Item 8. Financial Statements And Supplementary Data
ELYS TECHNOLOGY GROUP, CORP
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
TO FINANCIAL STATEMENTS
|
Page |
Financial Statements for the Years Ended December 31, 2021 and 2020 |
|
Report of Independent Registered Public Accounting Firm - BDO AG; Zurich, Switzerland; PCAOB ID# 5988) |
F-1 |
Consolidated Balance Sheets as of December 31, 2021 and 2020 |
F-3 |
Consolidated Statements of Operations and Comprehensive income (loss) for the Years Ended December 31, 2021 and 2020 |
F-4 |
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 |
F-5 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 |
F-6 |
Notes to Consolidated Financial Statements |
F-8 |
55
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders
of
Elys Game Technology, Corp.
130 Adelaide St. W, Suite 701
Toronto, Ontario M5H 2K4
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance
sheets of Elys Game Technology, Corp. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements
of operations and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the two years in the
period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December
31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment Assessment of Goodwill and
Intangible Assets
As of December 31, 2021, the Company carried
intangible assets in the amount of $15.6 million and goodwill in the amount of $16.2 million as more fully described in Notes 7 and
8 to the consolidated financial statements. The intangible assets and goodwill are allocated between reporting units. The Company
tests its goodwill and intangible assets with an indefinite useful life annually for impairment or more frequently if indicators for
impairment exist. Impairment for goodwill is determined by comparing the fair value of the respective reporting units to their
carrying amount. For impairment testing of indefinite-lived intangible asset (Ulisse Bookmaker License) the Company fully impaired
the indefinite-lived intangible asset due to the Company's decision not to renew the cash deposits required to retain the license.
The Company determines the fair value of the reporting units using an income-based approach which estimates the fair value using a
discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost
of capital (WACC).
We identified the impairment assessment for goodwill
and intangible assets as a critical audit matter because of the significant estimates and assumptions management makes as part of the
quantitative assessment to estimate the fair value of the reporting unit (goodwill) and the single asset (indefinite-lived intangible
asset). The income approach requires significant management assumptions such as assumptions used in the cash flow forecast and the WACC.
Auditing these significant assumptions and judgements involved a high degree of auditor judgment and an increased extent of effort, including
the need to involve valuation specialists.
F-1
The primary procedures we performed to address this
critical audit matter included:
|
· |
Assessing management's forecast including testing the completeness, accuracy and relevance of underlying data and evaluating significant management assumptions. |
|
· |
Performing a sensitivity analysis on significant assumptions and evaluating the impact on the fair value that would result from change in the assumptions. |
|
· |
Utilizing personnel with specialized knowledge and skill in valuation to assist in: (i) assessing the appropriateness of the fair value model, (ii) evaluating the reasonableness of certain assumptions used including the WACC, and (iii) assessing the reasonableness of the WACC by developing independent estimates and comparing estimates to those utilized by management. |
Fair Value of Contingent Consideration
As of December 31, 2021, the Company carried contingent
purchase consideration in the amount of $13.6 million as more fully described in Note 14 to the consolidated financial statements. The
contingent consideration relates to the business combination of Bookmakers Company US, LLC on July 15, 2021. The contingent consideration
is based upon achievement of certain EBITDA milestones during the next 4 years, payable 50% in cash and 50% in stock, the contingent consideration
is up to $41.8 million. At each reporting period, the Company estimates changes in the fair value of the contingent consideration and
any change in fair value is recognized in the consolidated statements of operations and comprehensive (loss) income.
We identified the fair value of contingent consideration
as a critical audit matter because of the significant estimates and assumptions management makes as part of the quantitative assessment
to estimate the fair value of the contingent consideration. The contingent consideration requires significant management assumptions such
as assumptions regarding future operating results, discount rates and assumptions used in considering the probability of different operating
result scenarios. Auditing these significant assumptions and judgements involved a high degree of auditor judgment and an increased extent
of effort, including the need to involve valuation specialists.
The primary procedures we performed to address this
critical audit matter included:
|
· |
Assessing management's forecast including testing the completeness, accuracy and relevance of underlying data and evaluating significant management assumptions. |
|
· |
Utilizing personnel with specialized knowledge and skill in valuation to assist in: (i) assessing the appropriateness of the fair value model, (ii) evaluating the reasonableness of certain assumptions used including the discount rate, and (iii) assessing the reasonableness of the discount rate by developing independent estimates and comparing estimates to those utilized by management. |
Business Combination
As of July 15, 2021, the Company acquired 100% of
Bookmakers Company US LLC for a consideration of $6 million in cash, the issuance of 1,265,823 shares of the Company's common stock plus
an opportunity for the seller to receive up to an additional $41.8 million based upon achievement of certain EBITDA milestones during
the upcoming four years as more fully described in Note 3 to the consolidated financial statements. The Company determined the fair values
of the tangible and intangible assets acquired and the liabilities assumed using valuation techniques and goodwill using an income-based
approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected
revenue growth and the weighted average cost of capital (WACC).
We identified the valuation assessment for goodwill
and intangible assets from business combination as a critical audit matter because of the significant estimates and assumptions used to
identify and determine the fair value of the tangible and intangible assets acquired and the liabilities assumed. The relief from royalty
method, excess earnings method and probable loss model requires significant management assumptions such as assumptions regarding future
revenues and cash flows, discount rates, royalty rates, attrition rate of acquired customer based, discount rates and assumptions used
in considering the probability of different scenarios. Auditing these significant assumptions and judgements involved a high degree of
auditor judgment and an increased extent of effort, including the need to involve valuation specialists.
The primary procedures we performed to address this
critical audit matter included:
| · | Assessing management's forecast
including testing the completeness, accuracy and relevance of underlying data and evaluating significant management assumptions. |
| · | Utilizing personnel with specialized
knowledge and skill in valuation to assist in: (i) assessing the appropriateness of the fair value model, (ii) evaluating the reasonableness
of certain assumptions used, and (iii) assessing the reasonableness of the discount rates by developing independent estimates and comparing
estimates to those utilized by management. |
Zurich,
Switzerland, April 15, 2022
BDO AG
Christoph Tschumi |
i.V. Eva Waldmeier |
We have served as the Company's auditor since
2019.
5988
F-2
ELYS GAME TECHNOLOGY, CORP
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
Current Assets | |
December 31, 2021 | |
December 31, 2020 |
Cash and cash equivalents | |
$ | 7,319,765 | | |
$ | 18,945,817 | |
Accounts receivable | |
| 271,161 | | |
| 162,141 | |
Gaming accounts receivable | |
| 2,418,492 | | |
| 1,455,710 | |
Prepaid expenses | |
| 968,682 | | |
| 327,190 | |
Related party receivable | |
| 1,413 | | |
| 1,519 | |
Other current assets | |
| 403,972 | | |
| 301,289 | |
Total Current Assets | |
| 11,383,485 | | |
| 21,193,666 | |
| |
| | | |
| | |
Non - Current Assets | |
| | | |
| | |
Restricted cash | |
| 386,592 | | |
| 1,098,952 | |
Property and equipment | |
| 490,079 | | |
| 489,591 | |
Right of use assets | |
| 589,288 | | |
| 687,568 | |
Intangible assets | |
| 15,557,561 | | |
| 10,257,582 | |
Goodwill | |
| 16,164,337 | | |
| 1,663,120 | |
Marketable securities | |
| 7,499 | | |
| 467,500 | |
Total Non - Current Assets | |
| 33,195,356 | | |
| 14,664,313 | |
Total Assets | |
$ | 44,578,841 | | |
$ | 35,857,979 | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Bank overdraft | |
$ | 7,520 | | |
$ | 3,902 | |
Line of credit - bank | |
| — | | |
| 500,000 | |
Accounts payable and accrued liabilities | |
| 6,820,279 | | |
| 7,961,146 | |
Gaming accounts payable | |
| 2,610,305 | | |
| 3,084,768 | |
Taxes payable | |
| 47,787 | | |
| 946,858 | |
Advances from stockholders | |
| 502 | | |
| 565 | |
Deferred purchase consideration, net of discount of $0 and $7,761 | |
| — | | |
| 17,673 | |
Deferred purchase consideration - related parties, net of discount of $0 and $5,174 | |
| — | | |
| 376,954 | |
Promissory notes payable - related parties | |
| 51,878 | | |
| — | |
Operating lease liability | |
| 244,467 | | |
| 238,899 | |
Financial lease liability | |
| 8,347 | | |
| 10,511 | |
Bank loan payable - current portion | |
| 36,094 | | |
| 138,212 | |
Total Current Liabilities | |
| 9,827,179 | | |
| 13,314,035 | |
| |
| | | |
| | |
Non-Current Liabilities | |
| | | |
| | |
Contingent Purchase Consideration | |
| 12,859,399 | | |
| — | |
Deferred tax liability | |
| 3,291,978 | | |
| 1,222,513 | |
Operating lease liability | |
| 340,164 | | |
| 416,861 | |
Financial lease liability | |
| 7,716 | | |
| 17,265 | |
Bank loan payable | |
| 151,321 | | |
| 66,885 | |
Other long-term liabilities | |
| 359,567 | | |
| 664,067 | |
Total Non – Current Liabilities | |
| 17,010,145 | | |
| 2,387,591 | |
Total Liabilities | |
| 26,837,324 | | |
| 15,701,626 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued | |
| — | | |
| — | |
Common stock, $0.0001 par value, 80,000,000 shares authorized; 23,363,732 and 20,029,834 shares issued and outstanding as of December 31, 2021 and 2020 | |
| 2,336 | | |
| 2,003 | |
Additional paid-in capital | |
| 66,233,292 | | |
| 53,064,919 | |
Accumulated other comprehensive (loss) income | |
| (251,083 | ) | |
| 267,948 | |
Accumulated deficit | |
| (48,243,028 | ) | |
| (33,178,517 | ) |
Total Stockholders' Equity | |
| 17,741,517 | | |
| 20,156,353 | |
Total Liabilities and Stockholders’ Equity | |
$ | 44,578,841 | | |
$ | 35,857,979 | |
See notes to consolidated financial statements
F-3
ELYS GAME TECHNOLOGY, CORP
Consolidated Statements of Operations and
Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
2021 |
|
2020 |
|
|
|
|
|
Revenue |
|
$ |
45,546,791 |
|
|
$ |
37,266,367 |
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Selling expenses |
|
|
36,274,752 |
|
|
|
26,109,221 |
|
General and administrative expenses |
|
|
18,817,959 |
|
|
|
13,789,391 |
|
Impairment of indefinite lived assets and goodwill |
|
|
17,350,628 |
|
|
|
4,900,000 |
|
Total Costs and Expenses |
|
|
72,443,339 |
|
|
|
44,798,612 |
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
|
(26,896,548 |
) |
|
|
(7,532,245 |
) |
|
|
|
|
|
|
|
|
|
Other (Expenses) Income |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(20,985 |
) |
|
|
(328,663 |
) |
Amortization of debt discount |
|
|
(12,833 |
) |
|
|
(818,182 |
) |
Change in fair value of contingent purchase consideration |
|
|
11,857,558 |
|
|
|
— |
|
Other expense |
|
|
(49,967 |
) |
|
|
(86,933 |
) |
Loss on extinguishment of convertible debt |
|
|
— |
|
|
|
(719,390 |
) |
(Loss) gain on marketable securities |
|
|
(460,000 |
) |
|
|
290,000 |
|
Total Other Income (Expenses) |
|
|
11,541,561 |
|
|
|
(1,497,793 |
) |
|
|
|
|
|
|
|
|
|
Loss Before income taxes |
|
|
(15,354,987 |
) |
|
|
(9,030,038 |
) |
Income tax benefit (provision) |
|
|
290,476 |
|
|
|
(906,644 |
) |
Net Loss |
|
$ |
(15,064,511 |
) |
|
$ |
(9,936,682 |
) |
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(519,031 |
) |
|
|
444,665 |
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss |
|
$ |
(15,583,542 |
) |
|
$ |
(9,492,017 |
) |
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted |
|
$ |
(0.67 |
) |
|
$ |
(0.71 |
) |
Weighted average number of common shares outstanding - basic and diluted |
|
|
22,500,716 |
|
|
|
14,047,725 |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
F-4
ELYS GAME TECHNOLOGY, CORP
Consolidated Statements of Changes in Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common Stock | |
Additional | |
Accumulated Other | |
| |
|
| |
Shares | |
Amount | |
Paid-In Capital | |
Comprehensive Income | |
Accumulated Deficit | |
Total |
| |
| |
| |
| |
| |
| |
|
Balance at December 31, 2019 | |
| 11,949,042 | | |
$ | 1,194 | | |
$ | 32,218,643 | | |
$ | (176,717 | ) | |
$ | (23,241,835 | ) | |
$ | 8,801,285 | |
Shares issued on conversion of convertible debentures | |
| 230 ,326 | | |
| 23 | | |
| 738,981 | | |
| — | | |
| — | | |
| 739,004 | |
Common stock issued to settle deferred purchase consideration | |
| 354,105 | | |
| 36 | | |
| 1,207,409 | | |
| — | | |
| — | | |
| 1,207,445 | |
Common stock issued to settle liabilities | |
| 8,469 | | |
| 1 | | |
| 46,665 | | |
| — | | |
| — | | |
| 46,666 | |
Public offering proceeds | |
| 4,166,666 | | |
| 417 | | |
| 10,005,832 | | |
| — | | |
| — | | |
| 10,006,249 | |
Expenses related to public offering | |
| — | | |
| — | | |
| (1,040,127 | ) | |
| — | | |
| — | | |
| (1,040,127 | ) |
Proceeds from warrants exercised | |
| 3,278,004 | | |
| 328 | | |
| 8,541,568 | | |
| — | | |
| — | | |
| 8,541,896 | |
Promissory note, related party applied to warrant exercise | |
| 43,222 | | |
| 4 | | |
| 108,052 | | |
| — | | |
| — | | |
| 108,056 | |
Fair value of warrants issued on debt extension | |
| — | | |
| — | | |
| 719,390 | | |
| — | | |
| — | | |
| 719,390 | |
Acquisition of Bookmakers Company US, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Bookmakers Company US, LLC, shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services, shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense | |
| — | | |
| — | | |
| 518,506 | | |
| | | |
| | | |
| 518,506 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| 444,665 | | |
| — | | |
| 444,665 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (9,936,682 | ) | |
| (9,936,682 | ) |
Balance at December 31, 2020 | |
| 20,029,834 | | |
$ | 2,003 | | |
$ | 53,064,919 | | |
$ | 267,948 | | |
$ | (33,178,517 | ) | |
$ | 20,156,353 | |
Common stock issued to settle liabilities | |
| 533,790 | | |
| 53 | | |
| 2,676,849 | | |
| — | | |
| — | | |
| 2,676,902 | |
Proceeds from warrants exercised | |
| 1,509,809 | | |
| 151 | | |
| 3,962,330 | | |
| — | | |
| — | | |
| 3,962,481 | |
Acquisition of Bookmakers Company US, LLC | |
| 1,265,823 | | |
| 127 | | |
| 4,544,177 | | |
| — | | |
| — | | |
| 4,544,304 | |
Shares issued for services | |
| 24,476 | | |
| 2 | | |
| 139,998 | | |
| — | | |
| — | | |
| 140,000 | |
Stock based compensation expense | |
| — | | |
| — | | |
| 1,845,019 | | |
| — | | |
| — | | |
| 1,845,019 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| (519,031 | ) | |
| — | | |
| (519,031 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (15,064,511 | ) | |
| (15,064,511 | ) |
Balance at December 31, 2021 | |
| 23,363,732 | | |
$ | 2,336 | | |
$ | 66,233,292 | | |
$ | (251,083 | ) | |
$ | (48,243,028 | ) | |
$ | 17,741,517 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
See notes to consolidated financial statements
F-5
ELYS GAME TECHNOLOGY, CORP
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
| |
For the years ended December 31, |
| |
2021 | |
2020 |
Cash Flows from Operating Activities | |
| |
|
Net loss | |
$ | (15,064,511 | ) | |
$ | (9,936,682 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 1,351,174 | | |
| 1,058,113 | |
Amortization of debt discount | |
| 12,833 | | |
| 818,182 | |
Impairment of license and goodwill | |
| 17,350,628 | | |
| 4,900,000 | |
Non-cash interest | |
| 9,265 | | |
| 216,268 | |
Change in Fair Value Contingent Consideration | |
| (11,857,558 | ) | |
| — | |
Unrealized (gain) loss on marketable securities | |
| 460,000 | | |
| (290,000 | ) |
Shares issued for services | |
| 140,000 | | |
| — | |
Stock based compensation expense | |
| 1,845,019 | | |
| 518,506 | |
Loss on extinguishment of convertible debt | |
| — | | |
| 719,390 | |
Gain on settlement of liabilities | |
| (7,977 | ) | |
| — | |
Bad debt expense | |
| (98,167 | ) | |
| 13,051 | |
Deferred taxation movement | |
| (196,434 | ) | |
| (93,441 | ) |
| |
| | | |
| | |
Changes in Operating Assets and Liabilities | |
| | | |
| | |
Prepaid expenses | |
| (632,012 | ) | |
| (97,913 | ) |
Accounts payable and accrued liabilities | |
| 1,663,340 | | |
| 78,013 | |
Accounts receivable | |
| (145,367 | ) | |
| (55,750 | ) |
Gaming accounts receivable | |
| (933,273 | ) | |
| (53,047 | ) |
Gaming accounts payable | |
| (270,063 | ) | |
| 1,282,510 | |
Taxes payable | |
| (865,174 | ) | |
| 580,224 | |
Due from related parties | |
| (1,979 | ) | |
| (302 | ) |
Retirement Obligation | |
| 86,480 | | |
| — | |
Other current assets | |
| (44,626 | ) | |
| 187,390 | |
Long term liabilities | |
| (355,109 | ) | |
| (10,005 | ) |
Net Cash used in Operating Activities | |
| (7,553,511 | ) | |
| (165,493 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Acquisition of property and equipment, and intangible assets | |
| (717,080 | ) | |
| (291,501 | ) |
Acquisition of Bookmakers Company US, LLC, net of cash of $26,161 | |
| (5,973,839 | ) | |
| — | |
Net Cash used in Investing Activities | |
| (6,690,919 | ) | |
| (291,501 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from public offering, less expenses related to public offering of $1,040,127 | |
| — | | |
| 8,966,122 | |
Proceeds from warrants exercised | |
| 3,962,482 | | |
| 8,541,896 | |
Proceeds from bank overdraft | |
| 4,047 | | |
| 3,641 | |
Repayment of bank line of credit | |
| (500,000 | ) | |
| (500,000 | ) |
Repayment of bank loan | |
| (133,742 | ) | |
| (62,364 | ) |
Repayment of debentures | |
| (27,562 | ) | |
| (2,778,349 | ) |
Proceeds from promissory note – related party | |
| — | | |
| 300,000 | |
Repayment of promissory note- related party | |
| — | | |
| (200,000 | ) |
Proceeds from Government relief loan | |
| — | | |
| 30,146 | |
Repayment of government relief loan | |
| (27,586 | ) | |
| — | |
Deferred purchase price payments | |
| (410,383 | ) | |
| (1,577,010 | ) |
Repayment of finance leases | |
| (10,172 | ) | |
| (12,666 | ) |
Net Cash provided by Financing Activities | |
| 2,857,084 | | |
| 12,711,416 | |
| |
| | | |
| | |
Effect of change in exchange rate | |
| (951,066 | ) | |
| 1,057,832 | ) |
| |
| | | |
| | |
Net (decrease) increase in cash | |
| (12,338,412 | ) | |
| 13,312,254 | |
Cash and cash equivalents and restricted cash– beginning of the year | |
| 20,044,769 | | |
| 6,732,515 | |
Cash and cash equivalents and restricted cash – end of the year | |
$ | 7,706,357 | | |
$ | 20,044,769 | |
| |
| | | |
| | |
F-6
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statements of Cash Flows | |
| | | |
| | |
| |
| | | |
| | |
Cash and cash equivalents | |
$ | 7,319,765 | | |
$ | 18,945,817 | |
Restricted cash included in non-current assets | |
| 386,592 | | |
| 1,098,952 | |
Total cash and cash equivalents at end of year | |
$ | 7,706,357 | | |
$ | 20,044,769 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information | |
| | | |
| | |
Cash paid during the year for: | |
| | | |
| | |
Interest | |
$ | 39,682 | | |
$ | 741,510 | |
Income tax | |
$ | 805,030 | | |
$ | 359,863 | |
Supplemental cash flow disclosure for non-cash activities | |
| | | |
| | |
Conversion of convertible debt to common stock | |
$ | — | | |
$ | 739,004 | |
Promissory note, related party, applied to warrant exercise | |
$ | — | | |
$ | 108,056 | |
Deferred purchase consideration settled by the issuance of common stock | |
$ | — | | |
$ | 1,207,445 | |
Settlement of liabilities by the issuance of common stock | |
$ | 2,676,902 | | |
$ | 46,666 | |
Acquisition of Bookmakers Company US, LLC by the issuance of common stock | |
$ | 4,544,304 | | |
$ | — | |
See notes to consolidated financial statements
F-7
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
1. Nature of Business
On November 2, 2020, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect its corporate
name change from Newgioco Group, Inc. to Elys Game Technology, Corp.
