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Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒
No
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒
No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ☒Yes ☐
No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Yes ☐ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐Yes ☒
No
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes
☒ No
The aggregate market value of the voting and non-voting
common equity held by non-affiliates, computed by reference to the price, $4.70, at which the common equity was last sold, as of June
30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter,
was $55,417,348. As of that date, 11,79,925 shares of the registrant’s common stock were held by non-affiliates. For purposes
of this information, the outstanding shares of common stock that were and that may be deemed to have been beneficially owned by directors
and executive officers of the registrant and beneficial owners of 10% or more of the registrant’s common stock outstanding on that
date were deemed to be shares of common stock held by affiliates at that date. However, such assumption shall not be deemed an admission
that any such person is or was an affiliate.
This Annual Report on Form 10-K (this “Report”)
contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,”
“Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
All statements other than statements of historical fact contained in this Report, including statements regarding future events,
our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,”
“can,” “continue,” “could,” “estimates,” “expects,” “intends,”
“may,” “plans,” “potential,” “predicts,” “should,” or “will” or
the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have
a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Report, which
may cause our or our industry’s actual results, levels of activity, performance or achievements to differ materially from those
expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment.
New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors
on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those
contained in any forward-looking statements. All forward-looking statements included in this document are based on information available
to us on the date hereof, and we assume no obligation to update any such forward-looking statements.
You should not place undue reliance on any forward-looking
statement, each of which applies only as of the date of this Report on Form-10-K. Before you invest in our securities, you should be aware
that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this Report could negatively
affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to
update or revise publicly any of the forward-looking statements after the date of this Report on Form-10-K to conform our statements to
actual results or changed expectations.
This Form 10-K contains estimates and other statistical
data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry
and market data in this Form 10-K from our own research as well as from industry and general publications, surveys and studies conducted
by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance
of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in Item 1A (“Risk
Factors”). We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general
publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do
not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable,
we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal
research are reliable, such results and estimates have not been verified by any independent source.
PART I
Item 1. Business.
Business Overview
We are a software company specializing in online
gaming. Our cloud-based Player Account Management (PAM) platform enables us to rapidly deploy branded online gambling presences for land-based
casinos, consumer brands and media companies. Depending on each geographical region and the restrictions/requirements of its gambling-related
legislation, we form "access deals" that offer a faster and easier route to market by enabling us to operate under a gambling
license already held by a local partner.
We integrate best-in-class third-party games to
provide the ultimate gaming platform, and we help our international partners in regulated markets leverage online gambling presences while
putting players first. We also form business partnerships with established brands such as Playboy to launch new game content.
In addition, the Company operates an online gaming
operation in Mexico through its web site vale.mx, in partnership with its local partner, Big Bola.
Gaming Technologies, Inc., was incorporated under
the laws of the State of Delaware on July 23, 2019, under the name Dito, Inc. We entered into a share-for-share exchange transaction consummated
on March 18, 2020, in which all of the existing shareholders of Dito UK Limited, an English corporation, exchanged their ordinary shares
in Dito UK Limited for shares of our common stock, and Dito UK Limited became our wholly owned subsidiary (the “Share Exchange”).
Dito UK Limited acquired its initial assets from
GameTech UK Limited, an English corporation (“GameTech UK”) in 2018. On May 11, 2017, GameTech UK entered insolvency proceedings
and administrators were appointed for it. Approximately fifteen months later, on August 10, 2018, the administrators of GameTech UK entered
into an asset sale agreement with Dito UK Limited (the “Sale Agreement”) pursuant to a court order issued by the Joint Administrators
of GameTech UK (in administration) on May 29, 2018. GameTech UK’s last full year of operations was the year ended December 31, 2016,
and it had nominal revenues in such year.
The Sale Agreement with GameTech UK included the
sale of the intellectual property assets of GameTech UK, consisting of gaming software and a related platform. The software was acquired
under the expectation that it would require significant modifications to be able to be utilized in the Company’s anticipated business
model, which is operating a gaming platform and providing related services to land-based casinos, consumer brands and media company partners.
Following the acquisition of GameTech UK’s intellectual property assets out of receivership, we have made improvements to the core
software platform. The improvements we have made include the migration of the software from physical server dependencies to cloud based
deployment (via Amazon Web Services (“AWS”)) and removing the dependency on third-party applications and replacing them with
AWS native alternatives.
On December 21, 2020, we changed our name to Gaming
Technologies, Inc., and on January 7, 2021, Dito UK Limited changed its name to Gaming Technologies UK Limited (“Gaming Technologies
UK”).
We commenced revenue-generating operations in
February 2021. We do not have positive cash flows from operations and expect to continue to be dependent on periodic infusions of equity
capital to fund our operating requirements.
For financial reporting purposes, the Share Exchange
was accounted for as a combination of entities under common control, as Gaming Technologies, Inc. was formed by Gaming Technologies UK,
with the objective of Gaming Technologies UK becoming a wholly-owned subsidiary of Gaming Technologies, Inc., and the resultant parent
company being domiciled in the United States. As a result of the combination, the former stockholders of Gaming Technologies UK became
the controlling shareholders of Dito, Inc., and the Gaming Technologies UK management and board members became the management and board
members of Gaming Technologies, Inc.
Development of Our Business
Our activities are subject to significant risks
and uncertainties, including the need for additional capital, as described below. We do not have positive cash flows from operations,
and we expect to continue to be dependent on periodic infusions of equity capital to fund our operating requirements. We have financed
our working capital requirements since inception primarily through the sale of its equity securities in private placement transactions,
as well as from borrowings. In private placements to “accredited investors” (as defined in Regulation D under the Securities
Act of 1933, as amended (the “Securities Act”)) or to non-U.S. persons under Regulation S under the Securities Act, between
February 2020 and February 2021 we sold an aggregate of 2,691,800 shares of our common stock at a price of $2.50 per share. In March 2021,
we sold 10,000 shares of our common stock for gross proceeds of $25,000 in a private placement. In August 2021, we sold 538,694 shares
of common for gross proceeds of $1,750,752 in a private placement. Our activities are subject to significant risks and uncertainties,
including the need for additional capital, as described below.
Big Bola/vale.mx
On November 13, 2020, we entered into an Agreement
for the Provision of Online Gaming Management and Consulting Services (as subsequently amended) with Comercial de Juegos de la Frontera,
S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide to Big Bola consulting and management services
related to their interactive online betting and gaming business in Mexico via the web site www.vale.mx, a regulated online casino and
sports betting site. vale.mx operates under Big Bola’s existing license issued by the General Directorate of Games and Raffles of
the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally authorized to offer legal betting and
online casino services in Mexico. vale.mx has more than 500 online premium casino games available, which can be enjoyed both on mobile
or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers
such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention
for vale.mx. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies
the requirements under applicable law, and we pay out winnings to players from Big Bola’s account. While Big Bola bears liability
to the players as provided by the permit, as between us and Big Bola we bear the costs of this obligation. Each party indemnifies the
other against certain liabilities and claims. Under the terms of the agreement, we share 75% of gross gaming revenue generated from the
platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s participation in the remaining gross gaming revenues.
In February 2021, vale.mx began operations.
Canelo Sponsorship Agreement
On April 14, 2021, we entered into a Sponsorship
Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the personality rights of champion
professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign for the Company to sponsor
a prize fight and certain other activities of Canelo, and for Canelo to promote the Company’s “VALE” brand and create
certain promotional materials in connection therewith for the Company’s use in the United States, Latin America and certain countries
in the Caribbean. Pursuant to the Canelo Agreement we paid Holiday a cash fee of $1,600,000 and will be responsible for paying certain
other amounts as provided therein. The agreement, as amended, runs until August 2022.
Playboy License Agreement
On May 19, 2021, we entered into a non-exclusive
license agreement with Playboy Enterprises International, Inc. (“Playboy”) to use certain trademarks (including the rabbit
head logo) and other intellectual property of Playboy on and in connection with the design, creation, promotion, marketing, advertisement,
sales, operation, maintenance and distribution in India of real-money game mobile apps, such as rummy, poker, fantasy sports and other
games of skill approved by Playboy. We will pay Playboy as a royalty a percentage of net gaming revenue. The term of the agreement
is through the end of 2025, subject to early termination upon certain events of default, which include our failure to launch a Playboy-branded
game in India by November 1, 2021, or to meet certain annual minimum net gaming revenue targets. The Playboy-branded game, https://www.playboyrummy.com/,
was launched on November 1, 2021
Ortiz Gaming Partnership
On August 18, 2021, we entered into a software partnership with Ortiz
Gaming to supply us with online Bingo gaming content. The deal initially cover Mexico and we plan to expand to other parts of Latin and
South America.
Key Performance Indicators
Registered Players
A registered player is
a customer who has registered on our app or website and met our Know Your Customer identification requirements. During the year ended
December 31, 2021 we registered 108,206 players on vale.mx. On October 4, 2021, we announced we had reached 100,000 total registrations
on vale.mx.
Monthly Unique Payers
Monthly Unique Payers
(“MUPs”). MUPs is the average number of unique paid users (“unique payers”) that use our online platform on
a monthly basis.
MUPs is a key indicator
of the scale of our user base and awareness of our brand and/or the third-party brands we partner with. We believe that year-over-year
MUPs will also generally be indicative of the long-term revenue growth potential of the online gaming brands we hold directly and/or those
we establish around our B2B brand partners, although MUPs in individual periods may be less indicative of our longer-term expectations.
We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand the online
gambling brands we operate to appeal to a wider audience.
We define MUPs as the
average number of unique payers per month who had a paid engagement (e.g., participated in a casino game) across one or more of
our product offerings via our platform technology. For reported periods longer than one month, we average the MUPs for the months in the
reported period.
A “unique paid
user” or “unique payer” is any person who had one or more paid engagements via our B2C technology during the period
(i.e., a user that participates in a paid engagement with one of our B2C product offerings counts as a single unique paid user
or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique
paid users include users who have participated in a paid engagement with promotional incentives, which are fungible with other funds deposited
in their wallets on our technology. The number of these users included in MUPs has not been material to date and a substantial majority
of such users are repeat users who have had paid engagements both prior to and after receiving incentives.
During the year ended
December 31, 2021, our MUPs were 3,251.
Average Revenue per
MUP (“ARPMUP”). ARPMUP is the average online casino revenue per MUP, and this key metric represents our ability to
drive usage and monetization of our online casino offering.
During the year ended
December 31, 2021, our ARPMUP was $51.64.
We define and calculate
ARPMUP as the average monthly online casino revenue for a reporting period, divided by MUPs (i.e., the average number of unique
payers) for the same period.
Handle
Handle is a casino or
sports betting term referring to the total amount of money bet. We will report the handle or cash wagering which is the total
amount of money bet excluding all bonuses.
During the year ended
December 31, 2021, our handle was $6,313,132.
Hold
Hold is essentially the
amount of cash that our platform instances keep after paying out winning bets. The industry also refers to hold as win or revenue. During
the year ended December 31, our hold was $288,848.
Online games are characterized
by an element of chance. Our revenue is impacted by variations in the hold percentage (the ratio of net win to total amount wagered) on
bets placed on, or the actual outcome of, games or events on which users bet. Although our product offerings generally perform within
a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet can have a sizeable impact
on our short-term financial performance. Our hold is also affected by factors that are beyond our control, such as a user’s skill,
experience and behavior, the mix of games played, the financial resources of users and the volume of bets placed. As a result of variability
in these factors, actual hold rates on our products may differ from the theoretical win rates we have estimated and could result in the
winnings of our gaming users exceeding those anticipated. We seek to mitigate these risks through data science and analytics and rules built
into our technology, as well as active management of our amounts at risk at a point in time, but may not always be able to do so successfully,
particularly over short periods, which can result in financial losses as well as revenue volatility.
During the year ended
December 31, 2021, our hold percentage was 4.58%.
Plan of Operation
Our next phase of growth
is focused on scaling our customer and player base and geographies, and utilizing the existing technical capacity and investment in infrastructure
which has taken place since 2017. The company intends to invest in further software development, specifically the recruitment of a further
10 developers to add sportsbook functionality to the existing PAM platform. As our platform is hosted in AWS, we do not anticipate investing
further in any equipment.
In line with the Company’s
strategy of creating lean and flexible operations, we are outsourcing a number of departments including Customer Service to TelePerformance
in Mexico City, and Marketing to WPP Group / Grey. Furthermore, as we are now integrating the best-in-class games from games studios worldwide,
we anticipate a reduced headcount in games development.
Intellectual Property
We have not filed for,
nor do we own or license, any patents related to our intellectual property.
We own several internet
domains including dito.com, gametech.com, gametech.co.uk, gametech.uk, gamingtechnologies.com, superstars.com, gmgt.com, gtafiliados.com,
gtafiliados.mx, juegavale.co, juegavale.com, sevale.mx, vale.net, vale.casino and vale.mx.
Regulatory
We are an early stage software developer and
our software platform provides third party gaming companies and gaming app developers with the tools to build high quality products.
As a B2B developer of software, we believe we are not subject to the regulations that may affect other companies in the iGaming
industry who interact directly with retail customers using the gaming software (i.e., companies using a B2C model). If our
B2B partners wish to sell or produce games in a regulated market, they will need to have the necessary licenses and meet the
regulations within their jurisdiction. We believe the responsibility of meeting local regulatory requirements (where applicable)
rests with our B2B partners.
Nasdaq Listing Application; Reverse Stock Split
and Authorized Share Increase
Our common stock is currently
quoted on the OTCQB market under the trading symbol “GMGT.” However, trading of our common stock has been extremely limited
to date, and there is as yet no established trading market for our common stock. We have applied to list our common stock on the Nasdaq
Capital Market (“Nasdaq”) under the symbol “GMGT.” There can be no assurance, however, that our application will
be approved. We will be required to meet the Nasdaq Capital Market’s threshold for stockholders’ equity, which will require
us to raise additional capital, of which there can be no assurance. We will also be required to meet minimum market value of unrestricted
publicly held shares, minimum share price and other listing criteria, of which there can be no assurance. In connection with the listing
application, our Board of Directors and our stockholders have approved resolutions (i) authorizing a reverse stock split of
the outstanding shares of our common stock in the range from 1-for-2 to 1-for-8, and providing authority to our Board of Directors to
determine whether to effect a reverse stock split and, if so to select the ratio of the reverse stock split in their
discretion, and (ii) to increase in the number of our authorized shares of common stock from 45,000,000 to 400,000,000. The Board of Directors
anticipates determining whether to effect a reverse stock split and, if so setting the ratio of the reverse stock split, and the Company
will file a certificate of amendment to affect the reverse stock split, if any, and the authorized share increase with the Secretary of
State of Delaware, upon or prior to the listing of our common stock on Nasdaq, if such listing occurs. The reverse stock split is intended
to allow us to meet the minimum share price requirement of the Nasdaq Capital Market. The share and per share information in this report
has not been adjusted to reflect any reverse stock split.
Employees
As an early-stage software company, we currently
have no employees other than our Chief Executive Officer, Jason Drummond. Mr. Drummond works full time on Company matters. We have retained
approximately eleven individuals, including our Chief Financial Officer, on an independent contractor basis to provide management, accounting
and other corporate services to us on a full-time basis.
Additional information
Our corporate website address is www.gametech.com.
Our most current SEC filings are available free of charge on our website as well as at www.sec.gov.
Item 1A. Risk Factors.
The following important risk factors, and those
risk factors described elsewhere in this report or in our other filings with the SEC, could cause our actual results to differ materially
from those stated in forward-looking statements contained in this document or elsewhere. These risks are not presented in order of importance
or probability of occurrence. Further, the risks described below are not the only risks that we face. Additional risks and uncertainties
not currently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks may have a
material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash
flows, liquidity or stock price.
Risks Specific to the Company
We have only recently begun to generate
operating revenues. We expect to incur operating losses for the foreseeable future.
Gaming Technologies, Inc., was incorporated on
July 23, 2019, and to date has been involved primarily in organizational activities. Gaming Technologies UK,
our subsidiary was formed in November 2017. We commenced revenue-generating operations in February, 2021, and have generated only
minimal revenue to date. Further, we have not yet fully developed our business plan or our management team. Accordingly, we have no way
to evaluate the likelihood that our business well be successful. The likelihood of success must be considered in light of the problems,
expenses, difficulties, complications and delays encountered in connection with the operations that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems relating to our software and market acceptance by our intended clients.
There is no operating history upon which to base any assumption as to the likelihood that we will prove successful and there is no assurance
we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business
will most likely fail.
We have a limited operating history which makes it difficult
to accurately evaluate our business prospects.
