Notes to Unaudited Condensed
Consolidated Financial Statements
1. Nature
of Business
Established
in the state of Delaware in 1998, Elys Game Technology, Corp. (“Elys” or the “Company”) is an international, vertically
integrated commercial-stage company engaged in various aspects of the leisure gaming industry. The Company’s subsidiaries hold gaming
licenses to operate in the Italian and Austrian leisure betting markets offering gaming services, including a variety of lottery, casino
gaming and sports betting products through two distribution channels: an online channel and a land-based retail channel. Additionally,
the Company is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed
with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board (the
“Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology
for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution
channels described above. The omni-channel software design is fully integrated with a built-in player gaming account management system
and sports book.
On July 5, 2021,
the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company
US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”).
On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.
USB is a provider
of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to
the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823
shares of the Company’s common stock having a value of $6,000,000 based upon a price of $4.74 per share which was the volume weighted
average closing price of the stock for the 90 trading days preceding the closing date.
The Sellers
will have an opportunity to receive up to an additional $38
million 38,000,000 plus a potential premium of 10% (or $3.8 million) based
upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s
stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding
January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder
approval, if the aggregate
number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number
of shares to be issued. Any excess not approved by shareholders or exceeding the
cap will be paid in cash.
On September 1, 2021, the
Company issued a press release announcing the approval of its first license in Washington DC, a Class B Managed Service Provider and Class
B Operator licenses to operate a sportsbook within the Grand Central Bar and Grill located in the Adams Morgan area of Washington, D.C.
which commenced sports betting in October 2021.
The entities
included in these unaudited condensed consolidated financial statements are as follows:
Name
|
|
Acquisition or Formation Date
|
|
Domicile
|
|
Functional Currency
|
|
|
|
|
|
|
|
Elys Game Technology, Corp. (“Elys”)
|
|
Parent Company
|
|
USA
|
|
U.S. Dollar
|
Multigioco Srl (“Multigioco”)
|
|
August 15, 2014
|
|
Italy
|
|
Euro
|
Ulisse GmbH (“Ulisse”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Virtual Generation Limited (“VG”)
|
|
January 31, 2019
|
|
Malta
|
|
Euro
|
Newgioco Group Inc. (“NG Canada”)
|
|
January 17, 2017
|
|
Canada
|
|
Canadian Dollar
|
Elys Technology Group Limited
|
|
April 4, 2019
|
|
Malta
|
|
Euro
|
Newgioco Colombia SAS
|
|
November 22, 2019
|
|
Colombia
|
|
Colombian Peso
|
Elys Gameboard Technologies, LLC
|
|
May 28, 2020
|
|
USA
|
|
U.S. Dollar
|
Bookmakers Company US LLC
|
|
July 15, 2021
|
|
USA
|
|
U.S. Dollar
|
The Company
operates in two lines of business: (i) the operating of web based betting as well as land based leisure betting establishments situated
throughout Italy and; (ii) provider of certified betting Platform software services to global leisure betting establishments and operators.
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
1. Nature
of Business (continued)
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)
|
a recently acquired operational group based in the US 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 operates out of our principal executive suite in Toronto, Canada and satellite executive suites in the USA in San Francisco, California and Delray Beach, Florida, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.
|
2. Accounting
Policies and Estimates
Basis
of Presentation
The accompanying
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the Company’s
audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto
included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the U.S. Securities
and Exchange Commission (“SEC”).
All amounts
referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
For the purposes
of its listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting
Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion
Policy to National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102CP”) which permits
the Company to prepare its financial statements in accordance with U.S. GAAP.
Principles
of consolidation
The unaudited
condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly
owned. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial
statements.
Foreign
operations
The Company
translated the assets and liabilities of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and
the results of operations and cash flows at the average rate throughout the quarter. The translation adjustments are recorded directly
as a separate component of stockholders’ equity, while transaction gains (losses) are included in net income (loss).
All revenues
were generated in Euro, Colombian Peso and US Dollars during the periods presented.
Gains and losses
from foreign currency transactions are recognized in current operations.
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
2. Accounting
Policies and Estimates (continued)
Business
Combinations
The Company
allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill.
Such valuations
require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates
in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology,
and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based
upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates.
Use of
Estimates
The preparation
of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value
of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements,
convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating
the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s
industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates
that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates
at least quarterly based on these conditions and record adjustments when necessary.
Loss Contingencies
The Company
may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property,
gaming license, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services
offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include
speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both
probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible,
and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed
Consolidated Financial Statements.
The Company
evaluates, on a regular basis, developments in its legal matters that could affect the amount of liability that has been previously accrued,
and the matters and related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant
judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the
final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact on
its business, consolidated financial position, results of operations, or cash flows.
To date, none
of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on the Company’s
operations or financial condition. The Company has insured and continues to insure against most of these types of claims.
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed 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 using estimates and assumptions developed by us, which reflect those that a
market participant would use.
The contingent
purchase consideration due on the acquisition of subsidiaries is measured at fair value on an annual basis. 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.
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
considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. The
Company had no cash equivalents as of September 30, 2021 and December 31, 2020, respectively.
The Company
primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are insured
by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit
Insurance Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit
Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000
per institution.
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
2. Accounting
Policies and Estimates (continued)
Gaming Accounts
Receivable
Gaming accounts
receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet
or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited
to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based
upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company
does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three months and nine months
ended September 30, 2021 and a bad debt expense of $214,820 for the three and nine months ended September 30, 2020.
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,
Plant and Equipment
Plant and equipment
is stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when
they increase the future economic benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses
in the statement of operations as incurred.
Depreciation
is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the
time an asset is put into operation. The range of the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description
|
|
Useful Life
(in years)
|
|
|
|
Leasehold improvements
|
|
Life of the underlying lease
|
Computer and office equipment
|
|
3
|
to
|
5
|
Furniture and fittings
|
|
7
|
to
|
10
|
Computer Software
|
|
3
|
to
|
5
|
Vehicles
|
|
4
|
to
|
5
|
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
2. Accounting
Policies and Estimates (continued)
Intangible
Assets
Intangible assets
are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization
is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed
to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible
and its book value.
