purchase 880,000 ordinary shares of the Company at an initial exercise price of $8.75 (the “Warrant Shares,” and, together with the Conversion Shares, and any other ordinary shares of the Company that may otherwise become issuable pursuant to the terms of the Debenture and Warrant, the “Underlying Shares”). The Warrant is exercisable in whole or in part, at any time on or after February 15, 2023 and before February 15, 2028. The exercise price of the Warrant was subject to an initial reset immediately prior to the Company’s filing of a proxy statement that included a shareholder proposal to approve the issuance of Underlying Share in excess of 19.99% of the issued and outstanding ordinary shares on the Closing Date (the “Shareholder Proposal”) to the lower of $8.75 and the average of the five Nasdaq Official Closing Prices immediately preceding such date the. As a result, the exercise price has been reset to $4.0704, the average of the five Nasdaq Official Closing Prices immediately preceding April 14, 2023, the date the Company filed its preliminary proxy statement which included the Shareholder Proposal. The Warrant includes a beneficial ownership blocker of 9.99%. The Warrant provides for adjustments to the exercise price, in connection with stock dividends and splits, subsequent equity sales and rights offerings, pro rata distributions, and certain Fundamental Transactions.
In the event the Company, at any time while the Warrant is still outstanding, issues or grants any right to re-price, ordinary shares or any type of securities giving rights to obtain ordinary shares at a price below exercise price, Alpha shall be extended full-ratchet anti-dilution protection on the Warrant (reduction in price, only, no increase in number of Warrant Shares, and subject to customary Exempt Transaction issuances), and such reset shall not be limited by the Floor Price.
At the time of execution, the Company classified the Warrant as an equity contract and performed an initial fair value measurement. As the Warrant was issued with the sale of the Debenture, the value assigned to the Warrant was based on an allocation of proceeds, subject to the allocation to the Debenture. The Company recorded a debt discount for the Warrant of $1,174,229, based on the Black Scholes option-pricing model which was calculated independently of the fair value of the Debenture, and recorded the Warrant as additional paid in capital in the condensed consolidated balance sheet as of September 30, 2023. Amortization of the debt discount amounted to $244,631 for the period ended September 30, 2023 and is included in interest expense on the condensed consolidated statements of operations.
The following provides a summary of the Convertible Debenture recorded at fair value as of September 30, 2023:
Summary of Convertible Debenture Recorded at Fair value
| Principle amount of convertible debenture at issuance: | $ | 4,400,000 | ||
| Unamortized discount for warrants | (929,598 | ) | ||
| Unamortized discount for OID | (316,669 | ) | ||
| Accrued interest expense | 216,987 | |||
| Change in fair value | 1,002,243 | |||
| Balance of convertible debenture as of September 30, 2023: | 4,372,963 |
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Note 9 - Fair Value
In accordance with fair value accounting guidance, the Company determines fair value based on the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The inputs used to measure fair value are classified into the following hierarchy:
| ● | Level 1: Unadjusted quoted prices in active markets for identical instruments that are accessible as of the measurement date | |
| ● | Level 2: Other significant pricing inputs that are either directly or indirectly observable | |
| ● | Level 3: Significant unobservable pricing inputs, which result in the use of management’s own assumptions |
As disclosed in Note 8, the Debenture and the Warrant were reported at fair value at issuance. The Debenture is adjusted to fair value on a recurring basis with changes in fair value recorded through the Company’s condensed consolidated statements of operations as other income (expense) for the nine months ended September 30, 2023.
The following table sets forth the Company’s consolidated financial assets and liabilities measured at fair value by level within the fair value hierarchy on September 30, 2023:
Schedule of Consolidated Financial Assets and Liabilities Measured at Fair Value
| Convertible Debenture |
Purchase Warrant |
|||||||
| Level I | $ | - | $ | - | ||||
| Level II | $ | - | $ | - | ||||
| Level III | $ | 4,372,963 | $ | 1,174,229 | ||||
| Total | $ | 4,372,963 | $ | 1,174,229 | ||||
The following table presents a reconciliation of the beginning and ending balances of the Debenture measured at fair value on a recurring basis that uses significant unobservable inputs (Level 3) and the related expenses and losses recorded in the consolidated statement of operations during the nine months ended September 30, 2023.
Significant Unobservable Inputs (level 3) and Related Expenses and Losses
| Fair Value, December 31, 2022 | $ | - | ||
| Issuance of convertible debenture | 2,825,771 | |||
| Accretion for discount for warrants | 244,629 | |||
| Accretion for discount for OID | 83,333 | |||
| Interest expense | 216,987 | |||
| Change in fair value | 1,002,243 | |||
| Fair Value, September 30, 2023 | $ | 4,372,963 |
The fair value of the Debenture was determined using a Monte Carlo Simulation (“MCS”) which incorporates the probability and timing of the consummation of a Fundamental Transaction event and conversion of the Debenture as of the valuation date.
The MCS implied a discount rate at issuance that resulted in a total value to the debenture and warrants that equated to the transaction proceeds. This discount rate was 75.28% at issuance and was calibrated to the September 30, 2023 valuation date by comparing the B rated commercial paper credit spread at both dates. B spreads as follows:
Schedule of B Spreads
| Issuance February 14, 2023 | 4.13 | % | ||
| Fair Value September 30, 2023 | 2.81 | % |
On September 30, 2023, the Company valued the Debenture using a Monte Carlo Simulation model using the value of the underlying stock price of $1.60, exercise price of $8.75, expected dividend rate of 0%, risk-free interest rate of 4.83% and volatility of 66.3%. The Company estimated the term of the warrant to be 2.38 years.
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Note 10 - Convertible Preferred Stock
On July 26, 2021, the Company’s board authorized the establishment and designation of 52,502 shares of Series A-1 Preferred Stock at $0.10 par value.
Terms of the Series A-1 Preferred Stock are as follows:
Voting – Series A-1 Preferred Stock has equal rights to vote on all matters submitted to a vote of the Ordinary Shares (on an as-converted basis, but only up to the number of votes equal to the number of Ordinary Shares into which the Preferred Shares would be convertible pursuant to the Beneficial Ownership Limitation), however, without the affirmative vote of the majority of the outstanding shares of Series A-1 Preferred Stock, the Company cannot (a) alter or change adversely the powers, preferences or rights given to the Series A-1 Preferred Stock, authorize or create any class of stock ranking in priority to as to dividends, redemption or distribution of assets upon a liquidation, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A-1 Preferred Stock, or (e) enter into any agreement with respect to any of the above.
Liquidation – Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, Series A-1 Preferred Stock holders shall be entitled to receive out of the assets an amount equal to the stated value of $16.246 per share, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due (the preferred liquidation preference), for each share of Series A-1 Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities.
Conversion – Each share of Series A-1 Preferred Stock shall be convertible, at any time and from time to time from and after the original issue date at the option of the holder, into that number of shares of common stock determined by dividing the stated value of such share of Series A-1 Preferred Stock by the conversion price, $16.246 per share. The conversion price would be reduced if the Company issues common stock at a price lower than the conversion price or issues an instrument granting the holder rights to purchase common stock at a price lower than the conversion price. Upon the closing of the Going Public Transaction all outstanding shares of Series A-1 preferred stock shall automatically be converted into that number of shares of common stock, subject to a beneficial ownership limitation of 9.99%, determined by dividing the stated value of such share of Series A-1 Preferred Stock by the conversion price.
On July 26, 2021, the Company’s board authorized the establishment and designation of 276,582 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) at $0.10 par value.
Terms of the Series B Preferred Stock are as follows:
Voting – Series B Preferred Stock shall have no voting rights, however, without the affirmative vote of the majority of the outstanding shares of Series B Preferred Stock, the Company cannot (a) alter or change adversely the powers, preferences or rights given to the Series B preferred stock, (b) authorize or create any class of stock ranking in priority to as to dividends, redemption or distribution of assets upon a liquidation, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the number of authorized shares of Series B Preferred Stock, or (e) enter into any agreement with respect to any of the above.
