UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K10-K/A

(Amendment No. 1)

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

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: 000-1025561000-28950

Registrant’s telephone number, including area code: 612-293-0619612-293-0619

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $21,461,158.$21,461,158.

As of March 31, 2023, there were 26,880,250 Ordinary Shares, par value $0.02 per share, issued and outstanding.

SHARPLINK GAMING LTD.EXPLANATORY NOTE

TABLE OF CONTENTS

PART I

ThisSharpLink Gaming Ltd. (“SharpLink” or the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to address in its Annual Report on Form 10-K (“Annual Report”as of December 31, 2022 originally filed with the U.S. Securities and Exchange Commission (the “SEC”) contains forward-looking statements withinon April 5, 2023 (the “Original 10-K”). The Amendment is being filed solely to:

As previously disclosed, on September 7, 2022, SharpLink, SHGN Acquisition Corp., a Delaware corporation and wholly owned subsidiary of SharpLink (“Merger Subsidiary”), SportsHub Games Network Inc. (“SportsHub”) and Christian Peterson, an individual acting as the meaningSportsHub stockholders’ representative entered into a Merger Agreement in which SharpLink acquired SportsHub. The Merger Agreement, as amended, contained the terms and conditions of the Securities Actproposed acquisition by SharpLink of 1933,SportsHub.

On November 8, 2022, the Company furnished a Current Report on Form 6-K (the “6-K”) to the SEC to include, among other exhibits, Exhibit 99.2 for the Notice of and Proxy Statement for SharpLink Gaming Ltd. Extraordinary General Meeting of Shareholders to be held on December 14, 2022, to solicit its shareholders’ approval on the Merger Agreement. Exhibit 99.2 encompasses (i) the unaudited financial statements of SportsHub Games Network, Inc. and Subsidiaries for the six months ended June 30, 2022 and 2021, as amended, orAnnex C, and (ii) the audited financial statements of SportsHub Games Network, Inc. and Subsidiaries for the years ended December 31, 2021 2020, as Annex D.

On December 14, 2022, The Company’s shareholders approved the Merger Agreement and the merger transaction was closed on December 22, 2022. To make it more convenient for the investors and shareholders to locate and access to the above-mentioned financial statements of SportsHub, the Company is including them at the end of SharpLink’s audited financial statements for the years ended December 31, 2022 and 2021 of this Amendment.

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), orthis Amendment also contains new certifications pursuant to Section 302 of the Private Securities Litigation ReformSarbanes-Oxley Act of 1995. Investors are cautioned that such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions,2002, which are subjectattached hereto.

No other changes have been made to change atthe Original 10-K. This Amendment does not reflect subsequent events occurring after the filing date of the Original 10-K or modify or update in any time at our discretion. Forward-looking statements include our assessment, from time to time of our competitive position,way disclosures made in the industry environment, potential growth opportunities,Original 10-K. This Amendment should be read in conjunction with the effects of regulation and events outside of our control, such as natural disasters, wars or health epidemics. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.Original 10-K.

Forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statement. These uncertainties and other factors include, among other things:

Set forth belowITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion 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 Item 1A, “Risk Factors,” are additional significant uncertainties and other factors affecting8 of this Form 10-K. This discussion contains forward-looking statements. The reader should understand thatPlease see the uncertainties and other factors identifiedexplanatory note concerning “Forward-Looking Statements” in this Annual Report are not a comprehensive listPart I of all the uncertainties and other factors that may affect forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements or the list of uncertainties and other factors that could affect those statements. 

Our consolidated financial statements appearing in this annual report are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. All references in this Annual Report on Form 10-K to "dollars” or "$” are to U.S. dollars and all references in this Annual Report to "NIS” are to New Israeli Shekels.

In this Annual Report on Form 10-K, unlessItem 1A. Risk Factors for a discussion of the context indicates otherwise, references to “SharpLink Gaming,” “SharpLink,” “our Company,” “the Company,” “we,” “our,”uncertainties, risks and “us” refer to SharpLink Gaming Ltd., an Israel corporation, and its wholly owned subsidiaries. 

assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.

ITEM 1.BUSINESS

Overview

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 mission and 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-builtPurpose 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:

We reach fans and cultivate audience growth and activation through our four primary operating segments: 1) Sports Gaming Client Services ;Services; 2) SportsHub Games Network/Fantasy Sports; 3) Direct to Player (“D2P”)/Affiliate Marketing Services – International; and 4) D2P/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, Cantor Gaming, Betfair and others.

As of March 2023, the Company’s state regulatory initiatives have resulted in SharpLink being licensed and/or authorized to operate in 24 U.S. states, the District of Columbia and Ontario, Canada, which representsor nearly 100% 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.

During the fiscal years ended December 31, 2022 and 2021, we generated revenues of $7,288,029 and $2,635,757, respectively, representing an increase of 177% on a comparative year-over-year basis.

Organizational History

Go-Public Merger with Mer Telemanagement Solutions Ltd.

Formerly known as Mer Telemanagement Solutions Ltd. (“MTS”), the Company was incorporated as a public limited liability company under the laws of the State of Israel in December 1995. The Company continues to operate under such laws and associated legislation of an Israeli business. In July 2021, MTS completed a merger between New SL Acquisition Corp., its wholly owned subsidiary, and SharpLink, Inc. (the “MTS Merger”). In the MTS Merger, SharpLink, Inc. was treated as the acquirer for accounting purposes because, among other reasons, its pre-merger shareholders held a majority of the outstanding shares of the Company immediately following the merger. After the merger, the Company changed its name from Mer Telemanagement Solutions Ltd. to SharpLink Gaming Ltd. and its NASDAQ ticker symbol from MTSL to SBET.

FourCubed Acquisition

On December 31, 2021, in a combination of cash and stock transaction, we acquired certain assets of 6t4 Company, a Minnesota corporation and FourCubed Management, LLC, a Delaware limited liability company (collectively “FourCubed”), including FourCubed’s iGaming and affiliate marketing network, known as PAS.net. For more than 16 years, FourCubed provided its global iGaming operating partners with affiliate marketing services. The strategic acquisition of FourCubed brought SharpLink an industry respected operating team with decades of combined experience in conversion through affiliate marketing services and in securing highly profitable, recurring net gaming revenue contracts with many of the world’s leading iGaming companies, including Party Poker, bwin, UNIBET, GG Poker, 888 poker, betfair and others. Originally established in 2005, FourCubed’s international iGaming affiliate network, Poker Affiliate Solutions (“PAS”) is currently comprised of over 12,000 sub-affiliates and has delivered nearly two million referred players since it was launched in 2008 at www.pas.net.

Merger with SportsHub Games Network Inc. (the “SportsHub Merger”)

SharpLink, SHGN Acquisition Corp., a Delaware corporation and wholly owned subsidiary of SharpLink (“Merger Subsidiary”), SportsHub Games Network Inc. (“SportsHub”) and Christian Peterson, an individual acting as the SportsHub stockholders’ representative entered into a Merger Agreement on September 7, 2022. The Merger Agreement, as amended, contained the terms and conditions of the proposed business combination of SharpLink and SportsHub. Pursuant to the Merger Agreement, as amended, on December 22, 2022, SportsHub merged with and into Merger Subsidiary with Merger Subsidiary surviving as a wholly owned subsidiary of SharpLink. In association with the transaction, SharpLink issued, in the aggregate, 4,319,263 ordinary shares to common and preferred stockholders 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.

Sale of Legacy MTS Business

On December 31, 2022, SharpLink closed on the sale of its legacy MTS business (“Legacy MTS”) to Israel-based Entrypoint South Ltd., a subsidiary of Entrypoint Systems 2004 Ltd. In consideration of Entrypoint South Ltd. acquiring all rights, title, interests and benefits to Legacy MTS, including 100% of the shares of MTS Integratrak Inc., one of the Company’s U.S. subsidiaries, Entrypoint South Ltd. will pay SharpLink an earn-out payment (an “Earn-Out Payment”) equal to three times Legacy MTS’ Earnings Before Interest, Taxes and Depreciation for the year ending December 31, 2023, up to a maximum earn-out payment of $1 million (adjusted to reflect net working capital as of the closing date). Within ten (10) calendar days of the approval by the board of directors of the Buyer of the audited annual financial statements of the Business as at December 31, 2023, and for the 12-month period ending on such date (as applicable, the "Earn-Out Schedule Delivery Date”), which shall occur no later than May 31, 2024, Buyer shall deliver to the Seller a schedule certified by its Chief Executive Officer and Chief Financial Officer (an "Earn-Out Schedule”) setting forth the computation of the Earn-Out Payment (as applicable), if any, together with the calculation thereof in an agreed Excel table format (including, but not limiting to all relevant details of the EBITDA calculations for the year 2023).

Change from Foreign Private Issuer to Domestic Issuer

Prior to January 1, 2023, SharpLink, an Israel corporation, qualified as a foreign private issuer.  There are two tests to determine whether a foreign company qualifies as a foreign private issuer: the U.S. shareholder test and U.S. business contacts test. Under the U.S. shareholder test, a foreign company will qualify as a foreign private issuer if 50% or less of its outstanding voting securities are held by U.S. residents.  If a foreign company fails this shareholder test, it will still be considered a foreign private issuer unless it fails any one part of the U.S. business contacts test.  The U.S. business contacts test includes the following three parts: 1) the majority of the company’s executive officers or directors are U.S. citizens or residents; 2) more than 50% of the issuer’s assets are located in the United States; or 3) the issuer’s business is administered principally in the United States.  Because we failed these tests, we are no longer a foreign private issuer and effective January 1, 2023, we are required to comply with the reporting requirements under the rules and regulations of the Exchange Act, applicable to U.S. domestic companies. 

Operating Segments

The table below reflects our revenue by operating segment for the years indicated below:

Sports Gaming Client Services

Based in Collinsville, Connecticut, SharpLink’s Sports Gaming Client Services (“Client Services”) business unit was originally established in 2006 as Sports Technologies Inc., or STI.  STI was founded by Chris Nicholas, our current Chief Operating Officer. STI was acquired by SharpLink’s former parent company, SportsHub Games Network, Inc. (“SportsHub”), in 2016. In November 2020, SportsHub spun off STI and SharpLink subsequently acquired STI in an all-stock transaction.  

SharpLink’s Client Services division designs, develops, tests, hosts and manages online Free-To-Play (“F2P”) games and mobile apps for a licensing fee. We also integrate sports betting markets for major league and media clients for a licensing fee. We hold longstanding F2P game development agreements with several of the biggest names in sports, including Turner Sports, NBA, NFL, PGA TOUR and the Women’s Tennis Association.

In 2022, our Client Services group supported more than two million players and delivered over 40 bespoke F2P games to more than a dozen clients. To highlight a few, for the past 13 years, we have produced the official NCAA March Madness Live bracket challenge in collaboration with Turner Sports; delivered three F2P games for the NBA, including the very popular Playoffs Bracket Challenge; built multiple game titles for both NASCAR and the PGA Tour, extending our working relationship with those leagues to over ten years each; and created the Stanley Cupple game for the NHL – a game similar to the social word game sensation, Wordle. In addition, we launched two games for global betting giant Tipico in anticipation of Ohio becoming a legal betting state on January 1, 2023.  The first was a highly interactive, in-stadium digital scratch-off game revealing three in-game proposition bets, or props, for fans attending home games of the Columbus Crew held through the end of the 2022 MLS season; and the second launched in mid-November was the Win Ohio football props game which challenged players to choose from a slate of props available on college and NFL football games each weekend through the 2022 NFL regular season. 

Subsequent to the end of 2022, BetMGM named SharpLink as a developer of F2P games and contests for the leading sports betting and iGaming operator.  We will leverage our Client Services team’s game development expertise and the integration of our C4 technology to launch a portfolio of diverse and entertaining F2P games designed to reach, engage and drive engagement of sports fans to sports bettors across the jurisdictions where BetMGM is currently licensed to be operative.  SharpLink is currently pursuing additional new business arrangements with other top professional sports leagues, teams, sportsbooks and media companies in the United States.

SportsHub Games Network/Fantasy Sports

On December 22, 2022, SharpLink completed its merger with SportsHub.  Originally founded in 2015 by Rob Phythian, our current Chief Executive Officer, and based in Minneapolis, SportsHub 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 platform currently reaches more than two million fantasy sports fans who spent approximately $40 million on our portfolio of digital gaming experiences and contests in 2022.

SportsHub’s platform currently includes the following line-up of fantasy sports-related assets:

What Are Fantasy Sports?

Season-long fantasy sports involve game players, or “team owners,” choosing a line-up of real sports athletes in an online selection process, or a draft, to assemble a fantasy team. Athletes’ real-game statistics are compiled and compared to see whose fantasy team has done the best and points are given accordingly as determined by the platform it is played on. Players track how their fantasy team is doing through the applicable season using various websites or mobile apps. Many players form leagues with friends and compete against only people they know, while others join public leagues hosted by website or apps and compete against other fans’ leagues. In fantasy sports, most everyone manages a roster by adding, dropping, trading and selling players to keep winning.

Based on the number of team owners in each fantasy sports league, there are different possible payout structures, which are typically determined by the “commissioner” who is appointed by the team owners. The commissioner’s primary responsibility is to decide the type of fantasy league they are running, what platform they will use to manage their league, and to set rules regarding points scoring and trades ahead of the start of each season. He or she is also the person that fellow team owners turn to if there is a major disagreement amongst owners or a lag in the leagues scoring updates, among other disputes. If the league plays for money, then it is the commissioner’s responsibility to ensure everyone’s entry fees are paid in and winnings are paid out.

Daily fantasy sports (“DFS”) games are similar to season-long games, however online contests range from a day to a week, depending on the sport. DFS competitors draft a player roster and those players earn points based on their respective in-game performance. Team owners can compete in both public or private tournaments, form leagues with friends, family members and coworkers, join other public leagues or play head to head with other owners.

Going Concern

National Fantasy Championships | High Stakes Fantasy Sports (nfc.shgn.com)

National Fantasy Championships (“NFC”) was originally created in 2004 to host a set of high stakes fantasy football (“NFFC”) and baseball (“NFBC”) competitions. With live drafts in Las Vegas, New York and Chicago, in its first season, NFFC drew 224 teams at $1,250 each for the main event with a $100,000 grand prize. The same year, NFBC also hosted live drafts in Las Vegas, New York and Chicago, drew 195 teams for the main event and awarded the industry’s first $100,000 grand prize for baseball. The National Fantasy Basketball Challenge (“NFBKC”) was started in the fall of 2006 with just three main event leagues competing for a grand prize of $3,000. After NFC was acquired by SportsHub in 2016, SportsHub expanded NFC to include the National Fantasy Hockey Challenge (“NFHC”) in 2019.

