Notes to the Consolidated Financial Statements
1. Nature of Business
On November 2, 2020, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect its corporate
name change from Newgioco Group, Inc. to Elys Game Technology, Corp.
Established in the state of Delaware in 1998,
Elys Game Technology, Corp (“Elys” or the “Company”), the Company provides Gaming services in the US market
via our recently acquired subsidiary Bookmakers Company US, LLC (“USB”) in certain licensed states where we offer bookmaking
and platform services to the Company’s customers. The Company’s intention is to focus its attention on expanding the
US market. The Company recently began operation in Washington DC through a Class B Managed Service Provider and Class B Operator
license to operate a sportsbook within the Grand Central Bar and Grill located in the Adams Morgan area of Washington, D.C., and
in October 2021 we entered into an agreement with Ocean Resort Casino in Atlantic City, New Jersey, to provide platform and bookmaking
services, Ocean Resort Casino began using the Company’s platform and bookmaking services in March 2022.
The Company also provides gaming services in
Italy through its subsidiary, Multigioco, which operations are carried out via both land-based or online retail gaming licenses
regulated by the ADM that permits the Company to distribute leisure betting products such as sports betting, and virtual sports
betting products through both physical, land-based retail locations as well as online through our licensed website www.newgioco.it
or commercial webskins linked to the Company’s licensed website and through mobile devices. Management decided to focus its
attention on developing the US market for future growth and allowed the Austrian Bookmakers license, that is regulated by the Austrian
Federal Finance Ministry (“BMF”), to be revoked by not renewing required monetary deposits.
Additionally, the Company is a global gaming
technology company which owns and operates a betting software designed with a unique “distributed model” architecture
colloquially named Elys Game Board (the “Platform”) through its Odissea subsidiary. The Platform is a fully integrated
“omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel
functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software
design is fully integrated with a built in player gaming account management system, built-in sports book and a virtual sports platform
through its Virtual Generation subsidiary. The Platform also provides seamless application programming interface integration of
third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to incorporate e-sports
and daily fantasy sports providers.
Our corporate group is based in North America,
which includes an executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Ontario through which we carry-out
corporate activities, handle day-to-day reporting and U.S. development planning, and through which various employees, independent
contractors and vendors are engaged.
The Company and its subsidiaries are as follows:
Name |
|
Acquisition or Formation Date |
|
Domicile |
|
Functional Currency |
|
|
|
|
|
|
|
Elys Game Technology, Corp. |
|
Parent Company |
|
USA |
|
US Dollar |
Multigioco Srl (“Multigioco”) |
|
August 15, 2014 |
|
Italy |
|
Euro |
Ulisse GmbH (“Ulisse”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Odissea Betriebsinformatik Beratung GmbH
(“Odissea”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Virtual Generation Limited (“Virtual Generation”) |
|
January 31, 2019 |
|
Malta |
|
Euro |
Newgioco Group Inc. (“NG Canada”) |
|
January 17, 2017 |
|
Canada |
|
Canadian Dollar |
Elys Technology Group Limited |
|
April 4, 2019 |
|
Malta |
|
Euro |
Newgioco Colombia SAS |
|
November 22, 2019 |
|
Colombia |
|
Colombian Peso |
Elys Gameboard Technologies, LLC |
|
May 28, 2020 |
|
USA |
|
US Dollar |
Bookmakers Company US, LLC (“USB”) |
|
July 15, 2021 |
|
USA |
|
US Dollar |
F-10
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
1. Nature of Business (continued)
On July 5, 2021, the Company entered into a
Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US LLC, a Nevada limited
liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”). On July
15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.
USB is a provider of sports wagering services
such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to the terms of the Purchase Agreement,
the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s
common stock with a market value of $4,544,304. The number of shares issued was calculated using an agreed upon value of $6,000,000
divided by $4.74 per share, based on the volume weighted average closing price of the stock for the 90 trading days preceding the
closing date.
The Sellers will have an opportunity to receive
up to an additional $38 million plus a potential premium of 10% (or $3.8 million) based upon achievement of stated adjusted cumulative
EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume
weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent
fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the
aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the
aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash. Refer
to footnote 3 and 14 below.
The Company operates in two lines of business:
(i) provider of certified betting platform software services to leisure betting establishments in Italy and 9 other countries and;
(ii) the operating of web based as well as land-based leisure betting establishments situated throughout Italy. The Company’s
operations are carried out through the following three geographically organized groups:
|
a) |
an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta; |
|
b) |
a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and |
|
c) |
a corporate group which is based in North America and maintains an executive suite in Las Vegas, Nevada and a Canadian office in Toronto, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors are engaged. |
F-11
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
The company previously had a secondary listing
on the NEO exchange in Canada, which was terminated with effect from December 31, 2021. For the purposes of its previous listing
in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles
and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion
Policy to National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102CP”)
which permits the Company to prepare its financial statements in accord with U.S. GAAP.
Principles of consolidation
The consolidated financial statements include
the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company transactions
are eliminated upon consolidation.
All amounts referred to in the Notes
to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into US Dollars at the exchange rate in effect at year end and the results of operations and cash flows
at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
Revenues were generated in US Dollars, Euros
and Colombian Pesos during the years presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
Business Combinations
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include
valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation
of purchase price, impairment of long-lived intangible assets and goodwill, the collectability of receivables, leasing arrangements,
convertible debentures, contingent purchase consideration, contingencies and the value of deferred taxes and related valuation
allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external
conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external
factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s
estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments
when necessary.
F-12
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Loss Contingencies
The Company may be subject to claims, suits,
government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect
taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or
publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims
for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable
that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and
a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial
Statements.
The Company evaluates, on a regular basis,
developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and
related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment
is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final
resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact
on its business, consolidated financial position, results of operations, or cash flows.
To date, none of these types of litigation
matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial
condition. The Company has insured and continues to insure against most of these types of claims.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that
are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market
participant would use.
The carrying value of the Company's accounts
receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable
approximate fair value because of the short-term maturity of these financial instruments.
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Derivative Financial Instruments
ASC 815 generally provides three criteria that,
if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be
conventional, as described.
Cash and Cash Equivalents
The Company primarily places cash balances
in the U.S. with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit
Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance
Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of
the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up
to a limit of €100,000 per institution.
Gaming Accounts Receivable
Gaming accounts receivable represent gaming
deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted
method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the
Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded a release from the bad debt provision
of $98,167 and an increase in bad debt provision of $13,051 for the years ended December 31, 2021 and 2020, respectively.
Gaming Accounts Payable
Gaming accounts payable represent customer
balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used
or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers
can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances
are non-interest bearing.
Long Lived Assets
The Company evaluates the carrying value of
its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value
of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the
expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate,
current estimated net sales proceeds from pending offers.
F-14
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Property and Equipment
Property and equipment is stated at acquisition
cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase
the future economic benefits embodied in an item of property and equipment. All other expenditures are recognized as expenses in
the statement of operations as incurred.
Depreciation is charged on a straight-line
basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put
into operation. The range of the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description |
|
Useful Life
(in years) |
|
|
|
Leasehold improvements |
|
Life of the underlying lease |
Computer and office equipment |
|
3 |
to |
5 |
Furniture and fittings |
|
7 |
to |
10 |
Computer Software |
|
3 |
to |
5 |
Vehicles |
|
4 |
to |
5 |
Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
The range of the estimated useful lives is
as follows:
Intangible
Useful lives |
|
|
|
|
Description |
|
Useful Life
(in years) |
|
|
|
Betting Platform Software |
|
15 |
Ulisse Bookmaker License |
|
Indefinite |
Multigioco and Rifa ADM Licenses |
|
1.5 |
- |
7 |
Location contracts |
|
5 |
- |
7 |
Customer relationships |
|
10 |
- |
18 |
Trademarks/Tradenames |
|
10 |
- |
14 |
Websites |
|
5 |
Non-compete agreements |
|
4 |
The Ulisse Bookmaker License has no expiration date and is therefore
not amortized but is tested from impairment on an annual basis in terms of ASC 350 using estimated fair value. The company impaired
the remaining balance of $4,827,914 of the Ulisse Bookmakers license during the current year.
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Goodwill
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
The Company annually assesses whether the carrying
value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each
interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount
of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment
charge will be recognized in an amount equal to that excess.
In terms of ASC 350, the Company performed
a qualitative assessment and based on the outcome of the quantitative analysis, performed a quantitative assessment on its goodwill
as of December 31, 2021 and determined that an impairment of $12,522,714 was considered necessary.
Leases
The Company accounts for leases in terms of
ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months
meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the
duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to
retain ownership of the asset at the end of the lease term.
Leases which imply that the Company will retain
ownership at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding
financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective
interest rate method.
Leases which imply that the Company will not
acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is
reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception.
The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest
rate implied in the operating lease agreement.
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2016 forward,
are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years
for inspection of serious infractions. In the United States and Canada, tax years beginning 2017 forward, are subject to examination.
The Company is not currently under examination and it has not been notified of a pending examination.
F-16
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include
software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software.
Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has
been fulfilled.
|
· |
License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned. |
|
· |
Training fees, installation fees are recognized when each task has been completed. |
|
· |
Product support services are recognized based on the nature of the agreement with our customers, ad-hoc support service revenue will be recognized when the task is completed and revenue from product support service contracts will be recognized on a periodic basis where we charge a recurring fee to provide ongoing support services. |
Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflects the dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential
to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.
Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
F-17
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Recent Accounting Pronouncements
In November 2021, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Disclosures by Entities
about Government Assistance (Topic 832), the update increases the transparency of government assistance, including the following
disclosures: (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance
on an entity’s financial statements.
This ASU is effective for fiscal years beginning
after December 15, 2021.
The effects of this ASU on the Company’s
consolidated financial statements is currently being assessed and is not expected to have an impact on current disclosure.
The FASB issued several additional updates
during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are
expected to have a material impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
|
(i) |
the operating of web based as well as land based leisure betting establishments situated throughout Italy, and |
|
(ii) |
provider of certified betting Platform software services to leisure betting establishments in Italy and 9 other countries. |
3. Acquisition of subsidiaries
On July 5, 2021, the Company entered into a
Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US LLC, a Nevada limited
liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”). On July
15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.
USB is a provider of sports wagering services
such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to the terms of the Purchase Agreement,
the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s
common stock with a market value of $4,544,304 on the date of acquisition.
The Sellers will have an opportunity to receive
up to an additional $38,000,000 (undiscounted) plus a potential undiscounted premium of 10% (or $3,800,000) based upon achievement
of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s
stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days
preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to
obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020
and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding
the cap will be paid in cash. The fair value of the contingent purchase consideration of $24,716,957 was estimated by
applying the income approach, which uses significant assumptions (Level 3 assumptions) which are not readily available in the market.
The goodwill of $27,024,383 arising on consolidation
consists largely of the reputation and knowledge of USB in the sports betting market in the US markets which should facilitate
the Company’s penetration into the U.S. market.
None of the goodwill is expected to be deducted
for income tax purposes.
F-18
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
3. Acquisition of subsidiaries (continued)
In terms of the agreement, the purchase price was
allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed as follows:
| |
Amount |
Consideration | |
| | |
Cash | |
$ | 6,000,000 | |
1,265,823 shares of common stock at fair market value | |
| 4,554,304 | |
Contingent purchase consideration | |
| 24,716,957 | |
Total purchase consideration | |
$ | 35,261,261 | |
Recognized amounts of identifiable assets acquired and liabilities assumed | |
| | |
Cash | |
| 26,161 | |
Other Current assets | |
$ | 151,284 | |
Property and equipment | |
| 788 | |
Other non-current assets | |
| 4,000 | |
Tradenames/Trademarks | |
| 1,419,000 | |
Customer relationships | |
| 7,275,000 | |
Non-compete agreements | |
| 2,096,000 | |
| |
$ | 10,972,233 | |
Less: liabilities assumed | |
| | |
Current liabilities assumed | |
$ | (264,135 | ) |
Non-current liabilities assumed | |
| (205,320 | ) |
Imputed Deferred taxation on identifiable intangible acquired | |
| (2,265,900 | ) |
| |
$ | (2,735,355 | ) |
Net identifiable assets acquired and liabilities assumed | |
| 8,236,878 | |
Goodwill | |
| 27,024,383 | |
Total purchase consideration | |
$ | 35,261,261 | |
The amount of revenue and earnings included
in the Company’s consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2021
and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020.
|
|
Revenue |
|
Earnings |
|
|
|
|
|
|
|
|
|
Actual from July 15, 2021 to December 31, 2021 |
|
$ |
363,030 |
|
|
$ |
(398,279 |
) |
|
|
|
|
|
|
|
|
|
2021 Supplemental pro forma from January 1, 2021 to December 31, 2021 |
|
$ |
45,957,894 |
|
|
$ |
(15,887,232 |
) |
|
|
|
|
|
|
|
|
|
2020 Supplemental pro forma from January 1, 2020 to December 31, 2020 |
|
$ |
37,607,873 |
|
|
$ |
(11,491,873 |
) |
The 2021 Supplemental pro forma information
was adjusted to exclude $125,479 of non-recurring acquisition costs, in addition, the 2021 and 2020 supplemental pro forma information
was adjusted to account for amortization of intangibles on acquisition of $579,519 and $1,070,067, respectively.
F-19
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
4. Restricted Cash
Restricted cash consists of the following:
|
· |
cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against a bank loan with Intesa Sanpaolo Bank for Multigioco. In the prior year we held funds at Wirecard Bank as a security deposit for Ulisse betting operations, this deposit was returned during the current year. |
|
· |
In the prior year, the Company maintained a $500,000 security deposit at Metropolitan Commercial Bank as security against a $500,000 line of credit, refer note 10 below. |
5. Property and equipment
|
|
December 31,
2021 |
|
December 31, 2020 |
|
|
Cost |
|
Accumulated depreciation |
|
Net book
value |
|
Net book
value |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
62,338 |
|
|
$ |
(35,078 |
) |
|
$ |
27,260 |
|
|
$ |
39,707 |
|
Computer and office equipment |
|
|
1,000,849 |
|
|
|
(777,635 |
) |
|
|
223,214 |
|
|
|
247,572 |
|
Fixtures and fittings |
|
|
385,871 |
|
|
|
(250,438 |
) |
|
|
135,433 |
|
|
|
54,465 |
|
Vehicles |
|
|
99,467 |
|
|
|
(54,630 |
) |
|
|
44,837 |
|
|
|
63,382 |
|
Computer software |
|
|
224,854 |
|
|
|
(165,519 |
) |
|
|
59,335 |
|
|
|
84,465 |
|
|
|
$ |
1,773,379 |
|
|
$ |
(1,283,300 |
) |
|
$ |
490,079 |
|
|
$ |
489,591 |
|
The aggregate depreciation charge to operations
was $230,033 and $354,552 for the years ended December 31, 2021 and 2020, respectively. The depreciation policies followed by the
Company are described in Note 2.
6. Leases
The Company’s portfolio of leases contains
both finance and operating leases that relate to real estate agreements, vehicles and office equipment agreements.
Operating leases
Real estate agreements
The Company has several property lease agreements
in Italy and Austria and one lease agreement in the US, which have terms in excess of a twelve month period, these property leases
are for our administrative operations in these countries. The Company does not and does not intend to take ownership of the properties
at the end of the lease term.
Vehicle agreements
The Company leases several vehicles for business
use purposes, the terms of these leases range from twenty four to thirty six months. The Company does not and does not intend to
take ownership of the vehicles at the end of the lease term.
F-20
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Finance Leases
Office equipment agreements
The Company has entered into several finance
leases for office equipment, the term of these leases range from thirty six to sixty months. The Company takes ownership of the
office equipment at the end of the lease term.
Right of use assets
Right of use assets included in the consolidated
balance sheet are as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
Non-current assets |
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization |
|
$ |
589,288 |
|
|
$ |
687,568 |
|
Right of use assets - finance leases, net of depreciation – included in property and equipment |
|
$ |
15,520 |
|
|
$ |
27,119 |
|
Lease costs consists of the following:
|
|
Year ended December 31, |
|
|
2021 |
|
2020 |
Finance lease cost: |
|
$ |
10,906 |
|
|
$ |
14,040 |
|
Amortization of right-of-use assets |
|
|
10,102 |
|
|
|
12,870 |
|
Interest expense on lease liabilities |
|
|
804 |
|
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
|
244,639 |
|
|
|
265,081 |
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
255,545 |
|
|
$ |
279,121 |
|
Other lease information:
|
|
Year ended December 31, |
|
|
2021 |
|
2020 |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows from finance leases |
|
$ |
(804 |
) |
|
$ |
(1,170 |
) |
Operating cash flows from operating leases |
|
|
(244,639 |
) |
|
|
(265,081 |
) |
Financing cash flows from finance leases |
|
|
(10,172 |
) |
|
|
(12,666 |
) |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new finance leases |
|
|
- |
|
|
|
470 |
|
Right-of-use assets disposed of under operating leases prior to lease maturity |
|
|
(224,793 |
) |
|
|
(21,588 |
) |
Right-of -use assets obtained in exchange for new operating leases |
|
$ |
406,276 |
|
|
$ |
84,918 |
|
Weighted average remaining lease term – finance leases |
|
|
1.93 years |
|
|
|
2.74 years |
|
Weighted average remaining lease term – operating leases |
|
|
2.60 years |
|
|
|
2.83 years |
|
Weighted average discount rate – finance leases |
|
|
3.73 |
% |
|
|
3.65 |
% |
Weighted average discount rate – operating leases |
|
|
2.73 |
% |
|
|
3.59 |
% |
F-21
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
as of December 31, 2021 is as follows:
| |
Amount |
2022 | |
$ | 8,802 | |
2023 | |
| 7,053 | |
2024 | |
| 818 | |
Total undiscounted minimum future lease payments | |
| 16,673 | |
Imputed interest | |
| (611 | ) |
Total finance lease liability | |
$ | 16,063 | |
Disclosed as: | |
| | |
Current portion | |
$ | 8,347 | |
Non-Current portion | |
| 7,716 | |
| |
$ | 16,063 | |
Operating lease liability
The amount of future minimum lease payments under operating leases
as of December 31, 2021 is as follows:
|
|
Amount |
2022 |
|
$ |
257,455 |
|
2023 |
|
|
190,132 |
|
2024 |
|
|
80,541 |
|
2025 |
|
|
46,416 |
|
2026 |
|
|
31,741 |
|
Total undiscounted minimum future lease payments |
|
|
606,285 |
|
Imputed interest |
|
|
(21,654 |
) |
Total operating lease liability |
|
$ |
584,631 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
244,467 |
|
Non-Current portion |
|
|
340,164 |
|
|
|
$ |
584,631 |
|
F-22
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7. Intangible Assets
Licenses obtained by the Company in the acquisitions
of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based
licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License
through the acquisition of Ulisse.