We have a limited operating history upon which
to base an evaluation of our business and prospects. Operating results for future periods are subject to numerous uncertainties and we
cannot assure you that the Company will achieve or sustain profitability. The Company’s prospects must be considered in light of
the risks encountered by companies in the early stage of development, particularly companies in new and rapidly evolving markets. Future
operating results will depend upon many factors, including, but not limited to, our success in attracting necessary financing, establishing
credit or operating facilities, the success of our products, our ability to develop new products, our ability to successfully market our
products and attract repeat and new customers, our ability to control operational costs, and the Company’s ability in retaining
motivated and qualified personnel, legal and regulatory developments in the jurisdictions in which we operate, as well as the general
economic conditions which affect such businesses. We cannot assure you that the Company will successfully address any of these risks.
We do not have adequate capital to fund
our business and may need additional funding to continue operations. We may not be able to raise capital when needed, if at all, which
would force us to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business
to fail.
We have limited capital available to us. Our entire
original capital has been fully expended and if additional costs cannot be funded from borrowings or capital from other sources, then
our financial condition, results of operations, and business performance would be materially adversely affected. We will require additional
capital for the development of our business operations and commercialization of our planned products. We may also encounter unforeseen
expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our
cash resources faster than we expect. Accordingly, we will need to obtain additional funding in order to continue our operations. We may
not be able to raise needed additional capital or financing due to market conditions or for regulatory or other reasons. There can be
no guarantee that the necessary funds will be available on a timely basis, on favorable terms, or at all, or that such funds, if raised,
would be sufficient. Even if additional funds are raised by issuing equity securities, dilution to the then existing shareholdings would
result. We cannot assure that we will have adequate capital to conduct our business. If additional funding is not obtained, we may need
to reduce, defer or cancel software development efforts, sales and marketing, and overhead expenditures to the extent necessary. The failure
to fund our operating and capital requirements could have a material adverse effect on our business, financial condition and results of
operations.
We failed to make interest payments on our 10% Original Issue Discount Senior Secured Convertible Note
in the principal amount of $1,666,666.67 (the “Convertible Note”) that were due in February and March 2022, in the amount
of $13,889 each, and may not be able to make the interest payments due in April of $13,889 and subsequently. The holder has agreed to
extend the due dates of the payments that were due in February and March 2022 to April 18, 2022, and to waive any resulting default until
such date. However, there can be no assurance that we will be able to raise additional capital to enable us to make such payments by
such date, or future payments that come due. See “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Convertible Note Financing” below for additional information on the Convertible Note, security agreement
and related agreements.
Our business plan is speculative.
Our business is speculative and subject to numerous
risks and uncertainties. The development of products, including current products, may not succeed in a commercial setting or result in
revenue due to functional failures, lack of acceptance or demand from the marketplace, technological inefficiencies, competition or for
other reasons. There is no assurance that we will generate significant revenues, and even if we do there can be no assurances that we
will generate a profit.
We may not be successful in raising additional
capital necessary to meet expected increases in working capital needs. If we raise additional funding through sales of equity or equity-based
securities, your shares will be diluted. If we need additional funding for operations and we are unable to raise it, we may be forced
to liquidate assets and/or curtail or cease operations or seek bankruptcy protection or be subject to an involuntary bankruptcy petition.
Since inception through December 31, 2021, the
Company has generated insignificant revenues and has incurred losses and has an accumulated deficit of $20,862,298 as of December 31,
2021. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations.
Our ability to raise additional funds through equity or debt financings or other sources may depend on the commercial success of our software
and financial, economic and market conditions and other factors, some of which are beyond our control. No assurance can be given that
we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Further equity financings
may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on our future financing
and operating activities. If we require additional capital and are unsuccessful in raising that capital, we may not be able to continue
our business operations and advance our growth initiatives, which could adversely impact our business, financial condition and results
of operations.
Our auditors have indicated that these
conditions raise substantial doubt about the Company’s ability to continue as a going concern. We
urge you to review the additional information about our liquidity and capital resources in the Management’s Discussion and
Analysis of Financial Condition and Results of Operations elsewhere in this document below. If our business ceases to
continue as a going concern due to lack of available capital or otherwise, it could have a material adverse effect on our results of
operations, financial position, and liquidity.
We have material weaknesses and other deficiencies in our internal
control and accounting procedures.
Section 404 of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”) requires annual management assessments of the effectiveness of our internal control over financial
reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, 2021 and 2020 and concluded
that we had a material weakness in our internal controls due to our limited resources and therefore our disclosure controls and procedures
may not be effective in providing material information required to be included in any future periodic SEC filings on a timely basis and
to ensure that information required to be disclosed in any future periodic SEC filings is accumulated and communicated to our management
to allow timely decisions regarding required disclosure about our internal control over financial reporting. More specifically, our internal
control over financial reporting was not effective due to material weaknesses related to a segregation of duties due to our limited resources
and limited staff.
In addition, as of December 31, 2021 and 2020,
our management concluded that we had a material weakness in internal control over financial reporting. If we fail to comply with the rules
under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we continue to have material weaknesses and other
deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly
and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise
fail to address the adequacy of our internal control and disclosure controls and procedures our business may be harmed. Moreover, effective
internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If
we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of our securities could drop significantly.
Failure to develop our internal controls over financial reporting
could have an adverse impact on us.
We need to develop and implement internal control
systems and procedures. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish
appropriate controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business,
financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that
may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control
over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure
of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial
reporting may have an adverse impact on the price of our common stock.
If we were to lose the services of our key personnel, we may
not be able to execute our business strategy.
Our success is substantially dependent on the
performance of Jason Drummond, who has significant experience in the technology and financial sectors and would be difficult to replace.
The loss of Mr. Drummond would have a material adverse impact on us. Until we add additional officers and directors with the technical
knowledge and financial expertise to move our business plan forward, we will be substantially dependent upon Mr. Drummond for the direction,
management and daily supervision of our operations. The inability to retain Mr. Drummond at this crucial juncture in our Company’s
development, and our ability to replace Mr. Drummond in a timely manner would have a material adverse effect on our business and, accordingly,
would negatively impact our financial condition and operating results.
If we are unable to hire, retain or motivate
qualified personnel, consultants, independent contractors, and advisors, we may not be able to grow effectively.
Our performance will be dependent on the talents
and efforts of highly skilled individuals, including Mr. Drummond. The loss of Mr. Drummond, or one or more members of our management
team or other key employees or consultants, as and when they are hired, could materially harm our business, financial condition, results
of operations and prospects. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly
qualified personnel for all areas of our organization. We face competition for personnel and consultants from other companies, universities,
public and private research institutions, government entities and other organizations. If we do not succeed in attracting excellent personnel
or in retaining or motivating them, we may be unable to grow effectively. We cannot assure that any skilled individuals will agree to
become an employee, consultant, or independent contractor of the Company. Our inability to retain their services could negatively impact
our business and our ability to execute our business strategy.
Our products may not achieve broad market
acceptance if we cannot compete successfully, limiting our ability to generate revenue and grow profits.
Our ability to generate significant revenue and
profits depends on the acceptance of our products by customers. The market acceptance of any product depends on a number of factors, including
but not limited to awareness of a product’s availability and benefits, features, safety and security, perceptions by the industry,
the price of the product, competing products, and the effectiveness of marketing and distribution efforts. To remain competitive, we must
continue to innovate, further enhancing and improving the responsiveness, functionality, accessibility, and other features of our software
platform. The success of our business depends on our ability to anticipate and respond to technological changes and customer preferences
in a timely and cost-effective manner. Any factors preventing or limiting the market acceptance of our products could have a material
adverse effect on our business, results of operations and financial condition.
If we fail to attract new customers and maintain our active customers,
our growth may be impaired.
Our future profitability and growth depends upon
our ability to establish an active customer base in a cost-effective manner. We must attract and maintain clients in order to maintain
and build profitability. Although we will spend resources on marketing and related expenses, there are no assurances that these efforts
will be cost effective in building our B2B business model. Failure to maintain a level of active clients could have an adverse effect
on our business and operations.
We operate in an intensely competitive market
that includes companies that have greater financial, technical and marketing resources than us.
We face intense and increasing competition in
the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction of new and enhanced
services by our competitors. Some of its existing and potential competitors, including GAN, Ltd, Evolution Gaming Group AB, and DraftKings,
Inc., are better established, benefit from greater name recognition and have significantly greater financial, technical, sales, and marketing
resources than us. In addition, some competitors, particularly those with a more diversified revenue base, may have greater flexibility
than us to compete aggressively based on price and other contract terms. New competitors may emerge through acquisitions or through development
of disruptive technologies. Strong and evolving competition could lead to a loss of our market share or make it more difficult to grow
our business profitably.
If we are unable to adapt to changing technologies
and user preferences it may have a negative impact on player numbers and affect our business operations and financial performance.
In an industry that is characterized by the development
of new products, technologies and end-user practices, we must invest significant resources in software development to be innovative and
to enhance our technology, products and services. If we fail to adapt to changing market needs and developing opportunities, it may have
an impact on our ability to attract and retain clients which could adversely impact the business operations and financial performance.
As technology evolves our platform may not support new devices. Users may shift from using an iOS or Android device and require access
to our products via a desktop computer or other devices. Our products may not be well-suited for use on other devices. This may have a
negative impact on client numbers if our platform is not enhanced to reflect new or changing client preferences.
If we are unable to protect our intellectual
property and proprietary rights, our competitive position and our business could be materially adversely affected.
We cannot be certain that the steps we may take
in the future to protect, register and enforce our intellectual property rights, if any, will be adequate or that third parties will not
infringe or misappropriate our proprietary rights, if any. We face the risk that the use and exploitation of our intellectual property
rights, including rights relating to its proprietary software, may infringe the intellectual property rights of a third party. We also
face the risk that our intellectual property rights may be infringed by a third party, and there can be no assurance that we will successfully
prevent or restrict any such infringing activity. The costs incurred in bringing or defending any infringement actions may be substantial,
regardless of the merits of the claim, and an unsuccessful outcome may result in royalties or damages being payable and/or our being required
to cease using any infringing intellectual property or embodiments of any such intellectual property (such as software).
If any of our intellectual property is held to
be infringing, there can be no assurance that we will be able to develop alternative non-infringing intellectual property. There can be
no assurance that third parties will not independently develop or have not so developed similar or equivalent software to our proprietary
software, or will not otherwise gain access to our source code, software or technology or obtain (on favorable terms or at all) alternative
non-infringing intellectual property. There can be no assurance that our intellectual property is valid, or enforceable and such intellectual
property may be subject to challenge or circumvention by third parties. We have not registered any of our intellectual property rights,
no assurance can be provided that any such rights are registrable, and no assurance can be given that any applications for registration
made by us will be successful, as applied for or at all.
We face the risk that third parties will
claim that we infringe on their intellectual property rights, which could result in costly license fees or expensive litigation.
Other companies, individuals or third parties
may claim that we are making use of or exploiting software or database design components that infringe their intellectual property rights.
The costs incurred in defending any infringement actions may be substantial, regardless of the merits of the claim, and an unsuccessful
outcome for us may result in royalties or damages being payable and/or our being required to cease using any infringing intellectual property
or embodiments of any such intellectual property (such as software). It may also affect our relationships with current or future customers,
delay or stop new sales, and divert the attention of management and other human resources. If any of our technology is held to be in breach,
there can be no assurance that we will be able to develop alternative non-infringing intellectual property in a timely manner.
Customer complaints regarding our products and services could
hurt our business.
From time to time, we may receive complaints from
customers regarding the quality of products sold by us. We may in the future receive correspondence from customers requesting reimbursement
or refunds. Certain dissatisfied customers may threaten legal action against us if no reimbursement is made. We may become subject to
product liability lawsuits from customers alleging harm because of a purported defect in our products or services, claiming substantial
damages and demanding payments from us. We are in the chain of title when we supply or distribute products, and therefore are subject
to the risk of being held legally responsible for them. These claims may not be covered by our insurance policies. Any resulting litigation
could be costly for us, divert management attention, and could result in increased costs of doing business, or otherwise have a material
adverse effect on our business, results of operations, and financial condition. Any negative publicity generated as a result of customer
frustration with our products or services, or with our websites, could damage our reputation and diminish the value of our brand name,
which could have a material adverse effect on our business, results of operations and financial condition.
We may suffer losses if our reputation is harmed.
Our ability to attract and retain customers and
employees may be materially adversely affected to the extent our reputation is damaged. Issues that may give rise to reputational risk
include, but are not limited to, failure of our products to perform effectively, failure to deal appropriately with legal and regulatory
requirements in any jurisdiction (including as may result in the issuance of a warning notice or sanction by a regulator or the commission
of an offence (whether civil, criminal, regulatory or other) by us or any of our officers, directors, intellectual property theft or intellectual
property infringement, factually incorrect reporting, staff difficulties, fraud, technological delays or malfunctions, the inability to
respond to a disaster, privacy issues, record-keeping, sales and trading practices, money-laundering, bribery and corruption, the credit,
liquidity and market risks inherent in our business and the activities of our affiliates.
We may be subject to hacker intrusion, distributed denial of
service attacks, malicious viruses, and other cyber-crime attacks.
Our business may be adversely affected by distributed
denial of service (“DDoS”) attacks, and other forms of cyber-crime, such as attempts by computer hackers to gain access
to our systems and databases that may lead to exposure of sensitive data or cause its sites to fail and/or disrupt customers’ experience
of its products and services. A successful attack may also attempt to extort money from the business by interfering with its ability to
connect with its customers. The interference often occurs without warning resulting in a negative experience that its customers will associate
with us. If our efforts to combat these DDoS attacks and other forms of cyber-crime are unsuccessful, our reputation may be harmed, and
our customers’ ability to access the platform may be impaired. We are also susceptible to a wide range of known, unknown and evolving
malicious viruses. While we believe that our servers and production environment are adequately protected, no assurance can be given that
our servers and production environment will not be impacted by malicious viruses. Any hacker intrusion, DDoS, installation of a malicious
virus or cyber-crime attack could result in a decline in user traffic and associated revenues, which would have a material adverse effect
on the business operations and financial performance.
Dependence on Key Suppliers and Third Parties
We are dependent on outside suppliers for certain
key services including storage, data back-up and integration with electronic wallets. While no one supplier or service provider is irreplaceable,
should any of our key suppliers fail to supply these services and we fail to secure such services from an alternative supplier, our reputation
and financial position could be materially and adversely affected. It may also be that any alternative suppliers will only make available
their services at a significantly higher price than the Company is presently paying, thereby reducing the Company’s ability to generate
profit. In addition, we engage several providers of third- party hosting, gaming, and payment processing services. In the event that there
is any interruption to the products or services provided by such third parties, or if there are problems in supplying the products or
if one or more ceased to be provided or only provided on onerous terms to us, this could have an adverse effect on the business operation
and performance.
Our financial
results may be adversely affected by currency fluctuations.
We will generate revenues
in a variety of currencies, including the Euro, Sterling, and the US Dollar. As a result, some of our financial assets may be denominated
in these currencies and fluctuations in these currencies could adversely affect its financial results. We do not currently engage in any
currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on its results of operations.
If we were to determine that it was in our best interests to enter into any currency hedging transactions in the future, there can be
no assurance that we will be able to do so or that such transactions, if entered into, will materially reduce the effect of fluctuations
in foreign currency exchange rates on its results of operations. Currency hedging may also generate complex accounting issues. In addition,
if, for any reason, exchange or price controls or other restrictions on the conversion of one currency into another currency were imposed,
our business could be adversely affected. Although exposure to currency fluctuations to date have not had a material adverse effect on
our business, there can be no assurance such fluctuations in the future will not have a material adverse effect on revenues from international
sales and, consequently, our business, operating results and financial condition.
The concentration of our capital stock ownership
with insiders will likely limit your ability to influence corporate matters.
Our executive officers and director and several
stockholders together beneficially own approximately 58.5% of outstanding common stock. As a result, these stockholders, if they act together
or in a block, could have significant influence over most matters that require approval by our stockholders, including the election of
directors and approval of significant corporate transactions, even if other stockholders oppose them. This concentration of ownership
might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
We do not have any independent directors,
nor an audit committee, a compensation committee or a corporate governance committee.
At present, we do not have any independent directors,
and our board of directors does not have an audit committee, a compensation committee or a nominating/corporate governance committee.
Our sole director is Jason Drummond, who is our Chief Executive Officer. Because we have no independent directors and only a single
director, we do not have any checks and balances on Mr. Drummond, which may make it difficult for us to develop internal controls, to
cure material weaknesses in internal controls and to raise money in the financial markets.
Jason Drummond, our Chief Executive Officer
and sole director, resides outside of the US, it may be difficult for an investor to enforce any right based on US federal securities
laws against Mr. Drummond, or to enforce a judgment rendered by a US court against Mr. Drummond.
Our Chief Executive Officer and director, Jason
Drummond, is a non-resident of the US. Therefore, it may be difficult to effect service of process on Mr. Drummond in the US, and it may
be difficult to enforce any judgment rendered against Mr. Drummond. Accordingly, it may be difficult or impossible for an investor to
bring an action against Mr. Drummond, in the case that an investor believes that such investor’s rights have been infringed under
the US securities laws, or otherwise. Even if an investor is successful in bringing an action of this kind, the laws may render that investor
as unable to enforce a judgment against the assets of Mr. Drummond. As a result, our shareholders may have more difficulties in protecting
their interests through actions against Mr. Drummond, compared to shareholders of a corporation whose officers and directors reside within
the US. Mr. Drummond’s principal assets are located in the United Kingdom.