Established in the
state of Delaware in 1998, Elys Game Technology, Corp (“Elys” or the “Company”), the Company provides Gaming
services in the US market via our recently acquired subsidiary Bookmakers Company US, LLC (“USB”) in certain licensed
states where we offer bookmaking and platform services to the Company’s customers. The Company’s intention is to focus
its attention on expanding the US market. The Company recently began operation in Washington DC through a Class B Managed
Service Provider and Class B Operator license to operate a sportsbook within the Grand Central Bar and Grill located in the Adams
Morgan area of Washington, D.C., and in October 2021 we entered into an agreement with Ocean Resort Casino in Atlantic City, New
Jersey, to provide platform and bookmaking services, Ocean Resort Casino began using the Company’s platform and bookmaking
services in March 2022.
The Company also provides gaming services in
Italy through its subsidiary, Multigioco, which operations are carried out via both land-based or online retail gaming licenses
regulated by the ADM that permits the Company to distribute leisure betting products such as sports betting, and virtual sports
betting products through both physical, land-based retail locations as well as online through our licensed website www.newgioco.it
or commercial webskins linked to the Company’s licensed website and through mobile devices. Management decided to focus its
attention on developing the US market for future growth and allowed the Austrian Bookmakers license, that is regulated by the Austrian
Federal Finance Ministry (“BMF”), to be revoked by not renewing required monetary deposits.
Additionally, the
Company is a global gaming technology company which owns and operates a betting software designed with a unique “distributed
model” architecture colloquially named Elys Game Board (the “Platform”) through its Odissea subsidiary. The Platform
is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations
with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above.
The omni-channel software design is fully integrated with a built in player gaming account management system, built-in sports book
and a virtual sports platform through its Virtual Generation subsidiary. The Platform also provides seamless application programming interface
integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to incorporate
e-sports and daily fantasy sports providers.
Our corporate group
is based in North America, which includes an executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Ontario
through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various
employees, independent contractors and vendors are engaged.
The Company and its subsidiaries are as follows:
Name |
|
Acquisition or Formation Date |
|
Domicile |
|
Functional Currency |
|
|
|
|
|
|
|
Elys Game Technology, Corp. |
|
Parent Company |
|
USA |
|
US Dollar |
Multigioco Srl (“Multigioco”) |
|
August 15, 2014 |
|
Italy |
|
Euro |
Ulisse GmbH (“Ulisse”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Odissea Betriebsinformatik Beratung GmbH
(“Odissea”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Virtual Generation Limited (“Virtual Generation”) |
|
January 31, 2019 |
|
Malta |
|
Euro |
Newgioco Group Inc. (“NG Canada”) |
|
January 17, 2017 |
|
Canada |
|
Canadian Dollar |
Elys Technology Group Limited |
|
April 4, 2019 |
|
Malta |
|
Euro |
Newgioco Colombia SAS |
|
November 22, 2019 |
|
Colombia |
|
Colombian Peso |
Elys Gameboard Technologies, LLC |
|
May 28, 2020 |
|
USA |
|
US Dollar |
Bookmakers Company US, LLC (“USB”) |
|
July 15, 2021 |
|
USA |
|
US Dollar |
F-8
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
1. Nature of Business (continued)
On July
5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers
Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the
“Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement
the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the
Company.
USB is
a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to the terms of the Purchase Agreement,
the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares
of the Company’s common stock with a market value of $4,544,304.
The number of shares issued was calculated using an agreed upon value of $6,000,000 divided
by $4.74 per share, based on the volume weighted average closing price of the stock for the 90 trading days preceding the closing
date.
The Sellers
will have an opportunity to receive up to an additional $38
million 38,000,000 plus a potential premium of 10% (or $3.8 million) based
upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s
stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding
January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder
approval, if the aggregate
number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number
of shares to be issued. Any excess not approved by shareholders or exceeding the
cap will be paid in cash. Refer to footnote 3 and 14 below.
The Company operates in two lines of business:
(i) provider of certified betting platform software services to leisure betting establishments in Italy and 9 other countries and;
(ii) the operating of web based as well as land-based leisure betting establishments situated throughout Italy. The Company’s
operations are carried out through the following three geographically organized groups:
|
a) |
an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta; |
|
b) |
a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and |
|
c) |
a corporate group which is based in North America and maintains an executive suite in Las Vegas, Nevada and a Canadian office in Toronto, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors are engaged. |
F-9
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
The company previously had a secondary listing on
the NEO exchange in Canada, which was terminated with effect from December 31, 2021. For the purposes of its previous listing in Canada,
the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles and Audit
Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy to
National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102CP”) which permits
the Company to prepare its financial statements in accord with U.S. GAAP.
Principles of consolidation
The consolidated financial statements include
the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company transactions
are eliminated upon consolidation.
All amounts referred to in the Notes to the
consolidated financial statements are in United States Dollars ($) unless stated otherwise.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into US Dollars at the exchange rate in effect at year end and the results of operations and cash flows
at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
Revenues were generated in US Dollars, Euros and Colombian Pesos
during the years presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
Business Combinations
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity
securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment
of long-lived intangible assets and goodwill, the collectability of receivables, leasing arrangements, convertible debentures, contingent
purchase consideration, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating
the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s
industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates
that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates
at least quarterly based on these conditions and records adjustments when necessary.
F-10
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Loss Contingencies
The Company may be subject to claims, suits,
government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect
taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or
publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims
for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable
that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and
a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial
Statements.
The Company evaluates, on a regular basis,
developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and
related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment
is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final
resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact
on its business, consolidated financial position, results of operations, or cash flows.
To date, none of these types of litigation
matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial
condition. The Company has insured and continues to insure against most of these types of claims.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that
are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market
participant would use.
The carrying value of the Company's accounts
receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable
approximate fair value because of the short-term maturity of these financial instruments.
F-11
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Derivative Financial Instruments
ASC 815 generally provides three criteria that,
if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be
conventional, as described.
Cash and Cash Equivalents
The Company primarily places cash balances
in the U.S. with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit
Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance
Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of
the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up
to a limit of €100,000 per institution.
Gaming Accounts Receivable
Gaming accounts receivable represent gaming
deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted
method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the
Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded a release from the bad debt provision
of $98,167 and an increase in bad debt provision of $13,051 for the years ended December 31, 2021 and 2020, respectively.
Gaming Accounts Payable
Gaming accounts payable represent customer
balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used
or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers
can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances
are non-interest bearing.
Long Lived Assets
The Company evaluates the carrying value of
its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value
of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the
expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate,
current estimated net sales proceeds from pending offers.
F-12
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Property and Equipment
Property and equipment is stated at acquisition cost
less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic
benefits embodied in an item of property and equipment. All other expenditures are recognized as expenses in the statement of operations
as incurred.
Depreciation is charged on a straight-line
basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put
into operation. The range of the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description |
|
Useful Life
(in years) |
|
|
|
Leasehold improvements |
|
Life of the underlying lease |
Computer and office equipment |
|
3 |
to |
5 |
Furniture and fittings |
|
7 |
to |
10 |
Computer Software |
|
3 |
to |
5 |
Vehicles |
|
4 |
to |
5 |
Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
The range of the estimated useful lives is
as follows:
Intangible
Useful lives |
|
|
|
|
Description |
|
Useful Life
(in years) |
|
|
|
Betting Platform Software |
|
15 |
Ulisse Bookmaker License |
|
Indefinite |
Multigioco and Rifa ADM Licenses |
|
1.5 |
- |
7 |
Location contracts |
|
5 |
- |
7 |
Customer relationships |
|
10 |
- |
18 |
Trademarks/Tradenames |
|
10 |
- |
14 |
Websites |
|
5 |
Non-compete agreements |
|
4 |
The Ulisse Bookmaker License has no expiration
date and is therefore not amortized but is tested from impairment on an annual basis in terms of ASC 350 using estimated fair value.
The company impaired the remaining balance of $4,827,914 of the Ulisse Bookmakers license during the current year.
F-13
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Goodwill
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
The Company annually assesses whether the carrying
value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each
interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount
of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment
charge will be recognized in an amount equal to that excess.
In terms of ASC 350, the Company performed
a qualitative assessment and based on the outcome of the quantitative analysis, performed a quantitative assessment on its goodwill
as of December 31, 2021 and determined that an impairment of $12,522,714 was considered necessary.
Leases
The Company accounts for leases in terms of
ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months
meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the
duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to
retain ownership of the asset at the end of the lease term.
Leases which imply that the Company will retain ownership
at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding financial
liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate
method.
Leases which imply that the Company will not
acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is
reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception.
The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest
rate implied in the operating lease agreement.
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2016 forward,
are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years
for inspection of serious infractions. In the United States and Canada, tax years beginning 2017 forward, are subject to examination.
The Company is not currently under examination and it has not been notified of a pending examination.
F-14
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include
software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software.
Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has
been fulfilled.
| · | License fees are calculated as a percentage of each licensee’s level
of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned. |
| · | Training fees, installation fees are recognized when each task has been
completed. |
| · | Product support services are recognized based on the nature of the agreement
with our customers, ad-hoc support service revenue will be recognized when the task is completed and revenue from product support service
contracts will be recognized on a periodic basis where we charge a recurring fee to provide ongoing support services. |
Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflects the dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential
to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.
Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
F-15
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Recent Accounting Pronouncements
In November 2021, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Disclosures by Entities
about Government Assistance (Topic 832), the update increases the transparency of government assistance, including the following
disclosures: (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance
on an entity’s financial statements.
This ASU is effective for fiscal years beginning
after December 15, 2021.
The effects of this ASU on the Company’s
consolidated financial statements is currently being assessed and is not expected to have an impact on current disclosure.
The FASB issued several additional updates
during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are
expected to have a material impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
|
(i) |
the operating of web based as well as land based leisure betting establishments situated throughout Italy, and |
|
(ii) |
provider of certified betting Platform software services to leisure betting establishments in Italy and 9 other countries. |
3.
Acquisition of subsidiaries
On July
5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers
Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the
“Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement
the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the
Company.
USB is
a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant
to the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance
of 1,265,823 shares of the Company’s common stock with a market value of $4,544,304 on the date of acquisition.
The Sellers
will have an opportunity to receive up to an additional $38,000,000 (undiscounted) plus a potential undiscounted premium of 10%
(or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50%
in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock
for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending
December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase
Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved
by shareholders or exceeding the cap will be paid in cash. The fair value of the contingent purchase consideration of
$24,716,957 was estimated by applying the income approach, which uses significant assumptions (Level 3 assumptions) which are not
readily available in the market.
The goodwill
of $27,024,383 arising on consolidation consists largely of the reputation and knowledge of USB in the sports betting market in
the US markets which should facilitate the Company’s penetration into the U.S. market.
None
of the goodwill is expected to be deducted for income tax purposes.
F-16
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
3. Acquisition of subsidiaries (continued)
In terms
of the agreement, the purchase price was allocated to the fair market value of tangible and intangible assets acquired
and liabilities assumed as follows:
| |
Amount |
Consideration | |
| |
Cash | |
$ | 6,000,000 | |
1,265,823 shares of common stock at fair market value | |
| 4,554,304 | |
Contingent purchase consideration | |
| 24,716,957 | |
Total purchase consideration | |
$ | 35,261,261 | |
Recognized amounts of identifiable assets acquired and liabilities assumed | |
| | |
Cash | |
| 26,161 | |
Other Current assets | |
$ | 151,284 | |
Property and equipment | |
| 788 | |
Other non-current assets | |
| 4,000 | |
Tradenames/Trademarks | |
| 1,419,000 | |
Customer relationships | |
| 7,275,000 | |
Non-compete agreements | |
| 2,096,000 | |
| |
$ | 10,972,233 | |
Less: liabilities assumed | |
| | |
Current liabilities assumed | |
$ | (264,135 | ) |
Non-current liabilities assumed | |
| (205,320 | ) |
Imputed Deferred taxation on identifiable intangible acquired | |
| (2,265,900 | ) |
| |
$ | (2,735,355 | ) |
Net identifiable assets acquired and liabilities assumed | |
| 8,236,878 | |
Goodwill | |
| 27,024,383 | |
Total purchase consideration | |
$ | 35,261,261 | |
The amount
of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for
the year ended December 31, 2021 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020.
