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Discontinued Operations

3 Months Ended

Mar. 31, 2025

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Note 3 – Discontinued Operations

In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major impact on an entity’s operations and financial results when the components of an entity meets the criteria in ASC paragraph 205-20-45-10. In the period in which the component meets the held for sale or discontinued operations criteria the major assets, other assets, current liabilities and non-current liabilities shall be reported as a component of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the income (loss) of continuing operations.

Sale of SHGN and Sports Gaming Client Services

On January 18, 2024, SharpLink Israel (“Parent Seller”) and SLG1 Holdings, LLC, a Delaware limited liability company and wholly owned subsidiary of SharpLink (“Subsidiary Seller”), SHGN Acquisition Corp. (“SHGN,” and together with Parent Seller and Subsidiary Seller, the “Seller”), a Delaware corporation and wholly owned subsidiary of SharpLink, entered into a Purchase Agreement (the “PA”) with RSports Interactive, Inc., a Minnesota corporation (“Buyer”). The Subsidiary Seller owns all of the issued and outstanding membership interests of Sports Technologies, LLC, a Minnesota limited liability company, SHGN and Holdings Quinn, LLC, a Delaware limited liability company (collectively referred to as the “Targets”). The PA contemplated the sale of the Company’s Sports Gaming Client Services and SportsHub Gaming Network business units to the Buyer, by selling all of the issued and outstanding membership interests of the Targets and the Acquired Subsidiaries for $22,500,000 in an all cash transaction. SHGN owns all of the membership interests in Virtual Fantasy Games Acquisitions, LLC, a Minnesota limited liability company; LeagueSafe Management, LLC, a Minnesota limited liability company; SportsHub Reserve, LLC, a Minnesota limited liability company; SportsHub PA, LLC, a Pennsylvania limited liability company; SportsHub Operations, LLC, a Minnesota limited liability company; SportsHub Holdings, LLC, a Minnesota limited liability company; SportsHub Regulatory, LLC, a Minnesota limited liability company; and SportsHub Player Reserve, LLC, a Minnesota limited liability company (collectively, the “Acquired Subsidiaries”).

As a result of the Sale of Business, we ceased our Sports Game Client Services and SportsHub Gaming Network segments. The historical results of these business segments have been reflected as discontinued operations in our consolidated financial statements for all periods prior to the closing date of the Sale of Business on January 18, 2024.

In connection with the Sale of Business, the Company entered into with the Buyer a Transition Services Agreement to provide for an orderly transfer and the continuity of business services. The Parent Seller would be able to use certain Buyer employees at an agreed upon hourly rate. The Buyer would be charged monthly amounts for business services such as accounting software, insurance and data services.

On May 8, 2024, SharpLink entered into an amended and fully restated Post Closing Assignment Agreement with RSports, whereby SharpLink and RSports agreed to amend the PA to exclude the transfer/sale of SHGN and agreed to the assignment/sale of the Acquired Subsidiaries membership interests in SHReserve and SHPA to be made directly to RSports upon and subsequent to the approval of a petition by the Pennsylvania Gaming Control Board. Based on this amended agreement, the Sale of Business is an asset sale for legal and tax purposes instead of an equity sale.

Further, in connection with the Sale of Business, SharpLink entered into a Post Closing Covenant Agreement (the “PCCA”) with the Buyer defining the post-closing terms and conditions relating to certain transfers and assignments of assets subsequent to the closing of the Sale of Business, including:

● Transferring control of all bank accounts held by the Targets to the Buyer;

	●	Transferring or cooperating with the application process for all state gaming licenses held by the Targets in connection with the change of control to the Buyer;
	●	Providing the Buyer with an accounting of all funds due to and from and any deferred revenue between Sports Technologies, LLC, SHGN and SharpLink, Inc.;
	●	Assigning to Buyer or its affiliates, or cause the counterparty to consent to, all contracts assumed by the Buyer or its affiliates on or subsequent to the closing based upon change of control provisions; and
	●	Assigning to Buyer or its affiliates all of its intellectual property rights purchased in the PA for the Acquired Subsidiaries or Targets.

In accordance with the terms of the PCCA, SharpLink will complete all post-closing covenants following the closing as reasonably possible, with the exception of Seller covenants that are dependent on governmental authorities or governmental orders for completion, in which case it will use diligent, good faith efforts to cause the same to be completed as soon as practical. The $14.6 million gain was calculated by measuring the difference between the fair value of consideration received less the carrying amount of assets and liabilities sold in accordance with ASC 810.

In the statement of cashflows for the three months ended March 31 2024, the net cash used in investing activities - discontinued operations is due to cash received from the sale of business of $22,500,000, net of the cash transferred of $41,357,834. The majority of the cash transferred of $41,357,834 was reflected in discontinued operations customer deposits liability and deferred revenue of $36,959,573 and $4,888,704, respectively.

During the three months ended March 31, 2025 and 2024, SharpLink paid RSports $0 and $34,059, respectively, for use of accounting service personnel under the PCCA agreement; and RSports paid SharpLink $0 and $39,957 under the PCCA agreement for the three months ended March 31, 2025 and 2024, respectively.

Sale of MTS

The Company negotiated a Share and Asset Purchase Agreement which was closed on December 31, 2022. The majority of the assets of the primary reporting unit within MTS were sold. Accordingly, the assets and liabilities of the MTS business were separately reported as assets and liabilities from discontinued operations as of March 31, 2025 and March 31, 2024. The results of operations and cash flows of MTS for all periods are separately reported as discontinued operations.

Summary Reconciliation of Discontinued Operations

		For the Three Months Ended				For the Three Months Ended
		March 31, 2025				March 31, 2024
Revenues		$	-			$	398,813
Cost of Revenues			(8,881	)			154,491
Gross Profit			8,881				244,322
Operating Expenses
Selling, general, and administrative expenses			69,054				319,523
Operating Loss			(60,173	)			(75,201	)
Interest income			-				98,161
Other (expense) income			3,004				(2,000	)
Gain on sale of business			-				14,670,811
Interest expense			-				(9,027	)
Total other income and expense			3,004				14,757,945
Income (loss) before income taxes			(57,169	)			14,682,744
Income tax expense			1,000				571,577
Income (loss) from discontinued operations, net		$	(58,169	)		$	14,111,167

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the Company classified as discontinued operations as of March 31, 2025 and December 31, 2024:

  Schedule of Major Classes of Assets and Liabilities

		March 31,				December 31,
		2025				2024
Carrying amounts of major classes of assets included as part of discontinued operations:
Current assets
Cash		$	60,016			$	105,127
Prepaid expenses and other current assets			158,661				164,661
Total current assets		$	218,677			$	269,788

		March 31,				December 31,
		2025				2024
Carrying amounts of major classes of liability included as part of discontinued operations:
Current Liabilities
Accounts payable and accrued expenses			930			$	10,020
Total current liabilities		$	930			$	10,020

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- References

No definition available.

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- Definition

The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 205
-SubTopic 20
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/205-20/tableOfContent

Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 360
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/360/tableOfContent

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