Item 7. Management's Discussion and Analysis of Financial Condition and Results
Of Operations.
You should read the following
discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes
appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors
that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the
section titled “Risk Factors” included elsewhere in this Annual Report. All amounts in this Annual Report are in U.S. dollars,
unless otherwise noted.
Overview
Except as expressly stated,
the financial condition and results of operations discussed throughout the Management's Discussion and Analysis of Financial Condition
and Results of Operations are those of Elys Game Technology, Corp. and its consolidated subsidiaries.
We currently provide our
B2C gaming services in Italy through our subsidiary, Multigioco, which operations are carried out via both land-based or online retail
gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”) that permits us 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 our licensed website and through mobile devices. Management
implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco and allowed the Austria Bookmaker
license that was regulated by the BMF to terminate.
We also provide bookmaking
services in the U.S. market via our recently acquired subsidiary US Bookmaking and Gameboard in certain regulated states where we offer
B2B bookmaking and platform services to our customers. Our intention is to focus our attention on expanding the U.S. market. We recently
began operation in Washington, D.C. through a Class B Managed Service Provider and Class B Operator
license to operate a sportsbook within the Grand Central Restaurant and Sportsbook located in the Adams Morgan area of Washington, D.C.,
and in October 2021 we entered into an agreement with Ocean Casino Resort in Atlantic City and commenced operations in the state of New
Jersey in March 2022.
48
Additionally, we provide
B2B gaming technology through our Odissea subsidiary which owns and operates a betting software designed with a unique “distributed
model” architecture colloquially named Elys. 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 our Virtual Generation subsidiary. The Platform
also provides seamless application programming interface integration of third-party supplied products such as online casino, poker, lottery
and horse racing and has the capability to incorporate e-sports and daily fantasy sports providers. Management implemented a growth strategy
to expand B2B gaming technology operations in the U.S. and is considering further expansion in Canada and Latin American countries in
the near future.
Our corporate group is based
in North America, which includes an executive suite situated in Las Vegas, Nevada and an office in Toronto, Ontario, Canada 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.
For the year ended December
31, 2022, transaction revenue generated through our subsidiary Multigioco consisted of wagering and gaming transaction income broken down
to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based
betting web-shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated
by our Platform is primarily derived from bet and wager processing in Italy through Multigioco, and in the U.S., through Gameboard and
US Bookmaking. During the second quarter of 2021, management simplified our Italian footprint by focusing investments towards our Multigioco
operations and discontinued Ulisse since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns
in Italy subsided.
We believe that our Platform
is considered one of the newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions
around the world on a B2B basis, including expansion through Europe, South America, South Africa and the developing market in the United
States. During the year ended December 31, 2022 and 2021, we also generated service revenue from royalties through authorized agents by
providing our virtual sports products through our Virtual Generation subsidiary and generated service revenues through the provision of
bookmaking and platform services through our subsidiaries, US Bookmaking and Gameboard. We intend to leverage our partnerships in Europe,
South America, South Africa and the developing market in the United States to cross-sell our Platform services to expand the global distribution
of our betting solutions.
We operate two business segments
in the leisure gaming industry and our revenue is derived as follows:
1. |
Betting establishments |
Transaction revenue
through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting
shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. |
Betting platform software and services |
SaaS based service
revenue through providing our Platform and virtual sports products to betting operators.
This Management’s Discussion
and Analysis includes a discussion of our operations for the years ended December 31, 2022 and 2021, which includes the operations of
US Bookmaking for the twelve months and six months ended December 31, 2022 and 2021, respectively.
Recent Developments
Operational Developments
Management has implemented a strategic business initiative
to reduce expenditure, improve efficiencies and maximize profitability within the underlying operating units. As a result, during the
year ended December 31, 2022, our European operations, consisting of Multigioco, Odissea, Ulisse, Virtual Generation and Elys Technology
Services achieved a net loss position of approximately $0.8 million compared to a net loss of approximately $6.5 million in the prior
year, which included an impairment charge of $4.8 million related to the Ulisse license, after factoring out the impairment charge, the
net loss was reduced by approximately $0.9 million. The performance of our US Bookmaking subsidiary has been disappointing, producing
49
a net loss of approximately
$21.2 million, including a net impairment charge of $19.1 million and in the prior year produced a net loss of $13.3 million including
an impairment charge of $12.5 million, after factoring out the impairment charges, the net loss increased to $2.1 million from $0.8 million
(for a six month period from date of acquisition). We have recently assumed operational management of US Bookmaking and are currently
assessing the viability of its customers and the current level of overhead. We are also in a legal dispute with the previous management
of US Bookmaking based on misrepresentation. Our other U.S. operation, Elys Gameboard, commenced operations in October 2021 and had
produced a net loss of $0.6 million for the year ended December 31, 2022, compared to a net loss of $0.2 million for the year ended December
31, 2021. The Group produced a total net loss of $18.3 million compared to $15.1 million for the years ended December 31, 2022 and 2021,
respectively.
We
are also taking steps to reduce corporate overhead and have restructured our operations by streamlining roles and reducing non-essential
operating expenditures. Corporate overhead expenditures was $8.3 million, including net of one-time severance and restructuring expenses
of $1.2 million, and non-cash option and compensation expense of $4.1 million for the year ended December 31, 2022, compared to $7.4
million, including a non-cash compensation charge of $1.8 million,
for the year ended December 31, 2021, a reduction of approximately $2.3 million after factoring out non-cash compensation and severance
costs.
Global Issues
Russia’s invasion
of Ukraine
Russia recently invaded Ukraine
with Belarus complicit in the invasion. The conflict between these two countries is ongoing.
We do not have any direct
or indirect exposure to Ukraine, Belarus or Russia, through our operations, employee base or any investments in any of these countries.
In addition, our securities are not traded on any stock exchanges in these three countries. We do not believe that the sanction levied
against Russia or Belarus or individuals and entities associated with these two countries will have a material impact on our operations
or business, if any.
We do not believe that we
have any direct or indirect reliance on goods sourced from Russia, Ukraine or Belarus or countries that are supportive of Russia’s
actions.
We provide online gaming
services and platform services to several customers, including our own internal usage of our developed software, we employ the latest
encryption techniques and firewall practices and constantly monitor the usage of our software as is required for the regulated markets
which we operate in, this, however, may not be sufficient to prevent the heightened risk of cybersecurity attacks emanating from Russia,
Ukraine, Belarus, or any other country.
The impact of the invasion
by Russia of Ukraine has increased volatility in trading prices and commodities throughout the world, to date, we have not seen a material
impact on our operations, however, a prolonged conflict may impact on consumer spending, in general, which could have an adverse impact
on the leisure gaming industry as a whole.
Inflation
Macro-economic conditions
could affect consumer spending adversely and consequently our future operating results. The U.S. has entered a period of significant inflation,
and this may impact consumption of our products and services and may increase our costs overall. However, as of the date of this report,
we have not seen a material impact on our business plan due to recent inflationary concerns in the U.S.
Foreign Exchange Risks
We operate in several foreign
countries, including Italy and Colombia. Changes and fluctuations in the foreign exchange rate between the US Dollar and other foreign
currencies, including the Euro and the Colombian Peso, may in future have an effect our results of operations.
50
COVID-19 Update
In November 2020 the Italian
government imposed new lockdowns on all land-based betting shops, including corner locations such as coffee shops throughout Italy that
were lifted on June 14, 2021. The closing of physical betting shop locations did not affect our online and mobile business operations
which has mitigated some of the impact. During the second quarter of 2021, management decided to close our Ulisse operations in Italy
due to the uncertainty at that time of the duration and scope of the COVID-19 outbreak, while focusing investments on growing our U.S.
market and the more familiar Multigioco brand, the result of which management believes has reduced the complexity and improved the efficiency
of our gaming operations in Italy. Due to the high percentage of vaccinations administered in Italy, we do not anticipate further severely
restrictive lockdowns in either Italy, the U.S. market of any other market in which we operate.
Recent Developments
On January 29, 2023 (the
“Closing Date”), we entered into a Share Purchase Agreement (the “Purchase Agreement”) pursuant to which we acquired
100% of Engage IT from its founding shareholders and Engage became a wholly owned subsidiary of Elys.
Founded in 2016 by the Company’s
current Head of Global Technology, Luca Pasquini, along with Alessandro Alpi and Michael Denney. Engage employs 27 specialist technicians,
developers and software engineers that specialize in the design, implementation and management of SQL databases, agile project management,
and solutions based on the Microsoft cloud platform (Azure) and in the development of .NET applications. Since 2016, Engage has also provided
contract services to us, playing a key role in the development of our Elys Gameboard sportsbook technology and Player Account Management
Platform (PAM).
Pursuant to the terms
of the Purchase Agreement, on the Closing Date, the Company paid $1,177,200 (€1,080,000) for all of the shares of Engage on a
debt free basis, which amount may be increased or decreased based on the working capital surplus or deficit, and any indebtedness
due to or from Engage by or from any one or more of the Sellers to be determined 10 days prior to June 30, 2023. The Company
satisfied the payment by the issuance 3,018,462 shares of common stock (the “Exchange Shares”) equal to the
“Dollar Equivalent” of the Purchase Price, calculated at the exchange rate at the time of closing, at a price equal to
the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company’s common
stock for the twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and
concluding at the close of trading on the third trading day immediately preceding the Closing Date or US $0.39 per share, which may
be adjusted for any stock split, reverse stock split, stock dividend, recapitalization, combination, exchange or similar event; or
any subsequent equity sale or rights offering of Elys for a period of thirty six months, defined as the hold period during which the
Sellers are restricted from disposing of the shares to a third party. Due to the size of the transaction and the number of
securities issued, no shareholder approval was required. Additionally, the Company may repurchase the Exchange Shares in cash in
whole or in part at any time on or prior to June 30, 2023.
The Purchase Agreement contains
customary representations, warranties and covenants of Elys and the Sellers. Subject to certain customary limitations, the Sellers have
agreed to indemnify Elys and its officers and directors against certain losses related to, among other things, breaches of the Sellers’
representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase Agreement.
The foregoing summary of
the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase
Agreement that is filed as Exhibit 10.1 in the Company’s Form 8-K dated February 2, 2023.
The representations, warranties
and covenants contained in the Purchase Agreement were made only for purposes of such agreement and as of specific dates, were solely
for the benefit of the parties to the Purchase Agreement and may be subject to limitations agreed upon by the contracting parties.
Results of Operations
Results of operations
for the years ended December 31, 2022 and December 31, 2021.
The comparisons below include
a discussion of our operations for the years ended December 31, 2022 and 2021, which includes the results of operations of US Bookmaking
subsequent to its acquisition on July 31, 2021.
51
Revenues
The following table represents
disaggregated revenues from our gaming operations for the years ended December 31, 2022 and 2021. Net Gaming Revenues represents Turnover
(also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, and taxes due to
government authorities, Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual
products.
| |
Years Ended | |
| |
|
| |
December 31, 2022 | |
December 31, 2021 | |
Increase/ (decrease) | |
Percentage change |
Turnover | |
| |
| |
| |
|
Web-based | |
$ | 755,248,396 | | |
$ | 826,789,619 | | |
$ | (71,541,223 | ) | |
| (8.7 | )% |
Land-based | |
| 14,907,168 | | |
| 15,071,218 | | |
| (164,050 | ) | |
| (1.1 | )% |
Total Turnover | |
| 770,155,564 | | |
| 841,860,837 | | |
| (71,705,273 | ) | |
| (8.5 | )% |
| |
| | | |
| | | |
| | | |
| | |
Winnings/Payouts | |
| | | |
| | | |
| | | |
| | |
Winnings web-based | |
| 704,932,499 | | |
| 771,852,252 | | |
| (66,919,754 | ) | |
| (8.7 | )% |
Winnings land-based | |
| 12,355,575 | | |
| 12,842,577 | | |
| (487,002 | ) | |
| (3.8 | )% |
Total Winnings/payouts | |
| 717,288,074 | | |
| 784,694,829 | | |
| (67,406,755 | ) | |
| (8.6 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross Gaming Revenues | |
| 52,867,490 | | |
| 57,166,008 | | |
| (4,298,518 | ) | |
| (8.1 | )% |
| |
| | | |
| | | |
| | | |
| | |
Less: Gaming Taxes | |
| 12,787,700 | | |
| 12,657,930 | | |
| 129,770 | | |
| 1.0 | % |
Net Gaming Revenues | |
| 40,079,790 | | |
| 44,508,078 | | |
| (4,428,288 | ) | |
| (10.0 | )% |
| |
| | | |
| | | |
| | | |
| | |
Betting platform software and services | |
| 2,598,869 | | |
| 1,038,713 | | |
| 1,560,156 | | |
| 150.2 | % |
| |
| | | |
| | | |
| | | |
| | |
Total Revenues | |
$ | 42,678,659 | | |
$ | 45,546,791 | | |
$ | (2,868,132 | ) | |
| (6.3 | )% |
Total Revenues
The change in total revenues
is primarily due to the following:
Web-based turnover
Our web-based turnover was
approximately $755.2 million (€716.4 million) and $826.8 million (€698.7 million) for the years ended December 31, 2022 and
2021, respectively, a decrease of $71.5 million or 8.7%, but an increase in Euro based turnover of €17.7 million or 2.5%. Refer to
currency impact on web-based turnover below.
For the year ended December
31, 2022, all of our web-based turnover was generated by Multigioco. In the prior year our web-based turnover was generated by both Multigioco
and Ulisse, prior to the closure of our Ulisse CTD operations in the second quarter of the prior year. In the prior year Ulisse contributed
approximately $34.0 million (€28.9 million) of web-based turnover. Multigioco contributed web-based turnover of approximately $755.0
million (€716.4 million) and $792.4 million (€669.8 million) a decrease of $37.4 million or 4.7% but an increase in Euro based
turnover of €46.5 million or 6.9%. Refer to currency impact on web -based turnover below.
Currency impact on
Web-based turnover
Our web-based turnover in
Euro increased by approximately €17.7 million or 2.5%, however in U.S dollars we recorded a decrease in turnover of $71.5 million
or 8.7%. The strengthening of the average U.S. dollar exchange rate against the Euro during the current year from $1.183361 to $1.054283
or 10.9%, using the 2021 average exchange rate of $1.183361, we would have realized turnover of $847.7 million compared to $826.8 million
for the years ended December 31, 2022 and 2021, respectively an increase of $20.9 million. The strengthening of the U.S. dollar against
the Euro resulted in a $92.4 million adverse swing in our turnover.
The softening of COVID restrictions
in Italy has also driven some web-based turnover to the land-based channel, and despite this effect, we managed to increase web-based
turnover due to market share growth.
52
Land-based turnover
Our land-based turnover was
approximately $14.9 million (€14.1 million) and $15.1 million (€12.7 million) for the years ended December 31, 2022 and 2021,
respectively, a decrease of $0.2 million or 1.3%, but an increase in Euro based turnover of €1.4 million or 11.0%. Refer to currency
impact on land-based turnover below.
For the year ended December
31, 2022, all of our land-based turnover was generated by Multigioco. In the prior year our land-based revenue was generated by both Multigioco
and Ulisse, prior to the closure of our Ulisse CTD operations in the second quarter of the prior year. In the prior year Ulisse contributed
approximately $11.6 million (€9.8 million) of land-based turnover. Multigioco contributed land-based turnover of approximately $14.8
million (€14.1 million) and $3.4 million (€2.9 million) an increase of $11.4 million or 335.3% but an increase in Euro based
turnover of €11.2 million or 386.2%. Refer to currency impact on land-based turnover below.
During the year ended December
31, 2022 we activated approximately 53 new land-based locations in Multigioco with recently acquired operating rights. These acquired
rights partially offset the closure of our Ulisse CTD operations in the prior year.
Currency impact on
land-based turnover
Our web-based turnover in
Euro increased by approximately €1.4 million or 11.0%, however in U.S dollars we recorded a decrease in turnover of $0.2 million
or 1.3%. The strengthening of the average U.S. dollar exchange rate against the Euro during the current year from $1.183361 to $1.054283
or 10.9%, using the 2021 average exchange rate of $1.183361, we would have realized turnover of $16.7 million compared to $15.1 million
for the years ended December 31, 2022 and 2021, respectively an increase of $1.6 million. The strengthening of the U.S. dollar against
the Euro resulted in a $1.8 million adverse swing in our turnover.
Gross Gaming Revenue (“GGR”)
Gross gaming revenue was
approximately $52.9 million (€50.1 million) and $57.2 million (€48.3 million) for the years ended December 31, 2022 and 2021,
respectively, a decrease of $4.3 million or 7.5%, but an increase in Euro based GGR of €1.8 million or 3.7%. Refer to currency impact
on gross gaming revenues below.
The percentage of payouts
on web-based turnover improved slightly to 93.3% from 93.4%, and on land-based turnover improved to 82.9% from 85.2%, for the years ended
December 31, 2022 and 2021, respectively.
Currency impact on
gross gaming revenues
Our GGR in Euro increased
by approximately €1.8 million or 3.7%, however in U.S dollars we recorded a decrease in GGR of $4.3 million or 7.5%. The strengthening
of the average U.S. dollar exchange rate against the Euro during the current year from $1.183361 to $1.054283 or 10.9%, using the 2021
average exchange rate of $1.183361, we would have realized GGR of $59.3 million compared to $57.2 million for the years ended December
31, 2022 and 2021, respectively an increase of $2.1 million. The strengthening of the U.S. dollar against the Euro resulted in a $6.4
million adverse swing in our GGR.
The return on casino type
games is typically fixed at a certain percentage while the return on skill games is dependent on the skill of the players but does not
vary significantly from year to year, however the return on sports betting is dependent on the outcome of the sporting games which is
unpredictable and is managed by our risk management team, generally producing a better return than the other revenue streams.