Dividends - Holders of each share of Series B preferred stock shall be entitled to receive cumulative dividends until the second anniversary of the Original Issue date of July 26, 2021 at the rate per share (as a percentage of the stated value per share) of 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the issuance of such share of Series B preferred stock and on each conversion date in cash, or at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of preferred A-1 shares, or a combination thereof. In accordance with the Series B preferred stock terms, dividends of Series A-1 preferred stock are accrued on a quarterly basis, within additional paid in capital. A total of 7,202 shares at a value of $326,356 have been recorded in additional paid in capital as of the year ended September 30, 2023. The Company stopped accruing dividends as of July 26, 2023.
Liquidation – Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, Series B Preferred Stock holders shall be entitled to receive out of the assets an amount equal to the stated value of $16.246 per share, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due (the preferred liquidation preference), for each share of Series B Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities.
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Conversion – Each share of Series B Preferred Stock shall be convertible, at any time and from time to time from and after the original issue date at the option of the holder, into that number of shares of common stock determined by dividing the stated value of such share of Series B Preferred Stock by the conversion price, $16.246 per share. The conversion price would be reduced if the Company issues common stock at a price lower than the conversion price or issues an instrument granting the holder rights to purchase common stock at a price lower than the conversion price. Upon the closing of the Going Public Transaction all outstanding shares of Series B Preferred Stock shall automatically be converted into that number of shares of common stock, subject to a beneficial ownership limitation of 9.99%, determined by dividing the stated value of such share of Series B Preferred Stock by the conversion price.
Anti-Dilution Adjustment – If and whenever the Company issues of sells ordinary shares for a consideration price that is less than the Series B Preferred Shares Conversion Price, then immediately after such Dilutive Issuance, the Conversion Price of the Series B Preferred Shares shall be reduced to equal the Discounted Per Share Ordinary Share Purchase Price and the holders are entitled to receive a number of conversion shares, but in no event shall the Conversion Price become lower than the greater of (i) $2.00 or (ii) 20% of the closing price on the Trading Day immediately prior to the Effective Date .
Deemed Dividend – On February 14, 2023, the Company executed an SPA with a current shareholder of the Company (see Note 8) which triggered the anti-dilution adjustment for Series B Preferred Shares. As such, the Company recognized a deemed dividend of $48,633 for an additional 16,486 shares in incremental share value as an adjustment to accumulated deficit and additional paid in capital for the period ended September 30, 2023.
The Company had total shares outstanding of no share of Preferred A outstanding as of September 30, 2023 and 2022. As of September 30, 2023 and 2022, the Company had 7,202 and 6,131 Preferred Series A-1 and 12,481 and 12,481 shares of Series B Preferred Stock outstanding, respectively.
Note 11 - Warrants
In conjunction with the Convertible Debenture and Warrant issuance on February 14, 2023, 266,667 warrants that were previously issued to Alpha on November 19, 2021 were revalued on February 14, 2023, reducing the exercise price from $45.00 per warrant share to $0.60 per warrant share. The Company performed a Black Scholes model for the re-pricing of the warrants using the value of the underlying stock price of $5.10 stock price, exercise price of $0.60, expected dividend rate of 0%, risk-free interest rate of 4.04% and volatility of 52.57% and remaining term of 2.9 years. These same assumptions were applied to the Warrant as discussed in Note 8. The value allocated to the warrants on November 19, 2021 was $11,435 and recorded in Additional Paid-In Capital. The fair value of the re-priced warrants on February 15, 2023 was $1,218,205, an increase of $1,206,771. The incremental value of the warrants is also recorded in Additional Paid-In Capital as of September 30, 2023 as a deemed dividend.
On June 6, 2023, an investor exercised 125,359 warrants via a cashless exercise for 121,479 ordinary shares.
On June 14, 2023, the Company filed a registration statement on Form S-1 (file number: 333-272652) with the SEC to register 266,667 ordinary shares issuable upon exercise of the purchase warrants issued to Alpha in November 2021. The registration statement on Form S-1 was deemed effective on September 29, 2023.
During the nine months ended September 30, 2023, the Company recognized 3,015 warrants acquired during the SportsHub Acquisition, see Note 5. The warrants have an exercise price of $17.90 and expire October 29, 2028.
Schedule of Warrant Activity
| Number of Shares |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Life (Years) |
||||||||||
| Outstanding as of December 31, 2022 | 400,359 | $ | 0.82 | 2.83 | ||||||||
| Previously issued regular warrants | (266,667 | ) | (45.00 | ) | 0.49 | |||||||
| Revalued regular warrants | 266,667 | 0.60 | 0.49 | |||||||||
| Exercised | (125,359 | ) | (0.01 | ) | - | |||||||
| Issued and vested | 883,015 | 4.15 | 3.34 | |||||||||
| Outstanding as of September 30, 2023 | 1,158,015 | $ | 3.43 | 3.84 | ||||||||
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Note 12 - Stock Compensation
Option awards are generally granted with an exercise price equal to the market price of the Company’s ordinary shares at the date of grant; those options generally vest based on three years of continuous service and have ten-year contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the plans.
The fair value of each option award is estimated on the date of grant using a Black Scholes option-pricing model. The Company uses historical option exercise and termination data to estimate the term the options are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is calculated using historical dividend amounts and the stock price at the option issue date. The expected volatility is determined using the volatility of peer companies. The Company’s underlying stock has been publicly traded since the date of the MTS Merger. Subsequent to the MTS Merger, option grants made under the SharpLink Inc. 2021 Plan utilized the publicly traded stock price of the Company on the day of the option award. All option grants made under the SharpLink, Inc. 2020 Stock Incentive Plan were prior to the MTS Merger. The underlying SharpLink, Inc. stock under that plan was not publicly traded but was estimated on the date of the grants using valuation methods that consider valuations from recent equity financings as well as future planned transactions. All option grants made under the SportsHub Games Network Inc. 2018 Incentive Plan were prior to the SportsHub Acquisition. The underlying SportsHub stock under that plan was not publicly traded but was estimated on the date of the grants using valuation methods that consider valuations from recent equity financings as well as future planned transactions.
Schedule of Fair Values of Stock Options Granted Using Black-scholes Valuation Model Assumptions
| September
30, 2023 |
||||
| Expected volatility | 53.6-116.6 | % | ||
| Expected dividends | 0.0 | % | ||
| Expected term (years) | 5.7 | |||
| Risk-free rate | 3.4 – 4.3 | % | ||
| Fair value of ordinary shares on grant date | $ | 1.70 – $4.03 | ||
Schedule of Stock Option Activity
| Weighted |
Weighted average |
|||||||||||||||
| average | remaining | Aggregate | ||||||||||||||
| Options | Shares |
exercise price |
contractual term |
intrinsic value |
||||||||||||
| Outstanding as of December 31, 2022 | 288,914 | 11.40 | 7,750 | |||||||||||||
| Granted | 155,755 | 4.46 | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Acquired1 | 14,552 | 14.16 | ||||||||||||||
| Forfeited | (7,112 | ) | 5.70 | |||||||||||||
| Expired | (1,413 | ) | 8.84 | |||||||||||||
| Outstanding as of September 30, 2023 | 450,696 | 9.21 | 8.9 | 4,000 | ||||||||||||
| Exercisable as of September 30, 2023 | 211,949 | 11.47 | 8.5 | 4,000 | ||||||||||||
| 1 | During the nine months ended September 30, 2023, the Company recognized 14,552 options that were acquired during the SportsHub Acquisition, see Note 5. The options have an exercise price of $14.16 and expire December 21, 2032. The options were fully vested upon the SportsHub acquisition. |
Unamortized stock compensation expense of $894,970 as of September 30, 2023, will be amortized through 2026 and has a weighted average recognition period of three years.
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Note 13 - Operating Segments
The Company has four operating segments: Affiliate Marketing Services – United States, Affiliate Marketing Services – International, Sports Gaming Client Services and SportsHub Games Network. Each operating segment is also a reportable segment. The Enterprise Telecom Expense Management (“Enterprise TEM”) business unit is reflected in discontinued operations (see Note 16). The Enterprise TEM and Affiliate Marketing Services – International segments are a result of the MTS Merger and FourCubed acquisition, respectively, in 2021. The Enterprise TEM segment will not be presented going forward due to its sale on December 31, 2022.
The Affiliate Marketing Services – United States segment operates a performance marketing platform which owns and operates state-specific web domains designed to attract, acquire and drive local sports betting and casino traffic directly to the Company’s sportsbook and casino partners which are licensed to operate in each respective state. The Company earns a commission from sportsbooks and casino operators on new depositors directed to them via our proprietary D2P websites in America. In addition, this segment provides sports betting data (e.g., betting lines) to sports media publishers in exchange for a fixed fee.
