UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM
_________________
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number
_________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1-
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| The |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 11, 2022, the registrant had shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
| PART I - | FINANCIAL INFORMATION | PAGE |
| Cautionary Statement Regarding Forward Looking Statements | 3 | |
| Item 1 | Financial Statements | |
| Consolidated Balance Sheets (unaudited) | 4 | |
| Consolidated Statements of Operations and Comprehensive Loss (unaudited) | 5 | |
| Consolidated Statements of Changes in Stockholders' Equity (unaudited) | 6 | |
| Consolidated Statements of Cash Flows (unaudited) | 7 | |
| Notes to Consolidated Financial Statements (unaudited) | 9 | |
| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operation | 33 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 47 |
| Item 4 | Controls and Procedures | 47 |
| PART II - | OTHER INFORMATION | 48 |
| Item 1 | Legal Proceedings | 48 |
| Item 1A | Risk Factors | 48 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 52 |
| Item 3 | Defaults Upon Senior Securities | 52 |
| Item 4 | Mine Safety Disclosures | 52 |
| Item 5 | Other Information | 52 |
| Item 6 | Exhibits | 52 |
| SIGNATURES | 53 | |
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.
These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to in this Quarterly Report on Form 10-Q and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Elys Game Technology, Corp. cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Elys Game Technology, Corp. or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth below, under Part II, “Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those identified under Part I, Item 1A in our Annual Report on Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission on April 15, 2022.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.
In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, references to “Elys Game” “our Company,” “the Company,” “we,” “our,” and “us” refer to Elys Game Technology, Corp. a Delaware corporation, and its wholly owned subsidiaries.
COVID-19 UPDATE
As a result of the global outbreak of the COVID-19 virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictions on public gatherings and travel, and closures of physical venues that included betting shops, arcades and bingo halls across Italy. Accordingly, we had temporarily closed all betting shop locations throughout Italy as a result of the decree until May 4, 2020. Subsequently, on March 10, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and had either postponed or cancelled most professional sports events which had an effect on the Company’s overall sports betting handle and revenues and negatively impacted the Company’s operating results. On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy temporarily reopened until November 2020 when the Italian government imposed new lockdowns 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 Q2 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.
Currently there are no restrictive lockdowns in any of the markets in which we operate.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELYS GAME TECHNOLOGY, CORP.
Consolidated Balance Sheets
(Unaudited)
September 30, 2022 | December 31, 2021 | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Gaming accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Related party receivable | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Restricted cash | ||||||||
| Property, plant and equipment | ||||||||
| Right of use assets | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Marketable securities | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Current Liabilities | ||||||||
| Bank overdraft | $ | $ | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Gaming accounts payable | ||||||||
| Taxes payable | ||||||||
| Advances from related parties | ||||||||
| Promissory notes payable, related parties | ||||||||
| Operating lease liability | ||||||||
| Financial lease liability | ||||||||
| Bank loan payable, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Contingent Purchase Consideration | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liability | ||||||||
| Financial lease liability | ||||||||
| Bank loan payable | ||||||||
| Equipment funding loan, related parties | ||||||||
| Other long-term liabilities | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity | ||||||||
| Preferred stock, par value; shares authorized, none issued | ||||||||
| Common stock, par value, shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements
4
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Costs and Expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Restructuring and severance expenses | ||||||||||||||||
| Total Costs and Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Expenses) Income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of contingent purchase consideration | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of present value discount | ( | ) | ||||||||||||||
| (Loss) gain on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Other (Expenses) Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Comprehensive Loss | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements
5
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2022 and September 30, 2021
(Unaudited)
Common Stock | Additional | Accumulated Other | ||||||||||||||||||||||
| Shares | Amount | Paid-in Capital | Comprehensive Income | Accumulated Deficit | Total | |||||||||||||||||||
| Nine months ended September 30, 2021 | ||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Proceeds from warrants exercised | ||||||||||||||||||||||||
| Common stock issued to settle liabilities | ||||||||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Proceeds from warrants exercised | ||||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Shares issued in consideration of acquisition | ||||||||||||||||||||||||