The turnover mix impacts
our Gross Gaming Revenue (“GGR”). Our turnover for the years ended December 31, 2022, is as follows: sports betting turnover
represented 21.0% (December 31, 2021 – 22.4%); casino style games represented 78.2% (December 31, 2021 – 76.7%); and other
was 0.8% (December 31, 2021 – 0.9%).
The margin earned on our
sports book averaged 16.2% (December 31, 2021 – 15.7%) and our casino style games averaged 4.4% (December 31, 2021 - 4.2%), resulting
in a blended GGR of 6.9% (December 31, 2021 – 6.8%). The slight shift towards lower margin casino type products during the current
year was offset by the higher margin earned on the sports book during the current year.
53
Gaming Taxes
Gaming taxes increased by
approximately $0.1 million or 1.0%. Gaming taxes are a percentage of GGR and increased to 24.2% from 22.1%, for the years ended December
31, 2022 and 2021, respectively. The increase is primarily due to the mix of our Gross Gaming revenues shifting to Multigioco which has
an average gaming tax of approximately 24.2% compared to Ulisse with a significantly lower tax rate due to its incorporation being situated
outside of Italy.
Service Revenues
Service revenues increased
by approximately $1.6 million or 150.2%. This is primarily due to: (i) revenues generated by US Bookmaking and Gameboard operations of
approximately $1.1 million and (ii) a general increase in our other service-based revenues across our platform companies. This revenue
remains insignificant to total revenues during the years presented.
Selling expenses
Selling expenses are commissions
that are paid to our sales agents as a percentage of turnover (handle) and are not affected by the winnings that are paid out. Therefore,
increases in turnover (handle), will typically result in increases in selling expenses but may not result in increases in overall revenue
if winnings/payouts, that are subject to the unknown outcome of sports events that we have no control over, are very high. The percentage
of selling expenses to turnover decreased marginally to 4.2% from 4.3% for the years ended December 31, 2022 and 2021, respectively.
We incurred selling expenses
of approximately $32.7 million and $36.3 million for the years ended December 31, 2022 and 2021, respectively, a decrease of approximately
$3.6 million or 9.9% All expenses, including selling expenses were impacted by the 10.9% strengthening of the U.S. dollar against the
Euro. Selling expenses are predominately denominated in Euro’s with a total of $32.4 million and $36.3 million denominated in Euro’s
and $0.3 million and $0.0 million denominated in U.S. dollars, for the years ended December 31, 2022 and 2021, respectively. The commissions,
in Euro’s, increased from €30.7 million to €30.8 million, an increase of €0.1 million or 0.3% which is significantly
lower percentage than the total Euro turnover increase of 2.7% (€19.1 million). This is primarily due to measures taken to reduce
selling expenses in line with our strategy to accelerate a return to profitability.
General and Administrative
Expenses
General and administrative
expenses were approximately $20.0 million and approximately $17.5 million for the years ended December 31, 2022 and 2021, respectively,
an increase of $2.5 million or 14.3%. The increase in general and administrative is due to the following:
(i) |
Personnel costs, excluding stock based compensation, was constant at approximately $7.1 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively. This included; (i) an increase in personnel costs at US Bookmaking of $0.8 million. In the prior year US Bookmaking personnel costs represented personnel costs for six months (from acquisition date); (ii) a decrease in personnel costs at corporate level of approximately $1.0 million due to a reduction in corporate headcount; and (iii) an increase in Euro based salaries of approximately $0.2 million (on a constant currency basis Euro salaries increased by approximately $1.5 million), primarily due to the increase in headcount as our European operations, including development personnel and customer service personnel. |
(ii) |
Stock based compensation expense was approximately $4.1 million and $1.8 million for the years ended December 31, 2022 and 2021, respectively, an increase of approximately $2.3 million or 124.4%. The increase is primarily due to the amortization of options issued in July 2021 for the full fiscal period compared to half a fiscal period in the prior year and restricted stock awards valued at approximately $1.6 million to key management during September 2022 for achieving certain cost saving milestones. |
(iii) |
Platform related fees were approximately $1.9 million and $2.8 million for the years ended December 31, 2022 and 2021, respectively, a decrease of $0.9 million or 32.1%, this is primarily due to the closure of all Ulisse CTD operations in the prior year. |
(iv) |
Severance costs were approximately $1.2 million and $0 for the years ended December 31, 2022 and 2021, respectively, an increase of $1.2 million. This was due to a rationalization of head count at the corporate level. |
(v) |
The remaining decrease of approximately $0.1 million consists of several individually immaterial expense items. |
54
Depreciation and amortization
Depreciation and amortization
was approximately $1.8 million and $1.4 million for the years ended December 21, 2022 and 2021, respectively, an increase of approximately
$0.4 million or 28.6%. The increase is primarily due to the amortization of intangible assets related to the acquisition of US Bookmaking
for the full fiscal year during the current year, US Bookmaking was acquired effective July 15, 2021.
Impairment of indefinite
lived assets and goodwill
Impairment of indefinite
lived assets and goodwill was approximately $20.6 million and approximately $17.4 million for the years ended December 31, 2022 and 2021,
respectively, an increase of $3.2 million or 18.4%. We considered the fair value of purchased goodwill on the acquisition of US Bookmaking,
in terms of ASC 360, and determined that, based on management’s
revised future projections that an impairment charge of the remaining
goodwill of approximately $14.5 million was appropriate, in the prior year we considered a goodwill impairment charge of approximately
$12.5 million was appropriate. In addition, we evaluated our long-lived assets for impairment in terms of ASC 350 and determined that
an impairment charge of $6.1 million for the year ended December 31, 2022 was appropriate for certain US Bookmaking intangible assets.
In the prior year we impaired the remaining value of our Ulisse bookmakers license of approximately $4.8 million as we have decided to
concentrate a significant amount of our efforts on developing the U.S. market.
As discussed below under
contingent purchase consideration, management reviewed the future revenue and profit projections of US Bookmaking based on recent
developments and disputes with the previous US Bookmaking management. We forecast the future performance
of US Bookmaking based on the current customer base which resulted in an impairment of the
remaining goodwill balance.
Loss from Operations
The loss from operations
was approximately $32.4 million and approximately $26.9 million for the years ended December 31, 2022 and 2021, respectively, an increase
of approximately $5.5 million or 20.5%. The increase in loss from operations is primarily due to the following; (i) the reduction in revenues
of $2.9 million; (ii) the increase in general and administrative of $2.6 million; and (iii) the increase in impairment of indefinite lived
assets and goodwill of $3.2 million; offset by (iv) a decrease in selling expense of $3.9 million, as discussed above.
Interest Expense, Net
of Interest Income
Interest expense was approximately
$0.04 million and $0.02 million for the years ended December 31, 2022 and 2021, respectively, an increase of $0.2 million or 100.0%. The
increase is primarily due to interest accrued on disputed loans advanced by a previous US Bookmaking vendor.
Amortization of debt
discount
Amortization of debt discount
was $0 and approximately $0.01 million for the years ended December 31, 2022 and 2021, respectively, a decrease of $0.01 million or 100.0%.
The decrease is primarily due to the conversion of convertible debentures into equity, primarily
in the prior period, resulting in accelerated amortization and the maturity of the convertible notes in May 2020.
Change
in fair value of contingent purchase consideration
Change
in fair value of contingent purchase consideration was approximately $12.9 million and $11.9 million for the years ended December 31,
2022 and 2021, respectively, an increase of $1.0 million. The change in fair value of contingent purchase consideration includes the reevaluation
of the fair value of contingent purchase consideration on the acquisition of US Bookmaking.
55
Contingent
purchase consideration on the acquisition of US Bookmaking is due to the vendors for the years ended December 31, 2022 to December 31,
2025. The basis for determining contingent purchase consideration at each reporting period is based on cumulative EBITDA for the period
July 15, 2021 to December 31, 2025, with the first measurement period being December 31, 2022. Due to the current performance of US Bookmaking
and the lack of foreseeable future revenue generating customers which culminated in a dispute with previous US Bookmaking management,
the future potential of the business was forecast based on the current customer base which resulted in an EBITDA forecast below the threshold
required to earn the contingent purchase consideration for the entire earnout period. The remaining balance of contingent purchase consideration
of $12.9 million was credited to the statement of operations and comprehensive loss.
Other income
Other income was approximately
$0.02 million and $0.2 million for years ended December 31, 2022 and 2021, respectively, a decrease of $0.18 million or 90.0%. Other income
included approximately $0.2 million of Covid relief funds received by Odissea during the prior year.
Other expense
Other expense was approximately
$0.1 million and $0.05 million for the years ended December 31, 2022 and 2021, respectively, an increase of approximately $0.05 million
or 100.0%. Other expense represents several individually insignificant amounts such as minor fines and penalties and non-operational commitments
not related to operations, expensed during the year.
Gain (loss) on Marketable
Securities
The gain on marketable securities
was approximately $0.01 million and the loss on marketable securities was $0.46 million for the years ended December 31, 2022, and 2021,
respectively, a decrease of $0.47 million or 102.2%. The gain on marketable securities is directly related to the stock price of our investment
in Zoompass which is marked-to-market each period. The shares in Zoompass were acquired by the Company as settlement of the litigation
matter.
Loss Before Income
Taxes
Loss before income taxes
was approximately $19.7 million and $15.4 million for the years ended December 31, 2022 and 2021, respectively, an increase of $4.3 million
or 27.9%. The increase is primarily attributable to the increase in the loss from operations of approximately $5.5 million, offset by
the increase in the change in fair value of contingent purchase consideration of $1.0 million, as discussed above.
Income
Tax Provision
The income tax provision
was a credit of approximately $1.4 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively, an increase
of $1.1 million or 366.7%.The increase is primarily attributable to deferred tax movements on imputed intangible assets of $1.6 million
and an income tax charge of $0.2 million on profits generated by our European subsidiaries.
Net Loss
Net loss was approximately
$18.3 million and $15.1 million for the years ended December 31, 2022 and 2021, respectively, an increase of $3.2 million or 21.2%, due
to the reasons discussed above.
56
Comprehensive Loss
Our reporting currency is
the U.S. dollar while the functional currency of our subsidiaries is the Euro, the local currency in Italy and Austria, the functional
currency of our Canadian subsidiary is the Canadian dollar and the functional currency of our Colombian operations is the Colombian Peso.
The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using year-end rates
of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical
rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S.
dollars are included in determining other comprehensive income.
We recorded a foreign currency
translation loss of approximately $0.35 million and $0.52 million for the years ended December 31, 2022 and 2021, respectively.
Liquidity and Capital
Resources
Assets
On December 31, 2022, we
had total assets of approximately $21.4 million compared to total assets of $44.6 million on December 31, 2021. The decrease of $23.3
million is primarily related to; (i) the impairment of goodwill and long lived assets of $20.6 million and the amortization of intangible
assets of $1.6 million, offset by the addition of the betting platform for the U.S. market of $2.5 million; (ii) the decrease in gaming
accounts receivable of approximately $1.0 million, primarily due to the timing of receipts from customers, which are generally settled
on a weekly basis; a decrease in cash balances of $3.9 million, as discussed under cash flow below; offset by an increase in right-of-use
assets of $0.9 million related primarily to property leases entered into for expansion of our Italian operations.
Liabilities
On December 31, 2022, we
had total liabilities of approximately $14.2 million compared to $26.8 million on December 31, 2021. The decrease of $12.6 million is
primarily due to; (i) the reduction in Contingent Purchase Consideration of approximately $12.8 million which was fair valued during the
current period based on management’s revised estimate of the profitability of US Bookmaking; (ii) a decrease in the deferred tax
liability of $1.6 million related to the impairment and amortization of long-lived assets; (iii) offset by an increase in operating lease
liabilities of $0.9 million related primarily to property leases entered into for expansion of our European operations.
Working Capital
We had approximately $3.4
million in cash and cash equivalents on December 31, 2022 compared to $7.3 million on December 31, 2021. We do not believe that our cash
balance is sufficient to maintain operations for the next twelve months.
We had a working capital
deficit of approximately $3.9 million as of December 31, 2022 and a surplus of $1.6 million as of December 31, 2021.
We continue to develop our
strategy for the U.S market which remains challenging and volatile with several market participants jockeying for position with aggressive
marketing campaigns and advertising programs, which we believe are not sustainable and result in customer acquisition costs that present
recoverability challenges. We believe that our strategy of a slower roll-out without being drawn into aggressive marketing and advertising
campaigns is the most suited strategy for our business. We anticipate that we may require additional capital to execute this successfully
and to fund our increasing working capital requirements. We believe that we may need to raise cash resources either from equity markets
or from debt funding during the near term as our existing cash resources together with the revenue from operations may not be sufficient
to fund existing operations over the next twelve months from the date hereof. Historically, we have primarily financed our operations
through revenue generated from providing online and land-based gaming products, services, and Platform services in Italy and the sales
of our securities and we expect to continue to seek to obtain required capital in a similar manner. Recently, we have spent, and expect
to continue to spend, a substantial amount of funds in connection with our expansion strategy.
57
Accumulated Deficit
As of December 31, 2022,
we had an accumulated deficit of approximately $66.5 million compared to an accumulated deficit of approximately $48.2 million as of December
31, 2021.
Cash Flows from Operating
Activities
Cash flows from operating
activities resulted in net cash used in operating activities of approximately $(4.2) million and $(7.6) million for the years ended December
31, 2022 and 2021, respectively. The $3.4 million decrease in cash used in operating activities is primarily related to: (i) the increase
in net loss of approximately $(3.2) million offset by (ii) a net movement in non-cash items of approximately $3.9 million, including
a movement in impairment costs of long-lived assets and goodwill of approximately $3.2 million, an increase in the movement of stock
option compensation expense of approximately $1.0 million, an increase in shares issued for services of approximately $1.9 million, offset
by the movement in the change in the fair value of contingent purchase consideration of approximately $(1.0) million and the movement
of deferred taxation of approximately $(1.4) million; and (iii) a decrease in working capital movement of approximately $2.7 million,
primarily due to the decrease in movement of gaming accounts receivable of approximately $1.7 million at Multigioco due to the timing
of collections from customers, the movement on taxation payable of approximately $1.0 million related to a taxation liability generated
by Ulisse in the 2020 year, paid in 2021, the movement in prepaid expenses of approximately $0.7 million, offset by the movement in accounts
payable and accrued liabilities of approximately $(1.0) million, again related to the timing of the payment of our liabilities.
Cash Flows from Investing
Activities
The net cash used in investing
activities for the year ended December 31, 2022 was approximately $2.9 million and $6.7 million for the year ended December 31, 2021.
During the current year, we invested approximately $2.9 million in platform development costs. In the prior year we acquired US Bookmaking
for net cash of $5,973,839 and platform development and fixed asset purchases of $0.7 million, primarily to support the U.S. expansion
efforts.
Cash Flows from Financing
Activities
Net cash provided by financing
activities for the for the year ended December 31, 2022 was $3.7 million and $2.9 million for the year ended December 31, 2021. The cash
provided by financing activities during the current year included proceeds from subscriptions including prefunded warrants, net of direct
costs of $3.1 million, proceeds from related parties to fund the US Bookmaking operations of $0.3 million and proceeds received to acquire
certain kiosks of $0.4 million. In the prior year we received proceeds from warrant exercises of approximately $4.0 million, offset by
the repayment of the bank line of credit of $0.5 million and deferred purchase price payments of approximately $0.4 million.
Contractual Obligations
Contractual obligations consist
of the certain short term funding commitments to acquire kiosks, and operating and finance lease obligations as disclosed in the noes
to the financial statements.
We do not believe that we
have any obligations for contingent purchase consideration based on our assessment of US Bookmaking’s ability to reach the pre-set
earnout targets.
Off-Balance-Sheet Arrangements
We have no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that we expect to be material to investors.
We do not have any non-consolidated, special-purpose entities.
58
Critical Accounting Estimates
Preparation of our consolidated
financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates
and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure
of contingent assets and liabilities. Our estimates are based on our historical experience, information received from third parties and
on various other factors that we believe are reasonable under the circumstances, that results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimated under different assumption or conditions. Significant accounting policies are fundamental to understanding our financial condition
and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note
2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report for further information.
The critical accounting policies
that involved significant estimation included the following:
Impairment of indefinite
lived assets and goodwill
We determine 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. In addition, management reviewed
the future revenue and profit projections of US Bookmaking based on the current dispute with previous
management.
We carry intangible assets
in the amount of $10.4 million and goodwill in the amount of $1.7 million as more fully described in Notes 8 and 9 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 unit to their carrying amount.
US Bookmaking's performance was disappointing during the current fiscal year, the management team was unable to operate the
business on a sustainable stand-alone basis and was unable to source sufficient revenue generating customers or increase revenue
from existing customers to demonstrate that the operations were moving towards a sustainable business model. This culminated in a
dispute with management over ongoing funding of operating losses and resulted in the abandonment of executive positions and notices
to all customers that operations would be ceasing. We assumed management of US Bookmaking in October 2022 and are attempting to
reduce expenditure on an ongoing basis. Based on the above we forecast the future business of US Bookmaking on its current customer
base and future expected expenditure. For impairment testing of long lived assets, we considered the future discounted cash flows
supporting these long-lived assets in our US Bookmaking operation and determined that amortized customer relationships of $6.7
million was appropriately impaired by $4.8 million, with a remaining carrying value of $1.9 million deemed appropriate. In addition,
we determined that impairment of the remaining value of the US Bookmaking non-compete agreements of $1.3 million was appropriate as
we no longer have an amicable relationship with management and are currently involved in a legal dispute with the Sellers and key
members of the previous management team. After considering the allocation of the discounted cashflows to the value of the long lived
assets, we determined that it was appropriate to impair the remaining carrying value of goodwill of $14.5 million related to US
Bookmaking.