The Affiliate Marketing Services – International segment is an iGaming and affiliate marketing network, focused on delivering quality traffic and player acquisitions, retention and conversions to global iGaming operator partners worldwide in exchange for a commission (cost per acquisition or portion of net gaming revenues) paid to the Company by the partners for the new players referred to them.
The Sports Gaming Client Services segment provides its clients with development, hosting, operations, maintenance, and service of free-to-play games and contests. These relationships can be either software-as-service (“SaaS”) arrangements that are hosted by SharpLink and accessed through its clients’ websites or other electronic media; or software licenses that allow the client to take the software on premise.
The SportsHub Games Network segment owns and operates a variety of real-money fantasy sports and sports simulation games and mobile apps on its platform; and is licensed or authorized to operate in every state in the United States where fantasy sports play is legal and in which SportsHub has elected to operate based on the financial viability of operating there.
The Enterprise TEM segment is a global provider of solutions for telecommunications expense management, enterprise mobility management, call usage and accounting software. The segment’s TEM solutions allow enterprises and organizations to make smarter choices with their telecommunications spending at each stage of the service lifecycle, including allocation of cost, proactive budget control, fraud detection, processing of payments and spending forecasting. The Enterprise TEM segment is reflected as discontinued operations in 2023 and 2022 and was sold on December 31, 2022. See Note 16.
Any intercompany revenues or expenses are eliminated in consolidation.
A measure of segment assets and liabilities has not been currently provided to the Company’s chief operating decision maker and is therefore not presented below.
Summarized financial information for the Company’s reportable segments for the three and nine months ended September 30, 2023 and 2022 are shown below:
For the three months ended September 30, 2023:
Schedule of Companies Reportable Segments
|
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network |
Enterprise TEM |
Total | |||||||||||||||||||
| Revenues | $ | 231,921 | $ | 1,191,964 | $ | 420,100 | $ | 1,425,939 | $ | - | $ | 3,269,924 | ||||||||||||
| Cost of revenues | 167,109 | 840,308 | 628,499 | 497,688 | - | 2,133,604 | ||||||||||||||||||
| Loss from operations | (1,741,432 | ) | (114,696 | ) | (274,914 | ) | (327,710 | ) | - | (2,458,752 | ) | |||||||||||||
| Loss from discontinued operations | - | - | - | - | (148,000 | ) | (148,000 | ) | ||||||||||||||||
| Net income (loss) | $ | (2,338,783 | ) | $ | (140,399 | ) | $ | (276,374 | ) | $ | 54,009 | $ | (148,000 | ) | $ | (2,849,547 | ) | |||||||
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For the three months ended September 30, 2022:
|
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network |
Enterprise TEM |
Total | |||||||||||||||||||
| Revenues | $ | 114,972 | $ | 760,585 | $ | 417,117 | $ | - | $ | - | $ | 1,292,674 | ||||||||||||
| Cost of revenues | 25,484 | 489,808 | 589,403 | - | - | 1,104,695 | ||||||||||||||||||
| Loss from operations | (1,439,115 | ) | (143,500 | ) | (334,584 | ) | - | - | (1,917,199 | ) | ||||||||||||||
| Loss from discontinued operations | - | - | - | - | (104,633 | ) | (104,633 | ) | ||||||||||||||||
| Net income (loss) | $ | (1,432,493 | ) | $ | (175,897 | ) | $ | (334,584 | ) | $ | - | $ | (104,633 | ) | $ | (2,047,607 | ) | |||||||
For the nine months ended September 30, 2023:
|
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network |
Enterprise TEM |
Total | |||||||||||||||||||
| Revenues | $ | 817,268 | $ | 3,325,128 | $ | 2,183,644 | $ | 3,591,631 | $ | - | $ | 9,917,671 | ||||||||||||
| Cost of revenues | 574,841 | 2,300,084 | 2,325,107 | 1,272,367 | - | 6,472,399 | ||||||||||||||||||
| Loss from operations | (5,834,870 | ) | (312,551 | ) | (366,747 | ) | (1,055,551 | ) | - | (7,569,719 | ) | |||||||||||||
| Loss from discontinued operations | - | - | - | - | (441,997 | ) | (441,997 | ) | ||||||||||||||||
| Net income (loss) | $ | (7,548,726 | ) | $ | (394,124 | ) | $ | (368,207 | ) | $ | (361,389 | ) | $ | (441,997 | ) | $ | (9,114,443 | ) | ||||||
For the nine months ended September 30, 2022:
|
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network |
Enterprise TEM |
Total | |||||||||||||||||||
| Revenues | $ | 285,004 | $ | 2,524,547 | $ | 2,130,713 | $ | - | $ | - | $ | 4,940,264 | ||||||||||||
| Cost of revenues | 70,771 | 1,533,373 | 2,430,693 | - | - | 4,034,837 | ||||||||||||||||||
| Loss from operations | (6,811,370 | ) | (5,050,662 | ) | (623,359 | ) | - | - | (12,485,391 | ) | ||||||||||||||
| Loss from discontinued operations | - | - | - | - | (1,360,286 | ) | (1,360,286 | ) | ||||||||||||||||
| Net income (loss) | $ | (6,781,946 | ) | $ | (5,137,477 | ) | $ | (623,359 | ) | $ | - | $ | (1,255,654 | ) | $ | (13,903,068 | ) | |||||||
Summarized revenues by country in which the Company operated for the three and nine months ended September 30, 2023 and 2022 are shown below:
Schedule of Revenues by Country
| Three Months Ended September 30, 2023 |
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network |
Total | |||||||||||||||
| United States | $ | 231,921 | $ | - | $ | 420,100 | $ | 1,425,939 | $ | 2,077,960 | ||||||||||
| Rest of World | - | 1,191,964 | - | - | 1,191,964 | |||||||||||||||
| Revenues | $ | 231,921 | $ | 1,191,964 | $ | 420,100 | $ | 1,425,939 | $ | 3,269,924 | ||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||
| United States | $ | 114,972 | $ | - | $ | 417,117 | $ | - | $ | 532,089 | ||||||||||
| Rest of World | - | 760,585 | - | - | 760,585 | |||||||||||||||
| Revenues | $ | 114,972 | $ | 760,585 | $ | 417,117 | $ | - | $ | 1,292,674 | ||||||||||
| Nine Months Ended September 30, 2023 |
Affiliate United |
Affiliate International |
Sports Gaming Client Services |
SportsHub Gaming Network | Total | |||||||||||||||
| United States | $ | 817,268 | $ | - | $ | 2,183,644 | $ | 3,591,631 | $ | 6,592,543 | ||||||||||
| Rest of World | - | 3,325,128 | - | - | 3,325,128 | |||||||||||||||
| Revenues | $ | 817,268 | $ | 3,325,128 | $ | 2,183,644 | $ | 3,591,631 | $ | 9,917,671 | ||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| United States | $ | 285,004 | $ | - | $ | 2,130,713 | $ | - | $ | 2,415,717 | ||||||||||
| Rest of World | - | 2,524,547 | - | - | 2,524,547 | |||||||||||||||
| Revenues | $ | 285,004 | $ | 2,524,547 | $ | 2,130,713 | $ | - | $ | 4,940,264 | ||||||||||
The Company does not have material tangible long-lived assets in foreign jurisdictions.