The range of
the estimated useful lives is as follows:
Intangible
Useful lives
|
|
|
|
|
Description
|
|
Useful Life
(in years)
|
|
|
|
Betting Platform Software
|
|
15
|
Ulisse Bookmaker License
|
|
Indefinite
|
Multigioco and Rifa ADM Licenses
|
|
1.5
|
-
|
7
|
Location contracts
|
|
5
|
-
|
7
|
Customer relationships
|
|
10
|
-
|
18
|
Trademarks/Tradenames
|
|
10
|
-
|
14
|
Websites
|
|
5
|
Non-compete agreements
|
|
4
|
The Ulisse Bookmaker License has
no expiration date and is therefore not amortized but is tested for impairment on an annual basis in terms of ASC 350 using estimated
fair value.
Goodwill
The Company
allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities
is recorded as goodwill.
Such valuations
require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates
in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology,
and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based
upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may
differ from estimates.
The Company
annually assesses whether the carrying value of its reporting units exceed their fair values and, if necessary, records an impairment
loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which
indicate that the carrying amount of the reporting units exceeds their fair value. If the carrying amount of the reporting units exceeds
their fair value, an asset impairment charge will be recognized in an amount equal to that excess.
As of September
30, 2021, there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19
pandemic has had and is expected to continue to have a significant impact on our land-based business, the impact is expected to be mitigated
because web-based turnover generated by the Company has increased.
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed 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, plant and equipment with a corresponding financial
liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate
method. Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases,
the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability
raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use
period using the effective interest rate implied in the operating lease agreement.
Income Taxes
The Company
uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under
this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred
tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax
returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided
to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than
not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30
clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax
years beginning 2015 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for
five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are
subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.
Contingent
Purchase Consideration
The Company estimates and
records the acquisition date estimated fair value of contingent consideration as part of the purchase price consideration for acquisitions.
At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is
recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). An increase in the earn-out expected to be paid
will result in a charge to operations in the year that the anticipated fair value of contingent consideration increases, while a decrease
in the earn-out expected to be paid will result in a credit to operations in the year that the anticipated fair value of contingent consideration
decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating
results, discount rates, and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions
could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s
future financial results. Additional information regarding contingent consideration is provided in Note 3.
Revenue Recognition
The Company
recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration
the Company expects to receive from its customers in exchange for those products and services. Revenues from sports-betting, casino,
cash and skill games, slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less
gaming taxes and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at
which the Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
2.
Accounting Policies and Estimates (continued)
Revenue
Recognition (continued)
Revenues from
the Betting Platform include license fees, training, installation, and product support services. 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.
Stock-Based
Compensation
The Company
records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the
date of grant using the Black-Scholes option pricing model. Stock-based compensation includes amortization related to stock option awards
based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the
vesting period of the option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted
based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting
term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based
compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition
is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation
expense is recognized and any previously recognized compensation expense is reversed.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments.
Earnings
Per Share
Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides
for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and
is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity and include options
and warrants granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When
the Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not included
in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.
Related
Parties
Parties are
considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one
party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
Recent
Accounting Pronouncements
The FASB issued
several updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and
none are expected to have a material impact on the consolidated financial statements upon adoption.
Reporting
by segment
The Company
has two operating segments from which it derives revenue. These segments are:
|
(i)
|
the operating of web based as well as land-based leisure betting establishments situated throughout Italy, and only web based distribution through our Austrian subsidiary in the Italian market until June 2021;
|
|
(ii)
|
provider of certified betting Platform software services to global leisure betting establishments and operators.
|
The recent acquisition of Bookmakers Company
US LLC is reported under the Company’s certified betting platform software services segment.
16
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
3. Acquisition
of subsidiaries
On July 5, 2021,
the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company
US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”).
On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB,
from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.
USB is a provider
of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.
Pursuant to
the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of
1,265,823 shares of the Company’s common stock with a market value of $4,544,304 on the date of acquisition.
The Sellers
will have an opportunity to receive up to an additional $38,000,000 (undiscounted) plus a potential undiscounted premium of 10% (or $3,800,000)
based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the
Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading
days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining
shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap
of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid
in cash. The fair value of the contingent purchase consideration of $24,716,957 was estimated by applying the income approach, which uses significant
assumptions (Level 3 assumptions) which are not readily available in the market.
The
goodwill of $27,024,383 arising on consolidation consists largely of the reputation and knowledge of USB in the sports betting
market in the US markets which should facilitate the Company’s penetration into the US market. All of the goodwill was assigned
to the Betting platform software and services segment.
None of the goodwill is expected to be deducted for
income tax purposes.
In terms of the agreement, the preliminary 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, plant and equipment
|
|
|
788
|
|
Other non-current assets
|
|
|
4,000
|
|
Tradenames/Trademarks
|
|
|
1,419,000
|
|
Customer relationships
|
|
|
7,275,000
|
|
Non-compete agreements
|
|
|
2,096,000
|
|
|
|
|
10,972,233
|
|
Less: liabilities assumed
|
|
|
|
|
Current liabilities assumed
|
|
|
(264,135
|
)
|
Non-current liabilities assumed
|
|
|
(205,320
|
)
|
Imputed Deferred taxation on identifiable intangible acquired
|
|
|
(2,265,900
|
)
|
|
|
|
(2,735,355
|
)
|
Net identifiable assets acquired and liabilities assumed
|
|
|
8,236,878
|
|
Goodwill
|
|
|
27,024,383
|
|
|
|
$
|
35,261,261
|
|
The amount of revenue and earnings include in the Company’s consolidated
statement of operations and comprehensive income (loss) for the nine months ended September 30, 2021 and the revenue and earnings of the
combined entity had the acquisition date been January 1, 2020.
17
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
|
|
Revenue
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
Actual from July 15, 2021 to September 30, 2021
|
|
$
|
121,552
|
|
|
$
|
(395,566
|
)
|
|
|
|
|
|
|
|
|
|
2021 Supplemental pro forma from January 1, 2021 to September 30, 2021
|
|
$
|
34,288,462
|
|
|
$
|
(7,154,851
|
)
|
|
|
|
|
|
|
|
|
|
2020 Supplemental pro forma from January 1, 2020 to September 30, 2020
|
|
$
|
24,992,504
|
|
|
$
|
(4,810,317
|
)
|
The 2021 Supplemental pro forma information was adjusted
to exclude $120,479 of non-recurring acquisition costs, in addition, the 2021 and 2020 supplemental pro forma information was adjusted
to account for amortization of intangibles on acquisition of $579,619 and $802,550 , respectively.
