EBET, Inc. (NASDAQ:EBET) is a technology company operating platforms focused on igaming including casino, sportsbook and esports events. The company has faced significant headwinds in recent years, grappling with regulatory hurdles, financial constraints, and legal disputes that have weighed heavily on its performance.
Business Overview
EBET, Inc. operates under an operating services agreement with Aspire Global plc ("Aspire"), allowing the company to provide online betting services to various countries around the world. In 2021, EBET, Inc. acquired Aspire's Business-to-Consumer (B2C) segment, which included a portfolio of proprietary online casino and sportsbook brands such as Karamba, Hopa, Griffon Casino, BetTarget, Dansk777, and GenerationVIP. This acquisition was intended to enhance EBET, Inc.'s market access and operational stability through Aspire's platform and managed services.
However, the company's operations have been significantly impacted by regulatory challenges. In April 2023, EBET, Inc. was notified that the gaming regulatory authority in Germany had required Aspire to shut down its gaming operations in the country until it obtained a proper license. As a result, EBET, Inc.'s gaming websites that operated in Germany were also forced to shut down, leading to a substantial loss of revenue. During the fiscal year ended September 30, 2023, revenue generated in the German market accounted for $9,686,372, or approximately 25% of the company's total revenue, and contributed $2,775,605 in gross profit.
Financials
EBET, Inc.'s financial performance has been marred by these regulatory challenges, as well as ongoing legal disputes and liquidity constraints. For the fiscal year ended September 30, 2023, the company reported annual revenue of $39,177,504, a net loss of $84,243,877, and negative operating and free cash flows of $10,006,250 and $10,017,640, respectively.
In the most recent quarter ended March 31, 2024, EBET, Inc. generated revenue of $3,522,458, a significant decline from the $11,580,490 reported in the same period of the prior year. The decrease was primarily driven by the loss of the German business, as well as the company's efforts to restructure and optimize its operations, which led to a reduction in certain inefficient sales and marketing activities.
Cost of revenue during the three months ended March 31, 2024 was $1,869,231, compared to $6,592,199 in the same period of the prior year, reflecting the impact of the German business closure and the company's cost-cutting measures.
Operating expenses have also been a significant burden for EBET, Inc. During the three months ended March 31, 2024, the company incurred $3,578,130 in operating expenses, compared to $5,952,739 in the same period of the prior year. The decrease was primarily driven by reductions in sales and marketing, as well as general and administrative expenses, as the company focused on streamlining its operations.
Liquidity
EBET, Inc.'s liquidity position has been a major concern, as the company has relied heavily on debt financing to fund its operations. As of March 31, 2024, the company had $46,683,679 in total borrowings, including a $28,663,302 senior note, a $6,005,405 revolving note, and a €10,000,000 unsecured subordinated promissory note due to Aspire.
The company's senior note, which was obtained in November 2021 to finance the Aspire B2C acquisition, has been a significant burden. EBET, Inc. has struggled to maintain compliance with the covenants associated with this debt, leading to multiple waivers and amendments from the lender, CP BF Lending, LLC.
In June 2023, EBET, Inc. entered into a forbearance agreement with CP BF Lending, acknowledging that it was in default under the credit agreement. The lender agreed to forbear from exercising its rights and remedies until September 15, 2023, which was subsequently extended to October 31, 2023, and then further extended to June 30, 2025. However, the company acknowledged that a termination event had occurred under the forbearance agreement due to the issuance of an arbitration award against EBET, Inc. in January 2024, which the lender agreed to postpone the effectiveness of until June 17, 2024.
EBET, Inc.'s liquidity challenges are further exacerbated by the fact that it does not currently have any committed sources of additional financing. The company's ability to continue as a going concern is heavily dependent on its ability to obtain additional funding, either through equity or debt financing, or through a strategic transaction. Without such funding, EBET, Inc. may be unable to settle its debts as they become due, and the lender may exercise its rights to foreclose on the company's assets and/or equity of its subsidiaries.
Risks and Challenges
Regulatory Challenges and Legal Disputes
In addition to the regulatory issues in Germany, EBET, Inc. has faced other regulatory hurdles in its efforts to expand its operations. The company previously held a Curacao gaming sublicense, which it allowed to expire in January 2024 as it pursued a direct gaming license in Curacao. However, there is no assurance that EBET, Inc. will be successful in obtaining such a license, which could further limit its market access.
The company is also embroiled in several legal disputes that have added to its financial and operational challenges. In June 2022, EBET, Inc.'s former financial advisor, Boustead Securities LLC, initiated an arbitration proceeding against the company, alleging a breach of their engagement and seeking $5.7 million in damages. This dispute has since escalated, with Boustead Securities' current claim alleging $12 million in damages. On January 5, 2024, the arbitration panel awarded Boustead Securities $15.2 million in damages and attorneys' fees, which EBET, Inc. has accrued in its financial statements.
Additionally, in June 2023, a former vendor of EBET, Inc., Litebox USA, LLC, filed a complaint against the company, alleging various causes of action related to an alleged nonpayment under a master service agreement. EBET, Inc. has filed a demurrer to this complaint, and the hearing is scheduled for June 2024.
Perhaps the most significant legal dispute is EBET, Inc.'s lawsuit against Aspire Global PLC and its affiliates, filed in September 2023. The company is seeking damages of no less than €65 million, alleging fraud and material breach of the share purchase agreement under which EBET, Inc. acquired Aspire's B2C assets. This litigation is ongoing, and the outcome could have a material impact on EBET, Inc.'s future.
Outlook
EBET, Inc.'s path forward remains uncertain, as the company grapples with a range of challenges, including regulatory hurdles, financial constraints, and legal disputes. The loss of the German market, which contributed significantly to the company's revenue and profitability, has been a major setback.
The company's ability to continue as a going concern is heavily dependent on its ability to secure additional funding, either through equity or debt financing, or through a strategic transaction. Without such funding, EBET, Inc. may be unable to settle its debts as they become due, and the lender may exercise its rights to foreclose on the company's assets and/or equity of its subsidiaries.
Conclusion
Given the significant headwinds facing EBET, Inc., investors should closely monitor the company's progress in addressing its liquidity challenges, resolving its legal disputes, and navigating the complex regulatory landscape. The outcome of the Aspire litigation, in particular, could have a significant impact on the company's future. Until EBET, Inc. can demonstrate a clear path to stabilizing its operations and improving its financial position, the stock remains a high-risk investment.