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The Company’s Sports Gaming Client Services and Affiliate Marketing Services – International segments derive a significant portion of their revenues from several large customers. The table below presents the percentage of consolidated revenues derived from large customers:
Schedule of Percentage of Consolidated Revenues Derived from Large Customers
| September 30, 2023 |
September 30, 2022 |
|||||||
| Customer A | 15 | % | 39 | % | ||||
| Customer B | 14 | % | 4 | % | ||||
| Customer C | 7 | % | 15 | % | ||||
Note 14 - Revenue Recognition
The Company combines its revenue into the following categories:
Schedule of Revenue Recognition
| For the three months ended September 30, 2023 | Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services | SportsHub Gaming Network | Total | |||||||||||||||
| Software-as-a-service | $ | 74,554 | $ | - | $ | 420,100 | $ | - | $ | 494,654 | ||||||||||
| Fee revenue | - | - | - | 1,425,939 | 1,425,939 | |||||||||||||||
| Services and other | 157,367 | 1,191,964 | - | - | 1,349,331 | |||||||||||||||
| Total | $ | 231,921 | $ | 1,191,964 | $ | 420,100 | $ | 1,425,939 | $ | 3,269,924 | ||||||||||
| For the three months ended September 30, 2022 | Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services | SportsHub Gaming Network | Total | |||||||||||||||
| Software-as-a-service | $ | 111,227 | $ | - | $ | 417,117 | $ | - | $ | 528,344 | ||||||||||
| Fee revenue | - | - | - | - | - | |||||||||||||||
| Services and other | 3,745 | 760,585 | - | - | 764,330 | |||||||||||||||
| Total | $ | 114,972 | $ | 760,585 | $ | 417,117 | $ | - | $ | 1,292,674 | ||||||||||
| For the nine months ended September 30, 2023 | Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services | SportsHub Gaming Network | Total | |||||||||||||||
| Software-as-a-service | $ | 216,778 | $ | - | $ | 2,183,644 | $ | - | $ | 2,400,422 | ||||||||||
| Fee revenue | - | - | - | 3,591,631 | 3,591,631 | |||||||||||||||
| Services and other | 600,490 | 3,325,128 | - | - | 3,925,618 | |||||||||||||||
| Total | $ | 817,268 | $ | 3,325,128 | $ | 2,183,644 | $ | 3,591,631 | $ | 9,917,671 | ||||||||||
| For the nine months ended September 30, 2022 | Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services | SportsHub Gaming Network | Total | |||||||||||||||
| Software-as-a-service | $ | 281,259 | $ | - | $ | 2,130,713 | $ | - | $ | 2,411,972 | ||||||||||
| Fee revenue | - | - | - | - | - | |||||||||||||||
| Services and other | 3,745 | 2,524,547 | - | - | 2,528,292 | |||||||||||||||
| Total | $ | 285,004 | $ | 2,524,547 | $ | 2,130,713 | $ | - | $ | 4,940,264 | ||||||||||
The Company’s license contracts contain promises to transfer multiple products to the customer. Judgment is required to determine whether each product is considered to be a distinct performance obligation that should be accounted for separately under the contract. We have elected to utilize the “right to invoice” practical expedient under ASC 606 which allows us to recognize revenue for our performance under the contract for the value which we have provided to the customer during a period of time in our contract with them.
Determining whether licenses are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as the Company’s license arrangements, the Company has concluded that the individual licenses are distinct from each other. In others, like the Company’s SaaS arrangements, the software development and final product are not distinct from each other because they are highly integrated and therefore the Company has concluded that these promised goods are a single, combined performance obligation.
The Company is required to estimate the total consideration expected to be received from contracts with customers. In certain circumstances, the consideration expected to be received is fixed based on the specific terms of the contract or based on the Company’s expectations of the term of the contract. The Company has not experienced significant returns from or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.
The Company follows a five-step model to assess each sale to a customer; identify the legally binding contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and determine whether revenue will be recognized at a point in time or over time. Revenue recognized point in time and over time is presented by period below:
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For the three months ended September 30, 2023:
Schedule of Revenue Recognized Point in Time and Over Time
| Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services |
SportsHub Gaming Network |
Total | ||||||||||||||||
| Point in time | $ | 157,367 | $ | 1,191,964 | $ | - | $ | 360,088 | $ | 1,709,419 | ||||||||||
| Over time | 74,554 | - | 420,100 | 1,065,851 | 1,560,505 | |||||||||||||||
| Total | $ | 231,921 | $ | 1,191,964 | $ | 420,100 | $ | 1,425,939 | $ | 3,269,924 | ||||||||||
For the three months ended September 30, 2022:
| Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services |
SportsHub Gaming Network |
Total | ||||||||||||||||
| Point in time | $ | 3,745 | $ | 760,585 | $ | - | $ | - | $ | 764,330 | ||||||||||
| Over time | 111,227 | - | 417,117 | - | $ | 528,344 | ||||||||||||||
| Total | $ | 114,972 | $ | 760,585 | $ | 417,117 | $ | - | $ | 1,292,674 | ||||||||||
For the nine months ended September 30, 2023:
| Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services |
SportsHub Gaming Network |
Total | ||||||||||||||||
| Point in time | $ | 600,490 | $ | 3,325,128 | $ | - | $ | 1,031,113 | $ | 4,956,731 | ||||||||||
| Over time | 216,778 | - | 2,183,644 | 2,560,518 | 4,960,940 | |||||||||||||||
| Total | $ | 817,268 | $ | 3,325,128 | $ | 2,183,644 | $ | 3,591,631 | $ | 9,917,671 | ||||||||||
For the nine months ended September 30, 2022:
| Affiliate Marketing Services - U.S. | Affiliate Marketing Services - International | Sports Gaming Client Services |
SportsHub Gaming Network |
Total | ||||||||||||||||
| Point in time | $ | 3,745 | $ | 2,524,547 | $ | - | $ | - | $ | 2,528,292 | ||||||||||
| Over time | 281,259 | - | 2,130,713 | - | $ | 2,411,972 | ||||||||||||||
| Total | $ | 285,004 | $ | 2,524,547 | $ | 2,130,713 | $ | - | $ | 4,940,264 | ||||||||||
The Company’s assets and liabilities related to its contracts with customers were as follows:
Schedule of Contract Assets and Liabilities
| September 30, 2023 |
December 31, 2022 |
|||||||
| Accounts receivable | $ | 1,394,340 | $ | 776,530 | ||||
| Unbilled revenue | 128,879 | 47,000 | ||||||
| Contract assets | 99,410 | 219,116 | ||||||
| Contract liabilities | (8,448,201 | ) | (2,166,451 | ) | ||||
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in contract advanced billings on the Company’s consolidated balance sheet. The Company has an enforceable right to payment upon invoicing and records contract liabilities when revenue is recognized subsequent to invoicing. The Company recognized unbilled revenue when revenue is recognized prior to invoicing.
The Company recognized contract assets related to direct costs incurred to fulfil the contracts. These costs are primarily labor costs associated with the development of the software. The Company defers these costs and amortizes them into cost of revenues over the period revenues are recognized.
The activity in the contract assets for the nine months ended September 30, 2023 is as follows:
Schedule of Contract Assets
| Amount | ||||
| Balance as of December 31, 2022 | $ | 219,116 | ||
| Labor costs expensed | (577,956 | ) | ||
| Labor costs deferred | 458,250 | |||
| Balance as of September 30, 2023 | $ | 99,410 | ||
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The Company recognizes contract liabilities for cash received from its users prior to recognition of revenue to fulfil its contracts. The payments received are primarily from the Company’s operation of its own online gaming business. The Company defers the revenue and recognizes it throughout the online game’s respective season.
The activity in the contract liabilities for the nine months ended September 30, 2023 is as follows:
Schedule of Contract Liabilities
| Amount | ||||
| Balance as of December 31, 2022 | $ | (2,166,451 | ) | |
| Revenue recognized or reclassified | 10,374,078 | |||
| Deferred revenue | (16,655,828 | ) | ||
| Balance as of September 30, 2023 | $ | (8,448,201 | ) | |
All contract liabilities at September 30, 2023 and December 31, 2022 were recognized as revenue or expected to be recognized within the next fiscal year. All other activity in contract liabilities is due to the timing of invoices in relation to the timing of revenue as described above.
Contracted but unsatisfied performance obligations were approximately $410,110 and $850,000 as of September 30, 2023 and December 31, 2022, respectively, of which the Company expects to recognize the entire amount in revenue over the next year.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.
The Company had three customers that accounted for approximately 36% of revenue for the nine months ended September 30, 2023. There was $451,035 due from these customers at September 30, 2023.
The Company had three customers that accounted for approximately 59% of revenue for the nine months ended September 30, 2022. There was $322,085 due from these customers at September 30, 2022.
Note 15 – Income Taxes
On a quarterly basis, we estimate our annual effective tax rate and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. The effective tax rate for the nine-month period ended September 30, 2023 was (0.32%); and for the nine-month period ended September 30, 2022, it was (0.01)%.
Note 16 – 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.
