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 |
| N/A | N/A | N/A |
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 9, 2023, 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 | 37 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 51 |
| Item 4 | Controls and Procedures | 51 |
| PART II - | OTHER INFORMATION | 52 |
| Item 1 | Legal Proceedings | 52 |
| Item 1A | Risk Factors | 52 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 54 |
| Item 3 | Defaults Upon Senior Securities | 54 |
| Item 4 | Mine Safety Disclosures | 54 |
| Item 5 | Other Information | 54 |
| Item 6 | Exhibits | 55 |
| SIGNATURES | 56 | |
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 a 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 for the year ended December 31, 2022 filed with the Securities and Exchange Commission on April 17, 2023.
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.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELYS GAME TECHNOLOGY, CORP.
Consolidated Balance Sheets
(Unaudited)
September 30, 2023 | December 31, 2022 | |||||||
| 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 and equipment | ||||||||
| Right of use assets | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Marketable securities | ||||||||
| Total Non - Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | |||||||
| Gaming accounts payable | ||||||||
| Taxes payable | ||||||||
| Related party payable | ||||||||
| Promissory notes payable - related parties | ||||||||
| Operating lease liability | ||||||||
| Financial lease liability | ||||||||
| Bank loan payable - current portion | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liability | ||||||||
| Financial lease liability | ||||||||
| Bank loan payable | ||||||||
| Convertible notes payable, net of discount of $ | ||||||||
| Convertible notes payable – related parties, net of
discount of $ | ||||||||
| Other long-term liabilities | ||||||||
| Total Non – Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Equity | ||||||||
| Common stock, par value, shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022 | ||||||||
| 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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Costs and Expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Restructuring and severance expenses | ||||||||||||||||
| Total Costs and Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Expenses) Income | ||||||||||||||||
| Interest expense, net of interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Changes in fair value of contingent purchase consideration | ( | ) | ( | ) | ||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain (loss) on marketable securities | ( | ) | ( | ) | ||||||||||||
| Total Other (Expenses) Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||||||||||
| Net Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ||||||||||||
| Loss on recission | ( | ) | ( | ) | ||||||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive (Loss) Income | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share – basic and diluted | ||||||||||||||||
| Loss per common share – basic and diluted Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share – basic and diluted Discontinued operations | ( | ) | ( | ) | ||||||||||||
| (0.10 | ) | (0.14 | ) | (0.27 | ) | (0.41 | ) | |||||||||
| 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, 2023 and September 30, 2022
(Unaudited)
| 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 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Common Stock | Additional | Accumulated Other |
||||||||||||||||||||||
| Shares | Amount | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Total | |||||||||||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Fair value of common stock issued for Acquisition of Engage IT Services, Srl | ||||||||||||||||||||||||
| Fair value of warrant issued with convertible debt | — | |||||||||||||||||||||||
| Restricted stock awards | ||||||||||||||||||||||||
| Fair value of restricted stock issued to settle liabilities | ||||||||||||||||||||||||
| Fair value of options issued to settle liabilities | — | |||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Fair value of warrant issued with convertible debt | — | |||||||||||||||||||||||
| Restricted stock awards | — | |||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Fair value of shares returned on rescission of acquisition | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Fair value of warrant issued with convertible debt | — | |||||||||||||||||||||||
| Restricted stock awards | — | |||||||||||||||||||||||
| Stock based compensation expense | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
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, | ||||||||
| 2023 | 2022 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Restricted stock awards | ||||||||
| Stock-based compensation expense | ||||||||
| Non-cash interest | ||||||||
| Loss on dissolution of subsidiary | ||||||||
| Change in fair value of contingent purchase consideration | ||||||||
| Unrealized loss (gain) on marketable securities | ( | ) | ||||||
| Movement in deferred taxation | ( | ) | ( | ) | ||||
| 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 liability | ||||||||
| Net Cash Used in Operating Activities – continuing operations | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities – discontinued operations | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Acquisition of property and equipment and intangible assets | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities – continuing operations | ( | ) | ( | ) | ||||
| Net Cash Provided by Investing Activities – discontinued operations | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from convertible notes | ||||||||
| Proceeds from convertible notes, related parties | ||||||||
| Proceeds from Subscriptions – Net of Fees | ||||||||
| Proceeds from pre-funded warrants | ||||||||
| Proceeds from related party promissory notes | ||||||||
| Repayment of bank overdraft | ( | ) | ||||||
| Repayment of bank loan | ( | ) | ||||||
| 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 | $ | $ | ||||||
7
ELYS GAME TECHNOLOGY, CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| 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 | ||||||||
| $ | 2,551,000 | $ | 5,022,640 |
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income tax | $ | $ | ||||||
| Supplemental cash flow disclosure for non-cash activities | ||||||||
| Fair value of common stock issued on acquisition of Engage IT Services Srl | $ | $ | ||||||
| Fair value of common stock returned on recission of acquisition of Engage IT Services Srl | $ | ( | ) | |||||
| Fair value of warrant issued with convertible debt | $ | $ | ||||||
| Fair value of restricted stock issued to settle liabilities | $ | $ | ||||||
| Fair value of options issued to settle liabilities | $ | $ | ||||||
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 (“US Bookmaking”) in certain licensed states where the Company offers bookmaking and platform services to the Company’s customers. The Company’s intention is to focus its attention on expanding its operations in the U.S. market. In this regard, the Company operates 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 district and the Over Under Sportsbook Rooftop Lounge in Washington, D.C. In March 2022, the Company began providing platform and bookmaking services at Ocean Casino Resort in Atlantic City, New Jersey. Through its acquisition of US Bookmaking, the Company also provides sportsbook services to tribal casinos in New Mexico, North Dakota, Colorado and Michigan.
