Notes to the Consolidated Financial Statements
1. Nature of Business
On November 2, 2020, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect its corporate
name change from Newgioco Group, Inc. to Elys Game Technology, Corp.
Established in the state of Delaware in 1998,
Elys Game Technology, Corp (“Elys” or the “Company”) is an international, vertically integrated commercial-stage
company engaged in various aspects of the leisure gaming industry. The Company is an Italian and Austrian licensed gaming operator
in the regulated Italian leisure betting market offering gaming services, including a variety of lottery, casino gaming and sports
betting products through two distribution channels: an online channel and a land-based retail channel. Additionally, the Company
is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed
with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board
(the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized
technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through
the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming
account management system and sports book.
The Company and its subsidiaries are as follows:
Name
|
|
Acquisition or Formation Date
|
|
Domicile
|
|
Functional Currency
|
|
|
|
|
|
|
|
Elys Game Technology, Corp.
|
|
Parent Company
|
|
USA
|
|
US Dollar
|
Multigioco Srl (“Multigioco”)
|
|
August 15, 2014
|
|
Italy
|
|
Euro
|
Ulisse GmbH (“Ulisse”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Odissea Betriebsinformatik Beratung GmbH
(“Odissea”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Virtual Generation Limited (“VG”)
|
|
January 31, 2019
|
|
Malta
|
|
Euro
|
Newgioco Group Inc. (“NG Canada”)
|
|
January 17, 2017
|
|
Canada
|
|
Canadian Dollar
|
Elys Technology Group Limited
|
|
April 4, 2019
|
|
Malta
|
|
Euro
|
Newgioco Colombia SAS
|
|
November 22, 2019
|
|
Colombia
|
|
Colombian Peso
|
Elys Gameboard Technologies, LLC
|
|
May 28, 2020
|
|
USA
|
|
US Dollar
|
In January 2019, in connection with the acquisition
of VG, the Company acquired Naos Holdings Limited. The Company distributed all of the earnings of Naos Holdings Limited and the
remaining Naos legal entity was dissolved with effect from December 31, 2019.
The operations of the Company’s prior
subsidiary, Rifa Srl, were absorbed into the operations of Multigioco Srl with effect from January 30, 2020, and the remaining
Rifa legal entity was dissolved with effect from January 20, 2020.
The Company operates in two lines of business:
(i) provider of certified betting platform software services to leisure betting establishments in Italy and 9 other countries and;
(ii) the operating of web based as well as land-based leisure betting establishments situated throughout Italy. The Company’s
operations are carried out through the following three geographically organized groups:
|
a)
|
an operational group is based in Europe and maintains administrative offices headquartered in Rome,
Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
|
|
b)
|
a technology group which is based in Innsbruck, Austria and manages software development, training
and administration; and
|
|
c)
|
a corporate group which is based in North America and maintains an
executive suite in San Francisco, California and a Canadian office in Toronto, through which we carry-out corporate activities,
handle day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors
are engaged.
|
F-6
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates
a) Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
For the purposes of its listing in Canada,
the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles and Audit
Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy
to National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102CP”) which permits
the Company to prepare its financial statements in accord with U.S. GAAP.
b) Principles of consolidation
The consolidated financial statements include
the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company transactions
are eliminated upon consolidation.
Certain items in the prior periods were reclassified
to conform to the current period presentation.
All amounts referred to in the Notes to the
consolidated financial statements are in United States Dollars ($) unless stated otherwise.
c) Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into US Dollars at the exchange rate in effect at year end and the results of operations and cash flows
at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
All revenues were generated in Euro and Colombian Pesos during the
years presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
d) Business Combinations
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
F-7
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
e) Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include
valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation
of purchase price, impairment of long-lived intangible assets and goodwill, the collectability of receivables, leasing arrangements,
convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including
evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to
the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on
the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates
all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.
f) Loss Contingencies
The Company may be subject to claims, suits,
government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect
taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or
publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims
for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable
that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and
a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial
Statements.
The Company evaluates, on a regular basis,
developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and
related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment
is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final
resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact
on its business, consolidated financial position, results of operations, or cash flows.
To date, none of these types of litigation
matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial
condition. The Company has insured and continues to insure against most of these types of claims.
g) Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that
are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market
participant would use.
The carrying value of the Company's accounts
receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable
approximate fair value because of the short-term maturity of these financial instruments.
F-8
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
h) Derivative Financial Instruments
ASC 815 generally provides three criteria that,
if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be
conventional, as described.
The Company determined that the conversion
feature of the convertible debt issued in May 2018 did not qualify as a derivative liability and is not bifurcated from the host
instrument but contains a beneficial conversion feature.
i) Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents
as of December 31, 2020 and 2019, respectively.
The Company primarily places cash balances
in the U.S. with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit
Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance
Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of
the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up
to a limit of €100,000 per institution.
j) Gaming Accounts Receivable
Gaming accounts receivable represent gaming
deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted
method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the
Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded a bad debt expense of $90,705 and
$163,942 for the years ended December 31, 2020 and 2019, respectively. All balances previously recorded as allowance for doubtful
accounts were written off as uncollectible.
k) Gaming Accounts Payable
Gaming accounts payable represent customer
balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used
or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers
can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances
are non-interest bearing.
l) Long Lived Assets
The Company evaluates the carrying value of
its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value
of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the
expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate,
current estimated net sales proceeds from pending offers.
F-9
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
m) Property, Plant and Equipment
Plant and equipment is stated at acquisition
cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase
the future economic benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses in the
statement of operations as incurred.
Depreciation is charged on a straight-line
basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put
into operation. The range of the estimated useful lives is as follows:
Description
|
|
Useful Life
(in years)
|
|
|
|
Leasehold improvements
|
|
Life of the underlying lease
|
Computer and office equipment
|
|
3
to 5
|
Furniture and fittings
|
|
7 to 10
|
Computer Software
|
|
3 to 5
|
Vehicles
|
|
4 to 5
|
n) Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
The range of the estimated useful lives is
as follows:
Description
|
|
Useful Life
(in years)
|
|
|
|
Betting Platform Software
|
|
15
|
Ulisse Bookmaker License
|
|
Indefinite
|
Multigioco and Rifa ADM Licenses
|
|
1.5 - 7
|
Location contracts
|
|
5 - 7
|
Customer relationships
|
|
10 - 15
|
Trademarks/Tradenames
|
|
14
|
Websites
|
|
5
|
The Ulisse Bookmaker License has no expiration
date and is therefore not amortized but is tested from impairment on an annual basis in terms of ASC 350 using estimated fair value.
F-10
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
o) Goodwill
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
The Company annually assesses whether the carrying
value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each
interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount
of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment
charge will be recognized in an amount equal to that excess.
In terms of ASC 350, the Company skipped the
requirement to perform a qualitative assessment and performed a quantitative assessment on its goodwill as of December 31, 2020
and determined that an impairment was not considered necessary.
p) Leases
The Company accounts for leases in terms of
ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months
meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the
duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to
retain ownership of the asset at the end of the lease term.
Leases which imply that the Company will retain
ownership at the end of the lease term are classified as financial leases, are included in plant and equipment with a corresponding
financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective
interest rate method.
Leases which imply that the Company will not
acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is
reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception.
The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest
rate implied in the operating lease agreement.
q) Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2016 forward,
are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years
for inspection of serious infractions. In the United States and Canada, tax years beginning 2016 forward, are subject to examination.
The Company is not currently under examination and it has not been notified of a pending examination.
F-11
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
r) Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include
software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software.
Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has
been fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon
the licensee’s usage. The license fees are recognized on an accrual basis as earned.
s) Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
t) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
u) Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflects the dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential
to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.
On December 12, 2019, the Company effected
an 1 for 8 reverse stock split, all references made to share or per share amounts in the accompanying consolidated financial statements
and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.
F-12
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
v) Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
w) Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments”, which replaces
the incurred loss methodology with an expected credit loss methodology that is referred to as the current expected credit loss
(CECL) methodology. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.
The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated
deficit and are effective for the Company beginning with fiscal year 2020, including interim periods. The measurement of expected
credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables
and held-to-maturity debt securities. An entity with trade receivables will be required to use historical loss information, current
conditions, and reasonable and supportable forecasts to determine expected lifetime credit losses. Pooling of assets with similar
risk characteristics is also required.
Since adopted on January 1, 2020, there has
not been any material impact on the Company’s financial position, results of operations, and related disclosures.
In December 2019, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740).
The Amendments in this update reduce the complexity in accounting for income taxes by removing certain exceptions to accounting
for income taxes and deferred taxes and simplifying the accounting treatment of franchise taxes, a step up in the tax basis of
goodwill as part of business combinations, the allocation of current and deferred tax to a legal entity not subject to tax in its
own financial statements, reflecting changes in tax laws or rates in the annual effective rate in interim periods that include
the enactment date and minor codification improvements.
This ASU is effective for fiscal years and
interim periods beginning after December 15, 2020.
The effects of this ASU on the Company’s
financial statements is not considered to be material.
In August 2020, the FASB issued ASU No. 2020-06,
debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40). Certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion
features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded
features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU is effective for fiscal years and
interim periods beginning after December 15, 2021.
The effects of this ASU on the Company’s
consolidated financial statements is currently being assessed and is expected to have an impact on the treatment of certain convertible
instruments, if any, and the derivative liabilities, if any, associated with these convertible instruments.
The FASB issued several additional updates
during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are
expected to have a material impact on the consolidated financial statements upon adoption.
x) Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
|
(i)
|
the operating of web based as well as land based leisure betting
establishments situated throughout Italy, and
|
|
(ii)
|
provider of certified betting Platform software services to leisure
betting establishments in Italy and 9 other countries.
|
y) Comparative
Certain expenses amounting to $2,000,579, classified
as selling expenses in the prior year were reclassified as general and administrative expenses for comparative purposes. These
expenses are related to operating our betting platforms and are more accurately reflected as general and administrative expenses,
in line with our current operations.
These reclassifications had no impact on net
loss or comprehensive loss.
F-13
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
3. Acquisition of subsidiaries
Virtual Generation Limited (“VG”)
Acquisition
On January 30, 2019, the Company entered into
a Share Exchange Agreement (“VG SPA”), with the shareholders of Virtual Generation (“VG”) organized under
the laws of Republic of Malta (the “Sellers”) and acquired all of the issued and outstanding ordinary shares of VG.,
together with all the ordinary shares of Naos Holding Limited, a company organized under the laws of Republic of Malta (“Naos”)
that owned 3,999 of the 4,000 issued and outstanding ordinary shares of VG. VG owns and has developed a virtual gaming software
platform. The prior non-operating holding company subsidiary Naos was discontinued with effect on December 31, 2019.
Pursuant to the Purchase Agreement, on the
Closing Date, the Company agreed to pay the Sellers the previously agreed to consideration of €4,000,000 ($4,576,352) in consideration
for all the ordinary shares of VG and Naos, on the Closing Date as follows:
|
(i)
|
a cash payment of €108,000;
|
|
(ii)
|
the issuance of shares of the Company’s common stock valued
at €89,000; and
|
|
(iii)
|
the delivery of a non-interest bearing promissory note of €3,803,000,
providing for the payment of:
|
|
(a)
|
an aggregate of €2,392,000 in cash in
23 equal and consecutive monthly instalments of €104,000 with the first such payment due and payable on the date that was
one month after the Closing Date; and
|
|
(b)
|
an aggregate of €1,411,000 in shares of the Company’s
common stock in 17 equal and consecutive monthly instalments of €83,000 as determined by the average of the closing prices
of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances
commenced on March 1, 2019.
|
The €3,803,000 promissory note was originally
recorded as a liability owing to related parties of €1,521,200 (Note 15) and to third parties of €2,281,800 (Note 12).
Pursuant to the terms of the Purchase Agreement
that the Company entered into with VG, the Company agreed to pay the sellers of VG an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380
tickets sold in 2019 the VG sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per
share, which shares were issued effective January 2020. The earnout payment was considered remote at the time of entering into
the transaction and was not recorded as a component of deferred purchase consideration, accordingly it has been expensed through
the Statement of Operations for the year ended December 31, 2019.
In terms of the agreement, the purchase price
was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed, as follows:
|
|
Amount
|
Purchase consideration, net of discount of $382,778
|
|
$
|
4,193,375
|
|
Fair value of assets acquired
|
|
|
|
|
Cash
|
|
|
47,268
|
|
Current assets
|
|
|
178,181
|
|
Property, Plant and Equipment
|
|
|
41,473
|
|
Betting Platform
|
|
|
4,004,594
|
|
|
|
|
4,271,516
|
|
Less: liabilities assumed
|
|
|
(78,141
|
)
|
Less: Imputed Deferred taxation on identifiable intangible acquired (Betting Platform)
|
|
|
(1,401,608
|
)
|
Total identifiable assets less liabilities assumed
|
|
|
2,791,767
|
|
Goodwill arising on acquisition
|
|
|
1,401,608
|
|
Total purchase consideration
|
|
$
|
4,193,375
|
|
The Betting Platform value was determined by
management, based on prior experience, and is being amortized over a period of 15 years, the expected useful life.