NFC now hosts numerous high stakes fantasy sports competitions for football, baseball, basketball and hockey with millions of dollars in prize winnings awarded across all competitions each year and includes live draft events held each year in Las Vegas and New York City. Players who are not able to make it to the live events can choose online options to compete for the national championships in many of NFC’s contests, such as the $250,000 grand prize in the NFFC Primetime, the $150,000 grand prize in the NFBC main event, the $150,000 grand prize in the Rotowire Fantasy Baseball Online Championship. Over the past 18 years, NFC has paid more than $55 million in prize winnings to its high stakes players.

Bestball10s (bestball10s.shgn.com)

Bestball10 is one of the nation’s most popular best ball fantasy games (as ranked by Footballguys.com, CheatSheetWarRoom.com and others), whereby fantasy league owners draft their team but there is no in-season management – no waiver wire, trades, adds or drops. Instead, the highest-scoring players chosen are optimized to form an owner’s starting lineup every week throughout the season. Leagues are decided by cumulative season points rather than head-to-head matchups. Using Bestball10s’ state-of-the-art draft room, owners can draft their teams in mere hours instead of days or weeks; and can be managed from any mobile device or desktop computer. BestBall10 features multiple tournaments for the NFL, NBA and MLB seasons and awards grand prize winnings of up to $10,000.

Fanball (fanball.com)

Fantasy Sports Acquisition, LLC (“Fanball”), co-founded in 1993 by Rob Phythian, SharpLink’s current Chief Executive Officer, began as one of the industry’s first online fantasy sports sites and the publisher of the world’s first weekly fantasy sports magazine, Fantasy Football Weekly. Fanball was sold in 2005 to FUN Technologies, one of the world’s largest providers of online and interactive casual and fantasy sports games and sports information at that time. In 2007, FUN was acquired by Liberty Media Corporation, which folded Fanball into CDM Sports. In 2015, SportsHub acquired CDM Sports and reinvigorated Fanball as a DFS online destination offering a wide range of free-to-play and paid contests in both standard salary cap, draft and auction type formats for the NFL, MLB and NBA seasons. Easy to use for even novice players, all features and services offered on Fanball can be readily accessed on both desktop and mobile devices and players can quickly enter competitions, draft their squads and make their deposits and cash-outs via its online cashier.

Fantasy National Golf Club (fantasynational.com)

Fantasy National Golf Club is a private golf club for fantasy golfers. Offering world class research tools that allow users to sort over a large range of dates so that they can identify players with the best statistics over specific periods. Based on data officially licensed from the PGA TOUR, information provided ranges from par four performance on specific ranges to how individual pro golfers perform in certain wind conditions, among other stats. Fantasy National Golf Club has an easy to use daily fantasy line-up generator; years of detailed data from each course; a simulator which has simulated every pro golf tournament 1000 times to determine the probability of each player winner; a user-friendly, customizable stat model; a highly interactive ownership model that has leveraged crowd sourced user activity to develop highly accurate ownership projections; betting tools that extend beyond daily fantasy pricing to regularly updated betting odds for those placing wagers in legal states; and tools for head to head betting analysis.

WhatIfSports (whatifsports.com)

WhatIfSports is a sports simulation site featuring online simulation games and predictions for MLB, NFL, NHL, NBA and NCAA sports, analyzing the performance of past and present players and teams and utilizing every stat available to determine the outcome of a wide variety of “what if” scenarios. For instance, in its SimMatchup game, players can battle the 1927 New York Yankees against the 1975 Cincinnati Reds to see who would win; see how many goals Wayne Gretzky would score if he were on the ice with Connor McDavid; or answer the age old debate of whether the 1986 Los Angeles Lakers or the 1996 Chicago Bulls would win on the court? In its SimLeague Baseball game, players can manage a team comprised of their favorite athletes throughout MLB history (draft any player from 1885 through present day), competing against other baseball fans in a full season – complete with trades, play-by-play and hundreds of stats. In its Dynasty games, players can run their own baseball franchise or elect to coach, recruit and run their own college football, basketball or soccer program.

LeagueSafe (leaguesafe.com)

LeagueSafe was created in 2008 with the goal of simplifying and automating the last remaining hassle in fantasy league administration: finance management. Since its founding, LeagueSafe has become one of the most trusted sources for collecting and protecting season-long fantasy league dues and payouts of winnings via proven, secure online and mobile payment platforms. LeagueSafe’s proprietary wallet system empowers leagues to collect entry fee payments, safeguard league fees throughout the season, offers transparency of league finances to all team owners, gives owners the opportunity to validate their commissioners’ intended payouts, and releases funds immediately after the end of the season.

League commissioners can allocate payouts within hours of the end of the season, and league members can receive their winnings immediately using one of several instant payout delivery options. No credit card or bank account information is stored on the site, and each transaction is a one-time event. LeagueSafe generates revenue through the collection of interest earned on the dues held in its wallet system. Users can elect to leave their winnings in their wallets for future use or request payouts at any time.

SportsHub’s Multiple Revenue Channels

Net Gaming Revenues

SharpLink collects fees from customers for daily and season-long online fantasy sports games in advance and recognizes the related fees over the term of the online fantasy game. Net gaming revenue means the gross revenue generated in a transaction reduced by all applicable marketing and platform costs, progressive contributions, gaming taxes, and player-related costs.

Fee Revenues

We collect various forms of fee revenue from customers using our LeagueSafe platform. Our performance obligation is to provide these customers with an online platform to collect entry fees, provide transparency into league transactions, encourage timely payment of entry fees, safeguard funds during the season and facilitate end-of-season prize payouts. Fee revenue related to payment transactions is deferred until the end of the specific season. Other types of fee revenue are recognized on a transactional basis when users complete transactions or when a customer’s account become inactive under the terms of the user agreement.

Subscription Revenues

Our WhatIfSports games provide sports simulation software that our users pay a subscription fee to access over a period of time. SharpLink provides and maintains the software throughout the duration of the season, which constitutes a single performance obligation and revenue is recognized over the term of the service. When a customer subscribes to Fantasy National Golf Club, SharpLink also collects a subscription fee. Our performance obligation under these contracts is to provide our users with access to our intellectual property. Revenue is initially deferred and recognized ratably over the subscription period.

Affiliate Marketing Services Segments

Affiliate Marketing Services – International

On December 31, 2021, in a combination of cash and stock transaction, SharpLink acquired certain assets of FourCubed, including FourCubed’s iGaming and affiliate marketing network, known as PAS.net (“PAS”). For more than 16 years, PAS has focused on delivering quality traffic and player acquisitions, retention and conversions to U.S. regulated and global iGaming operator partners worldwide. In fact, PAS won industry recognition as the European online gambling industry’s Top Affiliate Manager, Top Affiliate Website and Top Affiliate Program for four consecutive years by both igambingbusiness.com and igamingaffiliate.com.  The strategic acquisition of FourCubed brought SharpLink an industry respected operating team with decades of combined experience in conversion through affiliate marketing services and in securing recurring net gaming revenue (“NGR”) contracts with many of the world’s leading iGaming companies, including Party Poker, bwin, UNIBET, GG Poker, 888 poker, betfair and others. 

In May 2022, SharpLink announced that its wholly owned subsidiary Trendfront Marketing International Limited, acquired in the FourCubed transaction, was selected by WPT Global to manage the new WPT Global affiliate program as its Master Affiliate (“Master Affiliate”).  As the Master Affiliate, SharpLink will receive a second tier commission from the results that its network of referred affiliated marketers are generating.  WPT Global is a new online gaming operator that has licensed the World Poker Tour brand (“WPT”) to market and promote its gaming platform. Since its launch in 2003, the WPT has been an iconic brand at the forefront of the global poker community. WPT is the premier name in internationally televised gaming and entertainment with brand presence in land-based tournaments, television, online and mobile. With the April 2022 introduction of WPT Global in nearly 100 countries worldwide, fans and players are now able to take their game play to the next level, playing real money games on WPT Global’s online platform, home to the largest pool of recreational players in online poker and designed for fun, fair and secure play.

Affiliate Marketing Services – United States

As part of our strategy to deliver unique fan activation solutions to our sportsbook and casino partners, in November 2022, we executed the first phase of a planned multi-phase roll-out of our U.S.-focused D2P business with the launch of 15 state-specific affiliate marketing websites. These state-specific domains are 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.  As of March 2023, we own and operate sites serving 17 U.S. states and expect to add Puerto Rico in the second quarter of 2023.

Specifically, the following proprietary affiliate marketing web properties are now live:

All 17 websites feature key highlights, sports betting offers and special promo codes for partner sportsbooks operating in each state. In addition, four of the 17 state sites – Michigan, New Jersey, Pennsylvania and West Virginia where iGaming has been legalized – feature similar content relating directly to SharpLink’s online casino partners.  As more states legalize sports betting, our portfolio of state-specific affiliate marketing properties will expand to include them. We largely utilize search engine optimization and programmatic advertising campaigns to drive traffic to our D2P sites.

In connection with our national audience aggregation and phased D2P revenue growth initiatives, phase two of our plan will be implemented in the second quarter of 2023 when we launch SharpBetting.com, a sports betting education hub for experienced and novice sports fans. SharpBetting.com is a robust educational website dedicated to teaching new sports betting enthusiasts the fundamentals of, and winning strategies for, navigating the legal sports betting landscape.

The third and final planned phase of our D2P strategy will focus on introducing an entirely new content experience in the fall of 2023, which we expect will bring all our affiliate marketing assets together in a hyper-local, fan-centric experience. Our vision is to power a targeted and personalized sports betting and iGaming environment that organically introduces all fans to our marketing partners through relevant tools, free-to-play games and high quality content – all in a credible environment. The result is expected to be a premium monetization solution that allows us to achieve our audience-building objectives while delivering quantifiable conversion results for our sportsbook and casino partners.

SharpLink’s Affiliate Marketing Services – U.S. group also works closely with a wide range of industry leading sportsbooks to receive, normalize and monitor their betting markets data; and then provides an API to give our partners near real-time access to the latest betting markets and their prices. Additionally, SharpLink manages the ongoing updates to these APIs and markets, removing the technical headache of changing and evolving specifications in a fast-moving industry. The data for every market received from a sportsbook is presented with additional market metadata, enabling partners to quickly cross-reference similar markets across different operators and removing the need for them to parse and map new and changing market names for each sportsbook. Every betting market is also cross-referenced to the relevant sporting entity, allowing SharpLink’s clients to access every market for Patrick Mahomes II, for example, in just one API call. SharpLink’s technologies remove the need for developers to parse and understand these sporting relationships across multiple sports, instead enabling them to leverage existing data sources, such as Sportradar, to automatically select the right markets.

Affiliate Marketing Services Revenues

SharpLink generates revenue from both our Affiliate Marketing Services International and United States segments by earning a commission from sportsbooks and casino operators on new depositors directed to them via our PAS.net affiliate marketing network in international markets and via our proprietary D2P websites in America. Depending on the terms of our marketing agreement with each operator and the type of license SharpLink has been granted in a particular state by its regulator, commissions may be paid in the form of cost per acquisition (“CPA”) or by sharing in NGR generated by the referred depositor. In addition, our Affiliate Marketing Services – U.S. segment provides sports betting data (e.g., betting lines) to sports media publishers in exchange for a fixed fee.

In November 2021, we and Quintar, Inc. (“Quintar”), the developer of the world’s first Augmented Reality (“AR”) centered sport fan technology platform, jointly announced our intent to partner to integrate SharpLink’s C4 sports betting conversion technology with Quintar’s Q.Reality technology to produce an AR experience that combines live sporting events with real-time sports betting for sports fans in legal betting states – whether they are at the event or viewing live game action from home on the television. Quintar is currently focused on implementing its phased development roadmap for its Q.Realityplatform and will look to integrate SharpLink’s sports betting conversion technology into its capabilities as it further evolves.

Market Opportunity

Online Sports Betting

Prior to May 2018, the Professional and Amateur Sports Protection Act of 1992, or “PASPA,” restricted the ability of individual states to legalize sports betting in the United States. However, in May 2018, the U.S. Supreme Court ruled that PASPA violated the United States Constitution. As a result of the Supreme Court’s decision, the federal restrictions on sports betting under PASPA were no longer enforceable, giving individual states the power to legalize sports betting. Since PASPA overturned the federal ban on regulated sports wagering outside of Nevada, all but 16 states in the country have legalized sports betting in some capacity and have collectively benefited from over $2.6 billion generated in taxes/jurisdiction revenue from June 2018 through March 14, 2023. (Source: LegalSports Report, March 14, 2023, https://www.legalsportsreport.com/sports-betting/revenue/).

According to the latest analysis from PlayUSA published in December 2022, the U.S. sports betting market is poised for a record-breaking year in 2023. In total, PlayUSA reports that it expects legal states to generate nearly $120 billion in handle and nearly $9 billion in revenue during the year. Considering that the total handle wagered in November 2022 for all legal states hit a new record high, cresting $10 billion for the month, the 2023 growth outlook for U.S. sports betting is on pace to meet and, perhaps, exceed this forecast.

In February 2023, the American Gaming Association (“AGA”) reported that a record 50.4 million American adults were expected to wager $16 billion on Super Bowl LVII alone – with 30 million projected to place bets online. The total amount expected to be wagered is more than double the amount from 2021. Hard data was used to back up the AGA’s predictions of a record-setting betting market for this year’s game. GeoComply, which handles nearly all the online betting traffic for the U.S. sports betting market to verify a customer is in a particular location where such bets are legal, said it had recorded over 550 million geolocation checks during the NFL playoffs from January 14-29, 2023; and subsequently announced on February 12, 2023 that it had conducted a record 100 million geolocation checks across 23 U.S. states and the District of Columbia with legal, online sports betting during Super LVII weekend.

iGaming

                iGaming is any kind of online betting that wagers on the future outcome of a game or event.  Sports betting, online casinos, poker and eSports all fall under the iGaming definition.  However, the legality of iGaming has different timelines around the world, and the U.S. is one of the most recent to establish a regulated iGaming market. This compares to the United Kingdom, which has enjoyed regulated online sports betting, casinos and poker sites since 2005.  In fact, as of the end of 2022, just seven U.S. states have legalized online casino games, poker or both: Connecticut, Delaware, Michigan, Nevada, New Jersey, Pennsylvania and West Virginia. Although yet nascent, the U.S. iGaming industry presents a compelling growth opportunity for industry stakeholders as more states seek to legalize, regulate and tax iGaming. 

Free-To-Play Sports Games

As sports betting continues to proliferate in the United States, F2P sports games continue to play an important role in allowing operators to offer engaging services in states where sports betting is not legal, attract and educate prospective new sports bettors where it is legally permitted, and provide a host of other benefits to operators, including building brand awareness and capturing big data and deep behavioral insights on would-be bettors.  F2P is an opportunity for players to engage with games and products for fun or practice, sometimes in real-time.  F2P provides the same entertaining gameplay, even offering bonus rewards or prizes found in real-money games, while allowing game producers, brands and operators to cultivate audience.  Moreover, F2P allows operators to tap into sports fans who have yet to engage in real money sports betting or DFS, but are intrigued by the prospect of learning how to become real online sports bettors  -- something they can do by playing F2P games.

