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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

_________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

 

Commission File Number 001-39170

_________________

 

ELYS GAME TECHNOLOGY, CORP.

(Exact name of registrant as specified in its charter)

 

Delaware     33-0823179
(State or other jurisdiction of incorporation or organization)     (I.R.S. Employer Identification No.)

 

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

 

1-628-258-5148

 

(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
Common Stock ELYS The Nasdaq Capital Market

 

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. Yes No

 

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). Yes No

 

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
Non-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 No

 

As of August 13, 2021, the registrant had 23,284,432 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 Income (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 32
Item 3 Quantitative and Qualitative Disclosures About Market Risk 45
Item 4 Controls and Procedures 45
     
PART II - OTHER INFORMATION 40
     
Item 1 Legal Proceedings  46
Item 1A Risk Factors 46
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 49
Item 3 Defaults Upon Senior Securities 49
Item 4 Mine Safety Disclosures 49
Item 5 Other Information 49
Item 6 Exhibits 50
     
SIGNATURES 51

 

2

 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

 

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to in this Quarterly Report on Form 10-Q and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Elys Game Technology, Corp. cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Elys Game Technology, Corp. or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth below, under Part II, “Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those identified under Part I, Item 1A in our Annual Report on Form 10-K/A for the year ended December 31, 2020 filed with the Securities and Exchange Commission on April 13, 2021.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.

 

In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, references to “Elys Game” “our Company,” “the Company,” “we,” “our,” and “us” refer to Elys Game Technology, Corp. a Delaware corporation, and its wholly owned subsidiaries.

 

COVID-19 UPDATE

 

As result of the global outbreak of the COVID-19 virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictions on public gatherings and travel, and closures of physical venues that included betting shops, arcades and bingo halls across Italy, which measures continue in effect as of the date of this Form 10-Q.

 

On March 10, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and have either postponed or cancelled most professional sports events which has had an effect on our overall sports betting handle and revenues and may negatively impact our operating results.

 

On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy temporarily reopened until November 2020 when the Italian government imposed new lockdowns that currently remain in place. The closing of physical betting shop locations did not affect our online and mobile business operations which has mitigated some of the impact. To date, due to the global resurgence of COVID-19 cases, all betting shops remain closed for business, however the Italian Government is closely monitoring the pandemic and has indicated that although it is important to keep the economy operating, it will not remove the restrictions on social gatherings, which may affect the potential reopening of some of our land-based locations.

 

3

 

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Balance Sheets

(Unaudited)

  

June 30,

2021

 

December 31,

2020

Current Assets      
Cash and cash equivalents  $19,150,990   $18,945,817 
Accounts receivable   175,499    162,141 
Gaming accounts receivable   1,200,422    1,455,710 
Prepaid expenses   421,530    327,190 
Related party receivable   1,472    1,519 
Other current assets   226,659    301,289 
Total Current Assets   21,176,572    21,193,666 
           
Non - Current Assets          
Restricted cash   1,402,731    1,098,952 
Property, plant and equipment   491,921    489,591 
Right of use assets   543,540    687,568 
Intangible assets   9,905,502    10,257,582 
Goodwill   1,662,891    1,663,120 
Marketable securities   375,000    467,500 
Total Non - Current Assets   14,381,585    14,664,313 
Total Assets  $35,558,157   $35,857,979 
           
Current Liabilities          
Bank overdraft  $4,816   $3,902 
Line of credit - bank       500,000 
Accounts payable and accrued liabilities   5,273,090    7,961,146 
Gaming accounts payable   3,128,009    3,084,768 
Taxes payable   1,151,813    946,858 
Related party payable   564    565 
Deferred purchase consideration, net of discount of $0 and $7,761       17,673 
Deferred purchase consideration, Related Party, net of discount of $0 and $5,174       376,954 
Convertible debentures       34,547 
Operating lease liability   116,845    238,899 
Financial lease liability   4,294    10,511 
Bank loan payable – current portion   102,169    138,212 
Total Current Liabilities   9,781,600    13,314,035 
           
Non-Current Liabilities          
Deferred tax liability   1,175,793    1,222,513 
Operating lease liability   404,020    416,861 
Financial lease liability   16,733    17,265 
Bank loan payable       66,885 
Other long-term liabilities   344,420    664,067 
Total Non – Current Liabilities   1,940,966    2,387,591 
Total Liabilities   11,722,566    15,701,626 
           
Stockholders' Equity          
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued        
Common stock, $0.0001 par value, 80,000,000 shares authorized; 22,016,109 and 20,029,834 shares issued and outstanding as of June 30, 2021 and December 31, 2020   2,202    2,003 
Additional paid-in capital   60,384,232    53,064,919 
Accumulated other comprehensive income   8,603    267,948 
Accumulated deficit   (36,559,446)   (33,178,517)
Total Stockholders' Equity   23,835,591    20,156,353 
Total Liabilities and Stockholders’ Equity  $35,558,157   $35,857,979 

 

See notes to the unaudited condensed consolidated financial statements

 