| Proceeds from warrants exercised | ||||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Additional | Accumulated Other | ||||||||||||||||||||||
| Shares | Amount | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Total | |||||||||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Proceeds from open market sales | ||||||||||||||||||||||||
| Brokers Fees on open market sales | — | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Proceeds from open market sales | ||||||||||||||||||||||||
| Brokers Fees on open market sales | — | ( | ) | ( | ) | |||||||||||||||||||
| Proceeds from private placement | ||||||||||||||||||||||||
| Proceeds from prefunded warrants | — | |||||||||||||||||||||||
| Brokers fees on private placement | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Proceeds from warrants exercised | ||||||||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See notes to the unaudited condensed consolidated financial statements
6
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash Used in Operating Activities | ||||||||
| Depreciation and amortization | ||||||||
| Change in fair value of contingent purchase consideration | ||||||||
| Amortization of present value discount | ||||||||
| Restricted stock awards | ||||||||
| Stock option compensation expense | ||||||||
| Non-cash interest | ||||||||
| Unrealized (gain) loss on trading securities | ( | ) | ||||||
| Movement in deferred taxation | ( | ) | ( | ) | ||||
| Gain on Government relief loan forgiven | ( | ) | ||||||
| Changes in Operating Assets and Liabilities (Net of assets acquired and liabilities assumed) | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Accounts receivable | ( | ) | ||||||
| Gaming accounts receivable | ||||||||
| Gaming accounts liabilities | ||||||||
| Taxes payable | ( | ) | ||||||
| Due from related parties | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Long term liabilities | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Acquisition of subsidiary, net of cash of $ | ( | ) | ||||||
| Acquisition of property, plant and equipment and intangible assets | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from warrants exercised | ||||||||
| Proceeds from bank overdraft | ||||||||
| Repayment of bank overdraft | ( | ) | ||||||
| Repayment of bank credit line | ( | ) | ||||||
| Repayment of bank loan | ( | ) | ( | ) | ||||
| Redemption of convertible debentures | ( | ) | ||||||
| Proceeds from promissory notes, related party | ||||||||
| Proceeds from equipment funding, related party | ||||||||
| Repayment of Government relief loan | ( | ) | ||||||
| Proceeds from subscriptions – net of fees | ||||||||
| Proceeds from. Pre-funded warrants | ||||||||
| Repayment of deferred purchase consideration, non-related parties | ( | ) | ||||||
| Repayment of deferred purchase consideration, related parties | ( | ) | ||||||
| Repayment of financial leases | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Effect of change in exchange rate | ( | ) | ( | ) | ||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash – beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash – end of the period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash included in non-current assets | ||||||||
| $ | 5,022,640 | $ | 10,801,439 | |||||
See notes to the unaudited condensed consolidated financial statements
7
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income tax | $ | $ | ||||||
| Supplemental cash flow disclosure for non-cash activities | ||||||||
| Common stock issued to settle liabilities | $ | $ | ||||||
| Common shares issued in consideration of acquisition (Refer Note 3 below) | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements
8
ELYS GAME TECHNOLOGY, CORP.
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”), provides gaming services in the U.S. market via Elys Gameboard Technologies, LLC and Bookmakers Company US, LLC (“USB”) 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 approximately 100 Sports Rights to Multigioco, which will allow Multigioco to expand its land-based distribution network to approximately 110 point-of-sale locations. Multigioco activated approximately 30 location rights during the third quarter of 2022 and expects to activate an additional 50 locations over the remainder of the 2022 calendar year, and the remaining 20 locations through the first quarter 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.
9
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Nature of Business (continued)
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.
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 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. The balance sheet at December 31, 2021 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 for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2022.
All amounts referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The Company previously had a secondary listing on the NEO exchange in Canada, which was terminated on 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 accordance with U.S. GAAP.
10
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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 U.S. dollars during the periods 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 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 and liabilities assumed, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, 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, 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.
11
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 carrying value of the Company’s accounts receivables, gaming accounts receivable, 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, 2022 and December 31, 2021, 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 $
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 and nine months ended September 30, 2022.
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.