Intangible assets consist of the following:
| |
December 31, 2021 | |
December 31, 2020 |
| |
Cost | |
Impairment charge | |
Accumulated amortization | |
Net book value | |
Net book value |
Betting platform software | |
$ | 6,149,537 | | |
$ | — | | |
$ | (1,403,642 | ) | |
$ | 4,745,895 | | |
$ | 4,673,314 | |
Licenses | |
| 5,794,966 | | |
| (4,827,914 | ) | |
| (963,639 | ) | |
| 3,413 | | |
| 4,917,733 | |
Location contracts | |
| 1,000,000 | | |
| — | | |
| (1,000,000 | ) | |
| — | | |
| 88,455 | |
Customer relationships | |
| 8,145,927 | | |
| — | | |
| (607,394 | ) | |
| 7,538,533 | | |
| 509,237 | |
Trademarks | |
| 1,537,817 | | |
| — | | |
| (123,930 | ) | |
| 1,413,887 | | |
| 68,843 | |
Non-compete agreement | |
| 2,096,000 | | |
| — | | |
| (240,167 | ) | |
| 1,855,833 | | |
| — | |
Websites | |
| 40,000 | | |
| — | | |
| (40,000 | ) | |
| — | | |
| — | |
| |
$ | 24,764,247 | | |
$ | (4,827,914 | ) | |
$ | (4,378,772 | ) | |
$ | 15,557,561 | | |
$ | 10,257,582 | |
F-23
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7. Intangible Assets (continued)
The Company recorded $1,120,757 and $703,191
in amortization expense for finite-lived assets for the year ended December 31, 2021 and 2020, respectively, and an impairment
provision of $4,827,914 and $4,900,000 against indefinite lived licenses.
The estimated amortization expense over the
next five-year period is as follows:
|
|
Amount |
|
|
2021 |
|
$ |
1,552,219 |
|
|
|
2022 |
|
|
1,548,806 |
|
|
|
2023 |
|
|
1,548,806 |
|
|
|
2024 |
|
|
1,308,640 |
|
|
|
2025 |
|
|
1,024,805 |
|
|
|
Total estimated amortization expense |
|
$ |
6,983,276 |
|
|
The Company evaluates intangible assets for
impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible
asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
In assessing the impairment of indefinite lived
licenses, the Company first performed a qualitative impairment test to determine if any impairment indicators were present, impairment
indicators were noted for indefinite life intangibles assets in the Ulisse operation.
The impairment process used was as follows:
|
· |
based on qualitative impairment indicators bring present; |
|
· |
the Company utilized management’s December 2022 annual operational budget cash flows for the 2022 year together with forecasted cash flows for the next four-year period ending in 2026; |
|
· |
the budgeted and forecasted cash flows were adjusted for taxation at the Company’s current effective tax rate; |
|
· |
working capital cash flow movements were estimated for the budget and the forecast period using historical experience; |
|
· |
property and equipment cash flow additions for the budget and forecast period were estimated using historical experience and known cash flows; |
|
· |
net cash flow as determined by the above, were forecast in perpetuity by using the forecast growth rate and the Company’s estimated Weighted Average Cost of Capital (“WACC”); |
|
· |
The forecast future cash flows were discounted back to present value using the WACC; |
|
· |
WACC was determined by comparing the Company’s beta to that of certain peer companies and determining what a reasonable WACC was compared to our calculated internal WACC, we determined that due to recent volatility in the Company’s common stock price that a reasonable peer WACC is 14.75%. |
The COVID-19 pandemic has resulted in the closure
of our land-based operations in the Italian market for an extended period of time and as the pandemic evolved and the markets in
which the Company operated continued to experience resurgences of the virus, we remain uncertain as to the long-term impact on
the Company’s land-based operations. As such, the Company has made a strategic decision to transfer its Ulisse customer relationships
in Italy to Multigioco ahead of license renewals which are expected to take place within the next one to two years. The combined
Multigioco and Ulisse business under the Multigioco entity, which is an Italian based operator, substantially increases the Company’s
market share in Italy, and may improve the possibility of renewing our Italian licenses. Ulisse is based in Austria and during
the fourth quarter of 2021, management decided to apply its limited resources and concentrate all of its efforts on developing
the US and North American markets, thereby deciding to allow the Austrian bookmaking license to lapse by not renewing the cash
deposits required to retain the license. The license under which Ulisse operated in Italy, was not transferable to Multigioco and
accordingly, based on a quantitative impairment analysis, an impairment charge of the remaining carrying value of the license of
$4,827,914 is considered appropriate.
The Company believes that the remaining carrying
amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating
that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets
may be further impaired.
F-24
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
8. Goodwill
| |
December 31, 2021 | |
December 31, 2020 |
Cost | |
| | | |
| | |
Opening balance as of January 1, | |
$ | 1,663,120 | | |
$ | 1,663,385 | |
Acquisition of USB | |
| 27,024,383 | | |
| — | |
Foreign exchange movements | |
| (452 | ) | |
| (265 | ) |
Closing balance as of December 31. | |
| 28,687,051 | | |
| 1,663,120 | |
| |
| | | |
| | |
Accumulated Impairment charge | |
| | | |
| | |
Opening balance as of January 1, | |
| — | | |
| — | |
Impairment charge | |
| (12,522,714 | ) | |
| — | |
Closing balance as of December 31, | |
| (12,522,714 | ) | |
| — | |
| |
| | | |
| | |
Goodwill, net of impairment charges | |
$ | 16,164,337 | | |
$ | 1,663,120 | |
Goodwill represents the excess purchase price
paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company evaluates goodwill for impairment
on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment
is determined by comparing the fair value of the reporting unit to its carrying amount with an impairment being recognized only
when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
As discussed under note 14 below - contingent
purchase consideration, management recently reviewed the future revenue and profit projections of USB based on the forecasts
provided by the vendors at the time of performing the business valuation, factoring in the ability to source new customers. The
customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired
over the forecast period and the resultant downward impact on forecasted revenue streams. The Company reviewed the forecasts and
made appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party
market analysts, the Company’s expected share of revenue and the expectation of how many new clients the Company would realistically
be able to add over the forecast period. Management is currently forecasting expected discounted cash flows over the forecast period
to be approximately 40% lower than originally estimated. This has a significant impact on the current valuation of USB, resulting
in a goodwill impairment charge of approximately $12,522,714.
9. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
On December 31, 2021, the shares of Zoompass
were last quoted at $0.003 per share on the OTC market, resulting in an unrealized loss recorded to earnings related to these securities
of $460,000, The Company recorded an unrealized gain of $290,000 for the year ended December 31, 2020.
10. Line of Credit - Bank
The Company withdrew its security deposit of
$500,000 during the current fiscal year thereby cancelling the $500,000 secured revolving line of credit from Metropolitan Commercial
Bank in New York. In the prior year, $500,000 was drawn as of December 31, 2020, which bore interest at a fixed rate of 3% on the
outstanding balance with an interest only monthly minimum payment, and no maturity date, provided the security deposit of $500,000
remained in place, see Note 4.
F-25
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures
On February 26, 2018, the Company issued debenture
units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of
(i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two
years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise
price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February
25, 2020, and (iii) 20 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate
principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 20,938 shares of the Company’s
common stock and 13,875 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
In April 2018, the Company issued debenture
units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20
shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of
CDN $135,000 ($105,200) debentures and received warrants to purchase up to 4,218.75 shares of the Company’s common stock
and 2,700 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On April 19, 2018, the Company re-issued debenture
units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various
debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April
19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing
interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up
to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial
Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 shares of restricted common stock. The investors
in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants
to purchase up to 44,875 shares of the Company’s common stock and 28,720 restricted shares of common stock. As a result of
the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the
whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest could have been
converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants could have been
exercised at a price equal to $4.00 per share.
On May 11, 2018, the Company issued debenture
units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii)
20 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount
of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 4,093.75 shares of the Company’s common stock
and 2,620 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private
Placement plus any accrued and unpaid interest could have been converted into shares of the Company’s common stock at a price
equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On May 31, 2018, the Company closed a private
placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited
investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations.
Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in
the principal amount of $1,000 (the “U.S. Debentures”) maturing on May 31, 2020, (ii) 26 shares of our common stock
and (ii) warrants to purchase up to 135.25 shares of the Company’s common stock (the “U.S. Warrants”). Each unit
sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the
principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”),
(ii) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 shares of our common stock (the “Canadian Warrants”
and together with the U.S. Warrants, the “May Warrants”).
The proceeds received from the convertible
debentures were net of finders fees paid to certain brokers. In addition, the Company also issued: (i) shares of common stock to
the convertible debenture holders; (iii) certain two year warrants exercisable for shares of common stock at an exercise price
of $4.00 per share; (iii) in conjunction with the finders fees paid, the Company also issued warrants to certain brokers on the
same terms and conditions as the warrants issued to the convertible debenture holders.
The convertible debentures were convertible into
shares of common stock at a conversion price of $3.20 per share.
F-26
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures (continued)
The May Warrants and broker warrants were exercisable
at an exercise price of $4.00 per share and expired on May 31, 2020.
The accounting treatment of the above is as
follows:
|
(i) |
The convertible debentures were recorded at gross value; |
|
(ii) |
The cash fee paid to the brokers was $427,314 and the fair value of the warrants issued to the brokers were valued at fair value as described in (iv) below and were recorded as a debt discount against the gross value of the convertible debentures; |
|
(iii) |
The shares of common stock issued to the convertible debenture holders were valued at $582,486, the market price of the common stock on the date of issue and were recorded as debt discount against the gross value of the convertible debt; |
|
(iv) |
The warrants issued to the convertible debenture holders and brokers were valued at $2,929,712 using a Black-Scholes valuation model. These warrants were equity classified with a beneficial conversion feature. |
The total debt discount above amounted to $6,524,567
which was being amortized over the two year life of the debentures on a straight line basis.
Convertible debentures of $10,000 and CDN $65,000
(approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000 was acquired by
a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured, had the
maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension.
As an incentive for extending the maturity
date of the convertible debentures, the debenture holders were granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share, of which 144,041 were granted to related parties and three year warrants exercisable
for 72,729 shares of common stock at an exercise price of $5.00 per share, of which 36,010 were issued to related parties. All
of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were
repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in 2021.
During the year ended December 31, 2020, investors
in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600, including interest thereon
of CDN $45,029 and investors in US Dollar convertible debentures converted the aggregate principal amount of $400,000, including
interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate convertible debentures outstanding
consists of the following:
| |
December 31, 2021 | |
December 31, 2020 |
Principal Outstanding | |
| | | |
| | |
Opening balance | |
$ | 27,442 | | |
$ | 3,464,737 | |
Repaid | |
| (27,562 | ) | |
| (2,778,349 | ) |
Conversion to equity | |
| — | | |
| (634,431 | ) |
Foreign exchange movements | |
| 120 | | |
| (24,515 | ) |
| |
| — | | |
| 27,442 | |
Accrued Interest | |
| | | |
| | |
Opening balance | |
| 7,105 | | |
| 524,227 | |
Interest expense | |
| 4,696 | | |
| 207,595 | |
Repaid | |
| (11,833 | ) | |
| (619,992 | ) |
Conversion to equity | |
| — | | |
| (103,958 | ) |
Foreign exchange movements | |
| 32 | | |
| (767 | ) |
| |
| — | | |
| 7,105 | |
Debenture Discount | |
| | | |
| | |
Opening balance | |
| — | | |
| (627,627 | ) |
Amortization | |
| — | | |
| 627,627 | |
| |
| — | | |
| — | |
Convertible Debentures, net | |
$ | — | | |
$ | 34,547 | |
F-27
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
12. Deferred Purchase Consideration
In terms of the acquisition of Virtual Generation
on January 31, 2019, the Company issued non-interest bearing promissory notes of €3,803,000 owing to both related parties
and non-related parties. The value of the promissory notes payable related parties was €1,521,200 and to non-related parties
was €2,281,800.
The promissory notes payable to non-related
parties are to be settled as follows:
|
(a) |
an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly installments of €62,400 with the first such payment due and payable on the date that was one month after the Closing Date; and |
|
(b) |
an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly installments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced on March 1, 2019. |
Pursuant to the terms of the Purchase Agreement
that the Company entered into with Virtual Generation, the Company agreed to pay the sellers of Virtual Generation an earnout payment
in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made
by users of the Virtual Generation platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended
December 31, 2018. Based on the 18,449,380 tickets sold in 2019 the Virtual Generation sellers qualified for the earnout payment
of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020. The amount due
to the non-related party Virtual Generation sellers amounted to €300,000 (approximately $336,810).
The future payments on the promissory notes
were discounted to present value using the Company’s average cost of funding of 10%. The discount was being amortized over
the repayment period of the promissory note using the effective interest rate method.
During the year ended December 31, 2021, the
Company paid the remaining balance of €20,800 (Approximately $25,262) to non-related parties in terms of the Virtual Generation
promissory note.
The movement on deferred purchase consideration
consists of the following:
Description | |
December 31, 2021 | |
December 31, 2020 |
Principal Outstanding | |
| | | |
| | |
Promissory note due to non-related parties | |
$ | 25,434 | | |
$ | 1,802,384 | |
Settled by the issuance of common shares | |
| — | | |
| (724,467 | ) |
Repayment in cash | |
| (25,262 | ) | |
| (1,105,455 | ) |
Foreign exchange movements | |
| (172 | ) | |
| 52,972 | |
| |
| — | | |
| 25,434 | |
Present value discount on future payments | |
| | | |
| | |
Present value discount | |
| (7,761 | ) | |
| (120,104 | ) |
Amortization | |
| 7,700 | | |
| 114,333 | |
Foreign exchange movements | |
| 61 | | |
| (1,990 | ) |
| |
| — | | |
| (7,761 | ) |
Deferred purchase consideration, net | |
$ | — | | |
$ | 17,673 | |
F-28
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
13. Bank Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately $545,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The
loan has an underlying interest rate of 4.5% above the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized
over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017.
In terms of a directive by the Italian Government,
in order to provide financial relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a
period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remains the same at 4.5%
above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971.
The Company made payments of €119,641
(approximately $141,578) which included principal of €113,029 (approximately $133,754) and interest of €6,612 approximately
$7,824) for the year ended December 31, 2021.
Included in bank loans is a Small Business
Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of USB with a principal outstanding of
$150,000. The SBA Loan bears interest at 3.75% per annum and is repayable in monthly installments of $731 which began in June 2021,
and matures in May 2050. The SBA Loan is collateralized by all of USB’s tangible and intangible assets.
Since acquisition of USB, The Company has repaid
capital of $1,168 and has total accrued and unpaid interest of $5,524 on this loan as of December 31, 2021.
The maturity of bank loans payable as of December
31, 2021 is as follows:
|
|
Amount |
2022 |
|
$ |
36,094 |
|
2023 |
|
|
3,151 |
|
2024 |
|
|
3,272 |
|
2025 |
|
|
3,396 |
|
2026 and thereafter |
|
|
141,502 |
|
Total finance lease liability |
|
$ |
187,415 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
36,094 |
|
Non-Current portion |
|
|
151,321 |
|
|
|
$ |
187,415 |
|
14. Contingent Purchase Consideration
In terms of the acquisition of USB disclosed
in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000 plus a potential premium of 10%
(or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50%
in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock
for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending
December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase
Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved
by shareholders or exceeding the cap will be paid in cash.
F-29
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
14. Contingent Purchase Consideration (continued)
The Company had an independent third party
valuation entity perform a Purchase Price Analysis which included the probability of the Sellers achieving the additional proceeds
of $41,800,000.
Contingent purchase consideration is considered
at each reporting period. Contingent purchase consideration is based on cumulative EBITDA for the period July 15, 2021 to December
31, 2025, with the first measurement period being December 31, 2022. The forecasts provided by the vendors at the time of performing
the business valuation was based on achieving a certain number of new customers on an annual basis. The customer acquisition process
has proven to take longer than expected with a resultant impact on forecasted revenue streams over the contingent earnout period.
Management revised its estimated revenues as of December 31, 2021. These forecasts were reviewed and adjusted to ensure they appeared
reasonable based on the Company’s current understanding of addressable market, the growth rates forecast by third party market
analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add in a
fiscal period. The most significant impact on the contingent purchase consideration is expected to be in the 2022 fiscal year,
where the Company currently forecast that no contingent purchase consideration will be payable. This has a knock-on effect on the
future 2023 to 2024 fiscal periods as the calculation of contingent purchase consideration is based on cumulative EBITDA.
Any change in the fair value of contingent
purchase consideration is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The estimate
of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount
rates, and probabilities assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement
of the stated unadjusted accumulated EBITDA milestones and the methodology in determining the number of shares to be issued during
each earnout period and the potential restriction on the number of shares available for issue, the contingent purchase consideration
is classified as a liability.
| |
December 31, 2021 |
Opening balance as of January 1, | |
$ | — | |
Contingent purchase consideration measured on the acquisition of USB | |
| 24,716,957 | |
Settled by the issuance of common shares | |
| — | |
Repayment in cash | |
| — | |
Changes in fair value | |
| (11,857,558 | ) |
Closing balance as of December 31, | |
$ | 12,859,399 | |
F-30
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Other Long-term Liabilities
Other long-term liabilities represent the following:
|
· |
Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement; |
|
· |
In the prior year, shop deposits that were previously held by Ulisse. |
Balances of other long-term liabilities were as follows:
| |
December 31, 2021 | |
December 31, 2020 |
Severance liability | |
$ | 359,567 | | |
$ | 297,120 | |
Customer deposit balance | |
| — | | |
| 366,947 | |
Total other long term liabilities | |
$ | 359,567 | | |
$ | 664,067 | |
16. Related Parties
Notes Payable, Related Party
On March 11, 2020, the Company received an
advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a Company
controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
| |
December 31, 2021 | |
December 31, 2020 |
Principal Outstanding | |
| | | |
| | |
Opening balance | |
$ | — | | |
$ | — | |
Additions | |
| — | | |
| 300,000 | |
Repayment | |
| — | | |
| (200,000 | ) |
Applied to warrant exercise | |
| — | | |
| (100,000 | ) |
Settled by issuance of common shares | |
| — | | |
| — | |
| |
| — | | |
| — | |
Accrued Interest | |
| | | |
| | |
Opening balance | |
| — | | |
| — | |
Interest expense | |
| — | | |
| 22,521 | |
Repayment | |
| — | | |
| (14,465 | ) |
Applied to warrant exercise | |
| — | | |
| (8,056 | ) |
Conversion to equity | |
| — | | |
| — | |
| |
| — | | |
| — | |
Promissory Notes Payable – Related Party | |
$ | — | | |
$ | — | |
Convertible notes acquired, Related Party
Forte Fixtures and Millworks, Inc. acquired
certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal
amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes
with an aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28,
2020. The convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October
21, 2020.