4. Restricted
Cash
Restricted cash
consists of the following:
|
|
Cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank.
|
|
|
The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. The line of credit was repaid during the nine months ended September 30, 2021. See Note 10.
|
5.
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
value
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
63,436
|
|
|
$
|
(33,484
|
)
|
|
$
|
29,952
|
|
|
$
|
39,707
|
|
Computer and office equipment
|
|
|
1,016,822
|
|
|
|
(776,040
|
)
|
|
|
240,782
|
|
|
|
247,572
|
|
Fixtures and fittings
|
|
|
289,679
|
|
|
|
(243,407
|
)
|
|
|
46,272
|
|
|
|
54,465
|
|
Vehicles
|
|
|
101,148
|
|
|
|
(52,126
|
)
|
|
|
49,022
|
|
|
|
63,382
|
|
Computer software
|
|
|
227,216
|
|
|
|
(148,636
|
)
|
|
|
78,580
|
|
|
|
84,465
|
|
|
|
$
|
1,698,301
|
|
|
$
|
(1,253,693
|
)
|
|
$
|
444,608
|
|
|
$
|
489,591
|
|
The aggregate
depreciation charge to operations was $162,594 and $173,983 for the nine months ended September 30, 2021 and 2020, respectively. The depreciation
policies followed by the Company are described in Note 2.
6. Leases
Right
of use assets are included in the consolidated balance sheet are as follows:
|
|
September 30,
2021
|
|
December 31,
2020
|
Non-current assets
|
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization
|
|
$
|
581,944
|
|
|
$
|
687,568
|
|
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment
|
|
$
|
17,867
|
|
|
$
|
27,119
|
|
Lease costs consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of financial lease assets
|
|
$
|
8,071
|
|
|
$
|
9,509
|
|
Interest expense on lease liabilities
|
|
|
642
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
201,308
|
|
|
|
186,308
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
210,021
|
|
|
$
|
196,720
|
|
18
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
6. Leases
(continued)
Other lease information:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
(642
|
)
|
|
$
|
(903
|
)
|
Operating cash flows from operating leases
|
|
|
(201,308
|
)
|
|
|
(186,308
|
)
|
Financing cash flows from finance leases
|
|
|
(8,108
|
)
|
|
|
(9,319
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term – finance leases
|
|
|
2.43 years
|
|
|
|
2.90 years
|
|
Weighted average remaining lease term – operating leases
|
|
|
1.95 years
|
|
|
|
3.07 years
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate – finance leases
|
|
|
3.73
|
%
|
|
|
3.60
|
%
|
Weighted average discount rate – operating leases
|
|
|
3.23
|
%
|
|
|
3.42
|
%
|
Maturity
of Leases
Finance
lease liability
The amount of future minimum lease
payments under finance leases are as follows:
Finance lease liability
|
|
Amount
|
|
|
|
Remainder of 2021
|
|
$
|
2,272
|
|
2022
|
|
|
8,957
|
|
2023
|
|
|
7,177
|
|
2024
|
|
|
833
|
|
Total undiscounted minimum future lease payments
|
|
|
19,239
|
|
Imputed interest
|
|
|
(786
|
)
|
Total finance lease liability
|
|
$
|
18,453
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
2,107
|
|
Non-Current portion
|
|
|
16,346
|
|
|
|
$
|
18,453
|
|
Operating
lease liability
The amount of
future minimum lease payments under operating leases are as follows:
Operating lease liability
|
|
Amount
|
|
|
|
Remainder of 2021
|
|
$
|
76,162
|
|
2022
|
|
|
269,988
|
|
2023
|
|
|
209,319
|
|
2024
|
|
|
29,637
|
|
Total undiscounted minimum future lease payments
|
|
|
585,106
|
|
Imputed interest
|
|
|
(21,317
|
)
|
Total operating lease liability
|
|
$
|
563,789
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
71,574
|
|
Non-Current portion
|
|
|
492,215
|
|
|
|
$
|
563,789
|
|
19
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
7. Intangible
Assets
Intangible assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Cost
|
|
Accumulated amortization
|
|
Net book value
|
|
Net book value
|
Betting platform software
|
$
|
5,689,965
|
|
|
$
|
(1,301,150
|
)
|
|
$
|
4,388,815
|
|
|
$
|
4,673,314
|
|
Licenses
|
|
5,797,954
|
|
|
|
(955,554
|
)
|
|
|
4,842,400
|
|
|
|
4,917,733
|
|
Location contracts
|
|
1,000,000
|
|
|
|
(1,000,000
|
)
|
|
|
—
|
|
|
|
88,455
|
|
Customer relationships
|
|
8,145,927
|
|
|
|
(491,237
|
)
|
|
|
7,654,690
|
|
|
|
509,237
|
|
Trademarks
|
|
1,537,972
|
|
|
|
(86,396
|
)
|
|
|
1,451,576
|
|
|
|
68,843
|
|
Non-compete agreements
|
|
2,096,000
|
|
|
|
(109,167
|
)
|
|
|
1,986,833
|
|
|
|
—
|
|
Websites
|
|
40,000
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
24,307,818
|
|
|
$
|
(3,983,504
|
)
|
|
$
|
20,324,314
|
|
|
$
|
10,257,582
|
|
The
Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications
of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an
impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
The
Company recorded $722,843 and $527,011 in amortization expense for finite-lived assets for the nine months ended September 30, 2021 and
2020, respectively.
Licenses
obtained by the Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well
as a Bersani and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an
Austrian Bookmaker License through the acquisition of Ulisse.
The estimated
amortization expense over the next five year period is as follows:
Amortization Expense
|
|
Amount
|
|
|
Remainder of 2021
|
$
|
390,124
|
|
|
2022
|
|
1,520,415
|
|
|
2023
|
|
1,519,836
|
|
|
2024
|
|
1,518,174
|
|
|
2025
|
|
1,278,007
|
|
|
2026
|
|
994,173
|
|
|
Total estimated amortization expense
|
$
|
7,220,729
|
|
|
|
|
|
|
|
|
8. Goodwill
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
Opening balance
|
|
$
|
1,663,120
|
|
|
$
|
1,663,385
|
|
Acquisition of Bookmakers company US LLC
|
|
|
27,024,383
|
|
|
|
—
|
|
Foreign exchange movements
|
|
|
(347
|
)
|
|
|
(265
|
)
|
Closing balance
|
|
$
|
28,687,156
|
|
|
$
|
1,663,120
|
|
Goodwill represents
the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company
evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment
exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value.