As the sports betting landscape continues to evolve, the ways fans interact with the various games that interest them will change as well. Fans are looking for innovation not only in the game, but how they interact with it. According to an article published in Global Gaming Business Magazine, “The old saying goes that innovation is the mother of invention. The same is true of the sports betting market of the future. Today’s bettors and those in the future are looking for innovation in their experience. F2P allows operators to test various methods and innovate the experience to see what resonates with sports fans who may want to bet, if they don’t already... Sometimes the fan is forgotten in the experience, and creating a conversation between the fan and the game through an F2P offering can ensure that the fan is kept in mind.”

Sports are about fan interaction, creating a conversation between fellow fans and opposing fans alike, and building that relationship between the fan, the team and the sports that they love. By creating that dialogue, organizations can build further affinity for the sport and keep the fans engaged at a higher level, whether they are in-venue, watching from the comfort of their own home, or sitting at a bar with other fans. F2P also allows operators to find a more reasonable acquisition cost per player in a competitive market that has some operators providing several hundreds, if not thousands, of dollars in promotional play, providing an F2P option early and continuously can bring in players at a much lower cost and build enduring affinity with the player. 

Fantasy Sports

On a global basis, the Fantasy Sports Market was valued at $21.39 billion in 2021 and is expected to reach $44.07 billion, with an estimated CAGR of 12.92% over the forecast period of 2022-2027, according to a report published by market research firm Mordor Intelligence in June 2022. In this report, the author states, “The increasing popularity of players, the emergence of sports leagues, growing investment in digital and Internet infrastructure and the launch of fantasy sports applications as other means to connect with fans’ favorite sports are some of the factors driving the market’s growth.”

In September 2022, research firm Market Decipher forecasted in its report titled, “Global Fantasy Sports Market Size, Statistics, Trend Analysis and Forecast Report, 2022-2032,” that the industry will reach $92.61 billion by 2032 with North America and India expected to lead the growth. In fact, Technavio, another independent market research firm, is projecting that 41% of the growth in the global industry will originate in North America between its forecasted period of 2021-2026.

Based on its May 2022 survey of 2,000 American adults, research firm Leger reported that approximately 20% of all Americans over the age of 18, or approximately 50.4 million people, now play fantasy sports, an increase of six million versus 2021 when the U.S. sports industry was still in the throes of the COVID pandemic. The Leger study also showed that DFS continued to grow with over 30 million U.S. adults playing – up 12% over 2019 when the number was last calculated. Data from the study also reflected that the crossover between DFS players and season-long fantasy players is up significantly, too. Looking strictly at key behavioral indicators of a fantasy sports player, the NFL, MLB and NBA continue to be the most popular sports leagues with players -- with eSports making a huge jump among DFS players.

Affiliate Marketing

Search for odds or lines on any given match-up, and the vast majority of search results will spring from affiliate marketing sites. The affiliate market has a long history of operating in tandem with sports betting, reaching back to much-more-mature markets like the United Kingdom and countries throughout Europe – or even beyond locally regulated online betting – and into the early annals of U.S. sports betting upon PASPA’s 2018 repeal.  However, today, the value of a modern affiliate marketer goes far beyond the number of first-time depositors they generate in a month.  Rather, they also provide expert feedback, educate new players and offer a low-risk marketing alternative to traditional advertising, as they are paid on performance. 

Virtually every online gambling operator in the Unites States utilizes affiliate marketing, also referred to as performance marketing, to get their brand in front of the most valuable customers -- the high intent customers.  Many of the end-users that browse an affiliate website have already decided that they are going to open an account with a sportsbook and wager online; however, they have not yet decided where they want to do that. 

Due to technical tools and features like digital marketing, analytics and the extended usage of cookies, affiliate marketing  in sports betting has become extremely cost effective to implement and measure, making it a billion-dollar industry. In the U.S., affiliate marketing spending was estimated to reach $8.2 billion in 2022 and is projected to grow to reach approximately $13 billion in 2023, according to statistics published by Demand Sage, an advanced business intelligence solutions company.  Other statistical data supplied by Demand Sage include the following:

Competition

A number of businesses exist in the markets in which SharpLink operates – namely the B2B provision of sports data-driven technology and related services to the sports betting and iGaming industries. These businesses generally fall into three categories: small companies with some similar products but with minimal distribution; companies that acknowledge official rights but lack meaningful scale; and genuine competitors that offer similar products and services to the same target clients. SharpLink considers its most direct and relevant competitors to be Gambling.com, Catena Media, Bettor Collective, Genius Sports, Sportradar, Fresh8Gaming (acquired by Sportradar in March 2021) and MetaBet.

The specific industries in which we operate are characterized by dynamic customer demand and technological advances, and there is significant competition among sports betting and iGaming affiliate marketers, F2P game developers and fantasy sports property operators. A number of established, well-financed companies producing online gaming and/or sports betting conversion products and services compete with our product offerings, and other well-capitalized companies may introduce competitive services. There has also been consolidation among competitors in the sports betting and iGaming industries and such consolidation and future consolidation could result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive products and services, gain a larger market share, expand their product and service offerings and broaden their geographic scope of operations.

In its sports gaming betting services business, SharpLink and one or more of its competitors may often simultaneously serve the same clients. SharpLink’s competitors have their own portfolio of technology products and services, and sportsbooks rarely agree to have exclusive agreements with just one provider as this prevents them from offering a broad range of solutions, placing them at a competitive disadvantage. These dynamics result in a highly competitive industry.

Our Competitive Strengths

SharpLink believes that the principal differentiating factors in the sports data industry include the breadth and depth of its market-centric portfolio of conversion solutions, reliability of key services, relationships with sportsbooks and leagues, ease of integration and scalability. SharpLink’s products, services, experience, industry relationships and corporate culture allow it to compete effectively across all these factors. By delivering what SharpLink believes is an unprecedented level of user engagement and stickiness for our valued clients made possible by our proprietary C4 technology solutions, we helps our clients to reduce their customer acquisition costs and achieve significantly higher customer lifetime values.

Key Growth Strategies

                The key elements of SharpLink’s long-term growth strategy are focused on:

Government Regulation

We operate in various jurisdictions and our business is subject to extensive regulation under the laws, rules and regulations of the jurisdictions in which we operate. Violations of laws or regulations in one jurisdiction could result in disciplinary action in that and other jurisdictions.

We have a progressive U.S. licensing strategy.  We are currently licensed or authorized to provide fantasy sports and online sports betting services in 24 U.S. states, the District of Columbia and Ontario, Canada.  State gaming authorities may, subject to certain administrative procedural requirements, (i) deny an application, or limit, condition, revoke or suspend any license issued by them; (ii) impose fines, either on a mandatory basis or as a consensual settlement of regulatory action; (iii) demand that named individuals or stockholders be disassociated from a gaming business; and (iv) in serious cases, liaise with local prosecutors to pursue legal action, which may result in civil or criminal penalties.  In those states that currently require a license or registration for Daily Fantasy Sports (“DFS”) operations, SharpLink has either obtained the appropriate license or registration or a provisional license from the relevant regulatory authority, or is operating pursuant to a grandfathering clause that allows operation pending the availability of licensing applications and subsequent grant of a license. In the United States, our DFS licenses are generally granted for a predetermined period of time – typically ranging from one to four years – or require documents to be supplied on a regular basis in order to maintain our licenses.

Among others, applicable laws include those regulating privacy, data/cyber security, data collection and use, cross-border data transfers, advertising regulations and/or sports betting and online gaming laws and regulations. These laws impact, among other things, data collection, usage, storage, security and breach, dissemination (including transfer to third parties and cross-border), retention and destruction. Certain of these laws provide for civil and criminal penalties for violations.

The data privacy and collection laws and regulations that affect SharpLink’s business include, but are not limited to:

Other regulations that affect SharpLink’s business include:

For more detailed information regarding government regulations that has historically affected or may affect our business in the foreseeable future, please refer to Item 1a. Risk Factors – Risks Related to Legal Matters and Regulations Affecting SharpLink’s Business.

Compliance

SharpLink has implemented (and is committed to continually refining and enhancing ) a holistic internal compliance program to help ensure that we remain in full compliance with state regulatory licensing requirements imposed on us in connection with our business operations. Compliance is an important cornerstone of our growth strategy and we are committed to building our business and our reputation by adhering to the highest compliance standards.

Our Headquarters

Our principal executive offices are located at 333 Washington Avenue North, Suite 104, Minneapolis, Minnesota and our telephone number is 612-293-0619. Our website address is www.sharplink.com. The information contained on, or that can be accessed through, our website is not a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.

Human Capital Resources

As of December 31, 2022, SharpLink employed a total of 62 full-time employees, including eight in general and administrative, two in sales/marketing/customer support, and 52 in product development. SharpLink outsources certain employment benefits and other employee-related administrative functions to a third party service provider, which serves as a co-employer of its employees for these purposes. None of SharpLink’s employees are currently represented by a labor union or covered by a collective bargaining agreement, and SharpLink’s management believes that the company’s relations with its employees are good.

We acknowledge that our employees are our most valued asset and the driving force behind our success.  For this reason, we aspire to be an employer that is known for cultivating a positive and welcoming work environment and one that fosters growth, provides a safe place to work, supports diversity and embraces inclusion.  To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay, benefit and perquisite programs; enhance our culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate internal talent mobility to create a high performing, diverse workforce; engage employees as brand ambassadors of our products; and evolve and invest in technology, tools and resources to enable employees at work.

We continue to take action to protect our employees’ health in response to the COVID-19 pandemic and emergence of additional variants of the coronavirus.  While our primary offices, including our corporate headquarters in Minneapolis, Minnesota, have been opened for business since mandatory state lockdowns were lifted, we offer our employees the option of working from home or choosing a hybrid work model, if desired.  We continue to monitor developments relating to disruptions and uncertainties caused by COVID-19 and its variants. 

Intellectual Property

Intellectual property rights are important to the success of SharpLink’s business. SharpLink relies on a combination of database, trademark, trade secret, confidentiality and other intellectual property protection laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties and other contractual protections, to protect its intellectual property rights, including its database, proprietary technology, software, know-how and brand. In the United States, SharpLink has filed trademark applications, currently hold several trademarks and domain names and, in the future, it may acquire patents, additional trademarks and domain names. SharpLink has also entered into license agreements, data rights agreements and other arrangements with sports organizations for rights to collect and supply their sports data. These agreements typically have terms of several years and are subject to renewal or extension. As of February 2023, SharpLink owns two patents, 22 registered trademarks in the United States and 450 domain name registrations.

It has not always been, and in the future may not be, possible or commercially desirable to obtain registered protection for SharpLink’s products, software, databases or other technology. In such situations, SharpLink relies on laws governing protection of unregistered intellectual property rights, confidentiality and/or contractual exclusivity of and to underlying data and technology to prevent unauthorized use by third parties. SharpLink uses Open Source Software in its services and periodically reviews its use of Open Source Software to attempt to avoid subjecting its services and product offerings to conditions SharpLink does not intend to impose on them.

SharpLink controls access to and use of its data, database, proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, clients and partners. SharpLink requires its employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements, and it controls and monitors access to its data, database, software, documentation, proprietary technology and other confidential information. SharpLink’s policy is to require all of its employees and independent contractors to sign agreements assigning to it any inventions, trade secrets, works of authorship, developments, processes and other intellectual property generated by them on its behalf and under which they agree to protect its confidential information. In addition, SharpLink generally enters into confidentiality agreements with its clients and partners.

Where You Can Find Additional Information

The Company currently files with the U.S. Securities and Exchange Commission (the “SEC”) current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. Further, all filings made by SharpLink when it qualified as a foreign private issuer are also maintained with the SEC. These filings are available free of charge on the Company’s website, www.sharplink.com, shortly after they are filed with the SEC. The SEC maintains an Internet website, www.sec.gov, which contains reports and information statements and other information regarding issuers.

ITEM 1A.RISK FACTORS

The risk factors discussed below could cause our actual results to differ materially from those expressed in any forward-looking statements. Although we have attempted to list comprehensively these important factors, we caution you that other factors may in the future prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for us to predict all of these factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

The risks described below set forth what we believe to be the most material risks associated with the purchase of our Ordinary Shares. Before you invest in our Ordinary Shares, you should carefully consider these risk factors, as well as the other information contained in this prospectus.

Risks Related to Our Business and the Industries We Serve

SharpLink has a history of losses and may not be able to achieve or sustain profitability in the future.

We have a history of incurring net losses and we may not achieve or maintain profitability in the future. We experienced net losses of $15,233,378 and $55,644,135 for the years ended December 31, 2022 and 2021, respectively, after factoring net income from discontinued operations of $70,024 and a net loss from discontinued operations of ($22,174,305) for the same comparable periods, respectively.  As of December 31, 2022, we had an accumulated deficit of $73,565,641. We cannot predict when or whether we will reach or maintain profitability. We also expect our operating expenses to increase in the future as we continue to invest for our future growth, which will negatively affect our results of operations if our total revenues do not increase.  

If we are unable to increase our revenues or our operating costs are higher than expected, we may not be able to achieve profitability and our operating results may fluctuate significantly.

We may not be able to accurately forecast our revenues or future revenue growth rate. Many of our expenses, particularly personnel costs and occupancy costs, are relatively fixed, but we may experience higher than expected operating costs, including increased selling and marketing costs, investments in geographic expansion, acquisition costs, communications costs, travel costs, software development costs, third-party technology licensing fees, audit and legal fees, professional fees and other costs. As a result, we may not be able to adjust spending quickly enough to offset any unexpected increase in expenses or revenue shortfall. Increased competition could lead to significant price pressure for the products and services we provide, which could make profitability even more challenging.

If operating costs exceed our expectations and cannot be adjusted accordingly, our results of operations and financial position could be materially and adversely affected. Additionally, we may not be able to sustain our current revenue and any revenue growth. Reduced demand, whether due to a weakening of the global economy, reduction in consumer spending, competition or other reasons, may result in decreased revenues and growth, and a material adverse effect on our operating results. 

We will require additional capital to support our growth plans and such capital may not be available on reasonable terms or at all.plans. If we do not raise sufficient capital, there is substantial doubt about our ability to continue as a going concern.

In the pursuit of our long-term growth strategy and the development of our sports betting conversion, affiliate marketing services and related businesses, we have sustained continued operating losses. During the years ended December 31, 2022 and 2021, we had a net loss from continuing operations of $15,303,402 and $33,469,830, respectively, and cash used in operating activities from continuing operations of $6,510,965 and $5,854,995. To help fund our operations, we raised capital from banks and outside investors in the aggregate amounts of $2,675,343 and $15,678,085 for the years ended December 31, 2022 and 2021, respectively, in the form of a term loan in 2022 and the sale of Ordinary Shares and conversion of preferred stock and prefunded and regular warrants during 2021. Based on continued expected cash needs to fund our ongoing technology development initiatives and grow our Affiliate Marketing Services–United States operations, we may require additional liquidity to continue our operations for the next year. Subsequent to the end of 2022, in February 2023 we closed on a $4.4 million convertible debenture and signed a two-year $7.0 million revolving loan agreement with our commercial lender.