As an incentive for extending the maturity
date of the convertible debentures, Forte Fixtures and Millworks, Inc., was granted two year warrants exercisable for 134,508 shares
of common stock at an exercise price of $3.75 per share and three year warrants exercisable for 33,627 shares of common stock at
an exercise price of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Deferred Purchase consideration, Related
Party
In terms of the acquisition of Virtual Generation
on January 17, 2019, the Company issued non-interest bearing promissory notes in the principal amount of €3,803,000 owing
to both related parties and non-related parties. The value of the promissory notes payable to non-related parties was €2,281,800
and to related parties was €1,521,200.
The related party promissory notes are due
to Luca Pasquini, an employee and previously a director of the Company and Gabriele Peroni, an employee and previously an officer
of the Company.
The promissory notes were to be settled as
follows:
|
(a) |
an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the closing of the acquisition (the “Closing Date”); and |
|
(b) |
an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019. |
Pursuant to the terms of the Purchase Agreement
that the Company entered into with Virtual Generation, the Company agreed to pay the Virtual Generation Sellers an earnout payment
in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made
by users of the Virtual Generation platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended
December 31, 2018. Based on the 18,449,380 tickets sold in 2019 the Virtual Generation sellers qualified for the earnout payment
of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.
The amount due to the related party Virtual
Generation Sellers amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094
shares of common stock at $4.23 per share.
During the first and second quarter, the Company paid the remaining balance of €312,500 (approximately $385,121)
to related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration
consists of the following:
Description |
|
December 31,
2021 |
|
December 31,
2020 |
Principal Outstanding |
|
|
|
|
|
|
|
|
Promissory notes due to related parties |
|
$ |
382,128 |
|
|
$ |
1,279,430 |
|
Settled by the issuance of common shares |
|
|
— |
|
|
|
(482,978 |
) |
Repayment in cash |
|
|
(385,121 |
) |
|
|
(471,554 |
) |
Foreign exchange movements |
|
|
2,993 |
|
|
|
57,230 |
|
|
|
|
— |
|
|
|
382,128 |
|
Present value discount on future payments |
|
|
|
|
|
|
|
|
Present value discount |
|
|
(5,174 |
) |
|
|
(80,069 |
) |
Amortization |
|
|
5,133 |
|
|
|
76,222 |
|
Foreign exchange movements |
|
|
41 |
|
|
|
(1,327 |
) |
|
|
|
— |
|
|
|
(5,174 |
) |
Deferred purchase consideration, net |
|
$ |
— |
|
|
$ |
376,954 |
|
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Related party (payables) receivables
Related party payables and receivables represent
non-interest-bearing (payables) receivables that are due on demand.
The balances outstanding are as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
Related Party payables |
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
(502 |
) |
|
$ |
(565 |
) |
Victor Salerno |
|
|
(51,878 |
) |
|
|
— |
|
|
|
|
(52,380 |
) |
|
$ |
(565 |
) |
|
|
|
|
|
|
|
|
|
Related Party Receivables |
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
1,413 |
|
|
$ |
1,519 |
|
Gold Street Capital
Gold Street Capital is wholly owned by Gilda
Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital acquired certain convertible
notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible notes
was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid during the current year.
As an incentive for extending the maturity
date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants exercisable
at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price of $5.00 per share. Gold Street
Capital was granted two year-warrants exercisable for 9,533 shares of common stock at $3.75 per share and three-year warrants exercisable
for 2,383 shares of common stock at $5.00 per share.
Luca Pasquini
On January 31, 2019, the Company acquired Virtual
Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross
proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash
of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month
period. As of June 30, 2021, the Company has paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and
issued 112,521 shares valued at €300,000 (approximately $334,791).
On October 1, 2020, the Company granted to Mr. Pasquini a ten year option to purchase 58,000 shares of common stock at an exercise
price of $2.03 per share.
On January 22, 2021, the Company issued Mr.
Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
On July 11, 2021, the Company entered into
an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system,
the total contract price was €390,000 (approximately $459,572). Mr. Pasquini owns 34% of Engage.
On October 14, 2021, the Company entered into
a further agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of
the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000). Mr. Pasquini
owns 34% of Engage.
On September 13, 2021, Mr. Pasquini, the Company’s
Vice President of Technology, resigned as a director of the Company.
F-33
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Michele Ciavarella
On October 1, 2020, the Company granted to
Mr. Ciavarella, a ten year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Ciavarella agreed to receive $140,000 of
his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares
of common stock valued at $140,000 on the date of issue.
On January 22, 2021, the Company issued Mr.
Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him.
On July 15, 2021, Michele Ciavarella, Executive
Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the Company, effective July 15,
2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive Officer until the earlier of his
resignation or removal from office.
Victor Salerno
On July 15, 2021 the Company consummated the
acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”).
Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid in cash upon closing and 860,760 of the 1,265,823
shares of common stock issued on closing.
Together with the consummation of the acquisition
of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno
Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal.
The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno
is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.
Mr. Salerno may be terminated for no cause
or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term
of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr. Salerno is terminated
for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is
terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base
salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual
salary.
Pursuant to the Salerno Employment Agreement,
Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential
information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating
to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for
the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a
competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the
Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with
the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business
or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.
In September 13, 2021, the Board appointed
Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking, to serve as a member of
the Board.
Prior to the acquisition of USB, Mr. Salerno
had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns
interest at 8% per annum, compounded monthly and repayable on December 31, 2023.
F-34
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Matteo Monteverdi
Effective September 21, 2020, the Board appointed
Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive
Officer of the Company.
Mr. Monteverdi has previously served as an
independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological
capabilities of the Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s
current management team.
In connection with his appointment, the Company
and Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year
term, which provides for the following compensation terms:
|
· |
an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board; |
|
· |
the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and |
|
· |
Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024. |
Mr. Monteverdi is also eligible to participate
in the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect
from time to time on the same basis as generally made available to other senior executives of the Company or in the alternative
may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also
provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during
the term of the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or
disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive
from the Company in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his
base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs
within the first twelve (12) months of the Agreement, the amount shall be Executive’s MBO Bonus for the-then current fiscal
year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus
(if any) which would have been payable to Mr. Monteverdi had he remained in employment with the Company during the entire year
in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was
employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which
such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal
to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents,
until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible
to receive such coverage under a subsequent employer’s insurance plan.
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
On July 15, 2021, Mr. Monteverdi resigned as
the Company’s Chief Executive Officer and President to become the Company’s Head of Special Projects, all other terms
of the employment contract remain the same.
Gabriele Peroni
On January 31, 2019, the Company acquired Virtual
Generation for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds
of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000
over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June
30, 2021, the Company has paid Mr. Peroni the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares
valued at €300,000 (approximately $334,791).
F-35
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
On October 1, 2020, the Company granted to
Mr. Peroni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021, the Company issued Mr.
Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him.
Alessandro Marcelli
On October 1, 2020, the Company granted to
Mr. Marcelli a ten year option to purchase 56,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021, the Company issued Mr.
Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him.
Franco Salvagni
On October 1, 2020, the Company granted to
Mr. Salvagni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021, the Company issued Mr.
Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him.
Beniamino Gianfelici
On October 1, 2020, the Company granted to
Mr. Gianfelici a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021, the Company issued Mr.
Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation due to him.
Paul Sallwasser
On October 1, 2020, the Company granted to
Mr. Sallwasser a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of
directors fees.
On September 13, 2021, the Company granted
Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock at an exercise price of $5.10, vesting
equally over a twelve month period commencing on September 13, 2021, in lieu of directors fees.
Steven Shallcross
On October 1, 2020, the Company granted to
Mr. Shallcross a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share, in lieu of
a portion of his directors fees.
On January 22, 2021, the Company issued to
Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’ fees
due to him.
On September 13, 2021, the Company granted
Mr. Shallcross ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting
equally over a twelve month period commencing on September 13, 2021, in lieu of a portion of his directors fees.
Mr. Shallcross earned cash directors fees of
$40,000 and $35,000 for the years ended December 31, 2021 and 2020 respectively.
F-36
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Mark Korb
On October 1, 2020, the Company granted to
Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.
On July 5, 2021, the Company entered into an
employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the “Korb Employment
Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer for a term
of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined
by the Company’s board of directors with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension,
medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance
of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, on
July 1, 2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s
common stock. The shares of common stock underlying the option award vest pro rata on a monthly basis over a forty-eight month
period. The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per
share.
In addition, the Korb Employment Agreement
also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If
his employment is terminated by the Company other than for “Cause,” death or Disability or by Mr. Korb for “Good
Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive from the Company in equal installments
over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the highest
annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs
within the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s MBO Bonus for the-then current fiscal
year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus
(if any) which would have been payable to Mr. Korb had he remained in employment with the Company during the entire year in which
such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Korb was employed in the
year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination
occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement
of up to $2,000 a month in third-party medical and welfare benefits for Mr. Korb and his dependents, until the earlier of: (A)
a period of twelve (12) months after the termination date, or (B) the date Mr. Korb becomes eligible to receive such coverage under
a subsequent employer’s insurance plan. Mr. Korb’s receipt of the termination payments and benefits is contingent upon
execution of a general release of any and all claims arising out of or related to his employment with the Company and the termination
of his employment, and compliance with the restrictive covenants described in the following paragraph.
If the Korb Employment Agreement is terminated
by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive accrued and unpaid base salary,
earned and unused vacation days through the termination date and all expenses incurred by him prior to the termination date. The
Korb Employment Agreement also provides that upon the Disability ( as defined in the Korb Employment Agreement) of Mr. Korb or
his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the date
of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary.
Pursuant to the Korb Employment Agreement,
Mr. Korb has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information
and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business
is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period
following his termination of employment, Mr. Korb has agreed not to (1) perform services on behalf of a competing business which
was the same or similar to the types services he was authorized, conducted, offered or provided to the Company, (2) solicit or
induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit
any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual
or prospective vendors with whom he had material contact to support a competing business.
On January 5, 2022, Mark Korb resigned as Chief
Financial Officer of the Company. In connection with his resignation, the Company entered into an amendment to Mr. Korb’s
employment agreement with the Company to provide that he will be employed by the Company as a non-executive employee with the title
“Head of Corporate Affairs”, reporting directly to the Executive Chairman and that in such capacity he will be responsible
for, among other things, various corporate initiatives and activities related to growth and capital strategies. All other terms
of the employment agreement remain the same.
F-37
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Andrea Mandel-Mantello
On June 29, 2021, the Board appointed Mr. Mandel-Mantello
to serve as a member of the Board. The appointment was effective immediately and Mr. Mandel-Mantello will serve on the audit committee.
On September 13, 2021, the Company granted
Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting
equally over a twelve month period commencing on September 13, 2021, in lieu of a portion of his directors fees.
Mr. Mandel-Mantello earned cash directors fees
of $20,000 for the six months ended December 31, 2021.
Phillipe Blanc
On October 1, 2020, the Company appointed Mr.
Philippe Blanc as a director of the Company.
On October 1, 2020, the Company granted to
Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors
fees.
On July 1, 2021, Philippe Blanc resigned as
a director of the Company, simultaneously with Mr. Blanc’s resignation as a director of the Company, the Company entered
into a consulting agreement with Mr. Blanc to provide for his future services in a consulting capacity over two years. Mr. Blanc
will receive €105,000 per annum as compensation.
Carlo Reali
On January 5, 2022, the Company promoted Carlo
Reali to the role of Interim Chief Financial Officer.
We do not have a formal employment or other
compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that he currently
receives which is an annual base salary of $71,200 .
Richard Cooper
On October 1, 2020 Mr. Cooper resigned as a
director of the Company.
Mr. Cooper received cash director fees of $30,000
for the year ended December 31, 2020.
Clive Kabatznik
On May 15, 2020, Mr. Kabatznik resigned as
a director of the Company.
Mr. Kabatznik received cash director fees of
$10,000 for the year ended December 31, 2020.
17. Stockholders’ Equity
For the year ended December 31, 2021, the Company
issued a total of 533,790 shares of common stock, valued at $3,012,481 for the settlement of third party liabilities,
compensation and directors’ fees to certain of the Company’s related parties, refer note 16 above.
Between January 4, 2021, and September 21,
2021, investors exercised warrants for 1,506,809 shares of common stock for gross proceeds of $3,962,481 at an average
exercise price of $2.63 per share.
On January 22, 2021, the Company issued 24,476 restricted
shares of common stock valued at $140,000 to Michele Ciavarella in terms of a compensation election he made for the 2021 fiscal
year.
On July 15, 2021, the Company issued 1,265,823
shares of common stock to the Sellers of USB, at $4.74 per share with a market value of $4,544,304 on the date of acquisition.
F-38
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
17. Stockholders’ Equity (continued)
The Company issued the following shares of common stock to promissory
note holders in terms of the agreement entered into for the acquisition of Virtual Generation.
|
· |
On January 1, 2020, 22,030 shares of common stock valued at $93,077; |
|
· |
On January 1, 2020, 132,735 shares of common stock valued at $561,350; |
|
· |
On February 27, 2020, 23,890 shares of common stock valued at $91,541; |
|
· |
On March 1, 2020, 25,690 shares of common stock valued at $96,372; |
|
· |
On April 1, 2020, 61,040 shares of common stock valued at $90,745; |
|
· |
On May 1, 2020, 24,390 shares of common stock valued at $91,265; |
|
· |
On June 1, 2020, 29,300 shares of common stock valued at $92,321; |
|
· |
On July 1, 2020, 35,130 shares of common stock valued at $91,265. |
For the year ended December 31, 2020, the Company
issued a total of 230,326 shares of common stock, valued at $739,004, upon the conversion of convertible debentures into equity.
On August 17, 2020, the Company closed its
underwritten public offering of 4,166,666 units at a price of $2.40 per unit for gross proceeds of $9,999,998, before underwriting
commission of $800,000 and other offering expenses. Each unit consists of one share of common stock and one five year warrant exercisable
for one share of common stock at an exercise price of $2.50 per share.
The Company granted the underwriters a forty-five
day option to purchase up to 624,999 shares of common stock and/or warrants at a price of $2.39 per share and $0.01 per five year
warrant exercisable for one share of common stock at an exercise price of $2.50 per share. The underwriters were also issued a
three year warrant exercisable for 208,333 shares of common stock at an exercise price of $3.00 per share.
On September 3, 2020, the underwriters executed
a partial exercise of the option to purchase 624,999 units and purchased only the warrants at a purchase price of $0.01 per warrant,
less underwriters commission of $500, for net proceeds of $5,250.
On December 30, 2020, the Company entered into
a settlement agreement with its previous chairman whereby it issued 8,469 shares of common stock at a value of $46,666 to settle
the balance owing of $46,666.
Between December 18, 2020 and December 31,
2020, investors exercised warrants for 3,321,226 shares of common stock at exercise prices ranging from $2.50 to $5.00 per share
for gross proceeds of $8,541,896, and the use of proceeds from promissory notes, related party of $108,056 was applied to the warrant
exercise.
18. Warrants
On May 31, 2020, in terms of convertible debt
extension agreements entered into with investors, the Company granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share until May 31, 2022 and three year warrants exercisable for 72,729 shares of common
stock at an exercise price of $5.00 per share until May 31, 2023.
In terms of the underwritten public offering
disclosed in note 16 above, the Company granted 4,166,666 five year warrants, exercisable at $2.50 per share to the subscribers.
In addition, the Company granted the underwriter 208,333 three year warrants exercisable at $3.00 per share, and in terms of the
underwriters’ over-allotment option, the Company granted an additional 624,999 five year warrants exercisable at $2.50 per
share to the Underwriter.
F-39
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
18. Warrants (continued)
The warrants issued during the year ended December
31, 2020, were assessed in terms of ASC 480-10, Distinguishing between Liabilities and Equity, and ASC 815-10, Derivatives
and Hedging Transactions to determine if they met equity classification or liability classification. After considering
the guidance provided by the ASC under both ASC 480-10 and ASC 815-10, the Company determined that equity classification was appropriate.
The warrants awarded during the year ended
December 31, 2020 were valued using a Black-Scholes option pricing model.
The following assumptions were used in the
Black-Scholes model:
|
|
Year ended
December 31, 2020 |
Exercise price |
|
|
$2.50 to $5.00 |
|
Risk free interest rate |
|
|
0.16 to 0.29 |
% |
Expected life of warrants |
|
|
2 to 5 |
|
Expected volatility of underlying stock |
|
|
139.5 to 183.5 |
|
Expected dividend rate |
|
|
0 |
% |
A summary of all of the Company’s warrant activity during
the period January 1, 2020 to December 31, 2021 is as follows:
|
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
Outstanding January 1, 2020 |
|
|
1,089,474 |
|
|
$ |
4.00 |
|
|
$ |
4.00 |
|
Granted |
|
|
5,374,371 |
|
|
|
2.50 to 5.00 |
|
|
|
2.62 |
|
Forfeited/cancelled |
|
|
(1,089,474 |
) |
|
|
4.00 |
|
|
|
4.00 |
|
Exercised |
|
|
(3,321,226 |
) |
|
|
2.50 to 5.00 |
|
|
|
2.62 |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2020 |
|
|
2,053,145 |
|
|
$ |
2.50 to 5.00 |
|
|
|
2.63 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(1,506,809 |
) |
|
|
2.50 to 5.00 |
|
|
|
2.63 |
|
Outstanding December 31, 2021 |
|
|
546,336 |
|
|
$ |
2.50 to 5.00 |
|
|
$ |
2.66 |
|
The following tables summarize information about warrants outstanding
as of December 31, 2021:
|
|
Warrants outstanding |
|
Warrants exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$2.50 |
|
|
486,173 |
|
|
|
3.63 |
|
|
$ |
2.50 |
|
|
|
486,173 |
|
|
$ |
2.50 |
|
$3.75 |
|
|
48,395 |
|
|
|
0.41 |
|
|
|
3.75 |
|
|
|
48,395 |
|
|
|
3.75 |
|
$5.00 |
|
|
11,768 |
|
|
|
0.61 |
|
|
|
5.00 |
|
|
|
11,768 |
|
|
|
5.00 |
|
|
|
|
546,336 |
|
|
|
3.28 |
|
|
$ |
2.66 |
|
|
|
546,336 |
|
|
$ |
2.66 |
|
The outstanding warrants
have an intrinsic value of $257,672 as of December 31, 2021.
F-40
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
19. Stock Options
In September 2018, our stockholders approved
our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board approved an amendment
to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be
granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an
increase in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the Company held its
2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 1,850,000 shares of common stock.