12
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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:
| Description | Useful Life | |||||
| Leasehold improvements | Life of the underlying lease | |||||
| Computer and office equipment | to | years | ||||
| Furniture and fittings | to | years | ||||
| Computer Software | to | years | ||||
| Vehicles | to | years | ||||
Intangible Assets
Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
The range of the estimated useful lives is as follows:
| Description | Useful Life | |||||
| Betting Platform Software | 15 years | |||||
| Multigioco and Rifa ADM Licenses | to | years | ||||
| Location contracts | to | years | ||||
| Customer relationships | to | years | ||||
| Trademarks/Tradenames | to | years | ||||
| Websites | 5 years | |||||
| Non-compete agreements | 4 years | |||||
13
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Goodwill
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company annually assesses whether the carrying value of its reporting 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.
Goodwill was recently assessed on December 31, 2021 and as of September 30, 2022 there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate. The Company is currently assessing the financial position and the future direction of its USB subsidiary and will enter into a mediation process with the executive management of USB. The outcome of this mediation is uncertain and until such time as the Company has determined an appropriate course of action, which is dependent on the outcome of the mediation and possible legal action initiated by the Company, the ability to project future business and profitability is uncertain. The Company expects to determine an appropriate course of action within the next three to six months, at which time the decision around impairment of the carrying value of the USB assets will be determinable.
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 operating leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term. Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in plant and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.
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.
14
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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.
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 and 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. |
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.
15
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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, 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 recently added land-based operations in the U.S. and |
| (ii) | provider of certified betting Platform software services to global leisure betting establishments in Italy and 8 other countries. |
3. Acquisition of Subsidiaries
On July 5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US, LLC, a Nevada limited liability company doing business as USBookmaking (“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 $
The Purchase
Agreement provided that the Sellers will have an opportunity to receive up to an additional $
16
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
3. Acquisition of subsidiaries (continued)
The goodwill of $27,024,383 arising at the time of acquisition consists largely of the reputation and knowledge of USB in the sports betting market in the U.S. markets which should facilitate the Company’s penetration into the U.S. 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 | $ | |||
1,265,823 shares of common stock at fair market value | ||||
| Contingent purchase consideration | ||||
| Total purchase consideration | $ | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed | ||||
| Cash | $ | |||
| Other Current assets | ||||
| Property, plant and equipment | ||||
| Other non-current assets | ||||
| Tradenames/Trademarks | ||||
| Customer relationships | ||||
| Non-compete agreements | ||||
| Less: liabilities assumed | ||||
| Current liabilities assumed | ( | ) | ||
| Non-current liabilities assumed | ( | ) | ||
| Imputed Deferred taxation on identifiable intangible acquired | ( | ) | ||
| (2,735,355 | ) | |||
| Net identifiable assets acquired and liabilities assumed | ||||
| Goodwill | ||||
| $ | 35,261,261 | |||
The amount of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2022 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020, is presented as follows:
.
| Revenue | Earnings | |||||||
| Actual for the nine months ended September 30, 2022 | $ | $ | ( |
) | ||||
| 2021 Supplemental pro forma from January 1, 2021 to September 30, 2021 | $ | $ | ( |
) | ||||
| 2020 Supplemental pro forma from January 1, 2020 to September 30, 2020 | $ | $ | ( |
) | ||||
The 2021 Supplemental pro forma information was adjusted to exclude $
17
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
4. 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.
