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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 September 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

 

1-628-258-514

 

(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 November 12, 2021, the registrant had 23,297,932 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 36
Item 3 Quantitative and Qualitative Disclosures About Market Risk 51
Item 4 Controls and Procedures 51
     
PART II - OTHER INFORMATION 51
     
Item 1 Legal Proceedings 51
Item 1A Risk Factors 52
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 55
Item 3 Defaults Upon Senior Securities 55
Item 4 Mine Safety Disclosures 55
Item 5 Other Information 55
Item 6 Exhibits 56
     
SIGNATURES 57

 

 

 

 
 

 

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 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. Due to the reduction in Covid-19 cases in Italy, all betting shops reopened on June 14, 2021. Due to the high percentage of vaccinations administered in Italy, we do not anticipate further severely restrictive lockdowns.

 

 

3

 

 

 
 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Balance Sheets

(Unaudited)

       
  

September 30,

2021

 

December 31,

2020

Current Assets          
Cash and cash equivalents  $9,408,035   $18,945,817 
Accounts receivable   126,810    162,141 
Gaming accounts receivable   1,291,802    1,455,710 
Prepaid expenses   802,153    327,190 
Related party receivable   1,438    1,519 
Other current assets   495,649    301,289 
Total Current Assets   12,125,887    21,193,666 
           
Non-Current Assets          
Restricted cash   1,393,404    1,098,952 
Property, plant and equipment   444,608    489,591 
Right of use assets   581,944    687,568 
Intangible assets   20,324,314    10,257,582 
Goodwill   28,687,156    1,663,120 
Marketable securities   175,000    467,500 
Total Non - Current Assets   51,606,426    14,664,313 
Total Assets  $63,732,313   $35,857,979 
           
Current Liabilities          
Bank overdraft  $4,705   $3,902 
Line of credit - bank         500,000 
Accounts payable and accrued liabilities   4,225,564    7,961,146 
Gaming accounts payable   3,420,042    3,084,768 
Taxes payable   789,407    946,858 
Related party payable   51,397    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   71,574    238,899 
Financial lease liability   2,107    10,511 
Bank loan payable – current portion   75,680    138,212 
Total Current Liabilities   8,640,476    13,314,035 
           
Non-Current Liabilities          
Deferred tax liability   3,371,517    1,222,513 
Operating lease liability   492,215    416,861 
Financial lease liability   16,346    17,265 
Bank loan payable   146,325    66,885 
Contingent purchase consideration   

25,286,033

       
Other long-term liabilities   357,577    664,067 
Total Non – Current Liabilities   29,670,013    2,387,591 
Total Liabilities   38,310,489    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; 23,297,932 and 20,029,834 shares issued and outstanding as of September 30, 2021 and December 31, 2020   2,330    2,003 
Additional paid-in capital   65,640,086    53,064,919 
Accumulated other comprehensive (deficit) income   (145,969)   267,948 
Accumulated deficit   (40,074,623)   (33,178,517)
Total Stockholders' Equity   25,421,824    20,156,353 
Total Liabilities and Stockholders’ Equity  $63,732,313   $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

September 30,

 

For the Nine Months Ended

September 30,

   2021  2020  2021  2020
Revenue  $8,030,082   $9,701,796   $33,877,359   $24,682,239 
                     
Costs and Expenses                    
Selling expenses   6,054,757    7,154,623    26,333,156    17,327,150 
General and administrative expenses   5,075,300    3,156,505    13,975,455    8,860,893 
Total Costs and Expenses   11,130,057    10,311,128    40,308,611    26,188,043 
                     
Loss from Operations   (3,099,975)   (609,332)   (6,431,252)   (1,505,804)
                     
Other (Expenses) Income                    
Other income   74,327    37,273    444,689    62,933 
Other expense   (384)   (109,623)   (28,522)   (109,623)
Interest expense, net of interest income   (4,705)   (56,093)   (14,748)   (229,166)
Change in fair value of contingent purchase consideration  

(569,076

)         (569,076)      
Amortization of present value discount         (43,604)   (12,833)   (780,678)
Loss on extinguishment of convertible debt                     (719,390)
(Loss) gain on marketable securities   (200,000)   (250,000)   (292,500)   472,500 
Total Other (Expenses) Income   (699,838)   (422,047)   (472,990   (1,303,424)
                     
