Business Overview EBET, Inc. (EBET) is a technology company operating platforms focused on igaming, including casino, sportsbook, and esports events. The company has weathered significant challenges in recent years, but continues to position itself for future growth and success in the rapidly evolving online gaming industry.
EBET was formed in September 2020 as a Nevada corporation, initially focused on providing esports events and technology. However, the company's trajectory shifted dramatically in October 2021 with the acquisition of the business-to-consumer (B2C) segment of Aspire Global plc, a leading iGaming platform and content provider. This transformative acquisition allowed EBET to significantly expand its market presence and operational capabilities, transitioning the company into a major player in the online casino and sports betting space.
The acquisition provided EBET with ownership of Aspire's portfolio of proprietary online casino and sportsbook brands, as well as an enhanced operator relationship with Aspire, who provides the online gaming platform and managed services. This strategic move was aimed at accelerating EBET's growth and expanding its market access in the iGaming industry.
Prior to the Aspire acquisition, EBET held a Curacao gaming sublicense, which provided market access in a limited number of jurisdictions, primarily in Asia and South America. However, the company has since allowed this sublicense to expire as it pursues a direct gaming license in Curacao, a move that management believes will better position the company for long-term growth. The acquisition of Aspire's B2C business included valuable sublicenses that enable EBET to operate in several key Western European markets, highlighting the strategic importance of this transaction.
In November 2021, EBET entered into a credit agreement with CP BF Lending, LLC, which provided a $30 million loan. However, the company subsequently fell out of compliance with the covenants of this loan agreement and had to obtain waivers and amendments from the lender. This financial challenge has had a significant impact on the company's operations and future prospects.
As part of its efforts to improve profitability, EBET has taken various measures, including optimizing marketing efforts, reducing headcount, and terminating certain contracts. However, these actions have also resulted in a significant reduction in the company's investment in its esports products and technologies, and the company does not expect to launch these offerings in the near future.
Financial Overview EBET's financial performance has been mixed in recent years, reflecting the challenges of integrating the Aspire B2C business and navigating a rapidly changing regulatory landscape. For the fiscal year ended September 30, 2023, the company reported total revenue of $39.18 million, a decrease from the prior year's $58.60 million. This decline was primarily driven by the loss of the company's German business in May 2023, which had contributed approximately $17.56 million in revenue during the prior fiscal year.
Despite the revenue decline, EBET has taken significant measures to improve profitability, including streamlining operations, reducing headcount, and terminating underperforming contracts. These efforts have resulted in a decrease in operating expenses, from $85.15 million in fiscal 2022 to $59.97 million in fiscal 2023. However, the company continues to face financial challenges, reporting a net loss of $84.24 million for the most recent fiscal year.
For the most recent quarter ended March 31, 2024, EBET reported quarterly revenue of $3.52 million, quarterly net income of -$5.05 million, and a significant year-over-year revenue decrease of 69.6%. This decline was primarily driven by the restructuring of the business to improve profitability, including the curtailing of inefficient sales and marketing efforts, as well as the loss of the company's German business in April 2023, which accounted for approximately $3.6 million in revenue in the prior year quarter.
EBET's operations are divided into two primary product segments: i-gaming and sportsbook. For the six months ended March 31, 2024, the i-gaming segment generated $5.44 million in revenue, accounting for 70% of the company's total revenue. Gross profit from the i-gaming segment was $2.59 million, representing a 47% gross margin. The sportsbook segment generated $2.37 million in revenue, accounting for 30% of total revenue, with a gross profit of $1.11 million and a 47% gross margin.
Both segments were significantly impacted by the shutdown of EBET's German operations in May 2023. Prior to the shutdown, the German market generated $8.30 million in revenue and $2.78 million in gross profit for the six months ended March 31, 2023. The loss of the German business resulted in a 70% decline in i-gaming revenue and a 53% decline in i-gaming gross profit during the current six-month period compared to the prior year. Similarly, sportsbook revenue and gross profit declined 71% and 59% respectively, compared to the prior year period.
Liquidity and Solvency EBET's liquidity and solvency situation has been a significant area of concern. As of March 31, 2024, the company had a working capital deficit of $67.96 million and total borrowings of $46.68 million, including a $28.66 million senior note and a $6.01 million revolving note.
In June 2023, EBET entered into a forbearance agreement with its lender, CP BF Lending, LLC, acknowledging that it was in default under the existing credit agreement. The forbearance agreement provided the company with a temporary reprieve from the lender's ability to exercise its rights and remedies, but this agreement is set to expire on June 17, 2024, unless further extended.
The company's continued reliance on the revolving note and its inability to service its debt obligations raise substantial doubt about its ability to continue as a going concern. EBET's management has stated that the company will need additional near-term funding to meet its financial obligations and continue operations, but there is no assurance that such funding will be secured.
As of March 31, 2024, EBET had a debt-to-equity ratio of -0.83. The company had $632,980 in cash and a $6.01 million revolving credit facility, with $46.77 million in total borrowings outstanding. EBET's current ratio was 0.031 and quick ratio was 0.031, indicating significant liquidity challenges.
Regulatory Challenges and Litigation EBET's operations have also been impacted by regulatory challenges in key markets. In April 2023, the company was notified that the gaming regulatory authority in Germany had required Aspire, EBET's platform provider, to shut down its gaming operations in the country until it could obtain the necessary licenses. This resulted in the closure of EBET's German-facing websites, which had previously contributed a significant portion of the company's revenue. During the year ended September 30, 2023, revenue generated in the German market was $9.69 million.
Moreover, EBET is currently embroiled in several legal disputes, which could have a material impact on the company's financial and operational outlook. In January 2024, an arbitration panel awarded $15.2 million in damages and attorneys' fees to the company's former financial advisor, Boustead Securities LLC, in a dispute over the termination of their engagement. EBET has filed a motion to vacate this award, but the outcome of this litigation remains uncertain.
Additionally, in September 2023, EBET filed a lawsuit against Aspire Global PLC and affiliated entities, alleging fraud and material breach of the Share Purchase Agreement related to the 2021 acquisition of Aspire's B2C business. This litigation, which seeks damages of at least €65 million, is ongoing and could have significant implications for the company's future.
Outlook and Conclusion EBET's path forward is fraught with challenges, as the company navigates the complex and rapidly evolving online gaming landscape. While the acquisition of Aspire's B2C business provided a significant opportunity for growth, the integration and regulatory hurdles have proven difficult to overcome.
The company's financial struggles, liquidity concerns, and ongoing legal battles have cast doubt on its ability to continue as a going concern. EBET's management has stated that the company will require additional near-term funding to meet its obligations and continue operations, but the availability and terms of such funding remain uncertain.
Despite these challenges, EBET continues to position itself as a player in the iGaming industry, leveraging its existing market access and technology platform. However, the company's long-term success will depend on its ability to secure the necessary financing, resolve its legal disputes, and navigate the ever-changing regulatory environment. Investors and stakeholders will be closely monitoring EBET's progress in the coming months and years as the company strives to overcome its current obstacles and establish a sustainable, profitable business model.