20
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
9. Marketable
Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
The shares of
Zoompass were last quoted on the OTC market at $0.07 per share on September 30, 2021, resulting in an unrealized loss recorded to earnings
related to these securities of $292,500 for the nine months ended September 30, 2021.
10. Line
of Credit - Bank
The Company
maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, of which $0 was drawn as of September
30, 2021, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and
no maturity date as long as the security deposit of $1,000,000 remains in place, see Note 4.
11. Convertible
Debentures
The accounting
treatment relating to the convertible debentures issued was in accordance with the guidance in ASC 480 and ASC 815.
As of September
30, 2021 and December 31, 2020, the Company has outstanding, Canadian Dollar denominated convertible debentures in the aggregate principal
amount of CDN $0
and CDN $35,000
(approximately $27,442),
respectively.
Convertible debentures of
$10,000
and CDN $65,000
(approximately $48,416)
that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000
was acquired by a related party prior to extension, and a further $600,000
and CDN $242,000
(approximately $180,257)
that had matured, had the maturity date extended to September
28, 2020, of which $500,000
and CDN $207,000
were acquired by a related party, prior to extension. All of the convertible debentures with extended maturity dates, with the
exception of one convertible debenture of CDN $35,000,
were repaid during 2020. The remaining convertible debenture of CDN $35,000
was repaid in the first quarter of 2021. debt acquired by a related party
During the year
ended December 31, 2020, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600,
including interest thereon of CDN $45,029 and investors in U.S. Dollar convertible debentures converted the aggregate principal amount
of $400,000, including interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate
convertible debentures outstanding consists of the following:
Convertible Debentures
|
|
September
30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
27,442
|
|
|
$
|
3,464,737
|
|
Repaid
|
|
|
(27,562
|
)
|
|
|
(2,778,349
|
)
|
Conversion to equity
|
|
|
—
|
|
|
|
(634,431
|
)
|
Foreign exchange movements
|
|
|
120
|
|
|
|
(24,515
|
)
|
|
|
|
—
|
|
|
|
27,442
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
7,105
|
|
|
|
524,227
|
|
Interest expense
|
|
|
4,696
|
|
|
|
207,595
|
|
Repaid
|
|
|
(11,833
|
)
|
|
|
(619,992
|
)
|
Conversion to equity
|
|
|
—
|
|
|
|
(103,958
|
)
|
Foreign exchange movements
|
|
|
32
|
|
|
|
(767
|
)
|
|
|
|
—
|
|
|
|
7,105
|
|
Debenture Discount
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
(627,627
|
)
|
Amortization
|
|
|
—
|
|
|
|
627,627
|
|
|
|
|
—
|
|
|
|
—
|
|
Convertible Debentures, net
|
|
$
|
—
|
|
|
$
|
34,547
|
|
21
ELYS GAME TECHNOLOGY,
CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
12. Deferred
Purchase Consideration
During
the nine month current period, the Company paid the remaining balance of €20,800 (approximately $25,262) to non-related parties in
terms of the Virtual Generation promissory note.
The movement
on deferred purchase consideration to non-related parties consists of the following:
Deferred Purchase Consideration
|
|
September 30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
Promissory note due to non-related parties
|
|
$
|
25,434
|
|
|
$
|
1,802,384
|
|
Settled by the issuance of common shares
|
|
|
—
|
|
|
|
(724,467
|
)
|
Repayment in cash
|
|
|
(25,262
|
)
|
|
|
(1,105,455
|
)
|
Foreign exchange movements
|
|
|
(172
|
)
|
|
|
52,972
|
|
|
|
|
—
|
|
|
|
25,434
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(7,761
|
)
|
|
|
(120,104
|
)
|
Amortization
|
|
|
7,700
|
|
|
|
114,333
|
|
Foreign exchange movements
|
|
|
61
|
|
|
|
(1,990
|
)
|
|
|
|
—
|
|
|
|
(7,761
|
)
|
Deferred purchase consideration, net
|
|
$
|
—
|
|
|
$
|
17,673
|
|
13. Bank
Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately
USD $580,000)
from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan originally has an underlying interest
rate of 4.5 points
above Euro Inter Bank Offered Rate, was subject to quarterly review and was to be amortized over 57
months ending June 30, 2021 with monthly repayments of €9,760.
Subsequently, 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 extend the
maturity date of the loan to March 31, 2022, the interest rate remained the same at 4.5% above the Euro Inter Bank Offered Rate and
monthly repayments were revised to €9,971.
The Company
made payments under the loan in the aggregate principal amount of €84,294 (approximately USD $100,850) for the nine months ended
September 30, 2021.
14. Contingent
purchase consideration
In terms of
the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000 plus
a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four
years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s
common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period
ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase
Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders
or exceeding the cap will be paid in cash.
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.
At each reporting period,
the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated
Statements of Operations and Comprehensive Income (Loss). The estimate of the fair value of contingent consideration requires subjective
assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating
result scenarios. Due to the uncertainty regarding the achievement of the stated unadjusted accumulated EBITA 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.
22
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
14. Contingent
purchase consideration (continued)
|
|
September 30, 2021
|
Contingent purchase consideration
|
|
|
|
|
Contingent purchase consideration measured on the acquisition of USB
|
|
$
|
24,716,957
|
|
Settled by the issuance of common shares
|
|
|
—
|
|
Repayment in cash
|
|
|
—
|
|
Changes in fair value
|
|
|
569,076
|
|
Contingent consideration at September 30, 2021
|
|
|
25,286,033
|
|
15. 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 as well as shop deposits that are held by Ulisse.