Proforma Revenue and Earnings |
|
Revenue |
|
Earnings |
|
|
|
|
|
|
|
|
|
Actual from July 15, 2021 to December 31, 2021 |
|
$ |
363,030 |
|
|
$ |
(398,279 |
) |
|
|
|
|
|
|
|
|
|
2021 Supplemental pro forma from January 1, 2021 to December 31, 2021 |
|
$ |
45,957,894 |
|
|
$ |
(15,887,232 |
) |
|
|
|
|
|
|
|
|
|
2020 Supplemental pro forma from January 1, 2020 to December 31, 2020 |
|
$ |
37,607,873 |
|
|
$ |
(11,491,873 |
) |
The 2021 Supplemental pro
forma information was adjusted to exclude $125,479 of non-recurring acquisition costs, in addition, the 2021 and 2020 supplemental
pro forma information was adjusted to account for amortization of intangibles on acquisition of $579,519 and $1,070,067, respectively.
F-17
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
4. Restricted Cash
Restricted cash consists of the following:
|
· |
cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against a bank loan with Intesa Sanpaolo Bank for Multigioco. In the prior year we held funds at Wirecard Bank as a security deposit for Ulisse betting operations, this deposit was returned during the current year. |
|
· |
In the prior year, the Company maintained a $500,000 security deposit at Metropolitan Commercial Bank as security against a $500,000 line of credit, refer note 10 below. |
5. Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021 |
|
December 31, 2020 |
|
|
Cost |
|
Accumulated depreciation |
|
Net book
value |
|
Net book
value |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
62,338 |
|
|
$ |
(35,078 |
) |
|
$ |
27,260 |
|
|
$ |
39,707 |
|
Computer and office equipment |
|
|
1,000,849 |
|
|
|
(777,635 |
) |
|
|
223,214 |
|
|
|
247,572 |
|
Fixtures and fittings |
|
|
385,871 |
|
|
|
(250,438 |
) |
|
|
135,433 |
|
|
|
54,465 |
|
Vehicles |
|
|
99,467 |
|
|
|
(54,630 |
) |
|
|
44,837 |
|
|
|
63,382 |
|
Computer software |
|
|
224,854 |
|
|
|
(165,519 |
) |
|
|
59,335 |
|
|
|
84,465 |
|
|
|
$ |
1,773,379 |
|
|
$ |
(1,283,300 |
) |
|
$ |
490,079 |
|
|
$ |
489,591 |
|
The aggregate depreciation charge to operations
was $230,033 and $354,552 for the years ended December 31, 2021 and 2020, respectively. The depreciation policies followed by the
Company are described in Note 2.
6. Leases
The Company’s portfolio of leases contains both finance and
operating leases that relate to real estate agreements, vehicles and office equipment agreements.
Operating leases
Real estate agreements
The Company has several property lease agreements in Italy and Austria
and one lease agreement in the US, which have terms in excess of a twelve month period, these property leases are for our administrative
operations in these countries. The Company does not and does not intend to take ownership of the properties at the end of the lease
term.
Vehicle agreements
The Company leases several vehicles for business
use purposes, the terms of these leases range from twenty four to thirty six months. The Company does not and does not intend to
take ownership of the vehicles at the end of the lease term.
F-18
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Finance Leases
Office equipment agreements
The Company has entered into several finance leases for office equipment,
the term of these leases range from thirty six to sixty months. The Company takes ownership of the office equipment at the end
of the lease term.
Right of use assets
Right of use assets included in the consolidated balance sheet are
as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
Non-current assets |
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization |
|
$ |
589,288 |
|
|
$ |
687,568 |
|
Right of use assets - finance leases, net of depreciation – included in property and equipment |
|
$ |
15,520 |
|
|
$ |
27,119 |
|
Lease costs consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2021 |
|
2020 |
Finance lease cost: |
|
$ |
10,906 |
|
|
$ |
14,040 |
|
Amortization of right-of-use assets |
|
|
10,102 |
|
|
|
12,870 |
|
Interest expense on lease liabilities |
|
|
804 |
|
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
|
244,639 |
|
|
|
265,081 |
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
255,545 |
|
|
$ |
279,121 |
|
Other lease information:
|
|
Year ended December 31, |
|
|
2021 |
|
2020 |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows from finance leases |
|
$ |
(804 |
) |
|
$ |
(1,170 |
) |
Operating cash flows from operating leases |
|
|
(244,639 |
) |
|
|
(265,081 |
) |
Financing cash flows from finance leases |
|
|
(10,172 |
) |
|
|
(12,666 |
) |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new finance leases |
|
|
- |
|
|
|
470 |
|
Right-of-use assets disposed of under operating leases prior to lease maturity |
|
|
(224,793 |
) |
|
|
(21,588 |
) |
Right-of -use assets obtained in exchange for new operating leases |
|
$ |
406,276 |
|
|
$ |
84,918 |
|
Weighted average remaining lease term – finance leases |
|
|
1.93 years |
|
|
|
2.74 years |
|
Weighted average remaining lease term – operating leases |
|
|
2.60 years |
|
|
|
2.83 years |
|
Weighted average discount rate – finance leases |
|
|
3.73 |
% |
|
|
3.65 |
% |
Weighted average discount rate – operating leases |
|
|
2.73 |
% |
|
|
3.59 |
% |
F-19
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
6. Leases (continued)
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
as of December 31, 2021 is as follows:
Finance lease liability |
|
Amount |
2022 |
|
$ |
8,802 |
|
2023 |
|
|
7,053 |
|
2024 |
|
|
818 |
|
Total undiscounted minimum future lease payments |
|
|
16,673 |
|
Imputed interest |
|
|
(611 |
) |
Total finance lease liability |
|
$ |
16,063 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
8,347 |
|
Non-Current portion |
|
|
7,716 |
|
|
|
$ |
16,063 |
|
Operating lease liability
The amount of future minimum lease payments
under operating leases as of December 31, 2021 is as follows:
Operating lease liability | |
Amount |
2022 |
|
$ |
257,455 |
|
2023 |
|
|
190,132 |
|
2024 |
|
|
80,541 |
|
2025 |
|
|
46,416 |
|
2026 |
|
|
31,741 |
|
Total undiscounted minimum future lease payments |
|
|
606,285 |
|
Imputed interest |
|
|
(21,654 |
) |
Total operating lease liability |
|
$ |
584,631 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
244,467 |
|
Non-Current portion |
|
|
340,164 |
|
|
|
$ |
584,631 |
|
F-20
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7. Intangible Assets
Licenses obtained by the Company in the acquisitions
of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based
licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License
through the acquisition of Ulisse.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2021 | |
December 31, 2020 |
| |
Cost | |
Impairment charge | |
Accumulated amortization | |
Net book value | |
Net book value |
Betting platform software | |
$ | 6,149,537 | | |
$ | — | | |
$ | (1,403,642 | ) | |
$ | 4,745,895 | | |
$ | 4,673,314 | |
Licenses | |
| 5,794,966 | | |
| (4,827,914 | ) | |
| (963,639 | ) | |
| 3,413 | | |
| 4,917,733 | |
Location contracts | |
| 1,000,000 | | |
| — | | |
| (1,000,000 | ) | |
| — | | |
| 88,455 | |
Customer relationships | |
| 8,145,927 | | |
| — | | |
| (607,394 | ) | |
| 7,538,533 | | |
| 509,237 | |
Trademarks | |
| 1,537,817 | | |
| — | | |
| (123,930 | ) | |
| 1,413,887 | | |
| 68,843 | |
Non-compete agreement | |
| 2,096,000 | | |
| — | | |
| (240,167 | ) | |
| 1,855,833 | | |
| — | |
Websites | |
| 40,000 | | |
| — | | |
| (40,000 | ) | |
| — | | |
| — | |
| |
$ | 24,764,247 | | |
$ | (4,827,914 | ) | |
$ | (4,378,772 | ) | |
$ | 15,557,561 | | |
$ | 10,257,582 | |
F-21
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
7. Intangible Assets (continued)
The Company recorded $1,120,757 and $703,191
in amortization expense for finite-lived assets for the year ended December 31, 2021 and 2020, respectively, and an impairment
provision of $4,827,914 and $4,900,000 against indefinite lived licenses.
The estimated amortization expense over the next five-year period
is as follows:
Amortization Expense |
|
Amount |
|
|
2021 |
|
$ |
1,552,219 |
|
|
2022 |
|
|
1,548,806 |
|
|
2023 |
|
|
1,548,806 |
|
|
2024 |
|
|
1,308,640 |
|
|
2025 |
|
|
1,024,805 |
|
|
Total estimated amortization expense |
|
$ |
6,983,276 |
|
The Company evaluates intangible assets for
impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible
asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
In assessing the impairment of indefinite lived
licenses, the Company first performed a qualitative impairment test to determine if any impairment indicators were present, impairment
indicators were noted for indefinite life intangibles assets in the Ulisse operation.
The impairment process used was as follows:
|
· |
based on qualitative impairment indicators bring present; |
|
· |
the Company utilized management’s December 2022 annual operational budget cash flows for the 2022 year together with forecasted cash flows for the next four-year period ending in 2026; |
|
· |
the budgeted and forecasted cash flows were adjusted for taxation at the Company’s current effective tax rate; |
|
· |
working capital cash flow movements were estimated for the budget and the forecast period using historical experience; |
|
· |
property and equipment cash flow additions for the budget and forecast
period were estimated using historical experience and known cash flows; |
|
· |
net cash flow as determined by the above, were forecast in perpetuity by using the forecast growth rate and the Company’s estimated Weighted Average Cost of Capital (“WACC”); |
|
· |
The forecast future cash flows were discounted back to present value using the WACC; |
|
· |
WACC was determined by comparing the Company’s beta to that of certain peer companies and determining what a reasonable WACC was compared to our calculated internal WACC, we determined that due to recent volatility in the Company’s common stock price that a reasonable peer WACC is 14.75%. |
The COVID-19 pandemic has resulted in the closure
of our land-based operations in the Italian market for an extended period of time and as the pandemic evolved and the markets in
which the Company operated continued to experience resurgences of the virus, we remain uncertain as to the long-term impact on
the Company’s land-based operations. As such, the Company has made a strategic decision to transfer its Ulisse customer relationships
in Italy to Multigioco ahead of license renewals which are expected to take place within the next one to two years. The combined
Multigioco and Ulisse business under the Multigioco entity, which is an Italian based operator, substantially increases the Company’s
market share in Italy, and may improve the possibility of renewing our Italian licenses. Ulisse is based in Austria and during
the fourth quarter of 2021, management decided to apply its limited resources and concentrate all of its efforts on developing
the US and North American markets, thereby deciding to allow the Austrian bookmaking license to lapse by not renewing the cash
deposits required to retain the license. The license under which Ulisse operated in Italy, was not transferable to Multigioco and
accordingly, based on a quantitative impairment analysis, an impairment charge of the remaining carrying value of the license of
$4,827,914 is considered appropriate.
The Company believes that the remaining carrying
amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating
that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets
may be further impaired.
F-22
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
8. Goodwill
| |
December 31, 2021 | |
December 31, 2020 |
Cost | |
| | | |
| | |
Opening balance as of January 1, | |
$ | 1,663,120 | | |
$ | 1,663,385 | |
Acquisition of USB | |
| 27,024,383 | | |
| — | |
Foreign exchange movements | |
| (452 | ) | |
| (265 | ) |
Closing balance as of December 31. | |
| 28,687,051 | | |
| 1,663,120 | |
| |
| | | |
| | |
Accumulated Impairment charge | |
| | | |
| | |
Opening balance as of January 1, | |
| — | | |
| — | |
Impairment charge | |
| (12,522,714 | ) | |
| — | |
Closing balance as of December 31, | |
| (12,522,714 | ) | |
| — | |
| |
| | | |
| | |
Goodwill, net of impairment charges | |
$ | 16,164,337 | | |
$ | 1,663,120 | |
Goodwill represents the excess purchase price
paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company evaluates goodwill for impairment
on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment
is determined by comparing the fair value of the reporting unit to its carrying amount with an impairment being recognized only
when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
As discussed under note 14 below - contingent purchase
consideration, management recently reviewed the future revenue and profit projections of USB based on the
forecasts provided by the vendors at the time of performing the business valuation, factoring in the ability to source new customers.
The customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired
over the forecast period and the resultant downward impact on forecasted revenue streams. The Company reviewed the forecasts and made
appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party market
analysts, the Company’s expected share of revenue and the expectation of how many new clients the Company would realistically be
able to add over the forecast period. Management is currently forecasting expected discounted cash flows over the forecast period to be
approximately 40% lower than originally estimated. This has a significant impact on the current valuation of USB, resulting in a goodwill
impairment charge of approximately $12,522,714.
9. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
On December 31, 2021, the shares of Zoompass
were last quoted at $0.003 per share on the OTC market, resulting in an unrealized loss recorded to earnings related to these securities
of $460,000, The Company recorded an unrealized gain of $290,000 for the year ended December 31, 2020.
10. Line of Credit - Bank
The Company withdrew its security deposit of
$500,000 during the current fiscal year thereby cancelling the $500,000 secured revolving line of credit from Metropolitan Commercial
Bank in New York. In the prior year, $500,000 was drawn as of December 31, 2020, which bore interest at a fixed rate of 3% on the
outstanding balance with an interest only monthly minimum payment, and no maturity date, provided the security deposit of $500,000
remained in place, see Note 4.
F-23
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures
On February 26, 2018, the Company issued debenture
units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of
(i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two
years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise
price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February
25, 2020, and (iii) 20 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate
principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 20,938 shares of the Company’s
common stock and 13,875 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
In April 2018, the Company issued debenture
units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20
shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of
CDN $135,000 ($105,200) debentures and received warrants to purchase up to 4,218.75 shares of the Company’s common stock
and 2,700 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private
Placement debentures plus any accrued and unpaid interest may have been converted into shares of the Company’s common stock
at a price equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On April 19, 2018, the Company re-issued debenture
units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various
debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April
19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing
interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up
to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial
Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 shares of restricted common stock. The investors
in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants
to purchase up to 44,875 shares of the Company’s common stock and 28,720 restricted shares of common stock. As a result of
the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the
whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest could have been
converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants could have been
exercised at a price equal to $4.00 per share.
On May 11, 2018, the Company issued debenture
units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture
in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date
of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the
lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii)
20 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount
of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 4,093.75 shares of the Company’s common stock
and 2,620 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price
of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private
Placement plus any accrued and unpaid interest could have been converted into shares of the Company’s common stock at a price
equal to $3.20 per share and the warrants could have been exercised at a price equal to $4.00 per share.
On May 31, 2018, the Company closed a private
placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited
investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations.
Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in
the principal amount of $1,000 (the “U.S. Debentures”) maturing on May 31, 2020, (ii) 26 shares of our common stock
and (ii) warrants to purchase up to 135.25 shares of the Company’s common stock (the “U.S. Warrants”). Each unit
sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the
principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”),
(ii) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 shares of our common stock (the “Canadian Warrants”
and together with the U.S. Warrants, the “May Warrants”).
The proceeds received from the convertible
debentures were net of finders fees paid to certain brokers. In addition, the Company also issued: (i) shares of common stock to
the convertible debenture holders; (iii) certain two year warrants exercisable for shares of common stock at an exercise price
of $4.00 per share; (iii) in conjunction with the finders fees paid, the Company also issued warrants to certain brokers on the
same terms and conditions as the warrants issued to the convertible debenture holders.
The convertible debentures were convertible
into shares of common stock at a conversion price of $3.20 per share.
The May Warrants and broker warrants were exercisable
at an exercise price of $4.00 per share and expired on May 31, 2020.
F-24
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
11. Convertible Debentures (continued)
The accounting treatment of the above is as
follows:
|
(i) |
The convertible debentures were recorded at gross value; |
|
(ii) |
The cash fee paid to the brokers was $427,314 and the fair value of the warrants issued to the brokers were valued at fair value as described in (iv) below and were recorded as a debt discount against the gross value of the convertible debentures; |
|
(iii) |
The shares of common stock issued to the convertible debenture holders were valued at $582,486, the market price of the common stock on the date of issue and were recorded as debt discount against the gross value of the convertible debt; |
|
(iv) |
The warrants issued to the convertible debenture holders and brokers were valued at $2,929,712 using a Black-Scholes valuation model. These warrants were equity classified with a beneficial conversion feature. |
The total debt discount above amounted to $6,524,567
which was being amortized over the two year life of the debentures on a straight line basis.
Convertible debentures of $10,000
and CDN $65,000
(approximately $48,416)
that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000
was acquired by a related party prior to extension, and a further $600,000
and CDN $242,000
(approximately $180,257)
that had matured, had the maturity date extended to September
28, 2020, of which $500,000
and CDN $207,000
were acquired by a related party, prior to extension.
