EX-99.2 3 ex99-2.htm

 

Exhibit 99.2

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

The unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X under the Securities Act, as amended, and should be read in conjunction with the accompanying notes. The unaudited pro forma combined financial information is presented to provide relevant information necessary for an understanding of SharpLink Gaming Ltd. (“SharpLink” or the “Company”) upon consummation of the proposed acquisition of SportsHub Games Network, Inc. (“SportsHub”) (the “SportsHub Acquisition”), as further explained below.

 

SportsHub Acquisition

 

Following the unanimous approval of the SharpLink Special Committee (“Special Committee”), Audit Committee (“Audit Committee”) and the SharpLink Board of Directors (“SharpLink Board”), SharpLink, SHGN Acquisition Corp., a Delaware corporation and wholly owned subsidiary of SharpLink (“Merger Subsidiary”), SportsHub Games Network, Inc., a Delaware corporation, (“SportsHub”) and Christian Peterson, an individual acting as the SportsHub stockholders’ representative (“Stockholders’ Representative”) entered into an Agreement and Plan of Merger, dated September 6, 2022 (the “Merger Agreement”). On November 2, 2022, the First Amendment to the Merger Agreement (the “Merger Agreement Amendment”) was entered into by the parties providing for potential adjustments to the share consideration issuable to Common Stockholders of SportsHub depending on the market price of SharpLink’s Ordinary Shares at Closing, as quoted on the Nasdaq Capital Market.

 

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. In accordance with the terms of the Equity Purchase Agreement between the Acquirer, the Acquiree and an individual acting as the SportsHub stockholders’ representative (the “Stockholder Representative”):

 

  ● SharpLink issued an aggregate of 4,319,263 ordinary shares to the equity holders of SportsHub, on a fully diluted basis. An additional aggregate of 405,862 ordinary shares are being held in escrow for SportsHub shareholders who have yet to provide the applicable documentation required in connection with the SportsHub Merger, 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 Merger Agreement.
     
  ● SportsHub has 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 8,893,803 ordinary shares of SharpLink prior to the merger, distributed those shares to SportsHub’s stockholders immediately prior to the consummation of the Merger. 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 Acquiree 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 $0.29 on December 22, 2022 and 4,725,125 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:

 

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 

 

FourCubed Management LLC Acquisition

 

On December 31, 2021, the Company acquired FourCubed Management, LLC (“FourCubed”) (“FourCubed Acquisition”). As such, the unaudited pro forma combined financial information reflects the results of operations for the year ended December 31, 2021 for FourCubed, adjusted for purchase price allocation. No adjustments related to the FourCubed Acquisition have been applied to the unaudited pro forma combined balance sheet as of September 30, 2022 and unaudited pro forma combined statement of operations for the nine months ended September 30, 2022, as FourCubed Acquisition is already reflected in the Company’s historical consolidated balance sheet as of September 30, 2022 and the Company’s historical consolidated statement of operations for the nine months ended September 30, 2022. Further information regarding the basis of presentation is provided in Note 1 to this unaudited pro forma combined financial information.

 

The unaudited pro forma combined financial information related to the FourCubed Acquisition has been prepared by the Company using the acquisition method of accounting in accordance with U.S. GAAP. The Company has been treated as the acquirer for accounting purposes and accounts for the FourCubed Acquisition as a business combination in accordance with ASC 805. The valuations of the assets and liabilities have been measured at estimated fair value as of the date of the business combination and purchase price adjustments have been applied.

 

Mer Telemanagement Solutions Ltd. Discontinued Operations

 

On July 26, 2021, Mer Telemanagement Solutions Ltd. (“MTS”) and SharpLink merged (“MTS Acquisition”). Following the MTS Acquisition, MTS changed its name to SharpLink.

 

In June 2022, the Company’s Board of Directors approved management to enter into negotiations to sell the MTS business. The Company negotiated a Share and Asset Purchase that was consummated on December 31, 2022. of the Company, therefore, presented the related MTS balances and activity within discontinued operations in the statement of operations and balance sheet for the nine months ended and as of September 30, 2022. To further reflect this expectation, the statement of operations for the year ended December 31, 2021 has also been adjusted herein to reflect the presentation of MTS’s activity within discontinued operations. No adjustments related to the reclassification of MTS to discontinued operations have been applied to the unaudited pro forma combined balance sheet as of September 30, 2022 and unaudited pro forma combined statement of operations for the nine months ended September 30, 2022, as MTS is already reflected as discontinued operations in the Company’s historical consolidated balance sheet as of September 30, 2022 and the Company’s historical consolidated statement of operations for the nine months ended September 30, 2022.