In June 2022, the Company’s board of directors authorized management to enter into negotiations to sell MTS. The Company negotiated a Share and Asset Purchase Agreement which was closed on December 31, 2022. The majority of the assets of the primary reporting unit within MTS were sold. The assets and liabilities remaining post transaction are in the process of winding down subsequent to the year ended 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, 2023 and December 31, 2022. The results of operations and cash flows of MTS for all periods are separately reported as discontinued operations.
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Prior to the sale of MTS on December 31, 2022, the Enterprise TEM operating segment’s performance obligations are satisfied either overtime (managed services and maintenance) or at a point in time (software licenses). Professional services rendered after implementation are recognized as performed. Software license revenue is recognized when the customer has access to the license and the right to use and benefit from the license. Many of the Enterprise TEM operating segment’s agreements include software license bundled with maintenance and supports. The Company allocates the transaction price for each contract to each performance obligation identified in the contract based on the relative standalone selling price (SSP). The Company determines SSP for the purposes of allocating the transaction price to each performance obligation by considering several external and internal factors including, but not limited to, transactions where the specific element sold separately, historical actual pricing practices in accordance with ASC 606, Revenues from Contracts with Customers. The determination of SSP requires the exercise of judgement. For maintenance and support, the Company determines the SSP based on the price at which the Company sells a renewal contract.
A reconciliation of the major classes of line items constituting the loss from discontinued operations, net of income taxes as presented in the condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022 (unaudited) is summarized in the table below.
Summary Reconciliation of Discontinued Operations
Summary Reconciliation of Discontinued Operations
|
Three months ended September 30, |
Three months ended September 30, |
Nine months ended September 30, |
Nine months ended September 30, |
|||||||||||||
| Revenues | $ | - | $ | 862,239 | $ | - | $ | 2,732,069 | ||||||||
| Cost of Revenues | 3,500 | 435,896 | 10,500 | 1,480,072 | ||||||||||||
| Gross (Loss) Profit | (3,500 | ) | 426,343 | (10,500 | ) | 1,251,997 | ||||||||||
| Operating Expenses | ||||||||||||||||
| Selling, general, and administrative expenses | 139,000 | 548,435 | 416,997 | 1,391,726 | ||||||||||||
| Goodwill and intangible asset impairment expense | - | - | - | 1,224,671 | ||||||||||||
| Total operating expenses | 139,000 | 548,435 | 416,997 | 2,616,397 | ||||||||||||
| Operating Loss | (142,500 | ) | (122,092 | ) | (427,497 | ) | (1,364,400 | ) | ||||||||
| Other Income and Expense | (3,500 | ) | 20,459 | (10,500 | ) | 8,114 | ||||||||||
| Total other income and expense | (3,500 | ) | 20,459 | (10,500 | ) | 8,114 | ||||||||||
| Loss Before Income Taxes | (146,000 | ) | (101,633 | ) | (437,997 | ) | (1,356,286 | ) | ||||||||
| Provision for income tax expenses | 2,000 | 3,000 | 4,000 | 4,000 | ||||||||||||
| Loss from discontinued operations | $ | (148,000 | ) | $ | (104,633 | ) | $ | (441,997 | ) | (1,360,286 | ) | |||||
The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the Company classified as discontinued operations as of September 30, 2023 (unaudited) and December 31, 2022:
Schedule of Major Classes of Assets and Liabilities
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|
| September 30, 2023 |
December 31, 2022 |
|||||||
| (Unaudited) | ||||||||
| Carrying amounts of major classes of assets included as part of discontinued operations: | ||||||||
| Current Assets | ||||||||
| Cash | $ | 153,000 | $ | 648,000 | ||||
| Accounts receivable, net of allowance | 69,000 | 191,000 | ||||||
| Prepaid expenses and other current assets | 164,000 | 187,000 | ||||||
| Equipment, net | 3,000 | 5,000 | ||||||
| Other Assets | - | 279,000 | ||||||
| Total current assets | $ | 389,000 | $ | 1,310,000 | ||||
| September 30, 2023 |
December 31, 2022 |
|||||||
| (Unaudited) | ||||||||
| Carrying amounts of major classes of liability included as part of discontinued operations: | ||||||||
| Current Liabilities | ||||||||
| Accrued expenses | $ | 82,100 | $ | 374,879 | ||||
| Contract liabilities | 3,000 | 2,000 | ||||||
| Other current liabilities | 736,398 | 838,274 | ||||||
| Total current liabilities | $ | 821,498 | $ | 1,215,153 | ||||
Schedule of Loss Per Share and Weighted-average
| Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss from continuing operations | $ | (2,701,547 | ) | $ | (1,942,974 | ) | $ | (8,672,446 | ) | $ | (12,542,782 | ) | ||||
| Less: deemed dividends on Series B preferred stock | - | - | (48,633 | ) | - | |||||||||||
| Less: dividends on series B preferred stock | (213 | ) | (2,247 | ) | (1,861 | ) | (8,088 | ) | ||||||||
| Net loss from continuing operations available to ordinary shareholders | (2,701,760 | ) | (1,945,221 | ) | (8,722,940 | ) | (12,550,870 | ) | ||||||||
| Net income (loss) from discontinued operations, net of tax, available to ordinary shareholders | (148,000 | ) | (104,633 | ) | (441,997 | ) | (1,360,286 | ) | ||||||||
| Net loss available to ordinary shareholders | $ | (2,849,760 | ) | $ | (2,049,854 | ) | $ | (9,164,937 | ) | $ | (13,911,156 | ) | ||||
| Basic and diluted weighted-average shares outstanding | 2,863,607 | 2,361,974 | 2,736,583 | 2,361,974 | ||||||||||||
| Basic and diluted: | ||||||||||||||||
| Net loss from continuing operations per share | $ | (0.94 | ) | $ | (0.82 | ) | $ | (3.19 | ) | $ | (5.31 | ) | ||||
| Net income (loss) from discontinued operations per share | (0.05 | ) | (0.04 | ) | (0.16 | ) | (0.58 | ) | ||||||||
| Net loss per share | $ | (0.99 | ) | $ | (0.86 | ) | $ | (3.35 | ) | $ | (5.89 | ) | ||||
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The redeemable Series B convertible preferred stock is a participating security, whereby if a dividend is declared to the holders of ordinary shares, the holders of preferred stock would participate to the same extent as if they had converted the preferred stock to ordinary shares.
For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding:
Schedule of Computation of Diluted Shares Outstanding
| September 30, 2023 |
September 30, 2022 |
|||||||
| Stock options | 450,696 | 258,412 | ||||||
| Series A-1 preferred stock | 7,202 | 6,131 | ||||||
| Series B preferred stock | 12,481 | 12,481 | ||||||
| SportsHub warrants | 3,015 | - | ||||||
| Prefunded warrants | - | 125,359 | ||||||
| MTS warrants | 8,333 | 8,333 | ||||||
| Purchase warrants | 880,000 | - | ||||||
| Regular warrants | 266,667 | 266,667 | ||||||
| Total | 1,628,394 | 677,383 | ||||||
Note 18 – Related Party Transactions
The Company uses Brown & Brown (“Brown”) as an insurance broker. Brown is considered a related party as an executive of Brown serves on the board of directors for the Company. The Company paid $700,975 and $921,640 for the nine months ending September 30, 2023 and 2022, respectively for insurance coverage brokered by Brown. The Company’s director earned no commissions for the placement of these policies.
The Company leases office space in Canton, Connecticut from CJEM, LLC, which is owned by an officer and director of the Company. The Company paid rent expense of $28,800 for the nine months ended September 30, 2023 and 2022 related to this lease.
Note 19 – Subsequent Events
The Company performed an evaluation of subsequent events for potential recognition and disclosure past the date of the financial statements’ issuance.
Pending Domestication Merger
On June 14, 2023, the Company (or “SharpLink Israel”), SharpLink Gaming, Inc., a Delaware corporation and a wholly owned subsidiary of SharpLink Israel (“SharpLink US”), and SharpLink Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of SharpLink US (“Domestication Merger Sub”), entered into an Agreement and Plan of Merger and Reorganization (as amended July 24, 2023, the “Domestication Merger Agreement”), pursuant to which Domestication Merger Sub will be merged with and into SharpLink Israel, with SharpLink Israel being the surviving entity and continuing as a wholly owned subsidiary of SharpLink US (the “Domestication Merger”).