F-14
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
4. Restricted Cash
Restricted cash consists of the following:
|
·
|
cash held in a
segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against a bank loan
with Intesa Sanpaolo Bank for Multigioco as well as Wirecard Bank as a security deposit for Ulisse betting
operations.
|
|
·
|
The Company maintains a $1,000,000 deposit at Metropolitan Commercial
bank held as security against a $500,000 line of credit. See Note 10.
|
5. Plant and equipment
|
|
December 31,
2020
|
|
December 31, 2019
|
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
value
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
67,004
|
|
|
$
|
(27,297
|
)
|
|
$
|
39,707
|
|
|
$
|
32,405
|
|
Computer and office equipment
|
|
|
978,113
|
|
|
|
(730,541
|
)
|
|
|
247,572
|
|
|
|
312,824
|
|
Fixtures and fittings
|
|
|
296,971
|
|
|
|
(242,506
|
)
|
|
|
54,465
|
|
|
|
57,598
|
|
Vehicles
|
|
|
106,580
|
|
|
|
(43,198
|
)
|
|
|
63,382
|
|
|
|
72,526
|
|
Computer software
|
|
|
194,577
|
|
|
|
(110,112
|
)
|
|
|
84,465
|
|
|
|
45,372
|
|
|
|
$
|
1,643,245
|
|
|
$
|
(1,153,654
|
)
|
|
$
|
489,591
|
|
|
$
|
520,725
|
|
The aggregate depreciation charge to operations
was $354,552 and $283,497 for the years ended December 31, 2020 and 2019, respectively. The depreciation policies followed by the
Company are described in Note 2.
6. Leases
The Company’s portfolio of leases contains
both finance and operating leases that relate to real estate agreements, vehicles and office equipment agreements.
Operating
leases
Real estate agreements
The Company has several property lease agreements
in Italy and Austria which have terms in excess of a twelve month period, these property leases are for our administrative operations
in these countries. The Company does not and does not intend to take ownership of the property at the end of the lease term.
Vehicle agreements
The Company leases several vehicles for
business use purposes, the terms of these leases range from twenty four to thirty six months. The Company does not and does
not intend to take ownership of the vehicles at the end of the lease term.
Finance Leases
Office equipment agreements
The Company has entered into several finance leases for office
equipment, the term of these leases range from thirty six to sixty months. The Company takes ownership of the office equipment
at the end of the lease term.
F-15
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Right of use assets
Right of use assets are included in the consolidated balance sheet
are as follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
Non-current assets
|
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization
|
|
$
|
687,568
|
|
|
$
|
792,078
|
|
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment
|
|
$
|
27,119
|
|
|
$
|
37,091
|
|
Lease costs consists of the following:
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
Finance lease cost:
|
|
$
|
14,040
|
|
|
$
|
13,292
|
|
Amortization of right-of-use assets
|
|
|
12,870
|
|
|
|
11,890
|
|
Interest expense on lease liabilities
|
|
|
1,170
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
265,081
|
|
|
|
210,881
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
279,121
|
|
|
$
|
224,173
|
|
Other lease information:
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
(1,170
|
)
|
|
$
|
(1,252
|
)
|
Operating cash flows from operating leases
|
|
|
(265,081
|
)
|
|
|
(210,881
|
)
|
Financing cash flows from finance leases
|
|
|
(12,666
|
)
|
|
|
(11,371
|
)
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new finance leases
|
|
|
470
|
|
|
|
14,989
|
|
Right-of-use assets disposed of under operating leases prior to lease maturity
|
|
|
(21,588
|
)
|
|
|
(81,263
|
)
|
Right-of -use assets obtained in exchange for new operating leases
|
|
$
|
84,918
|
|
|
$
|
442,281
|
|
Weighted average remaining lease term – finance leases
|
|
|
2.74 years
|
|
|
|
3.46 years
|
|
Weighted average remaining lease term – operating leases
|
|
|
2.83 years
|
|
|
|
3.74 years
|
|
Weighted average discount rate – finance leases
|
|
|
3.65
|
%
|
|
|
3.52
|
%
|
Weighted average discount rate – operating leases
|
|
|
3.59
|
%
|
|
|
3.42
|
%
|
F-16
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
as of December 31, 2020 is as follows:
|
|
Amount
|
2021
|
|
|
11,342
|
|
2022
|
|
|
9,461
|
|
2023
|
|
|
7,581
|
|
2024
|
|
|
879
|
|
Total undiscounted minimum future lease payments
|
|
|
29,263
|
|
Imputed interest
|
|
|
(1,487
|
)
|
Total finance lease liability
|
|
$
|
27,776
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
10,511
|
|
Non-Current portion
|
|
|
17,265
|
|
|
|
$
|
27,776
|
|
Operating lease liability
The amount of future minimum lease payments
under operating leases as of December 31, 2020 is as follows:
|
|
Amount
|
2021
|
|
|
258,406
|
|
2022
|
|
|
221,799
|
|
2023
|
|
|
178,842
|
|
2024 and beyond
|
|
|
31,304
|
|
Total undiscounted minimum future lease payments
|
|
|
690,351
|
|
Imputed interest
|
|
|
(34,591
|
)
|
Total operating lease liability
|
|
$
|
655,760
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
238,899
|
|
Non-Current portion
|
|
|
416,861
|
|
|
|
$
|
655,760
|
|
F-17
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7. Intangible Assets
Licenses obtained by the Company in the acquisitions
of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based
licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License
through the acquisition of Ulisse.
Intangible assets consist of the following:
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Cost
|
|
Impairment charge
|
|
Accumulated amortization
|
|
Net book
value
|
|
Net book
value
|
Betting platform software
|
|
$
|
5,689,965
|
|
|
$
|
—
|
|
|
$
|
(1,016,651
|
)
|
|
$
|
4,673,314
|
|
|
$
|
5,052,645
|
|
Licenses
|
|
|
10,704,888
|
|
|
|
(4,900,000
|
)
|
|
|
(887,155
|
)
|
|
|
4,917,733
|
|
|
|
9,929,495
|
|
Location contracts
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
(911,545
|
)
|
|
|
88,455
|
|
|
|
231,312
|
|
Customer relationships
|
|
|
870,927
|
|
|
|
—
|
|
|
|
(361,690
|
)
|
|
|
509,237
|
|
|
|
569,700
|
|
Trademarks
|
|
|
119,477
|
|
|
|
—
|
|
|
|
(50,634
|
)
|
|
|
68,843
|
|
|
|
73,875
|
|
Websites
|
|
|
40,000
|
|
|
|
—
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
18,425,257
|
|
|
$
|
(4,900,000
|
)
|
|
$
|
(3,267,675
|
)
|
|
$
|
10,257,582
|
|
|
$
|
15,857,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $703,191 and $771,665
in amortization expense for finite-lived assets for the year ended December 31, 2020 and 2019, respectively, and an impairment
provision of $4,900,000 against indefinite lived licenses.
The estimated amortization expense over the next five year period
is as follows:
|
|
Amount
|
|
2021
|
|
|
622,285
|
|
|
2022
|
|
|
450,403
|
|
|
2023
|
|
|
449,958
|
|
|
2024
|
|
|
448,124
|
|
|
2025
|
|
|
448,124
|
|
|
Total estimated amortization expense
|
|
|
2,418,894
|
|
The Company evaluates intangible assets for
impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible
asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
In assessing the impairment of indefinite
lived licenses, the Company first performed a qualitative impairment test to determine if any impairment indicators were present,
impairment indicators were noted for indefinite life intangibles assets in the Ulisse operation.
The impairment process used was as follows:
|
·
|
based on qualitative impairment indicators bring present;
|
|
·
|
the Company utilized managements December 2020 annual operational
budget cash flows for the 2021 together with forecasted cash flows for the next four year period ending in 2025;
|
|
·
|
the budgeted and forecasted cash flows were adjusted for taxation
at the Company’s current effective tax rate;
|
|
·
|
working capital cash flow movements were estimated for the budget
and the forecast period using historical experience;
|
|
·
|
plant and equipment cash flow additions for the budget and forecast
period were estimated using historical experience and known cash flows;
|
|
·
|
net cash flow as determined by the above, were forecast in perpetuity
by using the forecast growth rate and the Company’s estimated Weighted Average Cost of Capital (“WACC”);
|
|
·
|
The forecast future cash flows were discounted back to present value
using the WACC;
|
|
·
|
WACC was determined by comparing the Company’s beta to that
of certain peer companies and determining what a reasonable WACC was compared to our calculated internal WACC, we determined that
due to recent volatility in the Company’s common stock price that a reasonable peer WACC is 10%.
|
F-18
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7.
Intangible Assets (continued)
The COVID-19 pandemic has resulted in the closure
of our land-based operations in the Italian market for an extended period of time and as the pandemic evolves and the markets in
which the Company operates continue to experience resurgences of the virus, we are uncertain as to the long-term impact on the
Company’s land-based operations. As such, the Company has made a strategic decision to transfer its Ulisse customer relationships
in Italy to Multigioco ahead of license renewals which are expected to take place within the next one to two years. The combined
Multigioco and Ulisse business under the Multigioco entity, which is an Italian based operator, substantially increases the Company’s
market share in Italy, and may improve the possibility of renewing our Italian licenses. Ulisse is based in Austria and may be
at a disadvantage and at risk of losing its ability to operate in the Italian market when licenses are renewed. Ulisse will focus
on developing gaming solutions for the Austrian and other European markets in the near term. The license under which Ulisse operates
in Italy, is not transferable to Multigioco and accordingly, based on a quantitative impairment analysis, an impairment charge
of $4,900,000 is considered appropriate.
The Company believes that the remaining carrying
amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating
that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets
may be further impaired.
8. Goodwill
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Opening balance
|
|
$
|
1,663,385
|
|
|
$
|
262,552
|
|
Acquisition of Virtual Generation
|
|
|
—
|
|
|
|
1,401,608
|
|
Impairment charge
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange movements
|
|
|
(265
|
)
|
|
|
(775
|
)
|
Closing balance
|
|
$
|
1,663,120
|
|
|
$
|
1,663,385
|
|
Goodwill represents the excess purchase price
paid over the fair value of assets acquired, including any other identifiable intangible assets.
On January 30, 2019, the Company acquired Virtual
Generation Limited, as disclosed in Note 3 above. The goodwill on acquisition arose as the proceeds paid on acquisition exceeded
the fair value of the identifiable assets less assumed liabilities and imputed deferred tax liabilities on identifiable intangible
assets by $1,401,608.
The Company evaluates goodwill for impairment
on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment
is determined by comparing the fair value of the reporting unit to its carrying amount with an impairment being recognized only when the
fair value is less than carrying value and the impairment is deemed to be permanent in nature.
9. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
On December 31, 2020, the shares of Zoompass
were last quoted at $0.187 per share on the OTC market, resulting in an unrealized gain recorded to earnings related to these securities
of $290,000, The Company recorded an unrealized loss of $97,500 for the year ended December 31, 2019.
10. Line of Credit - Bank
The Company maintains a $1,000,000 secured
revolving line of credit from Metropolitan Commercial Bank in New York, of which $500,000 was drawn as of December 31, 2020, which
bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and no maturity
date as long as the security deposit of $1,000,000 remains in place, see Note 4.
F-19
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures
On February 26, 2018, the Company issued debenture
units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of
(i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two
years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise
price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February
25, 2020, and (iii) 20 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate
principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 20,938 shares of the Company’s
common stock and 13,875 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
In April 2018, the Company issued debenture
units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20
shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of
CDN $135,000 ($105,200) debentures and received warrants to purchase up to 4,218.75 shares of the Company’s common stock
and 2,700 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On April 19, 2018, the Company re-issued debenture
units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various
debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April
19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing
interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up
to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial
Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 shares of restricted common stock. The investors
in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants
to purchase up to 44,875 shares of the Company’s common stock and 28,720 restricted shares of common stock. As a result of
the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the
whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest could have been
converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants could have been
exercised at a price equal to $4.00 per share.
F-20
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures (continued)
On May 11, 2018, the Company issued debenture
units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii)
20 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount
of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 4,093.75 shares of the Company’s common stock
and 2,620 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private
Placement plus any accrued and unpaid interest could have been converted into shares of the Company’s common stock at a price
equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On May 31, 2018, the Company closed a private
placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited
investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations.
Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in
the principal amount of $1,000 (the “U.S. Debentures”) maturing on May 31, 2020, (ii) 26 shares of our common stock
and (ii) warrants to purchase up to 135.25 shares of the Company’s common stock (the “U.S. Warrants”). Each unit
sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the
principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”),
(ii) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 shares of our common stock (the “Canadian Warrants”
and together with the U.S. Warrants, the “May Warrants”).
The proceeds received from the convertible
debentures were net of finders fees paid to certain brokers. In addition, the Company also issued: (i) shares of common stock to
the convertible debenture holders; (iii) certain two year warrants exercisable for shares of common stock at an exercise price
of $4.00 per share; (iii) in conjunction with the finders fees paid, the Company also issued warrants to certain brokers on the
same terms and conditions as the warrants issued to the convertible debenture holders.
The convertible debentures were convertible
into shares of common stock at a conversion price of $3.20 per share.
The May Warrants and broker warrants were exercisable
at an exercise price of $4.00 per share and expired on May 31, 2020.
The accounting treatment of the above is as
follows:
|
(i)
|
The convertible debentures were recorded at gross value;
|
|
(ii)
|
The cash fee paid to the brokers was $427,314 and the fair value
of the warrants issued to the brokers were valued at fair value as described in (iv) below and were recorded as a debt discount
against the gross value of the convertible debentures;
|
|
(iii)
|
The shares of common stock issued to the convertible debenture holders
were valued at $582,486, the market price of the common stock on the date of issue and were recorded as debt discount against the
gross value of the convertible debt;
|
|
(iv)
|
The warrants issued to the convertible debenture holders and brokers
were valued at $2,929,712 using a Black-Scholes valuation model. These warrants were equity classified with a beneficial conversion
feature.
|
F-21
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures (continued)
The total debt discount above amounted to $6,524,567
which was being amortized over the two year life of the debentures on a straight line basis.
Convertible debentures of $10,000 and CDN $65,000
(approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000 was acquired by
a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured, had the
maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension.