59
In the prior year, we fully
impaired the remaining indefinite-lived intangibles (Ulisse Bookmaker License) assets of approximately $4.8 million 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. In addition, management recently reviewed the future revenue
and profit projections of US Bookmaking based on the forecasts provided by the vendors at the time
of performing the business valuation, which factored 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. We 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, our expected share of revenue and the expectation of
how many new clients we 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
our current valuation of US Bookmaking, resulting in a prior year goodwill impairment charge of approximately $12.5 million, no prior
year impairment of any long-lived assets was considered appropriate.
Fair Value of Contingent Consideration
As of December 31, 2022 and
2021, respectively, the Company carried contingent purchase consideration in the amount of $0 and approximately $12.9 million, respectively,
as more fully described in Note 12 to the consolidated financial statements. The contingent consideration relates to the business combination
of US Bookmaking 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 was 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.
The
basis for determining contingent purchase consideration at each reporting period 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 revenue and profitability forecast was based
on the current business in US Bookmaking, as described in the impairment of indefinite lived assets and goodwill above, which
resulted in the probability of meeting the pre-determined earnout targets as being remote, accordingly we determined that contingent purchase
consideration should be adjusted to $0 with a credit to the statement of operations and comprehensive loss of $12.9 million.
Recently Issued Accounting
Pronouncements
See Note 2 - Summary of Significant
Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for information
regarding recently issued accounting standards.
Item 8. Financial Statements and Supplementary
Data
ELYS GAME TECHNOLOGY
CORP
CONSOLIDATED FINANCIAL
STATEMENTS
INDEX
TO FINANCIAL STATEMENTS
|
Page |
Financial Statements for the Years Ended December 31, 2022 and 2021 |
|
Report of Independent Registered Public Accounting Firm - BDO AG; Zurich, Switzerland; PCAOB ID# 5988) |
F-1 |
Consolidated Balance Sheets as of December 31, 2022 and 2021 |
F-4 |
Consolidated Statements of Operations and Comprehensive income (loss) for the Years Ended December 31, 2022 and 2021 |
F-5 |
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 |
F-6 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 |
F-7 |
Notes to Consolidated Financial Statements |
F-9 |
61
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,
2022 and 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash
flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going
Concern Uncertainty
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3 to the consolidated financial statements, the Company's future viability is dependent on its ability to raise additional capital
to finance its ongoing development work and future operations that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
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.
F-1
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, 2022, the Company carried intangible assets in the amount
of $10.4 million and goodwill in the amount of $1.7 million as more fully described in Notes 8 and 9 to the consolidated financial statements.
Goodwill is allocated between reporting units. The Company tests its goodwill 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
amounts. For impairment testing of long lived assets including intangible assets with finite useful lives the Company considers qualitative
facts, circumstances and judgment as to whether impairment indicators exist and if there are, performs a quantitative impairment calculation
at the asset group level. The Company determines the fair value of the reporting units and asset groups 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 qualitative assessment as well as the quantitative assessment to estimate the fair value
of the reporting unit (goodwill) and the asset groups (long lived assets). 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.
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 changes 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. |
F-2
Fair
Value of Contingent Consideration
As more fully described in Note 12 to the consolidated financial statements, the Company had entered into a purchase agreement that included a provision for contingent consideration. 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.
|
Zurich,
Switzerland, April 17, 2023
BDO
AG
Christoph Tschumi |
Ppa. Wing Chi
Waldmeier |
We
have served as the Company's auditor since 2019.
F-3
ELYS GAME TECHNOLOGY, CORP
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
| |
December 31, 2022 | |
December 31, 2021 |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 3,400,166 | | |
$ | 7,319,765 | |
Accounts receivable | |
| 731,962 | | |
| 271,161 | |
Gaming accounts receivable | |
| 1,431,497 | | |
| 2,418,492 | |
Prepaid expenses | |
| 900,205 | | |
| 968,682 | |
Related party receivable | |
| 22,511 | | |
| 1,413 | |
Other current assets | |
| 338,871 | | |
| 403,972 | |
Total Current Assets | |
| 6,825,212 | | |
| 11,383,485 | |
| |
| | | |
| | |
Non - Current Assets | |
| | | |
| | |
Restricted cash | |
| 364,701 | | |
| 386,592 | |
Property and equipment | |
| 610,852 | | |
| 490,079 | |
Right of use assets | |
| 1,498,703 | | |
| 589,288 | |
Intangible assets | |
| 10,375,524 | | |
| 15,557,561 | |
Goodwill | |
| 1,662,278 | | |
| 16,164,337 | |
Marketable securities | |
| 19,999 | | |
| 7,499 | |
Total Non - Current Assets | |
| 14,532,057 | | |
| 33,195,356 | |
Total Assets | |
$ | 21,357,269 | | |
$ | 44,578,841 | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Bank overdraft | |
$ | — | | |
$ | 7,520 | |
Accounts payable and accrued liabilities | |
| 6,790,523 | | |
| 6,820,279 | |
Gaming accounts payable | |
| 2,213,532 | | |
| 2,610,305 | |
Taxes payable | |
| 179,720 | | |
| 47,787 | |
Related party payable | |
| 422,129 | | |
| 502 | |
Promissory notes payable - related parties | |
| 752,000 | | |
| 51,878 | |
Operating lease liability | |
| 369,043 | | |
| 244,467 | |
Financial lease liability | |
| 6,831 | | |
| 8,347 | |
Bank loan payable - current portion | |
| 3,151 | | |
| 36,094 | |
Total Current Liabilities | |
| 10,736,929 | | |
| 9,827,179 | |
| |
| | | |
| | |
Non-Current Liabilities | |
| | | |
| | |
Contingent Purchase Consideration | |
| — | | |
| 12,859,399 | |
Deferred tax liability | |
| 1,696,638 | | |
| 3,291,978 | |
Operating lease liability | |
| 1,157,979 | | |
| 340,164 | |
Financial lease liability | |
| 2,288 | | |
| 7,716 | |
Bank loan payable | |
| 148,169 | | |
| 151,321 | |
Other long-term liabilities | |
| 464,851 | | |
| 359,567 | |
Total Non – Current Liabilities | |
| 3,469,925 | | |
| 17,010,145 | |
Total Liabilities | |
| 14,206,854 | | |
| 26,837,324 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued | |
| — | | |
| — | |
Common stock, $0.0001 par value, 80,000,000 shares authorized; 30,360,810 and 23,363,732 shares issued and outstanding as of December 31, 2022 and 2021 | |
| 3,036 | | |
| 2,336 | |
Additional paid-in capital | |
| 74,249,244 | | |
| 66,233,292 | |
Accumulated other comprehensive (loss) income | |
| (600,619 | ) | |
| (251,083 | ) |
Accumulated deficit | |
| (66,501,246 | ) | |
| (48,243,028 | ) |
Total Stockholders' Equity | |
| 7,150,415 | | |
| 17,741,517 | |
Total Liabilities and Stockholders’ Equity | |
$ | 21,357,269 | | |
$ | 44,578,841 | |
See notes to consolidated
financial statements
ELYS GAME TECHNOLOGY, CORP
Consolidated Statements
of Operations and Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
| |
For the years ended December 31, |
| |
2022 | |
2021 |
| |
| |
|
Revenue | |
$ | 42,678,659 | | |
$ | 45,546,791 | |
| |
| | | |
| | |
Costs and Expenses | |
| | | |
| | |
Selling expenses | |
| 32,705,928 | | |
| 36,274,752 | |
General and administrative expenses | |
| 19,977,275 | | |
| 17,466,786 | |
Depreciation and Amortization | |
| 1,832,204 | | |
| 1,351,173 | |
Impairment of indefinite lived assets and goodwill | |
| 20,583,502 | | |
| 17,350,628 | |
Total Costs and Expenses | |
| 75,098,909 | | |
| 72,443,339 | |
| |
| | | |
| | |
Loss from Operations | |
| (32,420,250 | ) | |
| (26,896,548 | ) |
| |
| | | |
| | |
Other (Expenses) Income | |
| | | |
| | |
Interest expense, net | |
| (43,599 | ) | |
| (20,985 | ) |
Amortization of debt discount | |
| — | | |
| (12,833 | ) |
Change in fair value of contingent purchase consideration | |
| 12,859,399 | | |
| 11,857,558 | |
Other income | |
| 22,045 | | |
| 227,788 | |
Other expense | |
| (108,548 | ) | |
| (49,967 | ) |
Gain (loss) on marketable securities | |
| 12,500 | | |
| (460,000 | ) |
Total Other Income (Expenses) | |
| 12,741,797 | | |
| 11,541,561 | |
| |
| | | |
| | |
Loss Before income taxes | |
| (19,678,453 | ) | |
| (15,354,987 | ) |
Income tax benefit | |
| 1,420,235 | | |
| 290,476 | |
Net Loss | |
$ | (18,258,218 | ) | |
$ | (15,064,511 | ) |
| |
| | | |
| | |
Other Comprehensive Loss | |
| | | |
| | |
Foreign currency translation adjustment | |
| (349,536 | ) | |
| (519,031 | ) |
| |
| | | |
| | |
Comprehensive Loss | |
$ | (18,607,754 | ) | |
$ | (15,583,542 | ) |
| |
| | | |
| | |
Loss per common share - basic and diluted | |
$ | (0.70 | ) | |
$ | (0.67 | ) |
Weighted average number of common shares outstanding - basic and diluted | |
| 26,254,972 | | |
| 22,500,716 | |
| |
| | | |
| | |
See notes to consolidated
financial statements
F-5
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, 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 | |
Proceeds from private placement | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from private placement, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brokers fees on private placement | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from open market sales | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Proceeds from open market sales, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brokers Fees on open market sales | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted stock compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted stock compensation, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
Proceeds from private placement | |
| 2,625,000 | | |
| 263 | | |
| 2,486,924 | | |
| — | | |
| — | | |
| 2,487,187 | |
Brokers fees on private placement | |
| — | | |
| — | | |
| (245,950 | ) | |
| — | | |
| — | | |
| (245,950 | ) |
Proceeds from warrants exercised | |
| 541,227 | | |
| 54 | | |
| 512,758 | | |
| — | | |
| — | | |
| 512,812 | |
Proceeds from open market sales | |
| 168,016 | | |
| 17 | | |
| 387,036 | | |
| — | | |
| — | | |
| 387,053 | |
Brokers Fees on open market sales | |
| | | |
| | | |
| (11,612 | ) | |
| | | |
| | | |
| (11,612 | ) |
Restricted stock compensation | |
| 3,662,835 | | |
| 366 | | |
| 2,012,234 | | |
| — | | |
| — | | |
| 2,012,600 | |
Stock based compensation expense | |
| — | | |
| — | | |
| 2,874,562 | | |
| — | | |
| — | | |
| 2,874,562 | |
Foreign currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| (349,536 | ) | |
| — | | |
| (349,536 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (18,258,218 | ) | |
| (18,258,218 | ) |
Balance at December 31, 2022 | |
| 30,360,810 | | |
$ | 3,036 | | |
$ | 74,249,244 | | |
$ | (600,619 | ) | |
$ | (66,501,246 | ) | |
$ | 7,150,415 | |
See notes to consolidated
financial statements
F-6
ELYS GAME TECHNOLOGY, CORP
Consolidated Statements
of Cash Flows
| |
| |
|
| |
For the years ended December 31, |
| |
2022 | |
2021 |
Cash Flows from Operating Activities | |
| | | |
| | |
Net loss | |
$ | (18,258,218 | ) | |
$ | (15,064,511 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 1,832,204 | | |
| 1,351,174 | |
Amortization of debt discount | |
| — | | |
| 12,833 | |
Impairment of license and goodwill | |
| 20,583,502 | | |
| 17,350,628 | |
Non-cash interest | |
| 36,489 | | |
| 9,265 | |
Change in Fair Value Contingent Consideration | |
| (12,859,399 | ) | |
| (11,857,558 | ) |
Unrealized (gain) loss on marketable securities | |
| (12,500 | ) | |
| 460,000 | |
Shares issued for services | |
| 2,012,600 | | |
| 140,000 | |
Stock based compensation expense | |
| 2,874,562 | | |
| 1,845,019 | |
Loss on sale of asset | |
| 5,719 | | |
| — | |
Gain on settlement of liabilities | |
| — | | |
| (7,977 | ) |
Bad debt expense | |
| — | | |
| (98,167 | ) |
Deferred taxation movement | |
| (1,595,340 | ) | |
| (196,434 | ) |
| |
| | | |
| | |
Changes in Operating Assets and Liabilities | |
| | | |
| | |
Prepaid expenses | |
| 61,049 | | |
| (632,012 | ) |
Accounts payable and accrued liabilities | |
| 294,120 | | |
| 1,663,340 | |
Accounts receivable | |
| (400,499 | ) | |
| (145,367 | ) |
Gaming accounts receivable | |
| 767,794 | | |
| (933,273 | ) |
Gaming accounts payable | |
| (244,567 | ) | |
| (270,063 | ) |
Taxes payable | |
| 135,678 | | |
| (865,174 | ) |
Due from related parties | |
| 400,003 | | |
| (1,979 | ) |
Other long-term liabilities | |
| 123,426 | | |
| 86,480 | |
Other current assets | |
| 43,901 | | |
| (44,626 | ) |
Long term liabilities | |
| — | | |
| (355,109 | ) |
Net Cash used in Operating Activities | |
| (4,200,016 | ) | |
| (7,553,511 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Acquisition of property and equipment, and intangible assets | |
| (2,905,386 | ) | |
| (717,080 | ) |
Acquisition of Bookmakers Company US, LLC, net of cash of $26,161 | |
| — | | |
| (5,973,839 | ) |
Proceeds on disposal of asset | |
| 27,939 | | |
| — | |
Net Cash used in Investing Activities | |
| (2,877,447 | ) | |
| (6,690,919 | ) |
F-7
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds private placement and open market sales - net of fees | |
| 2,616,678 | | |
| — | |
Proceeds from warrants exercised | |
| — | | |
| 3,962,482 | |
Proceeds from bank overdraft | |
| (6,969 | ) | |
| 4,047 | |
Repayment of bank line of credit | |
| — | | |
| (500,000 | ) |
Repayment of bank loan | |
| (35,038 | ) | |
| (133,742 | ) |
Repayment of debentures | |
| — | | |
| (27,562 | ) |
Proceeds from from promissory notes payable - related parties | |
| 665,000 | | |
| — | |
Proceeds from pre- funded warrants | |
| 512,812 | | |
| — | |
Repayment of government relief loan | |
| — | | |
| (27,586 | ) |
Deferred purchase price payments | |
| — | | |
| (410,383 | ) |
Proceeds from finance leases | |
| 1,881 | | |
| — | |
Repayment of finance leases | |
| (7,808 | ) | |
| (10,172 | ) |
Net Cash provided by Financing Activities | |
| 3,746,556 | | |
| 2,857,084 | |
| |
| | | |
| | |
Effect of change in exchange rate | |
| (610,583 | ) | |
| (951,066 | ) |
| |
| | | |
| | |
Net decrease in cash | |
| (3,941,490 | ) | |
| (12,338,412 | ) |
Cash and cash equivalents and restricted cash– beginning of the year | |
| 7,706,357 | | |
| 20,044,769 | |
Cash and cash equivalents and restricted cash – end of the year | |
$ | 3,764,867 | | |
$ | 7,706,357 | |
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,400,166 |
|
|
$ |
7,319,765 |
|
Restricted cash included in non-current assets |
|
|
364,701 |
|
|
|
386,592 |
|
Total cash and cash equivalents at end of year |
|
$ |
3,764,867 |
|
|
$ |
7,706,357 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
8,678 |
|
|
$ |
39,682 |
|
Income tax |
|
$ |
43,171 |
|
|
$ |
805,030 |
|
Supplemental cash flow disclosure for non-cash activities |
|
|
|
|
|
|
|
|
Settlement of liabilities by the issuance of common stock |
|
$ |
— |
|
|
$ |
2,676,902 |
|
Acquisition of Bookmakers Company US, LLC by the issuance of common stock |
|
$ |
— |
|
|
$ |
4,544,304 |
|
See notes to consolidated
financial statements
F-8
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
1. Nature
of Business
Established
in the state of Delaware in 1998, Elys Game Technology, Corp (“Elys” or the “Company”), provides gaming services
in the U.S. market via Elys Gameboard Technologies, LLC and Bookmakers Company US, LLC (“US Bookmaking”)
in certain licensed states where the Company offers bookmaking and platform services to the Company’s customers. The Company’s
intention is to focus its attention on expanding the U.S. market. The Company recently began operation in Washington D.C. through a Class
B Managed Service Provider and Class B Operator license to operate a sportsbook within the Grand Central Restaurant and Sportsbook located
in the Adams Morgan area of Washington, D.C., and in October 2021 the Company entered into an agreement with Ocean Casino Resort in Atlantic
City, New Jersey, to provide platform and bookmaking services. Ocean Casino Resort began using the Company’s platform and bookmaking
services in March 2022.
The
Company also provides business-to-consumer (“B2C”) gaming services in Italy through its subsidiary, Multigioco, which
operations are carried out via both land-based or online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli
(“ADM”) that permits the Company to distribute leisure betting products such as sports betting, and virtual sports
betting products through both physical, land-based retail locations as well as online through the Company’s licensed website
www.newgioco.it or commercial webskins linked to the Company’s licensed website and through mobile devices. Management
implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco and allowed the
Austrian Bookmakers license, that was regulated by the Austrian Federal Finance Ministry (“BMF”), to
terminate.
Additionally,
the Company provides business-to-business (“B2B”) gaming technology through its Odissea subsidiary which owns and operates
a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”).