 

Unaudited Pro Forma Information

 

The unaudited pro forma combined financial information related to the Transactions has been prepared by the Company using the acquisition method of accounting in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The Company has been treated as the acquirer for accounting purposes and accounts for the Transactions as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

 

 
 

 

The unaudited pro forma combined financial information has been derived from and should be read in conjunction with the following financial statements:

 

●SharpLink

 

○Interim unaudited consolidated financial statements and related notes as of and for the nine months ended September 30, 2022; and
   
○Audited consolidated financial statements and related notes for the year ended December 31, 2021, included elsewhere in this filing.

 

●SportsHub

 

○Interim unaudited consolidated financial statements and related notes of SportsHub as of and for the nine months ended September 30, 2022; and
   
○Audited consolidated financial statements and related notes for the year ended December 31, 2021, included elsewhere in this filing.

 

The unaudited pro forma combined statements of income give effect to the SportsHub Acquisition, MTS Discontinued Operations and FourCubed Acquisition (collectively, the “Transactions”) as if they had occurred on January 1, 2021. The FourCubed Acquisition occurred on December 31, 2021; therefore, the results of FourCubed are already included in the Company’s consolidated financial statements as of and for the nine months ended September 30, 2022. MTS is reflected as a discontinued operation in the Company’s consolidated financial statements as of and for the nine months ended September 30, 2022. The MTS results from operations reclassified to discontinued operations for the year ended December 31, 2021 were derived from the SharpLink audited consolidated statement of operations for the year ended December 31, 2021. The FourCubed results from operations for the year ended December 31, 2021 are derived from the unaudited consolidated statement of operations of FourCubed Management, LLC as of and for the year ended December 31, 2021. The SportsHub results from operations as of and or the year ended December 31, 2021 are derived from audited consolidated financial statement of operations of SportsHub for the year ended December 31, 2021. The unaudited pro forma combined balance sheet gives effect to the SportsHub Acquisition as if it had occurred on September 30, 2022 and is derived from interim unaudited consolidated financial statements as of September 30, 2022. Further information regarding the basis of presentation is provided in Note 1 to this unaudited pro forma combined financial information.

 

The pro forma adjustments are based upon available information and certain assumptions that management believes to be reasonable. The unaudited pro forma combined financial information is provided for illustrative and informational purposes only and does not purport to represent or be indicative of the consolidated results of operations or financial condition of the Company had the Transactions been completed as of the dates presented and should not be construed as representative of the future consolidated results of operations or financial condition of the Company.

 

The unaudited pro forma combined financial information does not reflect any expected cost savings, operating synergies or revenue enhancements that the Company may achieve as a result of the Transactions or the costs necessary to achieve any such cost savings, operating synergies or revenue enhancements

 

 
 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2022

(in thousands)

 

   SharpLink Historical   SportsHub Historical   SportsHub Presentation Adjustments   SportsHub PPA Adjustments     SportsHub Subtotal   Pro Forma Transaction Adjustments     Pro Forma Combined 
ASSETS                                
                                       
Current assets                                       
Cash and cash equivalents  2,997    81    -    -      81           3,078 
Restricted cash  -    52,377    -    (2,837) (B)   49,540           49,540 
Accounts receivable  571    254    -    -      254    (33) (C)   792 
Prepaid expenses and other current assets  334    1,088    -    -      1,088           1,422 
Contract asset   330    -    -    -      -           330 
Current assets held for disposal  1,668    -    -    -      -           1,668 
Total current assets  5,900    53,800    -    (2,837)     50,963    (33)     56,830 
                                       
Equipment, net   54    35    -    (23) (B)   12           66 
Investment  200    7,186    -    (7,186) (B)   -           200 
Right-of-use asset - operating lease  144    111    -    (15) (B)   96           240 
Intangible assets, net  1,634    968    -    1,422 (B)   2,390           4,024 
Goodwill  1,996    4,641    -    328 (B)   4,969           6,965 
Non-current assets held for disposal  288    -    -    -      -           288 
Total assets  10,216    66,741    -    (8,311)     58,430    (33)     68,613 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                      
                                       