Loss Before Income Taxes   (3,799,813)   (1,031,379)   (6,904,242)   (2,809,228)
Income tax provision   284,636    (181,902)   8,136    (771,999)
Net Loss   (3,515,177)   (1,213,281)   (6,896,106)   (3,581,227)
                     
Other Comprehensive Income (Loss)                    
Foreign currency translation adjustment   (154,572)   218,193    (413,917)   124,679 
                     
Comprehensive Loss  $(3,669,749)  $(995,088)  $(7,310,023)  $(3,456,548)
                     
Loss per common share – basic and diluted  $(0.15)  $(0.08)  $(0.31)  $(0.27)
Weighted average number of common shares outstanding – basic and diluted   23,080,193    14,525,372    22,205,785    13,057,608 
                     

See notes to the unaudited condensed consolidated financial statements

 

5

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Changes in Stockholders' Equity

Nine months ended September 30, 2021 and September 30, 2020

(Unaudited) 

                   
   Common Stock  Additional 

Accumulated Other

      
   Shares  Amount 

Paid-in

Capital

 

Comprehensive

Income

  Accumulated Deficit  Total
Nine months ended September 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 consideration114,538    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 
Shares issued on conversion of convertible debentures   3,341         10,666                10,666 
Common stock issued to settle deferred purchase consideration35,130    4    91,261                91,265 
Stock based compensation expense   —            45,301                45,301 
Public offering proceeds   4,166,666    417    10,005,832                10,006,249 
Expenses related to public offering   —            (1,040,127)               (1,040,127)
Foreign currency translation adjustment   —                  218,193          218,193 
Net loss   —                        (1,213,281)   (1,213,281)
Balance, September 30, 2020   16,700,139   $1,670   $44,094,217   $(52,038)  $(26,823,062)  $17,220,787 

 

   Common Stock  Additional 

Accumulated

Other

      
   Shares  Amount  Paid-In Capital  Comprehensive Income  Accumulated Deficit  Total
                   
Nine months ended September 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 liabilities467,990    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 
Shares issued in consideration of acquisition   1,265,823    127    4,544,177                4,544,304 
Proceeds from warrants exercised   16,000    1    39,999                40,000 
Stock based compensation expense   —            671,678                671,678 
Foreign currency translation adjustment   —                  (154,572)         (154,572)
Net loss   —                        (3,515,177)   (3,515,177)
Balance, September 30, 2021   23,297,932   $2,330   $65,640,086   $(145,969)  $(40,074,623)  $25,421,824 

 

See notes to the unaudited condensed consolidated financial statements

 

6

 

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Cash Flows

(Unaudited) 

       
   For the nine months ended September 30,
   2021  2020
Cash Flows from Operating Activities          
Net Loss  $(6,896,106)  $(3,581,227)
Adjustments to reconcile net loss to net cash Used in Operating Activities          
Depreciation and amortization   885,437    700,994 
Change in fair value of contingent purchase consideration   

569,076

    

  

 
Amortization of present value discount   12,833    780,678 
Restricted stock awards   140,000       
Stock option compensation expense   1,251,808    244,090 
Non-cash interest   6,788    199,536 
Loss on extinguishment of convertible debt         719,390 
Unrealized loss (gain) on trading securities   292,500    (472,500)
Movement in deferred taxation   (116,896)   (70,080)
Bad debt expense         214,820 
Gain on Government relief loan forgiven   (7,992)      
Changes in Operating Assets and Liabilities (Net of assets acquired and liabilities assumed)          
Prepaid expenses   (458,601)   (107,876)
Accounts payable and accrued liabilities   (1,095,287)   148,579 
Accounts receivable   79,467    32,520 
Gaming accounts receivable   89,293    205,253 
Gaming accounts liabilities   516,302    2,970 
Taxes payable   (110,385)   431,741 
Due from related parties   (1,968)   (4,842)
Other current assets   (134,648)   136,074 
Long term liabilities   (280,230)   7,013 
Net Cash Used in Operating Activities   (5,258,609)   (412,867)
           
Cash Flows from Investing Activities          
Acquisition of subsidiary, net of cash of $26,161   (5,973,839)      
Acquisition of property, plant and equipment and intangible assets   (135,835)   (172,674)
Net Cash Used in Investing Activities   (6,109,674)   (172,674)
           