The Company also provides business-to-consumer (“B2C”) gaming services in Italy through its subsidiary, Multigioco. Multigioco has both a land-based retail license and an online interactive gaming license regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”). Through Multigioco the Company offers leisure betting products such as sports betting, and virtual sports betting products at physical locations as well as online through the Company’s website www.newgioco.it, through linked commercial webskins and on mobile devices. Management implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco which 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, a built-in sports-book and a virtual sports platform through its Virtual Generation subsidiary. The Platform also provides seamless integration of application programming interface 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 is implementing 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.
The entities included in these consolidated financial statements are as follows:
| Name | Acquisition or Formation Date | Domicile | Functional Currency | |||
| Elys Game Technology, Corp. (“Elys”) | Parent Company | USA | U.S. dollar | |||
| Multigioco Srl (“Multigioco”) | August 15, 2014 | Italy | Euro | |||
| Ulisse GmbH (“Ulisse”) | July 1, 2016 | Austria | Euro | |||
| Odissea Betriebsinformatik Beratung GmbH (“Odissea”) | July 1, 2016 | Austria | Euro | |||
| Virtual Generation Limited (“VG”) | January 31, 2019 | Malta | Euro | |||
| Newgioco Group Inc. (“NG Canada”) | January 17, 2017 | Canada | Canadian dollar | |||
| Newgioco Colombia SAS | November 22, 2019 | Colombia | Colombian peso | |||
| Elys Gameboard Technologies, LLC | May 28, 2020 | USA | U.S. dollar | |||
| Bookmakers Company US, LLC | July 15, 2021 | USA | U.S. dollar | |||
| Elys US Game Technologies and Services, LLC | July 1, 2022 | USA | U.S. dollar | |||
| Engage IT Services, Srl | January 29, 2023 | Italy | Euro |
On January 12, 2023, Elys Technology Group Limited, a previously wholly owned subsidiary, was dissolved and its operations were assumed by Virtual Generation Limited.
On July 17, 2023, the Company agreed to rescind its acquisition of Engage IT Services, Srl after reaching an agreement with the Sellers. The Company is negotiating the amount due to Engage which have been fully accrued by the Company.
The Company operates two lines of business: (i) the operating of online betting as well as retail leisure betting at establishments situated throughout Italy and; (ii) licensing our certified betting Platform software and 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. |
9
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
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, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. The balance sheet at December 31, 2022 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, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 17, 2023.
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.
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 either Euros, Colombian Pesos or 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.
10
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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, using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived intangible assets and goodwill, the collectability of receivables, leasing arrangements, convertible debentures, contingent purchase consideration, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.
Loss Contingencies
The Company may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial Statements.
The Company evaluates, on a regular basis, developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both the 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 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.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The carrying value of the Company's accounts receivables, gaming accounts receivable, 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.
11
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Cash and Cash Equivalents
The Company
primarily places cash balances in the U.S. with high-credit quality financial institutions located in the United States which are insured
by the Federal Deposit Insurance Corporation up to a limit of $
To date, the Company has not been affected by the recent U.S. bank failures and we do not anticipate any adverse impact on the Company’s cash balances.
Gaming Accounts Receivable
Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three and nine months ended September 30, 2023.
Gaming Accounts Payable
Gaming accounts payable represent customer balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.
Long Lived Assets
The Company evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.
Property and Equipment
Property and equipment is stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic benefits embodied in an item of property and equipment. All other expenditures are recognized as expenses in the statement of operations as incurred.
Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows:
| Description | Useful Life (in years) | ||||
| 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 | |||
12
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Intangible Assets
Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
The range of the estimated useful lives is as follows:
| Description |
Useful Life (in years) | |||
| Betting Platform Software | ||||
| Multigioco and Rifa ADM Licenses | to | |||
| Location contracts | to | |||
| Customer relationships | to | |||
| Trademarks/Tradenames | to | |||
| Websites | ||||
| Non-compete agreements | ||||
Goodwill
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company annually assesses whether the carrying value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess.
Goodwill was recently assessed on December 31, 2022 and as of September 30, 2023 and there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate.
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 property and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases is 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 operating lease liability raised at the date of lease inception. The right of use asset and the operating lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.
13
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2017 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2017 forward, are subject to examination. The Company is not currently under examination, and it has not been notified of a pending examination.
Revenue Recognition
The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed, which is representative of the point in time at which the Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled.
| • | License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned. |
| • | Training fees, installation fees are recognized when each task has been completed. |
| • | Product support services are recognized based on the nature of the agreement with our customers, ad-hoc support service revenue will be recognized when the task is completed and revenue from product support service contracts will be recognized on a periodic basis where we charge a recurring fee to provide ongoing support services. |
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 expenses 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.
14
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Policies and Estimates (continued)
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.
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 include 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 dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.
