SharpLink Gaming, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The filing is for SharpLink Gaming, Inc. (Nasdaq: SBET), an online performance-marketing company. Following the January sale of its Sports Gaming Client Services and SportsHub Gaming Network businesses, continuing operations primarily comprise U.S. and international affiliate marketing services. The company completed its redomestication from Israel to Delaware in February 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Continuing-operations revenue | $976,000 | $1.233 million |
| Gross profit / margin | $287,000 / 29.4% | $390,000 / 31.6% |
| Operating loss | $(1.685) million | $(1.655) million |
| Continuing-operations net loss | $(1.761) million | $(2.157) million |
| Net income (loss), including discontinued operations | $12.350 million | $(2.824) million |
| Operating cash used, continuing operations | $2.849 million | $2.549 million |
Revenue fell 20.8% year over year, which management attributed largely to softer market conditions and customer losses. Gross margin declined 2.2 percentage points. Operating expenses decreased 3.6% to $1.972 million; management cited lower costs, including reduced payroll and lower prior-year marketing, editorial and travel spending.
Reported net income included a preliminary $14.671 million gain on the sale of businesses. Discontinued operations generated $14.111 million of net income, versus a $667,000 loss in Q1 2023. The continuing business remained loss-making.
At March 31, cash was $4.014 million, working capital was $2.827 million and total assets were $5.397 million. Total liabilities were $2.544 million and stockholders’ equity was $2.852 million. The company reported no remaining term-loan, line-of-credit or convertible-debenture balance after repaying or redeeming these obligations in January. A $171,000 warrant liability remained. Cash-flow figures include discontinued operations: total operating cash used was $19.295 million, total investing cash used was $18.710 million and total financing cash used was $18.244 million. The filing explains that the business sale involved transfer of substantial cash and related customer-deposit and deferred-revenue obligations.
Material changes and significant transactions
- In January, SharpLink sold the Sports Gaming Client Services and SHGN businesses to RSports for $22.5 million in cash and used sale proceeds in part to retire debt. It reported aggregate repayments of $14.837 million to Platinum Bank and a $4.484 million redemption of the Alpha convertible debenture.
- The sale’s gain is preliminary and subject to post-closing adjustments. In May, the parties amended the post-closing agreement: SHGN was excluded from the transfer, and transfers of certain subsidiary interests are contingent on Pennsylvania Gaming Control Board approval. The amended arrangement treats the transaction as an asset sale for legal and tax purposes.
- SharpLink exchanged part of an Alpha warrant repurchase obligation for common shares and a pre-funded warrant; $171,000 of the repurchase balance remained at quarter-end.
- The company regained compliance with Nasdaq’s stockholders’ equity listing requirement in February.
Outlook, risks and other disclosures
The filing provides no quantified revenue or earnings guidance. Management says additional capital may be needed to fund growth and operations and that financing may not be available on acceptable terms. The company states these and other factors raise substantial doubt about its ability to continue as a going concern for a reasonable period, despite the sale proceeds and debt repayment. An ATM agreement entered into May 1 permits, but does not require, sales of up to $1.676 million of common stock, creating potential dilution.
Other notable risks include continuing operating losses and cash use, customer losses and dependence on major international affiliate-marketing customers. The customer-concentration table is unclear in its presentation, so specific concentration percentages should be checked against the filing. A possible earn-out of up to $1 million from the 2022 MTS sale remained subject to the buyer’s 2023 results and calculation. The company discontinued its C4 technology in December 2023 after limited market acceptance. Management reported disclosure controls were effective and no material change in internal control during the quarter; no legal proceedings were reported.
Key facts for investors to verify
- Final sale accounting, post-closing adjustments, treatment of SHGN and completion of transfers requiring Pennsylvania regulatory approval.
- Whether the $4.0 million quarter-end cash balance and available financing are sufficient given continuing losses, operating cash use and the going-concern warning.
- Post-quarter ATM share sales, if any, and resulting dilution; also confirm remaining warrant obligations and potential share issuance.
- Current customer concentration and the effect of lost customers or softer market conditions on continuing-operations revenue.
- Outcome and amount, if any, of the MTS earn-out, and any resulting cash or tax effects.