Cash Flows from Financing Activities          
Proceeds from public offering, less expenses related to public offering of $1,040,127         8,966,122 
Proceeds from warrants exercised   3,962,482       
Proceeds from bank overdraft   1,045       
Repayment of bank credit line   (500,000)   (1,000,000)
Repayment of bank loan   (100,850)   (30,539)
Redemption of convertible debentures   (27,562)   (3,010,655)
Proceeds from promissory notes, related party         301,071 
Proceeds from Government relief loan         29,822 
Repayment of Government relief loan   (25,438)      
Repayment of deferred purchase consideration – non-related parties   (385,121)   (455,827)
Repayment of deferred purchase consideration – related parties   (25,262)   (92,444)
Repayment of financial leases   (8,108)   (10,222)
Net Cash Provided by (Used in) Financing Activities   2,891,186    4,697,328 
           
Effect of change in exchange rate   (766,233)   302,444 
           
Net (decrease) increase in cash   (9,243,330)   4,414,231 
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  $10,801,439   $11,146,746 
           
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows          
Cash and cash equivalents  $9,408,035   $10,572,496 
Restricted cash included in non-current assets   1,393,404    574,250 
   $10,801,439   $11,146,746 

 

7

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the nine months ended September 30,
   2021  2020
Supplemental disclosure of cash flow information      
Cash paid during the period for:      
Interest  $22,609   $570,492 
Income tax  $266,211   $378,616 
Supplemental cash flow disclosure for non-cash activities          
Conversion of convertible debt to common stock  $     $739,004 
Deferred purchase consideration settled by the issuance of common stock  $     $1,207,444 
Common stock issued to settle liabilities  $2,676,901   $   
Common shares issued in consideration of acquisition (Refer Note 3 below)  $4,544,304   $   
           

 

 

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.

 

On July 5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.

 

USB is a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.

 

Pursuant to the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s common stock having a value of $6,000,000 based upon a price of $4.74 per share which was the volume weighted average closing price of the stock for the 90 trading days preceding the closing date.

 

The Sellers will have an opportunity to receive up to an additional $38 million 38,000,000 plus a potential premium of 10% (or $3.8 million) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash.

 

On September 1, 2021, the Company issued a press release announcing the approval of its first license in Washington DC, a Class B Managed Service Provider and Class B Operator licenses to operate a sportsbook within the Grand Central Bar and Grill located in the Adams Morgan area of Washington, D.C. which commenced sports betting in October 2021.

 

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

 

Name   Acquisition or Formation Date   Domicile   Functional Currency
             
Elys Game Technology, Corp. (“Elys”)   Parent Company   USA   U.S. Dollar
Multigioco Srl (“Multigioco”)   August 15, 2014   Italy   Euro
Ulisse GmbH (“Ulisse”)   July 1, 2016   Austria   Euro
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)   July 1, 2016   Austria   Euro
Virtual Generation Limited (“VG”)   January 31, 2019   Malta   Euro
Newgioco Group Inc. (“NG Canada”)   January 17, 2017   Canada   Canadian Dollar
Elys Technology Group Limited   April 4, 2019   Malta   Euro
Newgioco Colombia SAS   November 22, 2019   Colombia   Colombian Peso
Elys Gameboard Technologies, LLC   May 28, 2020   USA   U.S. Dollar
Bookmakers Company US LLC   July 15, 2021   USA   U.S. Dollar

 

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

 

 

 

9

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Nature of Business (continued)

 

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

 

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

 

2. Accounting Policies and Estimates

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

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

 

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

 

Principles of consolidation

 

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

 

Foreign operations

 

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

 

All revenues were generated in Euro, Colombian Peso and US Dollars during the periods presented.

 

Gains and losses from foreign currency transactions are recognized in current operations.

 

10

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Business Combinations

 

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

 

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

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

Loss Contingencies

 

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

 

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

 

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

 

 

11

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Fair Value Measurements

 

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

 

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

 

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

 

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

 

The contingent purchase consideration due on the acquisition of subsidiaries is measured at fair value on an annual basis. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s future financial results.

 

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

 

Derivative Financial Instruments

 

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

 

Cash and Cash Equivalents

 

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

 

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

 

 

 

12

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three months and nine months ended September 30, 2021 and a bad debt expense of $214,820 for the three and nine months ended September 30, 2020.