The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and
operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above.
The omni-channel software design is fully integrated with a built in player gaming account management system, built-in sports book and
a virtual sports platform through its Virtual Generation subsidiary. The Platform also provides seamless application programming interface
integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to incorporate
e-sports and daily fantasy sports providers. Management implemented a growth strategy to expand B2B gaming technology operations in the
U.S. and is considering further expansion in Canada and Latin American countries in the near future.
Strategic
agreements entered into with Lottomatica (currently known as G.B.O, S.p.A)
During
the second quarter of the 2022 financial year, the Company entered into a Master Technology Development and License Agreement and a Technical
Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based
and on-line applications by Lottomatica in the U.S. and Canadian markets, as well as potentially worldwide. The contract is for a period
of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that after a period
of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to the SBP for €4.0
million.
The
Technical Services Agreement was entered into with the Company’s subsidiary Odissea to provide engineering services, develop and
deliver the software and provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement
is for a period of ten years and is based on cost plus a percentage of the services provided.
In
a separate Virtual Service Agreement entered into between the Company’s subsidiary Virtual Generation and Goldbet S.p.A., a subsidiary
of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout
the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period of
two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and
the Company to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues.
In
a separate Assignment Agreement entered into between the Company’s subsidiary, Multigioco, Lottomatica assigned ownership of 100
Sports Rights to Multigioco, which will allow Multigioco to expand its land-based distribution network to 110 point-of-sale locations.
Multigioco activated 53 location rights during the second half of 2022 and expects to activate the remaining 47 locations over the first
half of 2023. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and
therefore were assigned a minimal value.
F-9
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
1. Nature
of Business (continued)
The entities
included in these consolidated financial statements are as follows:
Name |
|
Acquisition or Formation Date |
|
Domicile |
|
Functional Currency |
|
|
|
|
|
|
|
Elys Game Technology, Corp. (“Elys”) |
|
Parent Company |
|
USA |
|
U.S. dollar |
Multigioco Srl (“Multigioco”) |
|
August 15, 2014 |
|
Italy |
|
Euro |
Ulisse GmbH (“Ulisse”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Odissea Betriebsinformatik Beratung GmbH (“Odissea”) |
|
July 1, 2016 |
|
Austria |
|
Euro |
Virtual Generation Limited (“VG”) |
|
January 31, 2019 |
|
Malta |
|
Euro |
Newgioco Group Inc. (“NG Canada”) |
|
January 17, 2017 |
|
Canada |
|
Canadian dollar |
Elys Technology Group Limited |
|
April 4, 2019 |
|
Malta |
|
Euro |
Newgioco Colombia SAS |
|
November 22, 2019 |
|
Colombia |
|
Colombian peso |
Elys Gameboard Technologies, LLC |
|
May 28, 2020 |
|
USA |
|
U.S. dollar |
Bookmakers Company US, LLC |
|
July 15, 2021 |
|
USA |
|
U.S. dollar |
Elys
US Game Technologies and Services, LLC |
|
July 1, 2022 |
|
USA |
|
U.S. dollar |
The Company
operates in two lines of business: (i) the operating of web based betting as well as land based leisure betting establishments situated
throughout Italy and; (ii) provider of certified betting Platform software services to global leisure betting establishments and operators.
The Company’s
operations are carried out through the following four geographically organized groups:
a) |
an operational group based in Europe that maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta; |
b) |
an operational group based in the U.S. with offices in Las Vegas, Nevada; |
c) |
a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and |
d) |
a corporate group which is based in North America and maintains an executive suite in Las Vegas, Nevada and a space in Toronto, Ontario, Canada through which the Company carries-out corporate activities, handles day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors are engaged. |
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.
F-10
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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, using accounting principles generally accepted in the United States
(“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. 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.
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.
F-11
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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.
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.
To date, the
Company has not been exposed to the recent U.S. bank failures and we do not anticipate any adverse impact on the Company’s cash
balances.
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 $13,051 and $98,167
and an increase in bad debt provision of $0 and $0 for the years ended December 31, 2022 and 2021, respectively.
F-12
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Gaming Accounts
Payable
Gaming accounts
payable represent customer balances, including winnings and deposits, that are held as credits in online gaming accounts and have not
as of yet been used or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment
to customers can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit
balances are non-interest bearing.
Long Lived
Assets
The Company
evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets
to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.
If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is
based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals,
and, if appropriate, current estimated net sales proceeds from pending offers.
Property
and Equipment
Property and
equipment is stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized
only when they increase the future economic benefits embodied in an item of property and equipment. All other expenditures are recognized
as expenses in the statement of operations as incurred.
Depreciation
is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the
time an asset is put into operation. The range of the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description |
|
Useful Life |
|
|
|
|
Leasehold improvements |
|
Life of the underlying lease |
Computer and office equipment |
|
3 |
to |
5 |
years |
|
Furniture and fittings |
|
7 |
to |
10 |
years |
|
Computer Software |
|
3 |
to |
5 |
years |
|
Vehicles |
|
4 |
to |
5 |
years |
|
F-13
ELYS
GAME TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
2. Accounting
Policies and Estimates (continued)
Intangible
Assets
Intangible assets
are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization
is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed
to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible
and its book value.
The range of
the estimated useful lives is as follows:
Intangible Useful lives |
|
|
|
|
|
Description |
|
Useful Life
(in years) |
|
|
|
|
|
|
Betting Platform Software |
|
15 |
Multigioco and Rifa ADM Licenses |
|
1.5 |
to |
7 |
|
Location contracts |
|
5 |
to |
7 |
|
Customer relationships |
|
10 |
to |
18 |
|
Trademarks/Tradenames |
|
10 |
to |
14 |
|
Websites |
|
5 |
Non-compete agreements |
|
4 |
Goodwill
The Company
allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill.
Such valuations
require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates
in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology,
and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based
upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates.
The Company
annually assesses whether the carrying value of its reporting 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 qualitative assessment, performed a quantitative analysis on its goodwill
as of December 31, 2022 and determined that an impairment of $14,501,669 was considered necessary.
F-14
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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 2017 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.
Contingent
Purchase Consideration
The Company
estimates and records the acquisition date estimated fair value of contingent consideration as part of the purchase price consideration
for acquisitions. At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change
in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). An increase in the earn-out
expected to be paid will result in a charge to operations in the year that the anticipated fair value of contingent consideration increases,
while a decrease in the earn-out expected to be paid will result in a credit to operations in the year that the anticipated fair value
of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to
be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios.
Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore,
materially affect the Company’s future financial results. Additional information regarding contingent consideration is provided
in Note 4 and 12.
F-15
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.
F-16
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
2. Accounting
Policies and Estimates (continued)
Related Parties
Parties are
considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one
party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
Recent Accounting
Pronouncements
The Financial Accounting Standards Board (“FASB”)
issued additional updates during the year ended December 31, 2022. 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 Company’s condensed 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.
Going Concern
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”)
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The accompanying
financial statements for the period ended December 31, 2022 have been prepared assuming the Company will continue as a going concern,
but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund ongoing
development work of its gaming platforms and operations until we are able to generate revenue streams from our additional gaming platforms
and become profitable. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial
doubt about the Company's ability to continue as a going concern for one year from the date of issuance of these audited consolidated
financial statements. Management’s plans to continue as a going concern include raising additional capital through sales of equity
securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any
of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required
to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its
ability to successfully secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. 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 US Bookmaking, from its members (the “Sellers”). On July 15,
2021 the Company consummated the acquisition of US Bookmaking and in terms of the Purchase
Agreement the Company acquired 100% of US Bookmaking, from its members (the “Sellers”)
and US Bookmaking became a wholly owned subsidiary of the Company.
F-17
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
4. Acquisition
of subsidiaries (continued)
US Bookmaking
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 US Bookmaking 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 US Bookmaking 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.
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 | |
F-18
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
4. Acquisition of subsidiaries
(continued)
The amount
of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for the
year ended December 31, 2022 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2021.
Proforma Revenue and Earnings |
|
Revenue |
|
Earnings |
|
|
|
|
|
|
|
|
|
Actual for December 31, 2022 |
|
$ |
1,105,986 |
|
|
$ |
(1,064,889) |
|
|
|
|
|
|
|
|
|
|
2021 Supplemental pro forma from January 1, 2021 to December 31, 2021 |
|
$ |
45,957,894 |
|
|
$ |
(15,887,232 |
) |
The 2021 Supplemental
pro forma information was adjusted to exclude $125,479 of non-recurring acquisition costs, in addition, the 2021 supplemental pro forma
information was adjusted to account for amortization of intangibles on acquisition of $579,519.
5.
Restricted Cash
Restricted
cash consists of cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”)
as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank. The Company no longer has an operating
line of credit and will apply for the release of the restricted cash.
6. Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2022 | |
December 31, 2021 |
| |
Cost | |
Accumulated depreciation | |
Net book value | |
Net book value |
| |
| |
| |
| |
|
Leasehold improvements | |
$ | 58,808 | | |
$ | 40,932 | | |
$ | 17,876 | | |
$ | 27,260 | |
Computer and office equipment | |
| 1,166,394 | | |
| 858,792 | | |
| 307,602 | | |
| 223,214 | |
Fixtures and fittings | |
| 437,442 | | |
| 277,320 | | |
| 160,122 | | |
| 135,433 | |
Vehicles | |
| 14,574 | | |
| 14,574 | | |
| — | | |
| 44,837 | |
Computer software | |
| 336,455 | | |
| 211,203 | | |
| 125,252 | | |
| 59,335 | |
| |
$ | 2,013,673 | | |
$ | 1,402,821 | | |
$ | 610,852 | | |
$ | 490,079 | |
The aggregate
depreciation charge to operations was $240,724 and $230,033 for the years ended December 31, 2022 and 2021, respectively. The depreciation
policies followed by the Company are described in Note 2.
7. 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.
F-19
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
7. Leases
(continued)
Vehicle agreements
The Company
leases several vehicles for business use purposes, the terms of these leases range from twenty four to thirty six months. The Company
does not and does not intend to take ownership of the vehicles at the end of the lease term.
Finance Leases
Office equipment
agreements
The Company
has entered into several finance leases for office equipment, the term of these leases range from thirty six to sixty months. The Company
takes ownership of the office equipment at the end of the lease term.
Right of
use assets
Right of use
assets included in the consolidated balance sheet are as follows:
| |
December 31, 2022 | |
December 31, 2021 |
Non-current assets | |
| | | |
| | |
Right of use assets - operating leases, net of amortization | |
$ | 1,498,703 | | |
$ | 589,288 | |
Right of use assets - finance leases, net of depreciation – included in property and equipment | |
$ | 8,884 | | |
$ | 15,520 | |
Lease costs consists of the following:
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, |
| |
2022 | |
2021 |
Finance lease cost: | |
$ | 8,005 | | |
$ | 10,906 | |
Amortization of right-of-use assets | |
| 7,536 | | |
| 10,102 | |
Interest expense on lease liabilities | |
| 469 | | |
| 804 | |
| |
| | | |
| | |
Operating lease cost | |
| 408,062 | | |
| 244,639 | |
| |
| | | |
| | |
Total lease cost | |
$ | 416,067 | | |
$ | 255,545 | |
Other lease information:
| |
Year ended December 31, |
| |
2022 | |
2021 |
Cash paid for amounts included in the measurement of lease liabilities | |
| |
|
Operating cash flows from finance leases | |
$ | (469 | ) | |
$ | (804 | ) |
Operating cash flows from operating leases | |
| (408,062 | ) | |
| (244,639 | ) |
Financing cash flows from finance leases | |
| (7,809 | ) | |
| (10,172 | ) |
| |
| | | |
| | |
Right-of-use assets obtained in exchange for new finance leases | |
| 1,881 | | |
| — | |
Right-of-use assets disposed of under operating leases prior to lease maturity | |
| (61,769 | ) | |
| (224,793 | ) |
Right-of -use assets obtained in exchange for new operating leases | |
$ | 1,351,211 | | |
$ | 406,276 | |
Weighted average remaining lease term – finance leases | |
| 1.75 years | | |
| 1.93 years | |
Weighted average remaining lease term – operating leases | |
| 4.06 years | | |
| 2.60 years | |
Weighted average discount rate – finance leases | |
| 4.98 | % | |
| 3.73 | % |
Weighted average discount rate – operating leases | |
| 3.02 | % | |
| 2.73 | % |
F-20
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
7. Leases
(continued)
Maturity
of Leases
Finance
lease liability
The amount of
future minimum lease payments under finance leases as of December 31, 2022 is as follows:
Finance lease liability | |
Amount |
2023 | |
$ | 7,142 | |
2024 | |
| 1,260 | |
2025 | |
| 488 | |
2026 | |
| 488 | |
2027 and thereafter | |
| 366 | |
Total undiscounted minimum future lease payments | |
| 9,744 | |
Imputed interest | |
| (625 | ) |
Total finance lease liability | |
$ | 9,119 | |
Disclosed as: | |
| | |
Current portion | |
$ | 6,831 | |
Non-Current portion | |
| 2,288 | |
| |
$ | 9,119 | |
Operating
lease liability
The amount of
future minimum lease payments under operating leases as of December 31, 2022 is as follows:
Operating lease liability | |
Amount |
2023 | |
$ | 426,238 | |
2024 | |
| 356,755 | |
2025 | |
| 316,349 | |
2026 | |
| 279,540 | |
2027 and thereafter | |
| 264,650 | |
Total undiscounted minimum future lease payments | |
| 1,643,532 | |
Imputed interest | |
| (116,510 | ) |
Total operating lease liability | |
$ | 1,527,022 | |
Disclosed as: | |
| | |
Current portion | |
$ | 369,043 | |
Non-Current portion | |
| 1,157,979 | |
| |
$ | 1,527,022 | |
F-21
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
8.
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.
Intangible assets
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2022 | |
December 31, 2021 |
| |
Cost | |
Impairment charge | |
Accumulated amortization | |
Net book value | |
Net book value |
Betting platform software | |
$ | 8,628,105 | | |
$ | — | | |
$ | (1,851,619 | ) | |
$ | 6,776,486 | | |
$ | 4,745,895 | |
Licenses | |
| 973,333 | | |
| — | | |
| (961,469 | ) | |
| 11,864 | | |
| 3,413 | |
Location contracts | |
| 1,000,000 | | |
| — | | |
| (1,000,000 | ) | |
| — | | |
| — | |
Customer relationships | |
| 8,145,927 | | |
| (4,750,000 | ) | |
| (1,072,022 | ) | |
| 2,323,905 | | |
| 7,538,533 | |
Trademarks | |
| 1,537,318 | | |
| — | | |
| (274,049 | ) | |
| 1,263,269 | | |
| 1,413,887 | |
Non-compete agreement | |
| 2,096,000 | | |
| (1,331,833 | ) | |
| (764,167 | ) | |
| — | | |
| 1,855,833 | |
Websites | |
| 40,000 | | |
| — | | |
| (40,000 | ) | |
| — | | |
| — | |
| |
$ | 22,420,683 | | |
$ | (6,081,833 | ) | |
$ | (5,963,326 | ) | |
$ | 10,375,524 | | |
$ | 15,557,561 | |
The
Company recorded $1,591,139 and
$1,120,757 in amortization
expense for finite-lived assets for the year ended December 31, 2022 and 2021, respectively, and an impairment provision of
$6,081,833 against customer relationships and non-compete agreements related to US Bookmaking,
and $4,827,914
against Ulisse indefinite lived licenses, for the years ended December 31, 2022 and 2021, respectively.
The estimated amortization expense
over the next five-year period is as follows:
Amortization Expense |
|
Amount |
|
|
2023 |
|
$ |
1,198,162 |
|
|
|
2024 |
|
|
1,193,704 |
|
|
|
2025 |
|
|
1,189,997 |
|
|
|
2026 |
|
|
1,188,997 |
|
|
|
2027 |
|
|
1,181,999 |
|
|
|
Total estimated amortization expense |
|
$ |
5,953,859 |
|
|
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; |
F-22
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
8. Intangible
Assets (continued)
• |
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%. |
Impairment
of intangibles related to the acquisition of US Bookmaking
On
July 20, 2022, the Company received notice that on July 17, 2022, an action (the “Action”) was commenced in the Eighth Judicial
District Court, Clark County, Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (“Plaintiffs”),
against the Company and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“US Bookmaking,”
and together with the Company collectively “Defendants”). Plaintiffs’ claims against the Company related to the Membership
Interest Purchase Agreement, dated July 5, 2021, pursuant to which Plaintiffs sold their membership interests in US Bookmaking
to the Company. Plaintiffs’ claimed relief asserted in the Action include, without limitation,
breach of contract, breach of implied covenants, intentional interference with contract and negligent misrepresentation. The Plaintiffs
sought a judgment for damages against the Company, including punitive damages, as well as declaratory relief against both US Bookmaking
and the Company. The Company believed the Action was completely without merit and on September 29,
2022, the Court denied in all respects the Plaintiffs’ emergency motion for a preliminary injunction which resulted in the action
being dismissed by the Plaintiffs on September 30, 2022.
The
relationship between the Company and the plaintiffs is no longer viable and the Company has instituted its own action against the Plaintiffs,
see legal proceedings below. During October 2022, the executive management and several other employees abandoned their positions at US
Bookmaking due to the dispute with the Company related to the performance of US Bookmaking
and the ongoing financial demands linked to that performance. The Company re-evaluated the forecasts
prepared by the previous US Bookmaking management and the lack of new customers as originally
forecast and revised those estimates downwards to current supportable business. This resulted in a significant impairment of the value
assigned to goodwill, the non-compete agreements with US Bookmaking management, and the
value originally assigned to customer relationships predicated on improving the revenues generated from those customers. Based on a quantitative
impairment analysis performed by management, an impairment charge of $4,750,000 on the US Bookmaking customer
relationships was considered appropriate with a carrying value of $1,935,590 remaining as of December 31, 2022, in addition, an impairment
charge of $1,331,833 of the remaining carrying value of the non-compete agreements was considered appropriate.