5. Property, plant and equipment
| September 30, 2022 | December 31, 2021 | |||||||||||||||
| Cost | Accumulated depreciation | Net book value | Net book value | |||||||||||||
| Leasehold improvements | $ | $ | ( | ) | $ | $ | ||||||||||
| Computer and office equipment | ( | ) | ||||||||||||||
| Fixtures and fittings | ( | ) | ||||||||||||||
| Vehicles | ( | ) | ||||||||||||||
| Computer software | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | $ | |||||||||||
The aggregate
depreciation charge to operations was $
6. Leases
Right of use assets included in the consolidated balance sheet are as follows:
September 30, 2022 | December 31, 2021 | |||||||
| Non-current assets | ||||||||
| Right of use assets - operating leases, net of amortization | $ | $ | ||||||
| Right of use assets - finance leases, net of depreciation – included in property, plant and equipment | $ | $ | ||||||
Lease costs consists of the following:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Finance lease cost: | ||||||||
| Amortization of financial lease assets | $ | $ | ||||||
| Interest expense on lease liabilities | ||||||||
| Operating lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
Other lease information:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
| Operating cash flows from operating leases | $ | ( | ) | $ | ( | ) | ||
| Financing cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
| Weighted average remaining lease term – finance leases | ||||||||
| Weighted average remaining lease term – operating leases | ||||||||
| Weighted average discount rate – finance leases | % | % | ||||||
| Weighted average discount rate – operating leases | % | % | ||||||
18
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
6. Leases (continued)
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 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total finance lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 8,376 | |||
Operating lease liability
The amount of future minimum lease payments under operating leases are as follows:
| Operating lease liability | Amount | |||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 1,291,437 | |||
7. Intangible Assets
Intangible assets consist of the following:
September 30, 2022 | December 31, 2021 | |||||||||||||||
| Cost | Accumulated amortization | Net book value | Net book value | |||||||||||||
| Betting platform software | $ | $ | ( | ) | $ | $ | ||||||||||
| Licenses | ( | ) | ||||||||||||||
| Location contracts | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Trademarks | ( | ) | ||||||||||||||
| Non-compete agreements | ( | ) | ||||||||||||||
| Websites | ( | ) | ||||||||||||||
| $ | 19,927,854 | $ | (5,524,664 | ) | $ | 14,403,190 | $ | |||||||||
19
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
7. Intangible Assets (continued)
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 $
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, which has subsequently being impaired to $0.
The estimated amortization expense for all intangibles over the next five year period is as follows:
| Amortization Expense | Amount | |||||
| Remainder of 2022 | $ | |||||
| 2023 | ||||||
| 2024 | ||||||
| 2025 | ||||||
| 2026 | ||||||
| Total estimated amortization expense | $ | |||||
8. Goodwill
September 30, 2022 | December 31, 2021 | |||||||
| Opening balance | $ | $ | ||||||
| Acquisition of Bookmakers Company US, LLC | ||||||||
| Foreign exchange movements | ( | ) | ( | ) | ||||
| 28,686,763 | 28,687,051 | |||||||
| Accumulated Impairment charge | ||||||||
| Opening Balance January 1 | (12,522,714 | ) | — | |||||
| Impairment charge | ( | ) | ||||||
| Closing Balance | (12,522,714 | ) | (12,522,714 | ) | ||||
| Goodwill net of impairment charge | $ | $ | ||||||
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.
The Company is currently assessing the financial position and the future direction of its USB subsidiary and will enter into a mediation process with the executive management of USB. The outcome of this mediation is uncertain and until such time as the Company has determined an appropriate course of action, which is dependent on the outcome of the mediation and possible legal action initiated by the Company, the ability to project future business and profitability is uncertain. The Company expects to determine an appropriate course of action within the next three to six months, at which time the decision around impairment of the carrying value of the USB assets will be determinable.
20
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
9. Marketable Securities
Investments in marketable securities consists of shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized into earnings.
The shares of
Zoompass were last quoted on the OTC market at per share on September 30, 2022, resulting in an unrealized gain recorded
to earnings related to these securities of $
10. Bank Loan Payable
In September
2016, the Company obtained a loan of €
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 $
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
$
Since
acquisition of USB, the Company has repaid principal of $
The maturity of bank loans payable as of September 30, 2022 is as follows:
| Amount | ||||
| Within 1 year | $ | |||
| 1 to 2 years | ||||
| 2 to 3 years | ||||
| 3 to 4 years | ||||
| 5 years and thereafter | ||||
| Total | $ | 152,090 | ||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 152,090 | |||
11. Contingent Purchase Consideration
In terms of the acquisition of USB disclosed in Note 3 above, the Purchase Agreement provides that 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 $
21
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Contingent Purchase Consideration (continued)
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 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 Company is currently assessing the financial position and the future direction of its USB subsidiary and will enter into a mediation process with the executive management of USB. The outcome of this mediation is uncertain and until such time as the Company has determined an appropriate course of action, which is dependent on the outcome of the mediation and possible legal action initiated by the Company, the ability to project future business and profitability is uncertain. The Company expects to determine an appropriate course of action within the next three to six months, at which time the decision around impairment of the carrying value of the USB contingent purchase consideration will be determinable.