As an incentive for extending the maturity
date of the convertible debentures, the debenture holders were granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share, of which 144,041 were granted to related parties and three year warrants exercisable
for 72,729 shares of common stock at an exercise price of $5.00 per share, of which 36,010 were issued to related parties. All
of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were
repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in 2021.
During the year ended December 31, 2020, investors
in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600, including interest thereon
of CDN $45,029 and investors in US Dollar convertible debentures converted the aggregate principal amount of $400,000, including
interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate convertible debentures outstanding consists of the
following:
|
|
December 31, 2020
|
|
December 31, 2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
3,464,737
|
|
|
$
|
8,529,751
|
|
Repaid
|
|
|
(2,778,349
|
)
|
|
|
—
|
|
Conversion to equity
|
|
|
(634,431
|
)
|
|
|
(5,240,736
|
)
|
Foreign exchange movements
|
|
|
(24,515
|
)
|
|
|
175,722
|
|
|
|
|
27,442
|
|
|
|
3,464,737
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
524,227
|
|
|
|
520,523
|
|
Interest expense
|
|
|
207,595
|
|
|
|
719,004
|
|
Repaid
|
|
|
(619,992
|
)
|
|
|
—
|
|
Conversion to equity
|
|
|
(103,958
|
)
|
|
|
(731,731
|
)
|
Foreign exchange movements
|
|
|
(767
|
)
|
|
|
15,504
|
|
|
|
|
7,105
|
|
|
|
524,227
|
|
Debenture Discount
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
(627,627
|
)
|
|
|
(4,587,228
|
)
|
Amortization
|
|
|
627,627
|
|
|
|
3,959,601
|
|
|
|
|
—
|
|
|
|
(627,627
|
)
|
Convertible Debentures, net
|
|
$
|
34,547
|
|
|
$
|
3,361,337
|
|
F-22
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
12. Deferred Purchase Consideration
In terms of the acquisition of Virtual Generation
on January 31, 2019, disclosed in Note 3 above, the Company issued non-interest bearing promissory notes of €3,803,000 owing
to both related parties and non-related parties. The value of the promissory notes payable related parties was €1,521,200
and to non-related parties was €2,281,800.
The promissory notes payable to non-related
parties are to be settled as follows:
|
(a)
|
an aggregate of €1,435,200 in cash in 23 equal and consecutive
monthly instalments of €62,400 with the first such payment due and payable on the date that was one month after the Closing
Date; and
|
|
(b)
|
an aggregate of €846,600 in shares of the Company’s common
stock in 17 equal and consecutive monthly instalments of €49,800 as determined by the average of the closing prices of such
shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced
on March 1, 2019.
|
Pursuant to the terms of the Purchase Agreement
that the Company entered into with VG, the Company agreed to pay the sellers of VG an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380
tickets sold in 2019 the VG sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per
share, which shares were issued effective January 2020. The earnout payment was considered remote at the time of entering into
the transaction and was not recorded as a component of deferred purchase consideration, accordingly it has been expensed through
the statement of operations for the year ended December 31, 2019. The amount due to the non-related party VG sellers amounted to
€300,000 (approximately $336,810).
The future payments on the promissory notes
were discounted to present value using the Company’s average cost of funding of 10%. The discount is being amortized over
the repayment period of the promissory note using the effective interest rate method.
The movement on deferred purchase consideration
consists of the following:
Description
|
|
December 31,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
Promissory note due to non-related parties
|
|
$
|
1,802,384
|
|
|
$
|
2,745,811
|
|
Additional earnout earned
|
|
|
—
|
|
|
|
336,810
|
|
Settled by the issuance of common shares
|
|
|
(724,467
|
)
|
|
|
(616,387
|
)
|
Repayment in cash
|
|
|
(1,105,455
|
)
|
|
|
(607,555
|
)
|
Foreign exchange movements
|
|
|
52,972
|
|
|
|
(56,295
|
)
|
|
|
|
25,434
|
|
|
|
1,802,384
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(120,104
|
)
|
|
|
(242,089
|
)
|
Amortization
|
|
|
114,333
|
|
|
|
117,192
|
|
Foreign exchange movements
|
|
|
(1,990
|
)
|
|
|
4,793
|
|
|
|
|
(7,761
|
)
|
|
|
(120,104
|
)
|
Deferred purchase consideration, net
|
|
$
|
17,673
|
|
|
$
|
1,682,280
|
|
F-23
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
13. Bank Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately $545,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The
loan has an underlying interest rate of 4.5% above the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized
over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017.
In terms of a directive by the Italian Government,
in order to provide financial relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a
period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remains the same at 4.5%
above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971.
The Company made payments of €59,396 (approximately
$67,783) which included principal of €54,638 (approximately $62,353) and interest of €4,758 approximately $5,430) for
the year ended December 31, 2020.
14. Other Long-term Liabilities
Other long-term liabilities represent the following:
|
·
|
Italian “Trattamento
di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement;
|
|
·
|
Shop deposits that are
held by Ulisse.
|
Balances of other long-term liabilities were
as follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
Severance liability
|
|
$
|
297,120
|
|
|
$
|
211,734
|
|
Customer deposit balance
|
|
|
366,947
|
|
|
|
407,810
|
|
Total other long term liabilities
|
|
$
|
664,067
|
|
|
$
|
619,544
|
|
15. Related Parties
Notes Payable, Related Party
On March 11, 2020, the Company received an
advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a Company
controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
|
|
December 31,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
—
|
|
|
$
|
318,078
|
|
Additions
|
|
|
300,000
|
|
|
|
—
|
|
Repayment
|
|
|
(200,000
|
)
|
|
|
—
|
|
Applied to warrant exercise
|
|
|
(100,000
|
)
|
|
|
—
|
|
Settled by issuance of common shares
|
|
|
—
|
|
|
|
(318,078
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
113,553
|
|
Interest expense
|
|
|
22,521
|
|
|
|
25,830
|
|
Repayment
|
|
|
(14,465
|
)
|
|
|
—
|
|
Applied to warrant exercise
|
|
|
(8,056
|
)
|
|
|
—
|
|
Conversion to equity
|
|
|
—
|
|
|
|
(139,383
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Promissory Notes Payable – Related Party
|
|
$
|
—
|
|
|
$
|
—
|
|
F-24
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Related Parties (continued)
Convertible notes acquired, Related Party
Forte Fixtures and Millworks acquired certain
convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal amount
of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an
aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The
convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending the maturity
date of the convertible debentures, Forte Fixtures was granted two year warrants exercisable for 134,508 shares of common stock
at an exercise price of $3.75 per share and three year warrants exercisable for 33,627 shares of common stock at an exercise price
of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.
Deferred Purchase consideration, Related
Party
In terms of the acquisition of VG on January
17, 2019, disclosed in Note 3 above, the Company issued non-interest bearing promissory notes in the principal amount of €3,803,000
owing to both related parties and non-related parties. The value of the promissory notes payable to non-related parties was €2,281,800
and to related parties was €1,521,200.
The related party promissory notes are due
to Luca Pasquini, a director and officer of the Company and Gabriele Peroni, an officer of the Company.
The promissory notes were to be settled as
follows:
|
(a)
|
an aggregate of €956,800 in cash in 23 equal and consecutive
monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the closing
of the acquisition (the “Closing Date”); and
|
|
(b)
|
an aggregate of €564,400 in shares of the Company’s common
stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such
shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1,
2019.
|
Pursuant to the terms of the Purchase Agreement
that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380
tickets sold in 2019 the VG sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per
share, which shares were issued effective January 2020.
The amount due to the related party VG Sellers
amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094 shares of common
stock at $4.23 per share.
The movement on deferred purchase consideration
consists of the following:
Description
|
|
December 31,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Promissory notes due to related parties
|
|
$
|
1,279,430
|
|
|
$
|
1,830,541
|
|
Additional earnout earned
|
|
|
—
|
|
|
|
224,540
|
|
Settled by the issuance of common shares
|
|
|
(482,978
|
)
|
|
|
(410,925
|
)
|
Repayment in cash
|
|
|
(471,554
|
)
|
|
|
(328,734
|
)
|
Foreign exchange movements
|
|
|
57,230
|
|
|
|
(35,992
|
)
|
|
|
|
382,128
|
|
|
|
1,279,430
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(80,069
|
)
|
|
|
(161,393
|
)
|
Amortization
|
|
|
76,222
|
|
|
|
78,128
|
|
Foreign exchange movements
|
|
|
(1,327
|
)
|
|
|
3,196
|
|
|
|
|
(5,174
|
)
|
|
|
(80,069
|
)
|
Deferred purchase consideration, net
|
|
$
|
376,954
|
|
|
$
|
1,199,361
|
|
F-25
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Related Parties (continued)
Related party (payables) receivables
Related party payables and receivables represent
non-interest-bearing (payables) receivables that are due on demand.
The balances outstanding are as follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
Related Party payables
|
|
|
|
|
|
|
|
|
Gold Street Capital Corp.
|
|
$
|
—
|
|
|
$
|
(2,551
|
)
|
Luca Pasquini
|
|
|
(565
|
)
|
|
|
—
|
|
|
|
$
|
(565
|
)
|
|
$
|
(2,551
|
)
|
Related Party Receivables
|
|
|
|
|
|
|
|
|
Luca Pasquini
|
|
$
|
1,519
|
|
|
$
|
4,123
|
|
Gold Street Capital
Gold Street Capital
is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Amounts due to Gold Street Capital Corp., the
major stockholder of Elys, are for reimbursement of expenses. During the period 2017 to 2019, Gold Street Capital funded the Company
operations utilizing personal credit cards. These shareholder loan accounts were only refunded when the Company had available cash.
The shareholder claimed reimbursement of the calculated interest expense of these shareholder loans at the rate of 18.99%, resulting
in an interest charge of $50,494 for the year ended December 31, 2020. No interest was charged in prior periods.
Gold Street Capital
acquired certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity
date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting
to CDN $44,062 (approximately $34,547) was outstanding at December 31, 2020. This amount was repaid subsequent to period end.
As
an incentive for extending the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital,
were granted two-year warrants exercisable at an exercise price of $3.75 per share, and three-year warrants exercisable at an
exercise price of $5.00 per share. Gold Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock
at $3.75 per share and three-year warrants exercisable for 2,383 shares of common stock at $5.00 per share.
On September 4, 2019,
the Company issued 15,196 shares of common stock to Gold Street Capital in settlement of $48,508 of advances made to the Company
for certain reimbursable expenses.
Luca Pasquini
Amounts due to Luca Pasquini is for advances
made to various subsidiaries for working capital purposes and receivables for expense advances.
On January 31, 2019,
the Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds
of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000
over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December
31, 2020, the Company has paid Mr. Pasquini cash of €333,100 (approximately $399,061) and issued 112,521 shares valued at
€300,000 (approximately $334,791).
In addition, due to
the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December
31, 2019, of which Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue
of 26,547 shares of common stock during January 2020.
On August 29, 2019, the Company granted to Mr. Pasquini, ten year options
to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
On October 1, 2020,
the Company granted to Mr. Pasquini a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03
per share.
F-26
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Related Parties (continued)
Michele Ciavarella
On December 30, 2020, Mr. Ciavarella resigned
as the Chief Executive Officer of the Company and retained the position as Executive Chairman. In connection with Mr. Ciavarella’s
appointment as the Executive Chairman, the Company entered into an amendment, dated December 30, 2020 to his employment agreement,
dated December 31, 2018, as amended on July 5, 2019, by and between the Company and Mr. Ciavarella. Pursuant to the Amendment,
Mr. Ciavarella’s: (i) position at the Company was changed to Executive Chairman; (ii) term of employment was extended three
years to December 31, 2024; and (iii) base salary was increased to $500,000. The Amendment further provides that in lieu of cash,
and to the extent shares are then available for grant under the Company’s 2018 Equity Incentive Plan, as amended, Mr. Ciavarella
may elect to receive, as of the first business day in January of each year of employment, up to 50% of his base salary as a restricted
stock grant of shares of the Company’s common stock under the Plan, vesting monthly over a 12-month period. For the year
ended December 31, 2021, Mr. Ciavarella has agreed to receive $140,000 of his base salary as a restricted stock grant.
On July 5, 2019, the Company granted to Mr.
Ciavarella, the then Chief Executive Officer and Chairman of the Board, ten year options to purchase 39,375 shares of common stock
at an exercise price of $2.96 per share.
On August 29, 2019, the Company granted to
Mr. Ciavarella ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
On September 4, 2019, Mr. Ciavarella converted
$500,000 of accrued salaries into 125,000 shares of common stock at a conversion price of $4.00 per share.
On October 1, 2020, the Company granted to
Mr. Ciavarella, a ten year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share.
Matteo Monteverdi
Effective September 21, 2020, the Board of
Directors (the “Board”) appointed Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr.
Monteverdi was appointed as the Chief Executive Officer of the Company.
Mr. Monteverdi has previously served as an
independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological
capabilities of the Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s
current management team.
In connection with his appointment, the Company
and Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year
term, which provides for the following compensation terms:
|
·
|
an annual base salary
of $395,000 subject to increase, but not decrease, at the discretion of the Board;
|
|
·
|
the opportunity to earn
a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the
achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and
|
|
·
|
Equity Incentive Options
to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023
and September 1, 2024.
|
Mr. Monteverdi is also eligible to participate
in the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect
from time to time on the same basis as generally made available to other senior executives of the Company or in the alternative
may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also
provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during
the term of the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or
disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive
from the Company in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his
base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs
within the first twelve (12) months of the Agreement, the amount shall be Executive’s MBO Bonus for the-then current fiscal
year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus
(if any) which would have been payable to Mr. Monteverdi had he remained in employment with the Company during the entire year
in which such termination occurred,
F-27
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Related Parties (continued)
multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was
employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in
which such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount
equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents,
until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible
to receive such coverage under a subsequent employer’s insurance plan.