As an incentive for extending the maturity
date of the convertible debentures, the debenture holders were granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share, of which 144,041 were granted to related parties and three year warrants exercisable
for 72,729 shares of common stock at an exercise price of $5.00 per share, of which 36,010 were issued to related parties. All
of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were
repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in 2021.
During the year ended December 31, 2020, investors
in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600, including interest thereon
of CDN $45,029 and investors in US Dollar convertible debentures converted the aggregate principal amount of $400,000, including
interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate convertible debentures outstanding consists of the
following:
Convertible Debentures | |
December
31, 2021 | |
December 31, 2020 |
Principal Outstanding | |
| | | |
| | |
Opening balance | |
$ | 27,442 | | |
$ | 3,464,737 | |
Repaid | |
| (27,562 | ) | |
| (2,778,349 | ) |
Conversion to equity | |
| — | | |
| (634,431 | ) |
Foreign exchange movements | |
| 120 | | |
| (24,515 | ) |
| |
| — | | |
| 27,442 | |
Accrued Interest | |
| | | |
| | |
Opening balance | |
| 7,105 | | |
| 524,227 | |
Interest expense | |
| 4,696 | | |
| 207,595 | |
Repaid | |
| (11,833 | ) | |
| (619,992 | ) |
Conversion to equity | |
| — | | |
| (103,958 | ) |
Foreign exchange movements | |
| 32 | | |
| (767 | ) |
| |
| — | | |
| 7,105 | |
Debenture Discount | |
| | | |
| | |
Opening balance | |
| — | | |
| (627,627 | ) |
Amortization | |
| — | | |
| 627,627 | |
| |
| — | | |
| — | |
Convertible Debentures, net | |
$ | — | | |
$ | 34,547 | |
F-25
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
12. Deferred Purchase Consideration
In terms of the acquisition of Virtual Generation
on January 31, 2019, the Company issued non-interest bearing promissory notes of €3,803,000 owing to both related parties
and non-related parties. The value of the promissory notes payable related parties was €1,521,200 and to non-related parties
was €2,281,800.
The promissory notes payable to non-related
parties are to be settled as follows:
|
(a) |
an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly installments of €62,400 with the first such payment due and payable on the date that was one month after the Closing Date; and |
|
(b) |
an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly installments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced on March 1, 2019. |
Pursuant to the terms of the Purchase Agreement
that the Company entered into with Virtual Generation, the Company agreed to pay the sellers of Virtual Generation an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the Virtual Generation platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380
tickets sold in 2019 the Virtual Generation sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per
share, which shares were issued effective January 2020. The amount due to the non-related party Virtual Generation sellers amounted to €300,000
(approximately $336,810).
The future payments on the promissory notes
were discounted to present value using the Company’s average cost of funding of 10%. The discount was being amortized over
the repayment period of the promissory note using the effective interest rate method.
During the year ended December 31, 2021, the Company paid the remaining
balance of €20,800 (Approximately $25,262) to non-related parties in terms of the Virtual
Generation promissory note.
The movement on deferred purchase consideration
consists of the following:
Deferred Purchase ConsiderationDescription | |
December 31, 2021 | |
December 31, 2020 |
Principal Outstanding | |
| |
|
Promissory note due to non-related parties | |
$ | 25,434 | | |
$ | 1,802,384 | |
Settled by the issuance of common shares | |
| — | | |
| (724,467 | ) |
Repayment in cash | |
| (25,262 | ) | |
| (1,105,455 | ) |
Foreign exchange movements | |
| (172 | ) | |
| 52,972 | |
| |
| — | | |
| 25,434 | |
Present value discount on future payments | |
| | | |
| | |
Present value discount | |
| (7,761 | ) | |
| (120,104 | ) |
Amortization | |
| 7,700 | | |
| 114,333 | |
Foreign exchange movements | |
| 61 | | |
| (1,990 | ) |
| |
| — | | |
| (7,761 | ) |
Deferred purchase consideration, net | |
$ | — | | |
$ | 17,673 | |
F-26
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
13. Bank Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately $545,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The
loan has an underlying interest rate of 4.5% above the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized
over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017.
In terms of a directive by the Italian Government,
in order to provide financial relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a
period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remains the same at 4.5%
above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971.
The Company made payments of €119,641
(approximately $141,578) which included principal of €113,029 (approximately $133,754) and interest of €6,612 approximately
$7,824) for the year ended December 31, 2021.
Included in bank loans is a Small
Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of USB with a principal outstanding
of $150,000. The SBA Loan bears interest at 3.75% per annum and is repayable in monthly installments of $731 which began in June
2021, and matures in May 2050. The SBA Loan is collateralized by all of USB’s tangible and intangible assets.
Since
acquisition of USB, The Company has repaid capital of $1,168 and has total accrued and unpaid interest of $5,524 on this loan as
of December 31, 2021.
The maturity of bank loans payable as of December 31, 2021 is as
follows:
|
|
Amount |
2022 |
|
$ |
36,094 |
|
2023 |
|
|
3,151 |
|
2024 |
|
|
3,272 |
|
2025 |
|
|
3,396 |
|
2026 and thereafter |
|
|
141,502 |
|
Total finance lease liability |
|
$ |
187,415 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
36,094 |
|
Non-Current portion |
|
|
151,321 |
|
|
|
$ |
187,415 |
|
14.
Contingent Purchase Consideration
In
terms of the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional
$38,000,000 plus a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones
during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average
price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year
for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number
of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number
of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash.
F-27
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
14. Contingent Purchase Consideration (continued)
The
Company had an independent third party valuation entity perform a Purchase Price Analysis which included the probability of the Sellers
achieving the additional proceeds of $41,800,000.
Contingent purchase
consideration is considered at each reporting period. Contingent purchase consideration is based on cumulative EBITDA for the period July
15, 2021 to December 31, 2025, with the first measurement period being December 31, 2022. The forecasts provided by the vendors at the
time of performing the business valuation was based on achieving a certain number of new customers on an annual basis. The customer acquisition
process has proven to take longer than expected with a resultant impact on forecasted revenue streams over the contingent earnout period.
Management revised its estimated revenues as of December 31, 2021. These forecasts were reviewed and adjusted to ensure they appeared
reasonable based on the Company’s current understanding of addressable market, the growth rates forecast by third party market analysts,
our expected share of revenue and the expectation of how many new clients we would realistically be able to add in a fiscal period. The
most significant impact on the contingent purchase consideration is expected to be in the 2022 fiscal year, where the Company currently
forecast that no contingent purchase consideration will be payable. This has a knock-on effect on the future 2023 to 2024 fiscal periods
as the calculation of contingent purchase consideration is based on cumulative EBITDA.
Any change in the fair value
of contingent purchase consideration is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The
estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results,
discount rates, and probabilities assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement
of the stated unadjusted accumulated EBITDA milestones and the methodology in determining the number of shares to be issued during each
earnout period and the potential restriction on the number of shares available for issue, the contingent purchase consideration is classified
as a liability.
|
|
December 31, 2021 |
Opening balance as of January 1, |
|
$ |
— |
|
Contingent purchase consideration measured on the acquisition of USB |
|
|
24,716,957 |
|
Settled by the issuance of common shares |
|
|
— |
|
Repayment in cash |
|
|
— |
|
Changes in fair value |
|
|
(11,857,558 |
) |
Closing balance as of December 31, |
|
$ |
12,859,399 |
|
F-28
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
15. Other Long-term Liabilities
Other long-term liabilities represent the following:
|
|
Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement; |
|
· |
In the prior year, shop deposits that were previously held by Ulisse. |
Balances of other long-term liabilities were
as follows:
Other long-term liabilities | |
December 31, 2021 | |
December 31, 2020 |
Severance liability |
|
$ |
359,567 |
|
|
$ |
297,120 |
|
Customer deposit balance |
|
|
— |
|
|
|
366,947 |
|
Total other long term liabilities |
|
$ |
359,567 |
|
|
$ |
664,067 |
|
16. Related Parties
Notes Payable, Related Party
On March 11, 2020, the Company received an
advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a Company
controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
Note Payable, Related Party | |
December 31, 2021 | |
December 31, 2020 |
Principal Outstanding |
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
— |
|
|
$ |
— |
|
Additions |
|
|
— |
|
|
|
300,000 |
|
Repayment |
|
|
— |
|
|
|
(200,000 |
) |
Applied to warrant exercise |
|
|
— |
|
|
|
(100,000 |
) |
Settled by issuance of common shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Accrued Interest |
|
|
|
|
|
|
|
|
Opening balance |
|
|
— |
|
|
|
— |
|
Interest expense |
|
|
— |
|
|
|
22,521 |
|
Repayment |
|
|
— |
|
|
|
(14,465 |
) |
Applied to warrant exercise |
|
|
— |
|
|
|
(8,056 |
) |
Conversion to equity |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Promissory Notes Payable – Related Party |
|
$ |
— |
|
|
$ |
— |
|
Convertible notes acquired, Related Party
Forte Fixtures and Millworks, Inc. acquired
certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal
amount of $150,000
and only the accrued interest of $70,000
on a note with an aggregate principal amount of $350,000
and notes with an aggregate principal amount of CDN $207,000,
the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest
thereon, amounting to $445,020
were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending the maturity date
of the convertible debentures, Forte Fixtures and Millworks, Inc., was granted 2
two year warrants exercisable for 134,508
shares of common stock at an exercise price of $3.75
per share and 3
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.
F-29
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Deferred Purchase consideration, Related
Party
In terms of the acquisition of Virtual Generation on January
17, 2019, the Company issued non-interest bearing promissory notes in the principal amount of €3,803,000 owing to both related
parties and non-related parties. The value of the promissory notes payable to non-related parties was €2,281,800 and to related
parties was €1,521,200.
The related party promissory notes are due
to Luca Pasquini, an employee and previously a director of the Company and Gabriele Peroni, an employee and previously an officer
of the Company.
The promissory notes were to be settled as
follows:
|
(a) |
an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the closing of the acquisition (the “Closing Date”); and |
|
(b) |
an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019. |
Pursuant to the terms of the Purchase Agreement
that the Company entered into with Virtual Generation, the Company agreed to pay the Virtual Generation Sellers an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the Virtual Generation platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380
tickets sold in 2019 the Virtual Generation sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per
share, which shares were issued effective January 2020.
The amount due to the related party Virtual Generation Sellers
amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094 shares of common
stock at $4.23 per share.
During the first and second quarter, the Company paid the remaining balance
of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration
consists of the following:
F-30
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Related
party (payables) receivables
Related
party payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.
The balances
outstanding are as follows:
Related Party Receivables |
| |
December 31, 2021 | |
December 31, 2020 |
|
Related Party payables | |
| | | |
| | |
Related Party payables |
Luca Pasquini | |
$ | (502 | ) | |
$ | (565 | ) |
Related Party payables |
Victor Salerno | |
| (51,878 | ) | |
| — | |
Related Party payables |
| |
| (51,380 | ) | |
$ | (565 | ) |
|
| |
| | | |
| | |
|
Related Party Receivables | |
| | | |
| | |
Related Party Receivables |
Luca Pasquini | |
$ | 1,413 | | |
$ | 1,519 | |
Gold Street
Capital
Gold Street Capital
is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital acquired
certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible
notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid during the current
year.
As an incentive for extending
the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants
exercisable at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price of $5.00 per share. Gold
Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock at $3.75 per share and three-year warrants exercisable
for 2,383 shares of common stock at $5.00 per share.
Luca Pasquini
On January 31, 2019, the
Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month
period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the Company has
paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000
(approximately $334,791).
On October 1, 2020, the Company granted to Mr. Pasquini a ten year option to purchase 58,000 shares of common stock at an exercise
price of $2.03 per share.
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
On July 11, 2021,
the Company entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance
and support of the system, the total contract price was €390,000 (approximately $459,572). Mr. Pasquini owns 34%
of Engage.
On October 14, 2021,
the Company entered into a further agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance
and support of the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000).
Mr. Pasquini owns 34% of Engage.
On September 13, 2021,
Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company.
F-31
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Michele
Ciavarella
On October 1, 2020, the Company granted to Mr. Ciavarella, a ten
year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Ciavarella agreed to receive $140,000 of
his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares
of common stock valued at $140,000 on the date of issue.
On January 22, 2021,
the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation
due to him.
On July
15, 2021, Michele Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President
of the Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive
Officer until the earlier of his resignation or removal from office.
Victor
Salerno
On July
15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid
in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing.
Together with
the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July
14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either
party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January
1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.
Mr. Salerno
may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary
or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr.
Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment
agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual
base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary.
Pursuant to
the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the
Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with
the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated
for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf
of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the
Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the
Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit
any actual or prospective vendors with whom he had material contact to support a competing business.
In September 13, 2021, the Board appointed Mr. Salerno,
the President and founder of the Company’s newly acquired subsidiary, US Bookmaking, to serve as a member of the Board.
Prior to the acquisition
of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which
amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023.
F-32
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Matteo
Monteverdi
Effective September 21, 2020, the Board appointed
Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive Officer
of the Company.
Mr. Monteverdi has previously served as an
independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological
capabilities of the Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s
current management team.
In connection with his appointment, the Company
and Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year
term, which provides for the following compensation terms:
|
· |
an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board; |
|
· |
the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and |
|
· |
Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024. |
Mr. Monteverdi is also eligible to participate
in the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect
from time to time on the same basis as generally made available to other senior executives of the Company or in the alternative
may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also
provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during
the term of the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or
disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive
from the Company in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his
base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs
within the first twelve (12) months of the Agreement, the amount shall be Executive’s MBO Bonus for the-then current fiscal
year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus
(if any) which would have been payable to Mr. Monteverdi had he remained in employment with the Company during the entire year
in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was
employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which
such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal
to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents,
until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible
to receive such coverage under a subsequent employer’s insurance plan.
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
On July
15, 2021, Mr. Monteverdi resigned as the Company’s Chief Executive Officer and President to become the Company’s Head
of Special Projects, all other terms of the employment contract remain the same.
Gabriele Peroni
On January 31, 2019,
the Company acquired Virtual Generation for €4,000,000
(approximately $4,576,352),
Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000
(approximately $915,270).
The gross proceeds of €800,000
was to be settled by a payment in cash of €500,000
over a twelve month period and by the issuance of common stock valued at €300,000
over an eighteen month period. As of June 30, 2021, the Company has paid Mr. Peroni the full cash amount of €500,000
(approximately $604,380)
and issued 112,521
shares valued at €300,000
(approximately $334,791).
F-33
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
On October 1, 2020, the Company granted to Mr. Peroni a ten year
option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation
due to him.
Alessandro Marcelli
On October 1, 2020, the Company granted to Mr. Marcelli a ten year
option to purchase 56,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation
due to him.
Franco Salvagni
On October 1, 2020, the Company granted to Mr. Salvagni a ten year
option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation
due to him.
Beniamino Gianfelici
On October 1, 2020, the Company granted to Mr. Gianfelici a ten
year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation
due to him.
Paul
Sallwasser
On October 1, 2020, the Company granted to Mr. Sallwasser a ten
year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors fees.
On
September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of directors
fees.
Steven Shallcross
On October 1, 2020, the Company granted to Mr. Shallcross a ten
year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share, in lieu of a portion of his directors
fees.
On January 22, 2021, the
Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’
fees due to him.
On
September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a portion
of his directors fees.
Mr.
Shallcross earned cash directors fees of $40,000
and $35,000 for the years ended December 31, 2021 and 2020 respectively.
F-34
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Mark
Korb
On October 1, 2020, the Company granted to
Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.
On July 5, 2021,
the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the
“Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer
for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be
determined by the Company’s board of directors with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to
pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance
of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, on July 1,
2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s
common stock. The shares of common stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per share.
In addition,
the Korb Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific
circumstances. If his employment is terminated by the Company other than for “Cause,” death or Disability or by Mr. Korb for
“Good Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive from the Company in equal
installments over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the
highest annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within
the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s MBO Bonus for the-then current fiscal year); (2) in
lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would
have been payable to Mr. Korb had he remained in employment with the Company during the entire year in which such termination occurred,
multiplied by (B) a fraction the numerator of which is the number of days Mr. Korb was employed in the year in which such termination
occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be
entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party
medical and welfare benefits for Mr. Korb and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination
date, or (B) the date Mr. Korb becomes eligible to receive such coverage under a subsequent employer’s insurance plan. Mr. Korb’s
receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of
or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described
in the following paragraph.
If the Korb
Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive
accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to
the termination date. The Korb Employment Agreement also provides that upon the Disability ( as defined in the Korb Employment Agreement)
of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through
the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary.