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.

Impact of COVID-19 On Our indebtedness could adversely affect our business.Business Operations

As of December 31, 2022, we had $8,071,267 in debt obligations which includes the assumption of repayment obligations from the SportsHub Merger.  More specifically, with the closing of the SportsHub Merger on December 22, 2022, we assumed repayment obligations of $5,387,850 in connection with a revolving line of credit and a term note held by SportsHub.

Subsequent to the end of 2022, on February 13, 2023, SharpLink, Inc. (the “Borrower”), a Minnesota corporation and wholly owned subsidiary of the Company, entered into a Revolving Credit Agreement (the “2023 Revolving Credit Agreement”) with Platinum Bank, a Minnesota banking corporation (the “Lender”) and executed a revolving promissory note of $7,000,000 (the “2023 Revolving Note”).  The 2023 Revolving Credit Agreement provides for a two-year revolving line of credit (the “2023 Credit Line”) in the original principal amount of $7,000,000. The annual rate of interest to accrue on the outstanding principal balance of the 2023 Credit Line shall be annum interest rate equal to the prime rate plus 50 basis points, with such rate to be adjusted on and effective as of the same day the prime rate changes. The Borrower is subject to normal and customary representations and covenants, including the delivery of audited annual financial statements within 120 days of its fiscal year end.

The Company’s indebtedness could have adverse consequences, including, but not limited to: 

Our debt obligations require us to use a portion of our operating cash flow to pay interest and principal on indebtedness instead of for other corporate purposes, including funding future expansion of our business, acquisitions and ongoing capital expenditures, which could impede our future growth. If our operating cash flow and capital resources are insufficient to service our debt obligations, we may be forced to sell assets, seek additional equity or debt financing or restructure our debt, which could harm our long-term business prospects. Our failure to comply with the covenants contained in the terms of our indebtedness could result in an event of default which, if not cured or waived, could result in the acceleration of the debt.

COVID-19 adversely affected our business, financial condition, results of operations and prospects, including as a result of the reduction in the quantity of global sporting events, closures or restrictions on business operations of our clients and a decrease in consumer spending, and we may continue to experience such effects in the future.

The worldwide outbreak of COVID-19 in early 2020 negatively affected economic conditions regionally as well as globally and caused a reduction in consumer spending. Efforts to contain the effect of the virus included business closures, travel restrictions, and restrictions on public gatherings and events. Many businesses eliminated non-essential travel and canceled in-person events to reduce instances of employees and others being exposed to public gatherings. Governments around the world, including governments in Europe and state and local governments in the U.S., restricted business activities and strongly encouraged, instituted orders or otherwise restricted individuals from leaving their home. To date, governmental authorities imposed or recommended various measures, including social distancing, quarantine, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, and cancellation of events, including sporting events, concerts, conferences and meetings. The suspension, postponement and cancellation of sporting events affected by COVID-19 had an adverse impact on the progression of SharpLink’s overall business plan and our revenue and the revenue of our clients.

Although many sports seasons and sporting events recommenced in 2021, the fluidity of this situation, potential for virus variants and potential setbacks associated therewith precludes any prediction as to the ultimate impact of COVID-19 and any emerging variants of coronavirus, which remains a material uncertainty and risk with respect to ourSharpLink’s business, performance, and financial results. The revenue of our clients, and our own revenue, continue to depend on sports events taking place and consumer participation and spending on entertainment and leisure activities, and any further setbacks with respect to COVID-19 and its variants could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our cashRecent Developments

Merger with SportsHub Games Network Inc. (the “SportsHub Merger”)

SharpLink, SharpLink, SHGN Acquisition Corp., a Delaware corporation and cash equivalents could be adversely affected if the financial institutions in which we hold our cashwholly owned subsidiary of SharpLink (“Merger Subsidiary”), SportsHub and cash equivalents fail.

On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of Silicon Valley Bank (“SVB”) and created the National Bank of Santa Clara to hold the deposits of SVB after SVB was unable to continue their operations. Since that date, SVB has announced they have been acquired and have resumed mostly normal operations. As of April 3, 2023, we had approximately $140,000 held in SVB. Nevertheless, we regularly maintain cash balances at third-party financial institutions, including Platinum Bank, in excess of the FDIC insurance limit. In addition, we have signed several loan agreements with Platinum Bank. A failure of Platinum Bank, and/or any other financial institution where we maintain cash balances, similar to SVB, to return our deposits, or if any such bank is subject to other adverse conditions in the financial or credit markets, could impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance.

SharpLink’s C4 sports betting conversion solutions are still in the early stages of development and commercialization. Failure to successfully develop, test and commercially expand such technology solutions could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our sports betting conversion solutions, marketed under the brand “C4,” are critical to our overall business strategy and our ability to achieve and maintain profitability. While our sports betting conversion solution has been launched, it is still in the early stages of development, has had only limited functionality testing and development, and is commercialized with only two proprietary Fantasy Sports properties, one sportsbook and with bets that have been generally limited to American football, golf and auto racing. Successful development and testing depend on a number of circumstances, many of which are not in our control, including without limitation, the ability to attract and retain developers, the interest of third parties in pilot testing or early adoption and the response to any unexpected errors or issues.

In addition, even if development and testing of our C4 solutions are generally successful, there can be no assurance that we will be able to sell such service to prospective clients on commercially reasonable terms, if at all. If we are unable to successfully develop and test the C4 solutions to work seamlessly with other sportsbooks and media organizations on a wide variety of sports and bet types, or if our sports betting conversion solutions fail to attract clients on commercially reasonable terms and/or meet client expectations, we may not experience any meaningful commercial success with respect to our C4 betting conversion solution, which would materially and adversely affect our business, financial condition, results of operations and prospects.

SharpLink relies on relationships with sports leagues, sports media organizations and sportsbooks and loss of existing relationships or failure to renew or expand existing relationships may cause loss of a competitive advantage or require SharpLink to modify, limit or discontinue certain offerings, which could materially and adversely affect our business, financial condition, results of operations and prospects.

SharpLink relies on relationships with sports leagues, sports media organizations and sports betting bookmakers, and the future success of our business may depend, in part, on our ability to obtain, retain and expand such relationships. SharpLink’s arrangements with sports leagues, sports media organizations and sportsbooks may not continue to be available to us on commercially reasonable terms, or at all. In addition, the industries we operate in are highly competitive. It is common for multiple competitors to provide services to clients simultaneously and we expect this to continue. In the event  we lose existing arrangements or cannot renew and expand existing arrangements, we may be required to discontinue or limit our offerings or services, which could materially and adversely affect our financial condition and business operation.

SharpLink operates in a competitive market and may lose clients and relationships to both existing and future competitors.

The markets for fantasy sports and F2P games, sports data-related solutions and performance marketing services are competitive and rapidly changing. The sports betting and sports media industries are particularly competitive and fast growing. Competition in these markets may increase further if economic conditions or other circumstances, including as a result of COVID-19 and its emerging variants, cause consumer bases and consumer spending to decrease and service providers to compete for fewer consumer resources. Our existing and future competitors have, or may in the future have or obtain, greater name recognition, larger customer bases, better technology or data, lower prices, exclusive or better access to data, greater user traffic or greater financial, technical or marketing resources than we have. Our competitors may be able to undertake more effective marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscribers, sports betting operators, sports leagues, sports media organizations, distribution partners and content providers or may be able to respond more quickly to new or emerging technologies or changes in user requirements. If our competitors develop technology before we do, our business and profitability could be materially and adversely affected. If we are unable to maintain or develop relationships with sports leagues, sports media organizations and sportsbooks, our revenues will fail to grow or may even decline, in each case having a material adverse effect on our business, financial condition, results of operations and prospects.

Our revenue prospects may be materially and adversely affected if we are unable to acquire companies with complementary technology or that operate in the same or complementary industries; and any such acquisition efforts may divert management’s attention from other critical activities.

SharpLink may seek to grow revenue in part through acquisition of companies with similar or complementary technology or that operate in similar or complementary industries. The market for acquisitions is highly competitive and subject to several factors, including without limitation, general economic conditions and tax or other regulatory changes. Furthermore, acquisitions require a significant amount of management time and resources, both in terms of execution and integration of any acquisition target. In addition, our competitors have been and may continue to also pursue acquisitions and have or may have better capital resources than us, stronger name recognition in the acquisition market and a longer history of successful transactions. Our revenue prospects may be materially and adversely affected if we are unable to make successful acquisitions. Further, pursuing such activities may divert attention from other critical activities of our business plan, such as development, testing and commercialization of products and services.

SharpLink’s business may be materially and adversely affected if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards and changing regulatory requirements, or if we do not invest in product development and provide services that are attractive to our clients.

Our future business and financial success will depend on our ability to continue to anticipate the needs of our clients or potential clients in order to successfully introduce new and upgraded products and services and to successfully implement our current and future geographic and product and service expansion plans. To be successful, SharpLink must be able to quickly adapt to changes in technology, industry standards and regulatory requirements by continually enhancing our technology, services and solutions. Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes burdens on our product development team and management. These processes are costly and time intensive, and our efforts to develop, integrate and enhance our products and services may not be successful. In addition, successfully scaling up and launching and selling a new or upgraded product or service puts additional strain on our sales and marketing resources. Investing resources towards increasing the depth of our coverage within existing markets imposes additional burdens on our personnel and capital resources. If we are unable to manage our expansion efforts effectively, in obtaining greater market share or in obtaining widespread adoption of our current or future products and services, we may not be able to offset the expenses associated with the launch and marketing of the new or upgraded services, which could have a material adverse effect on our financial results.

If we are unable to develop new or upgraded products and services or decide to combine, shift focus from, or phase out a product or service, then our clients may choose a competitive product or service over us, our revenues may decline, and our ability to achieve or maintain profitability may be reduced. If we incur significant costs in developing new or upgraded services or combining and coordinating existing services, if we are not successful in marketing and selling these new services or upgrades, or if our clients fail to accept these new or combined and coordinating services, then there could be a material adverse effect on our results of operations, and we may never achieve profitability. If we eliminate or phase out a product or service and we are not able to offer and successfully market and sell alternative products or services, our revenues may decrease, which could have a material adverse effect on our results of operations.

The loss or significant reduction in business from one or more of our large clients could materially and adversely affect our business, financial condition and results of operations.

A material portion of our revenue is concentrated in some of our largest clients, and we do not have long-term contracts that require these clients to continue to use our services. Our revenue growth depends on our ability to obtain new clients and achieve and sustain a high level of renewal rates with respect to our existing clients. Failure to achieve one or more of these objectives could have a material adverse effect on our business, financial condition and operating results.

SharpLink’s operations are subject to seasonal fluctuations that may impact results of operations and cash flow.

Although the sporting calendar is year-round, there is seasonality in sporting events that may impact our operations and operations of sports leagues, sports media organizations, casinos and sports betting bookmakers. Certain sports only hold events during portions of the calendar year, suchChristian Peterson, an individual acting as the NFL, which plays games inSportsHub stockholders’ representative entered into the fall and winter months. Sports off-seasons cause decreases in our revenues and revenues of our clients, and factors suchMerger Agreement on September 7, 2022. The Merger Agreement, as playoffs, championships or similar events are unknown and may not yield consistent sources of revenue for us and our clients. Further, our revenue and the revenue of our clients may also be affectedamended on November 2, 2022 by the scheduling of major sporting events that do not occur annually, such as the Olympics or World Cup, or the cancellation or postponement of sporting events and races, such as postponements which resulted from the COVID-19 pandemic. Such fluctuations and uncertainties may have a material adverse effect on our future financial condition or results of operation.

Our business and operating results and operating results of our clients and vendors may be significantly impacted by general economic, political and social conditions, pandemics, wars or terrorist activity, severe weather events and other natural disasters, and the health of the sports, entertainment and sports betting industries.

Our business and operating results and the business and operating results of our clients and vendors are subject to global economic conditions and their impact on levels of consumer spending. Economic recessions have had, and may continue to have, far reaching adverse consequences across many industries, including the global sports, entertainment and sports betting industries, and may have a material adverse effect on our business and financial condition and the business and financial condition of our clients, business partners and vendors. If the U.S. or international economies experience another recession or any of the relevant regional or local economies suffer a continued downturn, we may experience a material adverse effect on our business, financial condition, results of operations and prospects.

Adverse developments affecting financial markets and economies throughout the world, including fluctuation in stock markets resulting from, among other things, trends in the economy as a whole, a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, severe weather events and other natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines or volatility in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases, may further reduce spending on sporting events, sports betting and marketing services and may negatively affect the sports, entertainment and sports betting industries. Any one of these developments could have a material adverse effect on our business, financial condition, results of operations and prospects.

We depend on a limited number of customers for a substantial portion of our Affiliate Marketing Services – International revenue, and the loss of customers, unfavorable changes to terms in customer contracts or unfavorable changes in the markets served by our customers due to geopolitical, regulatory or other facts could materially and adversely affect our revenue, profitability and financial condition.

Our Affiliate Marketing Services – International business segment generates revenue by delivering a broad base of players to iGaming operators, which are our customers. The loss of any of our key operators, or a significant reduction in sales or contracted rates to any key operator, or unfavorable changes in contracts with operators due to geopolitical, regulatory or other factors, could significantly reduce our revenue, margins and earnings and adversely affect our business. Entain plc, an operator, is our largest customer, comprising approximately 75% of our Affiliate Marketing Services – International business segment’s revenue for the year ended December 31, 2022. The contract with this customer requires a nominal notice period to terminate the contract. If notice were provided, our revenues would decline from then-current net gaming revenue rates to approximately one-third the then-current rate.

The impact to gross margin percentage would be a similar reduction to that of revenue percentage as we pay our sub-affiliates based on a percentage of the then-current net gaming revenue and any reduction in our revenue would be a corresponding reduction in our cost of revenue. This customer also has the unilateral right to cease offering services in the markets in which it operates which would result in the loss of revenue to us. In response to a removal of service offerings in various markets, our Affiliate Marketing Services – International segment has the ability to market our user base to other operators who continue to offer service to the various markets. If we are required to change service providers, we expect to incur switching costs, which could include lost revenues during the transition period and additional player promotions to incentive players to migrate to a new platform once the platform previously used is no longer available.

On February 24, 2022, Russia launched an invasion in Ukraine.  In connection with the status of international relations with Russia, particularly in light of Russian’s invasion of Ukraine, the U.S. government and the European Union have adopted sanctions on certain industry sectors and parties in Russia. The United States and other countries may implement additional actions, including trade actions, tariffs, export controls and sanctions against other countries or localities, including potentially against certain Russian government, government-related or other entities or individuals related to actions in Ukraine, which along with any retaliatory measures could increase costs, adversely affect our operations or adversely affect our ability to meet contractual and financial obligations.   These potential sanctions and export controls, as well as any responses from Russia, could adversely affect us and/or the Company’s business partners or customers. While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity. For example, Entain plc, the largest customer of our Affiliate Marketing Services – International business segment, informed us in February 2022 it had elected to exit the Russian market in response to Russia’s conflict with Ukraine, resulting in the loss of approximately 40% of the annual revenue historically generated from this customer.   Consequently, during the year ended December 31, 2022, SharpLink recorded goodwill and intangible asset impairment charges of $4,726,000, largely resulting from Entain plc’s loss of access to customers in Russia.