September 30, 2022 | December 31, 2021 | |||||||
| Opening balance | $ | $ | ||||||
| Contingent purchase consideration measured on the acquisition of USB | — | |||||||
| Changes in fair value | ( | ) | ||||||
| Closing balance | $ | $ | ||||||
12. 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:
September 30, 2022 | December 31, 2021 | |||||||
| Severance liability | $ | $ | ||||||
13. Related Parties
Equipment loan - Related Party
On September
26, 2022, the Company entered into an equipment loan agreement with Braydon Capital Corp, for the principal sum of $
Braydon Capital Corp is managed by Mr. Claudio Ciavarella, the bother of the Chairman of the Board.
The movement on Equipment loan - Related Party, consists of the following:
September 30, 2022 | ||||
| Opening balance | ||||
| Loan advanced | $ | |||
| Loan repayments | — | |||
| Interest accrued | ||||
| Closing balance | $ | |||
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:
| September 30, 2022 | December 31, 2021 | |||||||
| Related Party payables | ||||||||
| Luca Pasquini | $ | ( | ) | $ | ( | ) | ||
| Victor Salerno | ( | ) | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | |||
| Related Party Receivables | ||||||||
| Luca Pasquini | $ | $ | ||||||
22
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties (continued)
Luca Pasquini
On
January 31, 2019, the Company acquired Virtual Generation for €
On January 22, 2021, the Company issued Mr. Pasquini shares of common stock valued at $, 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 €
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 restricted shares of common stock valued at for services rendered to the Company.
Michele Ciavarella
Mr. Ciavarella, the Company’s Executive Chairman of the Board, agreed to receive $ of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella shares of common stock valued at $140,000 on the date of issue.
On January 22, 2021, the Company issued Mr. Ciavarella shares of common stock valued at $, 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 shares of common stock valued at $ on the date of issue.
On September 26, 2022, Mr. Ciavarella was awarded restricted shares of common stock valued at $ 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 shares of common stock, at an exercise price of $ per share, vesting equally over a 4 year period commencing on January 1, 2023.
The Company
does not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive
the same compensation that he currently receives which is an annual base salary of €
On September 26, 2022, Mr. Reali was awarded restricted shares of common stock valued at $ for services rendered to the Company.
23
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties (continued)
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 $
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.
On September 13, 2021, the Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, USB, to serve as a member of the Board.
Prior to the acquisition
of USB, Mr. Salerno had advanced USB $
Between February 23, 2022 and September 22, 2022, Mr. Salerno advanced USB a total of $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. These notes were advanced to USB 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 USB 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 September 30, 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.
Paul Sallwasser
On September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for shares of common stock at an exercise price of $, 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, shares of common stock valued at $
On September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for shares of common stock at an exercise price of , vesting equally over a twelve month period commencing on September 13, 2021.
24
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties (continued)
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 shares of common stock at an exercise price of $, vesting equally over a twelve month period commencing on September 13, 2021.
14. Stockholders’ Equity
On January 7, 2022, the Company issued a total of shares of common stock, valued at for the settlement of compensationand bonuses due to the Company’s executive chairman, refer note 13 above.
Between March
28, 2022 and April 13, 2022, the Company sold shares of common stock for gross proceeds of $
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 million.
Pursuant
to the Purchase Agreement, on June 15, 2022, an aggregate of
Pursuant
to the Purchase Agreement, the Company issued a Warrant exercisable for
On
July 12, 2022, the pre-funded warrant disclosed in note 15 below for
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 restricted shares of common stock, valued at $ 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 restricted shares of common stock valued at and Mr. Reali, our interim Chief Financial Officer was awarded restricted shares of common stock, valued at .
25
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
15. Warrants
In terms of the Purchase Agreement discussed in note 14 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 is exercisable for one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time after their original issuance until all of the Pre-Funded Warrants are exercised in full.
On July 12, 2022, the pre-funded warrant disclosed in note 15 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.