Jason Drummond, as our Chief Executive Officer
and sole director, may determine and award director fees and management compensation in his sole discretion.
There is currently no formal compensation agreement
with our CEO Jason Drummond, who is also our sole director. Until we have a compensation arrangement in place with Mr. Drummond and additional
directors are added to our board of directors (our “Board”), Mr. Drummond has the power to set his own compensation as management
and distribute director fees in his sole discretion. There can be no assurance that we will enter into a formal compensation agreement
with Mr. Drummond on favorable terms to the Company or any agreement at all and that additional members will be added to our Board. Any
management compensation and/or director fees he awards himself could have an adverse effect on our cash reserves or net profit, if any.
Risks Related to the Industry
Economic conditions and current economic weakness.
Any economic downturn, either globally or locally
in any area in which we operate or where our customers reside, in particular the UK and US and Mexico, may have an adverse effect on demand
for our software platform once it is released. A more prolonged economic downturn may lead to an overall decline in the volume of our
sales, restricting our ability to realize a profit. If economic conditions remain uncertain, we might see lower levels of growth than
anticipated, which might have an adverse impact on our operations and business results.
The laws and regulations concerning data
privacy and data security are continually evolving; failure to comply with these laws and regulations could harm our business.
We collect and store significant amounts of information
about customers who use our technologies, including both personally identifying and non-personally identifying information. We are subject
to laws from a variety of jurisdictions regarding privacy and the protection of this customer information. For example, the EU has traditionally
taken a broader view than the US and certain other jurisdictions as to what is considered personal information, and has imposed greater
obligations under data privacy regulations.
Data privacy protection laws are rapidly changing
and likely will continue to do so for the foreseeable future. The US government, including the Federal Trade Commission and the Department
of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about
consumer behavior on the Internet and on mobile devices, and the EU has proposed reforms to its existing data protection legal framework.
Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition,
in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our customers
that is necessary for compliance with these various types of regulations.
If we fail to comply with existing privacy-related
or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others,
which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If regulators,
the media or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this
could also result in fines or judgments against us, damage our reputation, and negatively impact our financial condition and damage our
business.
In the area of information security and data protection,
many jurisdictions have passed laws requiring notification when there is a security breach for personal data or requiring the adoption
of minimum information security standards that are often vaguely defined and difficult to implement. Our security measures and standards
may not be sufficient to protect personal information and we cannot guarantee that our security measures will prevent security breaches.
A security breach that compromises personal information could harm our reputation and result in a loss of customer confidence in our products
and ultimately in a loss of customers, which could adversely affect our business and impact our financial condition. This could also subject
us to liability under applicable security breach-related laws and regulations and could result in additional compliance costs, costs related
to regulatory inquiries and investigations, and an inability to conduct our business.
Tax status and changes to regulations could affect our business.
We cannot guarantee that any tax audit or tax
dispute to which we may be subject in the future will result in a favorable outcome. There is a risk that any such audit or dispute could
result in additional taxes payable by us as well as negative publicity and reputational damage. In any such case, substantial additional
tax liabilities and ancillary charges could be imposed on us which could increase our effective tax rate. Our effective tax rate may also
be affected by changes in, or the interpretation of tax laws, including those tax laws relating to the utilization of capital allowances,
net operating losses and tax loss or credit carryforwards, as well as management’s assessment of certain matters, such as the ability
to realize deferred tax assets. The Company’s effective tax rate in any given financial year reflects a variety of factors that
may not be present in the succeeding financial year or years. An increase in our effective tax rate in future periods could have a material
adverse effect on our financial condition and results of operations.
Systems failures, disruptive events or delays could materially
harm the Company’s business.
Our operations will be highly dependent on the
internet, mobile networks and AWS. The efficient and uninterrupted operation of the Internet, mobile networks and AWS, on which we rely,
and our ability to provide customers with reliable, real-time access to our services, is fundamental to the success of our business. Any
damage, malfunction, failure or interruption of, or to the Internet, mobile networks or AWS could result in a lack of confidence in our
services and a possible loss of customers to our competitors, or could expose us to higher risk or losses, with a consequential material
adverse effect on our operations and results. If our connection to mobile networks or the Internet is interrupted or not available, we
may not be able to provide customers with our products and services.
Our systems and networks may also fail because
of other events, such as:
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fire, flood, or natural disasters; |
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power or telecommunications failure; |
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computer hacking activities; and |
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acts of war or terrorism. |
AWS has a number of systems in place in the event
of a system failure. It is important to note that the services that we depend on via AWS are segregated from one another, and if one system
fails, another replaces it automatically within minutes. It is further important to distinguish that each AWS deployment is relevant to
each individual client, meaning that multiple AWS regions are used (currently available on every continent). The probability of a complete
systems failure with AWS is unlikely but possible.
To date there has been no significant malfunctioning
of the internet, mobile networks and AWS, however, any such event could result in a lack of confidence in our services, and result in
a loss of existing customers in addition to exposing us to potential liabilities. Any one of these challenges could result in a material
adverse effect on our operations and financial results.
Our current operations are international in scope and expansion
can create a variety of potential operational challenges.
With business operations in the UK and the US
and with intentions to grow, our offices, personnel and operations may be further dispersed around the world. In connection with such
expansion, we may face a number of challenges, including costs associated with developing software and providing support in additional
languages, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycles and difficulties
in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on
our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries and a geographically
and culturally diverse workforce and customer base. Failure to overcome any of these challenges could negatively affect our business and
results of operations.
The outbreak of the COVID-19 pandemic may impact our plans and
activities.
The global outbreak of COVID-19 has led to severe
disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis.
Although we have not experienced any significant disruption to its business to date, these conditions could significantly negatively impact
our business in the future. The extent to which the COVID-19 outbreak ultimately impacts our business, future revenues, results of operations
and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited
to, the duration and spread of the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including
an effective vaccine), and how quickly and to what extent normal economic and operating conditions can resume.
Even after the COVID-19 outbreak has subsided,
we may be at risk of experiencing a significant impact to our business as a result of the global economic impact, including any economic
downturn or recession that has occurred or may occur in the future. Currently, capital markets have been disrupted by the crisis, as a
result of which the availability, amount and type of financing available to us in the near future is uncertain and cannot be assured and
is largely dependent upon evolving market conditions and other factors. We intend to continue to monitor the situation and may adjust
our current business plans as more information and guidance become available.
Public Company Risks
We are an “emerging growth company”
and “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from
disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive
to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company”
within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders
may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although
circumstances could cause us to lose that status earlier, including if the market value of our shares of common stock held by non-affiliates
exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company
as of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on
these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices
of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading
prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non- emerging growth companies but
any such an election to opt out is irrevocable. We have elected not to opt out of such an extended transition period, which means that
when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth
company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which
has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards
used.
Additionally, we are a “smaller reporting
company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure
obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (1) the market value of our shares of common stock held by non-affiliates exceeds
$250 million as of the end of the second fiscal quarter of that year, or (2) our annual revenues exceeded $100 million during such completed
fiscal year and the market value of our shares of common stock held by non-affiliates exceeds $700 million as of the end of the second
fiscal quarter of that year.
We incur increased costs as a result of
being a public company in the US and our management devotes substantial time to public company compliance programs.
As a public company in the US, we incur significant
legal, insurance, accounting and other expenses that we did not incur as a private company. Sarbanes-Oxley, the Dodd-Frank Wall Street
Reform and Consumer Protection Act and other applicable securities rules and regulations impose various requirements on US public companies.
The Company needs to ensure its financial and management control systems are able to meet the requirements of a public company. Areas
such as financial planning and analysis, tax, corporate governance, accounting policies and procedures, internal controls, internal audit,
disclosure controls and procedures and financial reporting and accounting systems need to be compliant with reporting obligations. Our
management and administrative staff devote a substantial amount of time to compliance with these requirements. We may need to hire qualified
personnel to address these issues. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment
will result in increased general and administrative expenses and may divert management’s time and attention away from product development
and other commercial activities. If for any reason our efforts to comply with new laws, regulations and standards differ from the activities
intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We intend to obtain directors’ and officers’ liability insurance coverage, which will increase our insurance cost significantly.
In the future, it may be more expensive for us to obtain directors’ and officers’ liability insurance, and we may be required
to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for
us to attract and retain qualified executive officers and qualified members of our Board of Directors, particularly to serve on our audit
committee and compensation committee.
We are required to make a formal assessment of
the effectiveness of our internal control over financial reporting under Section 404 of Sarbanes-Oxley and will require management to
certify financial and other information in our annual reports and provide an annual management report on the effectiveness of our internal
control over financial reporting. This assessment will need to include the disclosure of any material weaknesses in our internal control
over financial reporting identified by our management or our independent registered public accounting firm. In this regard, we will need
to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document
the adequacy of our internal control over financial reporting. We will also need to continue to improve our control processes as appropriate,
validate through testing that our controls are functioning as documented and implement a continuous reporting and improvement process
for our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the
prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. Any material
weakness could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated
financial statements. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of
our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed
with the Securities and Exchange Commission (the “SEC”) following the date we are no longer an “emerging growth company”
as defined in the JOBS Act. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in
our internal controls in the future.
Although our common
stock is approved for trading on the OTCQB market, an active, liquid trading market for our common stock may not develop or be sustained.
If and when an active market develops the price of our common stock may be volatile.
Our common stock is traded
on the OTCQB market. Currently there is a very limited trading in our stock and there is no assurance that an active market will develop.
In the absence of an active trading market, investors may have difficulty buying and selling or obtaining market quotations, market visibility
for shares of our common stock may be limited, and a lack of visibility for shares of our common stock may have a depressive effect on
the market price for shares of our common stock. The lack of an active market may also reduce the fair market value of our common stock.
Trading in stocks quoted on the OTC markets is often thin and characterized by wide fluctuations in trading prices, due to many factors
that may have little to do with our operations or business prospects. The securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may
also materially and adversely affect the market price of shares of our common stock. Moreover, the OTCQB market is not a stock exchange
and is not an established market, and trading of securities is often more sporadic than the trading of securities listed on a national
stock exchange like Nasdaq.
Our stock may be
traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell
your shares.
Until our common stock
is listed on a national securities exchange such as the Nasdaq Stock Market or the New York Stock Exchange, we expect our common stock
to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system, or in the “pink sheets.”
In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons
interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor
may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near
bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed
by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such
regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common
stock. This would also make it more difficult for us to raise capital.
Future sales of
shares of our common stock or the perception that these sales may occur, may depress our stock price.
The market price of our
common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition,
if our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our common
stock could decline. Any issuance of additional common stock, or common stock equivalents by us would result in dilution to our existing
shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock.
Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of
common stock could depress the market for our shares and make it more difficult for us to sell equity securities at any time in the future
if at all.
We may issue additional
shares of common stock and/or preferred stock without stockholder approval, which would dilute the current holders of our common stock.
In addition, the exercise or conversion of securities that may be granted in the future would further dilute holders of our common stock.
Our Board of Directors
has authority, without action or vote of our shareholders, to issue shares of common and preferred stock. We may issue shares of our common
stock or preferred stock to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects
a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders’ ownership interest,
which among other things would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our
stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding
or subsequently granted, exercise their options or warrants to purchase shares of our common stock.
The rights of the holders of our common stock may be impaired
by the potential issuance of preferred stock.
We are authorized to issue up to of 5,000,000
shares of “blank check” preferred stock, par value $0.001 per share; however no preferred shares have been designated or issued
by the Company as of the date of this report. Our certificate of incorporation gives our Board of Directors the right to create one or
more new series of preferred stock. As a result, our Board of Directors may, without stockholder approval, issue preferred stock with
voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders
of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, would dilute the rights of
our common stockholders and could be used to discourage, delay or prevent a change of control of our company, which could materially adversely
affect the price of our common stock.
Our common stock may be subject to the “penny
stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and
may reduce the value of an investment in the stock.
Rule 3a51-1 under the Exchange Act establishes
the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving
a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny
stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker
or dealer must: (a) obtain financial information and investment experience objectives of the person; and (b) make a reasonable determination
that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth
the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed,
written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities
subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause
a decline in the market value of our common stock. Disclosure also has to be made about the risks of investing in penny stocks in both
public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative,
current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
We do not anticipate paying dividends in the foreseeable future.
We do not currently pay dividends and do not anticipate
paying any dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board
of Directors, subject to compliance with applicable laws and covenants under any future credit facility, which may restrict or limit our
ability to pay dividends. Payment of dividends will depend on our financial condition, operating results, capital requirements, general
business conditions and other factors that our Board of Directors may deem relevant at that time. Unless and until we declare and pay
dividends, any return on your investment will only occur if our share price appreciates.
There is no guarantee
that our application to list our common stock on the Nasdaq Capital Market will be approved, and if our common stock are listed
on the Nasdaq Capital Market, there can be no assurance that we will be able to comply with the Nasdaq Capital Market’s continued
listing standards.
We have applied to list
our common stock on the Nasdaq Capital Market under the symbols “ GMGT ”. There can be no assurance that the Nasdaq
Capital Market will approve our application for the listing of our common stock. The approval process for the listing of our
shares on the Nasdaq Capital Market, or any other exchange, involves factors beyond our control. Among other things, we will be required
to meet the Nasdaq Capital Market’s threshold for stockholders’ equity, which will require us to raise additional capital,
of which there can be no assurance. We will also be required to meet minimum market value of unrestricted publicly held shares, minimum
share price and other listing criteria, of which there can be no assurance.
If our common stock is
approved for listing on the Nasdaq Capital Market, there is no guarantee that we will be able to maintain such listing for any period
of time by perpetually satisfying the Nasdaq Capital Market’s continued listing requirements. Our failure to continue to meet these
requirements may result in our securities being delisted from the Nasdaq Capital Market.
The absence of such a listing may adversely
affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would incur
additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the
market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common
stock is delisted by the Nasdaq Capital Market, our common stock may be eligible to trade on an over-the-counter quotation system, such
as the OTCQB or the OTC Pink Market, where an investor may find it more difficult to sell our securities or obtain accurate quotations
as to the market value of our securities. In the event our common stock are delisted from the Nasdaq Capital Market in the future, we
may not be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation
system.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Company’s address in Las Vegas is Two
Summerlin, Las Vegas Nevada 89135, USA, and our telephone number is +1 (833) 888-4648. The Company leases office facilities in Las Vegas,
Nevada on a month-to-month lease at a cost of $510 per month.
The Company also leases office facilities in London,
England, and is located at 184 Shepherds Bush Road, London, England W6 7NL.
The Company did not have any other leases with
initial terms of 12 months or more as of December 31, 2021.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation
relating to claims arising out of its operations in the normal course of business. During the past ten years, none of our officers, directors,
director nominees, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation
S-K except as set forth herein.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Market Information
Since June 14, 2021,
our common stock has been quoted on the OTCQB market under the trading symbol “GMGT.” At present, there is a very limited
market for our common stock, and there is as yet no established trading market for our common stock. Quotations on the OTCQB reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
The following table sets
forth the high and low sale prices of one share of our common stock for each fiscal quarter since April 13, 2021, (when our common stock
began trading on the OTC Pink market) as provided by OTC Markets Group, Inc.
| Fiscal Year 2021 | |
High | | |
Low | |
| Second Quarter (from April 13, 2021) | |
$ | 7.00 | | |
$ | 4.70 | |
| Third Quarter | |
$ | 4.60 | | |
$ | 2.25 | |
| Fourth Quarter | |
$ | 3.23 | | |
$ | 2.09 | |
The last reported sale price of our common stock
on the OTCQB on March 28, 2022, was $2.15. Past price performance is not indicative of future price performance.
We have applied to list our common stock on the
Nasdaq Capital Market under the symbol “GMGT”. No assurance can be given that our application will be accepted.
Holders
As of March 28, 2022, there were 81 holders of
record of our common stock. The number of stockholders of record does not include certain beneficial owners of our common stock, whose
shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
We have never paid a cash dividend on our common
stock since inception. The payment of dividends may be made at the discretion of our Board of Directors, and will depend upon, but not
limited to, our operations, capital requirements, and overall financial condition.
We do not anticipate paying cash dividends on
our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition
and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. We intend to follow
a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business.
If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price
appreciates.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of the Company’s
financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements
and related notes appearing elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis here and
throughout this Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. The Company’s actual
results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but
not limited to, those set forth under Item 1A (“Risk Factors”) and elsewhere in this Form 10-K.
Overview
The Company is a software company specializing
in online gaming. It is headquartered in Las Vegas with offices in London and Mexico City.