4

 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

                                 
   

For the Three Months Ended

June 30,

 

For the Six Months Ended

June 30,

    2021   2020   2021   2020
Revenue   $ 11,689,949     $ 4,810,269     $ 25,847,277     $ 14,980,443  
                                 
Costs and Expenses                                
Selling expenses     9,616,584       3,957,366       20,278,399       10,172,527  
General and administrative expenses     4,754,944       2,883,427       8,900,154       5,704,388  
Total Costs and Expenses     14,371,528       6,840,793       29,178,553       15,876,915  
                                 
Loss from Operations     (2,681,579 )     (2,030,524 )     (3,331,276 )     (896,472 )
                                 
Other (Expenses) Income                                
Other income     89,018       13,862       370,362       25,660  
Other expense     (1,208 )              (28,138 )         
Interest expense, net of interest income     (2,194 )     (33,099 )     (10,043 )     (173,073 )
Amortization of debt discount              (286,845 )     (12,833 )     (737,074 )
Loss on extinguishment of convertible debt              (719,390 )              (719,390 )
(Loss) gain on marketable securities     (287,500 )     592,500       (92,500 )     722,500  
Total Other (Expenses) Income     (201,884 )     (432,972 )     226,848       (881,377 )
                                 
Loss Before Income Taxes     (2,883,463 )     (2,463,496 )     (3,104,428 )     (1,777,849 )
Income tax provision     112,113       (62,059 )     (276,501 )     (590,097 )
Net Loss     (2,771,350 )     (2,525,555 )     (3,380,929 )     (2,367,946 )
                                 
Other Comprehensive Income (Loss)                                
Foreign currency translation adjustment     84,743       18,516       (259,347 )     (93,514 )
                                 
Comprehensive Loss   $ (2,686,607 )   $ (2,507,039 )   $ (3,640,276 )   $ (2,461,460 )
                                 
Loss per common share – basic and diluted   $ (0.13 )   $ (0.20 )   $ (0.16 )   $ (0.19 )
Weighted average number of common shares outstanding – basic and diluted     22,012,153       12,434,338       21,761,334       12,320,653  
                                 

 

See notes to the unaudited condensed consolidated financial statements

 

 

5

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Changes in Stockholders' Equity

Six months ended June 30, 2021 and June 30, 2020

(Unaudited)

 

 

                                                 
   Common Stock  Additional 

Accumulated

Other

      
   Shares  Amount 

Paid-in

Capital

 

Comprehensive

Income

  Accumulated Deficit  Total
Six months ended June 30, 2020                  
Balance, December 31, 2019   11,949,042   $1,194   $32,218,643   $(176,717)  $(23,241,835)  $8,801,285 
                               
Shares issued on conversion of convertible debentures   123,399    12    395,241            395,253 
Common stock issued to settle deferred purchase consideration   204,437    21    842,411            842,432 
Stock based compensation expense           118,818            118,818 
Foreign currency translation adjustment               (112,030)       (112,030)
Net income                   157,609    157,609 
Balance, March 31, 2020   12,276,878   $1,227   $33,575,113   $(288,747)  $(23,084,226)  $10,203,367 
                               
Shares issued on conversion of convertible debentures   103,586    11    333,074            333,085 
Common stock issued to settle deferred purchase consideration   114,538    11    273,736            273,747 
Stock based compensation expense           79,971            79,971 
Fair value of warrants issued on convertible debt extensions           719,390            719,390 
Foreign currency translation adjustment               18,516        18,516 
Net loss                   (2,525,555)   (2,525,555)
Balance, June 30, 2020   12,495,002   $1,249   $34,981,284   $(270,231)  $(25,609,781)  $9,102,521 
                               
                               

 

                                            
   Common Stock  Additional  Accumulated
Other
      
   Shares  Amount  Paid-In Capital  Comprehensive Income  Accumulated Deficit  Total
                   
Six months ended June 30, 2021                              
Balance, December 31, 2020   20,029,834   $2,003   $53,064,919   $267,948   $(33,178,517)  $20,156,353 
                               
Proceeds from warrants exercised   1,488,809    149    3,909,832            3,909,981 
Common stock issued to settle liabilities   467,990    47    2,676,854            2,676,901 
Restricted stock awards   24,476    2    139,998            140,000 
Stock based compensation expense           288,968            288,968 
Foreign currency translation adjustment               (344,088)       (344,088)
Net loss                   (609,579)   (609,579)
Balance, March 31, 2021   22,011,109   $2,201   $60,080,571   $(76,140)  $(33,788,096)  $26,218,536 
                               
Proceeds from warrants exercised   5,000    1    12,499            12,500 
Stock based compensation expense           291,162            291,162 
Foreign currency translation adjustment               84,743        84,743 
Net loss                   (2,771,350)   (2,771,350)
Balance, June 30, 2021   22,016,109   $2,202   $60,384,232   $8,603   $(36,559,446)  $23,835,591

 

 

 

   

 

  

 

 

See notes to the unaudited condensed consolidated financial statements

 