Our recruitment and retention of qualified personnel and key employees, including members of our senior management team, are vital to growing our businesses and meeting our business plans. The loss of any of our key executives or other key employees could harm our business.

We depend on a limited number of key employees to manage and operate our businesses. We believe a significant portion of our success is owed to our co-founders, Rob Phythian and Chris Nicholas, and their longstanding relationships with sports leagues, sports media companies and fantasy sports companies. The leadership of Mr. Phythian, Mr. Nicholas and our other current executive officers and key employees has been critical and the departure of Mr. Phythian, Mr. Nicholas or any one of our other executive officers or other key employees, or other extended or permanent loss of any of their services, or any negative market or industry perception with respect to any of them or their loss, could have a material adverse effect on our businesses. We may not be able to attract or retain such highly qualified personnel in the future, and we do not expect that we will be able to replace their longstanding industry relationships. In addition, the loss of employees or the inability to hire qualified personnel that are knowledgeable regarding the sports betting and online gaming industries could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to our business.

The sports betting and online gaming industries require specific knowledge that is not easily transferable from other industries and finding suitable replacements for specialized roles can be challenging in a limited talent pool. The prevailing tight labor market in the United States has also made hiring more difficult and the costs of hiring more expensive, including for technical workers. If we do not succeed in attracting, hiring and integrating qualified personnel, or retaining and motivating existing personnel, we may be unable to grow effectively and our business, financial condition, results of operations and prospects could be materially and adversely affected. In addition, the effects of inflation of compensation and related employee costs may have a material adverse effect on our financial condition and results of operations.

Negative events or negative media coverage relating to, or a declining popularity of fantasy sports, sports betting, the underlying sports or athletes, online sports betting or iGaming in particular, or other negative coverage may adversely impact our ability to retain or attract users, which could have an adverse impact on our business.

Public opinion can significantly influence our business. Unfavorable publicity regarding us, for example, our product changes, product quality, litigation, or regulatory activity, or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes), could seriously harm our reputation. In addition, a negative shift in the perception of sports betting and iGaming by the public or by politicians, lobbyists or others could affect future legislation of sports betting and iGaming, which could cause jurisdictions to abandon proposals to legalize sports betting and iGaming, thereby limiting the number of jurisdictions in which we can operate. Furthermore, illegal betting activity by athletes could result in negative publicity for our industry and could harm our brand reputation. Negative public perception could also lead to new restrictions on or to the prohibition of iGaming or sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.

SharpLink has acquired, and in the future may acquire or merge with, other businesses. Our business may suffer if we are unable to successfully integrate acquired businesses into us or otherwise manage the growth associated with multiple acquisitions.

As part of our growth strategy, we have made, and intend to continue to pursue, mergers and acquisitions as opportunities arise to add new or complementary businesses, products, brands or technologies, including the recent acquisition of certain business assets of FourCubed, completed on December 31, 2021, and the merger with SportsHub, consummated on December 22, 2022. In some cases, the costs of the Company’s mergers and acquisitions may be substantial, including as a result of professional fees and due diligence efforts. There is no assurance that the time and resources expended on pursuing a particular acquisition will result in a completed transaction, or that any completed transaction will ultimately be successful. In addition, we may be unable to identify suitable acquisition or strategic investment opportunities or may be unable to obtain any required financing or regulatory approvals, and therefore may be unable to complete such acquisitions or strategic investments on favorable terms, if at all.

 We may decide to pursue acquisitions with which our investors may not agree, and we cannot assure investors that any acquisition or investment will be successful or otherwise provide a favorable return on investment. In addition, acquisitions and the integration thereof require significant time and resources and place significant demands on our management, as well as on our operational and financial infrastructure. In addition, if we fail to successfully close transactions or integrate new teams, or integrate the products and technologies associated with these acquisitions into our Company, our business could be seriously harmed. Acquisitions may expose us to operational challenges and risks, including, but not limited to:

SharpLink’s merger and acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Moreover, issuing ordinary or preferred shares, or other securities, to fund an acquisition would cause economic dilution to existing shareholders.

Risks Related to Legal Matters and Regulations Affecting SharpLink’s Business

We and our clients are subject to complex laws and regulations, which are subject to change and interpretation, and which could subject us to claims or otherwise harm us and our clients. Any change in existing regulations or their interpretation, or the regulatory climate and requirements applicable to us or our clients’ businesses, could have a material adverse impact on our business, prospects, financial condition and results of operations.

SharpLink and our clients are generally subject to laws and regulations relating to sports betting, online gaming, marketing and advertising in the jurisdictions in which SharpLink and our clients conduct our respective businesses, as well as the general laws and regulations that apply to all e-commerce and online businesses, such as those related to privacy and personal information, tax and consumer protection. The laws and regulations applicable to SharpLink and our clients vary from one jurisdiction to another and may be affected by, among other things, political pressures and changes in legislative or governmental priorities. Some jurisdictions have introduced regulations attempting to restrict or prohibit sports betting, online gaming and advertising, while others have taken the position that sports betting or online gaming should be licensed and regulated and have adopted or are in the process of considering legislation and regulations to enable sports betting or online gaming in their jurisdictions.

There can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our businesses and/or the businesses of our clients. In addition, future regulatory action, court decisions or other governmental action may have a material impact on SharpLink and/or our clients’ operations and financial results. Governmental authorities could view SharpLink, or our clients, as having violated applicable laws or regulations, despite SharpLink or our clients’ efforts to obtain and maintain compliance with all applicable licenses or approvals. There are also risks that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent providers, or private individuals, could be initiated against SharpLink, our clients, Internet service providers, payment processors, advertisers and others involved in sports betting and online gaming industries. Changes in applicable law and other regulatory, court or other proceedings could prohibit or impose significant restrictions being imposed upon SharpLink or our clients or other business partners. These events could also involve substantial and unexpected compliance and litigation expense, penalties, fines, seizure of assets and injunctions, while diverting the attention of our management team. Any such proceedings or any change in laws or regulations or their interpretation applicable to SharpLink or our clients could have a material adverse effect on our business, prospects, financial condition and results of operations. 

Failure to obtain or maintain the required regulatory approvals and licenses in the various jurisdictions that SharpLink operates or intends to operate, whether individually or collectively, could have a material adverse effect on our business.

We are currently licensed and/or authorized to operate in 24 U.S. states, the District of Columbia and Ontario, Canada that have adopted legislation permitting online sports betting. Any of the Company’s licenses to operate legally in the industry could be revoked, suspended or conditioned at any time. Any of our future license applications may also be denied or conditioned. The loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for such a license in another jurisdiction, and any of such losses, or potential for such loss, could cause us to cease offering some or all of our offerings in the impacted jurisdictions. As laws and regulations change, we may need to obtain and maintain licenses or registrations in additional jurisdictions. In addition, once licensed, we may be subject to various ongoing requirements, including supervision by the respective governmental agency of certain transfers of ownership and acquisitions.

In addition, we intend to expand into new states and jurisdictions and will generally be required to obtain approval and licensures required by such states and jurisdictions. This is a time-consuming process that can be extremely costly. Any delays in obtaining or difficulty in maintaining regulatory approvals or licenses needed for expansion can negatively affect our opportunities for growth, including the growth of our client base, or delay our ability to recognize revenue from our offerings in any such states and jurisdictions. If we are unable to effectively develop and operate directly or indirectly within these new states or jurisdictions or if our competitors are able to successfully penetrate geographic jurisdictions that we cannot access or where we face other restrictions, there could be a material adverse effect on our business, operating results and financial condition. Likewise, our failure to obtain or maintain the required regulatory approvals and licenses in the various states and jurisdictions in which we operate or intend to operate, whether individually or collectively, could have a material adverse effect on our business, prospects, financial condition and results of operations. 

Future legislative and regulatory action and court decisions or other governmental action, may have a material impact on our operations and financial results. Governmental authorities could view us as having violated local laws, despite our efforts to obtain all applicable licenses or approvals. There is also a risk that civil and criminal proceedings, including class actions, brought by or on behalf of prosecutors or public entities or incumbent monopoly providers, or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, advertisers and others involved in the fantasy sports, sports betting and iGaming industries. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us or our licensees or other business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as impact our reputation. There can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our business to prohibit, legislate or regulate various aspects of the fantasy sports, sports betting or iGaming industries (or that existing laws in those jurisdictions will not be interpreted negatively). Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations, either as a result of our determination that a jurisdiction should be blocked, or because a local license or approval may be costly for us or our business partners to obtain and/or such licenses or approvals may contain other commercially undesirable conditions.

States also impose substantial tax rates on online sports betting and iGaming revenue, in addition to the federal excise tax of 25 basis points on the amount of each wager. As most state product taxes apply to various measures of modified gross profit, tax rates, whether federal or state-based, that are higher than we expect will make it more costly and less desirable for us to launch in a given jurisdiction, while tax increases in any of our existing jurisdictions may adversely impact our profitability. Therefore, even in cases in which a jurisdiction purports to license and regulate fantasy sports, sports betting and/or iGaming, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees.

Our growth prospects depend on the legal status of real money gaming in various jurisdictions, predominantly within the United States, and legalization may not occur in as many states as we expect, or may occur at a slower pace that we anticipate.  Additionally, even if jurisdictions legalize sports betting and iGaming, this may be accompanied by legislative or regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions. 

The legal sports betting market in the United States has increased significantly in recent years after the U.S. Supreme Court’s 2018 ruling that the federal restrictions on sports betting under PASPA were no longer enforceable, thus giving individual states the power to legalize sports betting. SharpLink’s growth strategy significantly depends on additional states legalizing sports betting. However, additional states may not adopt laws allowing sports betting as SharpLink’s management team expects. Moreover, states that have legalized sports betting may eliminate, narrow or otherwise detrimentally change their laws allowing legal sports betting. A failure for the legal sports betting market to expand or a contraction of the market would have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.

In addition, as of February 2023, only six states in the United States have passed legislation for regulating iGaming. We are currently licensed and/or authorized to operate in only four of these six states.  In the event that states and other U.S. jurisdictions fail to legalize iGaming, our business expansion initiatives may not be fully realized and our future operating results could be negatively impacted. 

SharpLink has been, and will continue to be, the subject of governmental investigations and inquiries with respect to the operation of our businesses and we could be subject to future governmental investigations and inquiries, legal proceedings and enforcement actions. Any such investigation, inquiry, proceeding or action could adversely affect our business.

We have received formal and informal inquiries from time to time, from state government authorities and regulators, including tax authorities and gaming regulators, regarding compliance with laws and other matters, and we may receive such inquiries in the future, particularly as we grow and expand our operations. Violation of existing or future regulations, regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations. In addition, it is possible that future orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose us to unanticipated liability or penalties, or require us to change our business practices in a manner materially adverse to our business.

SharpLink’s collection, storage and use of personal data are subject to applicable data protection and privacy laws, and any failure to comply with such laws may harm our reputation and business or expose SharpLink to fines and other enforcement action.

In the ordinary course of business, SharpLink collects, stores, uses and transmits certain types of information that are subject to different laws and regulations. In particular, data security and data protection laws and regulations relating to personal and consumer information that we are, or may become subject to, often vary significantly by jurisdiction and are evolving significantly as legislators and regulators continue to grapple with policy considerations surrounding the collection and use of data. Compliance with such data protection and privacy laws will require significant time and expense, particularly as we continue to expand our businesses across multiple jurisdictions.

For example, California has enacted the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020. The CCPA requires new disclosures to California consumers, imposes new rules for collecting or using information, requires companies to comply with data subject access and deletion requests, and affords California consumers new abilities to opt out of certain disclosures of personal information. It remains unclear what, if any, regulations will be implemented pursuant to the law or how it will be interpreted. The Stop Hacks and Improve Electronic Data Security Act, otherwise known as the SHIELD Act, is a New York State bill, the data protection portions of which became effective on March 23, 2020. The SHIELD Act requires companies to adopt reasonable safeguards to protect the security, confidentiality, and integrity of private information. A company should implement a data security program containing specific measures, including risk assessments, employee training, vendor contracts, and timely data disposal. The effects of the CCPA and the SHIELD Act potentially are significant and may require us and our clients to modify data collection or processing practices and policies and to incur substantial costs in an effort to comply.

In addition, the new EU-wide General Data Protection Regulation, or GDPR, became applicable on May 25, 2018, replacing the data protection laws of each EU member state. The GDPR implemented more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about what and how personal information is to be used, limitations on retention of information, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and higher standards for data controllers to demonstrate that they have obtained valid consent from individuals to process their personal data (or reliance on another appropriate legal basis) for certain data processing activities. It also significantly increased penalties for noncompliance, including where the Company may act as a data processor.

Although we continue to review and improve our policies and procedures with respect to data protection and privacy to ensure compliance with applicable laws, rules and regulations, if our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to fines, litigation, regulatory investigations, enforcement notices requiring it to change the way we use personal data or our  marketing practices or other liabilities, such as compensation claims by individuals affected by a personal data breach, as well as negative publicity and a potential loss of business. Compliance with data protection and privacy laws and regulations will become more complex, time intensive and costly as we grow, particularly when we begin to rely on the movement of data across national boundaries.

SharpLink may face claims for data rights infringement, which could subject us to monetary damages.

Although we have generally adopted measures to avoid potential infringement of third-party data rights in the course of our operations, ownership of certain data rights is not always clear in certain jurisdictions we may operate in, particularly in “gray” jurisdictions which are presently unregulated or partially regulated. Should we face claims for illegal data rights sources or should we inadvertently infringe on another company’s data rights in any jurisdiction, we could be subject to claims of infringement, which could be time consuming and expensive to litigate or settle, divert the attention of management and materially disrupt the conduct of our business, and we may not prevail. Any such clams, which could include a claim for injunctive relief and damages, if successful, could have a material adverse effect on our business, prospects, financial condition and results of operations.

The operation of SharpLink’s Affiliate Marketing Services – International segment are in non-U.S. jurisdictions, which subjects the Company to the economic, political, regulatory and other risks of international operations.

We conduct business in numerous countries that carry high levels of currency, political, compliance and economic risk. Operations in these countries can present many risks, including volatility in gross domestic product and rates of economic growth, financial and governmental instability, fluctuations of currency exchange rates, and the imposition of exchange and capital controls. 