Balances of
other long-term liabilities were as follows:
Other long-term liabilities
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
Severance liability
|
|
$
|
338,475
|
|
|
$
|
297,120
|
|
Customer deposit balance
|
|
|
19,102
|
|
|
|
366,947
|
|
Total other long-term liabilities
|
|
$
|
357,577
|
|
|
$
|
664,067
|
|
16. Related
Parties
Notes Payable,
Related Party
On March 11,
2020, the Company received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and
Millwork, Inc., a Company controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
Note Payable, Related Party
|
|
September 30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Additions
|
|
$
|
—
|
|
|
$
|
300,000
|
|
Repayment
|
|
|
—
|
|
|
|
(200,000
|
)
|
Applied to warrant exercise
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
—
|
|
|
|
22,521
|
|
Repayment
|
|
|
—
|
|
|
|
(14,465
|
)
|
Applied to warrant exercise
|
|
|
—
|
|
|
|
(8,056
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Promissory Notes Payable – Related Party
|
|
$
|
—
|
|
|
$
|
—
|
|
23
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
16. Related
Parties (continued)
Convertible notes
acquired, Related party
Forte Fixtures and Millworks
acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal
amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an
aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible
notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending
the maturity date of the convertible debentures, Forte Fixtures was granted 2 year warrants exercisable for 134,508 shares of common
stock at an exercise price of $3.75 per share and 6 year warrants exercisable for 33,627 shares of common stock at an exercise price
of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.
Deferred
Purchase consideration, Related Party
During the first
and second quarter, the Company paid the remaining
balance of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration
consists of the following:
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
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Related Party payables
|
|
|
|
|
|
|
|
|
Related Party payables
|
Luca Pasquini
|
|
$
|
(543
|
)
|
|
$
|
(565
|
)
|
Related Party payables
|
Victor Salerno
|
|
|
(50,854
|
)
|
|
|
—
|
|
Related Party payables
|
|
|
|
(51,397
|
)
|
|
$
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Related Party Receivables
|
|
|
|
|
|
|
|
|
Related Party Receivables
|
Luca Pasquini
|
|
$
|
1,438
|
|
|
$
|
1,519
|
|
24
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
16. Related
Parties (continued)
Gold Street
Capital
Gold Street Capital is wholly
owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital acquired
certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible
notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid during the current period.
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 six-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 six-year warrants exercisable
for 2,383 shares of common stock at $5.00 per share.
Luca Pasquini
On January 31, 2019, the
Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month
period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the Company has
paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000
(approximately $334,791).
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
On July 11, 2021, the Company
entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system,
the total contract price was €390,000
(approximately $459,572).
Mr. Pasquini owns 34%
of Engage.
On September 13, 2021, Mr.
Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company.
Victor
Salerno
On July 15,
2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its
members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid in cash upon closing
and 860,760 of the 1,265,823 shares of common stock issued on closing.
Together with
the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July
14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either
party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022.
Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.
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.
25
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
16. Related
Parties (continued)
On September 13, 2021, the
board of directors of the Company appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, Bookmakers
Company US LLC (“US Bookmaking”), to serve as a member of the Board.
Prior to the acquisition
of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno,
which amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023.
Michele
Ciavarella
Mr. Ciavarella agreed to receive $140,000 of his 2021
fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock
valued at $140,000 on the date of issue.
On January 22, 2021, the
Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him.
On July 15,
2021, Michele Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the
Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive Officer until
the earlier of his resignation or removal from office.
Matteo
Monteverdi
Mr. Monteverdi
resigned as the Company’s Chief Executive Officer and President to become the Company’s Head of Special Projects.
Gabriele Peroni
On January 31, 2019,
the Company acquired Virtual Generation Limited for €4,000,000
(approximately $4,576,352),
Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000
(approximately $915,270).
The gross proceeds of €800,000
was to be settled by a payment in cash of €500,000
over a twelve month period and by the issuance of common stock valued at €300,000
over an eighteen month period. As of September 30, 2020, the Company has paid Mr. Peroni the full cash amount of €500,000
(approximately $604,380)
and issued 112,521
shares valued at €300,000
(approximately $334,791).
On January 22, 2021, the
Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him.
Alessandro Marcelli
On January 22, 2021, the
Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him.
Franco Salvagni
On January 22, 2021, the
Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him.
Beniamino Gianfelici
On January 22, 2021, the
Company issued Mr. Gianfelici 63,278
shares of common stock valued at $361,950,
in settlement of accrued compensation due to him.
Paul
Sallwasser
On
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.
26
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
16. Related
Parties (continued)
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.
Mark
Korb
On July 5, 2021,
the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the
“Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer
for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined
by the Company’s board of directors with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical,
retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000
per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, On July 1, 2021, the Compensation Committee
of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s common stock. The shares of common stock underlying
the option award vest pro rata on a monthly basis over a forty-eight month period. The options are exercisable for a period of ten years
from the date of grant and have an exercise price of $4.03 per share.
In addition,
the Korb Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific
circumstances. If his employment is terminated by the Company other than for “Cause,” death or Disability or by Mr. Korb for
“Good Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive from the Company in equal
installments over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the
highest annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within
the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s MBO Bonus for the-then current fiscal year); (2) in
lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would
have been payable to Mr. Korb had he remained in employment with the Company during the entire year in which such termination occurred,
multiplied by (B) a fraction the numerator of which is the number of days Mr. Korb was employed in the year in which such termination
occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be
entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party
medical and welfare benefits for Mr. Korb and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination
date, or (B) the date Mr. Korb becomes eligible to receive such coverage under a subsequent employer’s insurance plan. Mr. Korb’s
receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of
or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described
in the following paragraph.
If the Korb
Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive
accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to
the termination date. The Korb Employment Agreement also provides that upon the Disability ( as defined in the Korb Employment Agreement)
of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through
the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary.
27
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
16. Related
Parties (continued)
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.
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 and Mr. Mandel-Mantello will serve on the audit committee.
On
September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common stock at an exercise
price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Phillipe
Blanc
On July 1, 2021,
Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director of the Company,
the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting capacity over two years.
Mr. Blanc will receive €105,000 per annum as compensation.
17. Stockholders’
Equity
For the nine
months ended September 30, 2021, the Company issued a total of 467,990 shares of common stock, valued at $2,676,901 for the settlement
of compensation and directors’ fees to certain of the Company’s related parties, refer note 16 above.
Between January
4, 2021, and September 21, 2021, investors exercised warrants for 1,506,809 shares of common stock for gross proceeds of $3,962,481 at
an average exercise price of $2.63 per share.