6

 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Cash Flows

(Unaudited)

                 
   For the six months ended June 30,
   2021  2020
Cash Flows from Operating Activities      
Net Loss  $(3,380,929)  $(2,367,946)
Adjustments to reconcile net loss to net cash (Used in) Provided by Operating Activities          
Depreciation and amortization   460,320    459,434 
Amortization of debt discount   12,833    737,074 
Restricted stock awards   140,000     
Stock option compensation expense   580,130    198,789 
Non-cash interest   4,696    152,188 
Loss on extinguishment of convertible debt       719,390 
Unrealized loss (gain) on trading securities   92,500    (722,500)
Movement in deferred taxation   (46,720)   (46,720)
Gain on Government relief loan forgiven   (8,017)    
Changes in Operating Assets and Liabilities          
Prepaid expenses   (97,503)   6,435 
Accounts payable and accrued liabilities   158,239    2,141,717 
Accounts receivable   (19,623)   (1,205)
Gaming accounts receivable   214,012    334,186 
Gaming accounts liabilities   140,608    (956,208)
Taxes payable   238,917    253,275 
Due from related parties   (1,974)   12,956 
Other current assets   66,449    (51,340)
Long term liabilities   (304,260)   (1,948)
Net Cash (Used in) Provided by Operating Activities   (1,750,322)   867,577 
           
Cash Flows from Investing Activities          
Acquisition of property, plant and equipment and intangible assets   (122,432)   (87,994)
Net Cash Used in Investing Activities   (122,432)   (87,994)
           
Cash Flows from Financing Activities          
Proceeds from warrants exercised   3,922,481     
Proceeds from bank overdraft   1,053     
Repayment of bank credit line   (500,000)    
Repayment of bank loan   (67,336)   (19,925)
Redemption of convertible debentures   (27,562)   (8,996)
Proceeds from promissory notes, related party       300,000 
Proceeds from Government relief loan       29,302 
Repayment of Government relief loan   (24,050)    
Repayment of deferred purchase consideration – non-related parties   (410,383)   (209,005)
Repayment of deferred purchase consideration – related parties       (92,444)
Repayment of financial leases   (5,994)   (6,682)
Net Cash Provided by (Used in) Financing Activities   2,888,209    (7,750)
           
Effect of change in exchange rate   (506,503)   (170,608)
           
Net increase in cash   508,952    601,225 
Cash, cash equivalents and restricted cash – beginning of the period   20,044,769    6,732,515 
Cash, cash equivalents and restricted cash – end of the period  $20,553,721   $7,333,740 
           
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows          
Cash and cash equivalents  $19,150,990   $5,783,449 
Restricted cash included in non-current assets   1,402,731    1,550,291 
   $20,553,721   $7,333,740 

 

7

 

 

 

 

Supplemental disclosure of cash flow information      
Cash paid during the period for:      
Interest  $17,528   $23,613 
Income tax  $118,266   $378,471 
Supplemental cash flow disclosure for non-cash activities          
Cash Flows from Operating Activities          
Conversion of convertible debt to common stock  $   $728,338 
Deferred purchase consideration settled by the issuance of common stock     $1,116,179 
Common stock issued to settle liabilities  $2,676,901   $ 
           

 

 

 

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”) is an international, vertically integrated commercial-stage company engaged in various aspects of the leisure gaming industry. The Company’s subsidiaries hold gaming licenses to operate in the Italian and Austrian leisure betting markets offering gaming services, including a variety of lottery, casino gaming and sports betting products through two distribution channels: an online channel and a land-based retail channel. Additionally, the Company is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming account management system and sports book.

 

The entities included in these unaudited condensed consolidated financial statements are as follows:

 

Name   Acquisition or Formation Date   Domicile   Functional Currency
             
Elys Game Technology, Corp. (“Elys”)   Parent Company   USA   U.S. Dollar
Multigioco Srl (“Multigioco”)   August 15, 2014   Italy   Euro
Ulisse GmbH (“Ulisse”)   July 1, 2016   Austria   Euro
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)   July 1, 2016   Austria   Euro
Virtual Generation Limited (“VG”)   January 31, 2019   Malta   Euro
Newgioco Group Inc. (“NG Canada”)   January 17, 2017   Canada   Canadian Dollar
Elys Technology Group Limited   April 4, 2019   Malta   Euro
Newgioco Colombia SAS   November 22, 2019   Colombia   Colombian Peso
Elys Gameboard Technologies, LLC   May 28, 2020   USA   U.S. Dollar

 

The Company operates in two lines of business: (i) provider of certified betting Platform software services to leisure betting establishments in Italy and other countries and; (ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy and web based in Austria.

 

The Company’s operations are carried out through the following three geographically organized groups:

 

  a) an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
  b) a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and
  c) a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and satellite offices in the USA in San Francisco, California, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.

 

 

 

 

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 six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”).

  

All amounts referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.

 

For the purposes of its listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy to National Instrument 51-102“ Continuous Disclosure Obligations”(“NI 51-102CP”) which permits the Company to prepare its financial statements in accordance with U.S. GAAP.