Current liabilities                                      
Accrued expenses  918    304    395(A)   -      699    244 (D)   1,861 
Accounts payable  -    395    (395)(A)   -      -           - 
Contract liabilities  294    -    -    -      -           294 
Due to Affiliate  33    -    -    -      -    (33) (C)   - 
Due to Seller  243    -    -    -      -           243 
Customer deposits  -    40,028    -    (7,313) (B)   32,715           32,715 
Prize liability  -    5,482    -    -      5,482           5,482 
Deferred revenue  -    8,097    -    -      8,097           8,097 
Lines of credit  -    4,121    -    -      4,121           4,121 
Current portion of long-term debt  606    394    -    -      394           1,000 
Current portion of lease liability  31    57    -    -      57           88 
Current liabilities held for disposal  2,767    -    -    -      -           2,767 
Total current liabilities  4,892    58,878    -    (7,313)     51,565    211      56,668 
                                       
Deferred tax liability  7    42    -    (42) (B)   -           7 
Debt  2,226    949    -    (952) (B)   (3)          2,223 
Lease liability  113    68    -    -      68           181 
Non-current liabilities held for disposal   335    -    -    -      -           335 
Total liabilities   7,573    59,937    -    (8,307)     51,630    211      59,414 
                                        
Shareholders’ equity                                       
Ordinary Shares   448    1    -    (1) (B)   -           448 
Series A-1 Preferred Stock   1    -    -    -      -           1 
Series B Preferred Stock   2    -    -    -      -           2 
Treasury stock   (29)   -    -    -      -           (29)
Additional paid-in capital   74,456    -    -    6,800 (B)   6,800           81,256 
Additional paid-in capital (common stock)   -    9,702    -    (9,702) (B)   -           - 
Additional paid-in capital (preferred stock)   -    5,645    -    (5,645) (B)   -           - 
Accumulated deficit   (72,235)   (8,544)   -    8,544 (B)   -    (244) (D)   (72,479)
Total shareholders’ equity attributable to post-combination co   2,643    6,804    -    (4)     6,800    (244)     9,199 
Total liabilities and shareholders’ equity   10,216    66,741    -    (8,311)     58,430    (33)     68,613 

 

 
 

 

 Unaudited Pro Forma Condensed Combined Statement of Operations

Nine Months Ended September 30, 2022

(In thousands)

 

   SharpLink Historical   SportsHub Historical   SportsHub Presentation Adjustments     SportsHub PPA Adjustments     SportsHub Transaction Adjustments     SportsHub Subtotal   Pro Forma Combined 
                                   
Revenue   4,940    3,439    -                    3,439    8,379 
                                          
Cost of revenues   4,034    1,992    -      (776) (BB)          1,216    5,250 
Gross profit   906    1,447    -      776      -      2,223    3,129 
                                          
Selling, general, and adminstrative expenses   8,664    3,234    134 (AA)   206 (BB)          3,574    12,238 
Goodwill and intangible asset impairment expenses   4,726    -    -                    -    4,726 
Depreciation and amortization expense   -    134    (134) (AA)                 -    - 
Total operating expenses   13,390    3,368    -      206      -      3,574    16,964 
                                          
Loss from Operations   (12,484)   (1,921)   -      571      -      (1,351)   (13,835)
                                          
Other income (expense):                                         
Interest income   30    275    -                    275    305 
Other income   -    33    -                    33    33 
Other expense   -    -    -                    -    - 
Interest expense   (87)   (202)                        (202)   (289)
Net loss from SharpLink equity method investment   -    (5,529)                 5,529 (CC)   -    - 
Impairment of SharpLink equity method investment   -    (10,854)   -             10,854 (CC)   -    - 
Total other income (expense)   (57)   (16,277)   -      -      16,383      106    49 
                                          
Net loss before provision for income taxes   (12,541)   (18,198)   -      571      16,383      (1,245)   (13,786)
Provision for income tax expenses   (1)   3,815    -      -      (3,815) (DD)   -    (1)
Net loss from continuing operations   (12,542)   (14,383)   -      571      12,568      (1,245)   (13,787)
                                          
Basic and diluted weighted average shares outstanding   23,614,579                                   28,339,704 
Basic and diluted net loss from continuing operations per share   (0.53)                                  (0.49)

 

 
 

 

Unaudited Pro Forma Condensed Combined Statement of Operations 

(in thousands)

 