Related Parties
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended September 30, 2023. None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from which it derives revenue. These segments are:
| (i) | the operating of online as well as retail leisure betting establishments situated throughout Italy, and |
| (ii) | licensing of certified betting Platform software and services to leisure betting establishments in the U.S. and 9 other countries. |
3. Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The accompanying financial statements for the period ended September 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund ongoing development work of its gaming platforms and operations until we are able to generate revenue streams from our additional gaming platforms and become profitable. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about the Company’s ability to continue as a going concern for one year from the date of issuance of these unaudited condensed consolidated financial statements. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
15
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Acquisition and rescission of subsidiaries
Acquisition agreement
On January 29, 2023 (the “Closing Date”), the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Engage IT Services, Srl, a company organized under the laws of Italy (“Engage IT”), from its founding shareholders (the “Sellers”). The Purchase Agreement provided that, upon the terms and subject to the conditions set forth therein, the Company would acquire all of the shares of Engage IT and Engage IT became a wholly owned subsidiary of Elys.
Founded in 2016 by the Company’s current Head of Global Technology, Luca Pasquini, along with Alessandro Alpi and Michael Denney, Engage IT employs 27 specialist technicians, developers and software engineers that specialize in the design, implementation and management of SQL databases, agile project management, and solutions based on the Microsoft cloud platform (Azure) and in the development of .NET applications. Since 2016, Engage has also provided contract services to the Company, playing a key role in the development of the Company’s Elys Gameboard sportsbook technology and Player Account Management Platform (PAM).
Pursuant to the terms of the Purchase Agreement, on the Closing Date, the Company paid the “Dollar Equivalent” of €1,080,000 for all of the shares of Engage IT on a debt free basis, which amount may be increased or decreased based on the working capital surplus or deficit, and any indebtedness due to or from Engage IT by or from any one or more of the Sellers to be determined 10 days prior to June 30, 2023, the calculation of the working capital surplus or deficit was not performed prior to June 30, 2023 and will be performed at a later date, if applicable, based on ongoing discussions with the management of Engage IT. The Company satisfied the payment by the issuance 3,018,461 shares of common stock (the “Exchange Shares”), valued at $1,735,615, equal to the “Dollar Equivalent” of the Purchase Price, calculated at the exchange rate at the time of closing, at a price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company’s common stock for the twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date or US $0.39 per share, which may be adjusted for any stock split, reverse stock split, stock dividend, recapitalization, combination, exchange or similar event; or any subsequent equity sale or rights offering of Elys, and is subject to shareholder approval if required. Additionally, the Company may repurchase the Exchange Shares in cash in whole or in part at any time on or prior to June 30, 2023. The Company did not exercise its right to acquire the Exchange Shares.
The Purchase Agreement contains customary representations, warranties and covenants of Elys and the Sellers. Subject to certain customary limitations, the Sellers have agreed to indemnify Elys and its officers and directors against certain losses related to, among other things, breaches of the Sellers’ representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase Agreement.
The preliminary purchase price allocation was as follows:
| Amount | ||||
| Consideration | ||||
| shares of common stock at fair market value | $ | |||
| Total purchase consideration | $ | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed | ||||
| Cash | $ | |||
| Accounts receivable – Related party | ||||
| Other Current assets | ||||
| Property and equipment | ||||
| Right-of-use assets | ||||
| $ | 755,931 | |||
| Less: liabilities assumed | ||||
| Current liabilities assumed | $ | ( | ) | |
| Related party payables | ( | ) | ||
| Operating lease liabilities | ( | ) | ||
| Non-current liabilities assumed | ( | ) | ||
| $ | (774,546 | ) | ||
| Net identifiable assets acquired and liabilities assumed | ( | ) | ||
| Goodwill | ||||
| $ | 1,735,615 | |||
16
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Acquisition and rescission of subsidiaries (continued)
Rescission agreement
On July 15, 2023, the Company and the Sellers, after further due diligence into the operations of Engage, agreed to rescind the Acquisition agreement, as discussed above, with effect from July 17, 2023. In exchange for the return of the shares in Engage to the Sellers, the shares of common stock issued to the Sellers on January 29, 2023 were returned into the custody of the Company and will be cancelled in due course. With effect from July 17, 2023, the company no longer has control over the operations and has ceased all development and support work with Engage, other than projects that required minimal effort to complete. The 3,018,461 common shares returned to the Company had a fair market value of $0.6422 per share on July 17, 2023.