Pursuant to the Korb Employment
Agreement, Mr. Korb has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential
information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its
business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month
period following his termination of employment, Mr. Korb has agreed not to (1) perform services on behalf of a competing business which
was the same or similar to the types services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce
any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual
or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective
vendors with whom he had material contact to support a competing business.
On January 5,
2022, Mark Korb resigned as Chief Financial Officer of the Company. In connection with his resignation, the Company entered into an amendment
to Mr. Korb’s employment agreement with the Company to provide that he will be employed by the Company as a non-executive employee
with the title “Head of Corporate Affairs”, reporting directly to the Executive Chairman and that in such capacity he will
be responsible for, among other things, various corporate initiatives and activities related to growth and capital strategies. All other
terms of the employment agreement remain the same.
F-35
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
16. Related Parties (continued)
Andrea
Mandel-Mantello
On
June 29, 2021, the Board appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately and
Mr. Mandel-Mantello will serve on the audit committee.
On
September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common
stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a
portion of his directors fees.
Mr.
Mandel-Mantello earned cash directors fees of $20,000 for the six months ended December 31, 2021.
Phillipe
Blanc
On October 1, 2020, the Company appointed Mr.
Philippe Blanc as a director of the Company.
On October 1, 2020, the Company granted to
Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors
fees.
On July
1, 2021, Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director
of the Company, the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting
capacity over two years. Mr. Blanc will receive €105,000 per annum as compensation.
Carlo
Reali
On January 5, 2022,
the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.
We
do not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the
same compensation that he currently receives which is an annual base salary of $71,200 .
Richard Cooper
On October 1, 2020 Mr. Cooper resigned as a director of the Company.
Mr. Cooper received cash director fees of $30,000 for the year ended
December 31, 2020.
Clive Kabatznik
On May 15, 2020, Mr. Kabatznik resigned as a director of the Company.
Mr.
kabatznik received cash Director
Fees of $10,000
for the year ended December 31, 2020.
17. Stockholders’ Equity
For the
year ended December 31, 2021, the Company issued a total of 533,790 shares of common stock, valued at $3,012,481 for
the settlement of third party liabilities, compensation and directors’ fees to certain of the Company’s related parties,
refer note 16 above.
Between
January 4, 2021, and September 21, 2021, investors exercised warrants for 1,506,809 shares of common stock for gross
proceeds of $3,962,481 at an average exercise price of $2.63 per share.
On January
22, 2021, the Company issued 24,476 restricted shares of common stock valued at $140,000 to Michele Ciavarella in
terms of a compensation election he made for the 2021 fiscal year.
On July
15, 2021, the Company issued 1,265,823 shares of common stock to the Sellers of USB, at $4.74 per share with a market value of
$4,544,304 on the date of acquisition.
F-36
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
17. Stockholders’ Equity (continued)
The Company issued the following shares of
common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation.
|
· |
On January 1, 2020, 22,030 shares of common stock valued at $93,077; |
|
· |
On January 1, 2020, 132,735 shares of common stock valued at $561,350; |
|
· |
On February 27, 2020, 23,890 shares of common stock valued at $91,541; |
|
· |
On March 1, 2020, 25,690 shares of common stock valued at $96,372; |
|
· |
On April 1, 2020, 61,040 shares of common stock valued at $90,745; |
|
· |
On May 1, 2020, 24,390 shares of common stock valued at $91,265; |
|
· |
On June 1, 2020, 29,300 shares of common stock valued at $92,321; |
|
· |
On July 1, 2020, 35,130 shares of common stock valued at $91,265. |
For the year ended December 31, 2020, the Company
issued a total of 230,326 shares of common stock, valued at $739,004, upon the conversion of convertible debentures into equity.
On August 17, 2020, the Company closed its underwritten
public offering of 4,166,666
units at a price of $2.40
per unit for gross proceeds of $9,999,998,
before underwriting commission of $800,000
and other offering expenses. Each unit consists of one share of common stock and one five year warrant exercisable for one share
of common stock at an exercise price of $2.50
per share.
The Company granted the underwriters a forty-five
day option to purchase up to 624,999 shares of common stock and/or warrants at a price of $2.39 per share and $0.01 per five year
warrant exercisable for one share of common stock at an exercise price of $2.50 per share. The underwriters were also issued a
three year warrant exercisable for 208,333 shares of common stock at an exercise price of $3.00 per share.
On September 3, 2020, the underwriters executed
a partial exercise of the option to purchase 624,999 units and purchased only the warrants at a purchase price of $0.01 per warrant,
less underwriters commission of $500, for net proceeds of $5,250.
On December 30, 2020, the Company entered into
a settlement agreement with its previous chairman whereby it issued 8,469 shares of common stock at a value of $46,666 to settle
the balance owing of $46,666.
Between December 18, 2020 and December 31,
2020, investors exercised warrants for 3,321,226 shares of common stock at exercise prices ranging from $2.50 to $5.00 per share
for gross proceeds of $8,541,896, and the use of proceeds from promissory notes, related party of $108,056 was applied to the warrant
exercise.
18. Warrants
On May 31, 2020, in terms of convertible debt
extension agreements entered into with investors, the Company granted two year warrants exercisable for 301,644 shares of common
stock at an exercise price of $3.75 per share until May 31, 2022 and three year warrants exercisable for 72,729 shares of common
stock at an exercise price of $5.00 per share until May 31, 2023.
In terms of the underwritten public offering
disclosed in note 16 above, the Company granted 4,166,666 five year warrants, exercisable at $2.50 per share to the subscribers.
In addition, the Company granted the underwriter 208,333 three year warrants exercisable at $3.00 per share, and in terms of the
underwriters’ over-allotment option, the Company granted an additional 624,999 five year warrants exercisable at $2.50 per
share to the Underwriter.
F-37
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
18. Warrants (continued)
The warrants issued during the year ended December
31, 2020, were assessed in terms of ASC 480-10, Distinguishing between Liabilities and Equity, and ASC 815-10, Derivatives
and Hedging Transactions to determine if they met equity classification or liability classification. After considering
the guidance provided by the ASC under both ASC 480-10 and ASC 815-10, the Company determined that equity classification was appropriate.
The warrants awarded
during the year ended December 31, 2020 were valued using a Black-Scholes option pricing model.
The following assumptions
were used in the Black-Scholes model:
|
|
Year ended
December 31, 2020 |
Exercise price |
|
|
$2.50 |
to |
$5.00 |
|
Risk free interest rate |
|
|
0.16 |
to |
0.29 |
% |
Expected life of warrants |
|
|
2 |
to |
5 |
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, 2020 to December 31, 2021 is as follows:
Warrants |
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
Warrants: Number of Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Exercise price per share |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Weighted average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020 |
|
|
1,089,474 |
|
|
$ |
4.00 |
|
|
$ |
4.00 |
|
Granted |
|
|
5,374,371 |
|
|
|
2.50 |
to |
5.00 |
|
|
|
2.62 |
|
Forfeited/cancelled |
|
|
(1,089,474 |
) |
|
|
4.00 |
|
|
|
4.00 |
|
Exercised |
|
|
(3,321,226 |
) |
|
|
2.50 |
to |
5.00 |
|
|
|
2.62 |
|
Expired |
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2020 |
|
|
2,053,145 |
|
|
$ |
2.50 |
to |
5.00 |
|
|
|
2.63 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
(1,506,809 |
) |
|
|
2.50 |
to |
5.00 |
|
|
|
2.63 |
|
Outstanding December 31, 2021 |
|
|
546,336 |
|
|
$ |
2.50 |
to |
5.00 |
|
|
$ |
2.66 |
|
The following tables summarize information about warrants outstanding
as of December 31, 2021:
Warrants outstanding, Exercise Price |
|
|
|
Warrants outstanding |
|
Warrants exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$2.50 |
|
|
486,173 |
|
|
|
3.63 |
|
|
$ |
2.50 |
|
|
|
486,173 |
|
|
$ |
2.50 |
|
$3.75 |
|
|
48,395 |
|
|
|
0.41 |
|
|
|
3.75 |
|
|
|
48,395 |
|
|
|
3.75 |
|
$5.00 |
|
|
11,768 |
|
|
|
0.61 |
|
|
|
5.00 |
|
|
|
11,768 |
|
|
|
5.00 |
|
|
|
|
546,336 |
|
|
|
3.28 |
|
|
$ |
2.66 |
|
|
|
546,336 |
|
|
$ |
2.66 |
|
The outstanding warrants have an intrinsic
value of $257,672 as of December 31, 2021.
F-38
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
19. Stock Options
In September 2018, our stockholders approved
our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board approved an amendment
to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be
granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an
increase in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the Company held its
2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 1,850,000 shares of common stock.
On October 29, 2021, the Board approved an Amendment to the Plan (“Amendment No. 2”) to increase by 4,000,000 the number of shares that may be granted
under the Plan. Amendment No. 2 to the 2018 Plan will increase the number of shares of common stock with respect to which awards
may be granted under the 2018 Plan from an aggregate of 3,000,000 shares of common stock to 7,000,000 shares of common stock.
On December 8, 2021, the Company held its 2021
Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 2 to the Company’s
2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under
the plan by an additional 4,000,000 shares of common stock.
During September 2020,
in terms of the employment agreement entered into with Mr. Monteverdi, the Company granted options
to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September
1, 2024.
On October 1, 2020, the Board granted to each
of Michele Ciavarella, Alessandro Marcelli, Luca Pasquini, Gabriele Peroni, Frank Salvagni, Beniamino Gianfelici and Mark Korb,
an option to purchase 140,000, 56,000, 58,000, 36,000, 36,000, 35,000 and 58,000 shares of the Company’s common stock, respectively,
under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option awards each vest pro rata
on a monthly basis over a thirty-six month period. The options are exercisable for a period of ten years from the date of grant
and have an exercise price of $2.03 per share.
On October 1, 2020, the Board also granted
to each of Paul Sallwasser, Steven Shallcross and Philippe Blanc, as non-executive members of the Board, an option to purchase
55,000, 35,000 and 55,000 shares of the Company’s common stock, respectively, under the Company’s 2018 Equity Incentive
Plan. The shares of common stock underlying the option awards each vest pro rata on a monthly basis over a twelve month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $2.03 per share.
On October 1, 2020, the board granted options
to purchase 95,000 shares of common stock to various employees at an exercise price of $2.03 per share.
During
the period ended December 31, 2021, the Company issued ten year options to purchase 745,000 shares at exercise prices
ranging from $2.62 to $4.20 per share to employees.
On July
1, 2021, in compliance with the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the
Company granted him ten year options to purchase 400,000 shares of common stock at an exercise price of $4.03 per
share vesting annually commencing on September 1, 2022.
On August
31, 2021, due to the resignation of an employee, unvested options for 50,000 shares of common stock were forfeited by
the employee.
On
September 13, 2021, the Company granted the non-executive members of its board ten year options to purchase 48,500 shares
of common stock at an exercise price of $5.10 per share, as a component of annual compensation.
The
options awarded during the year ended December 31, 2021 were valued using a Black-Scholes option pricing model.
The
following assumptions were used in the Black-Scholes model:
F-39
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
19. Stock Options (continued)
Assumptions |
|
Year ended
December 31, 2021 |
Exercise price |
|
$ |
2.62 |
to |
5.10 |
|
Risk free interest rate |
|
|
0.92 |
to |
1.63 |
% |
Expected life of options |
|
|
10 years |
|
Expected volatility of underlying stock |
|
|
206.8 |
to |
229.8 |
% |
Expected dividend rate |
|
|
0 |
% |
A summary
of all of the Company’s option activity during the period January 1, 2020 to December 31, 2021 is as follows:
Stock Option Activity |
|
Number of shares |
|
Exercise price per share |
|
Weighted average exercise price |
Stock Option Activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average exercise price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020 |
|
|
315,938 |
|
|
$ |
2.72 |
to |
2.96 |
|
|
$ |
2.84 |
|
Granted |
|
|
1,307,000 |
|
|
|
1.84 |
to |
2.03 |
|
|
|
1.95 |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2020 |
|
|
1,622,938 |
|
|
$ |
1.84 |
to |
2.96 |
|
|
|
2.11 |
|
Granted |
|
|
1,193,500 |
|
|
|
2.62 |
to |
5.10 |
|
|
|
3.15 |
|
Forfeited/cancelled |
|
|
(50,000 |
) |
|
|
2.62 |
|
|
|
2,62 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2021 |
|
|
2,766,438 |
|
|
$ |
1.84 |
to |
5.10 |
|
|
$ |
2.92 |
|
The following
table summarize information about stock options outstanding as of December 31, 2021:
Stock Options Outstanding |
|
|
Options outstanding |
|
Options exercisable |
Exercise price |
|
|
Number of shares |
|
|
|
Weighted average remaining years |
|
|
|
Weighted average exercise price |
|
|
|
Number of shares |
|
|
|
Weighted average exercise price |
|
$1.84 |
|
|
648,000 |
|
|
|
8.73 |
|
|
|
|
|
|
|
162,000 |
|
|
|
|
|
$2.03 |
|
|
659,000 |
|
|
|
8.75 |
|
|
|
|
|
|
|
359,1673 |
|
|
|
|
|
$2.72 |
|
|
25,000 |
|
|
|
4.50 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
$2.80 |
|
|
220,625 |
|
|
|
7.73 |
|
|
|
|
|
|
|
124,284 |
|
|
|
|
|
$2.96 |
|
|
70,313 |
|
|
|
7.52 |
|
|
|
|
|
|
|
70,313 |
|
|
|
|
|
$3.43 |
|
|
25,000 |
|
|
|
9.97 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.03 |
|
|
1,020,000 |
|
|
|
9.51 |
|
|
|
|
|
|
|
103,333 |
|
|
|
|
|
$4.07 |
|
|
25,000 |
|
|
|
9.54 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$4.20 |
|
|
25,000 |
|
|
|
9.34 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$5.10 |
|
|
48,500 |
|
|
|
9.71 |
|
|
|
|
|
|
|
12,125 |
|
|
|
|
|
|
|
|
2,766,438 |
|
|
|
8.91 |
|
|
$ |
2.92 |
|
|
|
856,222 |
|
|
$ |
2.49 |
|
As of
December 31, 2021, there were unvested options to purchase 1,910,216 shares of common stock. Total expected unrecognized
compensation cost related to such unvested options is $5,585,571 which is expected to be recognized over a period of
42 months.
The intrinsic
value of the options at December 31, 2021 was $1,493,536.
As of
December 31, 2021, there was an aggregate of 2,766,438 options to purchase shares of common stock granted under the Company’s
2018 Equity Incentive Plan, and an aggregate of 492,466 restricted shares granted to certain officers and directors of
the Company in settlement of liabilities owing to them, with 3,741,046 shares available for future grants.
F-40
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
20. Revenues
The following table represents disaggregated
revenues from our gaming operations for the years ended December 31, 2021 and 2020. Net Gaming Revenues represents Turnover (also
referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid
to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and
Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
2021 |
|
2020 |
Handle (Turnover) |
|
|
|
|
Handle web-based |
|
$ |
826,789,619 |
|
|
$ |
505,369,803 |
|
Handle land-based |
|
|
15,071,218 |
|
|
|
68,888,592 |
|
Total Handle (Turnover) |
|
|
841,860,837 |
|
|
|
574,258,395 |
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts |
|
|
|
|
|
|
|
|
Winnings web-based |
|
|
771,852,252 |
|
|
|
473,794,175 |
|
Winnings land-based |
|
|
12,842,577 |
|
|
|
56,467,865 |
|
Total Winnings/Payouts |
|
|
784,694,829 |
|
|
|
530,262,040 |
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues |
|
|
57,166,008 |
|
|
|
43,996,355 |
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes |
|
|
12,657,930 |
|
|
|
6,874,752 |
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenues |
|
|
44,508,078 |
|
|
|
37,121,603 |
|
Betting platform software and services |
|
|
1,038,713 |
|
|
|
144,764 |
|
Revenues |
|
$ |
45,546,791 |
|
|
$ |
37,266,367 |
|
21. Net Loss per Common Share
Basic loss per share is based on the weighted-average
number of common shares outstanding during each year. Diluted loss per share is based on basic shares as determined above, plus
the incremental shares that would be issued upon the assumed exercise of “in-the-money” warrants using the treasury
stock method and the inclusion of all convertible securities, including convertible debentures, assuming these securities were
converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net loss per share does
not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.
For the years ended December 31, 2021 and 2020,
the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the
result of the computation was anti-dilutive:
Net Loss Per Share |
|
|
|
|
|
|
|
|
Description |
|
Year ended December 31, 2021 |
|
Year ended December 31, 2020 |
|
|
|
|
|
Options |
|
|
2,766,438 |
|
|
|
1,622,938 |
|
Warrants |
|
|
546,336 |
|
|
|
2,053,145 |
|
Convertible debentures |
|
|
— |
|
|
|
10,796 |
|
|
|
|
3,312,774 |
|
|
|
3,686,879 |
|
F-41
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Income Taxes
The Company is incorporated in the United States
of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no
U.S. taxable income for the years ended December 31, 2021 and December 31, 2020.