Ulisse
License
During 2021,
the COVID-19 pandemic 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 were uncertain
as to the long-term impact on the Company’s land-based operations. As such, the Company 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
increased 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
was considered appropriate for the year ended December 31, 2021.
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-23
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
9. Goodwill
|
|
December 31, 2022 |
|
December 31, 2021 |
Cost |
|
|
|
|
|
|
|
|
Opening balance as of January 1, |
|
$ |
28,687,051 |
|
|
$ |
1,663,120 |
|
Acquisition of US Bookmaking |
|
|
|
|
|
|
27,024,383 |
|
Foreign exchange movements |
|
|
(390 |
) |
|
|
(452 |
) |
Closing balance as of December 31. |
|
|
28,686,661 |
|
|
|
28,687,051 |
|
|
|
|
|
|
|
|
|
|
Accumulated Impairment charge |
|
|
|
|
|
|
|
|
Opening balance as of January 1, |
|
|
(12,522,714 |
) |
|
|
— |
|
Impairment charge |
|
|
(14,501,669 |
) |
|
|
(12,522,714) |
|
Closing balance as of December 31, |
|
|
(27,024,383 |
) |
|
|
(12,522,714) |
|
|
|
|
|
|
|
|
|
|
Goodwill, net of impairment charges |
|
$ |
1,662,278 |
|
|
$ |
16,164,337 |
|
Goodwill represents
the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company
evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment
exist. Goodwill impairment is determined by comparing the fair value of the 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.
Impairment
of goodwill related to US Bookmaking
As discussed
in note 8 above, Impairment of intangibles related to the acquisition of US Bookmaking,
the Company performed a quantitative impairment analysis based on a revised forecast of future revenues and profit projections of US Bookmaking
based on the current customer base resulting in a significant impact on the current valuation of
US Bookmaking which resulted in a goodwill impairment charge of approximately $14,501,669
and $12,522,714 for the years ended December 31, 2022 and 2021, respectively.
10. 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, 2022, the shares of Zoompass were last quoted at $0.008 per share on the OTC market, resulting in an unrealized gain recorded to earnings
related to these securities of $12,500. The Company recorded an unrealized loss of $460,000 for the year ended December 31, 2021.
F-24
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
`
11. 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-19 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 remained the
same at 4.5% above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971. The Company made payments of €29,913
(approximately $34,159) which included principal of €29,059 (approximately $33,184) and interest of €854 (approximately $975)
for the three months ended March 31, 2022, thereby extinguishing the loan.
Included in bank loans is
a Small Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition
of USB with a principal outstanding of $150,000.
The SBA Loan bears interest at 3.75%
per annum and is repayable in monthly installments of $731
which began in June 2021, and matures in May 2050. The SBA Loan is collateralized
by all of USB’s tangible and intangible assets. The balance outstanding at December 31, 2022 consists of principal outstanding
of $150,000 and interest thereon of $1,320.
Since
acquisition of US Bookmaking, the Company has repaid principal of $5,570 and has total accrued
and unpaid interest of $6,890 on this loan as of December 31, 2022.
The maturity
of bank loans payable as of December 31, 2022 is as follows:
|
|
Amount |
Within 1 year |
|
$ |
3,151 |
|
1 to 2 years |
|
|
3,272 |
|
2 to 3 years |
|
|
3,396 |
|
3 to 4 years |
|
|
3,526 |
|
5 years and thereafter |
|
|
137,975 |
|
Total |
|
$ |
151,320 |
|
Disclosed as: |
|
|
|
|
Current portion |
|
$ |
3,151 |
|
Non-Current portion |
|
|
148,169 |
|
|
|
$ |
151,320 |
|
12.
Contingent Purchase Consideration
In
terms of the acquisition of US Bookmaking disclosed in Note 4 above, the Sellers will have
an opportunity to receive up to an additional $38,000,000 plus a potential premium of 10% (or $3,800,000) based upon achievement of stated
adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price
equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of
each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval,
if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the
aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash.
The
Company had an independent third party valuation entity perform a Purchase Price Analysis which included the probability of the Sellers
achieving the additional proceeds of $41,800,000.
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. Based on
the current legal dispute with the vendors and previous
F-25
ELYS GAME
TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
12.
Contingent Purchase Consideration (continued)
management of US Bookmaking we reviewed
and adjusted the forecasts to include only current US Bookmaking customers which resulted in a forecast of no contingent purchase consideration being due. The remaining contingent purchase consideration of $12,859,399 was no
longer considered as owing to the US Bookmaking Sellers.
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.
The
movement in contingent purchase consideration is s follows:
|
|
December 31,
2022 |
|
December 31,
2021 |
Opening balance |
|
$ |
12,859,399 |
|
|
$ |
— |
|
Contingent purchase consideration measured on the acquisition of US Bookmaking |
|
|
— |
|
|
|
24,716,957 |
|
Changes in fair value |
|
|
(12,859,399 |
) |
|
|
(11,857,558 |
) |
Closing balance |
|
$ |
- |
|
|
$ |
12,859,399 |
|
13. Other
Long-term Liabilities
Other long-term
liabilities represent the Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to
be paid to employees on termination or retirement.
Balances of
other long-term liabilities were as follows:
Other long-term liabilities |
|
December 31,
2022 |
|
December 31,
2021 |
Severance liability |
|
$ |
464,851 |
|
|
$ |
359,567 |
|
F-26
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
14. Related
Parties
Promissory
notes payable – Related Parties
On September
26, 2022, the Company entered into an equipment loan agreement with Braydon Capital Corp, for the principal sum of $500,000 of which an
initial advance of $360,000 was received. The loan bears interest at 9% per annum, compounded monthly and is repayable on October 31,
2023. The loan agreement also provides for additional compensation to the lender of 1% of the gross income received from equipment funded
by this loan, capped at 2% of the principal sum advanced.
The loan is
secured by the equipment, consisting of kiosks, which are to be acquired out of the proceeds of the loan. To date, the Company has not
taken delivery of any of the kiosks.
Braydon Capital
Corp is managed by Mr. Claudio Ciavarella, the brother of the Chairman of the Board.
Prior
to the acquisition of US Bookmaking, Victor Salerno had advanced US Bookmaking $100,000
of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded
monthly and is repayable on October 1, 2022.
Between
February 23, 2022 and September 22, 2022, Mr. Salerno advanced US Bookmaking an
additional $305,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable between June 30, 2022
and November 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an
additional 25% penalty and additional interest of 5% per annum. These notes were advanced to US Bookmaking without
the consent of the Company, which is required as per the terms of the Members Interest Purchase Agreement entered into on July 15,
2021. Therefore the Company acknowledges the advance of funds to US Bookmaking by Mr.
Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute.
As of December 31, 2022, these notes remain outstanding, interest has been accrued on these notes, however we intend to dispute the
validity of these notes and have accordingly not repaid them or accrued penalty interest in terms of these notes.
The movement on promissory notes
payable - Related PartyParties, consists of the following:
| |
December 31, 2022 | |
December 31, 2021 |
Principal outstanding | |
| | | |
| | |
Opening balance | |
$ | 50,000 | | |
$ | — | |
Promissory note payable on acquisition of US Bookmaking | |
| — | | |
| 50,000 | |
Loans advanced – Braydon Capital Corp | |
| 360,000 | | |
| — | |
Loans advanced – Victor Salerno | |
| 305,000 | | |
| — | |
Closing balance | |
| 715,000 | | |
| 50,000 | |
| |
| | | |
| | |
Accrued Interest | |
| | | |
| | |
Opening balance | |
| 1,878 | | |
| — | |
Accrued interest | |
| 35,122 | | |
| 1,878 | |
Closing balance | |
| 37,000 | | |
| 1,878 | |
| |
| | | |
| | |
Total | |
$ | 752,000 | | |
$ | 51,878 | |
F-27
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
14. 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,
2022 |
|
December 31,
2021 |
|
Related Party payable |
|
|
|
|
|
|
|
|
Related Party payables |
Engage IT, srl. |
|
$ |
(406,467 |
) |
|
$ |
— |
|
Related Party payables |
Luca Pasquini |
|
|
(459 |
) |
|
|
(502 |
) |
Related Party payables |
Michele Ciavarella |
|
|
(15,203 |
) |
|
|
— |
|
Related Party payables |
|
|
$ |
(422,129 |
) |
|
$ |
(502 |
) |
|
|
|
|
|
|
|
|
|
|
|
Related Party Receivable |
|
|
|
|
|
|
|
|
Related Party Receivables |
Victor Salerno |
|
$ |
22,511 |
|
|
$ |
— |
|
Related Party Receivables |
Luca Pasquini |
|
|
— |
|
|
|
1,413 |
|
Related Party Receivables |
|
|
$ |
22,511 |
|
|
$ |
1,413 |
|
Engage IT srl.
The Company acquired Engage with effect from January 29, 2023. Engage performed software development work for the Company's wholly
owned subsidiary, Gameboard. As of December 31, 2022, Gameboard owed Engage $406,467 for development work performed.
Luca
Pasquini
On
January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini, who
at the time of acquisition was an executive officer and director of the Company, 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 had paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380)
and issued 112,521 shares valued at €300,000 (approximately $334,791).
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
On July 11, 2021, the
Company entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and
support of the system, the total contract price was €390,000 (approximately $459,572),
in addition, on October 14, 2021, the Company entered into a further agreement with Engage, to provide gaming software and
maintenance and support of the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000).
Mr. Pasquini owns 34%
of Engage.
On
September 13, 2021, Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company and on October
4, 2021, Mr. Pasquini became the Global Head of Engineering of the Company’s subsidiary Odissea Betriebsinformatik Beratung GmbH
and ceased to be Vice President of Technology and an executive officer of the Company.
On
September 26, 2022, Mr. Pasquini was awarded 500,000
restricted shares of common stock valued at $226,800
for services rendered to the Company.
Michele
Ciavarella
Mr. Ciavarella,
the Company’s Executive Chairman of the Board, agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted
stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the
date of issue.
F-28
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
14. Related
Parties (continued)
Michele
Ciavarella (continued)
On
January 22, 2021, the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued
compensation due to him.
On July 15,
2021, Mr. Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the Company,
effective July 15, 2021. Mr. Ciavarella will serve as the Company’s Executive Chairman and interim Chief Executive Officer until
the earlier of his resignation or removal from office.
Mr. Ciavarella
agreed to receive his 2021 bonus and a portion of his 2022 salary as a restricted stock award. On January 7, 2022, the
Company issued Mr. Ciavarella 162,835 shares of common stock valued at $425,000 on the date of issue.
On September
26, 2022, Mr. Ciavarella was awarded 300,000 restricted shares of common stock valued at $136,080 for services rendered to the Company.
Carlo
Reali
On
January 5, 2022, the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.
On March 29, 2022, the Company
issued Mr. Reali ten-year options exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per share, vesting equally
over a 4 year period commencing on January 1, 2023.
The Company
does not have a formal employment with Mr. Reali and awarded him €40,000 (approximately $42,930) as compensation for the Interim
Chief Financial Officer role; Mr. Reali will continue to receive the compensation that he currently receives which is an annual base salary
of €76,632 (approximately $82,244).
On September
26, 2022, Mr. Reali was awarded 200,000 restricted shares of common stock valued at $90,720 for services rendered to the Company.
Victor
Salerno
On July 15,
2021 the Company consummated the acquisition of US Bookmaking and in terms of the Purchase
Agreement the Company acquired 100% of US Bookmaking, from its members (the “Sellers”).
Mr. Salerno was a 68% owner of US Bookmaking 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 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.
F-29
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
14. Related
Parties (continued)
Victor
Salerno (continued)
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.
On
January 23, 2023, Mr. Salerno voluntary resigned as a member of the Board.
Paul
Sallwasser
On September 13, 2021, the
Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock at an exercise price of $5.10, vesting equally
over a twelve month period commencing on September 13, 2021.
Steven
Shallcross
On January 22, 2021, the
Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’
fees due to him.
On
September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock
at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Andrea
Mandel-Mantello
On
June 29, 2021, the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment
was effective immediately. Mr. Mandel-Mantello serves on the audit committee of the Board.
On
September 13, 2021, the Company granted Mr. Mandel-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.
Aiden
Ciavarella
The Company recently employed Aiden Ciavarella to train as part of our U.S. risk management team. Aiden earns an annual salary of
$75,000. there is no formal employment agreement with Aiden who is the son of our chairman and interim CEO, Michele Ciavarella.
F-30
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
15. Stockholders’ Equity
On January 7,
2022, the Company issued a total of 162,835 shares of common stock, valued at $425,000 for the settlement of compensation
and bonuses due to the Company’s executive chairman, refer note 14 above.
Between March
28, 2022 and April 13, 2022, the Company sold 168,016 shares of common stock for gross proceeds of $387,053, less brokerage
fees of $11,612 pursuant to the Open Market Sales AgreementSM that the Company entered into with Jefferies LLC on
November 19, 2021.
On
June 10, 2022, the Company entered into an engagement letter (the “Engagement Letter”), with H.C. Wainwright & Co., LLC
(the “Placement Agent”), pursuant to which the Placement Agent agreed to serve as the exclusive placement agent for the Company,
on a reasonable best efforts basis, in connection with an offering of securities (the “Offering”). The Company agreed to pay
the Placement Agent an aggregate cash fee equal to 6.0% of the gross proceeds received in the Offering. The Company also agreed to pay
the Placement Agent $50,000 for fees and expenses of legal counsel and up to $15,950 for clearing fees.
On
June 13, 2022, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor (the “Investor”) providing for the issuance of (i) 2,625,000 shares of the Company’s common stock, (ii) pre-funded
warrants to purchase up to 541,227 shares of Common Stock (the “Pre-Funded Warrant Shares”) with an exercise price of $0.0001
per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor does not exceed certain
beneficial ownership limitations, and (iii) warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock, with an exercise
price of $0.9475 per share, subject to customary adjustments thereunder. If after the six month anniversary of the issuance date there
is no effective registration statement registering the shares underlying the Warrants (the “Warrant Shares”) for resale, then
the Warrants are exercisable on a cashless basis.
The
shares of Common Stock, the Pre-Funded Warrants, the Pre-Funded Warrant Shares and the Warrants are collectively referred to as the “Securities.”
Pursuant to the Purchase Agreement, the Investor agreed to purchase the Securities for an aggregate purchase price of $3
3,000,000 million.
Pursuant
to the Purchase Agreement, on June 15, 2022, an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common
Stock were issued to an Investor in a registered direct offering (the “Registered Offering”) and registered under the Securities
Act of 1933, as amended (the “Securities Act”), pursuant to a prospectus supplement to the Company’s currently effective
registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange Commission (the
“SEC”) on June 4, 2021, and was declared effective on June 14, 2021. The Company filed the prospectus supplement for the Registered
Offering on June 15, 2022.
Pursuant
to the Purchase Agreement, the Company issued a Warrant exercisable for 3,166,227 shares of common stock, exercisable at $0.9475 per share
and expires on December 15, 2027, to the Investor in a concurrent private placement pursuant to an exemption from the registration requirements
of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
On
July 12, 2022, the pre-funded warrant disclosed in note 16 below for 541,227 shares of common stock was exercised at an exercise price
of $0.0001 per share for gross proceeds of $54.12.
On
September 14, 2022, the Company filed a registration statement (the “Registration Statement”) to register the resale of the
Warrant Shares within 90 days of the date of the Purchase Agreement which was declared effective on September 16, 2022.
On
September 26, 2022, the compensation committee awarded a total of 3,500,000 restricted shares of common stock, valued at $1,587,600 to
senior management of the Company as additional compensation for services rendered. Of the 3,500,000 restricted shares awarded, Mr. Ciavarella,
the Company’s interim Chief Executive Officer was awarded 300,000 restricted shares of common stock valued at $136,080 and Mr. Reali,
our interim Chief Financial Officer was awarded 200,000 restricted shares of common stock, valued at $90,720.
F-31
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
16. Warrants
In
terms of the Purchase Agreement discussed in note 15 above, on June 15, 2022, the Company issued, (i) Pre-Funded Warrants to
purchase 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu
of shares of Common Stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and (ii) Warrants to
purchase 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share, subject to customary adjustments thereunder.
If after the six month anniversary of the issuance date there is no effective registration statement registering the Warrant Shares
for resale, then the Warrants are exercisable on a cashless basis.
Each
Pre-Funded Warrant was exercisable for one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants were
immediately exercisable and could be exercised at any time after their original issuance until all of the Pre-Funded Warrants were exercised
in full.
On
July 12, 2022, the pre-funded warrant disclosed in note 15 above for 541,227 shares of common stock was exercised at an exercise price
of $0.0001 per share for gross proceeds of $54.12.
On September 14, 2022, the
Company filed a registration statement (the “Registration Statement”) to register the resale of the Warrant Shares within
90 days of the date of the Purchase Agreement which was declared effective on September 16, 2022.
Each
Warrant is exercisable for one share of Common Stock at an exercise price of $0.9475 per share, subject to customary adjustments
thereunder. The Warrants have a term of five years and six months, maturing on December 15, 2027 and are exercisable from December
15, 2022.
A
holder (together with its affiliates) of the Pre-Funded Warrant or Warrant may not exercise any portion of the Common Stock underlying
the Pre-Funded Warrant or Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option
upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined
in accordance with the terms of the Pre-Funded Warrant or Warrant, as applicable. In lieu of making the cash payment otherwise contemplated
to be made to the Company upon exercise of a Pre-Funded Warrant or Warrant in payment of the aggregate exercise price, the holder may
elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according
to a formula set forth in Warrants, provided that such cashless exercise shall only be permitted if the Registration Statement is not
effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not available for the issuance
of shares of Common Stock to the Warrant holder.