As a result of the rescission the Company recorded the following loss from discontinued operations:
| Amount | ||||
| Assets and liabilities transferred | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses | ||||
| Other Current assets | ||||
| Property and equipment | ||||
| Right-of-use assets | ||||
| Goodwill | ||||
| 3,029,220 | ||||
| Less: liabilities assumed | ||||
| Current liabilities assumed | ( | ) | ||
| Related party payables | ( | ) | ||
| Operating lease liabilities | ( | ) | ||
| Income tax payable | ( | ) | ||
| Non-current liabilities assumed | ( | ) | ||
| (1,048,563 | ) | |||
| Net assets transferred | $ | |||
| Fair value of 3,018,461 common shares returned to the custody of the Company | ||||
| Loss on rescission | $ | |||
The loss from discontinued operations is as follows:
Three months ended September 30, 2023 | Nine months ended September 30, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Costs and Expenses | ||||||||
| General and administrative expenses | ||||||||
| Depreciation and amortization | ||||||||
| Total Costs and Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other (Expenses) Income | ||||||||
| Other income | ||||||||
| Other expense | ( | ) | ( | ) | ||||
| Total Other (Expenses) Income | ||||||||
| Loss Before Income Taxes | (44,782 | ) | (283,421 | ) | ||||
| Income tax provision | ||||||||
| Net Loss from discontinued operations | (34,689 | ) | (198,335 | ) | ||||
| Loss on recission | ( | ) | ( | ) | ||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
17
ELYS GAME TECHNOLOGY, CORP
Notes to the Consolidated Financial Statements
4. Acquisition and rescission of subsidiaries (continued)
The amount of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for the period ended July 17, 2023, the effective date of the rescission, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2022, is presented as follows:
| Revenue | Earnings | |||||||
| Actual for the period from acquisition to July 15, 2023 | $ | $ | ( |
) | ||||
| 2023 supplemental pro forma from January 1, 2023 to July 15, 2023 | $ | $ | ( |
) | ||||
| 2022 supplemental pro forma from January 1, 2022 to September 30, 2022 | $ | $ | ( |
) | ||||
The 2023 supplemental
pro forma information was adjusted to exclude $
5. Property and equipment
|
September 30, 2023 |
December 31, 2022 | |||||||||||||||
| Cost | Accumulated depreciation |
Net book value |
Net book value | |||||||||||||
| Leasehold improvements | $ | $ | ( |
) | $ | $ | 17,876 | |||||||||
| Computer and office equipment | ( |
) | 307,602 | |||||||||||||
| Fixtures and fittings | 454,410 | (293,369 | ) | 161,041 | 160,122 | |||||||||||
| Vehicles | ( |
) | — | |||||||||||||
| Computer software | ( |
) | 125,252 | |||||||||||||
| $ | $ | ( |
) | $ | $ | 610,852 | ||||||||||
The aggregate
depreciation charge to operations was $
6. Leases
The Company’s portfolio of leases contains both finance and operating leases that relate to real estate agreements, vehicles and office equipment agreements.
Operating leases
Real estate agreements
The Company has several property lease agreements in Italy and Austria and one lease agreement in the U.S. which have terms in excess of a twelve-month period, these property leases are for our administrative operations in these countries. The Company does not and does not intend to take ownership of the properties at the end of the lease term.
Vehicle agreements
The Company leases several vehicles for business use purposes, the terms of these leases range from twenty-four to forty-eight months. The Company does not and does not intend to take ownership of the vehicles at the end of the lease term.
18
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
6. Leases (continued)
Finance Leases
Office equipment agreements
The Company has entered into several finance leases for office equipment, the term of these leases range from thirty-six to sixty months. The Company takes ownership of the office equipment at the end of the lease term.
Right of use assets
Right of use assets included in the condensed consolidated balance sheet are as follows:
September 30, 2023 | December 31, 2022 | |||||||
| Non-current assets | ||||||||
| Right of use assets - operating leases, net of amortization | $ | $ | ||||||
| Right of use assets - finance leases, net of depreciation – included in property and equipment | $ | $ | ||||||
Lease costs consists of the following:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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, | ||||||||
| 2023 | 2022 | |||||||
| 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 | % | % | ||||||
Maturity of Leases
Finance lease liability
The amounts of future minimum lease payments under finance leases are as follows:
| Finance Lease Liability | Amount | |||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total finance lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 3,139 | |||
19
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
6. Leases (continued)
Operating lease liability
The amounts of future minimum lease payments under operating leases are as follows:
| Operating lease liability | Amount | |||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 1,441,409 |
7. Intangible Assets
Licenses obtained by the Company in the acquisitions of Multigioco 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.
Intangible assets consist of the following:
September 30, 2023 | December 31, 2022 | |||||||||||||||
| Cost | Accumulated amortization | Net book value | Net book value | |||||||||||||
| Betting platform software | $ | $ | ( | ) | $ | $ | 6,776,486 | |||||||||
| Licenses | ( | ) | 11,864 | |||||||||||||
| Location contracts | ( | ) | — | |||||||||||||
| Customer relationships | ( | ) | 2,323,905 | |||||||||||||
| Trademarks | ( | ) | 1,263,269 | |||||||||||||
| Non-compete agreements | ( | ) | — | |||||||||||||
| Websites | ( | ) | — | |||||||||||||
| $ | 16,870,504 | $ | (6,800,661 | ) | $ | 10,069,843 | $ | 10,375,524 | ||||||||
The Company
recorded $
The estimated amortization expense over the next five-year period is as follows:
| Amount | ||||||
| Remainder of 2023 | $ | |||||
| 2024 | ||||||
| 2025 | ||||||
| 2026 | ||||||
| 2027 | ||||||
| Total estimated amortization expense | $ | |||||
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.
20
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
8. Goodwill
| September 30, 2023 | December 31, 2022 | |||||||
| Cost | ||||||||
| Opening balance as of January 1, | $ | $ | ||||||
| Acquisition of Engage IT Services, Srl | ||||||||
Rescission of acquisition of Engage IT Services Srl |
( |
) | ||||||
| Foreign exchange movements | ( |
) | ( |
) | ||||
| Closing balance as of period end | ||||||||
| Accumulated Impairment charge | ||||||||
| Opening balance as of January 1, | ( |
) | ( |
) | ||||
| Impairment charge | ( |
) | ||||||
| Closing balance as of period end | ( |
) | ( |
) | ||||
| Goodwill, net of impairment charges | $ | $ | ||||||
Goodwill represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the reporting unit to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
9. Marketable Securities
Investments in marketable securities consists of shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in earnings.