 

Gaming Accounts Payable

 

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

 

Long-Lived Assets

 

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

 

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

 

Property, Plant and Equipment

 

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

 

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

 

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

  

13

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Intangible Assets

 

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

 

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

 

The range of the estimated useful lives is as follows:

Intangible Useful lives        
Description  

Useful Life

(in years)

     
Betting Platform Software   15
Ulisse Bookmaker License   Indefinite
Multigioco and Rifa ADM Licenses   1.5 - 7
Location contracts   5 - 7
Customer relationships   10 - 18
Trademarks/Tradenames   10 - 14
Websites   5
Non-compete agreements   4

  

 

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

 

Goodwill

 

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

 

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

 

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

 

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

 

 

 

 

14

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Leases

 

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

 

Income Taxes

 

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

 

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

 

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

 

Contingent Purchase Consideration

 

The Company estimates and records the acquisition date estimated fair value of contingent consideration as part of the purchase price consideration for acquisitions. At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). An increase in the earn-out expected to be paid will result in a charge to operations in the year that the anticipated fair value of contingent consideration increases, while a decrease in the earn-out expected to be paid will result in a credit to operations in the year that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s future financial results. Additional information regarding contingent consideration is provided in Note 3.

  

Revenue Recognition

 

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

 

15

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Revenue Recognition (continued)

 

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

 

Stock-Based Compensation

 

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

 

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

 

Comprehensive Income (Loss)

 

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

 

Earnings Per Share

 

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

 

Related Parties

 

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

 

Recent Accounting Pronouncements

 

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

 

Reporting by segment

 

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

 

  (i) the operating of web based as well as land-based leisure betting establishments situated throughout Italy, and only web based distribution through our Austrian subsidiary in the Italian market until June 2021;
  (ii) provider of certified betting Platform software services to global leisure betting establishments and operators.

 

The recent acquisition of Bookmakers Company US LLC is reported under the Company’s certified betting platform software services segment.

  

16

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

  

3. Acquisition of subsidiaries

 

On July 5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company.

 

USB is a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management.

 

Pursuant to the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s common stock with a market value of $4,544,304 on the date of acquisition.

 

The Sellers will have an opportunity to receive up to an additional $38,000,000 (undiscounted) plus a potential undiscounted premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash. The fair value of the contingent purchase consideration of $24,716,957 was estimated by applying the income approach, which uses significant assumptions (Level 3 assumptions) which are not readily available in the market.

 

The goodwill of $27,024,383 arising on consolidation consists largely of the reputation and knowledge of USB in the sports betting market in the US markets which should facilitate the Company’s penetration into the US market. All of the goodwill was assigned to the Betting platform software and services segment.

 

None of the goodwill is expected to be deducted for income tax purposes.

 

In terms of the agreement, the preliminary purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed as follows:

 

   Amount
Consideration   
Cash  6,000,000 

1,265,823 shares of common stock at fair market value

  4,554,304 
Contingent purchase consideration  24,716,957 
Total purchase consideration  $35,261,261 
Recognized amounts of identifiable assets acquired and liabilities assumed     
Cash   26,161 
Other Current assets   151,284 
Property, plant and equipment   788 
Other non-current assets   4,000 
Tradenames/Trademarks   1,419,000 
Customer relationships   7,275,000 
Non-compete agreements   2,096,000 
    10,972,233 
Less: liabilities assumed     
Current liabilities assumed   (264,135)
Non-current liabilities assumed   (205,320)
Imputed Deferred taxation on identifiable intangible acquired   (2,265,900)
    (2,735,355)
Net identifiable assets acquired and liabilities assumed   8,236,878 
Goodwill    27,024,383 
  $35,261,261 

 

The amount of revenue and earnings include in the Company’s consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2021 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2020.

 

 17

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

    Revenue   Earnings
                 
Actual from July 15, 2021 to September 30, 2021   $ 121,552     $ (395,566
                 
2021 Supplemental pro forma from January 1, 2021 to September 30, 2021   $ 34,288,462     $ (7,154,851 
                 
2020 Supplemental pro forma from January 1, 2020 to September 30, 2020   $ 24,992,504     $ (4,810,317 )

 

The 2021 Supplemental pro forma information was adjusted to exclude $120,479 of non-recurring acquisition costs, in addition, the 2021 and 2020 supplemental pro forma information was adjusted to account for amortization of intangibles on acquisition of $579,619 and $802,550 , respectively.

4. Restricted Cash

 

Restricted cash consists of the following:

 

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

 

    The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. The line of credit was repaid during the nine months ended September 30, 2021. See Note 10.