The Company’s activities are subject to
significant risks and uncertainties, including the need for additional capital, as described below. The Company commenced revenue-generating
operations in February 2021, does not have positive cash flows from operations, and is dependent on periodic infusions of equity capital
to fund its operating requirements.
Background and Basis of Presentation
Gaming Technologies,
Inc. was incorporated in the State of Delaware on July 23, 2019 under the name Dito, Inc. and on December 21, 2020 amended its name to
Gaming Technologies, Inc. Effective as of March 18, 2020, Gaming Technologies, Inc. completed a Share Exchange Agreement (the “Exchange
Agreement”) to acquire all of the outstanding ordinary shares of Gaming Technologies UK that provided for each outstanding ordinary
share of Gaming Technologies UK to be effectively converted into 25 shares of common stock of Gaming Technologies, Inc., As a result,
Gaming Technologies UK became our wholly-owned subsidiary in a recapitalization transaction, as described below. Gaming Technologies UK
was originally formed on November 3, 2017, in the United Kingdom as Dito UK Limited for the purpose of software development.
For financial reporting purposes, the Exchange
Agreement was accounted for as a combination of entities under common control (the “Combination”), as Gaming Technologies,
Inc. was formed by Gaming Technologies UK, with the objective of Gaming Technologies UK becoming a wholly-owned subsidiary of Gaming Technologies,
Inc., and the resultant parent company being domiciled in the United States. As a result of the Combination, the former stockholders of
Gaming Technologies UK became the controlling shareholders of Dito, Inc., and the Gaming Technologies UK management and board members
became the management and board members of Gaming Technologies, Inc.
As discussed above, our Board of Directors and
our stockholders have approved a reverse split of our common stock in a range between 1-for-2 and 1-for-8. Such reverse split, if any,
would be effected prior to the listing of our common stock on Nasdaq, if our listing application is approved. The share and per share
information in this report has not been adjusted to reflect any reverse stock split.
Going Concern
The Company’s consolidated financial statements have been
presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has had no significant
operating revenues to date, and has experienced recurring net losses from operations and negative operating cash flows. During the year
ended December 31, 2021, the Company incurred a net loss of $12,896,105, utilized cash in operating activities of $8,036,300, and had
an accumulated deficit of $20,862,298 as of December 31, 2021. The Company has financed its working capital requirements since inception
through the sale of its equity securities and from borrowings.
At December 31, 2021,
the Company had cash of $406,526. The Company estimates that a significant amount of capital will be necessary over a sustained period
of time to advance the development of the Company's business to the point at which it can become commercially viable and self-sustaining.
However, there can be no assurances that the Company will be successful in this regard.
As a result, management
has concluded that there is substantial doubt about the Company's ability to continue as a going concern within one year of the date that
the accompanying consolidated financial statements are issued. In addition, the Company's independent registered public accounting firm,
in their report on the Company’s consolidated financial statements for the year ended December 31, 2020, has also expressed substantial
doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent
upon the Company's ability to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating
revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
We failed to make interest payments on our 10% Original Issue Discount
Senior Secured Convertible Note in the principal amount of $1,666,666.67 (the “Convertible Note”) that were due in February
and March 2022, in the amount of $13,889 each, and may not be able to make the interest payments due in April of $13,889 and subsequently.
See “—Convertible Note Financing” below for additional information on the Convertible Note and related agreements.
The development and expansion
of the Company’s business in 2022 and thereafter will be dependent on many factors, including the capital resources available to
the Company. No assurances can be given that any future financing will be available or, if available, that it will be on terms that are
satisfactory to the Company or adequate to fund the development and expansion of the Company’s business to a level that is commercially
viable and self-sustaining. There is also significant uncertainty as to the affect that the coronavirus pandemic may have on the availability,
amount and type of financing in the future.
If cash resources are
insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its
operations, obtain funds, if available, although there can be no certainty, through strategic alliances that may require the Company to
relinquish rights to its technology, or to discontinue its operations entirely.
Critical Accounting
Policies and Estimates
The following discussion
and analysis of financial condition and results of operations is based upon the Company’s consolidated financial statements for
the years ended December 31, 2021 and 2020 presented elsewhere in this report, which have been prepared in conformity with accounting
principles generally accepted in the US (“GAAP”). Certain accounting policies and estimates are particularly important to
the understanding of the Company’s financial position and results of operations and require the application of significant judgment
by management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the
Company’s control. As a result, these issues are subject to an inherent degree of uncertainty. In applying these policies, management
uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based
on the Company’s historical operations, the future business plans and the projected financial results, the terms of existing contracts,
trends in the industry, and information available from other outside sources. For a more complete description of the Company’s significant
accounting policies, see Note 2 to the consolidated financial statements.
Income Taxes
The Company accounts for income taxes under an
asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax
assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce
its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would
be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would
be credited to operations in the period such determination was made. Alternatively, should the Company determine that it would not be
able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations
in the period such determination was made.
Gaming Technologies, Inc. is subject to US federal
income taxes and income taxes of the State of New York. The Company’s operations in the US through December 31, 2021 resulted in
losses for income tax purposes.
Gaming Technologies UK is subject to taxation
in the UK. As a foreign corporation, Gaming Technologies UK is not consolidated with Gaming Technologies, Inc. in the Company’s
US federal tax filings.
As the Company’s net operating losses in
the respective jurisdictions in which it operates have yet to be utilized, all previous tax years remain open to examination by the taxing
authorities in which the Company currently operates. The Company had no unrecognized tax benefits as of December 31, 2021 and does not
anticipate any material amount of unrecognized tax benefits within the next 12 months.
The Company accounts for uncertainties in income
tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only
if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not
considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. As of December 31, 2021,
the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain
tax positions will be recognized as a component of income tax expense.
Comprehensive Income (Loss)
Comprehensive income or loss is defined as the
change in equity during a period from transactions and other events and circumstances from non- owner sources. Components of comprehensive
income or loss, including net income or loss, unrealized gains or losses on available-for-sale securities, unrealized gains or losses
on other financial investments, unrealized gains or losses on pension and retirement benefit plans, and foreign currency translation adjustments,
are reported in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income
(loss) are reported net of any related tax effect to arrive at comprehensive income (loss). The Company’s comprehensive income (loss)
for the years ended December 31, 2021 and 2020 consists of foreign currency translation adjustments.
Software Development Costs
Due to the significant uncertainty with respect
to the successful development of commercially viable products based on the Company’s development efforts, all software development
costs incurred with respect to the Company’s mobile gaming platform are charged to operations as incurred.
Intellectual Property
Intellectual property, consisting of software,
is recorded at cost. Amortization of intellectual property is provided using the straight-line method over an estimated useful life of
three years.
The Company recognizes amortization of intellectual
property in software development costs in the Company’s consolidated statement of operations.
Foreign Currency
The accompanying consolidated financial statements
are presented in US dollars (“USD”). The functional currency of Dito UK, the Company’s foreign subsidiary, is
the British Pound (“GBP”), the local currency in the UK. Accordingly, assets and liabilities of the foreign subsidiary
are translated at the current exchange rate at the end of the period, and revenues and expenses are translated at average exchange rates
during the years ended December 31, 2021 and 2020. The resulting translation adjustments are recorded as a component of shareholders’
equity (deficiency). Gains and losses from foreign currency transactions are included in net income (loss).
Revenue Recognition
The Company recognizes
revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers. ASC Topic 606 requires companies to recognize
revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosures of
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Revenue is recognized based
on the following five step model:
| |
· |
Identification of the contract with a customer |
| |
· |
Identification of the performance obligations in the contract |
| |
· |
Determination of the transaction price |
| |
· |
Allocation of the transaction price to the performance obligations in the contract |
| |
· |
Recognition of revenue when, or as, the Company satisfies a performance obligation |
Performance
Obligations
The Company operates
an online betting platform allowing users to place wagers on casino and other games. Each wager placed by users create a single performance
obligation for the Company to administer each event wagered. Net gaming revenue is the aggregate of gaming wins and losses based on results
of each event that customers wager bets on. Gross gaming revenue is split with our partners, whose share of gross gaming revenue is recorded
as a reduction to net gaming revenue.
Stock-Based Compensation
The Company issues common
stock and intends to issue stock options to officers, directors and consultants for services rendered. Options will vest and expire according
to terms established at the issuance date of each grant. Stock grants, which are generally time vested, will be measured at the grant
date fair value and charged to operations ratably over the vesting period.
The fair value of stock
options granted as stock-based compensation will be determined utilizing the Black-Scholes option-pricing model, and can be affected by
several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared
to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock. Estimated volatility
will be based on the historical volatility of the Company’s common stock over an appropriate calculation period, or, if not available,
by reference to the volatility of a representative sample of comparable public companies. The risk-free interest rate will be based on
the US Treasury yield curve in effect at the time of grant. The fair market value of the common stock will be determined by reference
to the quoted market price of the Company’s common stock on the grant date, or, if not available, by reference to an appropriate
alternative valuation methodology.
The Company will recognize
the fair value of stock-based compensation awards in general and administrative costs or in software development costs, as appropriate,
in the Company’s consolidated statements of operations. The Company will issue new shares of common stock to satisfy stock option
exercises.
As of December 31, 2021,
the Company did not have any outstanding stock options.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly
changes how entities measure credit losses for most financial assets, including accounts and notes receivables. ASU 2016-13 will replace
the current “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances
based on expected rather than incurred losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. As small business filer, ASU 2016-13
will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. Management is currently
in the process of assessing the impact of adopting ASU-2016-13 on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt
- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU
2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments
and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized
from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1)
those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative,
and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial
premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception
for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective
for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
Management has not yet evaluated the effect that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement
presentation or disclosures subsequent to its adoption.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and
Exchange Commission, did not or are not believed by management to have a material impact on the Company’s present or future consolidated
financial statements and related disclosures.
Plan of Operation
We are a software company
specializing in online gaming. Our cloud-based Player Account Management (PAM) platform enables us to rapidly deploy branded online gambling
presences for land-based casinos, consumer brands and media companies. Depending on each geographical region and the restrictions/requirements
of its gambling-related legislation, we form "access deals" that offer a faster and easier route to market by enabling us to
operate under a gambling license already held by a local partner.
We integrate best-in-class
third-party games to provide the ultimate gaming platform, and we help our international partners in regulated markets leverage online
gambling presences while putting players first. We also form business partnerships with established brands such as Playboy to launch new
game content.
On November 13, 2020,
we entered into an “access deal” Agreement for the Provision of Online Gaming Management and Consulting Services (as subsequently
amended) with Comercial de Juegos de la Frontera, S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide
to Big Bola consulting and management services related to their interactive online betting and gaming business in Mexico via the web site
www.vale.mx, a regulated online casino and sports betting site. vale.mx operates under Big Bola’s existing license issued by the
General Directorate of Games and Raffles of the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally
authorized to offer legal betting and online casino services in Mexico. vale.mx has more than 500 online premium casino games available,
which can be enjoyed both on mobile or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition
slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for
player acquisition, promotion and retention for vale.mx. We manage players’ accounts and are required to ensure that the balance
in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from Big Bola’s
account. While Big Bola bears liability to the players as provided by the permit, as between us and Big Bola we bear the costs of this
obligation. Each party indemnifies the other against certain liabilities and claims. Under the terms of the agreement, as amended, we
share 75% of gross gaming revenue generated from the platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s
participation in the remaining gross gaming revenues. In February 2021, vale.mx began operations. During the year ending December 31,
2021, the Company recognized $167,875 of net revenue. See “Our Business—Development of Our Business—Big Bola/vale.mx”
above for more information.
On April 14, 2021, we
entered into a Sponsorship Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the
personality rights of champion professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign
for the Corporation to sponsor a prize fight and certain other activities of Canelo, and for Canelo to promote the Corporation’s
“VALE” brand and create certain promotional materials in connection therewith for the Corporation’s use in the United
States, Latin America and certain countries in the Caribbean. See “Our Business—Development of Our Business—Playboy
License Agreement” above for more information.
On May 19, 2021, we entered into a non-exclusive
license agreement with Playboy Enterprises International, Inc. (“Playboy”) to use certain trademarks (including the rabbit
head logo) and other intellectual property of Playboy on and in connection with the design, creation, promotion, marketing, advertisement,
sales, operation, maintenance and distribution in India of real-money game mobile apps, such as rummy, poker, fantasy sports and other
games of skill approved by Playboy. We will pay Playboy as a royalty a percentage of net gaming revenue. The term of the agreement is
through the end of 2025, subject to early termination upon certain events of default, which include our failure to launch a Playboy-branded
game in India by November 1, 2021, or to meet certain annual minimum net gaming revenue targets. The Playboy-branded game, https://www.playboyrummy.com/,
was launched on November 1, 2021. See “Our Business—Development of Our Business—Playboy License Agreement” above
for more information.
On August 18, 2021, we entered into a software
partnership with Ortiz Gaming to supply us with online Bingo gaming content. The deal initially covers Mexico, and we plan to expand to
other parts of Latin and South America.
Convertible Note Financing
On November 18, 2021,
we entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor for the sale of a secured
convertible note and warrants. We received aggregate gross proceeds of $1,500,000 and issued (i) the Convertible Note in the principal
amount of $1,666,666.67 (the “Convertible Note”) and (ii) warrants (the “Convertible Note Warrants”) to purchase
an aggregate of 727,273 shares of our common stock.
The
Convertible Note. The Convertible Note bears interest at a rate of 10% per year, payable monthly commencing after the third month
following the issuance date, and matures 12 months from issuance. The principal and interest are convertible at any time, at the option
of the holder, into shares of common stock at a conversion price equal to the lower of (i) $2.75 per share and (ii) the price of the
common stock of the Company in a Qualified Offering (subject to adjustment as provided in the Convertible Note). A “Qualified Offering”
is an equity or equity-linked financing for the account of the Company or any of its subsidiaries or debt financing that results in cumulative
aggregate proceeds to the Company of at least $8,000,000. The principal and interest on the Convertible Note will be amortized on a straight-line
basis commencing sixth months after the closing.
The conversion price
of the Convertible Note is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other
property to the Company’s stockholders. With certain customary exceptions, if, at any time while the Convertible Note is outstanding,
the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces
any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to
acquire shares of common stock at an effective price per share that is lower than the then conversion price of the Convertible Note (such
lower price, the “Base Conversion Price,” then the conversion price of the Convertible Note will be reduced to equal
the Base Conversion Price.
We have the right at
any time to prepay in cash all or a portion of the Convertible Note at 115% (or 120% on or after the first three months from the closing)
of the principal amount thereof plus any unpaid accrued interest to the date of repayment. In such event, the holder will have the right
to convert the Convertible Note prior to the date of any such prepayment.
We will be required to
offer to prepay in cash the aggregate principal amount of the Convertible Note at 115% (or 120% on or after the first three months from
the closing) of the principal amount thereof plus any unpaid accrued interest to the date of repayment, on the sale of all or substantially
all of the assets of the Company and its subsidiaries, upon a Change of Control (as defined in the Convertible Note), or on a Qualified
Offering. In such event, the holder shall have the right to convert the Convertible Note prior to the date of any such prepayment.
Upon an Event of Default
(as defined in the Convertible Note), interest will accrue at 1 1/2% per month and 125% of principal and interest through maturity shall
be due and payable. At the holder’s option, the holder will be entitled to be paid in cash or common stock with the conversion price
of the common stock equal to a 30% discount to the average of the three lowest closing prices of the common stock for the 10 prior trading
days.
We failed to make interest payments on
the Convertible Note that were due in February and March 2022, in the amount of $13,889 each, and may not be able to make the interest
payments due in April of $13,889 and subsequently. The holder has agreed to extend the due dates of the payments that were due in February
and March 2022 to April 18, 2022, and to waive any resulting default until such date. However, there can be no assurance that we will
be able to raise additional capital to enable us to make such payments by such date, or future payments that come due.
The Convertible Note Warrants. The Convertible Note Warrants are exercisable at an exercise price equal to the lower of (x)
$2.75 per share and (y) the price of the common stock of the Company in a Qualified Offering (as defined in the Purchase Agreement),
subject to adjustment as described below, and the Convertible Note Warrants are exercisable for five years after the issuance date. The
Convertible Note Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective
registration statement registering the shares of common stock underlying the Convertible Note Warrants. The exercise price of the Convertible
Note Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications
or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the
Company’s stockholders. The exercise price of the Convertible Note Warrants is also subject to “full ratchet” price
adjustment if the Company issues common stock or equivalents at a price per share lower than the then-current exercise price of the Convertible
Note Warrant, as described above for the conversion price of the Convertible Note.
Ancillary Agreements.
In connection with the Company’s obligations under the Convertible Notes, the Company and its subsidiary Gaming Technology Limited
(the “Subsidiary”) each entered into a security agreement with the holder, pursuant to which the Company and the Subsidiary
granted a security interest on all assets of the Company and the Subsidiary, including the stock of the Subsidiary, for the benefit of
the holders, to secure, and the Subsidiary guaranteed, the Company’s obligations under the Convertible Note, the Convertible Note
Warrant and the other transaction documents. In addition, the holder was granted customary piggyback registration rights for the shares
of common stock issuable upon conversion of the Convertible Note and exercise of the Convertible Note Warrant and rights of participation.