The Company's Italian subsidiaries are governed
by the income tax laws of Italy. The corporate tax rate in Italy is 27.9% (IRES at 24% plus IRAP ordinary at 3.9%) on income reported
in the statutory financial statements after appropriate tax adjustments.
The Company's Austrian subsidiaries are governed
by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company's Canadian subsidiary is governed
by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada
is 26.5% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company's Colombian subsidiary is governed
by the income tax laws of Colombia. The corporate tax rate in Colombia is 31% on income reported in the statutory financial statements
after appropriate tax adjustments.
The Company continues to evaluate the accounting
for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial
statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged
by a taxing authority. The position ascertained inherently requires judgment and estimates by management.
The reconciliation of income tax expense at
the U.S. statutory rate of 21% during 2021 and 2020, to the Company’s effective tax rate is as follows:
|
|
December 31,
2021 |
|
December 31,
2020 |
U.S. Statutory rate |
|
$ |
3,224,547 |
|
|
$ |
1,896,305 |
|
Items not allowed for tax purposes |
|
|
(1,705,372 |
) |
|
|
(2,113,651 |
) |
Foreign tax rate differential |
|
|
(2,367 |
) |
|
|
(90,772 |
) |
Additional foreign taxation |
|
|
27,495 |
|
|
|
(36,939 |
) |
Withholding tax on dividends |
|
|
— |
|
|
|
(162,112 |
) |
Prior year over provision |
|
|
125,887 |
|
|
|
— |
|
Movement in valuation allowances |
|
|
(1,379,714 |
) |
|
|
(323,114 |
) |
Other differences |
|
|
|
- |
|
|
(76,361 |
) |
Income tax benefit (expense) |
|
$ |
290,476 |
|
|
$ |
(906,644 |
) |
The Company has accumulated a net operating
loss carry forward (“NOL”) of approximately $27.7 million as of December 31, 2021 in the U.S. The U.S. NOL carry forward
includes adjustments based on prior year assessments of $2.3 million due the assessment of tax losses carried forward. Net operating
losses of $11.1 million expire from 2034 to 2038 and a further $16.6 million has an indefinite life. The company also has net operating
loss carry forwards in Italy, Austria and Malta of approximately €1.2 million ($1.4 million) and in Canada of approximately
CDN $0.4 million ($0.3 million). The use of these losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it
will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently
determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a
100% valuation allowance has been established to offset the asset.
Utilization of NOLs are subject to limitation
due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business
direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited
in any one year by alternative minimum tax rules.
Under Italian tax law, the operating loss carryforwards
available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset
against national income tax, up to the limit of 80% of taxable annual income. This restriction does not apply to the operating
loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting.
Under Austrian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available
for offset against national income tax, up to the limit of 75% of taxable annual income.
Under Canadian tax law, the operating loss
carryforwards available for offset against future profits can be used indefinitely.
The provisions for income taxes consist of
currently payable income tax in Colombia, Italy, Malta and Austria and deferred tax movements on intangible assets.
The benefit (provision) for income taxes are
summarized as follows:
F-42
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
22. Income Taxes (continued)
|
|
December 31,
2021 |
|
December 31,
2020 |
Current |
|
$ |
94,041 |
|
|
$ |
(837,973 |
) |
Withholding tax |
|
|
— |
|
|
|
(162,112 |
) |
Deferred |
|
|
196,434 |
|
|
|
93,441 |
|
Income tax benefit (expense) |
|
$ |
290,476 |
|
|
$ |
(906,644 |
) |
The tax effects of temporary differences that
give rise to the Company’s net deferred tax assets and liabilities are as follows:
|
|
December 31, 2021 |
|
December 31, 2020 |
Working capital movements |
|
$ |
247,563 |
|
|
$ |
693,465 |
|
Property and equipment |
|
|
— |
|
|
|
6,925 |
|
Net loss carryforward - Foreign |
|
|
443,100 |
|
|
|
135,568 |
|
Net loss carryforward - US |
|
|
5,815,807 |
|
|
|
3,752,678 |
|
|
|
|
6,506,470 |
|
|
|
4,588,636 |
|
Less valuation allowance |
|
|
(6,506,470 |
) |
|
|
(4,588,636 |
) |
Deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(3,291,978 |
) |
|
|
(1,222,514 |
) |
Deferred Tax Liability |
|
$ |
(3,291,978 |
) |
|
$ |
(1,222,514 |
) |
The Net loss carry forward for US entities
includes an adjustment of $0.5 million based on taxation assessments which differed to the amounts originally provided for.
The following tax years remain subject to examination:
USA: |
Generally three years from the date of tax return filing which is currently the 2018 to 2020 tax years. |
Italy: |
Generally five years from the date of filing which is currently the 2016 to 2020 tax years. |
Austria: |
Generally tax years 2019 and 2020. |
Malta: |
Eight years from fiscal year end which is currently 2013 to 2020. |
Colombia: |
Three years in the case of taxable profits and five years where taxable losses are realized. |
The Company is not currently under examination
and it has not been notified of a pending examination.
There are no unrecognized tax benefits.
23. Segmental Reporting
The Company has two reportable operating segments. These segments
are:
|
(i) |
Betting establishments |
The operating of web based as well
as land-based leisure betting establishments situated throughout Italy.
|
(ii) |
Betting platform software and services |
Provider of certified betting Platform software services
to leisure betting establishments in Italy and 9 other countries.
F-43
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
23. Segmental Reporting (continued)
The operating assets and liabilities of the
reportable segments are as follows:
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets |
|
$ |
135,272 |
|
|
$ |
538,256 |
|
|
$ |
43,552 |
|
|
$ |
717,080 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
8,648,505 |
|
|
|
1,291,700 |
|
|
|
1,443,280 |
|
|
|
11,383,485 |
|
Non-Current assets |
|
|
1,980,100 |
|
|
|
31,203,882 |
|
|
|
11,374 |
|
|
|
33,195,356 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(7,610,577 |
) |
|
|
(652,368 |
) |
|
|
(1,564,234 |
) |
|
|
(9,827,179 |
) |
Non-Current liabilities |
|
|
(667,871 |
) |
|
|
(16,342,274 |
) |
|
|
- |
|
|
|
(17,010,145 |
) |
Intercompany balances |
|
|
4,359,786 |
|
|
|
(1,677,692 |
) |
|
|
(2,682,094 |
) |
|
|
— |
|
Net asset position |
|
$ |
6,709,943 |
|
|
$ |
13,823,248 |
|
|
$ |
(2,791,674 |
) |
|
$ |
17,741,517 |
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2021 |
| |
Betting establishments | |
Betting platform software and services | |
All other | |
Adjustments | |
Total |
| |
| |
| |
| |
| |
|
Net Gaming Revenue | |
$ | 44,508,078 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 44,508,078 | |
Betting platform and services revenue | |
| 152,550 | | |
| 886,163 | | |
| — | | |
| — | | |
| 1,038,713 | |
Intercompany Service revenue | |
| 321,775 | | |
| 4,211,774 | | |
| — | | |
| (4,533,549 | ) | |
| — | |
| |
| 44,982,403 | | |
| 5,097,937 | | |
| — | | |
| (4,533,549 | ) | |
| 45,546,791 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Intercompany service expense | |
| 4,211,774 | | |
| 321,775 | | |
| — | | |
| (4,533,549 | ) | |
| — | |
Selling expenses | |
| 36,227,544 | | |
| 47,208 | | |
| — | | |
| — | | |
| 36,274,752 | |
General and administrative expenses | |
| 6,634,535 | | |
| 5,848,437 | | |
| 6,334,987 | | |
| — | | |
| 18,817,959 | |
Impairment of license | |
| 4,827,914 | | |
| 12,522,714 | | |
| — | | |
| — | | |
| 17,350,628 | |
| |
| 51,901,767 | | |
| 18,740,134 | | |
| 6,334,987 | | |
| (4,533,549 | ) | |
| 72,443,339 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (6,919,364 | ) | |
| (13,642,197 | ) | |
| (6,334,987 | ) | |
| — | | |
| (26,896,548 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Income (expenses) | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (11,169 | ) | |
| (4,662 | ) | |
| (5,154 | ) | |
| — | | |
| (20,985 | ) |
Amortization of debt discount | |
| — | | |
| — | | |
| (12,833 | ) | |
| — | | |
| (12,833 | ) |
Change in fair value of contingent purchase consideration | |
| — | | |
| 11,857,558 | | |
| — | | |
| — | | |
| 11,857,558 | |
Other income | |
| 217,251 | | |
| 2,560 | | |
| 7,977 | | |
| — | | |
| 227,788 | |
Other expense | |
| (23,705 | ) | |
| (26,262 | ) | |
| — | | |
| — | | |
| (49,967 | ) |
Loss on extinguishment of convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities | |
| — | | |
| — | | |
| (460,000 | ) | |
| — | | |
| (460,000 | ) |
Total other income (expenses) | |
| 182,377 | | |
| 11,829,194 | | |
| (470,010 | ) | |
| — | | |
| 11,541,561 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss before Income Taxes | |
| (6,736,987 | ) | |
| (1813,003 | ) | |
| (6,804,997 | ) | |
| — | | |
| (15,354,987 | ) |
Income tax provision | |
| 119,890 | | |
| 170,586 | | |
| — | | |
| — | | |
| 290,476 | |
Net Loss | |
$ | (6,617,097 | ) | |
$ | (1,642,417 | ) | |
$ | (6,804,997 | ) | |
$ | — | | |
$ | (15,064,511 | ) |
F-44
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
23. Segmental Reporting (continued)
The operating assets and liabilities of the
reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets |
|
$ |
172,095 |
|
|
$ |
117,703 |
|
|
$ |
1,703 |
|
|
$ |
291,501 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
10,966,901 |
|
|
|
430,625 |
|
|
|
9,796,140 |
|
|
|
21,193,666 |
|
Non-Current assets |
|
|
7,475,455 |
|
|
|
6,250,418 |
|
|
|
938,440 |
|
|
|
14,664,313 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(8,238,101 |
) |
|
|
(648,881 |
) |
|
|
(4,427,053 |
) |
|
|
(13,314,035 |
) |
Non-Current liabilities |
|
|
(1,130,752 |
) |
|
|
(1,225,477 |
) |
|
|
(31,362 |
) |
|
|
(2,387,591 |
) |
Intercompany balances |
|
|
4,259,281 |
|
|
|
382,598 |
|
|
|
(4,641,879 |
) |
|
|
— |
|
Net asset position |
|
$ |
13,332,784 |
|
|
$ |
5,189,283 |
|
|
$ |
1,634,286 |
|
|
$ |
20,156,353 |
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2020 |
| |
Betting establishments | |
Betting platform software and services | |
All other | |
Adjustments | |
Total |
| |
| |
| |
| |
| |
|
Net Gaming Revenue | |
$ | 37,121,603 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 37,121,603 | |
Betting platform and other services revenue | |
| — | | |
| 144,764 | | |
| — | | |
| — | | |
| 144,764 | |
Intercompany Service revenue | |
| 84,172 | | |
| 3,604,523 | | |
| — | | |
| (3,688,695 | ) | |
| — | |
| |
| 37,205,775 | | |
| 3,749,287 | | |
| — | | |
| (3,688,695 | ) | |
| 37,266,367 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Intercompany service expense | |
| 3,604,523 | | |
| 84,172 | | |
| — | | |
| (3,688,695 | ) | |
| — | |
Selling expenses | |
| 26,107,189 | | |
| 2,032 | | |
| — | | |
| — | | |
| 26,109,221 | |
General and administrative expenses | |
| 4,918,986 | | |
| 3,906,439 | | |
| 4,963,966 | | |
| — | | |
| 13,789,391 | |
Impairment of license | |
| 4,900,000 | | |
| — | | |
| — | | |
| — | | |
| 4,900,000 | |
| |
| 39,530,698 | | |
| 3,992,643 | | |
| 4,963,966 | | |
| (3,688,695 | ) | |
| 44,798,612 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (2,324,923 | ) | |
| (243,356 | ) | |
| (4,963,966 | ) | |
| — | | |
| (7,532,245 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other (expense) income | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| (6,492 | ) | |
| (71 | ) | |
| (322,100 | ) | |
| — | | |
| (328,663 | ) |
Amortization of debt discount | |
| — | | |
| — | | |
| (818,182 | ) | |
| — | | |
| (818,182 | ) |
Other income | |
| 161,472 | | |
| 3,903 | | |
| — | | |
| — | | |
| 165,375 | |
Other expense | |
| (28,757 | ) | |
| (58,176 | ) | |
| — | | |
| — | | |
| (86,933 | ) |
Loss on extinguishment of convertible debt | |
| — | | |
| — | | |
| (719,390 | ) | |
| — | | |
| (719,390 | ) |
Gain on marketable securities | |
| — | | |
| — | | |
| 290,000 | | |
| — | | |
| 290,000 | |
Total other (expenses) income | |
| 126,223 | | |
| (54,344 | ) | |
| (1,569,672 | ) | |
| — | | |
| (1,497,793 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss before Income Taxes | |
| (2,198,700 | ) | |
| (297,700 | ) | |
| (6,533,638 | ) | |
| — | | |
| (9,030,038 | ) |
Income tax provision | |
| (796,991 | ) | |
| 52,459 | | |
| (162,112 | ) | |
| — | | |
| (906,644 | ) |
Net Loss | |
$ | (2,995,691 | ) | |
$ | (245,241 | ) | |
$ | (6,695,750 | ) | |
$ | — | | |
$ | (9,936,682 | ) |
F-45
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
24. Subsequent Events
To date, the current conflict between Russia
and Ukraine has not had a direct impact on the Company. We do not have any exposure to either Russia or Ukraine from a business or personnel
perspective. However a prolonged conflict or the spill-over of war into other European countries may, in, future impact on macro-economic
conditions which could affect consumer spending adversely and consequently our operations.
On March 18, 2022, the Company granted
our interim CFO, Carlo Reali, an option exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per share, vesting
over a four year period. A further grant of an option exercisable for 60,000 shares of common stock at an exercise price of $2.50, vesting
over a three year period was made to a new employee.
Up until April 13, 2022, in terms of an Open Market
Sale Agreement with Jefferies LLC pursuant to which we may offer and sell its shares of common stock from time to time, through
Jeffries, we sold a total of 147,710
shares of common stock for net proceeds of $331,520
after commission of $10,253.
The Company has evaluated subsequent events
through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
F-46
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 Interim 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 Interim 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 Interim 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 Interim 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, 2021. 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, 2021, 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.
56
Changes in Internal Control Over Financial
Reporting
There were no significant 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections
Not applicable.
57
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 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:
Name |
Age |
Position |
Michele Ciavarella |
60 |
Executive Chairman and Interim Chief Executive Officer |
Paul Sallwasser |
68 |
Director |
Steven A. Shallcross |
60 |
Director |
Andrea Mandel-Mantello |
63 |
Director |
Victor Salerno |
78 |
Director |
Carlo Reali |
53 |
Interim Chief Financial
Officer |
Family Relationships
There are no family relationships between our
officers and directors.
Executive Officer and Director Biographies
Michele Ciavarella – Executive Chairman
and Interim Chief Executive Officer
Michele Ciavarella has served as our Executive
Chairman of the Board since December 30, 2021 and served as our Chairman of the Board since June 26, 2019. From June
2011 until December 30, 2020, he also served as our Chief Executive Officer. On July 15,
2021, he was appointed as the interim Chief Executive Officer and President of the Company. 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.
Paul Sallwasser – Director
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.
58
Steven A. Shallcross – Director
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. Since April 2021, Mr. Shallcross
has served on the board of directors of TwinVee Powercats, Co., a designer, manufacturer and marketer of recreational and commercial
power catamaran boats. 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.
Andrea Mandel-Mantello
Mr. Mandel-Mantello was appointed to serve on our
Board on June 29, 2021. Mr. Mandel-Mantello serves on the audit committee. Mr. Mandel-Mantello has approximately 40 years of experience
in international corporate finance, M&A and equity banking matters. Since July 1997, he has served as the Founder and Chief Executive
Officer of Advicorp PLC, a London-based investment banking firm. He also has served since February 2012, as a member of the board of directors
of GABF Ltd. (The Great Bagel Factory), which was acquired by Chef Express UK Ltd (Cremonini Group), and from July 2011 as a member of
the board of directors and President of Cesare Ragazzi Laboratories (AdviHair S.r.l.), a Bologna, Italy based leading hair treatment and
hair restoration company acquired out of bankruptcy. From February 1988 until January 1997 Mr. Mandel-Mantello was an Executive Director
– Corporate Finance based in London at Swiss Bank Corporation Group (now known as UBS Group AG).