 

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.

 

Foreign operations

 

The Company translated the assets and liabilities of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and the results of operations and cash flows at the average rate throughout the quarter. The translation adjustments are recorded directly as a separate component of stockholders’ equity, while transaction gains (losses) are included in net income (loss).

 

All revenues were generated in Euro and Colombian Peso 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. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

  

Loss Contingencies

 

The Company may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, gaming license, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed Consolidated Financial Statements.

 

The Company evaluates, on a regular basis, developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial position, results of operations, or cash flows.

 

To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition. The Company has insured and continues to insure against most of these types of claims.

 

Fair Value Measurements

 

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

The carrying value of the Company's accounts receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair value because of the short-term maturity of these financial instruments.

 

 

11

 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

 

Derivative Financial Instruments

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of June 30, 2021 and December 31, 2020, respectively.

 

The Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three months and six months ended June 30, 2021 and 2020.

 

Gaming Accounts Payable

 

Gaming accounts payable represent customer balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.

 

Long-Lived Assets

 

The Company evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.

 

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

 

 

12

 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Property, Plant and Equipment

 

Plant and equipment is stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses in the statement of operations as incurred. 

 

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows:

 

Description  

Useful Life

(in years)

     
Leasehold improvements   Life of the underlying lease
Computer and office equipment   3 to 5
Furniture and fittings   7 to 10
Computer Software   3 to 5
Vehicles   4 to 5

 

Intangible Assets

 

Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.

 

Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

 

The range of the estimated useful lives is as follows:

 

Intangible Useful lives        
Description  

Useful Life

(in years)

     
Betting Platform Software   15
Ulisse Bookmaker License   Indefinite
Multigioco and Rifa ADM Licenses   1.5 - 7
Location contracts   5 - 7
Customer relationships   10 - 15
Trademarks/Tradenames   14
Websites   5

 

The Ulisse Bookmaker License has no expiration date and is therefore not amortized but is tested for impairment on an annual basis in terms of ASC 350 using estimated fair value.

 

 

13

 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Goodwill

 

The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

 

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

 

The Company annually assesses whether the carrying value of its reporting units exceed their fair values and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of the reporting units exceeds their fair value. If the carrying amount of the reporting units exceeds their fair value, an asset impairment charge will be recognized in an amount equal to that excess. 

 

As of June 30, 2021, there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic has had and is expected to continue to have a significant impact on our land-based business, the impact is expected to be mitigated because web-based turnover generated by the Company has increased.

  

Leases

 

The Company accounts for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term. Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in property, plant and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

In Italy, tax years beginning 2015 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is not currently under examination and it has not been notified of a pending examination. 

 

14

 

 

 

   

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Revenue Recognition

 

The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.

 

Revenues from the Betting Platform include license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned.

 

Stock-Based Compensation

 

The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.

 

Stock-based compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments.

 

Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.

 

Related Parties

 

Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

 

15

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

 

Recent Accounting Pronouncements

 

The FASB issued several updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.

 

Reporting by segment

 

The Company has two operating segments from which it derives revenue. These segments are:

 

  (i) the operating of web based as well as land-based leisure betting establishments situated throughout Italy and only web based distribution in Austria; and
  (ii) provider of certified betting Platform software services to leisure betting establishments in Italy and other countries.

 

 

3. Restricted Cash

 

Restricted cash consists of the following:

 

    Cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank.

 

    The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. The line of credit was repaid during the six months ended June 30, 2021. See Note 9.

 

4. Property, plant and equipment

 

                                 
  June 30, 2021  December 31, 2020
   Cost  Accumulated depreciation 

Net book

value

 

Net book

value

             
Leasehold improvements  $64,940   $(31,826)  $33,114   $39,707 
Computer and office equipment   1,026,120    (764,884)   261,236    247,572 
Fixtures and fittings   293,802    (244,095)   49,707    54,465 
Vehicles   103,537    (49,588)   53,949    63,382 
Computer software   230,450    (136,535)   93,915    84,465 
   $1,718,849   $(1,226,928)  $491,921   $489,591 

 

The aggregate depreciation charge to operations was $108,470 and $120,578 for the six months ended June 30, 2021 and 2020, respectively. The depreciation policies followed by the Company are described in Note 2. 