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
Gabriele Peroni
On January 31, 2019, the Company acquired VG
for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of VG and was due gross proceeds of €800,000 (approximately
$915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period
and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December 31, 2020, the Company
has paid Mr. Peroni cash of €354,400 (approximately $424,579) and issued 112,521 shares valued at €300,000 (approximately
$334,791).
In addition, due to the attainment of an earnout
clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Peroni’s
share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during
January 2020.
On August 29, 2019, the Company granted to
Mr. Peroni, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
On October 1, 2020, the Company granted to
Mr. Peroni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Peroni received salary payments
through his wholly owned private company Dueci Srl.
Alessandro Marcelli
On August 29, 2019, the Company granted to
Mr. Marcelli, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
On October 1, 2020, the Company granted to
Mr. Marcelli a ten year option to purchase 56,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Marcelli received salary payments
through his wholly owned private company AB Consulting Srl.
Franco Salvagni
On August 29, 2019, the Company granted to
Mr. Salvagni, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
On October 1, 2020, the Company granted to
Mr. Salvagni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Salvagni received salary payments
through his wholly owned private company FSDS Srl.
F-28
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Related Parties (continued)
Beniamino Gianfelici
On August 29, 2019, the Company granted to
Mr. Gianfelici, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
On October 1, 2020, the Company granted to
Mr. Gianfelici a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Gianfelici received salary
payments through his wholly owned private company FG Immobiliare Srl.
Mark Korb
On July 5, 2019, the Company granted to Mr.
Korb, the chief financial officer of the Company, seven year options to purchase 25,000 shares of common stock at an exercise price
of $2.72 per share.
On October 1, 2020, the Company granted to
Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Korb billed the Company through
his wholly owned private company Korb Management Services, LLC.
Paul Sallwasser
On July 5, 2019, the Company granted to Mr.
Sallwasser, a director of the Company, ten year options to purchase 20,625 shares of common stock at an exercise price of $2.96
per share.
On October 1, 2020, the Company granted to
Mr. Sallwasser a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share.
Steven Shallcross
On July 5, 2019, the Company granted to Mr.
Shallcross, a director of the Company, ten year options to purchase 10,313 shares of common stock at an exercise price of $2.96
per share.
On October 1, 2020, the Company granted to
Mr. Shallcross a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.
Phillipe Blanc
On October 1, 2020, the Company appointed Mr.
Philippe Blanc as a director of the Company.
On October 1, 2020, the Company granted to
Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share.
Richard Cooper
Mr. Cooper received director fees of $30,000 and $15,000 for the
years ended December 31, 2020 and 2019, respectively.
Clive Kabatznik
Mr. Kabatznik received director fees of $10,000 and $30,000 for
the years ended December 31, 2020 and 2019, respectively.
F-29
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Stockholders’ Equity
The Company issued the following shares of
common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation, as disclosed
in Note 3 above.
|
·
|
On January 1, 2020, 22,030
shares of common stock valued at $93,077;
|
|
·
|
On January 1, 2020, 132,735
shares of common stock valued at $561,350;
|
|
·
|
On February 27, 2020,
23,890 shares of common stock valued at $91,541;
|
|
·
|
On March 1, 2020, 25,690
shares of common stock valued at $96,372;
|
|
·
|
On April 1, 2020, 61,040
shares of common stock valued at $90,745;
|
|
·
|
On May 1, 2020, 24,390
shares of common stock valued at $91,265;
|
|
·
|
On June 1, 2020, 29,300
shares of common stock valued at $92,321;
|
|
·
|
On July 1, 2020, 35,130
shares of common stock valued at $91,265.
|
On April 22, 2019, the Company issued 14,083
shares of common stock, valued at $45,066, to certain convertible debenture holders as an incentive for them to transfer their
convertible debentures to another investor.
Between September 4, 2019 and September 17,
2019, the Company issued 284,721 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461
and other liabilities amounting to $553,525.
For the year ended December 31, 2020, the Company
issued a total of 230,326 shares of common stock, valued at $739,004, upon the conversion of convertible debentures into equity
and for the year ended December 31, 2019, the Company issued a total of 1,866,528 shares of common stock, valued at $5,972,507,
upon the conversion of convertible debentures into equity (Note 11).
On August 17, 2020, the Company closed its
underwritten public offering of 4,166,666 units at a price of $2.40 per unit for gross proceeds of $9,999,998, before underwriting
commission of $800,000 and other offering expenses. Each unit consists of one share of common stock and one five year warrant exercisable
for one share of common stock at an exercise price of $2.50 per share.
The Company granted the underwriters a forty-five
day option to purchase up to 624,999 shares of common stock and/or warrants at a price of $2.39 per share and $0.01 per five year
warrant exercisable for one share of common stock at an exercise price of $2.50 per share. The underwriters were also issued a
three year warrant exercisable for 208,333 shares of common stock at an exercise price of $3.00 per share.
On September 3, 2020, the underwriters executed
a partial exercise of the option to purchase 624,999 units and purchased only the warrants at a purchase price of $0.01 per warrant,
less underwriters commission of $500, for net proceeds of $5,250.
On December 30, 2020, the Company entered into
a settlement agreement with its previous chairman whereby it issued 8,469 shares of common stock at a value of $46,666 to settle
the balance owing to $46,666.
Between December 18, 2020 and December 31,
2020, investors exercised warrants for 3,321,226 shares of common stock at exercise prices ranging from $2.50 to $5.00 per share
for gross proceeds of $8,541,896, and the use of proceeds from promissory notes, related party of $108,056 was applied to the warrant
exercise.
17. Warrants
In connection with the convertible debenture
agreements entered into with accredited investors in the first and second quarters of 2018, for each $1,000 debenture unit the
Company issued two-year warrants to purchase up to 135.28 shares of the Company’s common stock and for each CDN $1,000 debenture
unit the Company issued two-year warrants to purchase up to 104.06 shares of the Company’s common stock at an exercise price
of $4.00 per share. These warrants expired unexercised.
On May 31, 2020, in terms of convertible debt
extension agreements entered into with investors, the Company granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share until May 31, 2022 and three year warrants exercisable for 72,729 shares of common
stock at an exercise price of $5.00 per share until May 31, 2023.
In terms of the underwritten public offering
disclosed in note 16 above, the Company granted 4,166,666 five year warrants, exercisable at $2.50 per share to the subscribers.
In addition, the Company granted the underwriter 208,333 three year warrants exercisable at $3.00 per share, and in terms of the
underwriters’ over-allotment option, the Company granted an additional 624,999 five year warrants exercisable at $2.50 per
share to the Underwriter.
F-30
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
17. Warrants (continued)
The warrants issued during the year ended
December 31, 2020, were assessed in terms of ASC 480-10, Distinguishing between Liabilities and Equity, and ASC 815-10, Derivatives
and Hedging Transactions to determine if they met equity classification or liability classification. After considering the
guidance provided by the ASC under both ASC 480-10 and ASC 815-10, the Company determined that equity classification was appropriate.
The warrants awarded
during the year ended December 31, 2020 were valued using a Black-Scholes option pricing model.
The following assumptions
were used in the Black-Scholes model:
|
|
Year ended
December 31, 2020
|
Exercise price
|
|
|
$2.50 to $5.00
|
|
Risk free interest rate
|
|
|
0.16 to 0.29
|
%
|
Expected life of warrants
|
|
|
2 to 5 years
|
|
Expected volatility of underlying stock
|
|
|
139.5 to 183.5
|
|
Expected dividend rate
|
|
|
0
|
%
|
A summary of all of the Company’s warrant
activity during the period January 1, 2019 to December 31, 2020 is as follows:
|
|
Number of shares
|
|
Exercise price
per share
|
|
Weighted average exercise price
|
|
Outstanding January 1, 2019
|
|
|
|
1,089,474
|
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Granted
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/cancelled
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2019
|
|
|
|
1,089,474
|
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Granted
|
|
|
|
5,374,371
|
|
|
|
|
2.50 to 5.00
|
|
|
|
2.62
|
|
Forfeited/cancelled
|
|
|
|
(1,089,474
|
)
|
|
|
|
4.00
|
|
|
|
4.00
|
|
Exercised
|
|
|
|
(3,321,226
|
)
|
|
|
|
2.50 - 5.00
|
|
|
|
2.62
|
|
Outstanding December 31, 2020
|
|
|
|
2,053,145
|
|
|
|
$
|
2.50 to 5.00
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize information about warrants
outstanding as of December 31, 2020:
|
|
Warrants outstanding
|
|
Warrants exercisable
|
Exercise price
|
|
|
Number of shares
|
|
|
|
Weighted average remaining years
|
|
|
|
Weighted average exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average exercise price
|
|
$2.50
|
|
|
1,747,949
|
|
|
|
4.65
|
|
|
$
|
2.50
|
|
|
|
1,747,949
|
|
|
$
|
2.50
|
|
$3.00
|
|
|
208,333
|
|
|
|
2.63
|
|
|
|
3.00
|
|
|
|
208,333
|
|
|
|
3.00
|
|
$3.75
|
|
|
57,761
|
|
|
|
1.41
|
|
|
|
3.75
|
|
|
|
57,761
|
|
|
|
3.75
|
|
$5.00
|
|
|
39,102
|
|
|
|
2.17
|
|
|
|
5.00
|
|
|
|
39,102
|
|
|
|
5.00
|
|
|
|
|
2,053,145
|
|
|
|
4.31
|
|
|
$
|
2.63
|
|
|
|
2,053,145
|
|
|
$
|
2.63
|
|
F-31
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial
Statements
18. Stock options
In September 2018, our stockholders approved
our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board approved an amendment
to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be
granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an
increase in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the Company held its
2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 1,850,000 shares of common stock.
During July 2019, we issued an aggregate of
95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial
Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938
shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares
of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief
Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele
Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici,
our Vice President Regulatory Affairs. On November 11,2019 the Company granted options to purchase 70,625 shares of common stock
to various employees at an exercise price of $2.80 per share.
During September 2020, in terms of the employment
agreement entered into with Mr. Monteverdi, the Company granted options to purchase 648,000 shares of common stock that vest pro
rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
On October 1, 2020, the Board granted to each
of Michele Ciavarella, Alessandro Marcelli, Luca Pasquini, Gabriele Peroni, Frank Salvagni, Beniamino Gianfelici and Mark Korb,
an option to purchase 140,000, 56,000, 58,000, 36,000, 36,000, 35,000 and 58,000 shares of the Company’s common stock, respectively,
under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option awards each vest pro rata
on a monthly basis over a thirty-six month period. The options are exercisable for a period of ten years from the date of grant
and have an exercise price of $2.03 per share.
On October 1, 2020, the Board also granted
to each of Paul Sallwasser, Steven Shallcross and Philippe Blanc, as non-executive members of the Board, an option to purchase
55,000, 35,000 and 55,000 shares of the Company’s common stock, respectively, under the Company’s 2018 Equity Incentive
Plan. The shares of common stock underlying the option awards each vest pro rata on a monthly basis over a twelve month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $2.03 per share.
On October 1, 2020, the board granted options
to purchase 95,000 shares of common stock to various employees at an exercise price of $2.03 per share.
The options awarded during the year ended December
31, 2020 were valued using a Black-Scholes option pricing model.
The following assumptions were used in the
Black-Scholes model:
|
|
Year ended
December 31, 2020
|
Exercise price
|
|
|
$1.84 to $2.03
|
|
Risk free interest rate
|
|
|
0.68%
|
|
Expected life of options
|
|
|
10 years
|
|
Expected volatility of underlying stock
|
|
|
231.1 to 231.4
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
F-32
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
18. Stock Options (continued)
A summary of all of the Company’s option activity during
the period January 1, 2019 to December 31, 2020 is as follows:
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
Granted
|
|
|
315,938
|
|
|
|
$2.72 to $2.96
|
|
|
$
|
2.84
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2019
|
|
|
315,938
|
|
|
|
$2.72 to $2.96
|
|
|
$
|
2.84
|
|
Granted
|
|
|
1,307,000
|
|
|
|
$1.84 to $2.03
|
|
|
$
|
1.95
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2020
|
|
|
1,622,938
|
|
|
|
$1.84 to $2.96
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize information about stock options outstanding
as of December 31, 2020:
|
Options outstanding
|
|
Options exercisable
|
|
Exercise price
|
|
Number of shares
|
|
Weighted average remaining years
|
|
Weighted Average exercise price
|
|
Number of shares
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.84
|
|
|
|
648,000
|
|
|
|
9.73
|
|
|
|
|
|
|
|
—
|
|
|
|
|
$
|
2.03
|
|
|
|
659,000
|
|
|
|
9.75
|
|
|
|
|
|
|
|
79,083
|
|
|
|
|
$
|
2.72
|
|
|
|
25,000
|
|
|
|
5.50
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
$
|
2.80
|
|
|
|
220,625
|
|
|
|
8.73
|
|
|
|
|
|
|
|
69,128
|
|
|
|
|
$
|
2.96
|
|
|
|
70,313
|
|
|
|
8.52
|
|
|
|
|
|
|
|
70,313
|
|
|
|
|
|
|
|
|
|
1,622,938
|
|
|
|
9.49
|
|
|
$
|
2.11
|
|
|
|
243,524
|
|
|
$2.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair values
of options granted during the year ended December 31, 2020 was $2,542,423 ($1.95 per share). $518,106 was recorded as compensation
cost for the year ended December 31, 2020. As of December 31, 2020, there were unvested options to purchase $1,379,414 shares of
common stock. Total expected unrecognized compensation cost related to such unvested options is $2,722,022 which is expected to
be recognized over a period of 44 months.
The intrinsic value of the options at December
31, 2020 was $6,151,366.