On October 29, 2021, the Board approved an
Amendment to the Plan (“Amendment No. 2”) to increase by 4,000,000 the number of shares that may be granted under the
Plan. Amendment No. 2 to the 2018 Plan will increase the number of shares of common stock with respect to which awards may be granted
under the 2018 Plan from an aggregate of 3,000,000 shares of common stock to 7,000,000 shares of common stock.
On December 8, 2021, the Company held its 2021
Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 2 to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 4,000,000 shares of common stock.
During September 2020, in terms of the employment
agreement entered into with Mr. Monteverdi, the Company granted options to purchase 648,000 shares of common stock that vest
pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
On October 1, 2020, the Board granted to each
of Michele Ciavarella, Alessandro Marcelli, Luca Pasquini, Gabriele Peroni, Frank Salvagni, Beniamino Gianfelici and Mark Korb,
an option to purchase 140,000, 56,000, 58,000, 36,000, 36,000, 35,000 and 58,000 shares of the Company’s common stock, respectively,
under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option awards each vest pro rata
on a monthly basis over a thirty-six month period. The options are exercisable for a period of ten years from the date of grant
and have an exercise price of $2.03 per share.
On October 1, 2020, the Board also granted
to each of Paul Sallwasser, Steven Shallcross and Philippe Blanc, as non-executive members of the Board, an option to purchase
55,000, 35,000 and 55,000 shares of the Company’s common stock, respectively, under the Company’s 2018 Equity Incentive
Plan. The shares of common stock underlying the option awards each vest pro rata on a monthly basis over a twelve month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $2.03 per share.
On October 1, 2020, the board granted options
to purchase 95,000 shares of common stock to various employees at an exercise price of $2.03 per share.
During the period ended December 31, 2021,
the Company issued ten year options to purchase 745,000 shares at exercise prices ranging from $2.62 to $4.20 per
share to employees.
On July 1, 2021, in compliance with the terms
of an employment agreement entered into with Mr. Korb, the Company’s CFO, the Company granted him ten year options to purchase 400,000 shares
of common stock at an exercise price of $4.03 per share vesting annually commencing on September 1, 2022.
On August 31, 2021, due to the resignation
of an employee, unvested options for 50,000 shares of common stock were forfeited by the employee.
On September 13, 2021, the Company granted
the non-executive members of its board ten year options to purchase 48,500 shares of common stock at an exercise price
of $5.10 per share, as a component of annual compensation.
The options awarded during the year ended December
31, 2021 were valued using a Black-Scholes option pricing model.
F-41
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
19. Stock Options (continued)
The following assumptions were used in the
Black-Scholes model:
|
|
Year ended
December 31, 2021 |
Exercise price |
|
$ |
2.62 to 5.10 |
|
Risk free interest rate |
|
|
0.92 to 1.63 |
% |
Expected life of options |
|
|
10 years |
|
Expected volatility of underlying stock |
|
|
206.8 to 229.8 |
% |
Expected dividend rate |
|
|
0 |
% |
A summary of all of the Company’s option activity during the
period January 1, 2020 to December 31, 2021 is as follows:
|
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
Outstanding January 1, 2020 |
|
|
315,938 |
|
|
$ |
2.72 to 2.96 |
|
|
$ |
2.84 |
|
Granted |
|
|
1,307,000 |
|
|
|
1.84 to 2.03 |
|
|
|
1.95 |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2020 |
|
|
1,622,938 |
|
|
$ |
1.84 to 2.96 |
|
|
|
2.11 |
|
Granted |
|
|
1,193,500 |
|
|
|
2.62 to 5.10 |
|
|
|
3.15 |
|
Forfeited/cancelled |
|
|
(50,000 |
) |
|
|
2.62 |
|
|
|
2,62 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2021 |
|
|
2,766,438 |
|
|
$ |
1.84 to 5.10 |
|
|
$ |
2.92 |
|
The following table summarize information about stock options outstanding
as of December 31, 2021:
|
|
Options outstanding |
|
Options exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$1.84 |
|
|
648,000 |
|
|
|
8.73 |
|
|
|
|
|
|
|
162,000 |
|
|
|
|
|
$2.03 |
|
|
659,000 |
|
|
|
8.75 |
|
|
|
|
|
|
|
359,1673 |
|
|
|
|
|
$2.72 |
|
|
25,000 |
|
|
|
4.50 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
$2.80 |
|
|
220,625 |
|
|
|
7.73 |
|
|
|
|
|
|
|
124,284 |
|
|
|
|
|
$2.96 |
|
|
70,313 |
|
|
|
7.52 |
|
|
|
|
|
|
|
70,313 |
|
|
|
|
|
$3.43 |
|
|
25,000 |
|
|
|
9.97 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.03 |
|
|
1,020,000 |
|
|
|
9.51 |
|
|
|
|
|
|
|
103,333 |
|
|
|
|
|
$4.07 |
|
|
25,000 |
|
|
|
9.54 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.20 |
|
|
25,000 |
|
|
|
9.34 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$5.10 |
|
|
48,500 |
|
|
|
9.71 |
|
|
|
|
|
|
|
12,125 |
|
|
|
|
|
|
|
|
2,766,438 |
|
|
|
8.91 |
|
|
$ |
2.92 |
|
|
|
856,222 |
|
|
$ |
2.49 |
|
As of December 31, 2021, there were unvested
options to purchase 1,910,216 shares of common stock. Total expected unrecognized compensation cost related to such unvested
options is $5,585,571 which is expected to be recognized over a period of 42 months.
The intrinsic value of the options at December
31, 2021 was $1,493,536.
As of December 31, 2021, there was an aggregate
of 2,766,438 options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan,
and an aggregate of 492,466 restricted shares granted to certain officers and directors of the Company in settlement
of liabilities owing to them, with 3,741,046 shares available for future grants.
F-42
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
20. Revenues
The following table represents disaggregated
revenues from our gaming operations for the years ended December 31, 2021 and 2020. Net Gaming Revenues represents Turnover (also
referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid
to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and
Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.
|
|
For the Year Ended December 31, |
|
|
2021 |
|
2020 |
Handle (Turnover) |
|
|
|
|
Handle web-based |
|
$ |
826,789,619 |
|
|
$ |
505,369,803 |
|
Handle land-based |
|
|
15,071,218 |
|
|
|
68,888,592 |
|
Total Handle (Turnover) |
|
|
841,860,837 |
|
|
|
574,258,395 |
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts |
|
|
|
|
|
|
|
|
Winnings web-based |
|
|
771,852,252 |
|
|
|
473,794,175 |
|
Winnings land-based |
|
|
12,842,577 |
|
|
|
56,467,865 |
|
Total Winnings/Payouts |
|
|
784,694,829 |
|
|
|
530,262,040 |
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues |
|
|
57,166,008 |
|
|
|
43,996,355 |
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes |
|
|
12,657,930 |
|
|
|
6,874,752 |
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenues |
|
|
44,508,078 |
|
|
|
37,121,603 |
|
Betting platform software and services |
|
|
1,038,713 |
|
|
|
144,764 |
|
Revenues |
|
$ |
45,546,791 |
|
|
$ |
37,266,367 |
|
21. Net Loss per Common Share
Basic loss per share is based on the weighted-average number of
common shares outstanding during each year. Diluted loss per share is based on basic shares as determined above, plus the incremental
shares that would be issued upon the assumed exercise of “in-the-money” warrants using the treasury stock method and
the inclusion of all convertible securities, including convertible debentures, assuming these securities were converted at the
beginning of the period or at the time of issuance, if later. The computation of diluted net loss per share does not assume the
issuance of common shares that have an anti-dilutive effect on net loss per share.
For the years ended December 31, 2021 and 2020, the following options,
warrants and convertible debentures were excluded from the computation of diluted loss per share as the result of the computation
was anti-dilutive:
Description |
|
Year ended December 31, 2021 |
|
Year ended December 31, 2020 |
|
|
|
|
|
Options |
|
|
2,766,438 |
|
|
|
1,622,938 |
|
Warrants |
|
|
546,336 |
|
|
|
2,053,145 |
|
Convertible debentures |
|
|
— |
|
|
|
10,796 |
|
|
|
|
3,312,774 |
|
|
|
3,686,879 |
|
F-43
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Income Taxes
The Company is incorporated in the United States
of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no
U.S. taxable income for the years ended December 31, 2021 and December 31, 2020.
The Company's Italian subsidiaries are governed
by the income tax laws of Italy. The corporate tax rate in Italy is 27.9% (IRES at 24% plus IRAP ordinary at 3.9%) on income reported
in the statutory financial statements after appropriate tax adjustments.
The Company's Austrian subsidiaries are governed
by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company's Canadian subsidiary is governed
by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada
is 26.5% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company's Colombian subsidiary is governed
by the income tax laws of Colombia. The corporate tax rate in Colombia is 31% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company continues to evaluate the accounting
for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial
statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged
by a taxing authority. The position ascertained inherently requires judgment and estimates by management.
The reconciliation of income tax expense at
the U.S. statutory rate of 21% during 2021 and 2020, to the Company’s effective tax rate is as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
U.S. Statutory rate |
|
$ |
3,224,547 |
|
|
$ |
1,896,305 |
|
Items not allowed for tax purposes |
|
|
(1,705,372 |
) |
|
|
(2,113,651 |
) |
Foreign tax rate differential |
|
|
(2,367 |
) |
|
|
(90,772 |
) |
Additional foreign taxation |
|
|
27,495 |
|
|
|
(36,939 |
) |
Withholding tax on dividends |
|
|
— |
|
|
|
(162,112 |
) |
Prior year over provision |
|
|
125,887 |
|
|
|
— |
|
Movement in valuation allowances |
|
|
(1,379,714 |
) |
|
|
(323,114 |
) |
Other differences |
|
|
|
- |
|
|
(76,361 |
) |
Income tax benefit (expense) |
|
$ |
290,476 |
|
|
$ |
(906,644 |
) |
The Company has accumulated a net operating
loss carry forward (“NOL”) of approximately $27.7 million as of December 31, 2021 in the U.S. The U.S. NOL carry forward
includes adjustments based on prior year assessments of $2.3 million due the assessment of tax losses carried forward. Net operating
losses of $11.1 million expire from 2034 to 2038 and a further $16.6 million has an indefinite life. The company also has net operating
loss carry forwards in Italy, Austria and Malta of approximately €1.2 million ($1.4 million) and in Canada of approximately
CDN $0.4 million ($0.3 million). The use of these losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it
will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently
determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a
100% valuation allowance has been established to offset the asset.
Utilization of NOLs are subject to limitation
due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business
direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited
in any one year by alternative minimum tax rules.
Under Italian tax law, the operating loss carryforwards
available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset
against national income tax, up to the limit of 80% of taxable annual income. This restriction does not apply to the operating
loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting.
Under Austrian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available
for offset against national income tax, up to the limit of 75% of taxable annual income.
Under Canadian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely.
The provisions for income taxes consist of currently
payable income tax in Colombia, Italy, Malta and Austria and deferred tax movements on intangible assets.
F-44
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Income Taxes (continued)
The benefit (provision) for income taxes are
summarized as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
Current |
|
$ |
94,041 |
|
|
$ |
(837,973 |
) |
Withholding tax |
|
|
— |
|
|
|
(162,112 |
) |
Deferred |
|
|
196,434 |
|
|
|
93,441 |
|
Income tax benefit (expense) |
|
$ |
290,476 |
|
|
$ |
(906,644 |
) |
The tax effects of temporary differences that give rise to the Company’s
net deferred tax assets and liabilities are as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
Working capital movements |
|
$ |
247,563 |
|
|
$ |
693,465 |
|
Property and equipment |
|
|
— |
|
|
|
6,925 |
|
Net loss carryforward - Foreign |
|
|
443,100 |
|
|
|
135,568 |
|
Net loss carryforward - US |
|
|
5,815,807 |
|
|
|
3,752,678 |
|
|
|
|
6,506,470 |
|
|
|
4,588,636 |
|
Less valuation allowance |
|
|
(6,506,470 |
) |
|
|
(4,588,636 |
) |
Deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(3,291,978 |
) |
|
|
(1,222,514 |
) |
Deferred Tax Liability |
|
$ |
(3,291,978 |
) |
|
$ |
(1,222,514 |
) |
The Net loss carry forward for US entities
includes an adjustment of $0.5 million based on taxation assessments which differed to the amounts originally provided for.
The following tax years remain subject to examination:
USA: |
Generally three years from the date of tax return filing which is currently the 2018 to 2020 tax years. |
Italy: |
Generally five years from the date of filing which is currently the 2016 to 2020 tax years. |
Austria: |
Generally tax years 2019 and 2020. |
Malta: |
Eight years from fiscal year end which is currently 2013 to 2020. |
Colombia: |
Three years in the case of taxable profits and five years where taxable losses are realized. |
The Company is not currently under examination
and it has not been notified of a pending examination.
There are no unrecognized tax benefits.
23. Segmental Reporting
The Company has two reportable operating segments.
These segments are:
|
(i) |
Betting establishments |
The operating of web based as well as land-based leisure betting
establishments situated throughout Italy.
|
(ii) |
Betting platform software and services |
Provider of certified betting Platform software services to leisure
betting establishments in Italy and 9 other countries.
F-45
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
23. Segmental Reporting (continued)
The operating assets and liabilities of the reportable segments
are as follows:
|
|
December 31, 2021 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets |
|
$ |
135,272 |
|
|
$ |
538,256 |
|
|
$ |
43,552 |
|
|
$ |
717,080 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
8,648,505 |
|
|
|
1,291,700 |
|
|
|
1,443,280 |
|
|
|
11,383,485 |
|
Non-Current assets |
|
|
1,980,100 |
|
|
|
31,203,882 |
|
|
|
11,374 |
|
|
|
33,195,356 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(7,610,577 |
) |
|
|
(652,368 |
) |
|
|
(1,564,234 |
) |
|
|
(9,827,179 |
) |
Non-Current liabilities |
|
|
(667,871 |
) |
|
|
(16,342,274 |
) |
|
|
- |
|
|
|
(17,010,145 |
) |
Intercompany balances |
|
|
4,359,786 |
|
|
|
(1,677,692 |
) |
|
|
(2,682,094 |
) |
|
|
— |
|
Net asset position |
|
$ |
6,709,943 |
|
|
$ |
13,823,248 |
|
|
$ |
(2,791,674 |
) |
|
$ |
17,741,517 |
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
Year ended December 31, 2021 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Adjustments |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenue |
|
$ |
44,508,078 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,508,078 |
|
Betting platform and services revenue |
|
|
152,550 |
|
|
|
886,163 |
|
|
|
— |
|
|
|
— |
|
|
|
1,038,713 |
|
Intercompany Service revenue |
|
|
321,775 |
|
|
|
4,211,774 |
|
|
|
— |
|
|
|
(4,533,549 |
) |
|
|
— |
|
|
|
|
44,982,403 |
|
|
|
5,097,937 |
|
|
|
— |
|
|
|
(4,533,549 |
) |
|
|
45,546,791 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense |
|
|
4,211,774 |
|
|
|
321,775 |
|
|
|
— |
|
|
|
(4,533,549 |
) |
|
|
— |
|
Selling expenses |
|
|
36,227,544 |
|
|
|
47,208 |
|
|
|
— |
|
|
|
— |
|
|
|
36,274,752 |
|
General and administrative expenses |
|
|
6,634,535 |
|
|
|
5,848,437 |
|
|
|
6,334,987 |
|
|
|
— |
|
|
|
18,817,959 |
|
Impairment of license |
|
|
4,827,914 |
|
|
|
12,522,714 |
|
|
|
— |
|
|
|
— |
|
|
|
17,350,628 |
|
|
|
|
51,901,767 |
|
|
|
18,740,134 |
|
|
|
6,334,987 |
|
|
|
(4,533,549 |
) |
|
|
72,443,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,919,364 |
) |
|
|
(13,642,197 |
) |
|
|
(6,334,987 |
) |
|
|
— |
|
|
|
(26,896,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(11,169 |
) |
|
|
(4,662 |
) |
|
|
(5,154 |
) |
|
|
— |
|
|
|
(20,985 |
) |
Amortization of debt discount |
|
|
— |
|
|
|
— |
|
|
|
(12,833 |
) |
|
|
— |
|
|
|
(12,833 |
) |
Change in fair value of contingent purchase consideration |
|
|
— |
|
|
|
11,857,558 |
|
|
|
— |
|
|
|
— |
|
|
|
11,857,558 |
|
Other income |
|
|
217,251 |
|
|
|
2,560 |
|
|
|
7,977 |
|
|
|
— |
|
|
|
227,788 |
|
Other expense |
|
|
(23,705 |
) |
|
|
(26,262 |
) |
|
|
— |
|
|
|
— |
|
|
|
(49,967 |
) |
Loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
(460,000 |
) |
|
|
— |
|
|
|
(460,000 |
) |
Total other income (expenses) |
|
|
182,377 |
|
|
|
11,829,194 |
|
|
|
(470,010 |
) |
|
|
— |
|
|
|
11,541,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes |
|
|
(6,736,987 |
) |
|
|
(1813,003 |
) |
|
|
(6,804,997 |
) |
|
|
— |
|
|
|
(15,354,987 |
) |
Income tax provision |
|
|
119,890 |
|
|
|
170,586 |
|
|
|
— |
|
|
|
— |
|
|
|
290,476 |
|
Net Loss |
|
$ |
(6,617,097 |
) |
|
$ |
(1,642,417 |
) |
|
$ |
(6,804,997 |
) |
|
$ |
— |
|
|
$ |
(15,064,511 |
) |
F-46
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
23. Segmental Reporting (continued)
The operating assets and liabilities of the reportable segments
are as follows:
|
|
December 31, 2020 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets |
|
$ |
172,095 |
|
|
$ |
117,703 |
|
|
$ |
1,703 |
|
|
$ |
291,501 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
10,966,901 |
|
|
|
430,625 |
|
|
|
9,796,140 |
|
|
|
21,193,666 |
|
Non-Current assets |
|
|
7,475,455 |
|
|
|
6,250,418 |
|
|
|
938,440 |
|
|
|
14,664,313 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(8,238,101 |
) |
|
|
(648,881 |
) |
|
|
(4,427,053 |
) |
|
|
(13,314,035 |
) |
Non-Current liabilities |
|
|
(1,130,752 |
) |
|
|
(1,225,477 |
) |
|
|
(31,362 |
) |
|
|
(2,387,591 |
) |
Intercompany balances |
|
|
4,259,281 |
|
|
|
382,598 |
|
|
|
(4,641,879 |
) |
|
|
— |
|
Net asset position |
|
$ |
13,332,784 |
|
|
$ |
5,189,283 |
|
|
$ |
1,634,286 |
|
|
$ |
20,156,353 |
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
Year ended December 31, 2020 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Adjustments |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenue |
|
$ |
37,121,603 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
37,121,603 |
|
Betting platform and other services revenue |
|
|
— |
|
|
|
144,764 |
|
|
|
— |
|
|
|
— |
|
|
|
144,764 |
|
Intercompany Service revenue |
|
|
84,172 |
|
|
|
3,604,523 |
|
|
|
— |
|
|
|
(3,688,695 |
) |
|
|
— |
|
|
|
|
37,205,775 |
|
|
|
3,749,287 |
|
|
|
— |
|
|
|
(3,688,695 |
) |
|
|
37,266,367 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense |
|
|
3,604,523 |
|
|
|
84,172 |
|
|
|
— |
|
|
|
(3,688,695 |
) |
|
|
— |
|
Selling expenses |
|
|
26,107,189 |
|
|
|
2,032 |
|
|
|
— |
|
|
|
— |
|
|
|
26,109,221 |
|
General and administrative expenses |
|
|
4,918,986 |
|
|
|
3,906,439 |
|
|
|
4,963,966 |
|
|
|
— |
|
|
|
13,789,391 |
|
Impairment of license |
|
|
4,900,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,900,000 |
|
|
|
|
39,530,698 |
|
|
|
3,992,643 |
|
|
|
4,963,966 |
|
|
|
(3,688,695 |
) |
|
|
44,798,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(2,324,923 |
) |
|
|
(243,356 |
) |
|
|
(4,963,966 |
) |
|
|
— |
|
|
|
(7,532,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(6,492 |
) |
|
|
(71 |
) |
|
|
(322,100 |
) |
|
|
— |
|
|
|
(328,663 |
) |
Amortization of debt discount |
|
|
— |
|
|
|
— |
|
|
|
(818,182 |
) |
|
|
— |
|
|
|
(818,182 |
) |
Other income |
|
|
161,472 |
|
|
|
3,903 |
|
|
|
— |
|
|
|
— |
|
|
|
165,375 |
|
Other expense |
|
|
(28,757 |
) |
|
|
(58,176 |
) |
|
|
— |
|
|
|
— |
|
|
|
(86,933 |
) |
Loss on extinguishment of convertible debt |
|
|
— |
|
|
|
— |
|
|
|
(719,390 |
) |
|
|
— |
|
|
|
(719,390 |
) |
Gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
290,000 |
|
|
|
— |
|
|
|
290,000 |
|
Total other (expenses) income |
|
|
126,223 |
|
|
|
(54,344 |
) |
|
|
(1,569,672 |
) |
|
|
— |
|
|
|
(1,497,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes |
|
|
(2,198,700 |
) |
|
|
(297,700 |
) |
|
|
(6,533,638 |
) |
|
|
— |
|
|
|
(9,030,038 |
) |
Income tax provision |
|
|
(796,991 |
) |
|
|
52,459 |
|
|
|
(162,112 |
) |
|
|
— |
|
|
|
(906,644 |
) |
Net Loss |
|
$ |
(2,995,691 |
) |
|
$ |
(245,241 |
) |
|
$ |
(6,695,750 |
) |
|
$ |
— |
|
|
$ |
(9,936,682 |
) |
F-47
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
24. Subsequent Events
To date, the current conflict between Russia
and Ukraine has not had a direct impact on the Company. We do not have any exposure to either Russia or Ukraine from a business
or personnel perspective. However a prolonged conflict or the spill-over of war into other European countries may, in, future impact
on macro-economic conditions which could affect consumer spending adversely and consequently our operations.