Under the Domestication Merger Agreement, SharpLink Israel will become a wholly owned subsidiary of a Delaware corporation by the Domestication Merger Sub merging with and into SharpLink Israel, with SharpLink Israel surviving the Domestication Merger and becoming a wholly owned subsidiary of SharpLink US. In connection with the Domestication Merger, all SharpLink Israel ordinary shares, par value NIS 0.60 per share (the “SharpLink Israel Shares”), outstanding immediately prior to the Domestication Merger will convert, on a one-for-one basis, into the right to receive, and become exchangeable for, shares of common stock of SharpLink US, par value $0.0001 per share (the “SharpLink US Common Stock”), and all preferred shares, options and warrants of SharpLink Israel outstanding immediately prior to the Domestication Merger will be converted into or exchanged for equivalent securities of SharpLink US. The Debenture issued to Alpha on February 15, 2023, convertible into SharpLink Israel Shares, will be convertible into shares of SharpLink US Common Stock at the same price and on the same other terms and any interest paid thereunder in shares will be paid in SharpLink US Common Stock. By virtue of the Domestication Merger, all of the SharpLink Israel Shares and SharpLink Israel Preferred Shares shall represent the right to receive the applicable SharpLink US Common Stock and Preferred Stock, shall be deemed to have been transferred to SharpLink US in exchange for the right to receive such applicable SharpLink US Common Stock and Preferred Stock, and each holder of a certificate or of evidence of shares in book-entry account, representing any certificated or non-certificated SharpLink Israel Shares or SharpLink Israel Preferred Shares, shall cease to have any rights with respect thereto, except the right to receive the applicable SharpLink US Common Stock and Preferred Stock.
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The proxy statement/registration statement on Form S-4 (file number: 333-272655), as amended, was originally filed with the SEC by SharpLink Israel and SharpLink US on June 15, 2023, and declared effective by the SEC on October 23, 2023. SharpLink Israel’s Board of Directors has set October 30, 2023 as the record date for shareholders to vote, by proxy or in person, on approving and adopting the Domestication Merger Agreement and the transactions contemplated therein at an Extraordinary General Meeting of Shareholders that will be held on November 29, 2023 at 11:00 A.M. Central time at the Company’s corporate office located at 333 Washington Avenue North, Suite 104, Minneapolis, Minnesota 55401.
Change in Share Capital
On October 24, 2023, the Company held an Extraordinary General Meeting of Shareholders (the “Meeting”) at which shareholders approved the adoption of an amendment to the Company’s amended and restated articles of association to increase authorized share capital of the Company from 9,290,000 Ordinary Shares, nominal value NIS 0.60 per share, to 100,000,000 Ordinary Shares, nominal value NIS 0.60 per share and a corresponding amendment to the Company’s memorandum of association.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of SharpLink Gaming Ltd., an Israel corporation, and its wholly owned subsidiaries (collectively, “SharpLink Gaming,” “SharpLink,” “our Company,” the “Company,” “we,” “our,” and “us”), highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our 2022 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on April 5, 2023 and the related Annual Report, as amended, filed with the SEC on July 14, 2023. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
Overview
Founded in 2019 and headquartered in Minneapolis, Minnesota, SharpLink Gaming Ltd. is a leading business-to-business provider of performance marketing and advanced technology-enabled fan engagement and conversion solutions for the fast emerging U.S. sports betting and iGaming industries. Our base of marquis customers and trusted business partners comprise many of the nation’s leading sports media publishers, leagues, teams, sportsbook operators, casinos and sports technology companies, including Turner Sports, NASCAR, PGA TOUR, National Basketball Association (“NBA”), National Collegiate Athletic Association (“NCAA”), NBC Sports, BetMGM, Party Poker, World Poker Tour and Tipico, among numerous others.
We continue to make deliberate and substantial investments in support of our long-term growth objectives. Our primary growth strategy is centered on cost effectively monetizing our own 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. We are endeavoring to achieve this through deployment of our proprietary conversion technologies, branded as our “C4” solutions, which are seamlessly integrated with fun, highly engaging fan experiences. Purpose-built from the ground-up specifically for the U.S. market, SharpLink’s C4 innovations are designed to help unlock the lifetime value of sports bettors and online casino players. More specifically, C4:
| ● | COLLECTS, analyzes and leverages deep learning of behavioral data relating to individual fans; | |
| ● | CONNECTS and controls fan engagement with real-time, personalized betting offers sourced from U.S. sportsbooks and casinos in states where online betting has been legalized; | |
| ● | CONVERTS passive fantasy sports and casual sports fans into sports bettors on a fully automated basis; and | |
| ● | readily enables gaming operators and publishers to CAPITALIZE on acquiring and scaling sports betting and iGaming depositors, resulting in higher revenue generation and greatly enhanced user experiences. |
We reach fans and cultivate audience growth and activation through our four primary operating segments: 1) Sports Gaming Client Services; 2) SportsHub Games Network/Fantasy Sports; 3) Affiliate Marketing Services – International; and 4) Affiliate Marketing Services – United States.
The Company previously owned and operated an enterprise telecom expense management business (“Enterprise TEM”) acquired in July 2021 in connection with SharpLink’s go-public merger with Mer Telemanagement Solutions. Beginning in 2022, we discontinued operations for this business unit and sought a buyer for the business. On December 31, 2022, we completed the sale of this business to Israel-based Entrypoint South Ltd.
SharpLink is guided by an accomplished, entrepreneurial leadership team of industry veterans and pioneers encompassing decades of experience in delivering innovative sports solutions to partners that have included Turner Sports, Google, Facebook, the National Football League (“NFL”), NCAA and NBA, among many other iconic organizations, with executive experience at companies which include ESPN, NBC, Sportradar, AOL, Betfair and others.
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As of September 30, 2023, the Company’s state regulatory initiatives have resulted in SharpLink being licensed and/or authorized to operate in 26 U.S. states, the District of Columbia, Puerto Rico and Ontario, Canada, which represents most of the legal online betting market in North America.
By leveraging our technology and building on our current client and industry relationships, SharpLink believes we are well positioned to earn a leadership position in the rapidly evolving sports betting and iGaming markets by driving down customer acquisition costs, materially increasing and enhancing player engagement and delivering users with high lifetime value to our proprietary web properties and to those of our gaming partners.
Nasdaq Notice
On May 23, 2023, SharpLink received a notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) stating that SharpLink is no longer in compliance with the equity standard for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500,000 under the net equity standard. As of SharpLink Quarterly Report on Form 10-Q for the three and nine-month periods ended September 30, 2023, SharpLink reported an accumulated stockholders’ deficit of $82,728,717 and total stockholders’ deficit of $4,463,917 respectively. SharpLink currently does not meet the alternative standards for market value of listed securities or net income from continuing operations, thus SharpLink is not in compliance with Nasdaq’s Listing Rule.
Nasdaq provided the Company with 45 calendar days, or until July 7, 2023, to submit a plan to regain compliance. The Company timely submitted its plan and relevant materials to Nasdaq and requested an extension through November 20, 2023 to evidence compliance with the Rule. On August 3, 2023, the Company received a determination letter (the “Letter”) from Nasdaq advising it that Nasdaq determined to grant the Company an extension to regain compliance with the Rule on or before November 20, 2023. The terms of the extension are as follows: on or before November 20, 2023, the Company must take the actions set forth in the plan and opt for one of the two alternatives to evidence compliance with the Rule.
Regardless of which alternative the Company chooses, if the Company fails to evidence compliance upon filing its periodic report for the year ended December 31, 2023, with the SEC and Nasdaq, the Company may receive a written notification from Staff that its securities will be delisted. At that time, the Company may appeal Staff’s determination to a Hearings Panel.
Pending Domestication Merger
On June 14, 2023, the Company (or “SharpLink Israel”), SharpLink Gaming, Inc., a Delaware corporation and a wholly owned subsidiary of SharpLink Israel (“SharpLink US”), and SharpLink Merger Sub Ltd., an Israeli company and a wholly owned subsidiary of SharpLink US (“Domestication Merger Sub”), entered into an Agreement and Plan of Merger and Reorganization (as amended July 24, 2023, the “Domestication Merger Agreement”), pursuant to which Domestication Merger Sub will be merged with and into SharpLink Israel, with SharpLink Israel being the surviving entity and continuing a wholly owned subsidiary of SharpLink US (the “Domestication Merger”).