F-33
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
19. Revenues
The following table represents disaggregated
revenues from our gaming operations for the years ended December 31, 2020 and 2019. Net Gaming Revenues represents Turnover (also
referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid
to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and
Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.
|
|
For the Year Ended December 31,
|
|
|
2020
|
|
2019
|
Handle (Turnover)
|
|
|
|
|
Handle web-based
|
|
$
|
505,369,803
|
|
|
$
|
328,385,837
|
|
Handle land-based
|
|
|
68,888,592
|
|
|
|
125,747,337
|
|
Total Handle (Turnover)
|
|
$
|
574,258,395
|
|
|
$
|
454,133,174
|
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts
|
|
|
|
|
|
|
|
|
Winnings web-based
|
|
|
473,794,175
|
|
|
|
309,214,993
|
|
Winnings land-based
|
|
|
56,467,865
|
|
|
|
105,011,619
|
|
Total Winnings/Payouts
|
|
|
530,262,040
|
|
|
|
414,226,612
|
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues
|
|
$
|
43,996,355
|
|
|
$
|
39,906,562
|
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes
|
|
|
6,874,752
|
|
|
|
4,697,085
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenues
|
|
$
|
37,121,603
|
|
|
$
|
35,209,477
|
|
Betting platform software and services
|
|
|
144,764
|
|
|
|
373,654
|
|
Revenues
|
|
$
|
37,266,367
|
|
|
$
|
35,583,131
|
|
20. Net Loss per Common Share
Basic loss per share is based on the weighted-average
number of common shares outstanding during each period. Diluted loss per share is based on basic shares as determined above, plus
the incremental shares that would be issued upon the assumed exercise of “in-the-money” warrants using the treasury
stock method and the inclusion of all convertible securities, including convertible debentures, assuming these securities were
converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net loss per share does
not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.
For the years ended December 31, 2020 and 2019,
the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the
result of the computation was anti-dilutive:
Description
|
|
Year ended December 31, 2020
|
|
Year ended December 31, 2019
|
|
|
|
|
|
Options
|
|
|
1,622,938
|
|
|
|
315,938
|
|
Warrants
|
|
|
2,053,145
|
|
|
|
1,089,474
|
|
Convertible debentures
|
|
|
10,796
|
|
|
|
1,246,551
|
|
|
|
|
3,686,879
|
|
|
|
2,651,963
|
|
F-34
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
21. Income Taxes
The Company is incorporated in the United States
of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no
U.S. taxable income for the years ended December 31, 2020 and December 31, 2019.
The Company's Italian subsidiaries are governed
by the income tax laws of Italy. The corporate tax rate in Italy is 27.9% (IRES at 24% plus IRAP ordinary at 3.9%) on income
reported in the statutory financial statements after appropriate tax adjustments.
The Company's Austrian subsidiaries are governed
by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company's Canadian subsidiary is governed
by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada
is 26.5% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company's Colombian subsidiary is governed
by the income tax laws of Colombia. The corporate tax rate in Colombia is 31% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company continues to evaluate the accounting
for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial
statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged
by a taxing authority. The position ascertained inherently requires judgment and estimates by management.
The reconciliation of income tax expense at
the U.S. statutory rate of 21% during 2020 and 2019, to the Company’s effective tax rate is as follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
U.S. Statutory rate
|
|
$
|
1,896,305
|
|
|
$
|
1,822,092
|
|
Items not allowed for tax purposes
|
|
|
(2,113,651
|
)
|
|
|
(1,142,776
|
)
|
Foreign tax rate differential
|
|
|
(90,772
|
)
|
|
|
(66,163
|
)
|
Additional foreign taxation
|
|
|
(36,939
|
)
|
|
|
(15,190
|
)
|
Withholding tax on dividends
|
|
|
(162,112
|
)
|
|
|
—
|
|
Prior year over provision
|
|
|
—
|
|
|
|
1,167
|
|
Prior year net operating loss adjustment
|
|
|
—
|
|
|
|
(917,820
|
)
|
Movement in valuation allowances
|
|
|
(323,114
|
)
|
|
|
(279,486
|
)
|
Other differences
|
|
|
(76,361
|
)
|
|
|
—
|
|
Income tax expense
|
|
$
|
(906,644
|
)
|
|
$
|
(598,176
|
)
|
The Company has accumulated a net operating
loss carry forward (“NOL”) of approximately $17.9 million as of December 31, 2020 in the U.S. The U.S. NOL carry forward
includes adjustments based on prior year assessments of $0.3 million due the assessment of tax losses carried forward. Net operating
losses of $11.1 million expire from 2033 to 2037 and a further $6.8 million has an indefinite life. The company also has net operating
loss carry forwards in Italy, Austria and Malta of approximately €0.11 million ($0.15 million) and in Canada of approximately
CDN $0.4 million ($0.33 million). The use of these losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it
will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently
determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a
100% valuation allowance has been established to offset the asset.
Utilization of NOLs are subject to limitation
due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business
direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited
in any one year by alternative minimum tax rules.
Under Italian tax law, the operating loss carryforwards
available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset
against national income tax, up to the limit of 80% of taxable annual income. This restriction does not apply to the operating
loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting.
F-35
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
21. Income Taxes (continued)
Under Austrian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available
for offset against national income tax, up to the limit of 75% of taxable annual income.
Under Canadian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely.
The provisions for income taxes consist of
currently payable income tax in Italy, Malta and Austria and deferred tax movements on intangible assets.
The provisions for income taxes are summarized
as follows:
|
|
December 31,
2020
|
|
December 31,
2019
|
Current
|
|
$
|
(837,973
|
)
|
|
$
|
(683,830
|
)
|
Withholding tax
|
|
|
(162,112
|
)
|
|
|
—
|
|
Deferred
|
|
|
93,441
|
|
|
|
85,654
|
|
Total
|
|
$
|
(906,644
|
)
|
|
$
|
(598,176
|
)
|
The tax effects of temporary differences that
give rise to the Company’s net deferred tax assets and liabilities are as follows:
|
|
December 31, 2020
|
|
December 31, 2019
|
Working capital movements
|
|
$
|
693,465
|
|
|
$
|
641,089
|
|
Plant and equipment
|
|
|
6,925
|
|
|
|
—
|
|
Net loss carryforward - Foreign
|
|
|
135,568
|
|
|
|
119,251
|
|
Net loss carryforward - US
|
|
|
3,752,678
|
|
|
|
3,505,182
|
|
|
|
|
4,588,636
|
|
|
|
4,265,522
|
|
Less valuation allowance
|
|
|
(4,588,636
|
)
|
|
|
(4,265,522
|
)
|
Deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
(1,222,514
|
)
|
|
$
|
(1,315,954
|
)
|
Deferred Tax Liability
|
|
$
|
(1,222,514
|
)
|
|
$
|
(1,315,954
|
)
|
The Net loss carry forward for US entities
includes an adjustment of $0.3 million based on taxation assessments which differed to the amounts originally provided for.
The following tax years remain subject to examination:
USA:
|
Generally three years from the date of tax return filing which is currently the 2018 to 2020 tax years.
|
Italy:
|
Generally five years from
the date of filing which is currently the 2016 to 2020 tax years.
|
Austria:
|
Generally tax years 2019 and 2020.
|
Malta:
|
Eight years from fiscal year end which is currently 2013 to 2020.
|
Colombia:
|
Three years in the case of taxable profits and five years where taxable losses are realized.
|
The Company is not currently under examination
and it has not been notified of a pending examination.
There are no unrecognized tax benefits.
F-36
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Segmental Reporting
The Company has two reportable operating segments. These segments
are:
|
(i)
|
Betting establishments
|
The operating of web based as well as land-based leisure
betting establishments situated throughout Italy.
|
(ii)
|
Betting platform software and services
|
Provider of certified betting Platform
software services to leisure betting establishments in Italy and 9 other countries.
The operating assets and liabilities of the
reportable segments are as follows:
|
|
December 31, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets
|
|
$
|
172,095
|
|
|
$
|
117,703
|
|
|
$
|
1,703
|
|
|
$
|
291,501
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
10,966,901
|
|
|
|
430,625
|
|
|
|
9,796,140
|
|
|
|
21,193,666
|
|
Non-Current assets
|
|
|
7,475,455
|
|
|
|
6,250,418
|
|
|
|
938,440
|
|
|
|
14,664,313
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(8,238,101
|
)
|
|
|
(648,881
|
)
|
|
|
(4,427,053
|
)
|
|
|
(13,314,035
|
)
|
Non-Current liabilities
|
|
|
(1,130,752
|
)
|
|
|
(1,225,477
|
)
|
|
|
(31,362
|
)
|
|
|
(2,387,591
|
)
|
Intercompany balances
|
|
|
4,259,281
|
|
|
|
382,598
|
|
|
|
(4,641,879
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
13,332,784
|
|
|
$
|
5,189,283
|
|
|
$
|
1,634,286
|
|
|
$
|
20,156,353
|
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
Year ended December 31, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenue
|
|
$
|
37,121,603
|
|
|
$
|
144,764
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,266,367
|
|
Intercompany Service revenue
|
|
|
84,172
|
|
|
|
3,604,523
|
|
|
|
|
|
|
|
(3,688,695
|
)
|
|
|
|
|
|
|
|
37,205,775
|
|
|
|
3,749,287
|
|
|
|
|
|
|
|
(3,688,695
|
)
|
|
|
37,266,367
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
3,604,523
|
|
|
|
84,172
|
|
|
|
|
|
|
|
(3,688,695
|
)
|
|
|
|
|
Selling expenses
|
|
|
26,107,189
|
|
|
|
2,032
|
|
|
|
|
|
|
|
|
|
|
|
26,109,221
|
|
General and administrative expenses
|
|
|
4,918,986
|
|
|
|
3,906,439
|
|
|
|
4,963,966
|
|
|
|
|
|
|
|
13,789,391
|
|
Impairment of license
|
|
|
4,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900,000
|
|
|
|
|
39,530,698
|
|
|
|
3,992,643
|
|
|
|
4,963,966
|
|
|
|
(3,688,695
|
)
|
|
|
44,798,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,324,923
|
)
|
|
|
(243,356
|
)
|
|
|
(4,963,966
|
)
|
|
|
|
|
|
|
(7,532,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(6,492
|
)
|
|
|
(71
|
)
|
|
|
(322,100
|
)
|
|
|
|
|
|
|
(328,663
|
)
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
|
|
(818,182
|
)
|
|
|
|
|
|
|
(818,182
|
)
|
Other income
|
|
|
161,472
|
|
|
|
3,903
|
|
|
|
|
|
|
|
|
|
|
|
165,375
|
|
Other expense
|
|
|
(28,757
|
)
|
|
|
(58,176
|
)
|
|
|
|
|
|
|
|
|
|
|
(86,933
|
)
|
Loss on extinguishment of convertible debt
|
|
|
|
|
|
|
|
|
|
|
(719,390
|
)
|
|
|
|
|
|
|
(719,390
|
)
|
Gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
290,000
|
|
|
|
|
|
|
|
290,000
|
|
Total other (expenses) income
|
|
|
126,223
|
|
|
|
(54,344
|
)
|
|
|
(1,569,672
|
)
|
|
|
|
|
|
|
(1,497,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes
|
|
|
(2,198,700
|
)
|
|
|
(297,700
|
)
|
|
|
(6,533,638
|
)
|
|
|
|
|
|
|
(9,030,038
|
)
|
Income tax provision
|
|
|
(796,991
|
)
|
|
|
52,459
|
|
|
|
(162,112
|
)
|
|
|
|
|
|
|
(906,644
|
)
|
Net Loss
|
|
$
|
(2,995,691
|
)
|
|
$
|
(245,241
|
)
|
|
$
|
(6,695,750
|
)
|
|
$
|
|
|
|
$
|
(9,936,682
|
)
|
F-37
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Segmental Reporting (continued)
The operating assets and liabilities of the
reportable segments are as follows:
|
|
December 31, 2019
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets
|
|
$
|
202,042
|
|
|
$
|
5,456,358
|
|
|
$
|
—
|
|
|
$
|
5,658,400
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
6,620,800
|
|
|
|
470,127
|
|
|
|
216,948
|
|
|
|
7,307,875
|
|
Non-Current assets
|
|
|
12,761,177
|
|
|
|
6,615,905
|
|
|
|
1,183,550
|
|
|
|
20,560,632
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,395,212
|
)
|
|
|
(615,564
|
)
|
|
|
(10,450,390
|
)
|
|
|
(16,461,166
|
)
|
Non-Current liabilities
|
|
|
(1,266,145
|
)
|
|
|
(1,339,911
|
)
|
|
|
—
|
|
|
|
(2,696,056
|
)
|
Intercompany balances
|
|
|
5,461,766
|
|
|
|
423,926
|
|
|
|
(5,885,692
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
18,182,386
|
|
|
$
|
5,554,483
|
|
|
$
|
(14,935,584
|
)
|
|
$
|
8,801,285
|
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
Year ended December 31, 2019
|
|
|
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenue
|
|
$
|
35,209,477
|
|
|
$
|
373,654
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,583,131
|
|
Intercompany Service revenue
|
|
|
452,776
|
|
|
|
2,839,211
|
|
|
|
—
|
|
|
|
(3,291,987
|
)
|
|
|
—
|
|
|
|
|
35,662,253
|
|
|
|
3,212,865
|
|
|
|
—
|
|
|
|
(3,291,987
|
)
|
|
|
35,583,131
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
2,839,211
|
|
|
|
452,776
|
|
|
|
—
|
|
|
|
(3,291,987
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
25,583,913
|
|
|
|
2,000,579
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,584,492
|
|
General and administrative expenses
|
|
|
5,109,135
|
|
|
|
1,294,617
|
|
|
|
4,590,802
|
|
|
|
—
|
|
|
|
10,994,554
|
|
|
|
|
33,532,259
|
|
|
|
3,747,972
|
|
|
|
4,590,802
|
|
|
|
(3,291,987
|
)
|
|
|
38,579,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
2,129,994
|
|
|
|
(535,107
|
)
|
|
|
(4,590,802
|
)
|
|
|
—
|
|
|
|
(2,995,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(190,206
|
)
|
|
|
3
|
|
|
|
(782,240
|
)
|
|
|
—
|
|
|
|
(972,443
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,154,922
|
)
|
|
|
—
|
|
|
|
(4,154,922
|
)
|
Virtual Generation earnout
|
|
|
—
|
|
|
|
—
|
|
|
|
(561,351
|
)
|
|
|
—
|
|
|
|
(561,351
|
)
|
Loss on share issuances
|
|
|
—
|
|
|
|
—
|
|
|
|
(44,063
|
)
|
|
|
—
|
|
|
|
(44,063
|
)
|
Other income
|
|
|
114,818
|
|
|
|
—
|
|
|
|
34,747
|
|
|
|
—
|
|
|
|
149,565
|
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(97,500
|
)
|
|
|
—
|
|
|
|
(97,500
|
)
|
Total other (expenses) income
|
|
|
(75,388
|
)
|
|
|
3
|
|
|
|
(5,605,329
|
)
|
|
|
—
|
|
|
|
(5,680,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes
|
|
|
2,054,606
|
|
|
|
(535,104
|
)
|
|
|
(10,196,131
|
)
|
|
|
—
|
|
|
|
(8,676,629
|
)
|
Income tax provision
|
|
|
(641,528
|
)
|
|
|
(43,352
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(598,176
|
)
|
Net Loss
|
|
$
|
1,413,078
|
|
|
$
|
(491,752
|
)
|
|
$
|
(10,196,131
|
)
|
|
$
|
—
|
|
|
$
|
(9,274,802
|
)
|
F-38
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
23. Subsequent Events
Warrants exercised
Subsequent to year end, warrants were exercised
for 1,150,776 shares of common stock for gross proceeds of $2,876,940, additionally, brokers warrants were exercised for 208,333
shares of common stock for gross proceeds of $624,999 and other debenture warrants were exercised for 36,709 shares for gross proceeds
of $171,839.
