Annual report pursuant to Section 13 and 15(d)

Related Parties

v3.21.1
Related Parties
12 Months Ended
Dec. 31, 2020
Related Party Transactions [Abstract]  
Related Parties

15. Related Parties

 

Notes Payable, Related Party

 

On March 11, 2020, the Company received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a Company controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.

 

The movement on notes payable, Related Party, consists of the following:

   

December 31,

2020

 

December 31,

2019

Principal Outstanding                
Opening balance   $     $ 318,078  
Additions     300,000        
Repayment     (200,000 )        
Applied to warrant exercise     (100,000 )      
Settled by issuance of common shares           (318,078 )
             
Accrued Interest                
Opening balance           113,553  
Interest expense     22,521       25,830  
Repayment     (14,465 )        
Applied to warrant exercise     (8,056 )      
Conversion to equity           (139,383 )
             
Promissory Notes Payable – Related Party   $     $  

  

Convertible notes acquired, Related Party

 

Forte Fixtures and Millworks acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.

 

As an incentive for extending the maturity date of the convertible debentures, Forte Fixtures was granted two year warrants exercisable for 134,508 shares of common stock at an exercise price of $3.75 per share and three year warrants exercisable for 33,627 shares of common stock at an exercise price of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.

 

Deferred Purchase consideration, Related Party

 

In terms of the acquisition of VG on January 17, 2019, disclosed in Note 3 above, the Company issued non-interest bearing promissory notes in the principal amount of €3,803,000 owing to both related parties and non-related parties. The value of the promissory notes payable to non-related parties was €2,281,800 and to related parties was €1,521,200.

 

The related party promissory notes are due to Luca Pasquini, a director and officer of the Company and Gabriele Peroni, an officer of the Company.

 

The promissory notes were to be settled as follows:

 

(a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the closing of the acquisition (the “Closing Date”); and
(b) an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Based on the 18,449,380 tickets sold in 2019 the VG sellers qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.

 

The amount due to the related party VG Sellers amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094 shares of common stock at $4.23 per share.

 

The movement on deferred purchase consideration consists of the following:

 

Description  

December 31,

2020

 

December 31,

2019

Principal Outstanding                
Promissory notes due to related parties   $ 1,279,430     $ 1,830,541  
Additional earnout earned           224,540  
Settled by the issuance of common shares     (482,978 )     (410,925 )
Repayment in cash     (471,554 )     (328,734 )
Foreign exchange movements     57,230       (35,992 )
      382,128       1,279,430  
Present value discount on future payments                
Present value discount     (80,069 )     (161,393 )
Amortization     76,222       78,128  
Foreign exchange movements     (1,327 )     3,196  
      (5,174 )     (80,069 )
Deferred purchase consideration, net   $ 376,954     $ 1,199,361  

 

Related party (payables) receivables

 

Related party payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.

 

The balances outstanding are as follows:

 

   

December 31,

2020

 

December 31,

2019

Related Party payables                
Gold Street Capital Corp.   $     $ (2,551 )
Luca Pasquini     (565 )      
    $ (565 )   $ (2,551 )
Related Party Receivables                
Luca Pasquini   $ 1,519     $ 4,123  

 

Gold Street Capital  

Gold Street Capital is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella. 

Amounts due to Gold Street Capital Corp., the major stockholder of Elys, are for reimbursement of expenses. During the period 2017 to 2019, Gold Street Capital funded the Company operations utilizing personal credit cards. These shareholder loan accounts were only refunded when the Company had available cash. The shareholder claimed reimbursement of the calculated interest expense of these shareholder loans at the rate of 18.99%, resulting in an interest charge of $50,494 for the year ended December 31, 2020. No interest was charged in prior periods.

 

Gold Street Capital acquired certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately $34,547) was outstanding at December 31, 2020. This amount was repaid subsequent to period end.  

As an incentive for extending the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants exercisable at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price of $5.00 per share. Gold Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock at $3.75 per share and three-year warrants exercisable for 2,383 shares of common stock at $5.00 per share. 

On September 4, 2019, the Company issued 15,196 shares of common stock to Gold Street Capital in settlement of $48,508 of advances made to the Company for certain reimbursable expenses.  

Luca Pasquini

 

Amounts due to Luca Pasquini is for advances made to various subsidiaries for working capital purposes and receivables for expense advances.

 

On January 31, 2019, the Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December 31, 2020, the Company has paid Mr. Pasquini cash of €333,100 (approximately $399,061) and issued 112,521 shares valued at €300,000 (approximately $334,791).  

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.  

On August 29, 2019, the Company granted to Mr. Pasquini, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.  

On October 1, 2020, the Company granted to Mr. Pasquini a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.  