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Under the Domestication Merger Agreement, SharpLink Israel will become a wholly owned subsidiary of a Delaware corporation by the Domestication Merger Sub merging with and into SharpLink Israel, with SharpLink Israel surviving the Domestication Merger and becoming a wholly owned subsidiary of SharpLink US. In connection with the Domestication Merger, all SharpLink Israel ordinary shares, par value NIS 0.60 per share (the “SharpLink Israel Shares”), outstanding immediately prior to the Domestication Merger will convert, on a one-for-one basis, into the right to receive, and become exchangeable for, shares of common stock of SharpLink US, par value $0.0001 per share (the “SharpLink US Common Stock”), and all preferred shares, options and warrants of SharpLink Israel outstanding immediately prior to the Domestication Merger will be converted into or exchanged for equivalent securities of SharpLink US. The 8% Interest Rate, 10% Original Issue Discount, Senior Convertible Debenture in the aggregate principal amount of $4,400,000 (as amended, the “Debenture”) issued to Alpha Capital Anstalt (“Alpha”) on February 15, 2023, convertible into SharpLink Israel Shares, will be convertible into shares of SharpLink US Common Stock at the same price and on the same other terms and any interest paid thereunder in shares will be paid in SharpLink US Common Stock. By virtue of the Domestication Merger, all of the SharpLink Israel Shares and SharpLink Israel Preferred Shares shall represent the right to receive the applicable SharpLink US Common Stock and Preferred Stock, shall be deemed to have been transferred to SharpLink US in exchange for the right to receive such applicable SharpLink US Common Stock and Preferred Stock, and each holder of a certificate or of evidence of shares in book-entry account, representing any certificated or non-certificated SharpLink Israel Shares or SharpLink Israel Preferred Shares, shall cease to have any rights with respect thereto, except the right to receive the applicable SharpLink US Common Stock and Preferred Stock.
The proxy statement/registration statement on Form S-4 (file number: 333-272655), as amended, was originally filed with the SEC by SharpLink Israel and SharpLink US on June 15, 2023, and declared effective by the SEC on October 23, 2023. SharpLink Israel’s Board of Directors has set October 30, 2023 as the record date for shareholders to vote, by proxy or in person, on approving and adopting the Domestication Merger Agreement and the transactions contemplated therein at an Extraordinary General Meeting of Shareholders that will be held on November 29, 2023 at 11:00 A.M. Central time at the Company’s corporate office located at 333 Washington Avenue North, Suite 104, Minneapolis, Minnesota 55401.
Change in Share Capital
On October 24, 2023, the Company held an Extraordinary General Meeting of Shareholders (the “Meeting”) at which shareholders approved the adoption of an amendment to the Company’s amended and restated articles of association to increase authorized share capital of the Company from 9,290,000 Ordinary Shares, nominal value NIS 0.60 per share, to 100,000,000 Ordinary Shares, nominal value NIS 0.60 per share and a corresponding amendment to the Company’s memorandum of association.
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Three and Nine Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenues | $ | 3,269,924 | $ | 1,292,674 | $ | 1,977,250 | 153.0 | % | ||||||||
| Cost of Revenues | 2,133,604 | 1,104,695 | 1,028,909 | 93.1 | % | |||||||||||
| Gross profit | 1,136,320 | 187,979 | 948,341 | 504.5 | % | |||||||||||
| Gross profit percentage | 34.8 | % | 14.5 | % | ||||||||||||
| Total operating expenses | 3,595,072 | 2,105,178 | 1,489,894 | 70.8 | % | |||||||||||
| Operating loss from continuing operations | (2,458,752 | ) | (1,917,199 | ) | (541,553 | ) | 28.2 | % | ||||||||
| Total other income (expenses) | (238,345 | ) | (25,475 | ) | (212,870 | ) | 835.6 | % | ||||||||
| Net loss before income taxes | (2,697,097 | ) | (1,942,674 | ) | (754,423 | ) | 38.8 | % | ||||||||
| Provision for income taxes | 4,450 | 300 | 4,150 | 1383.3 | % | |||||||||||
| Net loss from continuing operations | (2,701,547 | ) | (1,942,974 | ) | (758,573 | ) | 39.0 | % | ||||||||
| Net income (loss) from discontinued ops, net of tax | (148,000 | ) | (104,633 | ) | (43,367 | ) | 41.49 | % | ||||||||
| Net loss | $ | (2,849,547 | ) | $ | (2,047,607 | ) | $ | (801,940 | ) | 39.2 | % | |||||
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenues | $ | 9,917,671 | $ | 4,940,264 | $ | 4,977,407 | 100.8 | % | ||||||||
| Cost of Revenues | 6,472,399 | 4,034,837 | 2,437,562 | 60.4 | % | |||||||||||
| Gross profit | 3,445,272 | 905,427 | 2,539,845 | 280.5 | % | |||||||||||
| Gross profit percentage | 34.7 | % | 18.3 | % | ||||||||||||
| Total operating expenses | 11,014,991 | 13,390,818 | (2,375,827 | ) | -17.7 | % | ||||||||||
| Operating loss from continuing operations | (7,569,719 | ) | (12,485,391 | ) | 4,915,672 | -39.4 | % | |||||||||
| Total other income (expenses) | (1,061,127 | ) | (56,391 | ) | (1,004,736 | ) | 1781.7 | % | ||||||||
| Net loss before income taxes | (8,630,846 | ) | (12,541,782 | ) | 3,910,936 | -31.2 | % | |||||||||
| Provision for income taxes | 41,600 | 1,000 | 40,600 | 4060.0 | % | |||||||||||
| Net loss from continuing operations | (8,672,446 | ) | (12,542,782 | ) | 3,870,336 | -30.9 | % | |||||||||
| Net income (loss) from discontinued ops, net of tax | (441,997 | ) | (1,360,286 | ) | 918,289 | -67.5 | % | |||||||||
| Net loss | $ | (9,114,443 | ) | $ | (13,903,068 | ) | $ | 4,788,625 | -34.4 | % | ||||||
Revenues
For the three-month periods ended September 30, 2023 and 2022, revenues climbed 153% to $3,269,924 from $1,292,674, respectively, due primarily to revenue contribution from SportsHub Games Network Inc. (“SportsHub”), which was merged with SharpLink on December 22, 2022, coupled with revenue growth in all other SharpLink’s business units. More specifically, revenues from our Affiliate Marketing Services – United States business unit increased to $231,921 from $114,972 on a comparable quarter-over-quarter basis. Likewise, revenue from our Affiliate Marketing Services – International business unit totaled $1,191,964 for the three months ended September 30, 2023, which compared to $760,585 for the same three months in the prior year. Revenues from the development of free-to-play games by our Sports Gaming Client Services saw a modest improvement, increasing to $420,100 from $417,117 for the three months ended September 30, 2023 and 2022, respectively.
For the same reasons mentioned above, total revenues for the nine months ended September 30 2023 and 2022 more than doubled, increasing 101% to $9,917,671 from $4,940,264, respectively. On a segmented basis, nine-month revenues from our Affiliate Marketing Services – United States business unit totaled $817,268 in 2023 which compared to $285,004 for the same nine-month reporting period in 2022. Total revenues from our Affiliate Marketing Services – International business unit rose to $3,325,128 compared to $2,524,547 for the nine months ended September 30, 2023 and 2022, respectively. Our Sports Gaming Client Services group contributed $2,183,644 towards total revenues for the nine-months ended September 30, 2023, up from $2,130,713 reported for the nine months ended September 30, 2022. Revenues from SportsHub totaled $3,591,631 for the first nine months of 2023, which compared to $0 for the same period in 2022 due to the timing of the merger in December 2022.
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Gross Profit
Gross profit for the three and nine months ended September 30, 2023 and 2022, improved significantly, rising to $1,136,320, increasing 505% from $187,979 for the comparable three-month reporting periods, respectively; and increasing 281% to $3,445,272 compared to $905,427 for the nine months ended September 30, 2023 and 2022, respectively. Gross profit margin for the three months ended September 30, 2023 improved to 35%, which compared to 15% for the same three months in 2022; and gross profit margin increased to 35% from 18% for the nine months ended September 30, 2023 and 2022, respectively.