Deferred purchase consideration
The deferred purchase consideration of €333,300
($407,552) was repaid.
Convertible debenture
The remaining convertible debenture of CDN
$35,000 ($27,442), including interest thereon was repaid.
Line of Credit
On January 11, 2021, the company repaid the
outstanding balance of $500,000 on the revolving line of credit at Metropolitan Commercial Bank in full.
The Company has evaluated subsequent events
through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
F-39
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Annual Evaluation of Disclosure Controls
and Procedures
We have adopted and maintain disclosure controls
and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed
to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and
reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated
to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial
Officer), to allow for timely decisions regarding required disclosure.
As required by Exchange Act Rule 13a-15, our
Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report.
Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to our limited resources
our disclosure controls and procedures are not effective in providing material information required to be included in our periodic
SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure about our internal control over financial reporting discussed below.
Management’s Annual Report on Internal
Control Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting for our company. Our internal control system was designed to,
in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published
financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2020. The framework used by management in making that assessment
was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on that assessment,
our management has determined that as of December 31, 2020, our internal control over financial reporting was not effective due
to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees.
Management has determined that this control deficiency constitutes a material weakness which could result in material misstatements
of significant accounts and disclosures that could result in a material misstatement to our interim or annual financial statements
that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or
omissions in reporting.
Management has recently employed additional
resources and is improving upon its segregation of duties to mitigate these weaknesses, as well as to implement other planned improvements.
Additional staff will enable us to document and apply transactional and periodic controls procedures, permit a better review and
approval process and improve quality of financial reporting.
This Annual Report does not include an attestation
report of our independent registered public accounting firm regarding management’s assessment of our internal control over
financial reporting pursuant to temporary rules of the SEC.
Changes in Internal Control Over Financial
Reporting
There were no changes to our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter
ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
56
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
All directors of our company hold office until
the next annual meeting of the stockholders or until their successors have been elected and qualified or they have resigned. The
officers of our company are appointed by our Board of Directors and hold office until their death, resignation or removal from
office.
Our current directors and executive officers,
their ages and their positions, as of the date of this Annual Report, as follows:
Alessandro Marcelli is the son-in-law of Beniamino
Gianfelici and spouse of Doriana Gianfelici, the founders of Multigioco.
Michele Ciavarella has served as our Executive
Chairman of the Board since December 30, 2020 and served as our Chairman of the Board of Directors since June 26, 2019. From June
2011 until December 30, 2020, he also served as our Chief Executive Officer. In addition, Mr. Ciavarella has served our company
in various roles and executive capacities since 2004 including President, Chief Executive Officer and Director of Operations. From
2004 to 2011, Mr. Ciavarella was engaged in senior executive and director roles for a variety of private and publicly listed companies
including Kerr Mines Ltd. (formerly known as Armistice Resources Corp.), Firestar Capital Management Corporation, Mitron Sports
Enterprises, Process Grind Rubber and Dagmar Insurance Services. He also served as the Business Development Officer for Forte Fixtures
and Millwork, Inc., a family owned business in the commercial retail fixture manufacturing industry from January 2007 until October
2013. From 1990 until 2004, Mr. Ciavarella served as a senior executive, financial planner, life insurance underwriter and financial
advisor for Manulife Financial Corporation and Sun Life Financial, Inc. Mr. Ciavarella received his Bachelor of Science degree
from Laurentian University in Sudbury, Ontario. Mr. Ciavarella has been focused on incubating and executing on business building
strategies for the last 25 years.
We believe that Mr. Ciavarella is qualified
to serve as a member of our Board due to his practical experience in a broad range of competencies including executive, financial
and operational application of lean business process management, extensive c-level and board level experience, leadership skills
and diversified industry experience combined with a track record of growing businesses, both organically and through acquisitions
and joint ventures.
Matteo Monteverdi has served as our President
since September 21, 2020 and as our Chief Executive Officer since December 30, 2020. Prior to his appointment as President, Mr.
Monteverdi had served as an independent strategic advisor to the Company from March 2020 until September 21, 2020. Mr. Monteverdi
has extensive industry leadership experience, having served as U.S. President of Sportradar from April 2018 to February 2020, and
as IGT Senior Vice President of Global Digital Products from 2015 to 2018. Previously from 2012 to 2015 he was GTECH Senior Vice
President of iGaming. He also served as President of Lottomatica Betting and Interactive from 2010 to 2012. Mr. Monteverdi holds
an MBA from SDA Bocconi in Milan, Italy, a Law Degree from Università Degli Studi in Milan, Italy and a specialization in
Marketing from Stanford Graduate Business School. Mr. Monteverdi has developed a firm understanding of the unique technological
capabilities of the Company’s Elys betting platform and has established a strong rapport with the Company’s current
management team.
Alessandro Marcelli served as our Vice President
of Operations since 2014 and served as our President from 2014 to 2017. Mr. Marcelli has more than 20 years of professional experience
in the technology industry having a broad range of applicable cross-border experience including a key role as Project Manager of
Software with NATO in 1996 working within the Turkish Army. He was employed with Vodafone Group plc from 1997 through 2010 as manager
of the operational and maintenance center for central and south Italy operations.
Mr. Marcelli has extensive experience in communications,
team building as well as management skills in fast changing environments. Mr. Marcelli has been the Managing Director of Multigioco
since 2017 and has been instrumental in its growth, expanding the Newgioco/Multigioco brand to approximately $450 million in gross
annual gaming turnover during his tenure.
Luca Pasquini has served as a member of our
Board and our Vice President Technology since August 2016. Mr. Pasquini brings 30 years of information technology experience and
has served as team leader, service manager and project manager in various software and technology development projects. Since 2013,
Mr. Pasquini has served as co-founder and Chief Executive Officer of Odissea Betriebsinformatik Beratung GmbH where he was instrumental
in the engineering and creation of a powerful, state-of-the art sports betting and gaming technology system. From 2011 to 2013,
Mr. Pasquini served as IT Manager of GoldBet sportwetten GmbH where he provided executive oversight of technology adaptation and
software development. Mr. Pasquini has also been instrumental in assembling a solid team of gaming specialist software engineers
that have developed our innovative bookmaker platform and a full suite of gaming products. Mr. Pasquini is a graduate of technical
engineering studies at Instituto Superiore Valdarno in San Giovanni Valdarno, Italy.
We believe that Mr. Pasquini is qualified to
serve as a member of our Board because of his practical experience in a broad range of competencies including his information technology
experience.
Mark Korb has served as our Chief Financial
Officer on a part-time basis since July 3, 2019. Mr. Korb has over 20-years of experience with high-growth companies and taking
startup operations to the next level. Since June 2019, First South Africa Management, a company for which Mr. Korb has served as
the Chief Financial Officer since January 2010 has been providing consulting services to us, including the financial expertise
required of public companies. First South Africa Management provides financial management and strategic management services to
various companies.
From August 2013 until April 2020, Mr. Korb
has served as the Chief Financial Officer of Icagen, Inc., a drug discovery company with a focus on neurosciences and rare disease.
From 2007 to 2009, Mr. Korb was the Chief Financial Officer and director of Foodcorp (Proprietary) Limited (“Foodcorp”),
a multimillion dollar consumer goods company based in South Africa. In his role as Chief Financial Officer, Mr. Korb delivered
operational and strategic leadership of Foodcorp of the full group financial function during a period of change including mergers,
acquisitions and organic growth. As a board director he cultivated relationships with shareholders, bond holders, financial institutions,
rating agencies, and auditors. Mr. Korb was also responsible for leading the group IT strategy and implementation and supervised
16 direct reports including 10 divisional financial directors. From 2001 to 2007, Mr. Korb was the Chief Financial Officer of First
Lifestyle, initially a publicly traded company on the Johannesburg Stock Exchange in South Africa, which was then purchased by
management which included Mr. Korb. He anchored the full financial function of the group with responsibility for mergers and acquisitions
activity, successfully leading the process whereby the company was sold to Foodcorp. Upon completion of the merger, Mr. Korb was
appointed as the group Chief Financial Officer of Foodcorp. Mr. Korb is also the Chief Financial Officer to several other companies,
including Petroteq Energy Group Limited, a Canadian company engaged in the creation of technology for the environmentally-safe
extraction of oil from oil sands and oil shale deposits.
Franco Salvagni has served as our Vice President
Land-based Operations since August 2016. Mr. Salvagni has 20 years of experience at the retail level in the Italian gaming business.
Since 2013, Mr. Salvagni has served as Area Manager in charge of developing the land-based distribution of the betting shops of
Ulisse GmbH in Italy.
Beniamino Gianfelici is our founder and has
served as our Vice President of Regulatory Affairs since August 2015. He served as a member of our Board from August 2015 until
May 2017. Mr. Gianfelici brings over 35 years of experience in gaming operations in Italy along with a wealth of business relationships
in a broad range of industries and several key business centers throughout Italy. Prior to establishing Newgioco in 1996 and entering
the gaming business, Mr. Gianfelici formed and managed a successful construction enterprise which designed, engineered and constructed
a number of prominent buildings in Rome, Italy.
Gabriele Peroni has served as our Vice President
Business Development since August 2016. Mr. Peroni brings 20 years of experience in the online and land-based gaming business.
From February 2011 to September 2013, Mr. Peroni was the Senior Sales Manager for GoldBet sportwetten GmbH in charge of business
development throughout Italy. In addition, in June 2013, Mr. Peroni co-founded Odissea Betriebsinformatik Beratung GmbH and since
September 2013 he has been instrumental to securing a number of significant business-to-business contracts for Odissea.
Paul Sallwasser was appointed to serve on our
Board on June 13, 2019. Mr. Sallwasser is a certified public accountant, joined the audit staff of Ernst & Young LLP in 1976
and remained with Ernst & Young LLP for 38 years. Mr. Sallwasser served a broad range of clients primarily in the healthcare
and biotechnology industries of which a significant number were SEC registrants. He became a partner of Ernst & Young in 1988
and from 2011 until he retired from Ernst & Young LLP in 2014, Mr. Sallwasser served in the national office as a member of
the Quality and Regulatory Matters Group working with regulators and the Public Company Accounting Oversight Board (PCAOB). Mr.
Sallwasser currently serves as the Chief Executive Officer of a private equity fund that is focused on investing in healthcare
companies in the South Florida area. Mr. Sallwasser has also served as member of the Board of Directors of Youngevity International,
Inc. (“Youngevity”) since June 5, 2017. Youngevity (Nasdaq Capital Market: YGYI) was founded in 1996 and develops and
distributes health and nutrition related products through its global independent direct selling network, also known as multi-level
marketing, and sells coffee products to commercial customers.
We believe that Mr. Sallwasser is qualified
to serve as a member of our Board due to his vast audit and accounting experience, which includes his status as an “audit
committee financial expert,” as defined by the rules of the SEC.
Steven A. Shallcross was appointed to serve
on our Board on June 13, 2019. Mr. Shallcross has also served as a member of the Board of Directors of Synthetic Biologics, Inc.
(NYSE American:SYN) since December 6, 2018 and currently serves as Synthetic Biologics’ Chief Executive Officer, a position
he was appointed to on December 6, 2018, and as Synthetic Biologics’ Chief Financial Officer. Mr. Shallcross was appointed
as Synthetic Biologics’ Interim Chief Executive Officer on December 5, 2017 and has served as its Chief Financial Officer,
Treasurer and Secretary since joining Synthetic Biologics in June 2015. Synthetic Biologics is a clinical-stage company focused
on developing therapeutics designed to preserve the microbiome to protect and restore the health of patients.