   Year Ended December 31, 2021   Period of July 27 to December 31, 2021   Year Ended December 31, 2021                 Year Ended December 31, 2021                                 
   SharpLink Historical   MTS - Discontinued Operations Adjustments   FourCubed Historical   FourCubed PPA Adjustments     FourCubed Subtotal   Pre-SportsHub Acquisition Subtotal   SportsHub Historical   SportsHub Presentation Adjustments     SportsHub PPA Adjustments     SportsHub Transaction Adjustments     SportsHub Subtotal   Pro Forma Adjustments     Pro Forma Combined 
                                                               
Revenue   4,152    (1,517)   5,504           5,504    8,139    8,024    -             (2,437) (HH)   5,587    -      13,726 
                                                                            
Cost of revenues   3,869    (935)   3,695           3,695    6,629    4,963    -      (1,093) (GG)   (2,110) (HH)   1,760    -      8,389 
Gross profit   283    (582)   1,809    -      1,809    1,510    3,061    -      1,093      (327)     3,827    -      5,337 
                                                                            
Selling, general and administrative expenses   6,459    (1,012)   1,255    806 (EE)   2,061    7,508    11,223    338 (FF)   275 (GG)   (7,332) (HH)   4,504    -      12,012 
Transaction expenses   4,451    -    -           -    4,451    -    -             244 (II)   244    -      4,695 
Commitment fee expense   23,301    -    -           -    23,301    23,301    -             (23,301) (HH)   -    (23,301) (JJ)   - 
Goodwill impairment expense   21,722    (21,722)   -           -    -    21,722    -             (21,722) (HH)   -    -      - 
Depreciation and amortization expense   -    -    -           -    -    338    (338) (FF)                 -    -      - 
Total operating expenses   55,933    (22,734)   1,255    806      2,061    35,260    56,584    -      275      (52,111)     4,748    (23,301)     16,707 
                                                                            
Loss from operations   (55,650)   22,152    554    (806)     (252)   (33,750)   (53,523)   -      818      51,784      (921)   23,301      (11,370)
                                                                            
Other income (expense):                                                                           
Interest income   29    1    -           -    30    (2)   -             (10) (HH)   (12)   -      18 
Realized loss on sale of restricted investments   -    -    -           -    -    (4)   -                    (4)   -      (4)
Gain on loan forgiveness   -    -    -           -    -    1,400    -                    1,400    -      1,400 
Gain on deconsolidation of SharpLink   -    -    -           -    -    48,649    -             (48,649) (HH)   -    -      - 
Net loss from SharpLink equity method investment   -    -    -           -    -    (1,391)   -             1,391 (HH)   -    -      - 
Impairment of SharpLink equity method investment   -    -    -           -    -    (29,382)   -             29,382 (HH)   -    -      - 
Other income   -    -    -           -    -    35    -             (6) (HH)   29    -      29 
Other expenses   -    -    -           -    -    -    -                    -    -      - 
Total other income   29    1    -    -      -    30    19,305    -      -      (17,892)     1,413    -      1,443 
                                                                            
Net loss before provision for income taxes   (55,621)   22,153    554    (806)     (252)   (33,720)   (34,218)   -      818      33,892      492    23,301      (9,927)
Provision for income tax expenses   (6)   4    -           -    (2)   (3,858)   -             3,858 (KK)   -    -      (2)
Net loss from continuing operations   (55,627)   22,157    554    (806)     (252)   (33,722)   (38,076)   -      818      37,750      492    23,301      (9,929)
Net loss attributable to noncontrolling interest   -    -    -           -    -    (26,116)   -             26,116 (HH)   -    -      - 
Net loss from continuing operations attributable to the Company   (55,627)   22,157    554    (806)     (252)   (33,722)   (11,960)   -      818      11,634      492    23,301      (9,929)
                                                                            
Basic and diluted weighted average shares outstanding   14,300,311                                                                     19,631,550 
Basic and diluted net loss from continuing operations per share   (3.94)                                                                    (0.55)

 

 
 

 

Notes to Unaudited Pro Forma Combined Financial Information

 

Note 1. Basis of Presentation

 

The unaudited pro forma combined financial information has been prepared in accordance with Article 11 of Regulation S-X under the Securities Act, as amended, and is presented to provide relevant information necessary for an understanding of the Company upon consummation of the Transactions.