Right of Participation. At
any time within the 18 month period following closing, upon any issuance by the Company or any of its subsidiaries of debt or common stock
or common stock equivalents for cash consideration, indebtedness or a combination of units thereof, other than in an underwritten public
offering (a “Subsequent Financing”), the investor will have the right to participate up to its investment amount in the Convertible
Note, but not more than 25% of the Subsequent Financing, on the same terms, conditions and price provided for in the Subsequent Financing.
“Most Favored
Nation.” Until such time as the Company has consummated a Qualified Offering, which results in an up-listing of the Common
Stock onto a national securities exchange, if the Company engages in any future financing transactions with a third-party investor (not
including such a Qualified Financing, except to the extent it relates to conversion, exercise and anti-dilution provisions of the Convertible
Note and Convertible Note Warrants), if the holder determines that the terms of the subsequent investment are preferable in any respect
to the terms of the securities of the Company issued to the Holder pursuant to the terms of the Purchase Agreement, the Company shall
be required to amend and restate such securities to include the preferable term or terms.
Warrants for Waivers. In
November 2021, we also issued warrants to purchase an aggregate of 179,566 shares of common stock to investors in our August 2021 private
placement in exchange for their granting a waiver of their anti-dilution and most favored nation rights in respect of the Convertible
Note transaction describe above. These warrants have substantially the same terms as the Convertible Note Warrants described above.
Key Performance Indicators
Registered Players
A registered player is
a customer who has registered on our app or website and met the Know Your Customer customer identification requirements, which include
identity and address verification (“KYC requirements”). During the years ended December 31, 2021 and 2020 we registered 108,206
and 0 players, respectively. On October 4, 2021, we announced we had reached 100,000 registrations.
Monthly Unique Payers
Monthly Unique Payers
(“MUPs”). MUPs is the average number of unique paid users (“unique payers”) that use our online games on a
monthly basis.
MUPs is a key indicator
of the scale of our user base and awareness of our brand, and/or the third-party brands we partner with. We believe that year-over-year
MUPs will also generally be indicative of the long-term revenue growth potential of the online gaming brands we hold directly and/or those
we establish around our B2B brand partners, although MUPs in individual periods may be less indicative of our longer-term expectations.
We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand the online
gambling brands we operate to appeal to a wider audience.
We define MUPs as the
average number of unique payers per month who had a paid engagement (e.g., participated in a casino game) across one or more of
our product offerings via our platform technology. For reported periods longer than one month, we average the MUPs for the months in the
reported period.
A “unique paid
user” or “unique payer” is any person who had one or more paid engagements via our B2C technology during the period
(i.e., a user that participates in a paid engagement with one of our B2C product offerings counts as a single unique paid user
or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique
paid users include users who have participated in a paid engagement with promotional incentives, which are fungible with other funds deposited
in their wallets on our technology. The number of these users included in MUPs has not been material to date and a substantial majority
of such users are repeat users who have had paid engagements both prior to and after receiving incentives.
During the years ending
December 31, 2021 and 2020, our MUPs were 3,251 and 0, respectively. The increase was due to the initiation of revenue generating activities
in February 2021.
Average Revenue per
MUP (“ARPMUP”). ARPMUP is the average online casino revenue per MUP, and this key metric represents our ability to
drive usage and monetization of our online casino offering.
During the years ending
December 31, 2021 and 2020, our ARPMUP was $51.64 and $0, respectively.
We define and calculate
ARPMUP as the average monthly online casino revenue for a reporting period, divided by MUPs (i.e., the average number of unique
payers) for the same period.
Handle
Handle is a casino or
sports betting term referring to the total amount of money bet. We will report the handle or cash wagering which is the total
amount of money bet excluding all bonuses.
During the years ended
December 31, 2021 and 2020, our handle was $6,313,132 and $0, respectively.
Hold
Hold is essentially the
amount of cash that our platform instances keep after paying out winning bets. The industry also refers to hold as win or revenue. During
the years ended December 31, 2021 and 2020, our hold was $288,848 and $0, respectively.
Online games are characterized
by an element of chance. Our revenue is impacted by variations in the hold percentage (the ratio of net win to total amount wagered) on
bets placed on, or the actual outcome of, games or events on which users bet. Although our product offerings generally perform within
a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet can have a sizeable impact
on our short-term financial performance. Our hold is also affected by factors that are beyond our control, such as a user’s skill,
experience and behavior, the mix of games played, the financial resources of users and the volume of bets placed. As a result of variability
in these factors, actual hold rates on our products may differ from the theoretical win rates we have estimated and could result in the
winnings of our gaming users exceeding those anticipated. We seek to mitigate these risks through data science and analytics and rules
built into our technology, as well as active management of our amounts at risk at a point in time, but may not always be able to do so
successfully, particularly over short periods, which can result in financial losses as well as revenue volatility.
During the years ended
December 31, 2021, our hold percentage was 4.58% and 0%, respectively.
Results of Operations for the Years Ended
December 31, 2021 and 2020
In February 2021, our
online casino, vale.mx, began operations. However, as of December 31, 2021 and 2020, the Company did not have any positive cash flows
from operations and was dependent on its ability to raise equity capital to fund its operating requirements.
Revenues
The Company began generating
revenue in February 2021. Revenues consist of the net gaming revenues from the Company’s vale.mx online casino based in Mexico.
Total revenues were $167,875 and $0 for the years ended December 31, 2021 and 2020, respectively. The increase of $167,875 for the year
ended December 31, 2021 is due to the initiation of revenue producing activities in February 2021.
Cost of Revenues
The Company began generating
costs of revenues in February 2021. Cost of revenues consist of the direct costs of operating vale.mx, our online casino based in Mexico.
Total costs of revenues were $857,709 and $0 for the years ended December 31, 2021 and 2020, respectively. The increases of $857,709
was due to the initiation of revenue producing activities in February 2021.
Operating Expenses
The Company generally
recognizes operating costs and expenses as they are incurred in two general categories, software development costs and expenses, and general
and administrative costs and expenses. The Company’s operating costs and expenses also include non-cash components related to depreciation
and amortization of property and equipment, and intellectual property, which are allocated, as appropriate, to software development costs
and expenses and general and administrative costs and expenses.
Software development
costs and expenses consist primarily of fees paid to consultants and amortization of intellectual property. Management expects software
costs and expenses to increase in the future as the Company increases its efforts to develop technology for potential future products
based on its technology and research.
General and administrative
costs and expenses consist of fees for directors and officers, and their affiliates, as well as legal and other professional fees, depreciation
and amortization of property and equipment, lease and rent expense, and other general corporate expenses. Management expects general and
administrative costs and expenses to increase in future periods as the Company adds personnel and incurs additional costs related to its
operation as a public company, including higher legal, accounting, insurance, compliance, compensation and other costs.
Years Ended December 31, 2021 and 2020
The Company’s consolidated statements of
operations for the years ended December 31, 2021 and 2020, as discussed herein, are presented below.
| | |
Years Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
| |
| Revenues | |
$ | 167,875 | | |
$ | – | |
| Costs and expenses | |
| | | |
| | |
| Cost of revenue | |
| 857,709 | | |
| – | |
| Software development | |
| 185,789 | | |
| 128,563 | |
| General and administrative | |
| | | |
| | |
| Officers, directors, affiliates and other related parties | |
| 728,757 | | |
| 417,094 | |
| Other | |
| 11,007,893 | | |
| 6,647,146 | |
| Total costs and expenses | |
| 12,780,148 | | |
| 7,192,803 | |
| | |
| | | |
| | |
| Loss from operations | |
| (12,612,273 | ) | |
| (7,192,803 | ) |
| Other income (expense) | |
| | | |
| | |
| Interest expense | |
| (283,754 | ) | |
| (3,046 | ) |
| Foreign currency gain | |
| (78 | ) | |
| (15,968 | ) |
| Total other expense, net | |
| (283,832 | ) | |
| (19,014 | ) |
| | |
| | | |
| | |
| Net loss | |
$ | (12,896,105 | ) | |
$ | (7,211,817 | ) |
Revenues. In February 2021, our online
casino, vale.mx, began operations. The Company recognized $167,875 in revenue during the year ending December 31, 2021. The Company did
not have any revenues for the year ending December 31, 2020.
Cost of Revenues: The
Company began generating costs of revenues in February 2021. Cost of revenues consist of the direct costs of operating and marketing vale.mx,
our online casino based in Mexico. Total costs of revenues were $857,709 and $0 for the years ended December 31, 2021 and 2020. The increase
of $857,709 was due to the initiation of revenue producing activities in February 2021.
Software Development Costs and Expenses.
For the year ended December 31, 2021, software development costs and expenses were $185,789, which consisted of development costs paid
to contractors of $147,587 and amortization of intellectual property of $38,202.
For the year ended December 31, 2020, software
development costs and expenses were $128,563, which consisted of development costs paid to contractors of $67,505 and amortization of
intellectual property of $61,058.
Software development costs and expenses increased
by $57,226 or 45% in 2021 as compared to 2020, primarily as a result of increased software development costs as the Company developed
more online games for its gaming platform.
General and Administrative Costs and Expenses.
For the year ended December 31, 2021, general and administrative costs and expenses were $11,736,650, which consisted of director, consulting,
and professional fees to officers, directors, affiliates, and other related parties of $728,757, marketing and advertising expense of
$5,693,017, stock compensation expense of $3,409,214, consulting fees of $1,050,020, legal and accounting fees to non-related parties
of $510,548, and other operating costs of $345,094.
For the year ended December 31, 2020, general
and administrative costs and expenses were $7,064,240, which consisted of director, consulting, and professional fees to officers, directors,
affiliates, and other related parties of $417,094, stock compensation expense of $5,875,000, legal and accounting fees to non-related
parties of $599,957, and other operating costs of $172,189.
General and administrative costs increased by
$4,672,410 or 66% in 2021 as compared to 2020, primarily as a result of increases in marketing and advertising expense of $5,693,017 and
consulting fees of $977,317, and a decrease in stock compensation expense of $2,465,786.
Interest Expense. For the year ended December
31, 2021, the Company had interest expense of $283,754, as compared to interest expense of $3,046 for the year ended December 31, 2020,
primarily as a result of interest on notes payable.
Foreign Currency Gain (Loss). For the year
ended December 31, 2020, the Company had a foreign currency loss of $78, as compared to a foreign currency loss of $15,968 for the year
ended December 31, 2020, as a result of an increase in the value of the GB Pound compared to the US Dollar.
Net Loss. For the year ended December 31,
2021, the Company incurred a net loss of $12,896,105, as compared to a net loss of $$7,211,817 for the year ended December 31, 2020.
Liquidity and Capital Resources – December 31, 2021 and December
31, 2020
The Company’s consolidated financial statements
have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As reflected in Item 6 (“Selected Financial Data”), the Company has had
no operating revenues to date, and has experienced recurring net losses from operations and negative operating cash flows. The Company
has financed its working capital requirements since inception through the sale of its equity securities and from borrowings.
As a result, management has concluded that there
is substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated
financial statements are being issued. In addition, the Company’s independent registered public accounting firm, in their report
on the Company’s consolidated financial statements for the year ended December 31, 2020, has also expressed substantial doubt about
the Company’s ability to continue as a going concern (see “—Going Concern”).
The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to raise additional funds and implement its business plan, and to ultimately achieve
sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
As of December 31, 2021, the Company had a working
capital deficit of $2,113,765, as compared to working capital of $1,586,238 as of December 31, 2020, reflecting a decrease in working
capital of $3,700,003 for the year ended December 31, 2021. The decrease in working capital during the year ended December 31, 2021 was
primarily the result of increased marketing and advertising costs incurred to launch the vale.mx brand.
As of December 31, 2021, the Company had cash
of $406,526, reflecting the remaining balance of cash from the placement of $1,666,667 in convertible notes payable in November 2021.
As of December 31, 2020, the Company had cash of $1,946,232, reflecting cash of $2,628,000 from the sale of Common Stock in 2020.
Management believes that
the cash on hand will be sufficient to fund the Company’s operations only until April 2022, after which we will need to raise additional
funding. The Company has deferred payments and reduced costs in order to conserve cash until it is able to raise additional capital. No
assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at
all. Our ability to raise additional funds through equity or debt financings or other sources may depend on the commercial success of
our software and financial, economic and market conditions and other factors, some of which are beyond our control.
In February 2021, the Company began earning revenues,
however they are not a level sufficient to support the Company’s operations. The Company estimates that its working capital requirements
for the next twelve months to be approximately $4,800,000, or $400,000 per month.
The working capital budget
will enable the Company to support the existing monthly operating costs of the Company of approximately $400,000 per month, consisting
of monthly (and quarterly) accounting and US securities filing costs estimated at $20,000 per month and a sales and marketing budget of
$250,000 per month to engage in a sales and marketing campaign to sell licenses of the Company’s software platform to third parties
and attach customers to its online casino based in Mexico.
During the year ended December 31, 2021 the Company
completed a series of private placements of its common stock, with proceeds totaling $5,300,648. In November 2021, the Company issued
a convertible note payable in the amount of $1,666,667. In addition, the Company is planning additional capital raises over the remainder
of the calendar year to fund operations as it ramps up revenues, however, there can be no assurances such raises will be successful The
Company believes that its existing working capital will be sufficient to fund the Company’s operations for the next three months.
Since acquiring the software
platform, the Company has successfully carried out development to port the software platform from its former physical server dependencies
and reliance on third parties for hardware management and deployment to a cloud-based platform where deployment is automated through the
use of infrastructure as code. To make the Company’s software platform work for business-to-business (B2B) licensees, the Company
has modified the software to enable remote management by system administrators of prospective licensees. Previously, the platform was
business to consumer (B2C) focused, with outsourced management and deployment. As a result of this software development, the Company expects
to be able to monetize its software platform by selling licenses to third parties.
The Company’s ability
to raise additional funds through equity or debt financings or other sources may depend on the stage of development of the software platform,
the commercial success of the software, and financial, economic and market conditions and other factors, some of which are beyond the
Company’s control. No assurance can be given that the Company will be successful in raising the required capital at reasonable cost
and at the required times, or at all. Further equity financings may have a dilutive effect on shareholders and any debt financing, if
available, may require restrictions to be placed on the Company’s future financing and operating activities. If the Company requires
additional capital and is unsuccessful in raising that capital, the Company may not be able to continue the development of its software
platform and continue to advance its growth initiatives, or ultimately to be able to continue its business operations, which could adversely
impact the Company’s business, financial condition and results of operations.
Operating Activities
For the year ended December 31, 2021, operating
activities utilized cash of $8,036,300, as compared to utilized cash of $924,917for the year ended December 31, 2020, to fund the Company’s
ongoing operating expenses.
Investing Activities
For the year ended December 31, 2021, the Company’s
investing activities consisted of the acquisition of intellectual property for $169,564 and property and equipment of $9,194.
For the year ended December 31, 2020, the Company’s
investing activities consisted of the acquisition of intellectual property for $18,620.
Financing Activities
For the year ended December 31, 2021, the Company’s
financing activities consisted of gross proceeds from the private placement of 2,155,294 shares of Common Stock of $5,221,325, net proceeds
from a convertible note payable to bank of $1,500,000, offset by the repayment of $5,445 of a note payable with a bank.
For the year ended December 31, 2020, the Company’s
financing activities consisted of gross proceeds from the private placement of 1,153,200 shares of Common Stock of $2,628,000, proceeds
from a note payable to bank of $60,623, offset by the repayment of a note payable to related party of $35,508, and the repayment of $60,000
in connection with the cancellation of an investment in the private placement.
Principal Commitments
Contractual Commitments
The Company has retained Julian Parge as a consultant
to Gaming Technologies UK, at the request and under the sole discretion of Gaming Technologies UK, at the rate of $1,549 (equivalent to
1,250£) per week up to a maximum of $77,456 (equivalent to 62,500£) per annum.
Off-Balance Sheet Arrangements
As of December 31, 2021, the Company did not have
any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Trends, Events and Uncertainties
Development of new software is, by its nature,
unpredictable. Although the Company will undertake development efforts with commercially reasonable diligence, there can be no assurance
that the Company’s efforts to raise funds in the future will be sufficient to enable the Company to develop its technology to the
extent needed to create future revenues to sustain operations as contemplated herein.
There can be no assurances that the Company’s
technology will be adopted or that the Company will ever achieve sustainable revenues sufficient to support its operations. Even if the
Company is able to generate revenues, there can be no assurances that the Company will be able to achieve profitability or positive operating
cash flows. There can be no assurances that the Company will be able to secure additional financing on acceptable terms or at all. If
cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back
or discontinue its software development programs, or obtain funds, if available (although there can be no certainty), through strategic
alliances that may require the Company to relinquish rights to certain of its potential products, or to curtail or discontinue its operations
entirely.