On March 18, 2022, the Company granted our
interim CFO, Carlo Reali, an option exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per share, vesting
over a four year period. A further grant of an option exercisable for 60,000 shares of common stock at an exercise price of $2.50,
vesting over a three year period was made to a new employee.
Up until April 13, 2022, in terms of an Open
Market Sale Agreement with Jefferies LLC pursuant to which we may offer and sell its shares of common stock from time to time,
through Jeffries, we sold a total of 147,710 shares of common stock for net proceeds of $331,520 after commission of $10,253.
The Company has evaluated subsequent events
through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
F-48
ELYS GAME TECHNOLOGY, CORP.
Consolidated Balance Sheets
(Unaudited)
| |
June 30, 2022 | |
December 31, 2021 |
| |
| |
|
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 6,018,635 | | |
$ | 7,319,765 | |
Accounts receivable | |
| 458,627 | | |
| 271,161 | |
Gaming accounts receivable | |
| 901,779 | | |
| 2,418,492 | |
Prepaid expenses | |
| 1,977,571 | | |
| 968,682 | |
Related party receivable | |
| — | | |
| 1,413 | |
Other current assets | |
| 458,032 | | |
| 403,972 | |
Total Current Assets | |
| 9,814,644 | | |
| 11,383,485 | |
| |
| | | |
| | |
Non - Current Assets | |
| | | |
| | |
Restricted cash | |
| 355,643 | | |
| 386,592 | |
Property and equipment | |
| 567,135 | | |
| 490,079 | |
Right of use assets | |
| 1,117,563 | | |
| 589,288 | |
Intangible assets | |
| 14,781,491 | | |
| 15,557,561 | |
Goodwill | |
| 16,164,108 | | |
| 16,164,337 | |
Marketable securities | |
| 100,000 | | |
| 7,499 | |
Total Non - Current Assets | |
| 33,085,940 | | |
| 33,195,356 | |
Total Assets | |
$ | 42,900,584 | | |
$ | 44,578,841 | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Bank overdraft | |
$ | — | | |
$ | 7,520 | |
Accounts payable and accrued liabilities | |
| 4,790,763 | | |
| 6,820,279 | |
Gaming accounts payable | |
| 2,716,199 | | |
| 2,610,305 | |
Taxes payable | |
| 192,497 | | |
| 47,787 | |
Advances from stockholders | |
| 173 | | |
| 502 | |
Promissory notes payable - related parties | |
| 321,144 | | |
| 51,878 | |
Operating lease liability | |
| 293,343 | | |
| 244,467 | |
Financial lease liability | |
| 7,584 | | |
| 8,347 | |
Bank loan payable - current portion | |
| 3,093 | | |
| 36,094 | |
Total Current Liabilities | |
| 8,324,796 | | |
| 9,827,179 | |
| |
| | | |
| | |
Non-Current Liabilities | |
| | | |
| | |
Contingent Purchase Consideration | |
| 13,775,173 | | |
| 12,859,399 | |
Deferred tax liability | |
| 3,132,901 | | |
| 3,291,978 | |
Operating lease liability | |
| 833,045 | | |
| 340,164 | |
Financial lease liability | |
| 3,330 | | |
| 7,716 | |
Bank loan payable | |
| 149,759 | | |
| 151,321 | |
Other long-term liabilities | |
| 371,242 | | |
| 359,567 | |
Total Non-Current Liabilities | |
| 18,265,450 | | |
| 17,010,145 | |
Total Liabilities | |
| 26,590,246 | | |
| 26,837,324 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued | |
| — | | |
| — | |
Common stock, $0.0001 par value, 80,000,000 shares authorized; 26,319,583 and 23,363,732 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | |
| 2,632 | | |
| 2,336 | |
Additional paid-in capital | |
| 71,681,523 | | |
| 66,233,292 | |
Accumulated other comprehensive income | |
| (761,314 | ) | |
| (251,083 | ) |
Accumulated deficit | |
| (54,612,503 | ) | |
| (48,243,028 | ) |
Total Stockholders' Equity | |
| 16,310,338 | | |
| 17,741,517 | |
Total Liabilities and Stockholders’ Equity | |
$ | 42,900,584 | | |
$ | 44,578,841 | |
See notes to the unaudited
condensed consolidated financial statements
F-49
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Operations and
Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
For the Three Months Ended June 30, | |
For the Six Months Ended June 30, |
| |
2022 | |
2021 | |
2022 | |
2021 |
Revenue | |
$ | 10,347,735 | | |
$ | 11,689,949 | | |
$ | 22,583,721 | | |
$ | 25,847,277 | |
| |
| | | |
| | | |
| | | |
| | |
Costs and Expenses | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 7,868,719 | | |
| 9,616,584 | | |
| 17,154,951 | | |
| 20,278,399 | |
General and administrative expenses | |
| 4,771,258 | | |
| 4,754,944 | | |
| 9,780,642 | | |
| 8,900,154 | |
Restructuring and severance expenses | |
| 1,205,689 | | |
| — | | |
| 1,205,689 | | |
| — | |
Total Costs and Expenses | |
| 13,845,666 | | |
| 14,371,528 | | |
| 28,141,282 | | |
| 29,178,553 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from Operations | |
| (3,497,931 | ) | |
| (2,681,579 | ) | |
| (5,557,561 | ) | |
| (3,331,276 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (Expenses) Income | |
| | | |
| | | |
| | | |
| | |
Interest expense, net of interest income | |
| (9,678 | ) | |
| (2,194 | ) | |
| (13,537 | ) | |
| (10,043 | ) |
Amortization of debt discount | |
| — | | |
| — | | |
| — | | |
| (12,833 | ) |
Other income | |
| 29,103 | | |
| 89,018 | | |
| 68,852 | | |
| 370,362 | |
Changes in fair value of contingent purchase consideration | |
| (465,761 | ) | |
| — | | |
| (915,774 | ) | |
| — | |
Other expense | |
| (9,941 | ) | |
| (1,208 | ) | |
| (11,011 | ) | |
| (28,138 | ) |
Gain (loss) on marketable securities | |
| 15,000 | | |
| (287,500 | ) | |
| 92,500 | | |
| (92,500 | ) |
Total Other (Expenses) Income | |
| (441,277 | ) | |
| (201,884 | ) | |
| (778,970 | ) | |
| 226,848 | |
| |
| | | |
| | | |
| | | |
| | |
Loss Before Income Taxes | |
| (3,939,208 | ) | |
| (2,883,463 | ) | |
| (6,336,531 | ) | |
| (3,104,428 | ) |
Income tax provision | |
| 123,949 | | |
| 112,113 | | |
| (32,944 | ) | |
| (276,501 | ) |
Net Loss | |
$ | (3,815,259 | ) | |
$ | (2,771,350 | ) | |
$ | (6,369,475 | ) | |
$ | (3,380,929 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Comprehensive (Loss) Income | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| (358,456 | ) | |
| 84,743 | | |
| (510,231 | ) | |
| (259,347 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive Loss | |
$ | (4,173,715 | ) | |
$ | (2,686,607 | ) | |
$ | (6,879,706 | ) | |
$ | (3,640,276 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss per common share – basic and diluted | |
$ | (0.16 | ) | |
$ | (0.13 | ) | |
$ | (0.27 | ) | |
$ | (0.16 | ) |
Weighted average number of common shares outstanding – basic and diluted | |
| 24,118,752 | | |
| 22,012,153 | | |
| 23,818,620 | | |
| 21,761,334 | |
See notes to the unaudited condensed consolidated
financial statements
F-50
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Changes in Stockholders'
Equity
Six months ended June 30, 2022 and June 30,
2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common Stock | |
Additional | |
Accumulated Other | |
| |
|
| |
Shares | |
Amount | |
Paid-in Capital | |
Comprehensive Income | |
Accumulated Deficit | |
Total |
Six months ended June 30, 2021 | |
| |
| |
| |
| |
| |
|
Balance at December 31, 2020 | |
| 20,029,834 | | |
$ | 2,003 | | |
$ | 53,064,919 | | |
$ | 267,948 | | |
$ | (33,178,517 | ) | |
$ | 20,156,353 | |
Proceeds from open market sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from open market sales, shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brokers Fees on open market sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from warrants exercised | |
| 1,488,809 | | |
| 149 | | |
| 3,909,832 | | |
| — | | |
| — | | |
| 3,909,981 | |
Common stock issued to settle liabilities | |
| 467,990 | | |
| 47 | | |
| 2,676,854 | | |
| — | | |
| — | | |
| 2,676,901 | |
Restricted stock compensation | |
| 24,476 | | |
| 2 | | |
| 139,998 | | |
| — | | |
| — | | |
| 140,000 | |
Stock based compensation expense | |
| — | | |
| — | | |
| 288,968 | | |
| — | | |
| — | | |
| 288,968 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| (344,088 | ) | |
| — | | |
| (344,088 | ) |
Net Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (609,579 | ) | |
| (609,579 | ) |
Balance at March 31, 2021 | |
| 22,011,109 | | |
$ | 2,201 | | |
$ | 60,080,571 | | |
$ | (76,140 | ) | |
$ | (33,788,096 | ) | |
$ | 26,218,536 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from warrants exercised | |
| 5,000 | | |
| 1 | | |
| 12,499 | | |
| — | | |
| — | | |
| 12,500 | |
Stock based compensation expense | |
| — | | |
| — | | |
| 291,162 | | |
| — | | |
| — | | |
| 291,162 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| 84,743 | | |
| — | | |
| 84,743 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,771,350 | ) | |
| (2,771,350 | ) |
Balance at June 30, 2021 | |
| 22,016,109 | | |
$ | 2,202 | | |
$ | 60,384,232 | | |
$ | 8,603 | | |
$ | (36,559,446 | ) | |
$ | 23,835,591 | |
| |
Common Stock | |
Additional | |
Accumulated Other | |
| |
|
| |
Shares | |
Amount | |
Paid-In Capital | |
Comprehensive Income | |
Accumulated Deficit | |
Total |
| |
| |
| |
| |
| |
| |
|
Six months ended June 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2021 | |
| 23,363,732 | | |
$ | 2,336 | | |
$ | 66,233,292 | | |
$ | (251,083 | ) | |
$ | (48,243,028 | ) | |
$ | 17,741,517 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from open market sales | |
| 56,472 | | |
| 6 | | |
| 131,559 | | |
| — | | |
| — | | |
| 131,565 | |
Brokers Fees on open market sales |
|
|
|
|
|
|
|
|
|
|
(3,949 |
) |
|
|
|
|
|
|
|
|
|
|
(3,949 |
) |
Restricted stock compensation | |
| 162,835 | | |
| 16 | | |
| 424,984 | | |
| — | | |
| — | | |
| 425,000 | |
Stock based compensation expense | |
| — | | |
| — | | |
| 597,972 | | |
| — | | |
| — | | |
| 597,972 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| (151,775 | ) | |
| — | | |
| (151,775 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,554,216 | ) | |
| (2,554,216 | ) |
Balance at March 31, 2022 | |
| 23,583,039 | | |
$ | 2,358 | | |
$ | 67,383,858 | | |
$ | (402,858 | ) | |
$ | (50,797,244 | ) | |
$ | 16,186,114 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from open market sales | |
| 111,544 | | |
| 11 | | |
| 255,477 | | |
| — | | |
| — | | |
| 255,488 | |
Brokers Fees on open market sales |
|
|
|
|
|
|
|
|
|
|
(7,663 |
) |
|
|
|
|
|
|
|
|
|
|
(7,663 |
) |
Proceeds from private placement | |
| 2,625,000 | | |
| 263 | | |
| 2,486,925 | | |
| — | | |
| — | | |
| 2,487,188 | |
Proceeds from prefunded warrants | |
| — | | |
| — | | |
| 512,758 | | |
| — | | |
| — | | |
| 512,758 | |
Brokers fees on private placement | |
| — | | |
| — | | |
| (245,950 | ) | |
| — | | |
| — | | |
| (245,950 | ) |
Stock based compensation expense | |
| | | |
| | | |
| 1,296,118 | | |
| | | |
| | | |
| 1,296,118 | |
Foreign currency translation adjustment | |
| | | |
| | | |
| | | |
| (358,456 | ) | |
| | | |
| (358,456 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,815,259 | ) | |
| (3,815,259 | ) |
Balance at June 30, 2022 | |
| 26,319,583 | | |
$ | 2,632 | | |
$ | 71,681,523 | | |
$ | (761,314 | ) | |
$ | (54,612,503 | ) | |
$ | 16,310,338 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
See notes to the unaudited condensed consolidated
financial statements
F-51
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
| |
For the six months ended June 30, |
| |
2022 | |
2021 |
Cash flows from operating Activities | |
| | | |
| | |
Net Loss | |
$ | (6,369,475 | ) | |
$ | (3,380,929 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 892,232 | | |
| 460,320 | |
Amortization of debt discount | |
| — | | |
| 12,833 | |
Restricted stock awards | |
| 425,000 | | |
| 140,000 | |
Stock option compensation expense | |
| 1,894,090 | | |
| 580,130 | |
Non-cash interest | |
| 9,151 | | |
| 4,696 | |
Change in fair value of contingent purchase consideration | |
| 915,774 | | |
| — | |
Unrealized (gain) loss on trading securities | |
| (92,500 | ) | |
| 92,500 | |
Movement in deferred taxation | |
| (159,077 | ) | |
| (46,720 | ) |
Gain on Government relief loan forgiven | |
| — | | |
| (8,017 | ) |
Changes in Operating Assets and Liabilities | |
| | | |
| | |
Prepaid expenses | |
| (1,024,859 | ) | |
| (97,503 | ) |
Accounts payable and accrued liabilities | |
| (1,700,177 | ) | |
| 158,239 | |
Accounts receivable | |
| (132,614 | ) | |
| (19,623 | ) |
Gaming accounts receivable | |
| 1,313,461 | | |
| 214,012 | |
Gaming accounts liabilities | |
| 329,183 | | |
| 140,608 | |
Taxes payable | |
| 153,526 | | |
| 238,917 | |
Due from related parties | |
| 1,056 | | |
| (1,974 | ) |
Other current assets | |
| (86,891 | ) | |
| 66,449 | |
Long term liability | |
| 42,300 | | |
| (304,260 | ) |
Net Cash used in Operating Activities | |
| (3,589,820 | ) | |
| (1,750,322 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Acquisition of property, plant and equipment and intangible assets | |
| (229,075 | ) | |
| (122,432 | ) |
Net Cash Used in Investing Activities | |
| (229,075 | ) | |
| (122,432 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from warrants exercised | |
| — | | |
| 3,922,481 | |
Proceeds from bank overdraft | |
| — | | |
| 1,053 | |
Repayment of bank overdraft | |
| (7,233 | ) | |
| — | |
Repayment of bank credit line | |
| — | | |
| (500,000 | ) |
Repayment of bank loan | |
| (33,184 | ) | |
| (67,336 | ) |
Redemption of convertible debentures | |
| — | | |
| (27,562 | ) |
Repayment of Government relief loan | |
| — | | |
| (24,050 | ) |
Repayment of deferred purchase consideration – non-related parties | |
| — | | |
| (410,383 | ) |
Proceeds from Subscriptions – Net of Fees | |
| 2,616,679 | | |
| — | |
Proceeds from pre-funded warrants | |
| 512,758 | | |
| — | |
Proceeds from related party promissory notes | |
| 260,000 | | |
| — | |
Capital Finance Lease Repaid | |
| (4,038 | ) | |
| (5,994 | ) |
Net Cash provided by Financing Activities | |
| 3,344,982 | | |
| 2,888,209 | |
| |
| | | |
| | |
Effect of change in exchange rate | |
| (858,166 | ) | |
| (506,503 | ) |
| |
| | | |
| | |
Net (decrease) increase in cash | |
| (1,332,079 | ) | |
| 508,952 | |
Cash, cash equivalents and restricted cash – beginning of the period | |
| 7,706,357 | | |
| 20,044,769 | |
Cash, cash equivalents and restricted cash – end of the period | |
$ | 6,374,278 | | |
$ | 20,553,721 | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows | |
| | | |
| | |
Cash and cash equivalents | |
$ | 6,018,635 | | |
$ | 19,150,990 | |
Restricted cash included in non-current assets | |
| 355,643 | | |
| 1,402,731 | |
| |
$ | 6,374,278 | | |
$ | 20,553,721 | |
F-52
Supplemental disclosure of cash flow information |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
Interest |
|
$ |
4,898 |
|
|
$ |
17,528 |
|
Income tax |
|
$ |
47,311 |
|
|
$ |
118,266 |
|
Supplemental cash flow disclosure for non-cash activities |
|
|
|
|
|
Common stock issued to settle liabilities |
|
$ |
— |
|
|
$ |
2,676,901 |
|
|
|
|
|
|
|
|
|
|
See notes to the unaudited
condensed consolidated financial statements
F-53
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
1. Nature of Business
Established in the
state of Delaware in 1998, Elys Game Technology, Corp (“Elys” or the “Company”), provides gaming services
in the U.S. market via Elys Gameboard Technologies, LLC and Bookmakers Company US, LLC (“USB”) in certain licensed
states where the Company offers bookmaking and platform services to the Company’s customers. The Company’s intention
is to focus its attention on expanding the US market. The Company recently began operation in Washington D.C. through a Class B Managed
Service Provider and Class B Operator license to operate a sportsbook within the Grand Central Restaurant and Sportsbook located
in the Adams Morgan area of Washington, D.C., and in October 2021 the Company entered into an agreement with Ocean Casino Resort
in Atlantic City, New Jersey, to provide platform and bookmaking services. Ocean Casino Resort began using the Company’s
platform and bookmaking services in March 2022.