 

The unaudited pro forma combined financial information and related notes are based upon the Company’s consolidated financial statements as of and for the nine months ended September 30, 2022, and year ended December 31, 2021; SportsHub’s financial statements as of and for the nine months ended September 30, 2022, and year ended December 31, 2021; and FourCubed’s financial statements for year ended December 31, 2021, adjusted to give effect to the Transactions.

 

The unaudited pro forma combined statements of income give effect to the Transactions as if they had occurred on January 1, 2021. The unaudited pro forma combined balance sheet gives effect to the SportsHub Acquisition as if it had occurred on September 30, 2022. No adjustments related to the FourCubed Acquisition have been applied to the unaudited pro forma combined balance sheet as of September 30, 2022 and unaudited pro forma combined statements of income for the nine months ended September 30, 2022, as FourCubed Acquisition is already reflected in the Company’s consolidated financial statements as of and for the nine months ended September 30, 2022. The assets and liabilities of the MTS business are separately reported as assets and liabilities held for disposal for the nine months ended September 30, 2022 (unaudited). MTS operations for the year ended December 31, 2021 were previously reported as continuing operations, but have been adjusted to reflect the current treatment as discontinued operations. Thus, the results of operations of MTS for all periods are separately reported as discontinued operations.

 

The unaudited pro forma combined financial information related to the Transactions have been prepared by the Company using the acquisition method of accounting in accordance with GAAP. The Company has been treated as the acquirer for accounting purposes, and thus accounts for the Transactions as a business combination in accordance with ASC 805. The valuations of the assets and liabilities of FourCubed have been measured at estimated fair value as of the date of the business combination and purchase price adjustments have been applied. The valuations of the assets acquired and liabilities assumed for SportsHub Acquisition, and therefore the purchase price allocations, are considered preliminary and have not yet been finalized as of the date of this filing. As a result of the foregoing, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma combined financial information.

 

SharpLink and SportsHub are related parties, and an adjustment was applied to the balance sheet as of September 30, 2022 to remove activity that would be considered intercompany activity and eliminated upon consolidation. This activity represented accounts receivable for SportsHub and accounts payable for SharpLink in the amount of $33,000 as of September 30, 2022.

 

SharpLink was a majority-owned subsidiary of SportsHub from January 1, 2021 to August 31, 2021. During this period SharpLink’s results from operations were included in SportsHub’s consolidated statement of operations. On August 31, 2021, SportsHub no longer had a controlling interest in SharpLink and deconsolidated it from SportsHub’s consolidated statement of operations. As of August 31, 2021, SportsHub began accounting for SharpLink as an equity method investment. Pro forma adjustments were recorded to eliminate net loss from and impairment of SportsHub’s equity method investment in SharpLink. Pro forma adjustments were recorded to eliminate SharpLink historical financial information previously consolidated in SportsHub’s financial information for the year ended December 31, 2021.

 

The accounting policies followed in preparing the unaudited pro forma combined financial information are those used by the Company as set forth in the audited historical financial statements. The unaudited pro forma combined financial information reflects any material adjustments known at this time to conform SportsHub’ historical financial information to the Company’s significant accounting policies based on the Company’s initial review and understanding of SportsHub’ summary of significant accounting policies from the date of the acquisition. The Company has included certain reclassification adjustments for consistency in the financial statement presentation. See Note 3 and 4 for more information.

 

 
 

 

The unaudited pro forma combined financial information does not give effect to any income tax benefit associated with the pro forma adjustments as such pro forma adjustments result in the generation of additional net operating losses offset by a full valuation allowance recorded on such net operating losses as it is more likely than not that the net operating losses will not be utilized.

 

The Company’s management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the Transactions, and that the pro forma adjustments in the unaudited pro forma combined financial information give appropriate effect to the assumptions.

 

Note 2. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2022

 

The following adjustments have been reflected in the unaudited pro forma combined balance sheet:

 

A.Reflects the following adjustments to conform SportsHub’s presentation to the Company’s presentation, including:

 

a.Reclassifying Accounts payable to be included within Accrued expenses.

 

B.SharpLink acquired 100% of SportsHub. The unaudited pro forma condensed combined balance sheet as of September 30, 2022 reflects the purchase price allocation adjustments to record SportsHub’s assets and liabilities at estimated fair value based on the consideration conveyed of $6.7 million, as detailed below. The purchase price was allocated among the identified assets to be acquired, based on an independent valuation analysis, which were income-based method and relief from royalty method. All valuation procedures related to existing assets as no new assets were identified as a result of procedures performed. Goodwill was recognized as a result of the acquisition, which represents the excess fair value of consideration over the fair value of the underlying net assets, largely arising from the extensive industry expertise that has been established by SportsHub. This was considered appropriate based on the determination that the SportsHub Acquisition would be accounted for as a business acquisition under ASC 805. 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.. The following table sets forth the components of identifiable intangible assets acquired and the methodologies used in the valuation as of the date of acquisition.