In
addition, in certain circumstances, upon a Fundamental Transaction, the holders of the Pre-Funded Warrants and Warrants will have the
right to receive as alternative consideration, for each share of Common Stock that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation
of the Company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction
by a holder of the number of shares of Common Stock for which the Pre-Funded Warrants or Warrants are exercisable immediately prior to
such event. Notwithstanding the foregoing, in the event of a Fundamental Transaction, the holders of the Warrants have the right to require
the Company or a successor entity to redeem the Warrants for an amount of consideration equal to the Black Scholes Value (as defined in
the Warrants) of the remaining unexercised portion of the Warrants concurrently with or within thirty (30) days following the consummation
of a Fundamental Transaction. In the event of a Fundamental Transaction, the holders of the Warrants will only be entitled to receive
from the Company or its successor entity, as of the date of consummation of such Fundamental Transaction the same type or form of consideration
(and in the same proportion), at the Black Scholes Value of the unexercised portion of the Warrant, that is being offered and paid to
the holders of the Common Stock in connection with the Fundamental Transaction, whether that consideration is in the form of cash, stock
or any combination of cash and stock, or whether the holders of common Stock are given the choice to receive alternative forms of consideration
in connection with the Fundamental Transaction.
F-32
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
16. Warrants
(continued)
A summary of
all of the Company’s warrant activity during the period January 1, 2021 to December 31, 2022 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, 2021 |
|
|
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 |
|
Granted – pre-funded warrants* |
|
|
541,227 |
|
|
|
0.0001 |
|
|
|
0.0001 |
|
Granted |
|
|
3,166,227 |
|
|
|
0.9475 |
|
|
|
0.9475 |
|
Forfeited/cancelled |
|
|
(48,395 |
) |
|
|
3.75 |
|
|
|
3.75 |
|
Exercised – pre-funded warrants* |
|
|
(541,227) |
|
|
|
0.0001 |
|
|
|
0.0001 |
|
Outstanding September 30, 2022 |
|
|
3,664,168 |
|
|
$ |
0.9475 |
to |
5.00 |
|
|
$ |
1.17 |
|
The following
tables summarize information about warrants outstanding as of December 31, 2022:
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 |
|
$0.9475 |
|
|
3,166,227 |
|
|
|
4.96 |
|
|
$ |
|
|
|
|
3,166,227 |
|
|
$ |
|
|
$2.50 |
|
|
486,173 |
|
|
|
2.63 |
|
|
$ |
|
|
|
|
486,173 |
|
|
$ |
|
|
$5.00 |
|
|
11,768 |
|
|
|
0.41 |
|
|
|
|
|
|
|
11,768 |
|
|
|
|
|
|
|
|
3,664,168 |
|
|
|
4.64 |
|
|
$ |
1.17 |
|
|
|
3,664,168 |
|
|
$ |
1.17 |
|
The outstanding
warrants have an intrinsic value of $0 as of December 31, 2022.
F-33
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
17. Stock
Options
In September
2018, the Company’s stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that
can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards.
On
October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase
the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year
to: (i) chairperson or lead director 300,000 shares of common stock; and (ii) other non-employee director 250,000 shares of common stock,
which reflects an increase in the annual limits for awards to be granted to non-employee directors under the Plan.
On November
20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the 2020 Annual Meeting, the Company’s stockholders approved
an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will
have authority to grant under the plan by an additional 1,850,000 shares of common stock.
On December
8, 2021, the Company held its 2021 Annual Meeting of Stockholders. At the 2021 Annual Meeting, the Company’s stockholders approved
an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will
have authority to grant under the plan by an additional 4,000,000 shares of common stock.
On November 21, 2022, the Board approved an Amendment
to the Plan (“Amendment No. 3”) to increase by 9,000,000 the number of shares that may be granted under the Plan. Amendment
No. 3 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 7,000,000 shares of Common Stock to 16,000,000 shares of common stock.
On December 30, 2022, the Company held its 2022 Annual
Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 3 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
9,000,000 shares of common stock.
.
On
March 29, 2022, the Company issued ten year options to purchase 160,000 shares at an exercise price of $2.50 per share,
of which 100,000 were issued to our Interim CFO and 60,000 to an employee.
On
September 25, 2022, the Company issued ten year options to purchase 110,000 shares at an exercise price of $0.454 per share to two employees
of the company.
The
options awarded during the year ended December 31, 2022 were valued at an average of $1.67 per share at the date of issuance using a Black-Scholes
option pricing model.
The
following assumptions were used in the Black-Scholes model:
|
|
Year ended
December 31, 2022 |
Exercise price |
|
$ |
0.454 |
to |
2.50 |
|
Risk free interest rate |
|
|
2.41 |
to |
3.69 |
% |
Expected life of options |
|
|
10
years |
Expected volatility of underlying stock |
|
|
204.2 |
to |
205.3 |
% |
Expected dividend rate |
|
|
0 |
% |
F-34
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
17. Stock
Options (continued)
A summary of
all of the Company’s option activity during the period January 1, 2021 to December 31, 2022 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, 2021 |
|
|
1,622,938 |
|
|
$ |
1.84 |
to |
2.96 |
|
|
$ |
2.11 |
|
Granted |
|
|
1,193,500 |
|
|
|
2.62 |
to |
5.10 |
|
|
|
3.15 |
|
Forfeited/cancelled |
|
|
(50,000 |
) |
|
|
2.62 |
|
|
|
2.62 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2021 |
|
|
2,766,438 |
|
|
$ |
1.84 |
to |
5.10 |
|
|
$ |
2.92 |
|
Granted |
|
|
270,000 |
|
|
|
0.454 |
to |
2.50 |
|
|
|
1.67 |
|
Forfeited/cancelled |
|
|
(652,375 |
) |
|
|
1.84 |
to
|
2.80 |
|
|
|
1.85 |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding December 31, 2022 |
|
|
2,384,063 |
|
|
$ |
0.454 |
to |
|
|
|
$ |
3.07 |
|
The following
tables summarize information about stock options outstanding as of December 31, 2022:
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 |
|
$0.45 |
|
|
110,000 |
|
|
|
9.74 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$2.03 |
|
|
659,000 |
|
|
|
7.75 |
|
|
|
|
|
|
|
530,500 |
|
|
|
|
|
$2.50 |
|
|
160,000 |
|
|
|
9.25 |
|
|
|
|
|
|
|
— |
|
|
|
|
|
$2.72 |
|
|
25,000 |
|
|
|
3.50 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
$2.80 |
|
|
216,250 |
|
|
|
6.73 |
|
|
|
|
|
|
|
176,068 |
|
|
|
|
|
$2.96 |
|
|
70,313 |
|
|
|
6.52 |
|
|
|
|
|
|
|
70,313 |
|
|
|
|
|
$3.43 |
|
|
25,000 |
|
|
|
8.97 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
$4.03 |
|
|
1,020,000 |
|
|
|
8.51 |
|
|
|
|
|
|
|
410,000 |
|
|
|
|
|
$4.07 |
|
|
25,000 |
|
|
|
8.54 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
$4.20 |
|
|
25,000 |
|
|
|
8.34 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
$5.10 |
|
|
48,500 |
|
|
|
8.71 |
|
|
|
|
|
|
|
48,500 |
|
|
|
|
|
|
|
|
2,384,063 |
|
|
|
8.14 |
|
|
$ |
3.07 |
|
|
|
1,287,381 |
|
|
$ |
2.99 |
|
As of December
31, 2022, there were unvested options to purchase 1,096,682 shares of common stock. Total expected unrecognized compensation cost related
to such unvested options is $3,127,467 which is expected to be recognized over a period of 36 months.
As of December
31, 2022, there was an aggregate of 2,384,063 options to purchase shares of common stock granted under the Company’s 2018 Equity
Incentive Plan, and an aggregate of 4,155,301 restricted shares granted to certain officers and directors of the Company in settlement
of liabilities owing to them, with 9,460,636 shares available for future grants.
The options
outstanding at December 31, 2022 had an intrinsic value of $0.
F-35
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
18. Revenues
The following
table represents disaggregated revenues from our gaming operations for the years ended December 31, 2022 and 2021. Net Gaming Revenues
represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid
out, 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, |
|
|
2022 |
|
2021 |
Handle (Turnover) |
|
|
|
|
Handle web-based |
|
$ |
755,248,396 |
|
|
$ |
826,789,619 |
|
Handle land-based |
|
|
14,907,168 |
|
|
|
15,071,218 |
|
Total Handle (Turnover) |
|
|
770,155,564 |
|
|
|
841,860,837 |
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts |
|
|
|
|
|
|
|
|
Winnings web-based |
|
|
704,932,499 |
|
|
|
771,852,252 |
|
Winnings land-based |
|
|
12,355,575 |
|
|
|
12,842,577 |
|
Total Winnings/Payouts |
|
|
717,288,074 |
|
|
|
784,694,829 |
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues |
|
|
52,867,490 |
|
|
|
57,166,008 |
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes |
|
|
12,787,700 |
|
|
|
12,657,930 |
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenues |
|
|
40,079,790 |
|
|
|
44,508,078 |
|
Betting platform software and services |
|
|
2,598,869 |
|
|
|
1,038,713 |
|
Revenues |
|
$ |
42,678,659 |
|
|
$ |
45,546,791 |
|
19. 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, 2022 and 2021, the following options, warrants and convertible debentures were excluded from the computation of diluted
loss per share as the result of the computation was anti-dilutive:
|
|
|
|
|
|
|
|
|
Description |
|
Year ended December 31, 2022 |
|
Year ended December 31, 2021 |
|
|
|
|
|
Options |
|
|
2,384,063 |
|
|
|
2,766,438 |
|
Warrants |
|
|
3,664,168 |
|
|
|
546,336 |
|
|
|
|
6,048,231 |
|
|
|
3,312,774 |
|
F-36
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated
Financial Statements
20. 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, 2022 and December 31, 2021.
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 35% 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. During the current year, the Italian Court of reggio Emilia purported to open an investigation
against Ulisse for failure to disclose the opening of a permanent establishment in Italy which could potentially have subject Ulisse
to Italian tax laws and not complying with national gaming regulations. Ulisse's attorneys file a motion to dismiss the case which
was granted in November 2022. the Company considers the issue of permanent establishment as complex to prove as the scope of our
operations is not ambiguous, Ulisse was a European operator with a valid Austrian license, acting according to the laws of Austria.
No futher enquiries concerning Ulisse have been made to date by any government agencies.
The reconciliation
of income tax expense at the U.S. statutory rate of 21% during 2022 and 2021, to the Company’s effective tax rate is as follows:
| |
December 31, 2022 | |
December 31, 2021 |
U.S. Statutory rate | |
$ | 4,132,475 | | |
$ | 3,224,547 | |
Items not allowed for tax purposes | |
| (1,421,480 | ) | |
| (1,705,372 | ) |
Foreign tax rate differential | |
| 8,523 | | |
| (2,367 | ) |
Additional foreign taxation | |
| (24,805 | ) | |
| 27,495 | |
Prior year over provision | |
| 7,637 | | |
| 125,887 | |
Movement in valuation allowances | |
| (1,282,115 | ) | |
| (1,379,714 | ) |
Income tax benefit | |
$ | 1,420,235 | | |
$ | 290,476 | |
The Company
has accumulated a net operating loss carry forward (“NOL”) of approximately $32.4 million as of December 31, 2022 in the U.S.
The U.S. NOL carry forward includes adjustments based on prior year assessments of $0.1 million due the assessment of tax losses carried
forward. Net operating losses of $11.1 million expire from 2034 to 2038 and a further $21.3 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.
F-37
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
20. Income
Taxes (continued)
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 deferred tax movement includes a reversal of an imputed deferred tax provision raised on the US Bookmaking
intangible assets acquired. During the current period, the US Bookmaking intangible assets were amortized by $1,070,067 and further
impaired by $6,081,833, resulting in. a release of the deferred tax provision of $1,501,899. The balance of the deferred tax credit
of $93,441 related to imputed deferred tax on the amortization of long lived assets on the acquisition of Virtual
Generation.
The benefit
(provision) for income taxes are summarized as follows:
|
|
December 31,
2022 |
|
December 31,
2021 |
Current |
|
$ |
(175,105 |
) |
|
$ |
94,041 |
|
Withholding tax |
|
|
|
|
|
|
— |
|
Deferred |
|
|
1,595,340 |
|
|
|
196,434 |
|
Income tax benefit |
|
$ |
1,420,235 |
|
|
$ |
290,476 |
|
The tax effects
of temporary differences that give rise to the Company’s net deferred tax assets and liabilities are as follows:
|
|
December 31, 2022 |
|
December 31, 2021 |
Working capital movements |
|
$ |
496,910 |
|
|
$ |
247,563 |
|
Property and equipment |
|
|
(2,243 |
) |
|
|
— |
|
Net loss carryforward – Foreign |
|
|
416,728 |
|
|
|
443,100 |
|
Net loss carryforward – US |
|
|
6,806,054 |
|
|
|
5,815,807 |
|
|
|
|
7,717,449 |
|
|
|
6,506,470 |
|
Less valuation allowance |
|
|
(7,717,449 |
) |
|
|
(6,506,470 |
) |
Deferred tax assets |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(1,696,638 |
) |
|
|
(3,291,978 |
) |
Deferred Tax Liability |
|
$ |
(1,696,638 |
) |
|
$ |
(3,291,978 |
) |
The Net loss
carry forward for US entities includes an adjustment of $0.1 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 2019 to 2021 tax years. |
Italy: |
Generally five years from the date of filing which is currently the 2017 to 2021 tax years. |
Austria: |
Generally tax years 2020 and 2021. |
Malta: |
Eight years from fiscal year end which is currently 2014 to 2021. |
Colombia: |
Three years in the case of taxable profits and five years where taxable losses are realized. |
The Company
is not currently under examination and it has not been notified of a pending examination.
There are no unrecognized tax benefits.
F-38
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
21. Segmental Reporting
The Company has two reportable operating
segments. These segments are:
|
(i) |
Betting establishments |
The
operating of web based as well as land-based leisure betting establishments situated throughout Italy.
|
(ii) |
Betting platform software and services |
Provider of certified betting
Platform software services to leisure betting establishments in Italy and 9 other countries.