Instability and uncertainties arising from the global geopolitical environment and the evolving international and domestic political, regulatory and economic landscape, including the potential for changes in global trade policies, including sanctions and trade barriers, and trends such as populism, economic nationalism and negative sentiment toward multinational companies, as well as the cost of compliance with increasingly complex and often conflicting regulations worldwide, can impair our flexibility in modifying our product offerings, marketing, hiring or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable operating margins.

The United States and other countries may implement actions, including trade actions, tariffs, export controls and sanctions, against other countries or localities, including against certain Russian government, government-related or other entities or individuals related to actions in Ukraine, which along with any retaliatory measures could increase costs, adversely affect our operations, or adversely affect our ability to meet contractual and financial obligations. In addition, in connection with the current status of international relations with Russia, particularly in light of Russian’s invasion of Ukraine, the U.S. government has adopted sanctions on certain industry sectors and parties in Russia. The governments of other jurisdictions in which we operate, such as the European Union, may also implement additional sanctions or other restrictive measures. These potential sanctions and export controls, as well as any responses from Russia, may adversely affect us and our supply chain, business partners or customers. For example, Entain plc, the largest customer of our Affiliate Marketing Services – International business segment, elected to exit the Russian market in February 2022 in response to Russia’s conflict with Ukraine, resulting in the loss of approximately 40% of the annual revenue historically generated from this customer. Consequently, during the year ended December 31, 2022, we recorded goodwill and intangible asset impairment charges of $4,726,000, largely resulted from Entain plc’s loss of access to customers in Russia.

While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity.

SharpLink intends to complete the redomestication of the Company, reclassifying SharpLink from being an Israel corporation to a U.S. Delaware corporation, which, if completed, would subject the Company to additional risks.

In 2023, SharpLink plans to file a Registration Statement on Form S-4 (the “Registration Statement”) to redomicile SharpLink from Israel to the State of Delaware in the United States in or before the third quarter of 2023. Risks related to the redomestication will be described in more detail in the Registration Statement to be filed with the SEC and will include but not be limited to:

Moreover, we have made investments, and will continue to make investments, in the redomestication process, though we may be unable to complete the process of redomestication to Delaware.

We ceased to be a foreign private issuer on December 31, 2022, which will result in significant additional costs and expenses related to our compliance with U.S. securities laws.

As a public company in the United States, we are incurring significant legal, insurance, accounting and other expenses. We have invested, and plan to continue to invest, resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention away from product development and other commercial activities.

We determined that, as of June 30, 2022, we no longer qualify as a foreign private issuer. Accordingly, effective January 1, 2023, we are required to comply with all U.S. federal securities laws that apply to domestic U.S. companies, including enhanced periodic reporting, proxy requirements, and our officers, directors and principal shareholders are subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We are required to file periodic reports and registration statements on U.S. domestic issuer forms containing financial statements prepared in accordance with accounting principles generally accepted in the United States of America, with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we became subject to the Nasdaq corporate governance requirements, which are more strenuous than the corporate governance requirements under Israeli law. As a result, we expect that our regulatory and compliance costs will be significantly higher beginning in 2023.

Risks Related to the Technology, Intellectual Property and Infrastructure of SharpLink’s Business

SharpLink’s failure to protect or enforce our proprietary and intellectual property rights, including our unregistered intellectual property, and the costs involved in such protection and enforcement, could harm our business, financial condition, results of operations and prospects.

We rely on trademark, trade secret, confidentiality and other intellectual property protection laws to protect our rights. Circumstances outside our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available in the U.S. or other countries in which we intend to operate our business. Also, the efforts SharpLink has taken to protect our intellectual property rights may not be sufficient or effective, and any significant impairment of our intellectual property rights could harm our business or ability to compete. For example, it may not always have been possible or commercially desirable to obtain registered protection for our products, software, databases or other technology and, in such situations, we rely on laws governing protection of unregistered intellectual property rights, confidentiality and/or contractual exclusivity of and to underlying data and technology to prevent unauthorized use by third parties.

As such, if we are unable to protect our proprietary offerings via relevant laws or contractual exclusivity, technology and features, competitors may copy them. Additionally, protecting intellectual property rights is costly and time-consuming. Any unauthorized use of our intellectual property or disclosure of our confidential information or trade secrets could make it more expensive to do business, thereby harming our operating results. Furthermore, if we are unable to protect our intellectual property rights or prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to mimic our product offerings and services more effectively. Any of these events could seriously harm our business, financial condition, results of operations and prospects.

We currently holds two patents acquired in our merger with SportsHub; however the majority of our intellectual property has not been patented, nor have we filed for patent protection, which means the majority of our technology, products and services are susceptible to copying.  For any technology, products and services that have not been patented or had patent applications filed, third parties may claim patent rights over our technology, products and services and may bring infringement proceedings in respect of the same. Any pending and future trademark or patent applications may not be approved. In any of these cases, we may be required to expend significant time and expense to prevent infringement of or to enforce our rights, and we may fail to enforce our rights which may have a material adverse effect on our business. Notwithstanding our intellectual property rights, there can be no assurance that others will not offer products or services that are substantially similar to ours and compete with our business.

SharpLink may face claims for intellectual property infringement, which could subject it to monetary damages or limit SharpLink in using some of our technologies or providing certain solutions.

Although SharpLink has generally adopted measures to avoid potential infringement of third-party intellectual property rights in the course of our operations, we may not be successful in ensuring all components of our solutions have proper authorization. Additionally, the legal position in all jurisdictions in relation to the ownership and permitted use of sports data and databases is subject to change. This area may receive additional focus in the U.S. after the overturning of federal restrictions on sports betting under PASPA, thus giving individual states the power to legalize sports betting.

We cannot be certain that our current uses of data from publicly available sources (including third-party websites) or otherwise, which are not known to infringe or misappropriate third-party intellectual property today, will not result in claims for infringement or misappropriation of third-party intellectual property in the future. Intellectual property infringement claims or claims of misappropriation against us could subject us to liability for damages and restrict us from providing solutions or require changes to certain solutions and technologies. Claims of infringement or misappropriation of a competitor’s or other third-party’s intellectual property rights, regardless of merit, could be time consuming and expensive to litigate or settle, divert the attention of our management and materially disrupt the conduct of our business, and we may not prevail. Any such clams, which could include a claim for injunctive relief and damages, if successful, could have a material adverse effect on our business, prospects, financial condition and results of operations.

SharpLink relies on information technology and other systems and platforms, including our data center, Amazon Web Services and certain other third-party platforms. Failures, errors, defects or disruptions therein could diminish SharpLink’s brand and reputation, subject it to liability, disrupt our business, affect our ability to scale our technical infrastructure and have a material adverse effect on our operating results and growth prospects. Our product offerings and other software applications and systems, and certain third-party platforms that we use could contain undetected errors or errors that we fail to identify as material.

Our technology infrastructure, including Amazon Web Services and certain other third-party platforms, is critical to the performance of our product and service offerings and our clients’ satisfaction. Consequently, we may be subject to service disruptions as well as failures to provide adequate support for reasons that are outside of our direct control. The performance and availability of Amazon Web Services with the necessary speed, data capacity and security for providing reliable access and services can affect the delivery, availability and performance of our services. Decisions by the owners and operators of the data centers where our cloud infrastructure, Amazon Web Services, is deployed, to terminate our contracts, discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth or prioritize the traffic of other parties could also affect the delivery, availability and performance of our services. 

We devote significant resources to network and data security to protect our systems and data. However, our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. We cannot assure that absolute security will be provided by the measures we take to: prevent or hinder cyber-attacks and protect our systems, data and user information; to prevent outages, data or information loss and fraud; and to prevent or detect security breaches. Such measures include a disaster recovery strategy for server and equipment failure, back-office systems and the use of third parties for certain cybersecurity services. We may experience website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. To date, such disruptions have not had a material impact on us, individually or in the aggregate; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Additionally, our service and product offerings may contain errors, bugs, flaws or corrupted data that we have not detected, and these defects may become apparent only after their launch and could result in a vulnerability that could compromise the security of our systems. Additionally, we have detected certain errors, bugs and flaws in our product and service offerings, and have judged them to be immaterial. If we have misjudged the materiality of such errors, bugs and flaws, our business could be harmed. If a particular product offering is slower than we expect, our clients may be unable to use our product and services offerings as desired and may be less likely to continue to use our product and services offerings, if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience of our clients and their customers, harm our reputation, cause our clients to stop utilizing our product and service offerings, divert our resources or delay market acceptance of our product and service offerings, any of which could result in legal liability to it or harm our business, financial condition, results of operations and prospects. Insufficient business continuity management could diminish our brand and reputation, subject it to liability, disrupt our business and adversely affect our operating results and growth prospects, and failure of planned availability and continuity solutions and disaster recovery when activated in response to an incident could result in system interruptions and degradation of service.

As we continue to grow and expand our business, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy our needs. Such infrastructure expansion may be complex, and unanticipated delays in completing these projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our product and service offerings. In addition, there may be issues related to this infrastructure that are not identified during the testing phases of design and implementation, which may become evident only after we have started to fully use the underlying equipment or software, that could further degrade the user experience or increase our costs. As such, we could fail to continue to effectively scale and grow our technical infrastructure to accommodate increased demands. In addition, a lack of resources (e.g., hardware, software, personnel and service providers) could result in an inability to scale our services to meet business needs, system interruptions, degradation of service or operational mistakes. Our business also may be subject to interruptions, delays or failures resulting from adverse weather conditions, other natural disasters, power loss, terrorism, cyber-attacks, public health emergencies (such as the COVID-19 pandemic) or other catastrophic events.

We believe that if our clients or their customers have a negative experience with respect to our product and service offerings, or if SharpLink’s brand or reputation is negatively affected, clients may be less inclined to continue or resume utilizing our product and service offerings or to recommend our product and service offerings to other potential clients. As such, a failure or significant interruption in our service could harm our reputation, our business, financial condition, results of operations and prospects.

Despite SharpLink’s security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disruption of our operations and the services it provides to clients, damage to our reputation, and a loss of confidence in our products and services, each of which could adversely affect our business, financial condition, results of operations and prospects.

The secure maintenance and transmission of information is a critical element of our operations. Our information technology and other systems that maintain and transmit information, or the systems of third-party service providers and business partners, may be compromised by a malicious third-party penetration of our network security, or the network security of a third-party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees, or the actions or inactions of a third-party service provider or business partner. As a result, our information may be lost, disclosed, accessed or taken without consent. We have experienced attempts to breach our systems and other similar incidents in the past. The data industry is a particularly popular target for malware attacks. We expect that we will continue to be subject to attempts to gain unauthorized access to or through our information systems or those we develop for our clients, including phishing attacks by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs. To date these attacks have not had a material impact on our operations or financial results, but we cannot provide assurance that it will not have a material impact in the future, including by overloading our systems and network and preventing our product offerings from being accessed by legitimate users through the use of ransomware or other malware.

We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems; or that we or such third parties otherwise maintain, including certain confidential information, which may subject us to fines or higher transaction fees or limit or terminate our access to such confidential information. SharpLink and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers.

Furthermore, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties. In addition, any party which can illicitly obtain a user’s password could access the user’s transaction data or personal information, resulting in the perception that our systems are insecure. These risks may increase over time as we increase the number of clients and the complexity and number of technical systems and applications which we and our employees use. Breaches of our security measures or those of our third-party service providers or cybersecurity incidents may result in: unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of information, including personally identifiable information, or the other confidential or proprietary information of SharpLink or third parties; viruses, worms, spyware, ransomware or other malware being served from SharpLink’s sites, networks or systems; deletion or modification of content or the display of unauthorized content on SharpLink’s sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; or litigation, regulatory action and other potential liabilities. In addition, the sports betting and online gaming industries have experienced and may continue to experience social engineering, phishing, malware and similar attacks and threats of denial-of-service attacks. To date, we have not experienced a security breach material to our business; however, such breaches could in the future have a material adverse effect on our operations. If any of these breaches of security should occur and be material, our reputation and brand could be damaged, our businesses may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. 

Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business, financial condition, results of operations and prospects. We continue to devote significant resources to protect against security breaches or we may need to in the future to address problems caused by breaches, including notifying affected users and responding to any resulting litigation, which in turn, diverts resources from the growth and expansion of our business.

SharpLink uses third-party open source software components and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to provide our product and service offerings.

We use software components licensed to us by third-party authors under “open source” licenses, which we refer to as Open Source Software. Use and distribution of Open Source Software may entail greater risks than use of third-party commercial software, as licensors of Open Source Software generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the licensed code. In addition, the public availability of Open Source Software may make it easier for others to compromise our product and service offerings. 

Some licenses for Open Source Software contain requirements that we make available source code for modifications or derivative works that we create, or grant other licenses to our intellectual property, if we use such Open Source Software in certain ways. If we combine our proprietary software with Open Source Software in a certain manner, we could, under certain licenses for Open Source Software, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our proprietary software.

Although we periodically review our use of Open Source Software to avoid subjecting our product and service offerings to conditions we do not intend, the terms of many licenses for Open Source Software have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on SharpLink’s ability to provide or distribute our product or service offerings. From time to time, there have been claims challenging the ownership of Open Source Software against companies that incorporate Open Source Software into their solutions. We could be subject to laws by parties claiming ownership of what it believes to be Open Source Software. Moreover, we cannot assure you that our processes for controlling our use of Open Source Software in our product and service offerings will be effective. If we are found to have breached or failed to fully comply with allMerger Agreement Amendment, contained the terms and conditions of an Open Source Software license, we could face infringement or other liability, or be requiredthe proposed business combination of SharpLink and SportsHub. Pursuant to seek costly licenses from third partiesthe Merger Agreement, as amended, on December 22, 2022, SportsHub merged with and into Merger Subsidiary in accordance with the provisions of Delaware’s General Corporation Law, as amended, with Merger Subsidiary surviving as a wholly owned subsidiary of SharpLink. In association with the transaction, SharpLink issued, in aggregate, 4,319,263 ordinary shares to continue providing our productcommon and service offerings on terms that are not economically feasible, to find replacement software, to discontinue or delay the provisionpreferred stockholders of our product and service offerings if replacement cannot be accomplishedSportsHub, on a timely basis orfully diluted basis. An additional aggregate amount of 405,862 ordinary shares are being held in escrow for SportsHub shareholders who have yet to make generally available,provide the applicable documentation required in source code form, our proprietary software, anyconnection with the SportsHub Merger, as well as shares held in escrow for indemnifiable losses and for the reimbursement of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Associated with Our Capital Stock

The market price of our securities may be volatile and may fluctuateexpenses incurred by the Stockholder Representative in a way that is disproportionate to our operating performance.

Our securities may experience substantial volatility as a result of a number of factors, including, among others:

Many of these factors are beyond our control. The stock markets have historically experienced substantial price and volume fluctuations. These fluctuations often have been unrelated or disproportionateperforming his duties pursuant to the operating performance of companies. These broad market and industry factors could reduce the market price of our securities, regardless of our actual operating performance. Merger Agreement.

