SharpLink Gaming, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 29, 2024. The company is an online performance-based marketing business serving sportsbook and casino operators. FY2023 figures distinguish continuing affiliate-marketing operations from businesses subsequently sold or otherwise discontinued.
Financial performance and position
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Continuing-operations revenue | $4.95 million | $3.49 million | +41.9% |
| Gross profit / margin | $1.53 million / 30.9% | $1.32 million / 37.7% | Profit +16.5%; margin down 6.8 points |
| Operating expenses | $10.43 million | $15.60 million | −33.2% |
| Operating loss | $(8.89) million | $(14.28) million | Loss narrowed 37.7% |
| Net loss from continuing operations | $(11.25) million | $(14.10) million | Loss narrowed 20.2% |
| Net loss, including discontinued operations | $(14.24) million | $(15.23) million | Loss narrowed 6.5% |
| Basic and diluted loss per share | $(5.17) | $(6.13) | — |
- Revenue growth came from U.S. affiliate marketing, which generated $754,446 versus $62,250 in 2022, and international affiliate marketing, which generated $4.20 million versus $3.43 million.
- Gross margin declined as U.S. growth required higher SEO and other marketing costs. Operating expenses fell primarily due to lower selling, general and administrative costs and reduced impairment charges.
- FY2023 continuing operations used $7.91 million in operating cash. Total operating cash flow was positive $582,887, largely because discontinued operations provided $8.49 million. Continuing operations used $286,146 in investing cash; total investing cash use was $1.03 million. Continuing-operations financing provided $9.30 million.
- Cash at year-end was $2.49 million. Working capital was negative $8.14 million, and stockholders’ equity was a deficit of $9.40 million. Reported total liabilities were $80.68 million, including substantial balances classified with discontinued operations.
- At December 31, continuing-operation debt included a $6.35 million line of credit, $2.08 million term loan principal and a $4.40 million reported convertible-debenture balance. The filing reports $1.15 million interest expense and a $1.23 million adverse fair-value change on the debenture in FY2023.
Material changes and significant subsequent events
- In January 2024, SharpLink sold its Sports Gaming Client Services and SportsHub Gaming Network businesses to RSports for $22.5 million cash. Their historical results are presented as discontinued operations. These businesses reported a FY2023 discontinued-operations loss of $2.99 million.
- Following the sale, the company repaid Platinum Bank loans and credit facilities for an aggregate $14.84 million and redeemed Alpha’s debenture for $4.48 million. The filing says these repayments discharged the associated debt. They occurred after the balance-sheet date and do not change FY2023 year-end balances.
- In March 2024, the company agreed to exchange part of Alpha’s warrant-related repurchase obligation for 156,207 common shares and a pre-funded warrant for 469,560 shares; a $260,111 repurchase balance remained subject to the settlement terms.
- In February 2024, the company completed its domestication from Israel to Delaware; its common stock continued trading on Nasdaq under SBET. Nasdaq notified the company that its prior minimum-equity deficiency had been cured after the sale, and the scheduled delisting hearing was cancelled.
Outlook, risks and unusual items
- Going concern: The auditor’s report includes an explanatory paragraph stating recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management says additional capital may be needed and is not assured. The sale and debt repayment occurred after year-end; the filing does not provide a clear quantified post-transaction cash runway or revenue forecast.
- Customer concentration: Management identifies Entain as the largest international customer, representing approximately 38% of that segment’s FY2023 revenue. The contract has a nominal termination notice period; termination could reduce revenue from then-current net gaming revenue rates to approximately one-third. Customer concentration disclosures elsewhere in the filing are not entirely consistent.
- Impairment and customer departure: A major international customer’s expected exit from the European PAS market prompted FY2023 goodwill impairment of $1.62 million and intangible/software impairment; total continuing-operations goodwill and intangible impairment was $2.46 million. The company recorded $4.73 million of such impairment in 2022, largely associated with loss of Russian-market access.
- Strategy and execution: SharpLink discontinued its C4 conversion technology in December 2023 because of inadequate market acceptance. Its continuing strategy centers on international affiliate marketing and U.S. state-specific websites; performance depends on partner relationships, traffic acquisition, competition and expansion of regulated gaming markets.
- Other risks: The filing highlights gaming and advertising regulation, licensing, privacy and cybersecurity, international and geopolitical exposure, seasonality, key-person dependence, potential dilution and the need for financing. Management reported no material cybersecurity incident to date and said disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
- Unusual reporting context: FY2023 results are not a clean picture of the post-sale company: the divested businesses are classified as discontinued operations, and year-end balance-sheet amounts include assets and liabilities of those operations. No specific forward revenue or earnings guidance is provided.
Important facts for investors to verify
- Post-sale cash, remaining obligations and expected cash burn, including the final treatment of Alpha’s $260,111 warrant repurchase balance.
- Whether affiliate-marketing revenue can be sustained after the expected customer exit, and the actual concentration and termination terms for major operator partners.
- Reconciliation of the filing’s customer-concentration percentages and post-sale descriptions of debt repayment and “no interest-bearing debt.”
- Whether U.S. affiliate-marketing growth can improve margins and reduce continuing-operations cash use without additional dilutive financing.
- Any sale-related adjustments, earn-out proceeds from the Legacy MTS disposal, and other material developments disclosed after March 29, 2024.