Other than as discussed above and elsewhere in
this Form 10-K, the Company is not currently aware of any trends, events or uncertainties that are likely to have a material effect on
the Company’s financial condition in the near term, although it is possible that new trends or events may develop in the future
that could have a material effect on the Company’s financial condition.
Impact of COVID-19 on the Company
The global outbreak of COVID-19 has led to severe
disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis.
Although the Company has not experienced any significant disruption to its business to date, these conditions could significantly negatively
impact the Company’s business in the future.
The extent to which the COVID-19 outbreak ultimately
impacts the Company’s business, future revenues, results of operations and financial condition will depend on future developments,
which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity
and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may be at risk of experiencing
a significant impact to its business as a result of the global economic impact, including any economic downturn or recession that has
occurred or may occur in the future.
Currently, capital markets have been disrupted
by the crisis, as a result of which the availability, amount and type of financing available to the Company in the near future is uncertain
and cannot be assured and is largely dependent upon evolving market conditions and other factors.
The Company intends to continue to monitor the
situation and may adjust its current business plans as more information and guidance become available.
Other than as discussed above and elsewhere in
this Form 10-K, the Company is not currently aware of any trends, events or uncertainties that are likely to have a material effect on
the Company’s financial condition in the near term, although it is possible that new trends or events may develop in the future
that could have a material effect on the Company’s financial condition.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
A smaller reporting company is not required
to provide the information required by this Item.
Item 8. Financial Statements and Supplementary
Data.
Our consolidated financial statements are listed
on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted
because they are not applicable or the required information is shown in the financial statements or notes thereto.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to reasonably ensure that information required to
be disclosed in our reports filed under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no
matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company
to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure
controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls
by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable,
about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible
future events.
Management Assessment of Disclosure Controls and Procedures
Section 404 of Sarbanes-Oxley requires annual
management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness
of our disclosure controls and procedures as of December 31, 2021 and 2020 and concluded that we had a material weakness in our internal
controls due to our limited resources and therefore our disclosure controls and procedures may not be effective in providing material
information required to be included in any future periodic SEC filings on a timely basis and to ensure that information required to be
disclosed in any future periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required
disclosure about our internal control over financial reporting. More specifically, our internal control over financial reporting was not
effective due to material weaknesses related to a segregation of duties due to our limited resources and limited staff.
In addition, as of December 31, 2021 and 2020,
our management concluded that we had a material weakness in internal control over financial reporting. A control system, no matter how
well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose
material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls
and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by
one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable,
about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible
future events.
Description of Material Weaknesses and Management’s
Remediation Initiatives
As of the date of this report, our remediation
efforts continue related to each of the material weaknesses that we have identified in our internal control over financial reporting,
and additional time and resources will be required in order to fully address these material weaknesses. We have not been able to complete
all actions necessary and test the remediated controls in a manner that would enable us to conclude that such controls are effective.
We are committed to implementing the necessary controls to remediate the material weaknesses described below as our resources permit.
These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented
for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively.
The following material weaknesses in our internal control over financial reporting were identified by management as of December 31, 2021:
Ineffective Control Environment. The
Company did not maintain an effective control environment, which is the foundation necessary for effective internal control over financial
reporting. Specifically, the Company (i) did not maintain a functioning independent audit committee; (ii) did not have its Board of Directors
review and approve significant transactions; (iii) had an insufficient number of personnel appropriately qualified to perform control
design, execution and monitoring activities; (iv) had an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge
and experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company’s
financial reporting requirements; (v) had inadequate segregation of duties consistent with control objectives; and (vi) lack of written
documentation of the Company’s key internal control policies and procedures over financial reporting. The Company is required under
Section 404 of the Sarbanes-Oxley Act to have written documentation of key internal controls over financial reporting. The Company did
not formally document policies and controls to enable management and other personnel to understand and carry out their internal control
responsibilities including the lack of closing checklists, budget-to-actual analyses, balance sheet variation analysis, and pro-forma
financial statements. Additionally, the Company did not have an adequate process in place to complete its testing and assessment of the
design and operating effectiveness of internal control over financial reporting in a timely manner;
Ineffective controls over financial
statement close and reporting process. The Company did not maintain effective controls over its financial statement close and
reporting process. Specifically, the Company: (i) had insufficient preparation and review procedures for disclosures accompanying the
Company’s financial statements; and (ii) did not provide reasonable assurance that accounts were complete and accurate and agreed
to detailed support and that reconciliations of accounts were properly performed, reviewed and approved; and
Insufficient segregation of duties
in our finance and accounting functions due to limited personnel. We do not have sufficient segregation of duties within accounting
functions. During the year ended December 31, 2021, we had limited personnel that performed nearly all aspects of our financial reporting
process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal
entries and responsibility for the preparation of the financial statements. Due to the fact that these duties were often performed by
the same person, this creates a lack of review over the financial reporting process that would likely result in a failure to detect errors
in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC.
These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented
or detected.
Changes in Disclosure Controls and Procedures
None
Item 9B. Other Information.
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
Not applicable.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021 and 2020
1. Organization and Basis of Presentation
Organization and Combination
Gaming Technologies, Inc. (formerly Dito, Inc.,)
(“Gaming US”) was incorporated in the State of Delaware on July 23, 2019. Effective as of March 18, 2020, Gaming US completed
a Share Exchange Agreement (the "Exchange Agreement") to acquire all of the outstanding ordinary shares of Gaming Technologies
Limited, formerly Gaming UK Limited, (“Gaming UK”) that provided for each outstanding ordinary share of Gaming UK to be effectively
converted into 25 shares of common stock of Gaming US. As a result, Gaming UK became a wholly-owned subsidiary of Gaming US in a recapitalization
transaction (collectively, the “Company”). On December 21, 2020, the Company changed its name from Dito, Inc. to Gaming Technologies
Inc.
Gaming UK was originally formed as Smart Tower
Limited on November 3, 2017 in the United Kingdom for the purpose of software development. On June 29, 2018, Smart Tower Limited changed
its name to NENX Gaming Limited and then to Gaming UK Limited on July 29, 2019 and to Gaming Technologies Limited on January 7, 2021.
Gaming US maintains its principal executive offices
in Las Vegas, Nevada, United States. Gaming UK maintains its principal executive offices in London, England.
Unless the context indicates otherwise, Gaming
Technologies, Inc. ("Gaming US") and Gaming Technologies UK Limited ("Gaming UK") are hereinafter referred to as the
"Company".
The Company's activities are subject to significant
risks and uncertainties, including the need for additional capital, as described below. The Company does not have positive cash flows
from operations, and is dependent on periodic infusions of debt and equity capital to fund its operating requirements.
Business Operations
The Company is a mobile games developer, publisher,
and operator with offices in London and Las Vegas. The Company intends to license its software platform to mobile gaming operators and
developers to enable rapid development of new games. In addition, the Company operates an online gaming operation in Mexico through its
web site vale.mx.
On November 13, 2020, we entered into an Agreement
for the Provision of Online Gaming Management and Consulting Services (as subsequently amended) with Comercial de Juegos de la Frontera,
S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide to Big Bola consulting and management services
related to their interactive online betting and gaming business in Mexico via the web site www.vale.mx, a regulated online casino and
sports betting site. vale.mx operates under Big Bola’s existing license issued by the General Directorate of Games and Raffles of
the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally authorized to offer legal betting and
online casino services in Mexico. vale.mx has more than 500 online premium casino games available, which can be enjoyed both on mobile
or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers
such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention
for vale.mx. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies
the requirements under applicable law, and we pay out winnings to players from Big Bola’s account. While Big Bola bears liability
to the players as provided by the permit, as between us and Big Bola we bear the costs of this obligation. Each party indemnifies the
other against certain liabilities and claims. Under the terms of the amended agreement, we share 75% of gross gaming revenue generated
from the platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s participation in the remaining gross gaming
revenues. This venture began operations in February 2021.
On May 19, 2021, we entered into a non-exclusive
license agreement with Playboy Enterprises International, Inc. (“Playboy”) to use certain trademarks (including the rabbit
head logo) and other intellectual property of Playboy on and in connection with the design, creation, promotion, marketing, advertisement,
sales, operation, maintenance and distribution in India of real-money game mobile apps, such as rummy, poker, fantasy sports and other
games of skill approved by Playboy. We will pay Playboy as a royalty a percentage of net gaming revenue. The term of the agreement is
through the end of 2025, subject to early termination upon certain events of default, which include our failure to launch a Playboy-branded
game in India by November 1, 2021, or to meet certain annual minimum net gaming revenue targets. The Playboy-branded game, https://www.playboyrummy.com/,
was launched on November 1, 2021.
Going Concern
The Company's consolidated financial statements
have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has experienced
recurring net losses from operations and negative operating cash flows since inception. During the year ended December 31, 2021, the Company
incurred a net loss of $12,896,105, utilized cash in operating activities of $8,036,300, and had stockholders’ deficiency of $1,972,722
as of December 31, 2021. The Company has financed its working capital requirements since inception through the sale of its equity securities
and from borrowings.
At December 31, 2021, the Company had cash of
$406,526. The Company estimates that it has cash to sustain operations through April 2022, and after that a significant amount of
capital will be necessary over a sustained period of time to advance the development of the Company's business to the point at which it
can become commercially viable and self-sustaining. However, there can be no assurances that the Company will be successful in this regard.
As a result, management has concluded that there
is substantial doubt about the Company's ability to continue as a going concern within one year of the date that the accompanying consolidated
financial statements are issued. In addition, the Company's independent registered public accounting firm, in their report on the Company's
consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about the Company's ability
to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability
to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating revenues and profitability.
The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
The development and expansion of the Company's
business in 2022 and thereafter will be dependent on many factors, including the capital resources available to the Company. No assurances
can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company
or adequate to fund the development and expansion of the Company's business to a level that is commercially viable and self-sustaining.
There is also significant uncertainty as to the affect that the coronavirus pandemic may have on the availability, amount and type of
financing in the future.
If cash resources are insufficient to satisfy
the Company's ongoing cash requirements, the Company would be required to scale back or discontinue its operations, obtain funds, if available,
although there can be no certainty, through strategic alliances that may require the Company to relinquish rights to its technology, or
to discontinue its operations entirely.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements
of the Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and include
the financial statements of Gaming US and its wholly-owned foreign subsidiary, Gaming UK. Intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates
utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After
such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant
estimates are expected to include those related to assumptions used in calculating accruals for potential liabilities, valuing equity
instruments issued for financing and services, and the realization of deferred tax assets.
Cash
The Company maintains its cash balances with financial
institutions with high credit ratings. The Company has not experienced any losses to date resulting from this practice.
As of December 31, 2021 and 2020, the Company's
cash balances by currency consisted of the following:
| Schedule of cash | |
| | | |
| | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| GBP | |
£ | 90,467 | | |
£ | 49,127 | |
| USD | |
$ | 284,410 | | |
$ | 1,879,166 | |
Cash balances in British Pounds are maintained
in the United Kingdom and cash balances in United States Dollars are maintained in the United States.
Concentration of Risk
The Company may periodically contract with consultants
and vendors to provide services related to the Company's business development activities. Agreements for these services may be for a specific
time period or for a specific project or task. The Company did not have any agreements at December 31, 2021 or 2020.
Income Taxes
The Company accounts for income taxes under an
asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax
assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce
its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would
be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would
be credited to operations in the period such determination was made. Alternatively, should the Company determine that it would not be
able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations
in the period such determination was made.
Gaming UK is subject to taxation in the United
Kingdom. As a foreign corporation, Gaming UK is not consolidated with Gaming US in the Company's U.S. federal tax filings.
As the Company's net operating losses in the respective
jurisdictions in which it operates have yet to be utilized, all previous tax years remain open to examination by the taxing authorities
in which the Company currently operates. The Company had no unrecognized tax benefits as of December 31, 2021 and 2020 and does not anticipate
any material amount of unrecognized tax benefits within the next 12 months.
The Company accounts for uncertainties in income
tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only
if it is "more-likely-than-not" to be sustained by the taxing authority as of the reporting date. If the tax position is not
considered "more-likely-than-not" to be sustained, then no benefits of the position are recognized. As of December 31, 2021
and 2020, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related
to uncertain tax positions will be recognized as a component of income tax expense.
Revenue Recognition
The Company recognizes revenue in accordance with
ASC Topic 606, Revenue From Contracts With Customers. ASC Topic 606 requires companies to recognize revenue in a manner that depicts
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In addition, the standard requires disclosures of the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers. Revenue is recognized based on the following five step model:
| |
· |
Identification of the contract with a customer |
| |
· |
Identification of the performance obligations in the contract |
| |
· |
Determination of the transaction price |
| |
· |
Allocation of the transaction price to the performance obligations in the contract |
| |
· |
Recognition of revenue when, or as, the Company satisfies a performance obligation |
The Company operates an online betting platform
allowing users to place wagers on casino games. Each wager placed by users create a single performance obligation for the Company to administer
each event wagered. We report revenue on a net basis. Net gaming revenue is the aggregate of gaming wins and losses based on results of
each event that customers wager bets on. Gross gaming revenue is split with our partners, whose share of gross gaming revenue is recorded
as a reduction to net gaming revenue.
Cost of Revenue
Cost of revenue consists primarily of variable
costs related to our contract with Big Bola. These include mainly (i) payment processing fees and chargebacks, (ii) product
taxes, (iii) technology costs, (iv) revenue share / market access arrangements, and (v) feed / provider services. The Company
incurs payment processing fees on user deposits, withdrawals and deposit reversals from payment processors (“chargebacks”).
Chargebacks have not been material to date. Cost of revenue also includes expenses related to the distribution of our services, amortization
of intangible assets and compensation of revenue associated personnel.
Stock-Based Compensation
The Company issues common stock and intends to
issue stock options to officers, directors and consultants for services rendered. Options will vest and expire according to terms established
at the issuance date of each grant. Stock grants, which are generally time vested, will be measured at the grant date fair value and charged
to operations ratably over the vesting period.
The fair value of stock options granted as stock-based
compensation will be determined utilizing the Black-Scholes option-pricing model, and can be affected by several variables, the most significant
of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock
on the grant date, and the estimated volatility of the common stock. Estimated volatility will be based on the historical volatility of
the Company's common stock over an appropriate calculation period, or, if not available, by reference to the volatility of a representative
sample of comparable public companies. The risk-free interest rate will be based on the U.S. Treasury yield curve in effect at the
time of grant. The fair market value of the common stock will be determined by reference to the quoted market price of the Company's common
stock on the grant date, or, if not available, by reference to an appropriate alternative valuation methodology.
The Company will recognize the fair value of stock-based
compensation awards in general and administrative costs or in software development costs, as appropriate, in the Company's consolidated
statements of operations. The Company will issue new shares of common stock to satisfy stock option exercises.
Comprehensive Income (Loss)
Comprehensive income or loss is defined as the
change in equity during a period from transactions and other events and circumstances from non-owner sources. Components of comprehensive
income or loss, including net income or loss, unrealized gains or losses on available-for-sale securities, unrealized gains or losses
on other financial investments, unrealized gains or losses on pension and retirement benefit plans, and foreign currency translation adjustments,
are reported in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income
(loss) are reported net of any related tax effect to arrive at comprehensive income (loss). The Company's comprehensive income (loss)
for the years ended December 31, 2021 and 2020 consists of foreign currency translation adjustments.
Earnings (Loss) Per Share
The Company's computation of earnings (loss) per
share ("EPS") includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders
divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive
effect on a per share basis of potential common shares (e.g., convertible notes payable, convertible preferred stock, warrants and stock
options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares
that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation
of diluted EPS.
Loss per common share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding during the respective periods. At December 31, 2021 and
2020, the Company excluded warrants to acquire 1,540,141 and 90,000, respectively, shares of common stock from its calculation of loss
per share as their effect would be antidilutive. Basic and diluted loss per common share is the same for all periods presented because
the aforementioned warrants were antidilutive.
Fair Value of Financial Instruments
The authoritative guidance with respect to fair
value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels
and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.
Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.
Level 1. Observable inputs such as quoted prices
in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial
assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included
within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable
market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives,
mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is
little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets
and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds and
are measured using present value pricing models.
The Company will determine the level in the fair
value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to
the fair value measurement in its entirety. In determining the appropriate levels, the Company will perform an analysis of the assets
and liabilities at each reporting period end.
The carrying value of financial instruments (consisting
of cash and accounts payable and accrued expenses) is considered to be representative of their respective fair values due to the short-term
nature of those instruments.
The carrying value of our notes payable approximates
their fair value because interest rates on these obligation are based upon prevailing interest rates.
Property and Equipment
Property and equipment is recorded at cost.
Major improvements are capitalized, while maintenance and repairs that do not improve or extend the useful life of the respective assets
are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense
when realized. Depreciation of property and equipment is provided using the straight-line method over an estimated useful life of three
years.