If our Ordinary Shares continue to remain below $1.00 per share, our Ordinary Shares may be subject to delisting from The NASDAQ Stock Market.Notice

On November 4, 2022, we received a deficiency notice from NASDAQ stating that we no longer comply with NASDAQ Marketplace Rule 5550(a)(2) because the bid price of our Ordinary Shares closed below the required minimum $1.00 per share for the previous 30 consecutive business days. The notice also indicated that, in accordance with Marketplace Rule 5810(c)(3)(A), we have a period of 180 calendar days, until May 3, 2023, to regain compliance with Rule 5550(a)(2). If at any time before May 3, 2023 the bid price of our Ordinary Shares closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ will notify us that we have regained compliance with Rule 5550(a)(2). In the event we do not regain compliance with Rule 5550(a)(2) prior to the expiration of the 180-day period, we may then be eligible for additional time if we meet the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will be required to provide written notice of our intention to cure the deficiency during the second compliance period equal to an additional 180 calendar days. If we cannot demonstrate compliance by the end of the second compliance period, Nasdaq will notify us that our Ordinary Shares are subject to delisting.

On January 20, 2023, our shareholders authorized a reverse share split in a ratio of up to and including 20:1, which if effected, would increase the per share price of our Ordinary Shares to regain compliance with the minimum bid price requirements. The ratio and date of such reverse split, if effected, will be determined by our Board of Directors.

We do not intend to pay cash dividends. As a result, capital appreciation, if any, will be your sole source of gain.

We intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, from the sale of our Ordinary Shares will be your sole source of gain for the foreseeable future.

We incur significant costs as a result of operating as a public reporting company, and our management is required to devote substantial time to regulatory compliance initiatives.

As a public reporting company, we incur significant legal, accounting and other expenses not otherwise incurred by a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time consuming and costly.

We currently have outstanding, and we may in the future issue, instruments which are convertible into shares of Ordinary Shares, which will result in additional dilution to our shareholders.

As of March 15, 2023, we had outstanding instruments which are convertible into 17,486,470 shares of Ordinary Shares, including those relating to the transaction entered into on February 14, 2023 with Alpha Capital Anstalt (“Alpha”), as further described in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Recent Developments;; and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of outstanding Ordinary Shares, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities.

The Financial Industry Regulatory Authority, Inc. (“FINRA”) has adopted rules that a broker-dealer must have reasonable grounds for believing that an investment recommended to a customer is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers. FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our Ordinary Shares, which may have the effect of reducing the level of trading activity in the shares, resulting in fewer broker-dealers being willing to make a market in our shares, potentially reducing a stockholder’s ability to resell our securities.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, the price of our securities and trading volume could decline.

The trading market for our securities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, the price of our securities could decline.

ITEM 1B.UNRESOLVED STAFF COMMENTS 

Not applicable.

ITEM 2.PROPERTIES

The Company leases certain office space at 333 Washington Avenue North, Suite 104, Minneapolis, Minnesota 55401, USA under a long-term, non-cancelable operating lease agreement. The contract provides us the right to substantially all of the economic benefits from the use of the office space and the right to direct the use of the office space, thus it is considered to be or contain a lease. The lease has an original term that expires in December 2023 with an option to extend the term for three years. The Company has included the optional renewal period in the lease term because the Company determined after considering all economic factors that the Company is reasonably certain to exercise the option to extend the lease. The agreement requires the Company to pay real estate taxes, insurance, and repairs.

ITEM 3.LEGAL PROCEEDINGS

Legal Proceedings

From time to time, we may become involved in lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition and results of operations. 

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Ordinary Shares are currently quoted on the Nasdaq Capital Market under the symbol “SBET.”

The following table sets forth, for the period indicated, the quarterly high and low closing sales prices per share of our Ordinary Shares for each quarter during our last two fiscal years, as well as the first quarter in 2023, as reported by Nasdaq.

As of March 31, 2023, we had approximately 94 individual shareholders of record of our Ordinary Shares. We believe that the number of beneficial owners of our Ordinary Shares is greater than the number of record holders, because a number of  our Ordinary Shares is held through brokerage firms in “street name.”

Dividend Policy

We do not intend to pay cash dividends to our stockholders in the foreseeable future. We currently intend to retain all our available funds and future earnings, if any, to finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.

Equity Compensation Plan

The following table provides information as of December 31, 2022 about our equity compensation plan and arrangements:

¹ Equity structure was adjusted for all periods presented using the exchange ratio, 1.3352, established in the Go-Public Merger Agreement with Mer Telemanagement Solutions Ltd. to reflect the number of shares of SharpLink, Inc. (the accounting acquiree) issued in the reverse acquisition.See Note 3 in the consolidated financial statements accompanying this Annual Report on Form 10-K for a discussion of the MTS Merger.

Recent Sales of Unregistered Securities

All sales of unregistered securities during the year ended December 31, 2022 were previously disclosed in Current Reports on Form 6-K.

Purchases of Equity Securities by Issuer and Its Affiliates

None.

ITEM 6.[RESERVED]

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion 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 Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not materially affected by inflation.

Overview

Founded in 2019 and headquartered in Minneapolis, Minnesota, SharpLink 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 mission and 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:

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) Direct to Player (“D2P”)/Affiliate Marketing Services – International; and  4) D2P/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, Cantor Gaming, Betfair and others.

As of March 2023, the Company’s state regulatory initiatives have resulted in SharpLink being licensed and/or authorized to operate in 24 U.S. states, the District of Columbia and Ontario, Canada, or nearly 100% 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. 

Impact of COVID-19 On Our Business Operations

The worldwide outbreak of COVID-19 in early 2020 negatively affected economic conditions regionally as well as globally and caused a reduction in consumer spending. Efforts to contain the effect of the virus included business closures, travel restrictions, and restrictions on public gatherings and events. Many businesses eliminated non-essential travel and canceled in-person events to reduce instances of employees and others being exposed to public gatherings. Governments around the world, including governments in Europe and state and local governments in the U.S., restricted business activities and strongly encouraged, instituted orders or otherwise restricted individuals from leaving their home. To date, governmental authorities imposed or recommended various measures, including social distancing, quarantine, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, and cancellation of events, including sporting events, concerts, conferences and meetings. The suspension, postponement and cancellation of sporting events affected by COVID-19 had an adverse impact on the progression of SharpLink’s overall business plan and our revenue and the revenue of our clients.

Although many sports seasons and sporting events recommenced in 2021, the fluidity of this situation, potential for virus variants and potential setbacks associated therewith precludes any prediction as to the ultimate impact of COVID-19 and any emerging variants of coronavirus, which remains a material uncertainty and risk with respect to SharpLink’s business, performance, and financial results. The revenue of our clients, and our own revenue, continue to depend on sports events taking place and consumer participation and spending on entertainment and leisure activities, and any further setbacks with respect to COVID-19 and its variants could have a material adverse effect on our business, financial condition, results of operations and prospects.

Recent Developments

Merger with SportsHub Games Network Inc. (the “SportsHub Merger”)

SharpLink, SharpLink, SHGN Acquisition Corp., a Delaware corporation and wholly owned subsidiary of SharpLink (“Merger Subsidiary”), SportsHub and Christian Peterson, an individual acting as the SportsHub stockholders’ representative entered into the Merger Agreement on September 7, 2022. The Merger Agreement, as amended on November 2, 2022 by the Merger Agreement Amendment, contained the terms and conditions of the proposed business combination of SharpLink and SportsHub. Pursuant to the Merger Agreement, as amended, on December 22, 2022, SportsHub merged with and into Merger Subsidiary in accordance with the provisions of Delaware’s General Corporation Law, as amended, with Merger Subsidiary surviving as a wholly owned subsidiary of SharpLink. In association with the transaction, SharpLink issued, in aggregate, 4,319,263 ordinary shares to common and preferred stockholders of SportsHub, on a fully diluted basis. An additional aggregate amount 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.

NASDAQ Notice

On November 4, 2022, we received a deficiency notice from NASDAQ stating that we no longer comply with NASDAQ Marketplace Rule 5550(a)(2) because the bid price of our Ordinary Shares closed below the required minimum $1.00 per share for the previous 30 consecutive business days. The notice also indicated that, in accordance with Marketplace Rule 5810(c)(3)(A), we have a period of 180 calendar days, until May 3, 2023, to regain compliance with Rule 5550(a)(2). If at any time before May 3, 2023 the bid price of our Ordinary Shares closes at $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ will notify us that we have regained compliance with Rule 5550(a)(2). In the event we do not regain compliance with Rule 5550(a)(2) prior to the expiration of the 180-day period, we may then be eligible for additional time if we meet the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will be required to provide written notice of our intention to cure the deficiency during the second compliance period equal to an additional 180 calendar days. If we cannot demonstrate compliance by the end of the second compliance period, Nasdaq will notify us that our Ordinary Shares are subject to delisting.

On January 20, 2023, our shareholders authorized a reverse share split in a ratio of up to and including 20:1, which if effected, would increase the per share price of our Ordinary Shares to regain compliance with the minimum bid price requirements. The ratio and date of such reverse split, if effected, will be determined by our Board of Directors.

Sale of Legacy MTS Business

On December 31, 2022, SharpLink closed on the sale of its legacy MTS business (“Legacy MTS”) to Israel-based Entrypoint South Ltd., a subsidiary of Entrypoint Systems 2004 Ltd. In consideration of Entrypoint South Ltd. acquiring all rights, title, interests and benefits to Legacy MTS, including 100% of the shares of MTS Integratrak Inc., one of the Company’s U.S. subsidiaries, it will pay SharpLink an earn-out payment equal to three times Legacy MTS’ Earnings Before Interest, Taxes and Depreciation for the year ending December 31, 2023, up to a maximum earn-out payment of $1 million (adjusted to reflect net working capital as of the closing date).

2023 $7 Million Revolving Credit Line

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.

Assumption of Loans as a Result of Merger to SportsHub Games Network, Inc.

In connection with the SportsHub Merger that closed on December 22, 2022, on February 13, 2023, SharpLink, Inc (the “New Borrower”), as successor by merger to SportsHub (the “Existing Borrower”), LeagueSafe Management, LLC, a Minnesota limited liability company (“LeagueSafe”), and Virtual Fantasy Games Acquisition, LLC, a Minnesota limited liability company (“Virtual Fantasy”) entered into a consent, assumption and second amendment agreement with the Lender, to assume a term loan in the principal amount of up to $2,000,000 as set forth by the term loan agreement dated June 9, 2020, as amended. LeagueSafe and Virtual Fantasy were the Existing Borrower’s subsidiaries, and as a result of the merger, became the New Borrower’s subsidiaries.

In connection with the SportsHub Merger that closed on December 22, 2022, on February 13, 2023, the New Borrower, LeagueSafe and Virtual Fantasy entered into a consent, assumption and third amendment agreement with the Lender, to assume a revolving line of credit in the principal amount of up to $5,000,000 as set forth by the revolving credit loan agreement dated March 27, 2020, as amended.

2023 Convertible Debenture and Warrant Financing

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 in the aggregate principal amount of $4,400,000 for a purchase price of $4,000,000 on February 15, 2023. The Debenture will be convertible, at any time, and from time to time, at Alpha’s option, into Conversion Shares, at an initial conversion price equal to $0.70 per share, subject to adjustment as described in the Debenture. In addition, the Conversion Price of the Debenture is 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 $0.70 and the average of the five Nasdaq Official Closing Prices immediately preceding such date, provided there shall be no Reset Price below $0.30 per share, the Floor Price, unless waived in writing by the Company by notice to Alpha. If the Reset Price is below the Floor Price and the Company chooses not to waive the Floor Price, the Debenture shall be repayable in cash within 10 business days of such reset date. As part of the SPA, the Regular Warrants exercisable to purchase an aggregate of 2,666,667 ordinary shares have an exercise price of $4.50 per share were reduced from $4.50 per share to $.06 per share. (See Notes 10 and 18 to the Consolidated Financial Statements.)

On February 15, 2023, the Company also issued to Alpha the Warrant to purchase 8,800,000 ordinary shares of the Company at an initial exercise price of $0.875. 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 is subject to an initial reset immediately prior to the Company’s filing of a proxy statement that includes the Shareholder Approval Proposal to the lower of $0.875 and the average of the five Nasdaq Official Closing Prices immediately preceding such date the. 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 Warrants are 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 Warrants (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.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Our most critical estimates include those related to purchase accounting, intangibles and long-lived assets, goodwill and impairment, stock-based compensation, discontinued operations and revenue recognition. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting estimates affect the more significant judgments and estimates used in preparing our consolidated financial statements. Please see Note 1 to our consolidated financial statements, which are included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Summary of Significant Accounting Policies. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

Purchase Accounting

The purchase price of an acquired business is allocated to the assets acquired and liabilities assumed at their estimated fair values on the date of acquisition. Any unallocated purchase price amount is recognized as goodwill on the consolidated balance sheet if it exceeds the estimated fair value or as a bargain purchase gain on the consolidated statement of operations if it is below the estimated fair value. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment, and the utilization of independent valuation experts as well as the use of historical information and significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, especially depreciation and amortization expense. Acquisition-related costs are expensed as incurred and changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period are recorded in Provision for Income Taxes.

Intangible and Long-Lived Assets

Intangible assets consist of internally developed software, customer relationships, trade names and acquired technology and are carried at cost less accumulated amortization. The Company amortizes the cost of identifiable intangible assets on a straight-line basis over the expected period of benefit, which ranges from three to ten years.

Costs associated with internally developed software are expensed as incurred unless they meet generally accepted accounting criteria for deferral and subsequent amortization. Software development costs incurred prior to the application development stage are expensed as incurred. For costs that are capitalized, the subsequent amortization is the straight-line method over the remaining economic life of the product, which is estimated to be five years.

The Company begins amortizing the asset and subsequent enhancements once the software is ready for its intended use. The Company reassesses whether it has met the relevant criteria for deferral and amortization at each reporting date.

The Company reviews the carrying value of its long-lived assets, including equipment and finite-lived intangible assets, for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimate future cash flows expected to result from its use and eventual disposition. In cases where undiscounted cash flows are less than the carrying value of an asset group, an impairment loss is recognized equal to an amount by which the asset group’s carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of customer loss, obsolescence, demand, competition, and other economic factors.

Goodwill and Impairment

The Company evaluates the carrying amount of goodwill annually or more frequently if events or circumstances indicate that the goodwill may be impaired. Factors that could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. The Company completes impairment reviews for its reporting units using a fair-value method based on management’s judgments and assumptions. When performing its annual impairment assessment, the Company evaluates the recoverability of goodwill assigned to each of its reporting units by comparing the estimated fair value of the respective reporting unit to the carrying value, including goodwill. The Company estimates fair value utilizing the income approach and the market approach or a combination of both income and market approaches.

The income approach requires management to make assumptions and estimates for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows, working capital levels, income tax rates, and a weighted-average cost of capital reflecting the specific risk profile of the respective reporting unit. The key assumptions used in the income approach include revenue growth, operating income margin, discount rate and terminal growth rate. These assumptions are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using market and industry data as well as Company-specific risk factors for each reporting unit. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business.