There is no evidence of activity in Zoompass and although the shares are quoted on the Nasdaq OTC market, no financial results have been reported and trading volumes are minimal, therefore the investment in Zoompass has been written off.
10. Bank Loan Payable
Included
in bank loans is a Small Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of US Bookmaking
with a principal outstanding of $
Since the acquisition
of US Bookmaking, the Company has repaid principal of $
The maturity of bank loans payable as of September 30, 2023 is as follows:
| Amount | ||||
| Within 1 year | $ | |||
| 1 to 2 years | ||||
| 2 to 3 years | ||||
| 3 to 4 years | ||||
| 5 years and thereafter | ||||
| Total | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| $ | 155,630 | |||
21
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Convertible notes payable
On
January 30, 2023(the “Closing Date”),
the Company closed a private placement offering of up to units and entered
into Subscription Agreements with a group of accredited investors (the “Investors”), which Investors included Braydon Capital
Corp. (“Braydon Capital”)
a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella.
The Investors
purchased a total of
The
Debentures mature three years from their date of issuance and bear interest at a rate of
In addition, the Company may accelerate this right of conversion on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred (200%) percent of the Conversion Price for five (5) trading days in a thirty (30) day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.
If at any time that the common shares issuable to the Investors on conversion of the Debenture in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debenture is redeemable by the Company at any time or times prior to the Maturity Date on not less than ten (10) Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investor has the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debenture into common shares of the Company.
The warrants are exercisable at an exercise price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the warrant at the time of exercise. The initial exercise price of the warrant is $0.39 per share, subject to a down-round adjustment to a floor exercise price of $0.35 per share.
The Company may accelerate the right to exercise the Warrant on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrant and the closing price of the Company’s common shares exceeds two hundred (200%) percent of the Exercise Price for five (5) trading days in a thirty (30) day period.
The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price or the conversion price, that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debenture and Warrant.
The number of shares of common stock that may be issued upon exercise of the Warrants and Debentures is subject to an Exchange Cap (as defined in the Debentures and Warrants) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.
On March 5, 2023, the Company obtained written consents from holders of shares of Common Stock representing approximately 54.1% of the total issued and outstanding shares of voting stock of the Company on March 1, 2023, the record date, approving for purposes of The Nasdaq Stock Market LLC Rules 5635 (b) and 5635(d), the issuance of all of the outstanding shares of the Company’s Common Stock to be issued upon (i) conversion of the Debentures and (ii) exercise of the common stock purchase warrants, dated January 30, 2023, issued to such investors by us pursuant to the Subscription Agreement.
The convertible notes were evaluated in terms of ASC 470, Debt, and is carried at amortized cost. The warrants issued in conjunction with the convertible notes were evaluated in terms of ASC 480, Distinguishing Liabilities from Equity and in terms of ASC 815, Derivatives and Hedging, the Company determined that the warrants met the definition of equity in terms of ASC 480 and did not fall within the scope of ASC 815, therefore the value of the warrants, determined using a Black-Scholes valuation model (see Note 16 below), was recorded as a debt discount which is amortized using the effective interest method over the term of the convertible notes.
22
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Convertible notes payable (continued)
On May 5, 2023 (the “Second Closing Date”), the Company closed a private placement offering of up to units and entered into a Subscription Agreement with
a single accredited investor, Gold Street Capital Corp. (“Gold Street Capital”) (the “Investor”), which is a company owned by Gilda Pia Ciavarella,
a related party and spouse of the Company’s Executive Chairman, Michele Ciavarella.
The Investor purchased
a total of
The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a price equal to $0.48 per share or the Nasdaq consolidated closing bid price of the Company common stock on the Nasdaq stock market on the Closing Date, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 3,138,075 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment by the Company.
In addition, the Company may accelerate this right of conversion on at least ten business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred percent of the Conversion Price for five trading days in a thirty day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.
If at any time that the common shares issuable to the Investor on conversion of the Debentures in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debentures are redeemable by the Company at any time or times prior to the Maturity Date on not less than ten Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investor has the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debentures into common shares of the Company.
The Warrants are exercisable at an exercise price equal to $0.48 per share or the Nasdaq consolidated closing bid price of the Company common stock on the Nasdaq stock market on the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each Warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the Warrant at the time of exercise.
The Company may accelerate the right to exercise the Warrants on at least ten business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred percent of the Exercise Price for five trading days in a thirty (30) day period.
The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price or the conversion price, that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debenture and Warrant.
The number of shares of common stock that may be issued upon conversion of the Debentures and exercise of the Warrants is subject to an Exchange Cap (as defined in the Debenture and Warrant) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.
The Debentures are secured by a senior security interest in all of the assets of the Company pursuant to a Security Agreement. The Company’s primary assets consist of certain business operations and licenses in multiple jurisdictions, trademarks and other intellectual property, betting technology and products. Following an event of default under the Debenture, the Investor will have all available rights under the Security Agreement and applicable law to enforce their rights as a secured creditor, including to sell, assign, transfer, pledge, encumber or otherwise dispose of the secured assets, and to exercise any other available rights and remedies upon the occurrence of an event of default as described in the Debenture.