Operating Expenses
For the three months ended September 30, 2023, total operating expenses increased 71% to $3,595,072, up from $2,105,178 for the three months ended September 30, 2022. The increase was attributable solely to higher selling, general and administrative expenses attributable primarily to our December 2022 merger with SportsHub as well as expansion initiatives associated with our Affiliate Marketing Services business units. For the nine months ended September 30, 2023 and 2022, operating expenses declined 18% to $11,014,991 from $13,390,818 due largely to a goodwill and intangible asset impairment expense of $4,726,000 recorded in the nine-month period ended September 30, 2022.
Operating Loss from Continuing Operations
Operating loss increased 28% to $2,458,752 for the three months ended September 30, 2023 compared to an operating loss of $1,917,199 for the three-month period ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, operating loss decreased 39% to $7,569,719 from $12,485,391, respectively, due largely to a goodwill and intangible asset impairment expense of $4,726,000 booked in the nine-month period ended September 30, 2022.
Net Loss from Continuing Operations
For the reasons detailed above and after factoring in an expense in total other income and expense of $238,345 and provision for income taxes of $4,450, net loss from continuing operations for the three months ended September 30, 2023 totaled $2,701,547, a 39% increase from $1,942,974 reported for the same three months in the prior year after factoring total other income and expense of $25,475 and provision for income taxes of $300.
For the nine months ended September 30, 2023, the Company’s net loss from continuing operations improved 31%, declining to $8,672,446 after factoring an expense of $1,061,127 in total other income and expense and provision for income taxes of $41,600. This compared to a net loss from continuing operations of $12,542,782 for the nine months ended September 30, 2022 after factoring $56,391 in total other expense and a provision for income taxes of $1,000.
During the three- and nine-month reporting periods in 2023, total other income and expense was largely attributable to interest and other expenses associated with the Company’s bank lines of credit, coupled with accounting for the change in fair value of its convertible debenture offset by higher interest income earned on its cash on hand.
Net Income (Loss) from Discontinued Operations
Net loss from discontinued operations of SharpLink’s legacy MTS business increased to $148,000 for the three months ended September 30, 2023, which compared to a net loss from discontinued operations of $104,633 for the three months ended September 30, 2023. For the nine months ended September 30, 2023, net loss from discontinued operations of the legacy MTS business totaled $441,997, down 68% from $1,360,286 reported for the same nine months in 2022.
Net Loss Available to Ordinary Shareholders
For all of the aforementioned reasons, the total net loss available to ordinary shareholders increased 39% to $2,849,760, or $0.99 loss per share, which compared to a net loss attributable to shareholders of $2,049,854 or $0.86 loss per share, for the same three months in 2022. For the nine months ended September 30, 2023, the total net loss available to ordinary shareholders was $9,164,937, or $3.35 loss per share, reflecting a 34% decline when compared to a total net loss attributable to shareholders of $13,911,156, or $5.89 loss per share, reported for the comparable nine-month period in the previous year.
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Cash Flows
As of September 30, 2023, the Company had $49,309,668 in cash and $14,874,585 in restricted cash, as compared to cash of $39,324,529 and restricted cash of $11,132,957 as of December 31, 2022. For the nine months ended September 30, 2023, cash provided by operations from continuing activities was $6,266,211, which compared to cash used in operations from continuing activities of $6,376,631 for the first nine months ended September 30, 2022. The increase in cash and in restricted cash was primarily attributable to fantasy sports league entry fees collected for the 2023-2024 NFL season as well as entry fees for the 2023 MLB season, offset by payouts for fantasy sports prizes following the end of the 2022-2023 NFL season that occurred in January in addition to normal working capital spend.
For the nine months ended September 30, 2023, cash used in investing activities from continuing operations was $844,350, which compared to $593,385 for the nine months ended September 30, 2022. The increase in cash used in investing activities was largely attributable to an increase in capital expenditures associated with ongoing development of our C4 sports betting conversion technology and new generative Artificial Intelligence solution, Betsense, in 2023, as well as payments related to the acquisition of FourCubed in 2022.
For the nine months ended September 30, 2023, cash provided by financing activities was $7,862,906, as compared to cash provided by financing activities of $2,765,497 recorded for the nine months ended September 30, 2022. In February 2023, a securities purchase agreement entered into with a current shareholder of the Company, pursuant to which the Company issued the investor a convertible debenture in the aggregate principal amount of $4,400,000 for proceeds of $4,000,000. The Company also drew down $4,629,349 from its line of credit with Platinum Bank in the first nine months of 2023. The overall increase was offset by repayments of debt totaling $758,943 and payments of debt issue costs totaling $7,500 in the 2023 nine-month reporting period.
Liquidity and Capital Resources
We will require additional capital to support our growth plans and such capital may not be available on reasonable terms or at all. There is substantial doubt about our ability to continue as a going concern.
As of September 30, 2023, we had negative working capital of $13,500,173. For the nine months ended September 30, 2023, we incurred a net loss from continuing operations of $8,672,446 representing a 31% decrease from a loss from continuing operations of $12,542,782 for the nine months ended September 30, 2022. In the pursuit of SharpLink’s long-term growth strategy and the development of its fan activation and conversion software and related businesses, the Company has sustained continued operating losses. To fund anticipated future losses from operations, the Company secured additional financing through a $3,250,000 term loan in January 2022, as described in Note 7 - Debt. In addition, as described in Note 6, on February 13, 2023, the Company entered into a Revolving Credit Agreement with Platinum Bank and executed a revolving promissory note of $7,000,000. Moreover, on February 14, 2023, the Company entered into the SPA with Alpha, a current shareholder of the Company, pursuant to which the Company issued to Alpha a convertible debenture in the aggregate principal amount of $4,400,000 for proceeds of $4,000,000.
Until we can generate a sufficient amount of revenue to finance our capital needs, which we may never achieve, we expect to finance our cash needs primarily through public or private equity financings or conventional debt financings. 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 growth 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 planned strategic growth 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.
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Off-Balance Sheet Arrangements
On September 30, 2023, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Since our inception, except for standard operating leases accounted for prior to January 1, 2022, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Inflation
Our opinion is that inflation did not have a material effect on our operations for the nine months ended September 30, 2023.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
New Accounting Pronouncements
There were certain updates recently issued by the Financial Accounting Standards Board (“FASB”), most of which represented technical corrections to the accounting literature or application to specific industries or situations and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure and Control Procedures
The Company’s Chief Executive Officer and the Company’s Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023 and concluded that the Company’s disclosure controls and procedures are effective. The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated, recorded, processed, summarized and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure to be reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the three and nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
Legal Proceedings
None.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
| ITEM 2. | RECENT SALES OF UNREGISTERED EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| Exhibit No. | Description | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer | |
| 32.1 | Section 1350 Certification of principal executive officer | |
| 32.2 | Section 1350 Certification of principal financial officer and principal accounting officer | |
| 101.INS | Inline XBRL INSTANCE DOCUMENT | |
| 101.SCH | Inline XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL | Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| 101.DEF | Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| 101.LAB | Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
| 101.PRE | Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SharpLink Gaming Ltd. | ||
| Dated: November 13, 2023 | By: | /s/ Rob Phythian |
| Rob Phythian | ||
| Chief Executive Officer | ||
| Dated: November 13, 2023 | By: | /s/ Robert DeLucia |
| Robert DeLucia | ||
| Chief Financial Officer | ||
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Exhibit 31.1
CERTIFICATION
I, Rob Phythian, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2023 of SharpLink Gaming Ltd. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 13, 2023 | /s/ Rob Phythian |
| Rob Phythian | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Robert DeLucia, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2023 of SharpLink Gaming Ltd. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 13, 2023 | /s/ Robert DeLucia |
| Robert DeLucia | |
| Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SharpLink Gaming Ltd. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rob Phythian, Chief Executive Officer (Principal Executive Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 13, 2023
| /s Rob Phythian | |
| Rob Phythian | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SharpLink Gaming Ltd. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert DeLucia, Chief Financial Officer (Principal Financial Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 13, 2023
| /s/ Robert DeLucia | |
| Robert DeLucia | |
| Chief Financial Officer (Principal Financial Officer) |