 

 

 

16

 

 

 

   

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

5. Leases

 

Right of use assets are included in the consolidated balance sheet are as follows: 

 

                 
  

June 30,

2021

 

December 31,

2020

Non-current assets      
Right of use assets - operating leases, net of amortization  $520,865   $687,568 
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment  $20,413   $27,119 

 

 

Lease costs consists of the following:

 

                 
   Six Months Ended June 30,
   2021  2020
Finance lease cost:      
Amortization of financial lease assets  $5,970   $6,216 
Interest expense on lease liabilities   454    614 
           
Operating lease cost   128,468    117,954 
           
Total lease cost  $134,892   $124,784 

 

Other lease information:

 

                 
   Six Months Ended June 30,
   2021  2020
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases  $(454)  $(614)
Operating cash flows from operating leases   (128,468)   (117,954)
Financing cash flows from finance leases   (5,994)   (6,682)
           
Weighted average remaining lease term – finance leases   2.42 years    3.07 years 
Weighted average remaining lease term – operating leases   2.39 years    3.30 years 
           
Weighted average discount rate – finance leases   3.73%   3.57%
Weighted average discount rate – operating leases   3.56%   3.42%

 

 

17

 

 

 

  

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

5. Leases (continued)

 

Maturity of Leases

 

Finance lease liability

 

The amount of future minimum lease payments under finance leases are as follows:

Finance lease liability   Amount
     
Remainder of 2021   $ 4,652  
2022     9,170  
2023     7,347  
2024     852  
Total undiscounted minimum future lease payments     22,021  
Imputed interest     (994 )
Total finance lease liability   $ 21,027  
         
Disclosed as:        
Current portion   $ 4,294  
Non-Current portion     16,733  
    $ 21,027  

  

Operating lease liability

 

The amount of future minimum lease payments under operating leases are as follows:

 

Operating lease liability  Amount
    
Remainder of 2021  $125,223 
2022   214,966 
2023   173,333 
2024   30,340 
Total undiscounted minimum future lease payments   543,862 
Imputed interest   (22,997)
Total operating lease liability  $520,865 
      
Disclosed as:     
Current portion  $116,845 
Non-Current portion   404,020 
   $520,865 

 

 

18

 

 

 

  

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

6. Intangible Assets

 

Intangible assets consist of the following:

 

                                 
  

June 30,

2021

  December 31, 2020
   Cost  Accumulated amortization  Net book value  Net book value
Betting platform software  $5,689,965   $(1,206,317)  $4,483,648   $4,673,314 
Licenses   5,800,877    (939,467)   4,861,410    4,917,733 
Location contracts   1,000,000    (982,974)   17,026    88,455 
Customer relationships   870,927    (391,920)   479,007    509,237 
Trademarks   119,185    (54,774)   64,411    68,843 
Websites   40,000    (40,000)        
   $13,520,954   $(3,615,452)  $9,905,502   $10,257,582 

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

The Company recorded $351,850 and $392,378 in amortization expense for finite-lived assets for the six months ended June 30, 2021 and 2020, respectively.

 

Licenses obtained by the Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License through the acquisition of Ulisse.

 

The estimated amortization expense over the next five year period is as follows:

Amortization Expense  Amount
 Remainder of 2021   $270,593 
 2022    450,365 
 2023    449,845 
 2024    448,113 
 2025    448,113 
 Total estimated amortization expense   $2,067,029 

 

7. Goodwill

 

  

June 30,

2021

 

December 31,

2020

       
Opening balance  $1,663,120   $1,663,385 
Foreign exchange movements   (229)   (265)
Closing balance  $1,662,891   $1,663,120 

 

Goodwill represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.

 

The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

 

19

 

 

 

  

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

8. Marketable Securities

 

Investments in marketable securities consists of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in earnings.

 

The shares of Zoompass were last quoted on the OTC market at $0.15 per share on June 30, 2021, resulting in an unrealized loss recorded to earnings related to these securities of $92,500 for the six months ended June 30, 2021.

 

9. Line of Credit - Bank

 

The Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, of which $0 was drawn as of June 30, 2021, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and no maturity date as long as the security deposit of $1,000,000 remains in place, see Note 3.

 

10. Convertible Debentures

 

The accounting treatment relating to the convertible debentures issued was in accordance with the guidance in ASC 480 and ASC 815.

 

As of June 30, 2021 and December 31, 2020, the Company has outstanding, Canadian Dollar denominated convertible debentures in the aggregate principal amount of CDN $0 and CDN $35,000 (approximately $27,442), respectively.

 

Convertible debentures of $10,000 and CDN $65,000 (approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000 was acquired by a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured, had the maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension. All of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in the current period.

 

During the year ended December 31, 2020, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600, including interest thereon of CDN $45,029 and investors in U.S. Dollar convertible debentures converted the aggregate principal amount of $400,000, including interest thereon of $70,492 into 230,134 shares of common stock.

 

The Aggregate convertible debentures outstanding consists of the following:

 

Convertible Debentures 

June 30,

2021

 

December 31,

2020

Principal Outstanding          
Opening balance  $27,442   $3,464,737 
Repaid   (27,562)   (2,778,349)
Conversion to equity         (634,431)
Foreign exchange movements   120    (24,515)
          27,442 
Accrued Interest          
Opening balance   7,105    524,227 
Interest expense   4,696    207,595 
Repaid   (11,833)   (619,992)
Conversion to equity         (103,958)
Foreign exchange movements   32    (767)
          7,105 
Debenture Discount          
Opening balance         (627,627)
Amortization         627,627 
             
Convertible Debentures, net  $     $34,547 

 

20

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

11. Deferred Purchase Consideration

 

During the current period, the Company paid the remaining balance of €20,800 (approximately $25,262) to non-related parties in terms of the Virtual Generation promissory note.