From May 2013 through May 2015, Mr. Shallcross
served as Executive Vice President and Chief Financial Officer of Nuo Therapeutics, Inc. (formerly Cytomedix, Inc.). In January
2016, Nuo Therapeutics, Inc. filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware and on April 25, 2016, the Bankruptcy Court entered an order granting approval of
Nuo’s plan of reorganization. From July 2012 to May 2013, Mr. Shallcross held the offices of Executive Vice President, Chief
Financial Officer and Treasurer of Empire Petroleum Partners, LLC, a motor fuel distribution company. From July 2011 to March 2012,
Mr. Shallcross was Acting Chief Financial Officer of Senseonics Inc, a privately-held medical device company located in Germantown,
MD. From January 2009 to March 2011, he served as Executive Vice President and Chief Financial Officer of Innocoll AG (formerly
privately held Innocoll Holdings, Inc.), a global, commercial-stage biopharmaceutical company specializing in the development and
commercialization of collagen-based products. He also served as the Chief Financial Officer and Treasurer of Vanda Pharmaceuticals,
Inc. for four years, leading the company through its successful IPO and follow-on offering and previously served as the Senior
Vice President and Chief Financial Officer of Middlebrook Pharmaceuticals, Inc. (formerly Advancis Pharmaceutical Corporation).
In addition, Mr. Shallcross also served as the Chief Financial Officer of Bering Truck Corporation. He holds an MBA from the University
of Chicago’s Booth School of Business, a Bachelor of Science degree in Accounting from the University of Illinois, Chicago,
and is a Certified Public Accountant in the State of Illinois.
We believe that Mr. Shallcross is qualified
to serve as a member of our Board due to his significant strategic, operational, business and financial experience, an established
track record of leading the financial development and strategy for several publicly traded companies and his familiarity with financial
matters facing public reporting companies. Mr. Shallcross has a broad understanding of the financial markets, financial statements
as well as generally accepted accounting principles.
Philippe Blanc was appointed to serve on our
Board of Directors on October 1, 2020. Mr. Blanc has over 34 years of executive business experience in a variety of service, industries
including transport, gaming, fintech and consultancy (IT/ERP for Healthcare sector) sectors. From May 2010 to December 2018, Mr.
Blanc served as the Chief Financial Officer of Italy Region, a division of International Game Technology PLC (NYSE:IGT). In this
context he assumed relevant corporate appointments, from May 2010 to December 2018, he also served as a member of the Board of
Directors of Lottomatica Holding S.r.l. From November 2015 to November 2018, Mr. Blanc served as a member of the Board of Directors
of LIS SPA, an IT and services company, and from July 2016 to November 2018 served as its Chairman. From March 2014 to April 2017,
Mr. Blanc served as the Chief Executive Officer of Cartalis Spa, an e-money company. From May 2008 to April 2010, he served as
Senior Vice Chairman -Long Distance Passengers of Egyptian National Railway (ENR) on behalf of FS Italian Railways. Mr. Blanc currently
serves as an independent strategic advisor.
We believe that Mr. Blanc is qualified to serve
as a member of our Board due to his significant strategic, operational, business and financial experience, an established track
record at leading financial development and strategy as a senior executive at his previous positions and his familiarity with financial
matters. Mr. Blanc has a broad understanding of the gaming industry, financial markets, financial statements.
Except as disclosed herein, no bankruptcy petition
has been filed by or against any business of which any director or executive officer was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to that time.
No current director has been convicted in a
criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences).
No current director has been subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, with the exception
of the specific temporary restrictions that were limited to Canada and were mutually agreed to between Mr. Ciavarella and the Ontario
Securities Commission (“OSC”). As previously disclosed with the SEC, in May 2011, Mr. Ciavarella entered into a Settlement
Agreement with the OSC relating to unauthorized trading that occurred in his accounts in November of 2004, pursuant to which the
OSC acknowledged that Mr. Ciavarella was not involved in, and Mr. Ciavarella acknowledged a failure to monitor the trading in his
accounts, and Mr. Ciavarella agreed to not to trade in securities or act as an officer or director of a Canadian public corporation
for a period of five years that expired on May 17, 2016. In addition, pursuant to the Settlement Agreement, Mr. Ciavarella made
a payment of CDN $100,000 to the OSC for the purpose of educating investors or promoting or otherwise enhancing knowledge and information
of persons regarding the operation of the securities and financial markets
Except as set forth above, no director has
been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated.
We have adopted a code of conduct that applies
to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code
of conduct is posted on our website at www.elysgame.com. If we make any substantive amendments to the code of conduct or
grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature
of the amendment or waiver on our website and in a Current Report on Form 8-K to be filed with the SEC.
Our Board currently consists of five members.
Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly,
the Board of Directors has determined that our three non-employee directors, Messrs. Blanc, Sallwasser and Shallcross, each meet
the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the
SEC, including the rules relating to the independence of the members of our audit committee and compensation committee. Our Board
considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or
director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with
the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards
of the Nasdaq Stock Market and the rules and regulations of the SEC.
Our Board of Directors designated the following
three committees of the Board of Directors: the audit committee, the compensation committee and the nominating and corporate governance
committee. Charters for each of the three committees is available on our website at https://ir.elysgame.com/corporate-governance.
Our audit committee is comprised of Messrs.
Blanc, Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the audit committee. The primary purpose of the audit committee
is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements.
The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting
firm. Specifically, the audit committee’s duties are to recommend to our Board of Directors the engagement of an independent
registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit
committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the external
auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting
and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our
Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member
and who possess an understanding of financial statements and generally accepted accounting principles. The Board has determined
that each member of the audit committee is “independent,” as that term is defined by the rules of the Nasdaq Stock
Market. The Board of Directors believes that each of Messrs. Blanc, Sallwasser and Shallcross qualify as an “audit committee
financial expert” (as defined in Item 407 of Regulation S-K).
Our compensation committee is comprised of
Messrs. Sallwasser and Shallcross. Mr. Shallcross is Chairman of the compensation committee. The compensation committee is responsible
for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits
of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations
regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board
on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans.
The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee,
to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets
in which our securities trade, as applicable. The Board has determined that each member of the compensation committee is “independent,”
as that term is defined by the rules of the Nasdaq Stock Market.
Our nominating and governance committee is
comprised of Messrs. Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the nominating and governance committee. The nominating
and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of
the Board of Directors in advance of annual meetings and whenever individual directors indicate that their status may change; annually
considering new members for nomination to the Board of Directors; causing the Board of Directors to annually review the independence
of directors; and developing and monitoring our general approach to corporate governance issues as they may arise. The Board has
determined that each member of the nominating and governance committee is “independent,” as that term is defined by
the rules of the Nasdaq Stock Market.
Section 16(a) of the Exchange Act requires
the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered
under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC.
Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish
the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on the written representation
of our executive officers and directors and copies of the reports they and 10% or more shareholders have filed with the Commission,
the following transactions were filed late in the fiscal year ended December 31, 2020:
Set forth below is information for the fiscal
years ended December 31, 2020 and 2019 relating to the compensation of each person who served as our principal executive officer
and our executive officers whose compensation exceeded $100,000 (the “Named Executive Officers”).
During the year ended December 31, 2020 and
subsequent thereto, we had no formal employment and other compensation-related agreements with our Named Executive Officers other
than as listed below.
On December 30, 2020, Mr. Ciavarella resigned
as the Chief Executive Officer of the Company and retained the position as Executive Chairman. In connection with Mr. Ciavarella’s
appointment as the Executive Chairman, the Company entered into an amendment, dated December 30, 2020 to his employment agreement,
dated December 31, 2018, as amended on July 5, 2019, by and between the Company and Mr. Ciavarella. Pursuant to the Amendment,
Mr. Ciavarella’s: (i) position at the Company was changed to Executive Chairman; (ii) term of employment was extended three
years to December 31, 2024; and (iii) base salary was increased to $500,000. The Amendment further provides that in lieu of cash,
and to the extent shares are then available for grant under the Company’s 2018 Equity Incentive Plan, as amended, Mr. Ciavarella
may elect to receive, as of the first business day in January of each year of employment, up to 50% of his base salary as a restricted
stock grant of shares of the Company’s common stock under the Plan, vesting monthly over a 12-month period.
On December 31, 2018, effective as of September
13, 2018 (the “Effective Date”), we entered into an employment agreement (the “Ciavarella Agreement”) with
Michele Ciavarella, pursuant to which Mr. Ciavarella agreed to continue to serve as our Chief Executive Officer. Michele Ciavarella
has served as our Chief Executive Officer since June 2011. The Ciavarella Agreement terminates on September 30, 2023, unless earlier
terminated pursuant to the terms of the Ciavarella Agreement (the “Initial Term”). Upon the expiration of the Initial
Term, the term of Mr. Ciavarella’s employment shall automatically be extended for successive one-year periods (the “Successive
Term”) unless either party provides the other party with written notice not less than 60 days prior to the end of any Successive
Term. Pursuant to the terms of the Ciavarella Agreement, as amended on July 5, 2019, Mr. Ciavarella agreed to reduce his base salary
from $395,000 per year, to an annual base salary of $240,000, which base salary may be increased by our Board of Directors, in
its sole discretion. In addition, Mr. Ciavarella is eligible to receive a bonus equal up to 75% of his base salary (the “Targeted
Bonus”) and receive awards pursuant to our equity incentive plan, as determined by the Board of Directors. Mr. Ciavarella
is also eligible to participate in pension, medical, retirement and other benefit plans which are available to our senior officers
and directors. In connection with the salary reduction effected on July 5, 2019, Mr. Ciavarella was granted incentive stock options
under our 2018 Equity Incentive Plan to purchase 39,375 shares of our common stock, having an exercise price of $2.96 per share,
vesting 9,844 shares upon grant and the balance vesting 3,281 shares monthly for nine months and expiring 10 years after grant.
We may terminate Mr. Ciavarella’s employment
at any time without Cause or for Cause (as defined in the Ciavarella Agreement) and Mr. Ciavarella may terminate his employment
at any time. In the event Mr. Ciavarella’s employment is terminated by us without Cause (as defined in the Ciavarella Agreement)
or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella shall be entitled to receive the
following: (i) an amount equal to one times the sum of (A) Mr. Ciavarella’s then base salary and (B) an amount equal to the
highest annual incentive compensation paid to Mr. Ciavarella during the two most recently completed fiscal years (but not more
than the bonus for the-then current fiscal year) payable over a period of twelve months; (ii) in lieu of any incentive compensation
for the year in which such termination occurs, payment of an amount equal to (A) the Targeted Bonus (if any) which would have been
payable to Mr. Ciavarella had Mr. Ciavarella remained in employment with us during the entire year in which such termination occurred,
multiplied by (B) a fraction the numerator of which is the number of days Mr. Ciavarella was employed in the year in which such
termination occurs and the denominator of which is the total number of days in the year in which such termination occurs; (iii)
reimbursement of expenses properly incurred by Mr. Ciavarella; (iv) if Mr. Ciavarella elects to continue medical coverage under
our group health plan, an amount equal to the monthly premiums for such coverage less the amount of employee contributions payable
until the earlier of twelve months and the date Mr. Ciavarella becomes eligible to receive such coverage under a subsequent employer’s
insurance plan; and (v) except as otherwise provided at the time of grant, all outstanding stock options and restricted stock units
issued to Mr. Ciavarella vest in full; provided, however, such vested stock options and restricted stock units shall
not be exercisable after the earlier of (A) 30 days after the termination of Mr. Ciavarella’s employment and (B) the expiration
date of such awards; provided further that, in the event Mr. Ciavarella’s employment is terminated prior to the compensation
committee (the “Committee”) determining the satisfaction of performance criteria applicable with respect to the issuance
of any such award, such award will not vest unless and until such determination has been made by the Committee. In the event Mr.
Ciavarella’s employment is terminated by us without Cause (as defined in the Ciavarella Agreement) or by Mr. Ciavarella for
Good Reason (as defined in the Ciavarella Agreement) and such termination occurs upon, or within two (2) years following, a Change
in Control (as defined in the Ciavarella Agreement), Mr. Ciavarella shall be entitled to receive the payments described in the
foregoing sentence multiplied by three (3) and such amount shall be payable over a period of twenty-four (24) months after termination.
Upon termination by us of Mr. Ciavarella’s
employment for Cause (as defined in the Ciavarella Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued
but unpaid base salary through the termination date and (ii) reimbursement of expenses properly incurred by Mr. Ciavarella payable
on the termination date. In the event Mr. Ciavarella’s employment is terminated for death or Disability (as defined in the
Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination date,
(ii) reimbursement of expenses properly incurred by Mr. Ciavarella and (iii) one times Mr. Ciavarella’s then base salary
payable within 45 days of the termination date. In the event Mr. Ciavarella terminates his employment for any reason other than
Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid
base salary through the termination date and (ii) reimbursement of expenses properly incurred by Mr. Ciavarella payable on the
termination date. To be eligible to receive any of the severance payments upon termination of Mr. Ciavarella’s employment
by us without Cause (as defined in the Agreement) or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement),
Mr. Ciavarella must execute a release of claims in favor of us as set forth in the Ciavarella Agreement.