23
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Convertible notes payable (continued)
On July 11, 2023 (the “Third
Closing Date”), the Company closed a private placement offering of up to units and entered into a Subscription Agreement (the
“Agreement”) with a group of accredited investors(the “Investors”),, which Investors included Gold Street Capital, which is a company owned by Gilda Ciavarella, a related party and spouse of the Company’s Executive Chairman, Michele Ciavarella,
and Braydon Capital, a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman,
Michele Ciavarella. The amount received from Braydon Capital included the conversion of a promissory note advanced by Braydon Capital
of $
The
Investors purchased a total of
The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debentures plus all accrued and unpaid interest at a price equal to $0.40 per share by each of the Investors, except that Debentures issued to Gold Street Capital are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 6,951,905 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment (“Redemption”) by the Company.
In addition, the Company may accelerate this right of conversion on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred (200%) percent of the Conversion Price for five (5) trading days in a thirty (30) day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.
If at any time that the common shares issuable to the Investors on conversion of the Debentures in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debentures are redeemable by the Company at any time or times prior to the Maturity Date on not less than ten (10) Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investors have the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debentures into common shares of the Company.
The Warrants are exercisable at an exercise price equal to $0.40 per share by each of the Investors, except that Warrants issued to Gold Street Capital are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each Warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the Warrant at the time of exercise.
The Company may accelerate the right to exercise the Warrants on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred (200%) percent of the Exercise Price for five (5) trading days in a thirty (30) day period.
The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price or the conversion price, that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debentures and Warrants.
The number of shares of common stock that may be issued upon conversion of the Debentures and exercise of the Warrants is subject to an Exchange Cap (as defined in the Debenture and Warrant) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.
The Debentures are secured by a senior security interest in all of the assets of Elys Game Technology, Corp. pursuant to a Security Agreement. The Company’s primary assets consist of certain business operations and licenses in multiple jurisdictions, trademarks and other intellectual property, betting technology and products as further described in the Company’s annual report on Form 10-K filed with the SEC on April 17, 2023. Following an event of default under the Debentures, the Investors will have all available rights under the Security Agreement and applicable law to enforce their rights as secured creditors, including to sell, assign, transfer, pledge, encumber or otherwise dispose of the secured assets, and to exercise any other available rights and remedies upon the occurrence of an event of default as described in the Debentures.
24
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Convertible notes payable (continued)
The Debentures can be declared due and payable upon an “Event of Default.” As more fully described in the Purchase Agreement, each of the following, among other things, constitutes an “Event of Default” under the Debentures:
| (a) | default in the payment of any principal or interest on the Debentures as and when the same shall become due and payable, and continuance of such default for a period of five (5) Business Days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given by the Holder; |
| (b) | the institution of bankruptcy or insolvency proceedings against the Company, or the institution of proceedings seeking reorganization or winding-up of the Company or any other bankruptcy, insolvency or analogous laws, or the issuing of sequestration or process of execution against the Company or any substantial part of its property, or the appointment of a receiver or manager of the Company or of any substantial part of its property, and, in each case, the continuance of any such proceedings unstayed, undischarged and in effect for a period of fifteen (15) days from the date thereof; |
| (c) | or the institution by the Company of proceedings to be adjudicated bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it, or the passing of a resolution authorizing the filing by it, of a petition or answer or consent seeking reorganization or relief under bankruptcy laws or any other bankruptcy, insolvency or analogous laws, or the consent by it to the filing of any such petition or to the appointment of a receiver of the Company or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the Company’s admitting in writing its inability to pay its debts generally as they become due or taking corporate action in furtherance of any of the aforesaid purposes. |
Convertible notes payable to related parties is disclosed under Note 13 below.
Convertible notes payable to non-related parties consists of the following:
September 30, 2023 | ||||
| Principal outstanding | ||||
| Opening balance as of January 1, 2023 | $ | |||
| Advances to the Company | ||||
| Closing balance as of September 30, 2023 | 350,000 | |||
| Accrued Interest | ||||
| Opening balance as of January 1, 2023 | — | |||
| Accrued interest | ||||
| Closing balance as of September 30, 2023 | 28,350 | |||
| Debt Discount | ||||
| Opening balance as of January 1, 2023 | — | |||
| Debt discount on relative fair value of warrants | ( | ) | ||
| Amortization of debt discount | ||||
| Closing balance as of September 30, 2023 | ( | ) | ||
| Total | $ | 209,347 | ||
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, 2023 |
December 31, 2022 | |||||||
| Severance liability | $ | $ | ||||||
25
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties
Promissory notes payable – Related Parties
On July
11, 2023. Braydon Capital, a company owned by the brother of the Company’s Executive
Chairman converted the promissory note in the principal amount of $
The movement on promissory notes payable – Related Parties, consists of the following:
September 30, 2023 | December 31, 2022 | |||||||
| Principal outstanding | ||||||||
| Opening balance as of January 1, 2023 and 2022, respectively. | $ | $ | ||||||
| Loans advanced – Braydon Capital Corp | ||||||||
| Loans advanced – Victor Salerno | ||||||||
| Loan converted to convertible note – Braydon Capital | ( | ) | ||||||
| Closing balance as of September 30 2023 and December 31, 2022, respectively. | ||||||||
| Accrued Interest | ||||||||
| Opening balance as of January 1, 2023 and 2022, respectively. | ||||||||
| Accrued interest | ||||||||
| Interest converted to convertible note – Braydon Capital | ( | ) | ||||||
| Closing balance as of September 30 2023 and December 31, 2022, respectively. | ||||||||
| Total | $ | $ | ||||||
Convertible notes payable – Related parties
On
January 30, 2023, the Company issued convertible notes payable, as disclosed under Note 11 above. Forte Fixtures subscribed for $
On
May 4, 2023, the Company issued convertible notes payable as disclosed under Note 11 above. Gold Street Capital subscribed for the full
$
On July 11, 2023, the Company issued convertible notes payable, as disclosed under Note 11 above. Braydon Capital subscribed for $786,000 of the convertible note, $400,000 as a cash subscription and an additional $386,000 by converting a promissory note, as described under Promissory Notes payable – Related Parties, above. Braydon Capital is owned by Claudio Ciavarella, the brother of the Company’s Executive Chairman, Michele Ciavarella.