The Company also provides business-to-consumer
(“B2C”) gaming services in Italy through its subsidiary, Multigioco, which operations are carried out via both land-based
or online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”)
that permits the Company to distribute leisure betting products such as sports betting, and virtual sports betting products through
both physical, land-based retail locations as well as online through the Company’s licensed website www.newgioco.it or commercial
webskins linked to the Company’s licensed website and through mobile devices. Management implemented a consolidation strategy
in the Italian market by integrating all B2C operations into Multigioco and allowed the Austrian Bookmakers license, that was regulated
by the Austrian Federal Finance Ministry (“BMF”), to terminate.
Additionally, the
Company provides business-to-business (“B2B”) gaming technology through its Odissea subsidiary which owns and operates
a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the
“Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology
for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two
distribution channels described above. The omni-channel software design is fully integrated with a built in player gaming account
management system, built-in sports book and a virtual sports platform through its Virtual Generation subsidiary. The Platform also
provides seamless application programming interface integration of third-party supplied products such as online casino, poker,
lottery and horse racing and has the capability to incorporate e-sports and daily fantasy sports providers. Management implemented
a growth strategy to expand B2B gaming technology operations in the U.S. and is considering further expansion in Canada and Latin
American countries in the near future.
Strategic agreements
entered into with Lottomatica (currently known as G.B.O, S.p.A)
During the course
of the second quarter, the Company entered into a Master Technology Development and License Agreement and a Technical Services
Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based
and on-line applications by Lottomatica in the U.S. and Canadian markets, as well as potentially worldwide. The contract is for
a period of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that
after a period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to
the SBP for €4.0 million.
The Technical Services
Agreement was entered into with the Company’s subsidiary Odissea to provide engineering services, develop and deliver the
software and provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement is
for a period of ten years and is based on cost plus a percentage of the services provided.
In a separate Virtual
Service Agreement entered into between the Company’s subsidiary Virtual Generation and Goldbet S.p.A., a subsidiary of Lottomatica,
whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout
the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period
of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica
and the Company to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming
Revenues.
In a separate Assignment
Agreement entered into between the Company’s subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100
Sports Rights to Multigioco, which will allow Multigioco to expand its land-based distribution network to approximately 110 point-of-sale
locations. Multigioco expects to open the additional 100 outlets over the remainder of the calendar year. These rights are only
valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a minimal
value.
F-54
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
The entities
included in these unaudited condensed consolidated financial statements are as follows:
Name |
|
Acquisition or Formation Date |
|
Domicile |
|
Functional Currency |
|
|
|
|
|
|
|
Elys Game Technology, Corp. (“Elys”) |
|
Parent Company |
|
USA |
|
U.S. Dollar |
Multigioco Srl (“Multigioco”) |
|
August 15, 2014 |
|
Italy |
|
Euro |
Ulisse GmbH (“Ulisse”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Odissea Betriebsinformatik Beratung GmbH (“Odissea”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Virtual Generation Limited (“VG”) |
|
January 31, 2019 |
|
Malta |
|
Euro |
Newgioco Group Inc. (“NG Canada”) |
|
January 17, 2017 |
|
Canada |
|
Canadian Dollar |
Elys Technology Group Limited |
|
April 4, 2019 |
|
Malta |
|
Euro |
Newgioco Colombia SAS |
|
November 22, 2019 |
|
Colombia |
|
Colombian Peso |
Elys Gameboard Technologies, LLC |
|
May 28, 2020 |
|
USA |
|
U.S. Dollar |
Bookmakers Company US LLC |
|
July 15, 2021 |
|
USA |
|
U.S. Dollar |
The Company
operates in two lines of business: (i) the operating of web based betting as well as land based leisure betting establishments
situated throughout Italy and; (ii) provider of certified betting Platform software services to global leisure betting establishments
and operators.
The Company’s
operations are carried out through the following four geographically organized groups:
a) |
an operational group based in Europe that maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta; |
b) |
an operational group based in the U.S. with offices in Las Vegas, Nevada; |
c) |
a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and |
d) |
a corporate group which is based in North America and maintains an executive suite in Las Vegas, Nevada and a Canadian office in Toronto, through which the Company carries-out corporate activities, handles day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors are engaged. |
F-55
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates
Basis of Presentation
The accompanying unaudited
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2022. The balance sheet at December 31, 2021 has been derived from
the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements
and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as
filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2022.
All amounts
referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The Company previously had a secondary listing on
the NEO exchange in Canada, which was terminated on December 31, 2021. For the purposes of its previous listing in Canada, the Company
is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles and Audit Standards” and
is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy to National Instrument 51-102 “Continuous
Disclosure Obligations” (“NI 51-102CP”) which permits the Company to prepare its financial statements in accordance
with U.S. GAAP.
Principles of consolidation
The unaudited condensed consolidated financial statements
include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company accounts
and transactions have been eliminated in the unaudited condensed consolidated financial statements.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and the results of operations and cash flows
at the average rate throughout the quarter. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
All revenues
were generated in Euro, Colombian Peso and US Dollars during the periods presented.
Gains and losses
from foreign currency transactions are recognized in current operations.
Business Combinations
The Company allocates the fair value of purchase consideration
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant
perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Use of Estimates
The
preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining
the fair value of assets acquired and liabilities assumed, allocation of purchase price, impairment of long-lived assets, the collectability
of receivables, leasing arrangements, contingent purchase consideration, contingencies and the value of deferred taxes and related valuation
allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions,
including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could
have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company
re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
F-56
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Loss Contingencies
The Company may be subject to claims, suits, government
investigations, and other proceedings involving competition and antitrust, intellectual property, gaming license, privacy, indirect taxes,
labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using
the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate
amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount
can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it
discloses the range of the possible loss in the Notes to the unaudited condensed Consolidated Financial Statements.
The Company evaluates, on a regular basis, developments
in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of
possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine
both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters,
there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of the Company’s
estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial
position, results of operations, or cash flows.
To date, none of these types of litigation matters,
most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition.
The Company has insured and continues to insure against most of these types of claims.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring
fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are
observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no
market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant would use.
The carrying value of the Company's accounts receivables,
gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair
value because of the short-term maturity of these financial instruments.
Derivative Financial Instruments
ASC 815 generally provides three criteria that, if
met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815.
ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
F-57
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of June 30,
2022 and December 31, 2021, respectively.
The Company primarily places cash balances in the
USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation
up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of
CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi
(FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association
of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.
Gaming Accounts Receivable
Gaming
accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire,
e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not
yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically
evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three and six
months ended June 30, 2022.
Gaming Accounts Payable
Gaming accounts payable represent customer balances,
including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the
customers. Customers can request payment of winnings from the Company at any time and the payment to customers can be made through bank
wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived
assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when
events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future
cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged
to earnings.
Fair value is based upon discounted cash flows of
the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current
estimated net sales proceeds from pending offers.
Property
and Equipment
Property and
equipment is stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized
only when they increase the future economic benefits embodied in an item of property and equipment. All other expenditures are recognized
as expenses in the statement of operations as incurred.
Depreciation
is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the
time an asset is put into operation.
The range of
the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description |
|
Useful Life (in years) |
|
|
|
Leasehold improvements |
|
Life of the underlying lease |
Computer and office equipment |
|
3 |
to |
5 |
Furniture and fittings |
|
7 |
to |
10 |
Computer Software |
|
3 |
to |
5 |
Vehicles |
|
4 |
to |
5 |
F-58
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
The range of the estimated useful lives is
as follows:
Intangible
Useful lives |
|
|
|
|
Description |
|
Useful Life
(in years) |
|
|
|
Betting Platform Software |
|
15 |
Ulisse Bookmaker License |
|
Indefinite |
Multigioco and Rifa ADM Licenses |
|
1.5 |
- |
7 |
Location contracts |
|
5 |
- |
7 |
Customer relationships |
|
10 |
- |
18 |
Trademarks/Tradenames |
|
10 |
- |
14 |
Websites |
|
5 |
Non-compete agreements |
|
4 |
Goodwill
The Company
allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based
on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable
assets and liabilities is recorded as goodwill.
Such
valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant
estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users,
acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates
of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as
a result, actual results may differ from estimates.
The Company
annually assesses whether the carrying value of its reporting units exceed their fair values and, if necessary, records an impairment
loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred
which indicate that the carrying amount of the reporting units exceeds their fair value. If the carrying amount of the reporting
units exceeds their fair value, an asset impairment charge will be recognized in an amount equal to that excess.
Goodwill
was recently assessed on December 31, 2021 and as of June 30, 2022 there were no qualitative indications that impairment of intangible
assets or goodwill may be appropriate.
Leases
The Company accounts for leases in terms of
ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months
meet the definition of financial leases or operating leases, by evaluating the terms of the lease, including the following; the
duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to
retain ownership of the asset at the end of the lease term. Leases which imply that the Company will retain ownership at the end
of the lease term are classified as financial leases, are included in plant and equipment with a corresponding financial liability
raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method.
Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases,
the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease
liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over
the right of use period using the effective interest rate implied in the operating lease agreement.
F-59
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2015 forward,
are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years
for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination.
The Company is not currently under examination and it has not been notified of a pending examination.
Contingent Purchase Consideration
The Company
estimates and records the acquisition date estimated fair value of contingent consideration as part of the purchase price consideration
for acquisitions. At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any
change in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). An increase in
the earn-out expected to be paid will result in a charge to operations in the year that the anticipated fair value of contingent
consideration increases, while a decrease in the earn-out expected to be paid will result in a credit to operations in the year
that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration
requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various
potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value
of contingent consideration and therefore, materially affect the Company’s future financial results. Additional information
regarding contingent consideration is provided in Note 3.
Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include
software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software.
Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has
been fulfilled.
|
· |
License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned. |
|
|
|
|
· |
Training fees and installation fees are recognized when each task has been completed. |
|
|
|
|
· |
Product support services are recognized based on the nature of the agreement with our customers, ad-hoc support service revenue will be recognized when the task is completed and revenue from product support service contracts will be recognized on a periodic basis where we charge a recurring fee to provide ongoing support services. |
F-60
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants
granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the
Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not
included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.
Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
Recent Accounting Pronouncements
The FASB issued several updates during the
period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected
to have a material impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
(i) |
the operating of web based as well as land-based leisure betting establishments situated throughout Italy and recently added land-based operations in the U.S. and |
|
|
(ii) |
provider of certified betting Platform software services to global leisure betting establishments in Italy and 8 other countries. |
F-61
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
3. Acquisition of Subsidiaries
On July
5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers
Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the
“Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement
the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the
Company.
USB is
a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to the terms of the Purchase Agreement,
the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s
common stock with a market value of $4,544,304 on the date of acquisition.
The Sellers
will have an opportunity to receive up to an additional $38,000,000 (undiscounted) plus a potential undiscounted premium of 10%
(or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50%
in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock
for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending
December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase
Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved
by shareholders or exceeding the cap will be paid in cash. The fair value of the contingent purchase consideration of
$24,716,957 was estimated by applying the income approach, which uses significant assumptions (Level 3 assumptions) which are not
readily available in the market.
The goodwill
of $27,024,383 arising at the time of acquisition consists largely of the reputation and knowledge of USB in the sports betting
market in the US markets which should facilitate the Company’s penetration into the U.S. market. All of the goodwill was
assigned to the Betting platform software and services segment.
None
of the goodwill is expected to be deducted for income tax purposes.
In terms
of the agreement, the purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities
assumed as follows:
|
|
Amount |
Consideration |
|
|
|
|
Cash |
|
$ |
6,000,000 |
|
1,265,823 shares of common stock at fair market value |
|
|
4,544,304 |
|
Contingent purchase consideration |
|
|
24,716,957 |
|
Total purchase consideration |
|
$ |
35,261,261 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed |
|
|
|
|
Cash |
|
$ |
26,161 |
|
Other current assets |
|
|
151,284 |
|
Property and equipment |
|
|
788 |
|
Other non-current assets |
|
|
4,000 |
|
Tradenames/Trademarks |
|
|
1,419,000 |
|
Customer relationships |
|
|
7,275,000 |
|
Non-compete agreements |
|
|
2,096,000 |
|
|
|
$ |
10,972,233 |
|
Less: liabilities assumed |
|
|
|
|
Current liabilities assumed |
|
$ |
(264,135 |
) |
Non-current liabilities assumed |
|
|
(205,320 |
) |
Imputed Deferred taxation on identifiable intangible acquired |
|
|
(2,265,900 |
) |
|
|
$ |
(2,735,355 |
) |
Net identifiable assets acquired and liabilities assumed |
|
|
8,236,878 |
|
Goodwill |
|
|
27,024,383 |
|
|
|
$ |
35,261,261 |
|
F-62
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
3. Acquisition
of Subsidiaries (continued)
The amount
of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for
the six months ended June 30, 2022 and the revenue and earnings of the combined entity had the acquisition date been January 1,
2021.
|
|
Revenue |
|
Earnings |
|
|
|
|
|
|
|
|
|
Actual for the six months ended June 30, 2022 |
|
$ |
555,581 |
|
|
$ |
(735,291 |
) |
|
|
|
|
|
|
|
|
|
2021 Supplemental pro forma from January 1, 2021 to June 30, 2021 |
|
$ |
26,092,054 |
|
|
$ |
(4,380,937 |
) |
4. Restricted Cash
Restricted cash consists of cash
held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the
Company’s operating line of credit with Intesa Sanpaolo Bank.
5. Property and Equipment
Property and equipment consists of the following:
|
|
June 30,
2022 |
|
December 31, 2021 |
|
|
Cost |
|
Accumulated depreciation |
|
Net book
value |
|
Net book
value |
Leasehold improvements |
|
$ |
57,347 |
|
|
$ |
(36,094 |
) |
|
$ |
21,253 |
|
|
$ |
27,260 |
|
Computer and office equipment |
|
|
1,028,017 |
|
|
|
(768,735 |
) |
|
|
259,282 |
|
|
|
223,214 |
|
Fixtures and fittings |
|
|
424,291 |
|
|
|
(256,764 |
) |
|
|
167,527 |
|
|
|
135,433 |
|
Vehicles |
|
|
91,770 |
|
|
|
(60,061 |
) |
|
|
31,709 |
|
|
|
44,837 |
|
Computer software |
|
|
221,098 |
|
|
|
(133,734 |
) |
|
|
87,364 |
|
|
|
59,335 |
|
|
|
$ |
1,822,523 |
|
|
$ |
(1,255,388 |
) |
|
$ |
567,135 |
|
|
$ |
490,079 |
|
The aggregate depreciation charge to operations
was $111,156 and $108,470 for the six months ended June 30, 2022 and 2021, respectively. The depreciation policies followed by
the Company are described in Note 2.