 

The movement on deferred purchase consideration to non-related parties consists of the following:

 

Deferred Purchase Consideration 

June 30,

2021

 

December 31,

2020

Principal Outstanding      
Promissory note due to non-related parties  $25,434   $1,802,384 
Settled by the issuance of common shares       (724,467)
Repayment in cash   (25,262)   (1,105,455)
Foreign exchange movements   (172)   52,972 
        25,434 
Present value discount on future payments          
Present value discount   (7,761)   (120,104)
Amortization   7,700    114,333 
Foreign exchange movements   61    (1,990)
        (7,761)
Deferred purchase consideration, net  $   $17,673 

 

 

12. Bank Loan Payable

 

In September 2016, the Company obtained a loan of €500,000 (approximately USD $580,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan originally has an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate, was subject to quarterly review and was to be amortized over 57 months ending June 30, 2021 with monthly repayments of €9,760. Subsequently, in terms of a directive by the Italian Government, in order to provide financial relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a period of six months and extend the maturity date of the loan to March 31, 2022, the interest rate remained the same at 4.5% above the Euro Inter Bank Offered Rate and monthly repayments were revised to €9,971.

 

The Company made payments in the aggregate principal amount of €55,870 (approximately USD $67,336) for the six months ended June 30, 2021.

 

13. Other long-term liabilities

 

Other long-term liabilities represents the Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement as well as shop deposits that are held by Ulisse.

 

Balances of other long-term liabilities were as follows:

 

Other long-term liabilities 

June 30,

2021

 

December 31,

2020

       
Severance liability  $321,902   $297,120 
Customer deposit balance   22,518    366,947 
Total other long-term liabilities  $344,420   $664,067 

 

 

 

21

 

 

 

  

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

14. Related Parties

 

Notes Payable, Related Party

 

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

 

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

 Note Payable, Related Party 

June 30,

2021

 

December 31,

2020

Principal Outstanding          
Additions  $     $300,000 
Repayment         (200,000)
Applied to warrant exercise         (100,000)
    —      —   
Accrued Interest          
Opening balance            
Interest expense         22,521 
Repayment         (14,465)
Applied to warrant exercise         (8,056)
             
Promissory Notes Payable – Related Party  $     $   

  

Convertible notes acquired, Related party

 

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

 

As an incentive for extending the maturity date of the convertible debentures, Forte Fixtures was granted 2 year warrants exercisable for 134,508 shares of common stock at an exercise price of $3.75 per share and 6 year warrants exercisable for 33,627 shares of common stock at an exercise price of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.

 

Deferred Purchase consideration, Related Party

 

During the current period, the Company paid the remaining balance of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.

 

The movement on deferred purchase consideration consists of the following:

 

Deferred Purchase consideration      
Description 

June 30,

2021

 

December 31,

2020

Principal Outstanding          
Promissory notes due to related parties  $382,128   $1,279,340 
Settled by the issuance of common shares         (482,978)
Repayment in cash   (385,121)   (471,554)
Foreign exchange movements   2,993    57,230 
          382,128 
Present value discount on future payments          
Present value discount   (5,174)   (80,069)
Amortization   5,133    76,222 
Foreign exchange movements   41    (1,327)
          (5,174)
Deferred purchase consideration, net  $     $376,954 

 

 

 

22

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

14. Related Parties (continued)

 

Related party (payables) receivables

 

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

 

The balances outstanding are as follows:

 

Related Party Receivables   

June 30,

2021

 

December 31,

2020

  Related Party payables          
Related Party payables Luca Pasquini  $(564)  $(565)
             
  Related Party Receivables          
Related Party Receivables Luca Pasquini  $1,472   $1,519 

 

 

 

 

Gold Street Capital

 

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

 

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

 

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

 

Luca Pasquini

 

On January 31, 2019, the Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the Company has paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000 (approximately $334,791).

 

On January 22, 2021, the Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.

 

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

 

Michele Ciavarella

 

Mr. Ciavarella agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue.

 

On January 22, 2021, the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him.

 

23

 

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

14. Related Parties (continued)

 

Gabriele Peroni

 

On January 31, 2019, the Company acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of 800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at 300,000 over an eighteen month period. As of June 30, 2020, the Company has paid Mr. Peroni the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000 (approximately $334,791).

 

On January 22, 2021, the Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him.

 

Alessandro Marcelli

 

On January 22, 2021, the Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him.

 

Franco Salvagni

 

On January 22, 2021, the Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him.

 

Beniamino Gianfelici

 

On January 22, 2021, the Company issued Mr. Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation due to him.

 

Steven Shallcross

 

On January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’ fees due to him.

 

Andrea Mandel-Mantello

 

On June 29, 2021, the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately and Mr. Mandel-Mantello will serve on the audit committee.

 

15. Stockholders’ Equity

 

For the six months ended June 30, 2021, the Company issued a total of 467,990 shares of common stock, valued at $2,676,901 for the settlement of compensation and directors’ fees to certain of the Company’s related parties, refer note 14 above.