The Company recognizes depreciation of property
and equipment in general and administrative costs in the Company's consolidated statement of operations.
Leases
The Company accounts for leases in accordance
with Accounting Standards Update 2016-02, Leases (Topic 842) ("ASU 2016-02"), which requires a lessee to record a right-of-use
asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments.
ASU 2016-02 requires recognition in the statement of operations of a single lease cost that is calculated as a total cost of the lease
allocated over the lease term, generally on a straight-line basis. ASU 2016-02 excludes short-term operating leases with a lease
term of 12 months or less at the commencement date, and that do not include an option to purchase the underlying asset that the lessee
is reasonably certain to exercise.
Software Development Costs
Due to the significant uncertainty with respect
to the successful development of commercially viable products based on Company's development efforts, all software development costs incurred
with respect to the Company's mobile gaming platform are charged to operations as incurred.
Intellectual Property
Intellectual property, consisting of software,
is recorded at cost. Amortization of intellectual property is provided using the straight-line method over an estimated useful life
of three years. 3
The Company recognizes amortization of intellectual
property in software development costs in the Company's consolidated statement of operations.
Long-Lived Assets
The Company reviews long-lived assets, consisting
of property and equipment and intellectual property, for impairment at each fiscal year end or when events or changes in circumstances
indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The Company has
not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated
fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in
the period in which the impairment occurs. As of December 31, 2021 and 2020, the Company had not deemed any long-lived assets as impaired
and was not aware of the existence of any indicators of impairment at such dates.
Foreign Currency
The accompanying consolidated financial statements
are presented in United States dollars ("USD"). The functional currency of Gaming UK, the Company's foreign subsidiary, is the
British Pound (“GBP”), the local currency in the United Kingdom. Accordingly, assets and liabilities of the foreign subsidiary
are translated at the current exchange rate at the end of the period, and revenues and expenses are translated at average exchange rates
during the years ended December 31, 2021 and 2020. The resulting translation adjustments are recorded as a component of shareholders'
equity (deficiency). Gains and losses from foreign currency transactions are included in net income (loss).
Translation of amounts from the local currencies
of the foreign subsidiary, Gaming UK, into USD has been made at the following exchange rates for the respective periods:
| Foreign currency exchange rates table | |
| | | |
| | |
| | |
As of and for the Years Ended
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Period-end GBP to USD1.00 exchange rate | |
| 1.3498 | | |
| 1.3652 | |
| Period-average GBP to USD1.00 exchange rate | |
| 1.3756 | | |
| 1.2825 | |
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13
significantly changes how entities measure credit losses for most financial assets, including accounts and notes receivables. ASU 2016-13
will replace the current "incurred loss" approach with an “expected loss” model, under which companies will recognize
allowances based on expected rather than incurred losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. As small business filer, ASU
2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. Management is currently
in the process of assessing the impact of adopting ASU-2016-13 on the Company's financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt
— Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06). ASU 2020-06
simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption
of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly
and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce
the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share
calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. ASU 2020-06 will
be effective January 1, 2024, and a cumulative-effect adjustment to the opening balance of retained earnings is required upon adoption.
Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company adopted ASU
2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s previously issued consolidated
financial statement presentation or disclosures.
Other recent
accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present
or future consolidated financial statements and related disclosures.
3. Property and Equipment
Property and equipment as of December 31, 2021
and 2020 is summarized as follows:
| Schedule of property and equipment | |
| | | |
| | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Computer and office equipment | |
$ | 36,194 | | |
$ | 27,307 | |
| Less accumulated depreciation | |
| (28,801 | ) | |
| (18,804 | ) |
| Computer and office equipment, net | |
$ | 7,393 | | |
$ | 8,503 | |
All of the Company's property and equipment is
located in the United Kingdom. Depreciation expense for the years ended December 31, 2021 and 2020 was $15,599 and $8,943, respectively.
Depreciation expense is included in general and administrative costs in the Company's consolidated statement of operations.
4. Intellectual Property
Intellectual property as of December 31, 2021
and 2020 is summarized as follows:
| Schedule of intellectual property | |
| | | |
| | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Finite lived assets - software | |
$ | 213,181 | | |
$ | 208,032 | |
| Less accumulated amortization | |
| (197,887 | ) | |
| (157,065 | ) |
| | |
| 15,294 | | |
| 50,967 | |
| Indefinite lived assets - internet domain names | |
| 164,415 | | |
| – | |
| Intellectual property, net | |
$ | 179,709 | | |
$ | 50,967 | |
Amortization expense for the years ended December
31, 2021 and 2020 was $38,202 and $67,620, respectively. Amortization expense is included in software development costs in the Company's
consolidated statement of operations.
The following schedule sets forth the remaining
amortization of intellectual property as of December 31, 2021:
| Schedule of future amortization of intellectual property | |
| | |
| 2022 | |
$ | 6,798 | |
| 2023 | |
| 6,798 | |
| 2024 | |
| 1,698 | |
| Total | |
$ | 15,294 | |
5. Note Payable to Bank
On June 9, 2020, Gaming UK received an unsecured
loan of $60,600 (equivalent to 47,600£) from Metro Bank PLC under the Bounce Bank Loan Scheme managed by the British Business Bank
on behalf of, and with the financial backing of, The Secretary of State for Business, Energy and Industrial Strategy of the Government
of the United Kingdom. The Government of the United Kingdom has provided a full guarantee to Metro Bank PLC with respect to the repayment
of this loan. The proceeds from the loan are required to be used for working capital purposes, for investment in a Company's business,
and to support trading or commercial activity in the United Kingdom. The loan is for a term of 72 months and has a fixed interest rate
of 2.5% per annum. Gaming UK is not required to make any payments of interest on the loan during the first 12 months of this loan, with
such amount being paid by the Government of the United Kingdom under its business interruption payment program. Beginning in the 13th
month after the drawdown of the loan, Gaming UK will be required to repay the loan by making 60 equal monthly payments of principal and
interest aggregating $1,076 (equivalent to 845£) per month. During the years ended December 31, 2021 and 2020, the Company recorded
interest expense of $1,090 and $851, respectively, with respect to this loan, which was paid by the Government of the United Kingdom under
this program. As of December 31, 2021 and 2020, $58,909 and $64,982, respectively, was due under this note, of which, $12,850 and $2,241,
respectively, was reflected as current portion due.
Maturities of long-term debt for each of the
next five years and thereafter are as follows:
| Schedule of debt maturities | |
| | |
| Year ended December 31, | |
Amount | |
| 2022 | |
$ | 12,850 | |
| 2023 | |
| 12,850 | |
| 2024 | |
| 12,850 | |
| 2025 | |
| 12,850 | |
| 2026 | |
| 7,509 | |
| Total payments | |
| 58,909 | |
| Less current portion | |
| 12,850 | |
| Debt maturity, noncurrent | |
$ | 46,059 | |
6.
Secured Convertible Note Payable
| Convertible note | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Secured Convertible Note payable, including accreted amount | |
$ | 1,824,176 | | |
$ | – | |
| Valuation discount | |
| (795,590 | ) | |
| – | |
| | |
| | | |
| | |
| Secured convertible Note, net | |
$ | 1,028,586 | | |
$ | – | |
On November 18, 2021, the Company entered
into a securities purchase agreement with an accredited investor for the sale of the Company’s secured convertible note (the
Secured Notes) and warrants. Pursuant to the terms of the purchase agreement, on November 18, 2021, the Company received aggregate
gross proceeds of $1,500,000
and issued (i) a 10%
Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,666,666.67
and (ii) warrants to purchase an aggregate of 727,273
shares of the Company’s common stock. The Note bears interest at a rate of 10% per year,
payable monthly commencing after the third month, and mature 12 months from issuance The principal and interest are
convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion price equal to
the lower of (i) $2.75
per share, and (ii) the price of the common stock of the Company in a Qualified Offering (subject to adjustment as provided in the
Note). A “Qualified Offering” is an equity or equity-linked financing for the account of the Company or any of its
subsidiaries or debt financing that results in cumulative aggregate proceeds to the Company of at least $8,000,000. The principal
and interest on the Note will be amortized on the effective interest method commencing sixth months after the
closing. In the event that the Secured Notes are repaid within three months of the date of the Secured Notes, the Company will repay
115% of the face value of the Secured Notes, plus accrued interest. In the event that the Secured Notes are repaid three months
after the date of the Secured Notes, the Company will repay 120% of the face value of the Secured Notes, plus accrued interest. The
exercise price of the warrants is the lesser of (i) $2.75
per share and (ii) the price of the common stock of the Company in a Qualified Offering and the term of the warrants is five years. Upon
an Event of Default (as defined therein) interest shall accrue at 1 1/2% per month and the 125% of principal and interest through
maturity shall be due and payable. At the holder’s option the holder shall be entitled to be paid in cash or common stock with
the conversion price of the common stock equal to a 30% discount to the average of the three lowest closing prices of the common
stock for the 10 prior trading days.
In connection with the
Company’s obligations under the Secured Notes, the Company and its subsidiary Gaming Technology Limited (the “Subsidiary”)
each entered into a security agreement with the holder, pursuant to which the Company and the Subsidiary granted a security interest on
all assets of the Company and the Subsidiary, including the stock of the Subsidiary, for the benefit of the holders, to secure, and the
Subsidiary guaranteed, the Company’s obligations under the Note, the Warrant and the other transaction documents. In addition, the
holder was granted customary piggyback registration rights for the shares of common stock issuable upon conversion of the Note and exercise
of the Warrant and rights of participation.
At any time within the
18 months closing, upon any issuance by the Company or any of its subsidiaries of debt or common stock or common stock equivalents for
cash consideration, indebtedness or a combination of units thereof, other than in an underwritten public offering (a “Subsequent
Financing”), the investor will have the right to participate up to its investment amount in the Note, but not more than 25% of the
Subsequent Financing, on the same terms, conditions and price provided for in the Subsequent Financing.
Upon issuance of the Secured Note, the
Company recorded an aggregate discount of $901,834
from the original issue discount of $166,667,
and a discount related to the relative fair value of the warrants issued in conjunction with the Secured Note of $735,167.
During the period ended December 31, 2021 the Company amortized $106,244
of the discount resulting in an unamortized discount of $795,590
as of December 31, 2021. In addition, as of the date of this filing, which is more than three months after the date of the Secured
Note, the Secured Note has not been repaid, and accordingly, the Company accreted a premium of $157,509
as of December 31, 2021, which has been added to the principal amount of the note resulting in a balance due of $1,824,176
at December 31, 2021. The accreted amount of $157,509 has been reflected as additional interest expense during the year ended
December 31, 2021.
We failed to make interest
payments on the Secured Note due in February and March 2022, in the amount of $13,889 each, and may not be able to make the interest
payments due in April of $13,889 and subsequently. The holder has agreed to extend the due dates of the payments that were due in February
and March 2022 to April 18, 2022, and to waive any resulting default until such date. However, there can be no assurance that we will
be able to raise additional capital to enable us to make such payments by such date, or future payments that come due.
7. Leases
Short-Term Operating Lease
The Company leases office facilities in Las Vegas,
Nevada on a month-to-month basis at a cost of $510 per month. Aggregate payments under this operating lease charged to general and administrative
expenses in the statement of operations were $1,500 and $1,704 for the years ended December 31, 2021 and 2020, respectively.
Long-Term Operating Lease
The Company's wholly-owned subsidiary in the United
Kingdom, Gaming UK, leases office facilities in London, England.
Operating lease right-of-use assets and liabilities
are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Right-of-use assets
represent the Company's right to use an underlying asset for the lease term, and right-of-use lease liabilities represent the Company's
obligation to make lease payments arising from the lease. Generally, the implicit rate of interest, equivalent to a discount rate, in
lease arrangements is not readily determinable and the prevailing commercial property mortgage rate is utilized in determining the present
value of lease payments.
The monthly cash payment for this operating lease
was approximately $4,010 per month, and the lease term ended on March 31, 2021. As of December 31, 2020 the right of use asset and the
remaining lease obligation was $11,968 which was fully amortized and paid during the year ending December 31, 2021. The lease was subsequently
renewed in April 2021 on a month-to-month basis for approximately $3,329 per month.
8. Related Party Transactions
Salary and Fees to Directors, Consultants
and Professionals
During the years ended December 31, 2021 and
2020, the Company incurred salary and fees to officers, directors, consultants and professionals in the amount of $728,757
and $417,094, respectively,
as follows:
| Schedule of related party transactions | |
| | | |
| | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Jason Drummond | |
$ | 589,368 | | |
$ | 334,868 | |
| Julian Parge | |
| 103,170 | | |
| 82,226 | |
| Steven Plumb | |
| 36,219 | | |
| – | |
| Total | |
$ | 728,757 | | |
$ | 417,094 | |
During the year ended December 31, 2021, the Company
paid base salary of $330,144 and a bonus of $259,224 to Mr. Jason Drummond, its sole officer (paid to him or to his affiliates) During
the year ended December 31, 2020, the Company paid base salary of $334,868 and a bonus of $0 to Mr. Drummond.
As of December 31, 2021
and 2020, $13,252 and $14,918 was due to officers. The advances were unsecured, non-interest bearing with no formal terms of
repayment.
9. Stockholders' Equity
Preferred Stock
The Company has authorized a total of 5,000,000
shares of preferred stock, par value $0.001 per share. No preferred shares have been designated by the Company as of December 31, 2021
and 2020.
Private Placements of Common Stock
Private placements in 2020
During 2020, the Company completed private placements
for the sale of 1,153,200 shares of its common stock to individual investors at a price of $2.50 per share for net proceeds of $2,628,000
after payment of broker and finders fees of $255,000. In addition, the Company issued to certain brokers and finders 250,000 shares of
its common stock and warrants to acquire 90,000 shares of the Company’s common stock, at $2.50 per share
Private placements in 2021
On February 3, 2021, Gaming Technologies, Inc.
(the “Company”) entered into a Securities Purchase Agreement with certain accredited investors (“Purchase Agreement”),
pursuant to which the Company sold an aggregate of 1,606,600 shares of its Common Stock for gross proceeds of $4,016,500 in a private
placement. The Company paid a finder’s fee to registered brokers in the amount of $360,000 in connection with these transactions
resulting in net proceeds to the Company of $3,656,500. In connection with the Purchase Agreement, the Company issued to certain registered
brokers warrants to purchase an aggregate of 144,000 shares of common at an exercise price of $2.50 per share, with an expiration date
5 years from the date of issuance, pursuant to the terms of certain finder’s fee agreements previously entered into by the Company
and such brokers.
Under the terms of the Purchase Agreement, each
investor was granted customary piggyback registration rights in the event the Company proposes to register the offer and sale of any shares
of its common stock, subject to the limitations set forth in the Purchase Agreement, such as a registration statement solely relating
to an offering or sale to employees or directors of the Company pursuant to employee stock plan or in connection with any dividend or
distribution. The Purchase Agreement also provides the investors the option and right to participate in future capital raising transactions
at the same purchase price and on the same terms and conditions as other investors participating in such transactions, for an aggregate
purchase price of up to $6,000,000.
If, at any time during the twelve months following
sale of the Shares, the Company issues or sells shares of common stock or common stock equivalents, except for certain exempt issuances
as described in the Purchase Agreement, at a price below $2.50 per share, then immediately upon such issuance or sale, the Company will
deliver to the investors that number of restricted shares of common stock equal to the difference between the number of Shares purchased
by the investor pursuant to this Purchase Agreement and the number of shares of common stock the investor would have received for the
investor’s subscription amount at the dilutive issuance price.
In March 2021, the Company sold 10,000 shares
of its Common Stock for gross proceeds of $25,000 in a private placement.
In August 2021, the Company sold 538,694 shares
of its Common Stock for gross proceeds of $1,750,752 in a private placement. The Company paid a finder’s fee to registered brokers
in the amount of $210,927 in connection with these transactions resulting in net proceeds to the Company of $1,539,825. In connection
with the Purchase Agreement, the Company issued to certain registered brokers warrants to purchase an aggregate of 40,175 shares of common
at an exercise price of $3.25 per share, with an expiration date 5 years from the date of issuance, pursuant to the terms of certain finder’s
fee agreements previously entered into by the Company and such brokers.
We agreed with the purchasers in our August 2021
private placement to file with the SEC a registration statement on Form S-1 to register these shares under the Securities Act for resale,
which we did on August 31, 2021, and to use our commercially reasonable efforts to cause such registration statement to become effective
within 120 days after such date (or, in the event of a “full review” by the SEC staff, 150 calendar days after such date),
and to keep such registration statement effective (with certain exceptions) until all such shares (i) have been sold, thereunder or pursuant
to Rule 144 under the Securities Act, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without
the requirement for the Company to be in compliance with the current public information requirement under Rule 144. We will pay all expenses
of such registration other than broker or similar commissions or fees or transfer taxes of any selling shareholder. We and each purchaser
of such shares agreed to provide customary indemnifications to each other in connection with the registration statement. The Company also
agreed to provide to such holders “piggyback” registration rights in certain circumstances.