6. Leases
Right of use assets included in the consolidated
balance sheet are as follows:
|
|
June 30,
2022 |
|
December 31,
2021 |
Non-current assets |
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization |
|
$ |
1,117,563 |
|
|
$ |
598,288 |
|
Right of use assets - finance leases, net of depreciation – included in property and equipment |
|
$ |
10,527 |
|
|
$ |
15,520 |
|
Lease costs consists of the following:
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of financial lease assets |
|
$ |
3,920 |
|
|
$ |
5,970 |
|
Interest expense on lease liabilities |
|
|
257 |
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
|
170,964 |
|
|
|
128,468 |
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
175,141 |
|
|
$ |
134,892 |
|
F-63
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
6. Leases (continued)
Other lease information:
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows from finance leases |
|
$ |
(257 |
) |
|
$ |
(454 |
) |
Operating cash flows from operating leases |
|
|
(170,964 |
) |
|
|
(128,468 |
) |
Financing cash flows from finance leases |
|
$ |
(4,038 |
) |
|
$ |
(5,994 |
) |
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term – finance leases |
|
|
1.47 years |
|
|
|
2.62 years |
|
Weighted average remaining lease term – operating leases |
|
|
4.30 years |
|
|
|
2.60 years |
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate – finance leases |
|
|
3.73 |
% |
|
|
3.70 |
% |
Weighted average discount rate – operating leases |
|
|
2.72 |
% |
|
|
3.58 |
% |
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
are as follows:
|
|
|
Amount |
Remainder of 2022 |
|
$ |
3,989 |
|
|
2023 |
|
|
6,488 |
|
|
2024 |
|
|
753 |
|
|
Total undiscounted minimum future lease payments |
|
|
11,230 |
|
|
Imputed interest |
|
|
(316 |
) |
|
Total finance lease liability |
|
$ |
10,914 |
|
|
|
|
|
|
|
|
Disclosed as: |
|
|
|
|
|
Current portion |
|
$ |
7,584 |
|
|
Non-Current portion |
|
|
3,330 |
|
|
|
|
$ |
10,914 |
|
|
Operating lease liability
The amount of future minimum lease payments
under operating leases are as follows:
|
|
|
Amount |
Remainder of 2022 |
|
$ |
165,030 |
|
|
2023 |
|
|
288,991 |
|
|
2024 |
|
|
218,147 |
|
|
2025 |
|
|
196,715 |
|
|
2026 and thereafter |
|
|
321,741 |
|
|
Total undiscounted minimum future lease payments |
|
|
1,190,624 |
|
|
Imputed interest |
|
|
(64,236 |
) |
|
Total operating lease liability |
|
$ |
1,126,388 |
|
|
|
|
|
|
|
|
Disclosed as: |
|
|
|
|
|
Current portion |
|
$ |
293,343 |
|
|
Non-Current portion |
|
|
833,045 |
|
|
|
|
$ |
1,126,388 |
|
|
F-64
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
7. Intangible Assets
Intangible assets consist of the following:
|
|
June 30,
2022 |
|
December 31, 2021 |
|
|
Cost |
|
Accumulated amortization |
|
Net book value |
|
Net book value |
Betting platform software |
|
$ |
6,149,537 |
|
|
$ |
(1,608,626 |
) |
|
$ |
4,540,911 |
|
|
$ |
4,745,895 |
|
Licenses |
|
|
957,420 |
|
|
|
(955,065 |
) |
|
|
2,355 |
|
|
|
3,413 |
|
Location contracts |
|
|
1,000,000 |
|
|
|
(1,000,000 |
) |
|
|
— |
|
|
|
— |
|
Customer relationships |
|
|
8,145,927 |
|
|
|
(839,708 |
) |
|
|
7,306,219 |
|
|
|
7,538,533 |
|
Trademarks |
|
|
1,537,111 |
|
|
|
(198,938 |
) |
|
|
1,338,173 |
|
|
|
1,413,887 |
|
Non-compete agreements |
|
|
2,096,000 |
|
|
|
(502,167 |
) |
|
|
1,593,833 |
|
|
|
1,855,833 |
|
Websites |
|
|
40,000 |
|
|
|
(40,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
$ |
19,925,995 |
|
|
$ |
(5,144,504 |
) |
|
$ |
14,781,491 |
|
|
$ |
15,557,561 |
|
The Company evaluates
intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of
impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with
an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent
in nature.
The Company recorded
$775,208 and $351,850 in amortization expense for finite-lived assets for the six months ended June 30, 2022 and 2021, respectively.
Licenses obtained
by the Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well
as a Bersani and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively as well
as an Austrian Bookmaker License through the acquisition of Ulisse, which has subsequently being impaired to $0.
The estimated amortization expense for
all intangibles over the next five year period is as follows:
|
|
Amount |
|
|
|
|
|
Remainder of 2022 |
|
$ |
776,030 |
|
2023 |
|
|
1,549,490 |
|
2024 |
|
|
1,548,777 |
|
2025 |
|
|
1,308,610 |
|
2026 |
|
|
1,024,778 |
|
Total estimated amortization expense |
|
$ |
6,207,685 |
|
8. Goodwill
|
|
June 30,
2022 |
|
December 31,
2021 |
Opening balance |
|
$ |
28,687,501 |
|
|
$ |
1,663,120 |
|
Acquisition of Bookmakers company US LLC |
|
|
— |
|
|
|
27,024,383 |
|
Foreign exchange movements |
|
|
(679 |
) |
|
|
(452 |
) |
|
|
|
28,686,822 |
|
|
|
28,687,051 |
|
Accumulated Impairment charge |
|
|
|
|
|
|
|
|
Opening Balance January 1 |
|
|
(12,522,714 |
) |
|
|
— |
|
Impairment charge |
|
|
— |
|
|
|
(12,522,714 |
) |
Closing Balance |
|
|
(12,522,714 |
) |
|
|
(12,522,714 |
) |
|
|
|
|
|
|
|
|
|
Goodwill net of impairment charge |
|
$ |
16,164,108 |
|
|
$ |
16,164,337 |
|
Goodwill
represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company
evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment
exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value.
F-65
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
9. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized into
earnings.
The shares of Zoompass were last quoted on
the OTC market at $0.04 per share on June 30, 2022, resulting in an unrealized gain recorded to earnings related to these securities
of $92,500 for the six months ended June 30, 2022.
10. Bank Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately $545,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The
loan had an underlying interest rate of 4.5% above the Euro Inter Bank Offered Rate, subject to quarterly review and was amortized
over 57 months initially expected to end on March 31, 2021. Monthly repayments of €9,760 began in January 2017.
In terms of a directive by the Italian Government,
in order to provide financial relief due to the COVID-19 pandemic, Multigioco remained able to suspend repayments of the loan for
a period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remained the same at
4.5% above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971. The Company made payments of €29,913 (approximately
$34,159) which included principal of €29,059 (approximately $33,184) and interest of €854 approximately
$975) for the three months ended March 31, 2022, thereby extinguishing the loan.
Included in bank loans is a Small
Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of USB with a principal outstanding
of $150,000. The SBA Loan bears interest at 3.75% per annum and is repayable in monthly installments of $731 which
began in June 2021, and matures in May 2050. The SBA Loan is collateralized by all of USB’s tangible and intangible assets.
Since
acquisition of USB, the Company has repaid principal of $1,389 and has total accrued and unpaid interest of $5,409 on
this loan as of June 30, 2022.
The maturity of bank loans
payable as of June 30, 2022 is as follows:
|
|
Amount |
Within 1 year |
|
$ |
3,093 |
|
1 to 2 years |
|
|
3,211 |
|
2 to 3 years |
|
|
3,333 |
|
3 to 4 years |
|
|
3,461 |
|
5 years and thereafter |
|
|
139,754 |
|
Total |
|
$ |
152,852 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
3,093 |
|
Non-Current portion |
|
|
149,759 |
|
|
|
$ |
152,852 |
|
11.
Contingent Purchase Consideration
In terms
of the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000
plus a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the
next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of
the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the
duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of
shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of
shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash.
The Company
had an independent third party valuation entity perform a Purchase Price Analysis which included the probability of the Sellers
achieving the additional proceeds of $41,800,000.
F-66
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
11. Contingent
Purchase Consideration (continued)
At
each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value
is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The estimate of the fair value of contingent
consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities
assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement of the stated unadjusted
accumulated EBITDA milestones and the methodology in determining the number of shares to be issued during each earnout period and
the potential restriction on the number of shares available for issue, the contingent purchase consideration is classified as a
liability.
|
|
June 30,
2022 |
|
December 31,
2021 |
Opening balance |
|
$ |
12,859,399 |
|
|
$ |
— |
|
Contingent purchase consideration measured on the acquisition of USB |
|
|
— |
|
|
|
24,716,957 |
|
Changes in fair value |
|
|
915,774 |
|
|
|
(11,857,558 |
) |
Closing balance |
|
$ |
13,775,173 |
|
|
$ |
12,859,399 |
|
12.
Other Long-term Liabilities
Other
long-term liabilities represent the Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian
companies to be paid to employees on termination or retirement.
Balances
of other long-term liabilities were as follows:
|
|
June 30,
2022 |
|
December 31,
2021 |
Severance liability |
|
$ |
371,242 |
|
|
$ |
359,567 |
|
|
|
|
|
|
|
|
|
|
13. Related Parties
Related Party (Payables) Receivables
Related party payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.
The balances
outstanding are as follows:
|
|
|
June 30,
2022 |
|
December 31,
2021 |
|
Related Party payables |
|
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
(173 |
) |
|
$ |
(502 |
) |
|
Victor Salerno |
|
|
(321,144 |
) |
|
|
(51,878 |
) |
|
|
|
$ |
(321,317 |
) |
|
$ |
(52,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
Related Party Receivables |
|
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
— |
|
|
$ |
1,413 |
|
Luca
Pasquini
On January 31, 2019,
the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini, who at the time of acquisition
was an executive officer and director of the Corporation, was a 20% owner of Virtual Generation and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve
month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the
Company has paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at
€300,000 (approximately $334,791).
On January 22, 2021,
the Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to
him.
On July 11, 2021, the Company
entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of
the system, the total contract price was €390,000 (approximately $459,572), in addition, on October 14, 2021, the Company entered
into a further agreement with Engage, to provide gaming software and maintenance and support of the system for a period of 12 months,
the total contract price was €1,980,000 (approximately $2,192,000). Mr. Pasquini owns 34% of Engage.
F-67
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
13. Related
Parties (continued)
On September 13, 2021,
Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company and on October 4, 2021, Mr.
Pasquini became the Global Head of Engineering of the Company’s subsidiary Odissea
Betriebsinformatik Beratung GmbH and ceased to be Vice President of Technology and an executive officer of the Company.
Michele
Ciavarella
Mr. Ciavarella, the Company’s Executive
Chairman of the Board, agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January
22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue.
On January 22, 2021,
the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation
due to him.
On July
15, 2021, Mr. Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President
of the Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive
Officer until the earlier of his resignation or removal from office.
Mr. Ciavarella
agreed to receive his 2021 bonus and a portion of his 2022 salary as a restricted stock award. On January 7, 2022, the Company
issued Mr. Ciavarella 162,835 shares of common stock valued at $425,000 on the date of issue.
Carlo
Reali
On January 5, 2022,
the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.
On March 29, 2022,
the Company issued Mr. Reali ten-year options exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per
share, vesting equally over a 4 year period commencing on January 1, 2023.
The Company does not have a formal employment
or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that
he currently receives which is an annual base salary of €76,631 (approximately $83,847).
Victor
Salerno
On
July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of
USB, from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000
paid in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing.
Together
with the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating
on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified
by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum
commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other
senior employees.
Mr.
Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s
salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two
years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination.
If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses
and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and
expenses and one times annual salary.
Pursuant
to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use
of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while
employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment
and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1)
perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted,
offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate
their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf
of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing
business.
On September 13, 2021, the
Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, USB, to serve as a member of
the Board.
F-68
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
13. Related
Parties (continued)
Victor
Salerno (continued)
Prior to the acquisition
of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno,
which amount earns interest at 8% per annum, compounded monthly and is repayable on December 31, 2023.
Between February 23,
2022 and May 18, 2022, Mr. Salerno advanced USB a total of $260,000 in terms of purported promissory notes, bearing interest at
10% per annum and repayable on June 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal
would attract an additional 25% penalty. These notes were advanced to USB without the consent of the Company, which is required
as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021. Therefore the Company acknowledges the
advance of funds to USB by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are
subject to negotiation or dispute.
Paul
Sallwasser
On
September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Steven
Shallcross
On
January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued
at $30,000, in settlement of directors’ fees due to him.
On
September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Andrea
Mandel-Mantello
On
June 29, 2021, the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment
was effective immediately. Mr. Mandel-Mantello serves on the audit committee of the Board.
On
September 13, 2021, the Company granted Mr. Mandel-Mantello ten year options exercisable for 13,600 shares of common
stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
14.
Stockholders’ Equity
For the
six months ended June 30, 2022, the Company issued a total of 162,835 shares of common stock, valued at $425,000 for
the settlement of compensation and directors’ fees to the Company’s executive chairman, refer note 13 above.
Between
March 28, 2022 and April 13, 2022, the Company sold 168,016 shares of common stock for gross proceeds of $387,053,
less brokerage fees of $11,612 pursuant to the Open Market Sales AgreementSM that the Company entered into
with Jefferies LLC on November 19, 2021.
On
June 10, 2022, the Company entered into an engagement letter (the “Engagement Letter”), with H.C. Wainwright &
Co., LLC (the “Placement Agent”), pursuant to which the Placement Agent agreed to serve as the exclusive placement
agent for the Company, on a reasonable best efforts basis, in connection with an offering of securities (the “Offering”).
The Company agreed to pay the Placement Agent an aggregate cash fee equal to 6.0% of the gross proceeds received in the Offering.
The Company also agreed to pay the Placement Agent $50,000 for fees and expenses of legal counsel and up to $15,950 for clearing
fees.
On June 13, 2022, the Company, entered
into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”)
providing for the issuance of (i) 2,625,000 shares of the Company’s common stock, (ii) pre-funded warrants to purchase
up to 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares
of Common Stock to ensure that the Investor does not exceed certain beneficial ownership limitations, and
(iii) warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share, subject
to customary adjustments thereunder. If after the six month anniversary of the issuance date there is no effective registration statement
registering the shares underlying the Warrants for resale, then the Warrants are exercisable on a cashless basis. In July 12, 2022, the
Investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
F-69
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
14. Stockholders’
Equity (continued)
The
shares of Common Stock, the Pre-Funded Warrants, the Pre-Funded Warrant Shares and the Warrants are collectively referred to as
the “Securities.” Pursuant to the Purchase Agreement, the Investor agreed to purchase the Securities for an aggregate
purchase price of $3 million.
Pursuant to the Purchase
Agreement, on June 15, 2022, an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock
were issued to an Investor in a registered direct offering (the “Registered Offering”) and registered under the Securities
Act of 1933, as amended (the “Securities Act”), pursuant to a prospectus supplement to the Company’s currently
effective registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange
Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021. The Company filed the prospectus
supplement for the Registered Offering on June 15, 2022.
Pursuant to the Purchase
Agreement, the Company issued a Warrant exercisable for 3,166,227 shares of common stock, exercisable at $0.9475 per share and
expire on December 15, 2027, to the Investor in a concurrent private placement pursuant to an exemption from the registration requirements
of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
The Company has agreed
to file a registration statement (the “Registration Statement”) to register the resale of the Warrant Shares within
90 days of the date of the Purchase Agreement and to use its commercially reasonable efforts to obtain effectiveness of the Registration
Statement within 180 days following the closing of the Offering.
15. Warrants
In
terms of the Purchase Agreement discussed in note 14 above, on June 15, 2022, the Company issued, (i) Pre-Funded Warrants
to purchase 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in
lieu of shares of Common Stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and
(ii) Warrants to purchase 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share, subject to customary adjustments
thereunder. If after the six month anniversary of the issuance date there is no effective registration statement registering the
Warrant Shares for resale, then the Warrants are exercisable on a cashless basis.
Each Pre-Funded Warrant
is exercisable for one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are immediately
exercisable and may be exercised at any time after their original issuance until all of the Pre-Funded Warrants are exercised in
full.
Each Warrant is exercisable
for one share of Common Stock at an exercise price of $0.9475 per share, subject to customary adjustments thereunder. The Warrants
have a term of five years and six months, maturing on December 15, 2027 and are exercisable
from December 15, 2022.
A holder (together
with its affiliates) of the Pre-Funded Warrant or Warrant may not exercise any portion of the Common Stock underlying the Pre-Funded
Warrant or Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option upon
issuance, 9.99%) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined
in accordance with the terms of the Pre-Funded Warrant or Warrant, as applicable. In lieu of making the cash payment otherwise
contemplated to be made to the Company upon exercise of a Pre-Funded Warrant or Warrant in payment of the aggregate exercise price,
the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock
determined according to a formula set forth in Warrants, provided that such cashless exercise shall only be permitted if the Registration
Statement is not effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not
available for the issuance of shares of Common Stock to the Warrant holder.
In addition, in certain
circumstances, upon a Fundamental Transaction, the holders of the Pre-Funded Warrants and Warrants will have the right to receive
as alternative consideration, for each share of Common Stock that would have been issuable upon such exercise immediately prior
to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation
of the Company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction
by a holder of the number of shares of Common Stock for which the Pre-Funded Warrants or Warrants are exercisable immediately prior
to such event. Notwithstanding the foregoing, in the event of a Fundamental Transaction, the holders of the Warrants have the right
to require the Company or a successor entity to redeem the Warrants for an amount of consideration equal to the Black Scholes Value
(as defined in the Warrants) of the remaining unexercised portion of the Warrants concurrently with or within thirty (30) days
following the consummation of a Fundamental Transaction. In the event of a Fundamental Transaction, the holders of the Warrants
will only be entitled to receive from the Company or its successor entity, as of the date of consummation of such Fundamental Transaction
the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the
Warrant, that is being offered and paid to the holders of the Common Stock in connection with the Fundamental Transaction, whether
that consideration is in the form of cash, stock or any combination of cash and stock, or whether the holders of Common Stock are
given the choice to receive alternative forms of consideration in connection with the Fundamental Transaction.
F-70
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
15. Warrants (continued)
A summary of all of the Company’s warrant
activity during the period January 1, 2021 to June 30, 2022 is as follows:
|
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2021 |
|
|
2,053,145 |
|
|
$ |
2.50 |
to |
5.00 |
|
|
$ |
2.63 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(1,506,809 |
) |
|
|
2.50 |
to |
3.75 |
|
|
|
2.63 |
|
Outstanding December 31, 2021 |
|
|
546,336 |
|
|
$ |
2.50 |
to |
5.00 |
|
|
$ |
2.66 |
|
Granted – pre-funded warrants* |
|
|
541,227 |
|
|
|
0.0001 |
|
|
|
0.0001 |
|
Granted |
|
|
3,166,227 |
|
|
|
0.9475 |
|
|
|
0.9475 |
|
Forfeited/cancelled |
|
|
(48,395 |
) |
|
|
3.75 |
|
|
|
3.75 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
Outstanding June 30, 2022 |
|
|
4,205,395 |
|
|
$ |
0.0001 |
to |
5.00 |
|
|
$ |
1.17 |
|
* The prefunded warrants have an indefinite
maturity date and have been excluded from the calculation of the weighted average remaining years and the weighted average exercise
price disclosed below.
The following tables summarize information
about the pre-funded warrants outstanding as of June 30, 2022:
|
|
Warrants outstanding |
|
Warrants exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$0.0001 |
|
|
541,227 |
|
|
|
Indefinite |
|
|
$ |
0.0001 |
|
|
|
541,227 |
|
|
$ |
0.0001 |
|
The following tables summarize information
about warrants, other than pre-funded warrants outstanding as of June 30, 2022:
|
|
|
|
Warrants outstanding |
|
Warrants exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$0.9475 |
|
|
3,166,227 |
|
|
|
5.46 |
|
|
$ |
0.9475 |
|
|
|
— |
|
|
$ |
— |
|
$2.50 |
|
|
486,173 |
|
|
|
3.14 |
|
|
$ |
2.50 |
|
|
|
486,173 |
|
|
$ |
2.50 |
|
$5.00 |
|
|
11,768 |
|
|
|
0.92 |
|
|
|
5.00 |
|
|
|
11,768 |
|
|
|
5.00 |
|
|
|
|
3,664,168 |
|
|
|
5.14 |
|
|
$ |
1.17 |
|
|
|
497,941 |
|
|
$ |
2.56 |
|
16. Stock Options
In September 2018, the Company’s stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards
that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards.