On January 22,
2021, the Company issued 24,476 restricted shares of common stock valued at $140,000 to Michele Ciavarella in terms of a compensation
election he made for the 2021 fiscal year.
On July 15,
2021, the Company issued 1,265,823 shares of common stock to the Sellers of USB, at $4.74 per share for a total of $6,000,000, representing
50% of the initial purchase consideration.
28
ELYS GAME
TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
18. Warrants
A summary of
all of the Company’s warrant activity during the period January 1, 2020 to September 30, 2021 is as follows:
Warrants
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
Warrants: Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Exercise price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020
|
|
|
1,089,474
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Granted
|
|
|
5,374,371
|
|
|
|
2.50
|
to
|
5.00
|
|
|
|
2.62
|
|
Forfeited/cancelled
|
|
|
(1,089,474
|
)
|
|
|
4.00
|
|
|
|
4.00
|
|
Exercised
|
|
|
(3,321,226
|
)
|
|
|
2.50
|
to
|
5.00
|
|
|
|
2.62
|
|
Outstanding December 31, 2020
|
|
|
2,053,145
|
|
|
$
|
2.50
|
to
|
5.00
|
|
|
|
2.63
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(1,506,809
|
)
|
|
|
2.50
|
to
|
3.75
|
|
|
|
2.63
|
|
Outstanding September 30, 2021
|
|
|
546,336
|
|
|
$
|
2.50
|
to
|
5.00
|
|
|
$
|
2.66
|
|
The following
tables summarize information about warrants outstanding as of September 30, 2021:
Warrants outstanding, Exercise Price
|
|
|
|
Warrants outstanding
|
|
Warrants exercisable
|
Exercise price
|
|
|
Number of shares
|
|
|
|
Weighted average remaining years
|
|
|
|
Weighted average exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average exercise price
|
|
$2.50
|
|
|
486,173
|
|
|
|
3.88
|
|
|
$
|
2.50
|
|
|
|
486,173
|
|
|
$
|
2.50
|
|
$3.75
|
|
|
48,395
|
|
|
|
0.66
|
|
|
|
3.75
|
|
|
|
48,395
|
|
|
|
3.75
|
|
$5.00
|
|
|
11,768
|
|
|
|
0.87
|
|
|
|
5.00
|
|
|
|
11,768
|
|
|
|
5.00
|
|
|
|
|
546,336
|
|
|
|
3.53
|
|
|
$
|
2.66
|
|
|
|
546,336
|
|
|
$
|
2.66
|
|
29
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
19. Stock Options
In September 2018, our stockholders
approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board
approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares
that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an increase
in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the
Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to
the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority
to grant under the plan by an additional 1,850,000 shares of common stock.
In addition,
pursuant to the employment agreement entered into with Mr. Monteverdi, the Company granted Mr. Monteverdi a non-plan option to purchase
648,000 shares of common stock at an exercise price of $1.84 that vest pro rata on each of September 1, 2021, September 1, 2022, September
1, 2023 and September 1, 2024.
During the period
ended September 30, 2021, the Company issued ten year options to purchase 720,000 shares at exercise prices ranging from $2.62 to $4.20
per share to employees.
On July 1, 2021, in compliance with
the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the Company granted him ten year options to purchase
400,000 shares of common stock at an exercise price of $4.03 per share vesting annually commencing on September 1, 2022.
On August 31,
2021, due to the resignation of an employee, unvested options for 50,000 shares of common stock were forfeited by the employee.
On
September 13, 2021, the Company granted the non-executive members of its board ten year options to purchase 48,500 shares of common stock
at an exercise price of $5.10 per share, as a component of annual compensation.
The
options awarded during the nine months ended September 30, 2021 were valued using a Black-Scholes option pricing model.
The
following assumptions were used in the Black-Scholes model:
Assumptions
|
|
Nine months ended
September 30, 2021
|
Exercise price
|
|
$
|
2.62
|
to
|
5.10
|
|
Risk free interest rate
|
|
|
0.92
|
to
|
1.63
|
%
|
Expected life of options
|
|
|
10 years
|
|
Expected volatility of underlying stock
|
|
|
223
|
to
|
229.8
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
30
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
19. Stock Options (continued)
A summary of
all of the Company’s option activity during the period January 1, 2020 to September 30, 2021 is as follows:
Stock Option Activity
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020
|
|
|
315,938
|
|
|
$
|
2.72
|
to
|
2.96
|
|
|
$
|
2.84
|
|
Granted
|
|
|
1,307,000
|
|
|
|
1.84
|
to
|
2.03
|
|
|
|
1.95
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2020
|
|
|
1,622,938
|
|
|
$
|
1.84
|
to
|
2.96
|
|
|
|
2.11
|
|
Granted
|
|
|
1,168,500
|
|
|
|
2.62
|
to
|
5.10
|
|
|
|
3.15
|
|
Forfeited/cancelled
|
|
|
(50,000
|
)
|
|
|
2.62
|
|
|
|
2,62
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2021
|
|
|
2,741,438
|
|
|
$
|
1.84
|
to
|
5.10
|
|
|
$
|
2.16
|
|
The following
tables summarize information about stock options outstanding as of September 30, 2021:
Stock Options Outstanding
|
|
|
Options outstanding
|
|
Options exercisable
|
Exercise price
|
|
|
Number of shares
|
|
|
|
Weighted average remaining years
|
|
|
|
Weighted average exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average exercise price
|
|
$1.84
|
|
|
648,000
|
|
|
|
8.98
|
|
|
|
|
|
|
|
162,000
|
|
|
|
|
|
$2.03
|
|
|
659,000
|
|
|
|
9.01
|
|
|
|
|
|
|
|
316,333
|
|
|
|
|
|
$2.72
|
|
|
25,000
|
|
|
|
4.75
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
$2.80
|
|
|
220,625
|
|
|
|
7.98
|
|
|
|
|
|
|
|
110,495
|
|
|
|
|
|
$2.96
|
|
|
70,313
|
|
|
|
7.77
|
|
|
|
|
|
|
|
70,313
|
|
|
|
|
|
$4.03
|
|
|
1,020,000
|
|
|
|
9.76
|
|
|
|
|
|
|
|
51,667
|
|
|
|
|
|
$4.07
|
|
|
25,000
|
|
|
|
9.79
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$4.20
|
|
|
25,000
|
|
|
|
9.59
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$5.10
|
|
|
48,500
|
|
|
|
9.96
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
2,741,438
|
|
|
|
9.16
|
|
|
$
|
2.91
|
|
|
|
735,807
|
|
|
$
|
2.36
|
|
As of September
30, 2021, there were unvested options to purchase 2,005,630 shares of common stock. Total expected unrecognized compensation cost related
to such unvested options is $6,093,119 which is expected to be recognized over a period of 45 months.