 

5. Property, plant and equipment

                                 
   September 30, 2021  December 31, 2020
   Cost  Accumulated depreciation 

Net book

value

 

Net book

value

             
Leasehold improvements  $63,436   $(33,484)  $29,952   $ 39,707 
Computer and office equipment   1,016,822    (776,040)   240,782     247,572 
Fixtures and fittings   289,679    (243,407)   46,272     54,465 
Vehicles   101,148    (52,126)   49,022     63,382 
Computer software   227,216    (148,636)   78,580     84,465 
   $1,698,301   $(1,253,693)  $444,608   $ 489,591 

 

The aggregate depreciation charge to operations was $162,594 and $173,983 for the nine months ended September 30, 2021 and 2020, respectively. The depreciation policies followed by the Company are described in Note 2.

 

6. Leases

 

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

  

September 30,

2021

 

December 31,

2020

Non-current assets          
Right of use assets - operating leases, net of amortization  $581,944   $687,568 
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment  $17,867   $27,119 

 

 

Lease costs consists of the following: 

                 
   Nine Months Ended September 30,
   2021  2020
Finance lease cost:          
Amortization of financial lease assets  $8,071   $9,509 
Interest expense on lease liabilities   642    903 
           
Operating lease cost   201,308    186,308 
           
Total lease cost  $210,021   $196,720 

18

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Leases (continued)

 

Other lease information: 

                 
   Nine Months Ended September 30,
   2021  2020
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases  $(642)  $(903)
Operating cash flows from operating leases   (201,308)   (186,308)
Financing cash flows from finance leases   (8,108)   (9,319)
           
Weighted average remaining lease term – finance leases   2.43 years    2.90 years 
Weighted average remaining lease term – operating leases   1.95 years    3.07 years 
           
Weighted average discount rate – finance leases   3.73%   3.60%
Weighted average discount rate – operating leases   3.23%   3.42%

 

Maturity of Leases

 

Finance lease liability

 

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

 

Finance lease liability   Amount
    
Remainder of 2021  $2,272 
2022   8,957 
2023   7,177 
2024   833 
Total undiscounted minimum future lease payments   19,239 
Imputed interest   (786)
Total finance lease liability  $18,453 
      
Disclosed as:     
Current portion  $2,107 
Non-Current portion   16,346 
   $18,453 

 

Operating lease liability

 

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

Operating lease liability  Amount
    
Remainder of 2021  $76,162 
2022   269,988 
2023   209,319 
2024   29,637 
Total undiscounted minimum future lease payments   585,106 
Imputed interest   (21,317)
Total operating lease liability  $563,789 
      
Disclosed as:     
Current portion  $71,574 
Non-Current portion   492,215 
   $563,789 

19

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

7. Intangible Assets

 

Intangible assets consist of the following: 

                               
 

September 30,

2021

  December 31, 2020
  Cost   Accumulated amortization   Net book value   Net book value
Betting platform software $ 5,689,965     $ (1,301,150 )   $ 4,388,815     $ 4,673,314  
Licenses   5,797,954       (955,554 )     4,842,400       4,917,733  
Location contracts   1,000,000       (1,000,000 )           88,455  
Customer relationships   8,145,927       (491,237 )     7,654,690       509,237  
Trademarks   1,537,972       (86,396 )     1,451,576       68,843  
Non-compete agreements   2,096,000       (109,167 )     1,986,833        
Websites   40,000       (40,000 )            
  $ 24,307,818     $ (3,983,504 )   $ 20,324,314     $ 10,257,582  

 

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

 

The Company recorded $722,843 and $527,011 in amortization expense for finite-lived assets for the nine months ended September 30, 2021 and 2020, respectively.

 

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

 

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

 

Amortization Expense   Amount  
  Remainder of 2021 $ 390,124  
  2022   1,520,415  
  2023   1,519,836  
  2024   1,518,174  
  2025   1,278,007  
  2026   994,173  
  Total estimated amortization expense $ 7,220,729  
             

 

8. Goodwill

 

  

September 30,

2021

 

December 31,

2020

       
Opening balance  $1,663,120   $1,663,385 
Acquisition of Bookmakers company US LLC  27,024,383 
Foreign exchange movements   (347)   (265)
Closing balance  $28,687,156   $1,663,120 

  

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

 

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

20

 
 

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

9. Marketable Securities

 

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

 

The shares of Zoompass were last quoted on the OTC market at $0.07 per share on September 30, 2021, resulting in an unrealized loss recorded to earnings related to these securities of $292,500 for the nine months ended September 30, 2021.