On
October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to
increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one
calendar year to: (i) chairperson or lead director – 300,000 shares of common stock; and (ii) other non-employee
director - 250,000 shares of common stock, which reflects an increase in the annual limits for awards to be granted to
non-employee directors under the Plan.
On November
20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the 2020 Annual Meeting, the Company’s stockholders
approved an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the
Company will have authority to grant under the plan by an additional 1,850,000 shares of common stock. On December 8,
2021, the Company held its 2021 Annual Meeting of Stockholders. At the 2021 Annual Meeting, the Company’s stockholders approved
an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company
will have authority to grant under the plan by an additional 4,000,000 shares of common stock
During
the period ended June 30, 2022, the Company issued ten year options to purchase 160,000 shares at an exercise price of $2.50 per
share, of which 100,000 were issued to our Interim CFO and 60,000 to an employee.
F-71
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
16. Stock Options (continued)
The
options awarded during the six months ended June 30, 2022 were valued at $2.317 per share at the date of issuance using a Black-Scholes
option pricing model.
The
following assumptions were used in the Black-Scholes model:
|
|
Six months ended
June 30, 2022 |
Exercise price |
|
$ |
2.50 |
|
Risk free interest rate |
|
|
2.41 |
% |
Expected life of options |
|
|
10 years |
|
Expected volatility of underlying stock |
|
|
204.2 |
% |
Expected dividend rate |
|
|
0 |
% |
A summary
of all of the Company’s option activity during the period January 1, 2021 to June 30, 2022 is as follows:
|
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2021 |
|
|
1,622,938 |
|
|
$ |
1.84 |
to |
2.96 |
|
|
$ |
2.11 |
|
Granted |
|
|
1,193,500 |
|
|
|
2.62 |
to |
5.10 |
|
|
|
3.15 |
|
Forfeited/cancelled |
|
|
(50,000 |
) |
|
|
2.62 |
|
|
|
2.62 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2021 |
|
|
2,766,438 |
|
|
$ |
1.84 |
to |
5.10 |
|
|
$ |
2.92 |
|
Granted |
|
|
160,000 |
|
|
|
2.50 |
|
|
|
2.50 |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding June 30, 2022 |
|
|
2,926,438 |
|
|
$ |
1.84 |
to |
5.10 |
|
|
$ |
2.90 |
|
The
following tables summarize information about stock options outstanding as of June 30, 2022:
|
|
|
|
Options outstanding |
|
Options exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$1.84 |
|
|
648,000 |
|
|
|
0.08 |
|
|
|
|
|
|
|
648,000 |
|
|
|
|
|
$2.03 |
|
|
659,000 |
|
|
|
8.26 |
|
|
|
|
|
|
|
444,833 |
|
|
|
|
|
$2.50 |
|
|
160,000 |
|
|
|
9.75 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$2.72 |
|
|
25,000 |
|
|
|
4.01 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
$2.80 |
|
|
220,625 |
|
|
|
7.23 |
|
|
|
|
|
|
|
151,862 |
|
|
|
|
|
$2.96 |
|
|
70,313 |
|
|
|
7.02 |
|
|
|
|
|
|
|
70,313 |
|
|
|
|
|
$3.43 |
|
|
25,000 |
|
|
|
9.47 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.03 |
|
|
1,020,000 |
|
|
|
9.01 |
|
|
|
|
|
|
|
206,667 |
|
|
|
|
|
$4.07 |
|
|
25,000 |
|
|
|
9.05 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.20 |
|
|
25,000 |
|
|
|
8.84 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
$5.10 |
|
|
48,500 |
|
|
|
9.21 |
|
|
|
|
|
|
|
36,375 |
|
|
|
|
|
|
|
|
2,926,438 |
|
|
|
6.69 |
|
|
$ |
2.90 |
|
|
|
1,592,050 |
|
|
$ |
2.42 |
|
As of
June 30, 2022, there were unvested options to purchase 1,334,388 shares of common stock. Total expected unrecognized
compensation cost related to such unvested options is $4,062,658 which is expected to be recognized over a period of
45 months.
As of
June 30, 2022, there was an aggregate of 2,926,438 options to purchase shares of common stock granted under the Company’s
2018 Equity Incentive Plan, and an aggregate of 655,301 restricted shares granted to certain officers and directors of
the Company in settlement of liabilities owing to them, with 3,418,261 shares available for future grants.
F-72
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
17. Revenues
The following table represents disaggregated revenues from our gaming operations for the three and six months ended June 30, 2022
and 2021. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the
period, less customer winnings paid out, and taxes due to government authorities, while Service Revenues is revenue invoiced for
our Elys software service and royalties invoiced for the sale of virtual products.
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30,
2022 |
|
June 30,
2021 |
|
June 30,
2022 |
|
June 30,
2021 |
Turnover |
|
|
|
|
|
|
|
|
Web-based |
|
$ |
186,441,824 |
|
|
$ |
219,874,610 |
|
|
$ |
402,222,106 |
|
|
$ |
451,206,769 |
|
Land-based |
|
|
1,818,081 |
|
|
|
218,129 |
|
|
|
3,603,188 |
|
|
|
12,043,959 |
|
Total Turnover |
|
|
188,259,905 |
|
|
|
220,092,739 |
|
|
|
405,825,294 |
|
|
|
463,250,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Web-based |
|
|
173,924,052 |
|
|
|
205,048,852 |
|
|
|
374,777,873 |
|
|
|
420,647,267 |
|
Land-based |
|
|
1,557,874 |
|
|
|
166,369 |
|
|
|
2,958,287 |
|
|
|
10,331,307 |
|
Total Winnings/payouts |
|
|
175,481,926 |
|
|
|
205,215,221 |
|
|
|
377,736,160 |
|
|
|
430,978,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Web-Based |
|
|
12,517,772 |
|
|
|
14,825,758 |
|
|
|
27,444,233 |
|
|
|
30,559,502 |
|
Land-Based |
|
|
260,207 |
|
|
|
51,760 |
|
|
|
644,901 |
|
|
|
1,712,652 |
|
Gross Gaming Revenues |
|
|
12,777,979 |
|
|
|
14,877,518 |
|
|
|
28,089,134 |
|
|
|
32,272,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Gaming Taxes |
|
|
3,117,380 |
|
|
|
3,285,273 |
|
|
|
6,848,210 |
|
|
|
6,614,311 |
|
Net Gaming Revenues |
|
|
9,660,599 |
|
|
|
11,592,245 |
|
|
|
21,240,924 |
|
|
|
25,657,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Betting platform and services |
|
|
687,136 |
|
|
|
97,704 |
|
|
|
1,342,797 |
|
|
|
189,434 |
|
Revenue |
|
$ |
10,347,735 |
|
|
$ |
11,689,949 |
|
|
$ |
22,583,721 |
|
|
$ |
25,847,277 |
|
18. Net loss per Common
Share
Basic
income (loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income
(loss) per share is based on basic shares as determined above, plus the incremental shares that would be issued upon the assumed
exercise of “in-the-money” options and warrants using the treasury stock method and the inclusion of all convertible
securities, including convertible debentures, assuming these securities were converted at the beginning of the period or at the
time of issuance, if later, adding back any direct incremental expenses related to the convertible securities, including interest
expense, present value discount amortization. The computation of diluted net income (loss) per share does not assume the issuance
of common shares that have an anti-dilutive effect on net loss per share.
The computation
of the diluted income per share for the three and six months ended June 30, 2022 and 2021 was anti-dilutive due to the losses realized.
For the
three and six months ended June 30, 2022 and 2021, the following options and warrants were excluded from the computation of diluted
loss per share as the result of the computation was anti-dilutive:
Description |
Three and Six Months ended June 30, 2022 |
|
Three and Six Months ended June 31, 2021 |
Options |
|
2,926,438 |
|
|
|
1,697,938 |
|
Warrants |
|
4,205,395 |
|
|
|
562,336 |
|
|
|
7,131,833 |
|
|
|
2,260,274 |
|
F-73
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
19. Segmental Reporting
The Company
has two reportable operating segments. These segments are:
(i) |
Betting establishments |
The operating
of web based as well as land based leisure betting establishments situated throughout Italy; and only web based distribution
throughout Italy, and
(ii) |
Betting platform software and services |
Provider
of certified betting Platform software services to global leisure betting establishments in Italy, the U.S. and 8 other countries.
The operating
assets and liabilities of the reportable segments are as follows:
Segment
Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
June 30, 2022 |
| |
Betting establishments | |
Betting platform software and services | |
All other | |
Total |
Purchase of non-current assets | |
$ | 157,296 | | |
$ | 66,208 | | |
$ | 5,571 | | |
$ | 229,075 | |
Assets | |
| | | |
| | | |
| | | |
| | |
Current assets | |
| 5,694,098 | | |
| 2,286,286 | | |
| 1,834,260 | | |
| 9,814,644 | |
Non-current assets | |
| 2,524,416 | | |
| 30,455,689 | | |
| 105,835 | | |
| 33,085,940 | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Current liabilities | |
| (5,289,319 | ) | |
| (1,536,891 | ) | |
| (1,498,586 | ) | |
| (8,324,796 | ) |
Non-current liabilities | |
| (1,197,653 | ) | |
| (17,067,797 | ) | |
| — | | |
| (18,265,450 | ) |
Intercompany balances | |
| 5,098,265 | | |
| (3,198,714 | ) | |
| (1,899,551 | ) | |
| — | |
Net asset position | |
$ | 6,829,807 | | |
$ | 10,938,573 | | |
$ | (1,458,042 | ) | |
$ | 16,310,338 | |
|
|
June 30, 2022 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
Purchase of non-current assets |
|
$ |
157,296 |
|
|
$ |
66,208 |
|
|
$ |
5,571 |
|
|
$ |
229,075 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
5,694,098 |
|
|
|
2,286,286 |
|
|
|
1,834,260 |
|
|
|
9,814,644 |
|
Non-current assets |
|
|
2,524,416 |
|
|
|
30,455,689 |
|
|
|
105,835 |
|
|
|
33,085,940 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(5,289,319 |
) |
|
|
(1,536,891 |
) |
|
|
(1,498,586 |
) |
|
|
(8,324,796 |
) |
Non-current liabilities |
|
|
(1,197,653 |
) |
|
|
(17,067,797 |
) |
|
|
— |
|
|
|
(18,265,450 |
) |
Intercompany balances |
|
|
5,098,265 |
|
|
|
(3,198,714 |
) |
|
|
(1,899,551 |
) |
|
|
— |
|
Net asset position |
|
$ |
6,829,807 |
|
|
$ |
10,938,573 |
|
|
$ |
(1,458,042 |
) |
|
$ |
16,310,338 |
|
The segment operating results of the reportable
segments are disclosed as follows:
|
|
Six months ended June 30, 2022 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Adjustments |
|
Total |
Revenue |
|
$ |
21,498,130 |
|
|
$ |
1,085,591 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
22,583,721 |
|
Intercompany Service revenue |
|
|
76,591 |
|
|
|
1,090,245 |
|
|
|
— |
|
|
|
(1,166,836 |
) |
|
|
— |
|
|
|
|
21,574,721 |
|
|
|
2,175,836 |
|
|
|
— |
|
|
|
(1,166,836 |
) |
|
|
22,583,721 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense |
|
|
1,090,245 |
|
|
|
76,591 |
|
|
|
— |
|
|
|
(1,166,836 |
) |
|
|
— |
|
Selling expenses |
|
|
16,991,805 |
|
|
|
163,146 |
|
|
|
— |
|
|
|
— |
|
|
|
17,154,951 |
|
General and administrative expenses |
|
|
2,941,303 |
|
|
|
3,943,324 |
|
|
|
2,896,015 |
|
|
|
— |
|
|
|
9,780,642 |
|
Restructuring and severance expenses |
|
|
— |
|
|
|
— |
|
|
|
1,205,689 |
|
|
|
— |
|
|
|
1,205,689 |
|
|
|
|
21,023,353 |
|
|
|
4,183,061 |
|
|
|
4,101,704 |
|
|
|
(1,166,836 |
) |
|
|
28,141,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations |
|
|
551,368 |
|
|
|
(2,007,225 |
) |
|
|
(4,101,704 |
) |
|
|
— |
|
|
|
(5,557,561 |
) |
Other (expenses) Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
|
(1,075 |
) |
|
|
(12,462 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
66,473 |
|
|
|
2,379 |
|
|
|
— |
|
|
|
— |
|
|
|
68,852 |
|
Change in Fair value of contingent purchase consideration |
|
|
— |
|
|
|
(915,774 |
) |
|
|
— |
|
|
|
— |
|
|
|
(915,774 |
) |
Other expense |
|
|
(7 |
) |
|
|
(11,004 |
) |
|
|
— |
|
|
|
— |
|
|
|
(11,011 |
) |
Gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
92,500 |
|
|
|
— |
|
|
|
92,500 |
|
Total other income (expense) |
|
|
65,391 |
|
|
|
(936,681 |
) |
|
|
92,500 |
|
|
|
— |
|
|
|
(778,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes |
|
|
616,759 |
|
|
|
(2,944,086 |
) |
|
|
(4,009,204 |
) |
|
|
— |
|
|
|
(6,336,531 |
) |
Income tax provision |
|
|
(192,021 |
) |
|
|
159,077 |
|
|
|
— |
|
|
|
— |
|
|
|
(32,944 |
) |
Net Income (Loss) |
|
$ |
424,738 |
|
|
$ |
(2,785,009 |
) |
|
$ |
(4,009,204 |
) |
|
$ |
— |
|
|
$ |
(6,369,475 |
) |
F-74
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
19. Segmental Reporting (continued)
The operating assets and liabilities of the reportable segments
are as follows:
|
|
June 30, 2021 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of non-current assets |
|
$ |
15,005 |
|
|
$ |
67,116 |
|
|
$ |
40,311 |
|
|
$ |
122,432 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
10,877,808 |
|
|
|
913,319 |
|
|
|
9,385,445 |
|
|
|
21,176,572 |
|
Non-current assets |
|
|
6,939,721 |
|
|
|
6,077,751 |
|
|
|
1,364,113 |
|
|
|
14,381,585 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(8,146,135 |
) |
|
|
(763,734 |
) |
|
|
(871,731 |
) |
|
|
(9,781,600 |
) |
Non-current liabilities |
|
|
(762,301 |
) |
|
|
(1,178,665 |
) |
|
|
— |
|
|
|
(1,940,966 |
) |
Intercompany balances |
|
|
3,874,380 |
|
|
|
208,117 |
|
|
|
(4,082,497 |
) |
|
|
— |
|
Net asset position |
|
$ |
12,783,473 |
|
|
$ |
5,256,788 |
|
|
$ |
5,795,330 |
|
|
$ |
23,835,591 |
|
The segment operating results of the reportable
segments are disclosed as follows:
|
|
Six months ended June 30, 2021 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Adjustments |
|
Total |
Revenue |
|
$ |
25,657,843 |
|
|
$ |
189,434 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25,847,277 |
|
Intercompany Service revenue |
|
|
207,118 |
|
|
|
2,608,669 |
|
|
|
— |
|
|
|
(2,815,787 |
) |
|
|
— |
|
|
|
|
25,864,961 |
|
|
|
2,798,103 |
|
|
|
— |
|
|
|
(2,815,787 |
) |
|
|
25,847,277 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense |
|
|
2,608,669 |
|
|
|
207,118 |
|
|
|
— |
|
|
|
(2,815,787 |
) |
|
|
— |
|
Selling expenses |
|
|
20,269,209 |
|
|
|
9,190 |
|
|
|
— |
|
|
|
— |
|
|
|
20,278,399 |
|
General and administrative expenses |
|
|
3,507,099 |
|
|
|
2,505,973 |
|
|
|
2,887,082 |
|
|
|
— |
|
|
|
8,900,154 |
|
|
|
|
26,384,977 |
|
|
|
2,722,281 |
|
|
|
2,887,082 |
|
|
|
(2,815,787 |
) |
|
|
29,178,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from operations |
|
|
(520,016 |
) |
|
|
75,822 |
|
|
|
(2,887,082 |
) |
|
|
— |
|
|
|
(3,331,276 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
|
(4,890 |
) |
|
|
|
|
|
|
(5,154 |
) |
|
|
— |
|
|
|
(10,043 |
) |
Interest expense, net of interest income |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Amortization of debt discount |
|
|
— |
|
|
|
— |
|
|
|
(12,833 |
) |
|
|
— |
|
|
|
(12,833 |
) |
Other income |
|
|
361,316 |
|
|
|
1,029 |
|
|
|
8,017 |
|
|
|
— |
|
|
|
370,362 |
|
Other expense |
|
|
(24,119 |
) |
|
|
(4,019 |
) |
|
|
— |
|
|
|
— |
|
|
|
(28,138 |
) |
Loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
(92,500 |
) |
|
|
— |
|
|
|
(92,500 |
) |
Total other income (expense) |
|
|
332,307 |
|
|
|
(2,989 |
) |
|
|
(102,470 |
) |
|
|
— |
|
|
|
226,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes |
|
|
(187,709 |
) |
|
|
72,833 |
|
|
|
(2,989,552 |
) |
|
|
— |
|
|
|
(3,104,428 |
) |
Income tax provision |
|
|
(192,878 |
) |
|
|
(83,623 |
) |
|
|
— |
|
|
|
— |
|
|
|
(276,501 |
) |
Net Loss |
|
$ |
(380,587 |
) |
|
$ |
(10,790 |
) |
|
$ |
(2,989,552 |
) |
|
$ |
— |
|
|
$ |
(3,380,929 |
) |
F-75
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
21. Subsequent Events
Pre-funded warrants
In July 12, 2022, the investor
exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
Legal matters
On July 20, 2022,
the Company received notice that on July 17, 2022, an action was commenced in the Eighth Judicial District Court, Clark County,
Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (collectively “Plaintiffs”),
against the Company and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“USB,” and together with the Company collectively
“Defendants”). Plaintiffs’ claims against the Company relate to the Membership Interest Purchase Agreement, dated
July 5, 2021, pursuant to which Plaintiffs sold their membership interests in USB to the Company. Plaintiffs’ claims for
relief asserted in the complaint include, without limitation, breach of contract, breach of implied covenants, intentional interference
with contract and negligent misrepresentation. Plaintiffs seek a judgment for damages against the Company, including punitive damages,
as well as declaratory relief against both the Company and USB. The Company believes the claims made by Plaintiff’s against
the Defendants are completely without merit and intends to vigorously defend against the claims.
Other
than the above, the Company has evaluated subsequent events through the date the financial
statements were issued, and did not identify any subsequent events that would have required adjustment or disclosure in the financial
statements.
F-76
Up to 3,166,227 Shares of Common Stock
Issuable Upon Exercise of Warrants
PROSPECTUS
, 2022