The market approach estimates fair value using performance multiples of comparable publicly-traded companies. In the event the fair value of a reporting unit is less than the carrying value, including goodwill, an impairment loss is recognized for the difference between the implied fair value and the carrying value of the reporting unit.

There is inherent uncertainty included in the assumptions used in goodwill impairment testing. A change to any of the assumptions could lead to a future impairment that could be material.

Stock-Based Compensation

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 expected 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. All option grants during the year ended December 31, 2022 and 2021 were granted under the 2021 plan subsequent to the MTS Merger. All option grants made under the SharpLink, Inc. 2020 plan were prior to the MTS Merger. SharpLink, Inc.’s underlying stock 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.

Discontinued Operations

In June 2022, the Company’s Board of Directors approved management to enter into negotiations to sell MTS. The Company negotiated a Share and Asset Purchase Agreement with the transaction completed on December 31, 2022. 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.

Revenue Recognition

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 is recognized upon transfer of control of promised products or services (i.e., performance obligations) to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. Management judgment is required in determining whether the performance obligations will be recognized at a point in time or overtime and when the transfer of control of goods and services are made to entitle the Company to receive payment. The exercise of management judgment has a material impact on when revenue is recognized.

The Affiliate Marketing Services – United States and the Affiliate Marketing Services – International operating segments generate revenue by earning commissions from sportsbooks and casino operators when a new depositor is directed to them by our affiliate marketing websites.

The Sports Gaming Client Services operating segments’ performance obligations are satisfied over time (software licenses). Software license revenue is recognized when the customer has access to the license and the right to use and benefit from the license. Other items relating to charges collected from customers include reimbursable expenses. Charges collected from customers as part of the Company’s sales transactions are included in revenues and the associated costs are included in cost of revenues. In addition, this segment provides sports betting data (e.g., betting lines) to sports media publishers in exchange for a fixed fee.

The Company’s SportsHub operating segment collects fees from customers for daily and season-long online fantasy sports games in advance and recognizes the related fees over the term of the online fantasy game. It also collects various forms of fee revenue from customers using its wallet system platform. Its performance obligation is to provide these customers with an online platform to collect entry fees, provide transparency into league transactions, encourage timely payment of entry fees, safeguard funds during the season and facilitate end-of-season prize payouts. Fee revenue related to payment transactions is deferred until the end of the specific season (a single performance obligation recognized at the end of the respective season). Other types of fee revenue are recognized on a transactional basis when users complete transactions or when a customer’s account becomes inactive under the terms of the user agreement. SportsHub also provides sports simulation software that customers pay a fee to access over a period of time. SportsHub provides and maintains the software throughout the duration of the season, which constitutes a single performance obligation and revenue is recognized over the term of the service. SportsHub also collects subscription fees from users of its Fantasy National Golf Club. Its performance obligation under these contracts is to provide subscribers with access to SportsHub’s intellectual property. Revenue is initially deferred and recognized ratably over the subscription period. Any discounts, promotional incentives or waived entry fees are treated as a reduction in revenue.

The Company’s Enterprise TEM operating segment entered into contracts with customers to license the rights to use its software products and to provide maintenance, hosting and managed services, support and training to customers. Certain software licenses require customization. The Company sells its products directly to end-users and indirectly through resellers and operating equipment managers, who are considered end users.

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.

Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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 year ending December 31, 2022, the Company had a net loss from continuing operations as of December 31, 2022 and 2021 of $15,303,402 and $33,469,830, respectively; and $6,490,519 and $5,854,995 of cash used in operating activities as of December 31, 2022 and 2021, respectively. To fund these planned losses from operations, the Company secured additional financing through a $3,250,000 term loan in January 2022, as described in Note 8 - Debt. To fund future operations, as described in Note 19, 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 a Securities Purchase Agreement (the “SPA”) with Alpha Capital Anstalt (“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.

The Company is continually evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, obtaining equity financing, issuing, or restructuring debt, entering into other financing arrangements, and restructuring of operations to grow revenues and decrease expenses. The Company may be unable to access further equity or debt financing when needed. 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.

Results of Operations

The following table provides certain selected financial information for the periods presented:

Year Ended December 31, 2022 as Compared to Year Ended December 31, 2021

Revenues

Revenues

For the year ended December 31, 2022, our revenues climbed 177% to $7,288,029 when compared to revenues of $2,635,757 reported for the year ended December 31, 2021. The improvement was largely attributed to additional revenue resulting from the Company’s merger and acquisition activities, namely the acquisition of FourCubed, which closed on December 31, 2021, and the merger with SportsHub, which closed on December 22, 2022.

On a segmented basis, revenues from SharpLink’s Sports Gaming Client Services division totaled $2,493,685, increased 3% from $2,424,229 on a comparable year-over-year basis. The SportsHub/Fantasy Sports group contributed $951,196 compared to $0 in the prior year due to the timing of the closing of its acquisition on December 22, 2022. The Affiliate Marketing Services – International segment, representing revenue contribution from the acquisition of FourCubed at December 31, 2021, was $3,427,698 compared to $0 in the prior year. The Affiliate Marketing – U.S. increased 96% to $415,450 for the year ended December 31, 2022, which compared to $211,528 for the same period in 2021. This increase was due to the addition of revenues generated by our new state-specific affiliate marketing sites, which were launched in November 2022 as part of our strategy to deliver unique fan activation solutions to our sportsbook and casino partners.

Gross Profit

Gross profit totaled $1,133,595 for the year ended December 31, 2022, which compared to a negative gross profit of $299,362 in the previous year – reflecting a 479% improvement. As a result, gross profit margin also improved, rising to 16% from a negative 11% on a comparable year-over-year basis. The increase was primarily attributable to higher revenues and the mix of higher margin products and services sold in 2022 as a direct result of our acquisition of FourCubed and merger with SportsHub.

Total Operating Expenses

For the year ended December 31, 2022, total operating expenses declined 50% to $16,610,112 compared to total operating expenses of $33,195,352 for the year ended December 31, 2021. The decrease was largely due to the commitment fee expense of $23,301,206 recorded in 2021. The non-cash commitment fee expense recorded in 2021 represented the change in fair value of the commitment fee associated with our go-public reverse acquisition of Mer Telemanagement Solutions Ltd., whereby SharpLink, Inc. sold to the holder of the Company’s preferred shares approximately 2.8 million shares of Series B Preferred Stock for $6.0 million and issued Series A-1 Preferred Stock equal to 3% of the Company’s issued and outstanding capital; this, in turn, required SharpLink, Inc. to transfer a variable number of shares outside of its control and classifying it as a liability. The decrease in the commitment fee expense was offset by a non-cash goodwill impairment of $4,726,000 recorded in 2022, which related to our client Entain plc’s loss of access to customers in Russia.

Operating Loss from Continuing Operations

Operating loss totaled $15,476,517 and $33,494,714 for the years ended December 31, 2022 and 2021, respectively, reflecting a 53% reduction in operating loss on a year-over-year basis. Operating losses declined in 2022 due to a combination of higher revenues and lower operating expenses recorded during the year for the aforementioned reasons.

Net Loss from Continuing Operations

For the reasons detailed above, after factoring total other income and expenses, net of $184,481 and income tax expense of $11,366, the net loss from continuing operations for the year ended December 31, 2022 totaled $15,303,402. This represented a 54% reduction from a net loss from continuing operations of $33,469,830 for the prior year after other income and expense, net of $29,055 and income tax expenses of $4,171.

Net Income (Loss) from Discontinued Operations

Net income from discontinued operations of SharpLink’s legacy MTS business totaled $70,024 for the year ended December 31, 2022, which compared to a net loss from discontinued operations of $22,174,305 for the prior year. The primary reason for the change was that the legacy MTS business recorded a goodwill impairment charge of $1,224,671 and $21,722,213 for the years ended December 31, 2022 and 2021, respectively.

Net Loss

For all of the aforementioned reasons, net loss declined 73% to $15,233,378, or $0.62 loss per basic and diluted share for continuing and discontinued operations for the year ended December 31, 2022, compared to a net loss of $55,644,135, or $3.94 loss per basic and diluted share for continuing and discontinued operations for the year ended December 31, 2021.

Cash Flows

Year ended December 31, 2022 as Compared to the Year ended December 31, 2021

As of December 31, 2022, cash on hand was $39,324,529, a 548% increase when compared to cash on hand of $6,065,461 as of December 31, 2021. For the years ended December 31, 2022 and 2021, restricted cash totaled $11,132,957 and $0, respectively. The increase in restricted cash resulted from the merger with SportsHub on December 22, 2022.

For the year ended December 31, 2022, cash used in operations totaled $5,937,385, as compared to net cash used in operations of $6,070,874 in the prior year. The increase in cash used in operating activities was primarily attributable to an increase in the accounting for depreciation and amortization, higher stock-based compensation expense, offset by a decline in goodwill and intangible asset impairment expenses.

For the year ended December 31, 2022, cash provided by the Company’s investing activities totaled $48,302,068 an increase of 1,095% when compared to cash used for investing activities of $4,411,720 for the previous year. The increase in cash generated in our investing activities resulted from cash and restricted cash acquired from the merger with SportsHub in December 2022 offset by payments made relating to the acquisition of FourCubed in 2021.

For the year ended December 31, 2022, cash provided by financing activities was $2,675,343, an 83% decrease from net cash provided by financing activities of $15,678,085 provided from financing activities during the year ended December 31, 2021. The year-over-year decrease was largely due to placement of Series B preferred stock, ordinary shares, prefunded warrants and regular warrants issued in connection with equity fundings during the year ended December 31, 2021. During 2022, the Company’s capital raising activities were limited to raising $3,250,000 through a term loan secured from our commercial lender, Platinum Bank, offset by debt repayments and debt issue costs.

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. If we do not raise sufficient capital, there is substantial doubt about our ability to continue as a going concern.

In the pursuit of our long-term growth strategy and the development of our sports betting conversion software, affiliate marketing services and related businesses, we have sustained continued operating losses. As of December 31, 2022, we had negative working capital of $5,000,468. For the year ended December 31, 2022, we incurred a loss from continuing operations of $15,303,402, inclusive of $4,726,000 for goodwill and intangible asset impairment charges. While there can be no guarantees,and cash used in operating activities from continuing operations of $6,490,519. To help fund our operations, we believe the cash on hand, coupled with cash generatedraised capital from revenuebanks and additional equity and debt capital of $11.0 million raisedoutside investors in the first quarteraggregate amounts of 2023, will be sufficient to fund$2,675,343 and $15,678,085 for the Company through the end of 2023. In addition, we intend to pursue other opportunities of raising capital with outside investors.

For the yearyears ended December 31, 2022 we raised capitaland 2021, respectively, in the form of $3,250,000 from our commercial lender, Platinum Bank, pursuant to a term note issuedloan in connection with2022 and the sale of Ordinary Shares and conversion of preferred stock and prefunded and regular warrants during 2021. Based on continued expected cash needs to fund our acquisitionongoing technology development initiatives and grow our Affiliate Marketing Services–United States operations, we may require additional liquidity to continue our operations for the next year. Subsequent to the end of FourCubed. On2022, in February 13, 2023 we closed on a $4.4 million convertible debenture and signed a two-year $7.0 million revolving loan agreement with Platinum Bank. On February 14, 2023, we closed on a $4.4 million convertible debenture through a non-brokered private placement with an existing institutional shareholder of the Company. our commercial lender.

We have continued to realize losses from operations. However, with the revenue generated from our customers and our capital raise efforts, we believe that we will have sufficient access to cash to meet our anticipated operating costs and capital expenditure requirements through the end of 2023. Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, acquisitions, debt service, and for general corporate purposes. Our primary source of liquidity is funds generated by financing activities and from private placements. Our ability to fund our operations, to make planned capital expenditures and acquisitions, to service debt payments, and to repay or refinance indebtedness depends on our future operating performance and cash flows. Our future operating performance and cash flows are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.

If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on its obligations; and could be required to discontinue or significantly curtail the scope of its operations if no other means of financing operations are available. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

Off-Balance Sheet Arrangements

On December 31, 2022, we did not have any off-balance sheet arrangements. Additionally, 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.

Contractual Obligations

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations in the normal course of business, principal and interest payment obligations to our commercial lender and payments for lease obligations.

Inflation

Our opinion is that inflation did not have a material effect on our operations for 2022.

Climate Change

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.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, 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. ASC 326 did not have a material impact on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards Codification Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2022-03, it does not expect ASU 2022-03 to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

ITEM 7A.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 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are contained in pages F-1 through F-49, which appear at the end of this Annual Report on Form 10-K.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure and Control Procedures

The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2022 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 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.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“US GAAP”).

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022. Management’s assessment of internal control over financial reporting used the criteria set forth in SEC Release 33-8810 based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control over Financial Reporting — Guidance for Smaller Public Companies. Based on this evaluation, Management concluded that our system of internal control over financial reporting was effective as of December 31, 2022, based on these criteria.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only the management’s report.

Changes in Internal Control over Financial Reporting

Other than changes in the remediation of the material weaknesses, 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 year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 During the six months ended June 30, 2022, the Company improperly evaluated the asset group that was held for sale or disposal based upon the facts and circumstances known and accordingly, improperly concluded upon impairment of certain related assets held as part of discontinued operations. The identified error above resulted in a material adjustment to the consolidated financial statements as of and for the six months ended June 30, 2022 and therefore was considered a material weakness.

We did not maintain effective internal controls over the accounting for stock options and warrants, specifically valuation of warrants assumed, a component of consideration paid, in the MTS Merger and stock options granted as stock-based compensation to employees. The internal controls to assess the valuation of warrants assumed in the MTS Merger, and valuation and recognition of stock options granted to employees were not performed at the appropriate level of precision. The material weakness resulted in an adjustment to reduce the MTS (“Enterprise TEM”) goodwill and additional paid-in capital by $134,702. Goodwill impairment subsequently recorded for the Enterprise TEM reporting unit during the year ended December 31, 2021 was adjusted to be reduce the goodwill impairment expense by $134,702 due to the aforementioned error. Stock compensation expense, which is recorded in selling, general and administrative expenses in the consolidate statement of operations was adjusted to reduce stock compensation expense by $47,675 due to improper determination of fair value of awards for the year ended December 31, 2021. Stock compensation expense was also adjusted to increase stock compensation expense by $44,458 due to improper recognition of awards over the vesting period for the year ended December 31, 2021. The Company’s consolidated financial statements for the year ended December 31, 2021 reflect the correction of these errors. Since the completion of the June 30, 2022 review, the Company has taken steps to not only add additional resources to its accounting staff, but has also implemented a month-end close process whereas the CFO reviews the reconciliations prepared.

ITEM 9B.OTHER INFORMATIONPART IV

None.

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None. 

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2022.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2022.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed within the SEC within 120 days of December 31, 2022.

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES

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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

INDEX TO FINANCIAL STATEMENTS