 

Between January 4, 2021, and May 28, 2021, investors exercised warrants for 1,490,809 shares of common stock for gross proceeds of $3,922,481 at an average exercise price of $2.63 per share.

 

On January 22, 2021, the Company issued 24,476 restricted shares of common stock valued at $140,000 to Michele Ciavarella in terms of a compensation election he made for the 2021 fiscal year.

 

24

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Warrants

 

A summary of all of the Company’s warrant activity during the period January 1, 2020 to June 30, 2021 is as follows:

 

Warrants    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2020     1,089,474     $ 4.00     $ 4.00  
Granted     5,374,371       2.50 to 5.00       2.62  
Forfeited/cancelled     (1,089,474 )     4.00       4.00  
Exercised     (3,321,226 )     2.50 to 5.00       2.62  
Outstanding December 31, 2020     2,053,145     $ 2.50 to 5.00       2.63  
Granted                  
Forfeited/cancelled                  
Exercised     (1,490,809 )     2.50 to 3.75       2.63  
Outstanding June 30, 2021     562,336     $ 2.50 to 5.00     $ 2.66  

  

 

The following tables summarize information about warrants outstanding as of June 30, 2021:

 

Warrants outstanding, Exercise Price  
    Warrants outstanding   Warrants exercisable

 

Exercise price

    Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$2.50     502,173       4.14     $ 2.50       502,173     $ 2.50  
$3.75     48,395       0.92       3.75       48,395       3.75  
$5.00     11,768       1.12       5.00       11,768       5.00  
      562,336       3.80     $ 2.66       562,336     $ 2.66  

  

 

17. Stock Options

 

In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. 

 

On October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director – 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an increase in the annual limits for awards to be granted to non-employee directors under the Plan.

 

On November 20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under the plan by an additional 1,850,000 shares of common stock.

 

In addition, pursuant to the employment agreement entered into with Mr. Monteverdi, the Company granted a non-plan option to purchase 648,000 shares of common stock at an exercise price of $1.84 that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.

 

The Company issued a ten year option exercisable for 50,000 shares at an exercise price of $2.62 to an employee.

 

 

 

25

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

17. Stock Options (continued)

 

On May 3, 2021, the Company issued a ten year option exercisable for 25,000 shares at an exercise price of $4.20 per share to an employee.

 

The options awarded during the six months ended June 30, 2021 were valued using a Black-Scholes option pricing model.

 

The following assumptions were used in the Black-Scholes model:

 Assumptions  

Six months ended

June 30, 2021

Exercise price   $ 2.62 to 4.20  
Risk free interest rate     0.92 to 1.63 %
Expected life of options     10 years  
Expected volatility of underlying stock     226.3 to 229.8 %
Expected dividend rate     0 %

 

As of June 30, 2021, there was an aggregate of 1,049,938 options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan and 1,950,062 reserved for future grants.

 

A summary of all of the Company’s option activity during the period January 1, 2020 to June 30, 2021 is as follows:

Stock Option Activity    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2020     315,938     $ 2.72 to 2.96     $ 2.84  
Granted     1,307,000       1.84 to 2.03       1.95  
Forfeited/cancelled                  
Exercised                  
Expired                  
Outstanding December 31, 2020     1,622,938     $ 1.84 to 2.96       2.11  
Granted     75,000       2.62 to 4.20       3.15  
Forfeited/cancelled                  
Exercised                  
Outstanding June 30, 2021     1,697,938     $ 1.84 to 4.20     $ 2.16  

  

The following tables summarize information about stock options outstanding as of June 30, 2021:

 

Stock options outstanding  
    Options outstanding   Options exercisable
Exercise price   Number of shares  

Weighted

average

remaining years

 

Weighted

Average

exercise price

  Number of shares  

Weighted

average

exercise price

                     
$ 1.84       648,000       9.24                        
$ 2.03       659,000       9.26               237,250          
$ 2.62       50,000       9.42                        
$ 2.72       25,000       5.01               25,000          
$ 2.80       220,625       8.23               96,706          
$ 2.96       70,313       8.02               70,313          
$ 4.20       25,000       9.84                        
          1,697,938       9.02     $ 2.12       429,269     $ 2.407  

  

 

As of June 30, 2021, there were unvested options to purchase 1,268,669 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $2,377,821 which is expected to be recognized over a period of 38 months.

 

The intrinsic value of the options at June 30, 2021 was $3,237,161.

 

26

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

18. Revenues

 

The following table represents disaggregated revenues from our gaming operations for the three months and six months ended June 30, 2021 and 2020. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, and taxes due to government authorities, while Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

.