We believe that Mr. Mandel-Mantello is qualified
to serve as a member of our Board due to his significant strategic, operational, business and financial experience. Mr. Mandel-Mantello
has a broad understanding of the financial markets, financial statements as well as generally accepted accounting principles.
Victor Salerno
Mr. Salerno was appointed
to serve on our board on September 13, 2021. Mr. Salerno is the President and founder of the Company’s newly acquired subsidiary,
US Bookmaking. Mr. Salerno founded US Bookmaking, based in Las Vegas Nevada, in 2016 and has built US Bookmaking into one of the leading
sports betting companies to serve native American casinos. Mr. Salerno has enjoyed over forty years in the sports betting business where
he served as Chairman of American Wagering, Inc (AWI). AWI operated over 130 Leroy’s Sports Books (Leroy’s) in Nevada. At
AWI, Mr. Salerno launched the first computerized sports book platform, Computerized Bookmaking Services (CBS), which is still in use today.
With the development of CBS, he was able to create the first bookmaking network hub which managed the betting lines and risk for the Leroy’s
chain. He was the developer and first operator in Nevada to introduce self-service sports wagering kiosks, which were launched in 2002.
His most significant accomplishment was the 2010 launch of mobile sports betting in the US with the Leroy’s App. Mr. Salerno has
served as the President of the Nevada Association of Race and Sports Operators and as a member of the Nevada Pari-Mutuel Association’s
leadership committee. In 2015, he was inducted into the American Gaming Association’s “Gaming Hall of Fame.”
We believe that Mr. Salerno is qualified to
serve as a member of our Board due to his significant industry experience in the US Gaming markets, his strategic, business and
operational experience.
59
Carlo Reali – Interim Chief Financial Officer
Mr. Reali
was appointed to serve as our Interim Chief Financial Officer on January 5, 2022. Mr. Reali joined the Company in January 2017
as finance manager with Multigioco S.r.l., a wholly owned subsidiary, and on October 15, 2020, was appointed and has served as
the Company’s Group Financial Controller based in the Company’s administrative office in Grottaferrata, Italy. Prior
to joining the Company, Mr. Reali was the Chairman and Executive Financial Manager of S.I.S. S.r.l. from January 2001 until its
acquisition in July 2015 by SNAI S.p.A., a leader in the Italian gaming market, and remained with SNAI as Executive Finance Manager
until August 2016. Mr. Reali holds a Science Degree from Instituto S. Maria in Rome, Italy and a Degree in Economics and Commerce
from University of La Sapienza in Rome, Italy.
Involvement in Certain Legal Proceedings
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.
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics
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 of Directors
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
has determined that our three non-employee directors, Messrs. Sallwasser, Shallcross and Mandel-Mantello, 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.
Board Committees
Our Board designated the following three committees
of the Board : 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.
60
Board Members and Committee Composition
| |
Audit Committee | |
Compensation Committee | |
Nominating and Governance Committee |
Paul Sallwasser | |
Chairman | |
Member | |
Chairman |
Steven A. Shallcross | |
Member | |
Chairman | |
Member |
Andrea Mandel-Mantello | |
Member | |
| |
|
Audit Committee
Our audit committee is comprised of Messrs. Sallwasser,
Shallcross and Mandel-Mantello. 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 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 , 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 believes that each of Messrs. Sallwasser, Shallcross and Mandel-Mantello
qualify as an “audit committee financial expert” (as defined in Item 407 of Regulation S-K).
Compensation Committee
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.
Nominating and Governance Committee
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 in advance
of annual meetings and whenever individual directors indicate that their status may change; annually considering new members for nomination
to the Board ; causing the Board 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.
Delinquent Section 16(a) Reports
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, there was
one late filing for the fiscal year ended December 31, 2021 made by Victor Salerno in connection with the shares of common stock that
he acquired on December 15, 2021, as disclosed in a Form 4 filed with the SEC on December 20, 2021.
61
Item 11. Executive Compensation
Set forth below is information for the fiscal
years ended December 31, 2021 and 2020 relating to the compensation of each person who served as our principal executive officer
and our executive officers whose compensation exceeded $100,000 (the “Named Executive Officers”).
Name and principal position |
|
Year |
|
Salary
($) |
|
Bonus
($) |
|
Awards ($) |
|
Stock Compensation ($) |
|
All Other Compensation ($) |
|
Total Compensation ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michele Ciavarella |
|
|
2021 |
|
|
|
500,000 |
(1) |
|
|
375,000 |
(1) |
|
|
— |
|
|
|
112,208 |
|
|
|
— |
|
|
|
987,208 |
|
Executive Chairman of the Board, and interim Chief Executive Officer |
|
|
2020 |
|
|
|
261,667 |
|
|
|
465,938 |
|
|
|
— |
|
|
|
80,023 |
|
|
|
— |
|
|
|
807,628 |
|
Matteo Monteverdi(2) |
|
|
2021 |
|
|
|
425,000 |
|
|
|
— |
|
|
|
— |
|
|
|
301,247 |
|
|
|
4,009 |
(3) |
|
|
730,256 |
|
Former Chief Executive Officer and President |
|
|
2020 |
|
|
|
131,667 |
|
|
|
54,861 |
|
|
|
— |
|
|
|
82,006 |
|
|
|
120,360 |
(4) |
|
|
388,894 |
|
Luca Pasquini(5) |
|
|
2021 |
|
|
|
239,451 |
|
|
|
— |
|
|
|
— |
|
|
|
56,735 |
|
|
|
— |
|
|
|
296,186 |
|
Former Vice President of Technology and Director |
|
|
2020 |
|
|
|
227,976 |
|
|
|
— |
|
|
|
— |
|
|
|
27,308 |
|
|
|
1,030 |
|
|
|
256,314 |
|
Alessandro Marcelli(6)(7) |
|
|
2021 |
|
|
|
292,208 |
|
|
|
— |
|
|
|
— |
|
|
|
55,382 |
|
|
|
— |
|
|
|
347,590 |
|
Former Vice President of Operations |
|
|
2020 |
|
|
|
227,976 |
|
|
|
— |
|
|
|
— |
|
|
|
26,969 |
|
|
|
— |
|
|
|
254,945 |
|
Mark Korb(8)(9)(10) |
|
|
2021 |
|
|
|
247,000 |
|
|
|
— |
|
|
|
— |
|
|
|
241,665 |
|
|
|
1,761 |
|
|
|
490,426 |
|
Chief Financial Officer |
|
|
2020 |
|
|
|
135,000 |
|
|
|
50,000 |
|
|
|
— |
|
|
|
46,753 |
|
|
|
— |
|
|
|
231,753 |
|
|
(1) |
Mr. Ciavarella elected to take 24,476 shares of common stock in lieu of $140,000 of his 2021 salary and a further 162,835 shares of common stock in lieu of $315,913 of his 2021 bonus. The bonus shares were issued in January 2022. |
|
(2) |
Mr. Monteverdi resigned as our Chief Executive Officer on July 15, 2021 and accepted a non-executive position of Head of Special Projects. |
|
(3) |
All other compensation includes employee benefits consisting of healthcare costs amounting to $4,009. |
|
(4) |
Mr. Monteverdi became our President on September 21, 2020 and our Chief Executive Officer on December 30, 2020. From March 2020 until September 2020, Mr. Monteverdi served as an independent strategic advisor to us. Represents consulting fees paid to Mr. Monteverdi prior to him being appointed as President and Chief Executive Officer of the Company. |
|
(5) |
Mr. Pasquini resigned as our vice president and Chief Technology Officer on September 13, 2021. |
|
(6) |
Mr. Marcelli resigned as our vice president of operations effective May 12, 2021. |
|
(7) |
Mr. Marcelli received salary payments through his wholly owned private company AB Consulting Srl. |
|
(8) |
Mr. Korb resigned as our Chief Financial officer on January 5, 2022. |
|
(9) |
Includes $120,000 paid to Mr. Korb as a contract Chief Financial Officer, prior to his full time employment with the Company. |
|
(10) |
Includes $135,000 and a further $50,000 in bonus payments, paid to Mr. Korb as a contract Chief Financial Officer, prior to his full time employment with the Company in September 2021. |
62
Outstanding Equity Awards at Fiscal Year-End
December 31, 2021
The table below summarizes all unexercised
options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2021:
|
|
OPTION AWARDS |
|
|
|
STOCK AWARDS |
|
|
Number of securities underlying unexercised options Exercisable |
|
Number of securities underlying unexercised options Unexercisable |
|
Equity incentive plan awards:
Number of
securities underlying
unearned options |
|
Option exercise price |
|
Option expiry |
|
Number of shares or units of stock that have not vested |
|
Market value of shares or units of
stock that have not vested |
|
Equity incentive plan awards:
Number of unearned shares, units or other
rights that have
not vested |
|
Equity incentive
plan awards:
Market or payout value of unearned shares,
units or other rights that have
not vested |
Name |
|
(#) |
|
(#) |
|
(#) |
|
($) |
|
Date |
|
(#) |
|
($) |
|
(#) |
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michele Ciavarella(1)(2)(3) |
|
|
39,375 |
|
|
|
— |
|
|
|
— |
|
|
|
2.96 |
|
|
7/5/2029 |
|
|
— |
|
|
|
— |
|
|
— |
|
— |
|
|
|
14,583 |
|
|
|
10,417 |
|
|
|
— |
|
|
|
2.80 |
|
|
8/29/2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,333 |
|
|
|
81,667 |
|
|
|
— |
|
|
|
2.03 |
|
|
9/30/2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matteo Monteverdi(4) |
|
|
162,000 |
|
|
|
486,000 |
|
|
|
— |
|
|
|
1.84 |
|
|
9/22/2030 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Luca Pasquini(2)(5) |
|
|
14,583 |
|
|
|
10,417 |
|
|
|
— |
|
|
|
2.80 |
|
|
8/29/2029 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
24,167 |
|
|
|
33,833 |
|
|
|
— |
|
|
|
2.03 |
|
|
9/30/2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alessandro Marcelli(2)(6) |
|
|
14,583 |
|
|
|
10,417 |
|
|
|
— |
|
|
|
2.80 |
|
|
8/29/2029 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
23,333 |
|
|
|
32,667 |
|
|
|
|
|
|
|
2.03 |
|
|
9/30/2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Korb(7)(8)(9) |
|
|
25,000 |
|
|
|
— |
|
|
|
|
|
|
|
2.72 |
|
|
7/1/2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,167 |
|
|
|
33,833 |
|
|
|
|
|
|
|
2.03 |
|
|
9/30/2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
400,000 |
|
|
|
|
|
|
|
4.03 |
|
|
7/5/2031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Mr. Ciavarella was awarded option to purchase 39,375 shares of common stock on July 5, 2019 all of which are vested. |
(2) |
Mr. Ciavarella, Mr. Marcelli, and Mr. Pasquini were each awarded options to purchase 25,000 shares of common stock on August 29, 2019 of which each have 14,583 vested and the remaining options vest equally over the next 20 months. |
(3) |
Mr. Ciavarella was awarded an option to purchase 140,000 shares of common stock on October 1, 2020, of which 58,333 are vested and the remaining options vest equally over the next 21 months. |
(4) |
Mr. Monteverdi was awarded an option to purchase 648,000 shares of common stock of which 162,000 are vested, the options vest annually on each of September 21, 2022, 2023 and 2024. |
(5) |
Mr. Pasquini was awarded options to purchase 58,000 shares of common stock of which each have 24,167 are vested with the remaining options vesting equally over the next 21 months. |
(6) |
Mr. Marcelli was awarded options to purchase 56,000 shares of common stock of which each have 4,667 are vested with the remaining options vesting equally over the next 33 months. |
(7) |
Mr. Korb was awarded options to purchase 25,000 shares of common stock on July 1, 2019 all of which are vested. |
(8) |
Mr. Korb was awarded options to purchase 58,000 shares of common stock of which each have 24,167 are vested with the remaining options vesting equally over the next 21 months. |
(9) |
In connection with an employment agreement Mr. Korb was awarded options exercisable for 400,000 shares of common stock of which none are vested, the options vest annually on each of July 5, 2022, 2023, 2024 and 2025. |
63
Employment Agreements
During the year ended December 31, 2021 and
subsequent thereto, we had no formal employment and other compensation-related agreements with our Named Executive Officers other
than as listed below.
Michele Ciavarella, Executive Chairman, Chief
Executive Officer and President
In connection with Mr. Ciavarella’s appointment
as the Executive Chairman, we 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 Mr. 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 , 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 . 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.
64
Victor
Salerno - Director
Together with
the consummation of the acquisition of US Bookmaking, the Company entered into a 4 year employment agreement with Mr. Salerno terminating
on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by
either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on
January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.
Mr. Salerno
may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s
salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two
years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination.
If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses
and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and
expenses and one times annual salary.
Pursuant
to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use
of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while
employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment
and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1)
perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted,
offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate
their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf
of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing
business.
On September 13, 2021, the
Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking, to serve as a
member of the Board.
Mark
Korb – Chief Financial Officer
On July 5, 2021,
the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the
“Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer
for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be
determined by the Company’s Board with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical,
retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000 per
month towards medical and welfare benefits. In connection with the Korb Employment Agreement, On July 1, 2021, the Compensation Committee
of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s common stock. The shares of common
stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period. The options are exercisable for a
period of ten years from the date of grant and have an exercise price of $4.03 per share.
In addition,
the Korb Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under
specific circumstances. If his employment is terminated by the Company other than for “Cause,” death or Disability
or by Mr. Korb for “Good Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive
from the Company in equal installments over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary
and (B) an amount equal to the highest annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any)
in respect of the two (2) most recent fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year
(provided if such termination occurs within the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s
MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment
of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Korb had he remained in employment with the
Company during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number
of days Mr. Korb was employed in the year in which such termination occurs and the denominator of which is the total number of
days in the year in which such termination occurs. In addition, he will be entitled to continue to receive under the Employment
Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Korb
and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Korb
becomes eligible to receive such coverage under a subsequent employer’s insurance plan. Mr. Korb’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
65
If the Korb
Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive
accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to
the termination date. The Korb Employment Agreement also provides that upon the Disability (as defined in the Korb Employment Agreement)
of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through
the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary.
Pursuant to the Korb
Employment Agreement, Mr. Korb has also agreed to customary restrictions with respect to the disclosure and use of the Company’s
confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company
relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for
cause for the 12 month period following his termination of employment, Mr. Korb has agreed not to (1) perform services on behalf
of a competing business which was the same or similar to the types services he was authorized, conducted, offered or provided to
the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment
with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business
or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.
On January
5, 2022, Mark Korb resigned as Chief Financial Officer of the Company. In connection with his resignation, the Company entered into an
amendment to Mr. Korb’s employment agreement with the Company to provide that he will be employed by the Company as a non-executive
employee with the title “Head of Corporate Affairs”, reporting directly to the Executive Chairman and that in such capacity
he will be responsible for, among other things, various corporate initiatives and activities related to growth and capital strategies.
All other terms of the employment agreement remain the same.
Matteo Monteverdi
Effective September 21, 2020, the Board appointed
Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive Officer
of the Company.
Mr. Monteverdi has previously served as an independent
strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological capabilities of the
Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s current management team.
In connection with his appointment, the Company and
Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year term, which
provides for the following compensation terms:
|
|
an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board; |
|
· |
the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and |
|
· |
Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024. |
Mr. Monteverdi is also eligible to participate in
the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect from time
to time on the same basis as generally made available to other senior executives of the Company or in the alternative may substitute the
payment amount that would be paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also provides
for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of
the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or disability or by Mr.
Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive from the Company in equal
installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal
to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent fiscal years of the Company but not more than
his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first twelve (12) months of the Agreement,
the amount shall be Executive’s MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which
such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Monteverdi had
he remained in employment with the Company during the entire year in which such termination occurred, multiplied by (B) a fraction the
numerator of which is the number of days Mr. Monteverdi was employed in the year in which such termination occurs and the denominator
of which is the total number of days in the year in which such termination occurs. In addition, he will be entitled to continue to receive
under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits
for Mr. Monteverdi and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the
date Mr. Monteverdi becomes eligible to receive such coverage under a subsequent employer’s insurance plan.
66
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his employment
with the Company and the termination of his employment, and compliance with the restrictive covenants described in the following paragraph.
On July
15, 2021, Mr. Monteverdi resigned as the Company’s Chief Executive Officer and President to become the Company’s Head
of Special Projects, all other terms of the employment contract remain the same.
Board of Directors Compensation
The following table sets forth information
for the fiscal year ended December 31, 2021 regarding the compensation of our directors who on December 31, 2021 were not also
our Named Executive Officers.