  

Michele Ciavarella

 

On December 30, 2020, Mr. Ciavarella resigned as the Chief Executive Officer of the Company and retained the position as Executive Chairman. In connection with Mr. Ciavarella’s appointment as the Executive Chairman, the Company entered into an amendment, dated December 30, 2020 to his employment agreement, dated December 31, 2018, as amended on July 5, 2019, by and between the Company and Mr. Ciavarella. Pursuant to the Amendment, Mr. Ciavarella’s: (i) position at the Company was changed to Executive Chairman; (ii) term of employment was extended three years to December 31, 2024; and (iii) base salary was increased to $500,000. The Amendment further provides that in lieu of cash, and to the extent shares are then available for grant under the Company’s 2018 Equity Incentive Plan, as amended, Mr. Ciavarella may elect to receive, as of the first business day in January of each year of employment, up to 50% of his base salary as a restricted stock grant of shares of the Company’s common stock under the Plan, vesting monthly over a 12-month period. For the year ended December 31, 2021, Mr. Ciavarella has agreed to receive $140,000 of his base salary as a restricted stock grant.

 

On July 5, 2019, the Company granted to Mr. Ciavarella, the then Chief Executive Officer and Chairman of the board , ten year options to purchase 39,375 shares of common stock at an exercise price of $2.96 per share.

 

On August 29, 2019, the Company granted to Mr. Ciavarella ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On September 4, 2019, Mr. Ciavarella converted $500,000 of accrued salaries into 125,000 shares of common stock at a conversion price of $4.00 per share.

 

On October 1, 2020, the Company granted to Mr. Ciavarella, a ten year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share.

  

Matteo Monteverdi

 

Effective September 21, 2020, the Board of Directors (the “Board”) appointed Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive Officer of the Company.

 

Mr. Monteverdi has previously served as an independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological capabilities of the Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s current management team.

 

In connection with his appointment, the Company and Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year term, which provides for the following compensation terms:

 

· an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board;
· the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and
· Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.

 

Mr. Monteverdi is also eligible to participate in the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect from time to time on the same basis as generally made available to other senior executives of the Company or in the alternative may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.

 

In addition, the Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive from the Company in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first twelve (12) months of the Agreement, the amount shall be Executive’s MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Monteverdi had he remained in employment with the Company during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible to receive such coverage under a subsequent employer’s insurance plan.

 

Mr. Monteverdi’s receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the following paragraph.

 

Gabriele Peroni

 

On January 31, 2019, the Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of VG and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December 31, 2020, the Company has paid Mr. Peroni cash of €354,400 (approximately $424,579) and issued 112,521 shares valued at €300,000 (approximately $334,791).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Peroni’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

On August 29, 2019, the Company granted to Mr. Peroni, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On October 1, 2020, the Company granted to Mr. Peroni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.

 

Mr. Peroni received salary payments through his wholly owned private company Dueci Srl.

  

Alessandro Marcelli

 

On August 29, 2019, the Company granted to Mr. Marcelli, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On October 1, 2020, the Company granted to Mr. Marcelli a ten year option to purchase 56,000 shares of common stock at an exercise price of $2.03 per share.

 

Mr. Marcelli received salary payments through his wholly owned private company AB Consulting Srl.

  

Franco Salvagni

 

On August 29, 2019, the Company granted to Mr. Salvagni, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On October 1, 2020, the Company granted to Mr. Salvagni a ten year option to purchase 36,000 shares of common stock at an exercise price of $2.03 per share.

 

Mr. Salvagni received salary payments through his wholly owned private company FSDS Srl.

 

Beniamino Gianfelici

 

On August 29, 2019, the Company granted to Mr. Gianfelici, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On October 1, 2020, the Company granted to Mr. Gianfelici a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.

 

Mr. Gianfelici received salary payments through his wholly owned private company FG Immobiliare Srl.

 

Mark Korb

 

On July 5, 2019, the Company granted to Mr. Korb, the chief financial officer of the Company, seven year options to purchase 25,000 shares of common stock at an exercise price of $2.72 per share.

 

On October 1, 2020, the Company granted to Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share.

 

Mr. Korb billed the Company through his wholly owned private company Korb Management Services, LLC.

 

Paul Sallwasser

 

On July 5, 2019, the Company granted to Mr. Sallwasser, a director of the Company, ten year options to purchase 20,625 shares of common stock at an exercise price of $2.96 per share.

 

On October 1, 2020, the Company granted to Mr. Sallwasser a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share.

 

Steven Shallcross

 

On July 5, 2019, the Company granted to Mr. Shallcross, a director of the Company, ten year options to purchase 10,313 shares of common stock at an exercise price of $2.96 per share.

 

On October 1, 2020, the Company granted to Mr. Shallcross a ten year option to purchase 35,000 shares of common stock at an exercise price of $2.03 per share.

 

Phillipe Blanc

 

On October 1, 2020, the Company appointed Mr. Philippe Blanc as a director of the Company.

 

On October 1, 2020, the Company granted to Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share.

 

Richard Cooper

 

Mr. Cooper received director fees of $30,000 and $15,000 for the years ended December 31, 2020 and 2019, respectively.

 

Clive Kabatznik

 

Mr. Kabatznik received director fees of $10,000 and $30,000 for the years ended December 31, 2020 and 2019, respectively.