 

10. Line of Credit - Bank

 

The Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, of which $0 was drawn as of September 30, 2021, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and no maturity date as long as the security deposit of $1,000,000 remains in place, see Note 4.

 

11. Convertible Debentures

 

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

 

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

 

Convertible debentures of $10,000 and CDN $65,000 (approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000 was acquired by a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured, had the maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension. All of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in the first quarter of 2021.

 

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

 

The Aggregate convertible debentures outstanding consists of the following:

 

Convertible Debentures 

September 30,

2021

 

December 31,

2020

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

 

 

 

21

 
 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

12. Deferred Purchase Consideration

 

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

 

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

 

Deferred Purchase Consideration 

September 30,

2021

 

December 31,

2020

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

  

13. Bank Loan Payable

 

In September 2016, the Company obtained a loan of €500,000 (approximately USD $580,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan originally has an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate, was subject to quarterly review and was to be amortized over 57 months ending June 30, 2021 with monthly repayments of €9,760. Subsequently, in terms of a directive by the Italian Government, in order to provide financial relief due to the Covid-19 pandemic, Multigioco was able to suspend repayments of the loan for a period of six months and extend the maturity date of the loan to March 31, 2022, the interest rate remained the same at 4.5% above the Euro Inter Bank Offered Rate and monthly repayments were revised to €9,971.

 

The Company made payments under the loan in the aggregate principal amount of €84,294 (approximately USD $100,850) for the nine months ended September 30, 2021.

 

14. Contingent purchase consideration

 

In terms of the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000 plus a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash.

 

The Company had an independent third party valuation entity perform a Purchase Price Analysis which included the probability of the Sellers achieving the additional proceeds of $41,800,000.

 

At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement of the stated unadjusted accumulated EBITA milestones and the methodology in determining the number of shares to be issued during each earnout period and the potential restriction on the number of shares available for issue, the contingent purchase consideration is classified as a liability.  

 

22

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

14. Contingent purchase consideration (continued)

 

   September 30, 2021
Contingent purchase consideration     
Contingent purchase consideration measured on the acquisition of USB  $24,716,957 
Settled by the issuance of common shares   —   
Repayment in cash   —   
Changes in fair value   569,076 
Contingent consideration at September 30, 2021   25,286,033 

 

 

15. Other long-term liabilities

 

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

 

Balances of other long-term liabilities were as follows:

 

Other long-term liabilities 

September 30,

2021

 

December 31,

2020

       
Severance liability  $338,475   $297,120 
Customer deposit balance   19,102    366,947 
Total other long-term liabilities  $357,577   $664,067 

 

16. Related Parties

 

Notes Payable, Related Party

 

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

 

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

 Note Payable, Related Party 

September 30,

2021

 

December 31,

2020

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

  

23

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Related Parties (continued)

 

Convertible notes acquired, Related party

 

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

 

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

 

Deferred Purchase consideration, Related Party

 

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

 

The movement on deferred purchase consideration consists of the following:

 

Deferred Purchase consideration      
Description 

September 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 

  

Related party (payables) receivables

 

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

 

The balances outstanding are as follows:

 

 

Related Party Receivables   

September 30,

2021

 

December 31,

2020

  Related Party payables          
Related Party payables Luca Pasquini  $(543)  $(565)
Related Party payables Victor Salerno  (50,854)    
Related Party payables   (51,397)  $(565)
             
  Related Party Receivables          
Related Party Receivables Luca Pasquini  $1,438   $1,519 

 

 

 

  

24

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Related Parties (continued)

 

Gold Street Capital

 

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

 

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

 

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

 

Luca Pasquini

 

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

 

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

 

On July 11, 2021, the Company entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system, the total contract price was €390,000 (approximately $459,572). Mr. Pasquini owns 34% of Engage.

 

On September 13, 2021, Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company.

 

Victor Salerno

 

On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing.

 

Together with the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.

 

Mr. Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary.

 

Pursuant to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.

 

25

 
 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Related Parties (continued) 

 

On September 13, 2021, the board of directors of the Company appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, Bookmakers Company US LLC (“US Bookmaking”), to serve as a member of the Board.

 

Prior to the acquisition of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023. 

 

Michele Ciavarella

 

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

 

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

 

On July 15, 2021, Michele Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive Officer until the earlier of his resignation or removal from office.