 

Schedule of fair value of assets acquired and liabilities assumed   as of December 22, 2022:

 

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 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.

 

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:

 

       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      

 

C.Represents the elimination of intercompany activities between SharpLink and SportsHub.
   
D.Represents transaction costs of $244,000, which will be fully expensed based on the conclusion that the transaction would be accounted for as an acquisition under ASC 805. One-time direct and incremental transaction costs anticipated to be incurred prior to, or concurrent with, the closing of the SportsHub Acquisition are reflected in the unaudited pro forma condensed combined balance sheet as a direct impact to accumulated deficit.

 

Note 3. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months ended September 30, 2022

 

The following adjustments have been reflected in the unaudited pro forma combined statements of income:

 

AA.Reflects the following adjustments to conform SportsHub’s presentation to the Company’s presentation, including:

 

a.Reclassifying amortization and depreciation expense to be included within selling, general, and administrative expenses.

 

BB.Reflects the pro forma adjustment to record the amortization expense associated with intangibles recorded via adjustment (B), less previously recorded amortization expense. Amortization expense previously recorded in the historical SportsHub’s consolidated statement of operations for the nine months ended September 30, 2022 was $806,000 in Cost of Revenues and $107,000 in Depreciation and Amortization Expense (reclassified to Selling, General and Administrative Expenses in adjustment (AA)). Amortization expense as if the SportsHub Acquisition occurred on January 1, 2021 in the unaudited condensed combined pro forma statement of operations for the nine months ended September 30, 2022 is $30,000 in Cost of Revenues and $313,000 in Selling, General and Administrative Expenses. The pro forma adjustment to reflect the change in amortization expense is a reduction of $776,000 in Cost of Revenues and an increase of $206,000 in Selling, General and Administrative Expenses.

 

 
 

 

CC.Reflects the elimination of net loss from and impairment of SportsHub’s equity method investment in SharpLink.
   
DD.Reflects the elimination of income tax benefits from SportsHub’s investment in SharpLink. Income tax benefits of $3,501,000 were recorded due to the net loss and impairment of SportsHub’s equity method investment in SharpLink, thus were removed as pro forma adjustments. Further, the remaining SportsHub income tax benefit of $314,000 is eliminated as it relates to deferred income taxes, which would have a full valuation allowance when assuming the SportsHub Acquisition occurred on January 1, 2021 and SportsHub was under the ownership of SharpLink for the nine months ended September 30, 2022.

 

Note 4. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 2021

 

EE.Reflects the pro forma adjustment to record the amortization expense associated with intangibles acquired from the FourCubed transaction on December 31, 2021. No amortization was previously recorded in the FourCubed consolidated statement of operations. Amortization expense as if the FourCubed Acquisition occurred on January 1, 2021 in the unaudited condensed combined pro forma statement of operations for the year ended December 31, 2021 is $806,000 in Selling, General and Administrative Expenses.
   
FF.Reflects the following adjustments to conform SportsHub’s presentation to the Company’s presentation, including:

 

a.Reclassifying Amortization and depreciation expense to be included within Selling, general, and administrative expenses.

 

GG.Reflects the pro forma adjustment to record the amortization expense associated with intangibles recorded via   adjustment (B). Amortization expense previously recorded in the historical SportsHub’s consolidated statement of operations for the year ended December 31, 2021 was $1,133,000 in Cost of Revenues and $142,000 in Depreciation and Amortization Expense (reclassified to Selling, General and Administrative Expenses in adjustment (EE)). Amortization expense as if the SportsHub Acquisition occurred on January 1, 2021 in the unaudited condensed combined pro forma statement of operations for the year ended December 31, 2021 is $40,000 in Cost of Revenues and $417,000 in Selling, General and Administrative Expenses. The pro forma adjustment to reflect the change in amortization expense is a reduction of $1,093,000 in Cost of Revenues and an increase of $275,000 in Selling, General and Administrative Expenses.
   