The operating
assets and liabilities of the reportable segments are as follows:
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Total |
|
|
|
|
|
|
|
|
|
Purchase of Non-Current assets |
|
$ |
283,666 |
|
|
$ |
2,547,189 |
|
|
$ |
76,413 |
|
|
$ |
2,907,268 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
4,982,712 |
|
|
$ |
1,740,683 |
|
|
$ |
101,817 |
|
|
$ |
6,825,212 |
|
Non-Current assets |
|
|
2,859,984 |
|
|
|
11,594,748 |
|
|
|
77,325 |
|
|
|
14,532,057 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(6,497,050 |
) |
|
|
(2,649,357 |
) |
|
|
(1,590,522 |
) |
|
|
(10,736,929 |
) |
Non-Current liabilities |
|
|
(1,560,355 |
) |
|
|
(1,909,570 |
) |
|
|
— |
|
|
|
(3,469,925 |
) |
Intercompany balances |
|
|
5,942,948 |
|
|
|
(4,027,794 |
) |
|
|
(1,915,154 |
) |
|
|
— |
|
Net asset position |
|
$ |
5,728,239 |
|
|
$ |
4,748,710 |
|
|
$ |
(3,326,534 |
) |
|
$ |
7,150,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
F-39
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
21. Segmental Reporting (continued)
The segment operating results of
the reportable segments are disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
|
|
Betting establishments |
|
Betting platform software and services |
|
All other |
|
Adjustments |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Net Gaming Revenue |
|
$ |
40,079,790 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
40,079,790 |
|
Betting platform and services revenue |
|
|
251,929 |
|
|
|
2,346,940 |
|
|
|
— |
|
|
|
— |
|
|
|
2,598,869 |
|
Intercompany Service revenue |
|
|
121,243 |
|
|
|
2,489,549 |
|
|
|
— |
|
|
|
(2,610,792 |
) |
|
|
— |
|
|
|
|
40,452,962 |
|
|
|
4,836,489 |
|
|
|
|
|
|
|
(2,610,792 |
) |
|
|
42,678,659 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense |
|
|
2,489,549 |
|
|
|
65,539 |
|
|
|
55,704 |
|
|
|
(2,610,792 |
) |
|
|
— |
|
Selling expenses |
|
|
32,362,842 |
|
|
|
343,086 |
|
|
|
— |
|
|
|
— |
|
|
|
32,705,928 |
|
General and administrative expenses |
|
|
5,875,787 |
|
|
|
5,808,124 |
|
|
|
8,293,364 |
|
|
|
— |
|
|
|
19,977,275 |
|
Depreciation and amortization |
|
|
218,304 |
|
|
|
1,590,938 |
|
|
|
22,962 |
|
|
|
— |
|
|
|
1,832,204 |
|
Impairment
of intangibles and goodwill |
|
|
— |
|
|
|
20,583,502 |
|
|
|
— |
|
|
|
— |
|
|
|
20,583,502 |
|
|
|
|
40,946,482 |
|
|
|
28,391,189 |
|
|
|
8,372,030 |
|
|
|
(2,610,792 |
) |
|
|
75,098,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(493,520 |
) |
|
|
(23,554,700 |
) |
|
|
(8,372,030 |
) |
|
|
— |
|
|
|
(32,420,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(1,065 |
) |
|
|
(39,897 |
) |
|
|
(2,637 |
) |
|
|
— |
|
|
|
(43,599 |
) |
Amortization of debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of contingent purchase consideration |
|
|
— |
|
|
|
— |
|
|
|
12,859,399 |
|
|
|
— |
|
|
|
12,859,399 |
|
Other income |
|
|
22,043 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
22,045 |
|
Other expense |
|
|
(90,858 |
) |
|
|
(17,690 |
) |
|
|
|
|
|
|
|
|
|
|
(108,548 |
) |
Loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
12,500 |
|
|
|
— |
|
|
|
12,500 |
|
Total other income (expenses) |
|
|
(69,880 |
) |
|
|
(57,585 |
) |
|
|
12,869,262 |
|
|
|
— |
|
|
|
12,741,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes |
|
|
(563,400 |
) |
|
|
(23,612,285 |
) |
|
|
4,497,232 |
|
|
|
— |
|
|
|
(19,678,453 |
) |
Income tax provision |
|
|
(141,479 |
) |
|
|
1,561,714 |
|
|
|
— |
|
|
|
— |
|
|
|
1,420,235 |
|
Net Loss |
|
$ |
(704,879 |
) |
|
$ |
(22,050,571 |
) |
|
$ |
4,497,232 |
|
|
$ |
— |
|
|
$ |
(18,258,218 |
) |
F-40
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
21. Segmental Reporting (continued)
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 |
|
|
6,263,874 |
|
|
|
4,911,941 |
|
|
|
6,290,971 |
|
|
|
— |
|
|
|
17,466,786 |
|
Depreciation and amortization |
|
|
370,661 |
|
|
|
936,496 |
|
|
|
44,016 |
|
|
|
|
|
|
|
1,351,173 |
|
Impairment of license |
|
|
4,827,914 |
|
|
|
12,522,714 |
|
|
|
— |
|
|
|
— |
|
|
|
17,350,628 |
|
|
|
|
51,901,767 |
|
|
|
18,740,134 |
|
|
|
6,334,987 |
|
|
|
(4,533,549 |
) |
|
|
72,443,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,919,364 |
) |
|
|
(13,642,197 |
) |
|
|
(6,334,987 |
) |
|
|
— |
|
|
|
(26,896,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(11,169 |
) |
|
|
(4,662 |
) |
|
|
(5,154 |
) |
|
|
— |
|
|
|
(20,985 |
) |
Amortization of debt discount |
|
|
— |
|
|
|
— |
|
|
|
(12,833 |
) |
|
|
— |
|
|
|
(12,833 |
) |
Change in fair value of contingent purchase consideration |
|
|
— |
|
|
|
11,857,558 |
|
|
|
— |
|
|
|
— |
|
|
|
11,857,558 |
|
Other income |
|
|
217,251 |
|
|
|
2,560 |
|
|
|
7,977 |
|
|
|
— |
|
|
|
227,788 |
|
Other expense |
|
|
(23,705 |
) |
|
|
(26,262 |
) |
|
|
— |
|
|
|
— |
|
|
|
(49,967 |
) |
Loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
(460,000 |
) |
|
|
— |
|
|
|
(460,000 |
) |
Total other income (expenses) |
|
|
182,377 |
|
|
|
11,829,194 |
|
|
|
(470,010 |
) |
|
|
— |
|
|
|
11,541,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes |
|
|
(6,736,987 |
) |
|
|
(1813,003 |
) |
|
|
(6,804,997 |
) |
|
|
— |
|
|
|
(15,354,987 |
) |
Income tax provision |
|
|
119,890 |
|
|
|
170,586 |
|
|
|
— |
|
|
|
— |
|
|
|
290,476 |
|
Net Loss |
|
$ |
(6,617,097 |
) |
|
$ |
(1,642,417 |
) |
|
$ |
(6,804,997 |
) |
|
$ |
— |
|
|
$ |
(15,064,511 |
) |
F-41
ELYS GAME
TECHNOLOGY, CORP
Notes to
the Consolidated Financial Statements
22. Subsequent
Events
Departure
of director
On January 23, 2023, Victor
Salerno provided notice of his decision to resign from the Board of Directors of the Company, effective immediately. Mr. Salerno’s
resignation letter did not state any reason for the resignation.
Convertible debenture
funding
On January 30, 2023 (the
"Closing Date"), the Company closed a private placement offering of up to 2,000 units and entered into Subscription Agreements
with a group of accredited investors (the "Investors"), which Investors included Braydon Capital Corp. a company owned by Claudio
Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella. Each Unit sold to Investors was
sold at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”),
and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”).
The Investors purchased a total of 850 units and
the Company issued Debentures for the total principal amount of $850,000 (the "Principal Amount") to the Investors and warrants
to purchase 2,179,487 shares of common stock of the Company.
The Debentures mature
three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity
date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the
Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a price equal to the volume weighted
average price per share (calculated to the nearest one-hundredth of one cent) of the Company’s common stock on the Nasdaq
stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the
Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to
adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into
2,179,487 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to
receive a minimum of five months of interest in the event of an early repayment (“Redemption”) by the Company.
In addition, the Company
may accelerate this right of conversion on at least ten (10) business days prior written notice to the Holder if there is an effective
Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion
and (i) the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Conversion Price for five (5)
trading days in a thirty (30) day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.
If at any time that the common
shares issuable to the Investors on conversion of the Debenture in whole or in part would be free trading without resale restrictions
or statutory hold periods, the Debenture is redeemable by the Company at any time or times prior to the Maturity Date on not less than
ten (10) Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption
Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investor has the right to convert the
whole or any part of the principal and accrued and unpaid interest of the Debenture into common shares of the Company.
The warrants are exercisable
at an exercise price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the
Company common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading
day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing
Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each warrant is exercisable on
a cashless basis in the event that there is not an effective registration statement registering the shares underlying the warrant at the
time of exercise.
The Company may accelerate
the right to exercise the Warrant on at least ten (10) business days prior written notice to the Holder if there is an effective Registration
Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrant and
the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Exercise Price for five (5) trading
days in a thirty (30) day period.
F-42
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
22. Subsequent
Events (continued)
The Warrants and Debentures
provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower
than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a
floor price of $0.35 and subject to certain exempt issuances set forth in the Debenture and Warrant.
The number of shares of common
stock that may be issued upon exercise of the Warrants and Debentures is subject to an Exchange Cap (as defined in the Debentures and
Warrants) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as
necessary in order to comply with the requirements of the Nasdaq Capital Markets.
Acquisition of Engage
IT Services
On January 29, 2023 (the “Closing Date”),
the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Engage IT Services, S.r.l.,
a company organized under the laws of Italy (“Engage”), from its founding shareholders (the “Sellers”). The Purchase
Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will acquire all of the shares of
Engage and Engage will become a wholly owned subsidiary of Elys (the “Proposed Transaction”).
Founded in 2016 by the Company’s
current Head of Global Technology, Luca Pasquini, along with Alessandro Alpi and Michael Denney, Engage employs 27 specialist technicians,
developers and software engineers that specialize in the design, implementation and management of SQL databases, agile project management,
and solutions based on the Microsoft cloud platform (Azure) and in the development of .NET applications. Since 2016, Engage has also provided
contract services to the Company, playing a key role in the development of the Company’s Elys Gameboard sportsbook technology and
Player Account Management Platform (PAM).
Pursuant to the terms of
the Purchase Agreement, on the Closing Date, the Company paid the “Dollar Equivalent” of €1,080,000 for all of the shares
of Engage on a debt free basis, which amount may be increased or decreased based on the working capital surplus or deficit, and any indebtedness
due to or from Engage by or from any one or more of the Sellers to be determined 10 days prior to June 30, 2023. The Company satisfied
the payment by the issuance 3,018,462 shares of common stock (the “Exchange Shares”) equal to the “Dollar Equivalent”
of the Purchase Price, calculated at the exchange rate at the time of closing, at a price equal to the volume weighted average price per
share (calculated to the nearest one-hundredth of one cent) of the Company’s common stock for the twenty consecutive trading days
beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading
day immediately preceding the Closing Date or US $0.39 per share, which may be adjusted for any stock split, reverse stock split, stock
dividend, recapitalization, combination, exchange or similar event; or any subsequent equity sale or rights offering of Elys, and is subject
to shareholder approval if required. Additionally, the Company may repurchase the Exchange Shares in cash in whole or in part at any time
on or prior to June 30, 2023.
The Purchase Agreement contains
customary representations, warranties and covenants of Elys and the Sellers. Subject to certain customary limitations, the Sellers have
agreed to indemnify Elys and its officers and directors against certain losses related to, among other things, breaches of the Sellers’
representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase Agreement.
Restricted
Stock awards
On January 29,
2023, the Company issued 5,366,155 shares of common stock from its 2018 Stock Incentive Plan to certain developers and project managers
in its IT subsidiaries, these shares will vest equally on a monthly basis over a 36 month period to incentivize these employees who are
essential to the Company’s development efforts.
F-43
ELYS GAME
TECHNOLOGY, CORP
Notes to the
Consolidated Financial Statements
22. Subsequent
Events (continued)
Directors
and executive compensation
On February 14, 2023, the
Compensation Committee of the Company’s Board granted the Company’s non-executive directors, under the Company’s Stock
Incentive Plan; (i) an award of 131,631 stock options to each of Steven Shallcross and Andrea Mandell-Mantello, of which 54,753 vested
immediately and the remaining 76,878 vest monthly over a ten month period; and (ii) an award of 154,132 stock options to Paul Sallwasser,
of which 77,254 vested immediately and 76,878 vest monthly over a ten month period.
In addition, in lieu of $20,000
and $40,000 of director fees due and outstanding to Steven Shallcross and Andrea Mandel-Mantello, the Committee approved the issuance
of 22,472 and 44,944 shares of common stock, respectively, under the Plan.
On February 14, 2023, Mr.
Ciavarella, the Company’s Executive Chairman, voluntarily offered and agreed to reduce his annual base compensation to $372,000
for fiscal 2023, subject to a review of his total compensation package.
Share Trading
Services
On February 14, 2023, the
Company engaged Shareholder Intelligence Services, LLC (“ShareIntel”) to utilize their patented, proprietary service offerings
to obtain share trading analytic metrics designed to determine if the Company has been the target of improper and potentially illegal
trading activities, including illegal naked short selling, in an effort to allow the Company to better monitor trading activity, including
potential violations of SEC Regulation SHO, which governs stock and option share locate, close out and fail to deliver requirements.
The Company issued a
warrant to purchase up to 200,000
shares of Common Stock to ShareIntel, as consideration for services provided. The Consultant Warrant
is exercisable at a price of $0.89 per share and vests at a rate of 1,000 warrant shares for each reduction of 10,000 shares of
Reduction in Imbalances (Shorts), and will expire three years from the date of issuance.
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-44
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, although steps
have been taken to increase the number of personnel preparing and reviewing our financial statement disclosures and procedures followed,
that we have not yet fully documented and implemented the disclosure controls and procedures to adequately state that our controls are
effective and accordingly we have concluded that 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, 2022. 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, 2022, our internal control over financial reporting remains ineffective.
Management is currently documenting
our transactional and periodic controls procedures to ensure adequate review and approval processes to improve the quality of financial
reporting. Management believes that steps have been taken and improvements have been made to improve segregation of duties and has added
additional layers of accounting personnel and centralizing our accounting function to operations with established internal control procedures.
This Annual Report does not
include an attestation report of our independent registered public accounting firm regarding management’s assessment of our internal
control over financial reporting pursuant to temporary rules of the SEC.
Changes in Internal Control
Over Financial Reporting
There was an improvement
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, 2022. The handover of the accounting function and control over financial reporting is substantially complete
with additional review levels implements which, we believe, has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
62
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding
Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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 |
61 |
Executive Chairman and Interim Chief Executive Officer |
Paul Sallwasser |
69 |
Director |
Steven A. Shallcross |
61 |
Director |
Andrea Mandel-Mantello |
64 |
Director |
Carlo Reali |
54 |
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 of Directors 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 of Directors 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
63
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 was founded in 1996 and develops and distributes health and nutrition related
products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial
customers.
We believe that Mr. Sallwasser is qualified to serve
as a member of our Board due to his vast audit and accounting experience, which includes his status as an “audit committee financial
expert,” as defined by the rules of the SEC.
Steven A. Shallcross – Director
Steven A. Shallcross was appointed to serve on our
Board of Directors on June 13, 2019. Mr. Shallcross has also served as a member of the board of directors of Theriva Biologics, Inc. (“Theriva”,
formerly known as Synthetic Biologics, Inc.) since December 6, 2018 and currently serves as Theriva’s 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 Theriva’s Interim Chief Executive Officer on December 5, 2017 and has served as its Chief Financial Officer, Treasurer and Secretary
since joining Theriva in June 2015. Theriva is a diversified clinical-stage company developing therapeutics designed to treat cancer and
related diseases in areas of high unmet need.
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. From April 2021 until June 2022,
Mr. Shallcross served on the board of directors of Twin Vee 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).
64
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.
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
On
July 20, 2022, we received notice that on July 17, 2022, an action (the “Action”) was commenced in the Eighth Judicial District
Court, Clark County, Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (“Plaintiffs”),
against us and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“US Bookmaking,”
and together with the Company collectively “Defendants”). Plaintiffs’ claims against us relate to the Membership Interest
Purchase Agreement, dated July 5, 2021, pursuant to which Plaintiffs sold their membership interests in US Bookmaking to
us. Plaintiffs’ claims for relief asserted in the Action include, without limitation, breach of contract, breach of implied covenants,
intentional interference with contract and negligent misrepresentation. Plaintiffs sought a judgment for damages against us, including
punitive damages, as well as declaratory relief against both US Bookmaking and us. We believe
the Action was completely without merit. On September 29, 2022, the Court denied in all respects the Plaintiffs’ emergency motion
for a preliminary injunction, and on September 30, 2022, the Action was dismissed by the Plaintiffs.
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
65
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 four 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.
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.
66
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.
Compliance with Section
16(a) of the Exchange Act.
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, 2022 made by Michele Ciavarella in connection with the shares
of common stock that he acquired on September 1, 2022, as disclosed in a Form 4 filed with the SEC on September 7, 2022.
Item 11. Executive Compensation
Set forth below is information for the fiscal years ended December 31,
2022 and 2021 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 ($) | |
Stock Based Compensation and Awards ($) | |
All Other Compensation ($) | |
Total Compensation ($) |
| |
| |
| |
| |
| |
| |
|
Michele Ciavarella | |
| 2022 | | |
| 500,000 | (1) | |
| — | | |
| 248,288 | (2) | |
| — | | |
| 748,288 | |
Executive Chairman of the Board, and interim Chief Executive Officer | |
| 2021 | | |
| 500,000 | (3) | |
| 375,000 | (3) | |
| 112,208 | | |
| — | | |
| 987,208 | |
Carlo Reali (4) | |
| 2022 | | |
| 125,174 | (5) | |
| 52,714 | (5) | |
| 150,484 | (6) | |
| — | | |
| 328,372 | |
Interim Chief Financial Officer | |
| 2021 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Mark Korb (7) | |
| 2022 | | |
| 366,000 | | |
| — | | |
| 466,773 | (8) | |
| 7,042 | (9) | |
| 839,815 | |
Former Chief Financial Officer | |
| 2021 | | |
| 247,000 | (10) | |
| — | | |
| 241,665 | | |
| 1,761 | (9) | |
| 490,426 | |
|
(1) |
Mr. Ciavarella elected to take 41,794 shares of Common Stock in lieu of $109,081 of his 2022 salary. |
|
(2) |
On September 26, 2022, Mr. Ciavarella was granted 300,000 shares of restricted
Common Stock by the board of directors for achieving certain milestones. The shares of restricted Common Stock were valued at the closing
market price of $136,080 on the date grant. |
|
(3) |
Mr. Ciavarella elected to take 24,476 shares of Common Stock in lieu of $140,000 of his 2021 salary and a further 121,042 shares of Common Stock in lieu of $315,919 of his 2021 bonus. The bonus shares were issued in January 2022. |
|
(4) |
Mr. Reali was appointed as our interim Chief Financial Officer on January 5, 2022. |
|
(5) |
Mr. Reali’s salary and bonus was paid in Euro and converted to U.S. Dollars at an average exchange rate of $1.07323 |
|
(6) |
Mr.
Reali was granted 200,000 shares of restricted Common Stock on September 26, 2022 by the board of directors for achieving certain
milestones. The shares of restricted Common Stock were valued at the closing market price of $90,720 on the date grant. |
|
(7) |
Mr. Korb resigned as our Chief Financial officer on January 5, 2022, approximately $361,000 of Mr. Korb’s salary was received as an
employee of the Company. |
|
(8) |
Mr.