The intrinsic
value of the options at September 30, 2021 was $5,534,868.
As of September
30, 2021, there was an aggregate of 2,093,438 options to purchase shares of common stock granted under the Company’s 2018 Equity
Incentive Plan, and an aggregate of 492,466 restricted shares granted to certain officers and directors of the Company in settlement of
liabilities owing to them, with 414,096 shares available for future grants.
31
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
20. Revenues
The following
table represents disaggregated revenues from our gaming operations for the three months and nine months ended September 30, 2021 and
2020. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less
customer winnings paid out, and taxes due to government authorities, while Service Revenues is revenue invoiced for our Elys software
service and royalties invoiced for the sale of virtual products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Turnover
|
|
|
|
|
|
|
|
|
Turnover web-based
|
|
$
|
162,471,799
|
|
|
$
|
117,879,687
|
|
|
$
|
613,678,568
|
|
|
$
|
300,111,151
|
|
Turnover land-based
|
|
|
1,193,778
|
|
|
|
25,823,099
|
|
|
|
13,237,738
|
|
|
|
53,635,357
|
|
Total Turnover
|
|
|
163,665,577
|
|
|
|
143,702,786
|
|
|
|
626,916,306
|
|
|
|
353,746,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings web-based
|
|
|
152,328,198
|
|
|
|
110,841,093
|
|
|
|
572,975,466
|
|
|
|
281,541,363
|
|
Winnings land-based
|
|
|
1,031,217
|
|
|
|
21,495,660
|
|
|
|
11,362,524
|
|
|
|
43,286,978
|
|
Total Winnings/payouts
|
|
|
153,359,415
|
|
|
|
132,336,753
|
|
|
|
584,337,990
|
|
|
|
324,828,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues
|
|
|
10,306,162
|
|
|
|
11,366,033
|
|
|
|
42,578,316
|
|
|
|
28,918,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes
|
|
|
2,515,570
|
|
|
|
1,698,192
|
|
|
|
9,129,881
|
|
|
|
4,294,680
|
|
Net Gaming Revenues
|
|
|
7,790,592
|
|
|
|
9,667,841
|
|
|
|
33,448,435
|
|
|
|
24,623,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
|
|
|
239,490
|
|
|
|
33,955
|
|
|
|
428,924
|
|
|
|
58,752
|
|
Revenue
|
|
$
|
8,030,082
|
|
|
$
|
9,701,796
|
|
|
$
|
33,877,359
|
|
|
$
|
24,682,239
|
|
21. Net loss per Common Share
Basic income
(loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income (loss) per share
is based on basic shares as determined above, plus the incremental shares that would be issued upon the assumed exercise of “in-the-money”
options and warrants using the treasury stock method and the inclusion of all convertible securities, including convertible debentures,
assuming these securities were converted at the beginning of the period or at the time of issuance, if later, adding back any direct incremental
expenses related to the convertible securities, including interest expense, present value discount amortization. The computation of diluted
net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.
The computation
of the diluted income per share for the three months and nine months ended September 30, 2021 and 2020 was anti-dilutive due to the losses
realized.
For the three
months and nine months ended September 30, 2021 and 2020, the following options, warrants and convertible debentures were excluded from
the computation of diluted loss per share as the result of the computation was anti-dilutive:
Net loss per Common Share
|
|
|
|
|
|
|
|
Description
|
Three and nine Months ended September 30, 2021
|
|
Three and nine Months ended September 30, 2020
|
|
|
|
|
Options
|
|
2,741,438
|
|
|
|
963,938
|
|
Warrants
|
|
546,336
|
|
|
|
5,374,371
|
|
|
|
3,287,774
|
|
|
|
6,338,309
|
|
32
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
22. Segmental
Reporting
The Company
has two reportable operating segments. These segments are:
(i) Betting
establishments
The
operating of web based as well as land based leisure betting establishments situated throughout Italy; and only web
based distribution through our Austrian subsidiary in the Italian market until June
2021, and
(ii) Betting
platform software and services
Provider
of certified betting Platform software services to global leisure betting establishments and operators.