We agreed with purchasers in our August 2021 private
placement that if, at any time during the 12 months following sale of the shares, we issue or sell shares of common stock or common stock
equivalents, except for certain exempt issuances as described in the purchase agreement, at a price below $3.25 per share, then
immediately upon such issuance or sale, we will deliver to the investors a number of restricted shares of common stock equal to the difference
between the number of shares purchased by the investor pursuant to its purchase agreement and the number of shares of common stock the
investor would have received for the investor’s subscription amount at the dilutive issuance price. We also agreed with those investors
to a “most favored nation” provision whereby until the earlier of 12 months after the sale of the shares, the day after the
date on which the our common stock is listed on a U.S. national securities exchange, or the date on which the purchaser no longer holds
any of the shares acquired by it in such placement, we will not consummate any unregistered private offering or an initial (but not any
subsequent) public offering of our capital stock (or securities convertible into shares of capital stock) for cash consideration that
provides the new investor any right, benefit, term or condition relating to the Shares that is more favorable in any material respect
to the new investor (with certain enumerated exceptions), unless (i) we notify the purchaser of such more favorable right, benefit, term
or condition within two business days prior to the new issuance, and (ii) purchaser has been provided with the opportunity to enter into
an agreement providing the purchaser such more favorable right, benefit, term or condition with respect to the purchased hares then held
by the purchaser. We included such shares in a resale registration statement filed on August 31, 2021, which became effective on November
12, 2021.
Consulting Agreements
Effective August 3, 2020, the Company entered
into a consulting agreement with Montrose Capital Partners Limited to provide consulting, advisory and related services to the Company
for a term of two years. Consideration under this consulting agreement was paid exclusively in the form of 2,000,000 shares of the Company's
common stock, which were valued at $5,000,000 based on the fair value of the Company's common stock of $2.50 per share on the effective
date of the consulting agreement. The total consideration pursuant to this consulting agreement of $5,000,000 was charged to general and
administrative costs in the statement of operations on the issuance date. The consulting agreement requires the Company to include such
shares in any registration statement that it files with the SEC.
On October 21, 2020, the Company entered into an agreement with a consultant
to serve as a board advisor. The term of the agreement is for one year and may be renewed at the end of the term. Compensation consists
of the following stock grants: 50,000 shares of the Company’s common stock within seven days of the execution of the agreement,
valued at $125,000, which was recorded during the year ended December 31, 2020; 50,000 shares of the Company’s common stock upon
the quotation of the Company’s stock on OTC Markets, valued at $112,500 recognized during the year ended December 31, 2021; and
100,000 shares upon renewal during 2021, valued at $237,500, and 100,000 shares of the Company common stock at each of the following two
renewal periods, if the agreement is renewed.
On November 6, 2020, the Company entered into
an agreement with a consultant to serve as a board advisor. The term of the agreement is for one year and may be renewed at the end of
the term. Compensation consists of the following stock grants: 50,000 shares of the Company’s common stock within seven days of
the execution of the agreement which was valued at $125,000 and recorded during the year ended December 31, 2020. In addition, 50,000
shares of the Company’s common stock were issued six months after the date of the agreement, which was May 6, 2021; 50,000 shares
of the Company’s common stock upon the first renewal of the agreement and 50,000 shares of the Company’s common stock six
months after the first renewal; and, 100,000 shares of the Company common stock at each of the following two renewal periods, if the agreement
is renewed. The grant date fair value of $875,000 of these shares will be amortized over the service period. During the year ended December
31, 2021, the Company amortized $250,000, representing the pro rata portion of the grant date fair value of the shares vesting during
the period. As of December 31, 2021, $625,000 of the unvested stock compensation will be amortized in future. The Company was obligated
to issue a second tranche of 50,000 shares on May 6, 2021.
On November 25, 2020, the Company entered into
an agreement with a consultant to serve as a board advisor. The term of the agreement is for one year with automatic renewal for successive
one-year terms unless either party elects not to renew. Compensation consists of 250,000 shares of the Company’s common stock within
seven days of the execution of the agreement, valued at $625,000.
In January 2021, the Company entered into
two agreements with two consultants to provide investor relation services to the Company. The agreements are for a term of one 1
year. The Company issued 200,000 shares of its common stock in exchange for the services. The common stock was valued at $500,000 at
the time the agreements were executed.
In February 2021, the Company entered into
an internet advertising campaign with a consultant. The contract is for a term of one year 1 and calls for an initial non-refundable
deposit of $20,000
upon the execution of the agreement and a payment of 333,334 shares of the Company’s common stock valued at $833,335 on the
date of issuance.
On October 20, 2021, Steven M. Plumb, CPA, appointed
as the Company’s chief financial officer through a contract (the “Clear Agreement”) with Mr. Plumb’s entity, Clear
Financial Solutions (“Clear”), pursuant to which Clear is paid $10,000 per month for Mr. Plumb’s service. In addition,
Mr. Plumb and Clear’s other staff provide accounting and bookkeeping services to the Company, in consideration for which Clear is
paid $2,000 per month, plus hourly fees for annual and quarterly report preparation. The contract expires on August 16, 2022, and unless
canceled by either party by written notice 60 days prior to expiration, will automatically renew for successive twelve-month periods.
Moreover, Mr. Plumb was awarded a stock grant for 30,000 shares of the Company’s common stock, vesting six months from date of grant.
The fair market value of the stock grant on the date of grant was $67,500
During October 2021, the Company issued restricted
stock grants to various consultants for services performed for the Company totaling 65,800 shares with a fair market value of $214,575
on the date of grant.
Warrants
A summary of warrant activity for the year ended December 31, 2021
is presented below:
| Schedule of warrant activity | |
| | | |
| | | |
| | | |
| | |
| | |
Warrants | | |
Weighted
average
exercise
price | | |
Weighted
average
remaining
contractual
life (years) | | |
Aggregate
intrinsic
value | |
| | |
| | |
| | |
| | |
| |
| Outstanding on December 31, 2020 | |
| 90,000 | | |
$ | 2.50 | | |
| 3.90 | | |
$ | – | |
| Granted | |
| 1,450,141 | | |
| 3.13 | | |
| 4.70 | | |
| – | |
| Exercised | |
| – | | |
| – | | |
| – | | |
| – | |
| Outstanding on December 31, 2021 | |
| 1,540,141 | | |
$ | 2.63 | | |
| 4.51 | | |
$ | – | |
During the years ended
December 31, 2021 and 2020, the Company issued 184,175 and 90,000 warrants to acquire common stock to various brokers and finders in connection
with the sale of our common stock.
In November 2021, in
connection with the issuance of the Secured Convertible Notes discussed in Note 6, the Company issued warrants
to purchase an aggregate of 727,273 shares of the Company’s common stock. The relative fair value of the warrants at the date of
grant was determined to be $735,167
In November 2021, the
Company issued warrants to purchase 538,693 shares of the Company’s common stock to certain existing shareholders in exchange for
granting a waiver to certain anti-dilution and most favored nation clauses in their stock purchase agreements. The warrants have a five-year
term and an exercise price of $2.75 and had a fair value of $1,193,803 at the date of grant, which was reflected as a financing cost during
the year ended December 31, 2021.
The fair value of the
warrants issued in 2021 was determined by a black sholes pricing model with the following assumptions:
| Schedule of assumptions |
|
|
| Expected volatility |
|
97.04% |
| Weighted-average volatility |
|
216.98% |
| Expected dividends |
|
0% |
| Expected term (in years) |
|
5 |
| Risk-free interest rate |
|
1.26% |
The warrants
issued in 2021 are exercisable at an exercise price equal to the lower of (x) $2.75 per share and (y) the price of the common stock of
the Company in a Qualified Offering (as defined in the Note Agreement at Note 6), subject to adjustment as described below, and the Warrants
are exercisable for five years after the issuance date. The Warrants are exercisable for cash at any time and are exercisable on a cashless
basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise
price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other
property to the Company’s stockholders. The exercise price of the Warrants is also subject to “full ratchet” price adjustment
if the Company issues common stock or equivalents at a price per share lower than the then-current exercise price of the Warrant, as described
above for the conversion price of the Note (see Note 6)
Stock-option plan
On May 21, 2021, the shareholders of the Company
approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The purposes of the 2021 Plan are to (a) enable
the Company to attract and retain the types of employees, consultants and directors who will contribute to the Company’s long-term
success; (b) provide incentives that align the interests of employees, consultants, and directors with those of the shareholders of the
Company; and (c) promote the success of the Company’s business. The persons eligible to receive awards are the employees, consultants,
and directors of the Company and such other individuals designated by the 2021 Plan’s administrative committee (the Committee) who
are reasonably expected to become employees, consultants, and directors after the receipt of Awards. Awards that may be granted under
the Plan include: (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards,
€ Performance Share Awards, (f) Cash Awards, and (g) Other Equity-Based Awards. 3,000,000 shares are available for issuance under
the 2021 Plan. The shares available for issuance may be increased annually by the lesser of four percent (4%) of the number of shares
of common stock issued and outstanding on the immediately preceding December 31 or such number of shares of common stock as determined
by the Committee no later than the immediately preceding December 31.
As of December 31, 2021 and 2020, the Company
did not have any outstanding stock options.
10. Income Taxes
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax assets as of December 31, 2021 and 2020 are summarized
below.
| Schedule of deferred income taxes | |
| | | |
| | |
| | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Net operating loss carryforwards - Foreign | |
$ | 18,580,000 | | |
$ | 1,879,000 | |
| Net operating loss carryforwards - U.S. | |
| 2,316,000 | | |
| 421,000 | |
| | |
| 20,896,000 | | |
| 2,300,000 | |
| Valuation allowance | |
| (20,896,000 | ) | |
| (2,300,000 | ) |
| Net deferred tax assets | |
$ | – | | |
$ | – | |
In assessing the potential realization of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which
those temporary differences become deductible. As of December 31, 2021 and 2020, management was unable to determine if it is more likely
than not that the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against
deferred tax assets at such dates.
No U.S. federal tax provision has been provided
for Gaming US for the years ended December 31, 2021 and 2020 due to the losses incurred during such periods.
The reconciliation below presents the difference
between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December
31, 2021 and 2020.
| Schedule of effective income tax | |
| | | |
| | |
| | |
Years Ended December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| U. S. federal statutory tax rate | |
| (21.0)% | | |
| (21.0)% | |
| Difference between U.S. and U.K. tax rates | |
| 2.0% | | |
| 2.0% | |
| Change in valuation allowance | |
| 19.0% | | |
| 19.0% | |
| Effective tax rate | |
| 0.0% | | |
| 0.0% | |
The Company's United Kingdom subsidiary is subject
to the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is 19% on income reported in its statutory
financial statements, after appropriate tax adjustments, for the fiscal years commencing April 1, 2017, 2018, 2019, and 2020 and 18% for
the fiscal year commencing April 1, 2020.
At December 31, 2021, the Company has available
net operating loss carryforwards for U.S. federal and United Kingdom corporate income tax purposes of approximately $6,995,000 and $4,228,000,
respectively. U.S. federal net operating losses, if not utilized earlier, expire through 2039. United Kingdom net operating losses may
be carried over indefinitely.
11. Commitments and Contingencies
Canelo Sponsorship Agreement
On April 14, 2021, we entered into a Sponsorship
Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the personality rights of champion
professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign for the Corporation to sponsor
a prize fight and certain other activities of Canelo, and for Canelo to promote the Corporation’s “VALE” brand and create
certain promotional materials in connection therewith for the Corporation’s use in the United States, Latin America and certain
countries in the Caribbean. Pursuant to the Canelo Agreement we paid to Holiday a cash fee of US$1,600,000 and certain other amounts as
provided therein which amounts are included in advertising and marketing for the year ended December 31, 2021.
Playboy License Agreement
On May 19, 2021, we entered into a non-exclusive
license agreement with Playboy Enterprises International, Inc. (“Playboy”) to use certain trademarks (including the rabbit
head logo) and other intellectual property of Playboy on and in connection with the design, creation, promotion, marketing, advertisement,
sales, operation, maintenance and distribution in India of real-money game mobile apps, such as rummy, poker, fantasy sports and other
games of skill approved by Playboy. We will pay Playboy as a royalty a percentage of net gaming revenue. The term of the agreement is
through the end of 2025, subject to early termination upon certain events of default, which include our failure to launch a Playboy-branded
game in India by November 1, 2021, or to meet certain annual minimum net gaming revenue targets. The Playboy-branded game, https://www.playboyrummy.com/,
was launched on November 1, 2021.
Stock Split
On October 20, 2021, our Board approved resolutions
(i) authorizing a reverse stock split of the outstanding shares of our common stock in the range from 1-for-2 to 1-for-8, and providing
authority to our Board to determine whether to effect a reverse stock split and, if so to select the ratio of the reverse stock split
in their discretion, and (ii) to increase the number of our authorized shares of common stock from 45,000,000 to 400,000,000. The Company
submitted these resolutions to its stockholders for approval by written consent, and they were approved by stockholders holding a majority
of the Company’s outstanding voting shares..
On January 14, 2022,
the holders of a majority of the issued and outstanding voting shares of the Company, as of the
record date of October 20, 2021, by written consent in lieu of a special meeting of
stockholders, approved an amendment to the Company’s Certificate of Incorporation to (i) effect a reverse stock split of our
common stock, by a ratio of not less than 1-for-2 and not more than 1-for-8, and providing authority to our
Board of Directors to determine whether to effect a reverse stock split and, if so to select the ratio of the reverse stock
split in their discretion, and (ii) to increase the number of our authorized shares of common stock from 45,000,000 to 400,000,000.
These matters were authorized by the holders of 17,640,947 shares, or approximately 56% of the outstanding voting power, without including
any consents that may be received by the Company after that date.
The Company anticipates
filing a certificate of amendment to affect a reverse stock split, if any, and the authorized share increase with the Secretary of
State of Delaware prior to the anticipated listing of its common stock and warrants on the Nasdaq Capital Market and such actions being
effective on, or just before, the date the common stock is listed to the Nasdaq Capital Market. The Company will need to take the necessary
steps to meet Nasdaq listing requirements, which may include a reverse stock split, and there is no assurance that our common stock will
be approved for listing on Nasdaq.
Contingencies
The Company may be subject to legal proceedings
from time to time as part of its business activities. As of December 31, 2021 and 2020, the Company was not subject to any threatened
or pending legal actions or claims.
Contractual Commitments
The Company has retained Julian Parge as a consultant
to Gaming UK, at the request and under the sole discretion of Gaming UK, at the rate of $11,463 (equivalent to 8,333£) per week
up to a maximum of $137,560 (equivalent to 100,000£) per annum.
In August 2021, the Company entered into an agreement
with a production company to produce digital videos and promotional spots for its vale.mx brand. The Company is obligated to pay $600,000
upon the initiation of the pre production phase of the work. The pre production phase was completed in December 2021 and the production
company has agreed to defer payment until the Company has raised a minimum of $6,000,000 in capital through either a public offering or
a private placement.
In September 2021, the Company entered into a
contract with a service provider for brand awareness and social media campaigns. The service provider will be paid a monthly retainer
$50,157 for the term of the agreement, which runs through February 2022. The Company has agreed to spend $1,750,000 during the term of
the agreement for the placement of advertisements on various social media platforms, which will be spent in two phases. Phase 1 began
upon execution of the agreement and Phase II was to begin upon the completion of a capital raise in excess of $5,000,000 from an underwritten
public offering in the United States and the listing of the Company’s common stock on a U.S. national securities exchange. The Company
has paid the service provider $500,000 towards the advertising obligation during the year ended December 31, 2021, which is included in
advertising and marketing expenses. The parties have agreed to abandon Phase II and the contract was not renewed.
Impact of COVID-19 on the Company
The global outbreak of
COVID-19 has led to severe disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate
this public health crisis. Although the Company has not experienced any significant disruption to its business to date, these conditions
could significantly negatively impact the Company's business in the future.
The extent to which the
COVID-19 outbreak ultimately impacts the Company's business, future revenues, results of operations and financial condition will depend
on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of
the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and
how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the
Company may be at risk of experiencing a significant impact to its business as a result of the global economic impact, including any economic
downturn or recession that has occurred or may occur in the future.
Currently, capital markets
have been disrupted by the crisis, as a result of which the availability, amount and type of financing available to the Company in the
near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors.
The Company intends to
continue to monitor the situation and may adjust its current business plans as more information and guidance become available.
12. Subsequent Events
We failed to make interest
payments on our 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,666,666.67 that were due in
February and March 2022, in the amount of $13,889 each, and may not be able to make the interest payments due in April of $13,889 and
subsequently. The holder has agreed to extend the due dates of the payments that were due in February and March 2022 to April 18, 2022,
and to waive any resulting default until such date. However, there can be no assurance that we will be able to raise additional capital
to enable us to make such payments by such date, or future payments that come due.