Convertible notes payable – related party, consists of the following:
September 30, 2023 | ||||
| Principal outstanding | ||||
| Opening balance as of January 1, 2023 | $ | |||
| Advances to the Company | ||||
| Conversion of promissory note into convertible note – Braydon Capital Corp | ||||
| Closing balance as of September 30, 2023 | ||||
| Accrued Interest | ||||
| Opening balance as of January 1, 2023 | ||||
| Accrued interest | ||||
| Closing balance as of September 30, 2023 | ||||
| Debt Discount | ||||
| Opening balance as of January 1, 2023 | — | |||
| Debt discount on relative fair value of warrants | ( | ) | ||
| Amortization of debt discount | ||||
| Closing balance as of September 30, 2023 | ( | ) | ||
| Total | $ | |||
26
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties (continued)
Related Party (Payables) Receivables
Related party payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.
The balances outstanding are as follows:
|
September 30, 2023 |
December 31, 2022 | ||||||||
| Related Party payable | |||||||||
| Engage IT Services, Srl | $ | — | $ | ( |
) | ||||
| Luca Pasquini | ( |
) | ( |
) | |||||
| Michele Ciavarella | ( |
) | ( |
) | |||||
| $ | ( |
) | $ | ( |
) | ||||
| Related Party Receivable | |||||||||
| Victor Salerno | $ | $ | |||||||
| $ | $ | ||||||||
Engage IT Services, Srl.
The Company acquired Engage IT with effect from January 29, 2023. Engage IT performed software development work for the Company’s wholly owned subsidiary, Gameboard. As of December 31, 2022, Gameboard owed Engage IT $406,467 for development work performed.
The Company rescinded the acquisition of Engage IT with effect from July 17, 2023, per an agreement reached with the Sellers, see note 4 above.
Luca Pasquini
On September 26, 2022, Mr. Pasquini was awarded restricted shares of common stock valued at for services rendered to the Company.
On
January 29, 2023, the Company acquired Engage IT, Mr. Pasquini owned
Michele Ciavarella
On September 26, 2022, Mr. Ciavarella was awarded restricted shares of common stock valued at $ for services rendered to the Company.
On
February 14, 2023, Mr. Ciavarella, the Company’s Executive Chairman and interim CEO, voluntarily offered and agreed to reduce his
annual base compensation to $
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 with Mr. Reali and awarded him €
On September 26, 2022, Mr. Reali was awarded restricted shares of common stock valued at $ for services rendered to the Company.
27
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
13. Related Parties (continued)
Victor Salerno
Prior
to the acquisition of US Bookmaking, Victor Salerno had advanced US Bookmaking $
Between February 23, 2022 and September 22, 2022, Mr. Salerno advanced US Bookmaking an additional $305,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable between June 30, 2022 and November 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an additional 25% penalty and additional interest of 5% per annum. These notes were advanced to US Bookmaking without the consent of the Company, which is required as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021. Therefore, the Company acknowledges the advance of funds to US Bookmaking by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute. As of September 30, 2023, 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 accrued penalty interest in terms of these notes.
On January 23, 2023, Mr. Salerno voluntarily resigned as a member of the Board.
Paul Sallwasser
On February 14, 2023, the Company granted Mr. Sallwasser ten-year options exercisable for shares of common stock at an exercise price of per share, of which vested immediately and the remaining vesting equally over a ten- month period commencing on March 1, 2023.
Steven Shallcross
On February 14, 2023, the Company granted Mr. Shallcross ten-year options exercisable for shares of common stock at an exercise price of per share, of which vested immediately and the remaining vesting equally over a ten- month period commencing on March 1, 2023.
On February 14, 2023, the Company issued Mr. Shallcross shares of common stock valued at from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Shallcross.
Andrea Mandel-Mantello
On February 14, 2023, the Company granted Mr. Mandel-Mantello ten-year options exercisable for shares of common stock at an exercise price of $ per share, of which vested immediately and the remaining vesting equally over a ten-month period commencing on March 1, 2023.
On February 14, 2023, the Company issued Mr. Mandel-Mantello shares of common stock valued at from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Mandel-Mantello
Aiden Ciavarella
The
Company recently employed Aiden Ciavarella to train as part of our U.S. project and risk management team lead. Aiden earns an annual salary
of $
28
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
14. Stockholders’ Equity
Pursuant to the acquisition of Engage IT Srl, as disclosed in Note 4 above, on January 29, 2023, the Company issued 3,018,461 shares of common stock valued at $1,753,615, in settlement of the purchase price. Effective July 17, 2023, in terms of an agreement entered into with the Sellers of Engage IT, Srl, the 3,018,461 shares of common stock issued to the Sellers were returned to the Company’s control. These shares were valued at $1,938,456.