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.
A summary of all of the Company’s warrant activity during the period January 1, 2021 to September 30, 2022 is as follows:
| Number of shares | Exercise price per share | Weighted average exercise price | ||||||||||||
| Outstanding January 1, 2021 | $ | to | $ | |
||||||||||
| Granted | — | |||||||||||||
| Forfeited/cancelled | — | — | ||||||||||||
| Exercised | ( |
) | to | |||||||||||
| Outstanding December 31, 2021 | $ | to | $ | |||||||||||
| Granted – pre-funded warrants* | 0.0001 | |||||||||||||
| Granted | 0.9475 | |||||||||||||
| Forfeited/cancelled | ( |
) | 3.75 | |||||||||||
| Exercised – pre-funded warrants* | ( |
0.0001 | ||||||||||||
| Outstanding September 30, 2022 | $ | to | $ | |||||||||||
* The prefunded warrants have an indefinite maturity date and have been excluded from the calculation of the weighted average remaining years and the weighted average exercise price disclosed below.
26
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
15. Warrants (continued)
The following tables summarize information about warrants outstanding as of September 30, 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 | $ | — | $ | — | ||||||||||||||||
| $2.50 | $ | 486,173 | $ | 2.50 | ||||||||||||||||
| $5.00 | 11,768 | 5.00 | ||||||||||||||||||
| $ | 497,941 | $ | 2.56 | |||||||||||||||||
16. 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 – 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 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 shares of common stock
On March 29, 2022, the Company issued ten year options to purchase shares at an exercise price of per share, of which were issued to our Interim CFO and to an employee.
On September 25, 2022, the Company issued ten year options to purchase shares at an exercise price of per share to two employees of the company.
The options awarded during the nine months ended September 30, 2022 were valued at an average of per share at the date of issuance using a Black-Scholes option pricing model.
The following assumptions were used in the Black-Scholes model:
|
Nine months ended September 30, 2022 | ||||||
| Exercise price | $ | to | ||||
| Risk free interest rate | to | % | ||||
| Expected life of options | years | |||||
| Expected volatility of underlying stock | to | % | ||||
| Expected dividend rate | 0 | % | ||||
27
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
16. Stock Options (continued)
A summary of all of the Company’s option activity during the period January 1, 2021 to September 30, 2022 is as follows:
| Number of shares | Exercise price per share | Weighted average exercise price | ||||||||||||
| Outstanding January 1, 2021 | $ | to | $ | |||||||||||
| Granted | to | |||||||||||||
| Forfeited/cancelled | ( |
) | ||||||||||||
| Exercised | — | |||||||||||||
| Expired | — | — | — | |||||||||||
| Outstanding December 31, 2021 | $ | to | $ | |||||||||||
| Granted | to | |||||||||||||
| Forfeited/cancelled | ( |
) | to | |||||||||||
| Exercised | — | |||||||||||||
| Outstanding September 30, 2022 | $ | to | $ | |||||||||||
The following tables summarize information about stock options outstanding as of September 30, 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 | |||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ |
||||||||||||||||||||
| $ | $ | |||||||||||||||||||
As of September 30, 2022, there were unvested options to purchase shares of common stock. Total expected unrecognized compensation cost related to such unvested options is which is expected to be recognized over a period of 39 months.
As of September 30, 2022, there was an aggregate of options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan, and an aggregate of restricted shares granted to certain officers and directors of the Company in settlement of liabilities owing to them, with shares available for future grants.
The options outstanding at September 30, 2022 had an intrinsic value of $.
28
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
17. Revenues
The following table represents disaggregated revenues from our gaming operations for the three months and nine months ended September 30, 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, 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, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Turnover | ||||||||||||||||
| Turnover web-based | $ | $ | $ | $ | ||||||||||||
| Turnover land-based | ||||||||||||||||
| Total Turnover | ||||||||||||||||
| Winnings/Payouts | ||||||||||||||||
| Winnings web-based | ||||||||||||||||
| Winnings land-based | ||||||||||||||||
| Total Winnings/payouts | ||||||||||||||||
| Gross Gaming Revenues | ||||||||||||||||