Korb was granted 50,000 shares of restricted common stock on September 26, 2022 by the board of directors for achieving certain
milestones. The shares of restricted Common Stock were valued at the closing market
price of $22,680 on the date grant. |
|
(9) |
Represents healthcare benefit contributions made by the Company for 2022 and 2021. |
|
(10) |
Includes $120,000 paid to Mr. Korb as a contract Chief Financial Officer, prior to his full time employment with the Company. |
67
Outstanding Equity Awards at Fiscal Year-End December
31, 2022
The table below summarizes all unexercised options, stock that has not
vested, and equity incentive plan awards for each named executive officer as of December 31, 2022:
| | | |
| OPTION AWARDS | | |
| | | |
| | | |
| | | |
| |
| STOCK AWARDS | | |
| | | |
| | | |
| | |
| | | |
| Number of securities underlying unexercised options Exercisable | | |
| Number of securities underlying unexercised options Unexercisable | | |
| Equity incentive plan awards: Number of securities underlying unearned options | | |
| Option exercise price | | |
Option expiration | |
| Number of shares or units of stock that have not vested | | |
| Market value of shares or units of stock that have not vested | | |
| Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested | | |
| Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested | |
| Name | | |
| (#) | | |
| (#) | | |
| ($) | | |
| ($) | | |
Date | |
| (#) | | |
| ($) | | |
| (#) | | |
| ($) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
| Michele Ciavarella(1) | | |
| 39,375 | | |
| — | | |
| — | | |
$ | 2.96 | | |
7/5/2029 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| 20,833 | | |
| 4,167 | | |
| — | | |
$ | 2.80 | | |
8/29/2029 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| 105,000 | | |
| 35,000 | | |
| — | | |
$ | 2.03 | | |
9/30/2030 | |
| — | | |
| — | | |
| — | | |
| — | |
| Carlo Reali(2) | | |
| 7,227 | | |
| 2,148 | | |
| — | | |
$ | 2.80 | | |
11/10/2029 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| 7,500 | | |
| 2,500 | | |
| — | | |
$ | 2.03 | | |
9/30/2030 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| — | | |
| 100,000 | | |
| — | | |
$ | 2.50 | | |
3/29/2032 | |
| — | | |
| — | | |
| — | | |
| — | |
| Mark Korb(3) | | |
| 25,000 | | |
| — | | |
| — | | |
$ | 2.72 | | |
7/1/2026 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| 43,500 | | |
| 14,500 | | |
| — | | |
$ | 2.03 | | |
9/30/2030 | |
| — | | |
| — | | |
| — | | |
| — | |
| | | |
| 100,000 | | |
| 300,000 | | |
| — | | |
$ | 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, in addition, Mr. Ciavarella was awarded options to purchase 25,000 shares of common stock on August 29, 2019 of which 20,833 are vested and the remaining options vest equally over the next 8 months. Mr. Ciavarella was awarded an option to purchase 140,000 shares of common stock on October 1, 2020, of which 105,000 are vested and the remaining options vest equally over the next 9 months. |
(2) |
Mr. Reali was awarded options to purchase 9,375 shares of common stock on November 11, 2019 of which 7,227 are vested and the remaining options vest equally over the next 11 months, in addition, Mr. Reali was awarded options to purchase 10,000 shares of common stock on October 1, 2020, of which 7,500 are vested and the remaining options vest equally over the next 9 months. Mr. Reali was awarded options to purchase 100,000 shares of common stock of which none are vested, the options vest equally over the next four years on January 1, 2023, 2024, 2025 and 2026. |
(3) |
Mr. Korb was awarded options to purchase 25,000 shares of common stock on July 1, 2019 all of which are vested, in addition, Mr. Korb was awarded options to purchase 58,000 shares of common stock of which 43,500 are vested with the remaining options vesting equally over the next 9 months. In connection with an employment agreement Mr. Korb was awarded options exercisable for 400,000 shares of common stock of which 100,000 are vested, the remaining options vest annually on each of July 5, 2023, 2024 and 2025. |
68
Employment Agreements
During the year ended December 31, 2022 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, Interim
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 our 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.
69
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.
On February 14, 2023, Mr. Ciavarella voluntary reduced his 2023 compensation
to $372,000 and agreed to forfeit his 2022 bonus. Mr. Ciavarella’s employment agreement is currently under review and will be modified
to incentivize the continued employment and guidance of the group.
Victor Salerno – Director
Together with the consummation of the acquisition
of US Bookmaking, the Company entered into a four 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.
Mr. Salerno resigned as a director of the Company
with effect from January 23, 2023.
70
Mark Korb – Former 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.
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.
71
Board of Directors Compensation
The following table sets forth information for the fiscal year ended December
31, 2022 regarding the compensation of our directors who on December 31, 2022 were not also our Named Executive Officers.
Name | |
Fees Earned or Paid in Cash | |
Option Awards | |
Other Compensation | |
Total |
| |
| |
| |
| |
|
Paul Sallwasser(1) | |
$ | — | | |
$ | 109,293 | | |
$ | — | | |
$ | 109,293 | |
Steven Shallcross(2) | |
| 40,000 | | |
| 69,666 | | |
$ | — | | |
| 109,666 | |
Andrea Mandel Montello(3) | |
| 40,000 | | |
| 69,666 | | |
| — | | |
| 109,666 | |
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, 2022 and 2021. 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. No options were awarded during 2022, an accrual of $55,000 was made for future option grants. |
|
(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, 2022 and 2021. 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. No options were awarded during 2022, an accrual of $35,000 was made for future option grants. |
|
(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. No options were awarded during 2022, an accrual of $35,000 was made for future option grants. |
Director Option Awards
| |
Option | |
Stock |
| |
awards | |
awards |
Name | |
(Amount) | |
(Amount) |
| |
| |
|
Paul Sallwasser(a) | |
| 96,925 | | |
| — | |
Steven Shallcross(b) | |
| 58,913 | | |
| — | |
Andrea Mandel-Mantello | |
| 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 all are vested. |
(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 all are vested. |
(c) |
On September 13, 2021 an option to purchase 13,600 shares of Common Stock was awarded to Mr. Mandel-Mantello of which all are vested. |
Subsequent to the year end, on February 14, 2023, we settled the outstanding
cash portion of directors fees with Mr. Shallcross and Mr. Mandel-Mantello by issuing 22,472 shares of common stock to Mr. Shallcross
to settle outstanding directors fees of $20,000 and 44,944 shares of common stock to Mr. Mandel-Mantello to settle outstanding directors
fees of $40,000. In addition we issued options exercisable for 154,132 shares of common stock at an exercise price of $0.89 to Mr. Sallwasser
to settle 2022 and 2023 directors fees and 131,631 to each of Mr. Shallcross and Mandel-Mantello to settle 2022 and 2023 directors fees.
72
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 incentive 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.
On February 14, 2023, the Compensation Committee agreed
to revise the annual compensation to $82,000 per annum, all of which is payable by the grant of incentive stock options to the non-employee
directors.
Directors are also entitled to reimbursement for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance at Board and committee meetings. Our Board of Directors
may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required
of a director.
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.
On November 21, 2022 the Board approved an Amendment
to the Plan (“Amendment No. 3”) to increase by 49000,000 the number of shares that may be granted under the Plan. Amendment
No. 3 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 7,000,000 shares of Common Stock to 16,000,000 shares of common stock.
On December 30, 2022, the Company held its 2022 Annual
Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 3 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
9,000,000 shares of common stock.
73
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 | |
| 2,384,063 | | |
$ | 3.07 | | |
| 9,460,636 | |
| |
| | | |
| | | |
| | |
Equity compensation plans not approved by security holders | |
| — | | |
| — | | |
| — | |
Total | |
| 2,384,063 | | |
$ | 3.07 | | |
| 9,460,636 | |
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.
74
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.
On March 29, 2022, we issued options exercisable for
an aggregate of 160,000 shares of common stock, of which options exercisable for 100,000 shares of common stock were issue to our interim
Chief Financial Officer.
On July 29, 2022, due to the severance agreement entered into with Mr.
Monteverdi, the option for 648,000 shares of common stock granted to Mr. Monteverdi expired, unexercised.
On September 25, 2022, we issued an aggregate of 3,500,000
shares of restricted stock including a grant of 300,000 shares of common stock to Mr. Ciavarella and 200,000 shares of common stock to
Mr. Reali.
On September 25, 2022, we issued options exercisable
for an aggregate of 110,000 shares of common stock to certain consultants.
On September 30, 2022, due to the resignation of an
employee on June 30, 2022, options for 4,375 shares of common stock expired, unissued.
As of December 31, 2022, there was an aggregate of
2,384,063 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 9,460,636 reserved for future grants.
Subsequent to year end a further 5,366,155 shares of restricted stock were issued to key members of our technical development team and
a further 67,416 shares of common stock were issued to our directors to settle outstanding directors fees, reducing the shares available
under the 2018 Equity Incentive Plan to 4,027,065.
75
Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters
The tables below set forth,
as of March 31, 2023 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) | |
| 6,258,857 | | |
| 16.0 | % |
Carlo Reali (Interim Chief Financial Officer) (3) | |
| 242,092 | | |
| * | |
Paul Sallwasser (Director) (4) | |
| 227,242 | | |
| * | |
Steven Shallcross(Director) (5) | |
| 164,446 | | |
| * | |
Andrea Mandel-Mantello (Director) (6) | |
| 136,360 | | |
| * | |
Mark Korb (former Chief Financial Officer) (7) | |
| 226,556 | | |
| * | |
| |
| | | |
| | |
All current executive officers and directors as a group (5 persons) | |
| 7,028,997 | | |
| 17.8 | % |
Other 5% or Greater Stockholders | |
| | | |
| | |
Gold Street Capital Corp. (8) | |
| 4,730,861 | | |
| 12.2 | % |
Luca Pasquini(9) | |
| 2,231,165 | | |
| 5.7 | % |
___
* less than 1%
(1) |
Based on 38,812.842 shares of common stock outstanding on March 30, 2023. |
(2) |
Includes 1,340,739 shares of common stock; a further 4,728,478 shares and warrants exercisable into 2,383 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 178,438 are vested and a further 8,819 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 200,000 shares of common stock and options to purchase 119,375 shares of common stock of which 41,146 are vested and 946 vest within the next 60 days. |
(4) |
Includes 30,000 shares of common stock and options to purchase 251,057 shares of common stock of which 181,867 are vested and a further 15,376 vests within the next 60 days. |
(5) |
Includes 27,717 shares of common stock and options to purchase 190,544 shares of common stock of which 121,353 are vested and a further 15,376 vests within the next 60 days. |
(6) |
Includes 44,944 shares of common stock and options to purchase 145,231 shares of common stock of which 76,041 are vested and a further 15,376 vests within the next 60 days. |
(7) |
Includes 50,000 shares of common stock and options to purchase 483,000 shares of common stock of which173,333 are vested and a further 3,222 vests within the next 60 days. |
(8) |
Includes 4,728,478 shares and warrants exercisable into 2,383 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. |
(9) |
Includes 2,156,172 shares of common stock and options to purchase 83,000 shares of common stock of which 70,729 are vested and 4,264 vest in the next 60 days. Luca Pasquini is the Company’s head of Technology, whose address is listed as 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4, Canada. |
76
Item 13. Certain Relationships
and Related Transactions, and Director Independence
The following includes a
summary of transactions subsequent to January 1, 2021, 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”.
Promissory
notes payable – Related Parties
On September
26, 2022, the Company entered into an equipment loan agreement with Braydon Capital Corp, for the principal sum of $500,000 of which an
initial advance of $360,000 was received. The loan bears interest at 9% per annum, compounded monthly and is repayable on October 31,
2023. The loan agreement also provides for additional compensation to the lender of 1% of the gross income received from equipment funded
by this loan, capped at 2% of the principal sum advanced.
The loan is
secured by the equipment, consisting of kiosks, which are to be acquired out of the proceeds of the loan. To date, the Company has not
taken delivery of any of the kiosks.
Braydon Capital
Corp is managed by Mr. Claudio Ciavarella, the brother of the Chairman of the Board.
Prior
to the acquisition of US Bookmaking, Victor Salerno had advanced US Bookmaking $100,000
of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded
monthly and is repayable on October 1, 2022.
Between
February 23, 2022 and September 22, 2022, Mr. Salerno advanced US Bookmaking an
additional $305,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable between June 30, 2022
and November 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an
additional 25% penalty and additional interest of 5% per annum.. These notes were advanced to US Bookmaking without the consent
of the Company, which is required as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021.
Therefore the Company acknowledges the advance of funds to US Bookmaking by Mr.
Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute.
As of December 31, 2022, these notes remain outstanding, interest has been accrued on these notes, however we intend to dispute the
validity of these notes and have accordingly not repaid them or accrued penalty interest in terms of these notes.
The movement on promissory notes payable – Related
Parties, consists of the following:
| |
December 31, 2022 | |
December 31, 2021 |
Principal outstanding | |
| | | |
| | |
Opening balance | |
$ | 50,000 | | |
$ | — | |
Promissory note payable on acquisition of US Bookmaking | |
| — | | |
| 50,000 | |
Loans advanced – Braydon Capital Corp | |
| 360,000 | | |
| — | |
Loans advanced – Victor Salerno | |
| 305,000 | | |
| — | |
Closing balance | |
| 715,000 | | |
| 50,000 | |
| |
| | | |
| | |
Accrued Interest | |
| | | |
| | |
Opening balance | |
| 1,878 | | |
| — | |
Accrued interest | |
| 35,122 | | |
| 1,878 | |
Closing balance | |
| 37,000 | | |
| 1,878 | |
| |
| | | |
| | |
Total | |
$ | 752,000 | | |
$ | 51,878 | |
77
Related Party
(Payables) Receivables
Related party
payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.
The balances
outstanding are as follows:
| |
December 31, 2022 | |
December 31, 2021 |
Related Party payable | |
| | | |
| | |
Engage IT, srl. | |
$ | (406,467 | ) | |
$ | — | |
Luca Pasquini | |
| (459 | ) | |
| (502 | ) |
Michele Ciavarella | |
| (15,203 | ) | |
| — | |
| |
$ | (422,129 | ) | |
$ | (502 | ) |
| |
| | | |
| | |
Related Party Receivable | |
| | | |
| | |
Victor Salerno | |
$ | 22,511 | | |
$ | — | |
Luca Pasquini | |
| — | | |
| 1,413 | |
| |
$ | 22,511 | | |
$ | 1,413 | |
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 prior fiscal 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.
Engage IT srl.
The Company acquired Engage with effect from January 29, 2023. Engage performed software development work for the Company's
wholly owned subsidiary, Gameboard. As of December 31, 2022, Gameboard owed Engage $406,467 for development work performed.
Luca
Pasquini
On
January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately$4,576,352), Mr. Pasquini, who at the time
of acquisition was an executive officer and director of the Company, 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 had paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000
(approximately $334,791).
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
On July 11, 2021, the Company
entered into an agreement with Engage IT Services Srl. ("Engage"), to provide gaming software and maintenance and support of
the system, the total contract price was €390,000 (approximately $459,572). 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.
78
On September 13, 2021, Mr.
Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company.
On
September 26, 2022, Mr. Pasquini was awarded 500,000 restricted shares of common stock valued at $226,750 for services rendered to the
Company.
Subsequent to December 31, 2022, we acquired Engage IT, srl., Mr. Pasquini owned 34% of Engage prior to the acquisition. The purchase
price was settled by the issuance of common stock of which Mr. Pasquini received 1,026,277 shares of common stock which resulted in him
becoming an effective 5.7% shareholder of the Company.
Michele
Ciavarella
Mr. Ciavarella,
the Company’s Executive Chairman of the Board, agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock
award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue.
On
January 22, 2021, the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation
due to him.
On July 15,
2021, Mr. Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the Company,
effective July 15, 2021. Mr. Ciavarella will serve as the Company’s Executive Chairman and interim Chief Executive Officer until
the earlier of his resignation or removal from office.
Mr. Ciavarella
agreed to receive his 2021 bonus and a portion of his 2022 salary as a restricted stock award. On January 7, 2022, the Company issued
Mr. Ciavarella 162,835 shares of common stock valued at $425,000 on the date of issue.
On September
26, 2022, Mr. Ciavarella was awarded 300,000 restricted shares of common stock valued at $136,080 for services rendered to the Company.
Carlo
Reali
On
January 5, 2022, the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.
On
March 29, 2022, the Company issued Mr. Reali ten-year options exercisable for 100,000 shares of common stock, at an exercise price of
$2.50 per share, vesting equally over a 4 year period commencing on January 1, 2023.
The Company
does not have a formal employment with Mr. Reali and awarded him € 40,000 (approximately $42,930) as compensation for the Interim
Chief Financial Officer role; Mr. Reali will continue to receive the compensation that he currently receives which is an annual base
salary of €76,632 (approximately $82,244).
On September
26, 2022, Mr. Reali was awarded 200,000 restricted shares of common stock valued at $90,720 for services rendered to the Company.
79
Victor
Salerno
On
July 15, 2021 the Company consummated the acquisition of US Bookmaking and in terms of the
Purchase Agreement the Company acquired 100% of US Bookmaking, from its members (the “Sellers”).
Mr. Salerno was a 68% owner of US Bookmaking 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 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.
On
January 23, 2023, Mr. Salerno resigned as a director of the Board with immediate effect.
Paul
Sallwasser
On September 13, 2021, the
Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock at an exercise price of $5.10, vesting equally
over a twelve month period commencing on September 13, 2021.
Steven
Shallcross
On
January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in
settlement of directors’ fees due to him.
On
September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock at an exercise price
of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
80
Andrea
Mandel-Mantello
On
June 29, 2021, the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment
was effective immediately. Mr. Mandel-Mantello serves on the audit committee of the Board.
On
September 13, 2021, the Company granted Mr. Mandel-Mantello ten year options exercisable for 13,600 shares of common stock at an exercise
price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
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.
Aiden
Ciavarella
The Company recently employed Aiden Ciavarella to train as part of our U.S. risk management team. Aiden earns an annual salary of
$75,000. there is no formal employment agreement with Aiden who is the son of our chairman and interim CEO, Michele Ciavarella.
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.
81
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 $332,583 and $492,957 to BDO in connection to audits for the years ended December 31, 2022 and 2021, 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 $0 and $78,921 in audit related fees for the years ended December 31, 2022 and 2021, respectively.
Tax Fees
No tax fees were paid to
BDO for the years ended December 31, 2022 and 2021.
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 2022 and 2021.
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.
PART IV
Item 15. Exhibit and Financial
Statement Schedules.
(1) |
Consolidated Financial Statements: |
See Index to Consolidated
Financial Statements at page 61.
(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 2022 Annual Report.
Item 16. Form 10-K Summary
Not applicable.
82