The operating
assets and liabilities of the reportable segments are as follows:
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of non-current assets
|
|
$
|
25,502
|
|
|
$
|
37,881,164
|
|
|
$
|
43,552
|
|
|
$
|
37,950,218
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
8,587,092
|
|
|
|
1,308,003
|
|
|
|
2,230,792
|
|
|
|
12,125,887
|
|
Non-current assets
|
|
|
6,783,911
|
|
|
|
43,666,430
|
|
|
|
1,156,085
|
|
|
|
51,606,426
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(6,499,182
|
)
|
|
|
(915,762
|
)
|
|
|
(1,225,532
|
)
|
|
|
(8,640,476
|
)
|
Non-current liabilities
|
|
|
(765,779
|
)
|
|
|
(3,618,200
|
)
|
|
|
(25,286,034
|
)
|
|
|
(29,670,013
|
)
|
Intercompany balances
|
|
|
4,247,985
|
|
|
|
(705,171
|
)
|
|
|
(3,542,814
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
12,354,027
|
|
|
$
|
39,735,300
|
|
|
$
|
(26,667,503
|
)
|
|
$
|
25,421,824
|
|
33
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed
Consolidated Financial Statements
22. Segmental
Reporting (continued)
The segment
operating results of the reportable segments are disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2021
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Revenue
|
|
$
|
33,448,435
|
|
|
$
|
428,924
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
33,877,359
|
|
Intercompany Service revenue
|
|
|
271,518
|
|
|
|
3,323,848
|
|
|
|
—
|
|
|
|
(3,595,366
|
)
|
|
|
|
|
—
|
|
Total revenue
|
|
|
33,719,953
|
|
|
|
3,752,772
|
|
|
|
—
|
|
|
|
(3,595,366
|
)
|
|
|
|
|
33,877,359
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
3,323,848
|
|
|
|
271,518
|
|
|
|
—
|
|
|
|
(3,595,366
|
)
|
|
|
|
|
—
|
|
Selling expenses
|
|
|
26,318,643
|
|
|
|
14,513
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
26,333,156
|
|
General and administrative expenses
|
|
|
5,251,863
|
|
|
|
4,204,834
|
|
|
|
4,518,758
|
|
|
|
—
|
|
|
|
|
|
13,975,455
|
|
Total operating expenses
|
|
|
34,894,354
|
|
|
|
4,490,865
|
|
|
|
4,518,758
|
|
|
|
(3,595,366
|
)
|
|
|
|
|
40,308,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from operations
|
|
|
(1,174,401
|
)
|
|
|
(738,093
|
)
|
|
|
(4,518,758
|
)
|
|
|
—
|
|
|
|
|
|
(6,431,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
434,624
|
|
|
|
2,073
|
|
|
|
7,992
|
|
|
|
—
|
|
|
|
|
|
444,689
|
|
Other expense
|
|
|
(23,954
|
)
|
|
|
(4,568
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
(28,522
|
)
|
Interest expense, net
|
|
|
(7,486
|
)
|
|
|
(2,109
|
)
|
|
|
(5,153
|
)
|
|
|
—
|
|
|
|
|
|
(14,748
|
)
|
Change in fair value of contingent purchase consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
(569,076
|
)
|
|
|
—
|
|
|
|
|
|
(569,076
|
)
|
Amortization of present value discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,833
|
)
|
|
|
—
|
|
|
|
|
|
(12,833
|
)
|
Loss on conversion of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(292,500
|
)
|
|
|
—
|
|
|
|
|
|
(292,500
|
)
|
Total other income (expense)
|
|
|
403,184
|
|
|
|
(4,604
|
)
|
|
|
(871,570
|
)
|
|
|
—
|
|
|
|
|
|
(472,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes
|
|
|
(771,217
|
)
|
|
|
(742,697
|
)
|
|
|
(5,390,328
|
)
|
|
|
—
|
|
|
|
|
|
(6,904,242
|
)
|
Income tax provision
|
|
|
(50,666
|
)
|
|
|
58,802
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
8,136
|
|
Net Loss
|
|
$
|
(821,883
|
)
|
|
$
|
(683,895
|
)
|
|
$
|
(5,390,328
|
)
|
|
$
|
—
|
|
|
|
|
$
|
(6,896,106
|
)
|
The operating assets and liabilities
of the reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
Purchase of non-current assets
|
|
$
|
112,506
|
|
|
$
|
60,168
|
|
|
$
|
—
|
|
|
$
|
172,674
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
6,940,838
|
|
|
|
265,782
|
|
|
|
4,944,614
|
|
|
|
12,151,234
|
|
Non-current assets
|
|
|
12,490,886
|
|
|
|
6,311,200
|
|
|
|
620,090
|
|
|
|
19,422,176
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,847,368
|
)
|
|
|
(489,859
|
)
|
|
|
(5,385,225
|
)
|
|
|
(11,722,452
|
)
|
Non-current liabilities
|
|
|
(1,320,714
|
)
|
|
|
(1,279,434
|
)
|
|
|
(30,023
|
)
|
|
|
(2,630,171
|
)
|
Intercompany balances
|
|
|
4,591,801
|
|
|
|
(61,400
|
)
|
|
|
(4,530,401
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
16,855,443
|
|
|
$
|
4,746,289
|
|
|
$
|
(4,380,945
|
)
|
|
$
|
17,220,787
|
|
34
ELYS
GAME TECHNOLOGY, CORP.
Notes to Unaudited
Condensed Consolidated Financial Statements
22. Segmental Reporting (continued)
The segment operating results of
the reportable segments are disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Net Gaming Revenue
|
|
$
|
24,623,487
|
|
|
$
|
58,752
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,682,239
|
|
Intercompany Service revenue
|
|
|
62,159
|
|
|
|
1,971,089
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
—
|
|
Total Revenue
|
|
|
24,685,646
|
|
|
|
2,029,841
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
24,682,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
1,971,089
|
|
|
|
62,159
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
17,316,388
|
|
|
|
10,762
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,327,150
|
|
General and administrative expenses
|
|
|
3,216,798
|
|
|
|
2,750,780
|
|
|
|
2,893,315
|
|
|
|
—
|
|
|
|
8,860,893
|
|
Total operating expenses
|
|
|
22,504,275
|
|
|
|
2,823,701
|
|
|
|
2,893,315
|
|
|
|
(2,033,248
|
)
|
|
|
26,188,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
2,181,371
|
|
|
|
(793,860
|
)
|
|
|
(2,893,315
|
)
|
|
|
—
|
|
|
|
(1,505,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
62,888
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,933
|
|
Other expense
|
|
|
(109,098
|
)
|
|
|
(525
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(109,623
|
)
|
Interest expense, net
|
|
|
(2,292
|
)
|
|
|
(66
|
)
|
|
|
(226,808
|
)
|
|
|
—
|
|
|
|
(229,166
|
)
|
Amortization of present value discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(780,678
|
)
|
|
|
—
|
|
|
|
(780,678
|
)
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(719,390
|
)
|
|
|
—
|
|
|
|
(719,390
|
)
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
472,500
|
|
|
|
—
|
|
|
|
472,500
|
|
Total other (expenses) income
|
|
|
(48,502
|
)
|
|
|
(546
|
)
|
|
|
(1,254,376
|
)
|
|
|
—
|
|
|
|
(1,303,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes
|
|
|
2,132,869
|
|
|
|
(794,406
|
)
|
|
|
(4,147,691
|
)
|
|
|
—
|
|
|
|
(2,809,228
|
)
|
Income tax provision
|
|
|
(674,273
|
)
|
|
|
64,386
|
|
|
|
(162,112
|
)
|
|
|
—
|
|
|
|
(771,999
|
)
|
Net Income (Loss)
|
|
$
|
1,458,596
|
|
|
$
|
(730,020
|
)
|
|
$
|
(4,309,803
|
)
|
|
$
|
—
|
|
|
$
|
(3,581,227
|
)
|
23. Subsequent
Events
The Company
has evaluated subsequent events through the date the financial statements were issued and did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
35