 

                                 
   Three Months Ended  Six Months Ended
   June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020
Turnover            
Turnover web-based  $219,874,610   $89,855,358   $451,206,769   $182,231,464 
Turnover land-based   218,129    4,210,173    12,043,959    27,812,258 
Total Turnover   220,092,739    94,065,531    463,250,728    210,043,722 
                     
Winnings/Payouts                    
Winnings web-based   205,048,852    84,604,648    420,647,267    170,700,270 
Winnings land-based   166,369    3,599,916    10,331,307    21,791,318 
Total Winnings/payouts   205,215,221    88,204,564    430,978,574    192,491,588 
                     
Gross Gaming Revenues   14,877,518    5,860,967    32,272,154    17,552,134 
                     
Less: ADM Gaming Taxes   3,285,273    1,065,693    6,614,311    2,596,488 
Net Gaming Revenues   11,592,245    4,795,274    25,657,843    14,955,646 
                     
Service Revenues   97,704    14,995    189,434    24,797 
Revenue  $11,689,949   $4,810,269   $25,847,277   $14,980,443 

 

19. Net loss per Common Share

 

Basic income (loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income (loss) per share is based on basic shares as determined above, plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” options and warrants using the treasury stock method and the inclusion of all convertible securities, including convertible debentures, assuming these securities were converted at the beginning of the period or at the time of issuance, if later, adding back any direct incremental expenses related to the convertible securities, including interest expense, debt discount amortization. The computation of diluted net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.

 

The computation of the diluted income per share for the three months and six months ended June 30, 2021 and 2020 was anti-dilutive due to the losses realized.

 

For the three months and six months ended June 30, 2021 and 2020, the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the result of the computation was anti-dilutive:

 

Net loss per Common Share                
Description   Three and six Months ended June 30, 2021   Three and six Months ended June 30, 2020
         
Options     1,697,938       315,938  
Warrants     562,336       374,373  
Convertible debentures              1,041,002  
      2,260,274       1,731,313  

 

27

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

20. Segmental Reporting

 

The Company has two reportable operating segments. These segments are:

 

  (i) Betting establishments

The operating of web based as well as land based leisure betting establishments situated throughout Italy; and

 

  (ii) Betting platform software and services

Provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries.

Segment Reporting

The operating assets and liabilities of the reportable segments are as follows:

                                 
    June 30, 2021
    Betting establishments   Betting platform software and services   All other   Total
                 
Purchase of non-current assets   $ 15,005     $ 67,116     $ 40,311     $ 122,432  
Assets                                
Current assets     10,877,808       913,319       9,385,445       21,176,572  
Non-current assets     6,939,721       6,077,751       1,364,113       14,381,585  
Liabilities                                
Current liabilities     (8,146,135 )     (763,734 )     (871,731 )     (9,781,600 )
Non-current liabilities     (762,301 )     (1,178,665 )              (1,940,966 )
Intercompany balances     3,874,380       208,117       (4,082,497 )         
Net asset position   $ 12,783,473     $ 5,256,788     $ 5,795,330     $ 23,835,591  

 

The segment operating results of the reportable segments are disclosed as follows:

 

                                         
   Six months ended June 30, 2021
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
Revenue  $25,657,843   $189,434   $   $   $25,847,277 
Intercompany Service revenue   207,118    2,608,669        (2,815,787)    
    25,864,961    2,798,103        (2,815,787)   25,847,277 
Operating expenses                         
Intercompany service expense   2,608,669    207,118        (2,815,787)    
Selling expenses   20,269,209    9,190            20,278,399 
General and administrative expenses   3,507,099    2,505,973    2,887,082        8,900,154 
    26,384,977    2,722,281    2,887,082    (2,815,787)   29,178,553 
                          
(Loss) Income from operations   (520,016)   75,822    (2,887,082)       (3,331,276)
                          
Other income (expense)                         
Other income   361,316    1,029    8,017        370,362 
Other expense   (24,119)   (4,019)           (28,138)
Interest expense, net   (4,890)   1    (5,154)       (10,043)
Amortization of debt discount           (12,833)       (12,833)
Loss on marketable securities           (92,500)       (92,500)
Total other income (expense)   332,307    (2,989)   (102,470)       226,848 
                          
(Loss) Income before Income Taxes   (187,709)   72,833    (2,989,552)       (3,104,428)
Income tax provision   (192,878)   (83,623)           (276,501)
Net Loss  $(380,587)  $(10,790)  $(2,989,552)  $   $(3,380,929)

 

28

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

20. Segmental Reporting (continued)

 

The operating assets and liabilities of the reportable segments are as follows:

                                 
    June 30, 2020
    Betting establishments   Betting platform software and services   All other   Total
                 
Purchase of non-current assets   $ 56,613     $ 31,804     $        $ 88,417  
Assets                                
Current assets     5,631,846       990,614       538,098       7,160,558  
Non-current assets     12,530,024       6,403,878       1,870,903       20,804,805  
Liabilities                                
Current liabilities     (5,668,018 )     (476,375 )     (10,130,392 )     (16,274,785 )
Non-current liabilities     (1,265,500 )     (1,293,206 )     (29,351 )     (2,588,057 )
Intercompany balances     4,866,760       (740,080 )     (4,126,680 )         
Net asset position   $ 16,095,112     $ 4,884,831     $ (11,877,422 )