Name | |
Fees Earned or Paid in Cash | |
Option Awards | |
Other Compensation | |
Total |
| |
| |
| |
| |
|
Paul Sallwasser(1) | |
$ | — | | |
$ | 108,587 | | |
$ | — | | |
$ | 108,587 | |
Steven Shallcross(2) | |
| 40,000 | | |
| 69,333 | | |
| — | | |
| 109,333 | |
Philippe Blanc | |
| — | | |
| 83,717 | | |
| — | | |
| 83,717 | |
Andrea Mandel Montello3) | |
| 20,000 | | |
| 69,333 | | |
| — | | |
| 89,333 | |
Victor Salerno | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
___________________
|
(1) |
Mr. Sallwasser was appointed to the Board on June 13, 2019. Pursuant to his agreement Mr. Sallwasser receives compensation of $110,000 for the years ended June 30, 2021 and 2020. Mr. Sallwasser opted to take his compensation in stock options, on September 13, 2021, Mr. Sallwasser was awarded options to purchase 21,300 shares of common stock vesting over a twelve month period. |
|
(2) |
Mr. Shallcross was appointed to the Board on June 13, 2019. Pursuant to his agreement Mr. Shallcross receives compensation of $110,000 for the years ended June 30, 2021 and 2020. Mr. Shallcross opted to take $40,000 in cash and $70,000 in stock options, on September 13, 2021, Mr. Shallcross was awarded options to purchase 13,600 shares of common stock vesting over a twelve month period. |
|
(3) |
Mr. Mandel-Mantel was appointed to the Board on June 29, 2021. Pursuant to his agreement Mr. Mandel- Mantello received compensation of $110.000 per annum. Mr. Mandel-Mantello opted to take $40,000 in cash and $70,000 in stock options, on September 13, 2021, Mr. Mandel-Mantello was awarded options to purchase 13,600 shares of common stock vesting over a twelve month period. |
67
Director Option Awards
|
Option |
Stock |
|
awards |
awards |
Name |
(Amount) |
(Amount) |
|
|
|
Paul Sallwasser(a) |
|
96,925 |
|
|
— |
|
Steven Shallcross(b) |
|
58,913 |
|
|
— |
|
Andrea Mandel-Mantello(c) |
|
13,600 |
|
|
— |
|
(a) |
On July 5, 2019, Mr. Sallwasser was awarded an option to purchase 20,625 shares of common stock, of which all are vested, on October 1, 2020, an additional option to purchase 55,000 shares of common stock was awarded to Mr. Sallwasser, of which all are vested and on September 13, 2021, an additional option to purchase 21,300 shares of common stock was awarded to Mr. Sallwasser of which 5,325 are vested as of December 31, 2021 and the remaining 15,975 vest over the next eight and a half months. |
(b) |
On July 5, 2019, Mr. Shallcross was awarded an option to purchase 10,313 shares of common stock of which all are vested, on October 1, 2020, an additional option to purchase 35,000 shares of common stock was awarded to Mr. Shallcross of which all are vested, and on September 13, 2021 an additional option to purchase 13,600 shares of common stock was awarded to Mr. Shallcross of which 3,400 are vested as of December 31, 2021 and the remaining 10,200 vest over an eight and a half month period. |
(c) |
On September 13, 2021 an option to purchase 13,600 shares of common stock was awarded to Mr. Mandel-Mantello of which 3,400 are vested as of December 31, 2021 and the remaining 10,200 vest over an eight and a half month period. |
Each director is reimbursed for travel and
other out-of-pocket expenses incurred in attending Board of Director and committee meetings.
Fees and Equity Awards for Non-Employee Directors
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.
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 . Our Board may award special
remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
Equity Compensation Plan Information
In September 2018, our stockholders approved our 2018
Equity Incentive Plan, which initially provided for a maximum of 1,150,000 shares of common stock that may be issued as options, stock
appreciation rights, restricted stock, stock units, other equity awards or cash awards. In November 2020, our stockholders approved an
amendment to the 2018 Equity Incentive Plan (Amendment No. 1) to increase by 1,850,000 the number of shares that may be granted as awards
under the 2018 Equity Incentive Plan.
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.
On October 29, 2021, the Board approved
an Amendment to the Plan (“Amendment No. 2”) to increase by 4,000,000 the number of shares that may be granted under the Plan.
Amendment No. 2 to the 2018 Plan will increase the number of shares of common stock with respect to which awards may be granted under
the 2018 Plan from an aggregate of 3,000,000 shares of common stock to 7,000,000 shares of common stock.
On December 8, 2021, the Company held its 2021 Annual
Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 2 to the Company’s 2018 Equity
Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under the plan by an additional
4,000,000 shares of common stock.
68
Equity Compensation Plan
Information
Plan Category |
|
Number of securities to be issued upon exercise of outstanding options |
|
Weighted-average exercise price of outstanding options |
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|
|
|
|
|
(a) |
|
|
|
(b) |
|
|
|
(c) |
|
|
Equity compensation plans approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Equity Incentive Plan |
|
|
2,766,438 |
|
|
$ |
2.92 |
|
|
|
3,741,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
2,766,438 |
|
|
$ |
2.92 |
|
|
|
3,741,096 |
|
|
69
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.
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.
During
the period ended December 31, 2021, the Company issued ten year options to purchase 745,000 shares at exercise prices
ranging from $2.62 to $4.20 per share to employees.
On July
1, 2021, in compliance with the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the
Company granted him ten year options to purchase 400,000 shares of common stock at an exercise price of $4.03 per
share vesting annually commencing on September 1, 2022.
On August
31, 2021, due to the resignation of an employee, unvested options for 50,000 shares of common stock were forfeited by
the employee.
On
September 13, 2021, the Company granted the non-executive members of its board ten year options to purchase 48,500 shares of
common stock at an exercise price of $5.10 per share, as a component of annual compensation.
As of December 31, 2021, there was an aggregate
of 2,766,438 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 3,741,096 reserved for
future grants.
70
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The tables below set forth, as of March 30, 2022
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 of our current directors and executive officer and (iii) by all current 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.
Name of Beneficial Owner |
|
Number of Shares Beneficially Owned |
|
Percentage of Common Stock Beneficially Owned(1) |
Directors and Executive Officers |
|
|
|
|
|
|
|
|
Michele Ciavarella (Executive Chairman of the Board)(2) |
|
|
5,642,938 |
|
|
|
23.7 |
% |
Victor Salerno (Director)(3) |
|
|
489,760 |
|
|
|
2.1 |
% |
Paul Sallwasser (Director)(4) |
|
|
119,825 |
|
|
|
* |
|
Steven Shallcross(Director)(5) |
|
|
59,625 |
|
|
|
* |
|
Andrea Mandel-Mantello (Director)(6) |
|
|
9,067 |
|
|
|
* |
|
Carlo Reali (Interim Chief Financial Officer)(7) |
|
|
11,276 |
|
|
|
* |
|
Luca Pasquini (former Vice President of Technology and Director)(8) |
|
|
614,166 |
|
|
|
2.6 |
% |
Alessandro Marcelli (former Vice President of Operations)(9) |
|
|
456,523 |
|
|
|
1.9 |
% |
Mark Korb (former Chief Financial Officer)(10) |
|
|
56,417 |
|
|
|
* |
|
Matteo Monteverdi (former Chief Executive Officer)(11) |
|
|
177,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
All current executive officers and directors as a group (6 persons) |
|
|
6,332,491 |
|
|
|
26.4 |
% |
Other 5% or Greater Stockholders |
|
|
|
|
|
|
|
|
Gold Street Capital Corp.(12) |
|
|
4,740,394 |
|
|
|
20.0 |
% |
__________________
* less than 1%
|
(1) |
Based on 23,674,277 shares of common stock outstanding on April 14, 2022. |
|
|
|
|
(2) |
Includes 770,148 shares of common stock; a further 4,728,478 shares and warrants exercisable into 11,916 shares of common stock held by Gold Street Capital Corp., a corporation owned by Gilda Pia Ciavarella, the spouse of Michele Ciavarella, and options to purchase 204,375 shares of common stock of which 125,521 are vested and a further 6,875 vests within the next 60 days. Gilda Pia Ciavarella is the President of Gold Street Capital Corp. and in such capacity is deemed to have voting and dispositive power over the securities held by such entity. The principal address for Gold Street Capital Corp. is 122 Mary Street, Zephyr House, Georgetown, Grand Cayman. |
|
|
|
|
(3) |
Includes 489,760 shares of common stock. |
|
|
|
|
(4) |
Includes 30,000 shares of common stock and options to purchase 96,925 shares of common stock of which 86,275 are vested and a further 3,550 vests within the next 60 days. |
|
|
|
|
(5) |
Includes 5,245 shares of common stock and options to purchase 58,913 shares of common stock of which 52,113 are vested and a further 2,267 vests within the next 60 days. |
|
|
|
|
(6) |
Includes options to purchase 13,600 shares of common stock of which 6,800 are vested and a further 2,267 vests within the next 60 days. |
|
|
|
|
(7) |
Includes options to purchase 119,375 shares of common stock of which 10,469 are vested and a further 807 vests within the next 60 days. |
|
|
|
|
(8) |
Includes 565,562 shares of common stock and options to purchase 83,000 shares of common stock of which 45,146 are vested and a further 3,458 vest in the next sixty days. |
|
|
|
|
(9) |
Includes 409,002 shares of common stock and options to purchase 81,000 shares of common stock of which 44,146 are vested and a further 3,375 vest in the next sixty days. |
|
|
|
|
(10) |
Includes options to purchase 483,000 shares of common stock of which 54,000 are vested and a further 2,417 vests within the next 60 days. |
|
|
|
|
(11) |
Includes 15,000 shares of common stock and options to purchase 648,000 shares of common stock of which 162,000 are vested and a further 0 vest in the next sixty days. |
|
|
|
|
(12) |
Includes 4,728,478 shares and warrants exercisable into 11,916 shares of common stock. Gilda Pia Ciavarella is the President of Gold Street Capital Corp. and in such capacity is deemed to have voting and dispositive power over the securities held by such entity. The principal address for Gold Street Capital Corp. is 122 Mary Street, Zephyr House, Georgetown, Grand Cayman. |
71
Item 13. Certain Relationships and Related
Party Transactions, and Director Independence
The following includes a summary of transactions
during our fiscal years ended December 31, 2021 and 2020 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.
|
|
December 31,
2021 |
|
December 31,
2020 |
Related Party payables |
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
(502 |
) |
|
$ |
(565 |
) |
Victor Salerno |
|
|
(51,878 |
) |
|
|
— |
|
|
|
|
(52,380 |
) |
|
$ |
(565 |
) |
|
|
|
|
|
|
|
|
|
Related Party Receivables |
|
|
|
|
|
|
|
|
Luca Pasquini |
|
$ |
1,413 |
|
|
$ |
1,519 |
|
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.
Gold Street
Capital
Gold Street Capital
is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital
acquired certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the
maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon,
amounting to CDN $44,062 (approximately $34,547) was outstanding at December 31, 2020. This amount was repaid during the current
year.
As an incentive for
extending the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year
warrants exercisable at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price
of $5.00 per share. Gold Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock
at $3.75 per share and three-year warrants exercisable for 2,383 shares of common stock at $5.00 per share.
72
Luca Pasquini
On January 31, 2019, the
Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual
Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to
be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over
an eighteen month period. As of June 30, 2021, the Company has paid Mr. Pasquini the full cash amount of €500,000 (approximately
$604,380) and issued 112,521 shares valued at €300,000 (approximately $334,791).
On October 1, 2020, the Company granted to Mr. Pasquini a ten year option to purchase 58,000 shares of common stock at an exercise
price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due
to him.
On July 11, 2021,
the Company entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance
and support of the system, the total contract price was €390,000 (approximately $459,572). Mr. Pasquini owns 34%
of Engage.
On October 14, 2021,
the Company entered into a further agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance
and support of the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000).
Mr. Pasquini owns 34% of Engage.
On September 13, 2021,
Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company.
Victor
Salerno
On July
15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid
in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing.
Together with
the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July
14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either
party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January
1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees. See “Executive
Compensation-Employment Agreements-Victor Salerno” for additional information regarding the terms of the Employment Agreement.
On September 13, 2021, the
Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking to serve as a member
of the Board.
Prior to the acquisition
of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno,
which amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023.
Michele
Ciavarella
On October 1, 2020, the Company granted to Mr. Ciavarella, a ten
year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share.
Mr. Ciavarella agreed to receive $140,000 of
his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares
of common stock valued at $140,000 on the date of issue.
On January 22, 2021,
the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation
due to him.
On July
15, 2021, Michele Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President
of the Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive
Officer until the earlier of his resignation or removal from office.
73
Gabriele Peroni
On January 31, 2019,
the Company acquired Virtual Generation for €4,000,000 (approximately 4,576,352), Mr. Peroni was a 20% owner
of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was
to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued
at €300,000 over an eighteen month period. As of June 30, 2021, the Company has paid Mr. Peroni the full cash amount
of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000 (approximately $334,791).
On October 1, 2020, the Company granted to Mr. Peroni a ten year
option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.
On January 22, 2021,
the Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation
due to him.
Paul
Sallwasser
On October 1, 2020, the Company granted to Mr. Sallwasser a ten
year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors fees.
On
September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of directors
fees.
Steven Shallcross
On October 1, 2020, the Company granted to Mr. Shallcross a ten
year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share, in lieu of a portion of his directors
fees.
On January 22, 2021,
the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement
of directors’ fees due to him.
On
September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a portion
of his directors fees.
Mr.
Shallcross earned cash directors fees of $40,000 for the years ended December 31, 2021 and 2020.
Mark
Korb
On October 1, 2020, the Company granted to
Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.
On July 5,
2021, the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer,
(the “Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial
Officer for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as
may be determined by the Company’s Board with a target bonus of 40% of his base salary. Mr. Korb will also be entitled
to pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance
of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, On July 1,
2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s
common stock. The shares of common stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per share. See
“Executive Compensation-Employment Agreements-Mark Korb” for additional information regarding the terms of the Employment
Agreement.
On January
5, 2022, Mark Korb resigned as Chief Financial Officer of the. In connection with his resignation, the Company entered into an
amendment to Mr. Korb’s employment agreement with the Company to provide that he will be employed by the Company as a non-executive
employee with the title “Head of Corporate Affairs”, reporting directly to the Executive Chairman and that in such
capacity he will be responsible for, among other things, various corporate initiatives and activities related to growth and capital
strategies. All other terms of the employment agreement remain the same.
74
Andrea
Mandel-Mantello
On
June 29, 2021, the Board appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment
was effective immediately and Mr. Mandel-Mantello will serve on the audit committee.
On
September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common
stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a
portion of his directors fees.
Mr.
Mandel-Mantello earned cash directors fees of $20,000 for the six months ended December 31, 2021.
Phillipe
Blanc
On October 1, 2020, the Company appointed Mr.
Philippe Blanc as a director of the Company.
On October 1, 2020, the Company granted to
Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors
fees.
On July
1, 2021, Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director
of the Company, the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting
capacity over two years. Mr. Blanc will receive €105,000 per annum as compensation.
Carlo
Reali
On January 5, 2022,
the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.
We do not have a formal
employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation
that he currently receives which is an annual base salary of $86,000.
Richard Cooper
On October 1, 2020 Mr. Cooper resigned as a director of the Company.
Mr. Cooper received cash director fees of $30,000 for the year ended
December 31, 2020.
Clive Kabatznik
On May 15, 2020, Mr. Kabatznik resigned as a director of the Company.
Mr. Kabatznik received cash director fees of $10,000 for the year
ended December 31, 2020.
Director Independence
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, 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 Elys stock will not preclude a director from being independent.
In applying this definition, our Board has determined that each of Paul Sallwasser, Steven Shallcross and Andrea Mandel-Mantello qualify as an “independent directors”
pursuant to Rule 5605 of the Nasdaq Stock Market.
75
Item 14. Principal Accountant Fees and Services
Audit Fees
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 $492,957 and $383,709 to BDO in connection to audits for the years ended December 31, 2021 and 2020,
respectively.
Audit Related Fees
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 $78,921 and
$0 in audit related fees for the years ended December 31, 2021 and 2020, respectively.
Tax Fees
No tax fees were paid to BDO for the years
ended December 31, 2021 and 2020.
All Other Fees
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 2021 and
2020.
Pre-Approved Policy For Audit And Non-Audit
Services
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.
76
PART IV
Item 15. Exhibits and Financial Statement
Schedules.
|
(1) |
Consolidated Financial Statements: |
See Index to Consolidated Financial
Statements at page 60.
|
(2) |
Financial Statement Schedule: |
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 2021 Annual Report.
Item 16. Form 10-K Summary
Not applicable.