HH.Reflects the elimination of duplicative activity in SportsHub’s statement of operations related to SharpLink’s activity for the year ended December 31, 2021. SharpLink was a majority-owned subsidiary of SportsHub from January 1, 2021 to August 31, 2021. During this period SharpLink’s results from operations were included in SportsHub’s consolidated statement of operations. On August 31, 2021, SportsHub no longer had a controlling interest in SharpLink and deconsolidated it from SportsHub’s consolidated statement of operations. As of August 31, 2021, SportsHub began accounting for SharpLink as an equity method investment. Pro forma adjustments were recorded to eliminate net loss from and impairment of SportsHub’s equity method investment in SharpLink. Pro forma adjustments were recorded to eliminate SharpLink historical financial information previously consolidated in SportsHub’s financial information for the year ended December 31, 2021.
   
II.Represents SportsHub’s estimated transaction costs expected to be expensed as incurred prior to, or concurrent with, the closing of the SportsHub Acquisition, as noted at adjustment (D) see Note 2.
   
JJ.The Commitment Fee Expense was removed as a pro forma adjustment from the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 to reflect as if the MTS Acquisition occurred on January 1, 2021. The Commitment Fee was settled upon the Company becoming a public entity, which was completed in conjunction with the MTS Acquisition.
   
KK.Reflects the elimination of income tax expenses from SportsHub’s investment in SharpLink. Income tax expenses of $3,933,000 were recorded due to the gain on deconsolidation of SharpLink, net of losses and impairment of SportsHub’s equity method investment in SharpLink. The tax effects related to this activity were removed as pro forma adjustments. Further, the remaining SportsHub income tax benefit of $75,000 is eliminated as it relates to deferred income taxes, which would have a full valuation allowance when assuming the SportsHub Acquisition occurred on January 1, 2021 and SportsHub was under the ownership of SharpLink for the year ended December 31, 2021.

 

 
 

 

Note 5. Pro Forma Loss per Share

 

Pro forma basic loss per share for the nine months ended September 30, 2022 and the year ended December 31, 2021 is computed by dividing pro forma net loss attributable to SharpLink by the weighted average number of Class A common stock shares outstanding for the period. Pro forma weighted-average shares outstanding were calculated as if the Transactions occurred on January 1, 2021. Ordinary shares of 4,725,125 and 606,114 were issued as consideration in the SportsHub Acquisition and FourCubed Acquisition, respectively. These ordinary share were assumed to be outstanding as of January 1, 2021 for the computation of pro forma weighted-average shares outstanding. The 606,114 ordinary shares issued in the FourCubed Acquisition were already included in the historical weighted-average shares outstanding for the nine months ended September 30, 2022, thus were not added to compute pro forma weighted-average shares outstanding for the nine months ended September 30, 2022. Since the Company had net losses for all the periods, basic and diluted loss per share are the same, and additional potential ordinary shares have been excluded, as their effect would be anti-dilutive. The following table sets forth a computation of pro forma loss per share: 

 

Loss Per Share

 

(In thousands, except share and per share data)  Nine Months Ended
Sept 30, 2022		   Year Ended
December 31, 2021		 
         
Historical:          
Loss from continuing operations per share  $(12,542)  $(55,627)
Less: discount accretion on series A preferred stock   -    (374)
Less: dividends accrued on series A preferred stock   -    (91)
Less: dividends accrued on series B preferred stock   (8)   (316)
Net loss from continuing operations available to ordinary shareholders   (12,550)   (56,408)
           
Basic and diluted weighted-average shares outstanding   23,614,579    14,300,311 
           
Basic and diluted net loss from continuing operations per share  $(0.53)  $(3.94)
           
Pro Forma:          
Loss from continuing operations per share  $(13,787)  $(9,929)
Less: discount accretion on series A preferred stock   -    (374)
Less: dividends accrued on series A preferred stock   -    (91)
Less: dividends accrued on series B preferred stock   (8)   (316)
Net loss from continuing operations available to ordinary shareholders   (13,795)   (10,710)
           
Historical basic and diluted weighted-average shares outstanding   23,614,579    14,300,311 
Ordinary shares issued in SportsHub Acquisition   4,725,125    4,725,125 
Ordinary shares issued in FourCubed Acquisition   -    606,114 
Pro forma basic and diluted weighted-average shares outstanding   28,339,704    19,631,550 
           
Basic and diluted net loss from continuing operations per share  $(0.49)  $(0.55)