Effective September 21, 2020, we entered into
a written employment agreement with Mr. Monteverdi to serve as our President (the “Employment Agreement”) for an initial
four-year term, which provides for the following compensation terms:
Mr. Monteverdi is also eligible to participate
in our 2018 Equity Incentive Plan and to participate in our employee benefit plans as in effect from time to time on the same basis
as generally made available to our other senior executives or in the alternative may substitute the payment amount that would be
paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also
provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during
the term of the Employment Agreement, his employment is terminated by us other than for “cause,” death or disability
or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive from us
in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his base salary and
(B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent fiscal years of
the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first
twelve (12) months of the Agreement, the amount shall his MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus
for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable
to Mr. Monteverdi had he remained in employment with us during the entire year in which such termination occurred, multiplied by
(B) a fraction the numerator of which is the number of days Mr. Monteverdi was employed in the year in which such termination occurs
and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be
entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in
third-party medical and welfare benefits for Mr. Monteverdi and his dependents, until the earlier of: (A) a period of twelve (12)
months after the termination date, or (B) the date Mr. Monteverdi becomes eligible to receive such coverage under a subsequent
employer’s insurance plan.
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
Pursuant to the Employment Agreement, Mr. Monteverdi
has also agreed to customary restrictions with respect to the disclosure and use of our confidential information and has agreed
that work product or inventions developed or conceived by him while employed with us relating to our business or our property.
In addition, during the term of his employment and for the 12 month period following his termination of employment for any reason,
Mr. Monteverdi has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the types
services he was authorized, conducted, offered or provided to us, (2) solicit or induce any of our employees or independent contractors
to terminate their employment with us, (3) solicit any actual or prospective customers with whom he had material contact on behalf
of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing
business.
On July 1, 2019, our Board of Directors appointed
Mark Korb as our Chief Financial Officer (as well as principal financial officer and principal accounting officer) effective as
of July 3, 2019. There is no family relationship between Mr. Korb and any of our other officers and directors. In connection with
his appointment, we entered into an Independent Contractor Agreement, dated July 3, 2019 (the “Independent Contractor Agreement”)
with Mr. Korb pursuant to which we agreed to pay Mr. Korb $10,000 a month for his services of approximately forty hours per month
as our Chief Financial Officer. We also agreed in the Independent Contractor Agreement to issue to Mr. Korb incentive stock options
under our 2018 Equity Incentive Plan to purchase 25,000 shares of our common stock, having an exercise price of $2.72 per share,
vesting on the one-year anniversary of the grant and expiring ten years thereafter. The term of the Independent Contractor Agreement
is one year, provided that it may be terminated by either party at any time for any reason upon 30 days prior written notice. Except
as set forth herein, there are no understandings or arrangements between Mr. Korb and any other person pursuant to which Mr. Korb
was appointed as our Chief Financial Officer.
On November 30, 2018, we entered into a three
year employment agreement (the “MacLean Agreement”) with Elizabeth J. MacLean, pursuant to which Ms. MacLean would
serve as our Chief Financial Officer and Chief Compliance Officer effective as of December 1, 2018 (the “Effective Date”).
On May 31, 2019 we notified Ms. MacLean that we were terminating the MacLean Agreement effective immediately. Pursuant to the terms
of the MacLean Agreement, Ms. MacLean received a base salary of $235,000 and was eligible to receive a bonus (the “Bonus”)
and receive awards pursuant to our equity incentive plan as determined by the Board of Directors. Upon termination by us of Ms.
MacLean’s employment during the initial six months following the commencement date (December 1, 2018) with or without Cause
(as defined in the MacLean Agreement), Ms. MacLean was entitled to receive the following: (i) accrued but unpaid base salary through
the May 31, 2019 and (ii) reimbursement of expenses properly incurred by Ms. MacLean payable on the May 31, 2019 termination date.
The matter is subject to legal proceedings brought by Ms. MacLean which the Company has vigorously defended. On March 16, 2021,
the Arizona Court of Appeals denied a Ms. MacLean’s appeal of the trial court’s decision to set aside a default judgement
previously obtained by Ms. MacLean.
Each director is reimbursed for travel and
other out-of-pocket expenses incurred in attending Board of Director and committee meetings.
On July 5, 2019, we adopted a new formal plan
for compensating our director for service in their capacity as directors. The plan was modified during the current year whereby
Directors are entitled to annual compensation at $110,000 a year, payable as to $40,000 in cash and the equivalent of $70,000 in
inventive stock options, however, each director may elect to receive the entire compensation in incentive stock options. The incentive
stock options issued in lieu of cash compensation to the non-executive directors have an exercise price equal to the fair market
value of the common stock on the date of grant and vest monthly for twelve months and expire ten years thereafter. In this regard,
Mr. Sallwasser and Mr. Blanc elected to take all of the non-executive director compensation in the form of incentive stock options
to purchase 55,000 shares of our common stock and Mr. Shallcross elected to take the $40,000 cash compensation and stock options
to purchase 35,000 shares of common stock.
Directors are also entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors.
Our Board of Directors may award special remuneration to any director undertaking any special services on our behalf other than
services ordinarily required of a director.
In September 2018, our stockholders approved
our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board approved an amendment
to the Company’s 2018 Equity Incentive Plan (the “Plan”) to (x) increase the number of shares of common stock
that the Company will have the authority to grant under the plan by an additional 1,850,000 shares of common stock, and (y) to
increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one
calendar year to: (i) chairperson or lead director – 300,000 shares of common stock; and (ii) other non-employee director
- 250,000 shares of common stock, which reflects an increase in the annual limits for awards to be granted to non-employee directors
under the Plan.
On November 20, 2020, the Company held its
2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 1,850,000 shares of common stock.
During July 2019, we issued an aggregate of
95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial
Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938
shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares
of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief
Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele
Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici,
our Vice President Regulatory Affairs. On November 11, 2019 the Company granted options to purchase 70,625 shares of common stock
to various employees at an exercise price of $2.80 per share.
On October 1, 2020, the Board granted to each
of Michele Ciavarella, Alessandro Marcelli, Luca Pasquini, Gabriele Peroni, Frank Salvagni, Beniamino Gianfelici and Mark Korb,
an option to purchase 140,000, 56,000, 58,000, 36,000, 36,000, 35,000 and 58,000 shares of the Company’s common stock, respectively,
under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option awards each vest pro rata
on a monthly basis over a thirty-six month period. The options are exercisable for a period of ten years from the date of grant
and have an exercise price of $2.03 per share. On October 1, 2020, the Board also granted to each of Paul Sallwasser, Steven Shallcross
and Philippe Blanc, as non-executive members of the Board, an option to purchase 55,000, 35,000 and 55,000 shares of the Company’s
common stock, respectively, under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option
awards each vest pro rata on a monthly basis over a twelve month period. The options are exercisable for a period of ten years
from the date of grant and have an exercise price of $2.03 per share. On October 1, 2020, the board granted options to purchase
95,000 shares of common stock to various employees at an exercise price of $2.03 per share.
As of December 31, 2020, there was an aggregate
of 974,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 2,025,062 reserved for future
grants.
During September 2020, in terms of the employment
agreement entered into with Mr. Monteverdi, the Company granted non-plan options to purchase 648,000 shares of common stock that
vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
The tables below set forth, as of April 5,
2021, the beneficial ownership of our common stock (i) by any person or group known by us to beneficially own more than 5% of the
outstanding common stock, (ii) by each director and named executive officer and (iii) by all directors and executive officers as
a group. Unless otherwise indicated, we believe that the beneficial owners of the shares have sole voting and investment power
over such shares. The address of all individuals for whom an address is not otherwise indicated is c/o Elys Game Technology, Corp.
130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4, Canada.
The following includes a summary of transactions
during our fiscal years ended December 31, 2020 and 2019 and our current year to which we have been a party, in which the amount
involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end
for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial
owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements,
which are described under “Executive Compensation”.
Related party payables and receivables represent
non-interest-bearing (payables) receivables that are due on demand.
Gold Street Capital is wholly owned by Gilda
Ciavarella, the spouse of Mr. Ciavarella. Amounts due to Gold Street Capital Corp., the major stockholder of Elys, are for reimbursement
of expenses.
During the year ended December 31, 2020, Gold
Street Capital Corp. advanced to us $36,300 all of which was repaid during the current period.
On September 4, 2019, we issued to Gold Street
15,196 shares of our common stock as payment in settlement of $48,508 of the reimbursable expenses owing to Gold Street. The balance
owing to Gold Street was $0 and $2,551 as of December 31, 2020 and 2019, respectively.
Gold Street Capital acquired certain convertible
notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible notes
was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid subsequent to period end.
As an incentive for extending the maturity
date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants exercisable
at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price of $5.00 per share. Gold Street
Capital was granted two year-warrants exercisable for 9,533 shares of common stock at $3.75 per share and three-year warrants
exercisable for 2,383 shares of common stock at $5.00 per share.
Amounts due to Luca Pasquini is for advances
made to various subsidiaries for working capital purposes and receivables for expense advances.
In February 2018 we provided a loan of €39,048
(approximately $45,000) to Engage IT Services Srl to finance hardware purchased by third-party betting shops. In June 2018, we
increased the loan by €45,675 (approximately $53,000). The loan bears interest at 4.47% and is due in February 2019. This
loan has been repaid in full. During the year ended December 31, 2020, we contracted with Engage IT to provide us software development
services of approximately €706,300 (approximately $806,029) of which approximately €20,000 (approximately $24,456) was
outstanding at December 31, 2020. Luca Pasquini, one of our officers and directors, holds a 34% stake in Engage IT Services Srl.
During the years ended December 31, 2019, we
paid management fees of approximately €120,000 (approximately $134,388) to Ulisse Services, Ltd. to cover call center services
and office set-up expenses.
On January 30, 2019, we acquired all of the
issued and outstanding ordinary shares of VG and Naos. The sellers included Mr. Luca Pasquini, our Vice President of Technology
and a member of our Board of Directors, and Mr. Gabriele Peroni, our Vice President of Business Development, each of whom owned
800 ordinary shares of Naos (20% each of the issued and outstanding shares of Naos). On the closing date of the transaction we
paid to each of Messrs. Pasquini and Peroni €21,600 (approximately $24,660) in cash, issued to each of them 6,490 shares of
our common stock and issued to each of them a note in the principal amount of €478,400 (approximately $546,200). As of December
31, 2020, we made total cash payments to the former shareholders of VG under the VG Share Purchase Agreement equal to €2,166,700
(approximately $2,536,595), and we issued 562,605 shares amounting to €1,500,000 (approximately $1,673,959) of common stock
pursuant to the promissory note. The remaining amounts under the promissory note due to the vendors in cash was €333,300 (approximately
$407,563). As of December 31, 2020, Mr. Pasquini has been paid cash of €333,100 (approximately $175,390) and issued 112,521
shares of common stock valued at €300,000 (approximately $399,061). As of December 31, 2020, Mr. Peroni has been paid cash
of €354,400 (approximately $424,578) and issued 112,521 shares of common stock valued at €300,000 (approximately $334,792).
Our prior non-operating holding company subsidiary Naos was discontinued with effect on December 31, 2019.
In addition, pursuant to the terms of the VG
purchase agreement, we agreed to pay the sellers as an earnout payment in shares of our common stock within one month from the
end of the 2019 fiscal year such number of shares as shall equal to an aggregate amount of €500,000 (approximately $561,000),
if the amounts of bets made by the users through the VGS platform related to our 2019 fiscal year are at least 5% higher than the
amounts of bets made by the users through the VGS platform related to our 2018 fiscal year. Based on 18,449,380 tickets sold in
2019 the VG sellers qualified for the earnout payment of 132,736 shares of common stock equal at a price of $4.23 per share.
We issued promissory notes in the principal
amounts of $300,000 during the year ended December 31, 2020 to Forte Fixtures and Millwork, Inc., a Company controlled by the
brother of our Executive Chairman. The aggregate principal amount of $300,000 together with interest thereon of $22,521 was repaid
in full during the year.
Forte Fixtures and Millworks acquired certain
convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal amount
of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an
aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The
convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending the maturity
date of the convertible debentures, Forte Fixtures was granted two year warrants exercisable for 134,508 shares of common stock
at an exercise price of $3.75 per share and three year warrants exercisable for 33,627 shares of common stock at an exercise price
of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.
Pursuant to Item 407(a)(1)(ii) of Regulation
S-K of the Securities Act, we have adopted the definition of “independent director” as set forth in Rule 5605 of the
Nasdaq stock market. In summary, an “independent director” means a person other than our executive officers or employees
or those of our subsidiaries or any other individual having a relationship which, in the opinion of our board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director
who accepted any compensation from us in excess of $120,000 during any period of 12 consecutive months within the three past fiscal
years. Also, ownership of Ely’s stock will not preclude a director from being independent.
In applying this definition, our board of directors
has determined that each of Paul Sallwasser, Steven Shallcross and Philippe Blanc qualify as an “independent directors”
pursuant to Rule 5605 of the Nasdaq Stock Market.
Audit fees are for professional services for
the audit of our annual financial statements, and for the review of the financial statements included in our filing on Form 10-K
and for services that are normally provided in connection with statutory and regulatory filings or engagements. The Company incurred
audit fees of approximately $383,709 and $15,514 to BDO in connection to audits for the years ended December 31, 2020 and 2019,
respectively.
Audit related fees are funds paid for the assurance
and related services reasonably related to the performance of the audit or the review of our financial statements. We paid no audit
related fees during 2020 and 2019.
No tax fees were paid to BDO for the years
ended December 31, 2020 and 2019.
All other fees are those fees paid for permissible
work that does not fall within any of the three other fees categories set forth above. No other fees were paid during 2020 and
2019.
Our policy is to pre-approve all audit and
permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related
services, tax services and other services. Under our audit committee policy, pre-approval is generally provided for particular
services or categories of services, including planned services, project-based services and routine consultations. In addition,
the audit committee may also pre-approve particular services on a case-by-case basis. All of the services rendered to us in the
past two fiscal years by BDO were pre-approved by our Audit Committee.
All schedules are omitted because
they are not required or the required information is included in the consolidated financial statements or notes thereto.
The exhibits listed in the accompanying
index to exhibits are filed as part of, or incorporated by reference into, the 2020 Annual Report.