 

Matteo Monteverdi

 

Mr. Monteverdi resigned as the Company’s Chief Executive Officer and President to become the Company’s Head of Special Projects.

 

Gabriele Peroni

 

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

 

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

 

Alessandro Marcelli

 

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

 

Franco Salvagni

 

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

 

Beniamino Gianfelici

 

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

 

Paul Sallwasser

 

On September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.

 

26

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Related Parties (continued)

 

Steven Shallcross

 

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

 

On September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.

 

Mark Korb

 

On July 5, 2021, the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the “Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined by the Company’s board of directors with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, On July 1, 2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s common stock. The shares of common stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period. The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per share.

 

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

 

If the Korb Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to the termination date. The Korb Employment Agreement also provides that upon the Disability ( as defined in the Korb Employment Agreement) of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary.

 

 

 

27

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Related Parties (continued)

 

 

Pursuant to the Korb Employment Agreement, Mr. Korb has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Korb has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the types services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.

 

Andrea Mandel-Mantello

 

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

 

On September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021.

 

Phillipe Blanc

 

On July 1, 2021, Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director of the Company, the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting capacity over two years. Mr. Blanc will receive €105,000 per annum as compensation.

 

17. Stockholders’ Equity

 

For the nine months ended September 30, 2021, the Company issued a total of 467,990 shares of common stock, valued at $2,676,901 for the settlement of compensation and directors’ fees to certain of the Company’s related parties, refer note 16 above.

 

Between January 4, 2021, and September 21, 2021, investors exercised warrants for 1,506,809 shares of common stock for gross proceeds of $3,962,481 at an average exercise price of $2.63 per share.

 

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

 

On July 15, 2021, the Company issued 1,265,823 shares of common stock to the Sellers of USB, at $4.74 per share for a total of $6,000,000, representing 50% of the initial purchase consideration.

 

28

 
 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

18. Warrants

 

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

 

Warrants    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2020     1,089,474     $ 4.00     $ 4.00  
Granted     5,374,371       2.50 to 5.00       2.62  
Forfeited/cancelled     (1,089,474 )     4.00       4.00  
Exercised     (3,321,226 )     2.50 to 5.00       2.62  
Outstanding December 31, 2020     2,053,145     $ 2.50 to 5.00       2.63  
Granted                  
Forfeited/cancelled                  
Exercised     (1,506,809 )     2.50 to 3.75       2.63  
Outstanding September 30, 2021     546,336     $ 2.50 to 5.00     $ 2.66  

  

 

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

 

Warrants outstanding, Exercise Price  
    Warrants outstanding   Warrants exercisable

 

Exercise price

    Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$2.50     486,173       3.88     $ 2.50       486,173     $ 2.50  
$3.75     48,395       0.66       3.75       48,395       3.75  
$5.00     11,768       0.87       5.00       11,768       5.00  
      546,336       3.53     $ 2.66       546,336     $ 2.66  

  

 

 

29

 
 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. Stock Options

 

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

 

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

 

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

 

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

 

During the period ended September 30, 2021, the Company issued ten year options to purchase 720,000 shares at exercise prices ranging from $2.62 to $4.20 per share to employees.

 

On July 1, 2021, in compliance with the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the Company granted him ten year options to purchase 400,000 shares of common stock at an exercise price of $4.03 per share vesting annually commencing on September 1, 2022.

 

On August 31, 2021, due to the resignation of an employee, unvested options for 50,000 shares of common stock were forfeited by the employee.

 

On September 13, 2021, the Company granted the non-executive members of its board ten year options to purchase 48,500 shares of common stock at an exercise price of $5.10 per share, as a component of annual compensation.

 

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

 

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

 

 Assumptions  

Nine months ended

September 30, 2021

Exercise price   $ 2.62 to 5.10  
Risk free interest rate     0.92 to 1.63 %
Expected life of options     10 years  
Expected volatility of underlying stock     223 to 229.8 %
Expected dividend rate     0 %

   

30

 
 

 

 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. Stock Options (continued)

 

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

Stock Option Activity    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2020     315,938     $ 2.72 to 2.96     $ 2.84  
Granted     1,307,000       1.84 to 2.03       1.95  
Forfeited/cancelled                  
Exercised                  
Expired                  
Outstanding December 31, 2020     1,622,938     $ 1.84 to 2.96       2.11  
Granted     1,168,500       2.62 to 5.10       3.15  
Forfeited/cancelled     (50,000     2.62       2,62  
Exercised