On January 29, 2023, the Company issued shares of restricted common stock valued at from its 2018 Stock Incentive Plan to certain developers and project managers in its IT subsidiaries. These shares will vest equally and are amortized on a monthly basis over a thirty-six month period to incentivize these employees who are essential to the Company’s development efforts.
A summary of the vesting of restricted stock during the period January 1, 2023 to September 30, 2023 is as follows:
| Total restricted shares | Weighted average fair market value per share | Total unvested restricted shares | Weighted average fair market value per share | Total vested restricted shares | Weighted average fair market value per share | |||||||||||||||||||
| Outstanding January 1, 2023 | — | $ | — | — | $ | — | — | $ | — | |||||||||||||||
| Granted and issued | 5,366,155 | 0.575 | 5,366,155 | 0.575 | — | — | ||||||||||||||||||
| Forfeited/Cancelled | — | — | — | — | — | — | ||||||||||||||||||
| Vested | — | — | (1,192,488 | ) | (0.575 | ) | 1,192,488 | 0.575 | ||||||||||||||||
| Outstanding September 30, 2023 | $ | $ | 0.575 | $ | 0.575 | |||||||||||||||||||
The restricted stock granted, issued and exercisable at September 30, 2023 is as follows:
| Restricted Stock Granted and Vested | ||||||||||
| Grant date Price | Number Granted | Weighted Average Fair Value per Share | ||||||||
| $ | 0.575 | 5,366,155 | $ | 0.575 | ||||||
In lieu of of director’s fees due and outstanding, the Company approved the issuance of shares of common stock, respectively, under the 2018 equity incentive plan.
The Company
has recorded a restricted stock expense of $
15. Warrants
On January 30, 2023, May 5, 2023 and July 11, 2023, as disclosed in Note 11 above, the Company closed a private placement offering of 5,136 units and entered into Subscription Agreements with a group of accredited investors (the “Investors”), which Investors included Braydon Capital, a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella and Gold Street Capital, a company owned by Gilda Ciavarella, the spouse of the Company’s Executive Chairman, Michele Ciavarella. Each unit sold to Investors was sold at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”).
The Investors purchased a total of 5,136 units and the Company issued Debentures for the total principal amount of $5,136,000 (the “Principal Amount”) to the Investors and warrants to purchase 12,044,467 shares of common stock of the Company.
The warrants are exercisable at an exercise price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the warrant at the time of exercise. The initial exercise price of the January 30, 2023 warrant is $0.39 per share, the May 5, 2023 warrant is $0.48 per share, and the July 11, 2023 warrant is between $0.40 and $0.42 per share, all subject to a down-round adjustment to a floor exercise price of $0.35 per share.
29
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
15. Warrants (continued)
The Company may accelerate the right to exercise the Warrants on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred (200%) percent of the Exercise Price for five (5) trading days in a thirty (30) day period.
The Warrants provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price or the conversion price, that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debentures and Warrants.
The number of shares of common stock that may be issued upon exercise of the Warrants and Debentures is subject to an Exchange Cap (as defined in the Debentures and Warrants) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.
On February 14, 2023, the Company engaged Shareholder Intelligence Services, LLC (“ShareIntel”) to utilize their patented, proprietary service offerings to obtain share trading analytic metrics designed to determine if the Company has been the target of improper and potentially illegal trading activities, including illegal naked short selling, in an effort to allow the Company to better monitor trading activity, including potential violations of SEC Regulation SHO, which governs stock and option share locate, close out and fail to deliver requirements.
The Company issued a warrant to purchase up to 200,000 shares of Common Stock to ShareIntel, as consideration for services provided. The Consultant Warrant is exercisable at a price of $0.89 per share and vests at a rate of 1,000 warrant shares for each reduction of 10,000 shares of Reduction in Imbalances (Shorts) and will expire three years from the date of issuance. These warrants only vest upon the attainment of the goals discussed above.
The warrants granted during the nine months ended September 30, 2023 were valued using a Black-Scholes pricing model. The relative fair value of the warrants, exercisable for 12,044,467 Common Shares, issued to the convertible note holders for the nine months ended September 30, 2023 was $2,424,327, in addition, the warrants issued to ShareIntel were valued at $136,808.
The following assumptions were used in the Black-Scholes model:
| Assumptions |
Nine months ended September 30, 2023 | |||||
| Exercise price | $ | to | ||||
| Risk free interest rate | to | % | ||||
| Expected life of options | ||||||
| Expected volatility of underlying stock | to | % | ||||
| Expected dividend rate | % | |||||
A summary of all of the Company’s warrant activity during the period January 1, 2022 to September 30, 2023 is as follows:
| Number of shares | Exercise price per share | Weighted average exercise price | ||||||||||||
| Outstanding January 1, 2022 | $ | to | $ | |||||||||||
| Granted – pre-funded warrants | 0.0001 | |||||||||||||
| Granted | 0.9475 | |||||||||||||
| Forfeited/cancelled | ( |
) | 3.75 | |||||||||||
| Exercised – pre-funded warrants | ( |
0.0001 | ||||||||||||
| Outstanding December 31, 2022 | $ | to | $ | |||||||||||
| Granted | to | |||||||||||||