Notes to Unaudited Condensed Consolidated
Financial Statements
1. Nature of Business
Established in the state of Delaware in 1998,
Elys Game Technology, Corp. (“Elys” or the “Company”) is an international, vertically integrated commercial-stage
company engaged in various aspects of the leisure gaming industry. The Company’s subsidiaries hold gaming licenses to operate
in the Italian and Austrian leisure betting markets offering gaming services, including a variety of lottery, casino gaming and
sports betting products through two distribution channels: an online channel and a land-based retail channel. Additionally, the
Company is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed
with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board
(the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized
technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through
the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming
account management system and sports book.
The entities included in these unaudited condensed
consolidated financial statements are as follows:
Name
|
|
Acquisition or Formation Date
|
|
Domicile
|
|
Functional Currency
|
|
|
|
|
|
|
|
Elys Game Technology, Corp. (“Elys”)
|
|
Parent Company
|
|
USA
|
|
U.S. Dollar
|
Multigioco Srl (“Multigioco”)
|
|
August 15, 2014
|
|
Italy
|
|
Euro
|
Ulisse GmbH (“Ulisse”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Virtual Generation Limited (“VG”)
|
|
January 31, 2019
|
|
Malta
|
|
Euro
|
Newgioco Group Inc. (“NG Canada”)
|
|
January 17, 2017
|
|
Canada
|
|
Canadian Dollar
|
Elys Technology Group Limited
|
|
April 4, 2019
|
|
Malta
|
|
Euro
|
Newgioco Colombia SAS
|
|
November 22, 2019
|
|
Colombia
|
|
Colombian Peso
|
Elys Gameboard Technologies, LLC
|
|
May 28, 2020
|
|
USA
|
|
U.S. Dollar
|
The Company operates in two lines of business:
(i) provider of certified betting Platform software services to leisure betting establishments in Italy and other countries and;
(ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy and web based in
Austria.
The Company’s operations are carried
out through the following three geographically organized groups:
|
a)
|
an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
|
|
b)
|
a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and
|
|
c)
|
a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and satellite offices in the USA in San Francisco, California, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.
|
9
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates
Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2021. The balance sheet at December 31, 2020 has been derived from the Company’s audited
consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with
the U.S. Securities and Exchange Commission (“SEC”).
All amounts referred to in the Notes to the
unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
For the
purposes of its listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting
Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of
the Companion Policy to National Instrument 51-102“ Continuous Disclosure Obligations”(“NI 51-102CP”)
which permits the Company to prepare its financial statements in accordance with U.S. GAAP.
Principles of consolidation
The unaudited condensed consolidated financial
statements include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant
inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and the results of operations and cash
flows at the average rate throughout the quarter. The translation adjustments are recorded directly as a separate component of
stockholders’ equity, while transaction gains (losses) are included in net income (loss).
All revenues were generated in Euro and Colombian
Peso during the periods presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
Business Combinations
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
10
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These
estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value
of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements,
convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including
evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to
the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on
the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates
all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Loss Contingencies
The Company may be subject to claims, suits,
government investigations, and other proceedings involving competition and antitrust, intellectual property, gaming license, privacy,
indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers
or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims
for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable
that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and
a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed
Consolidated Financial Statements.
The Company evaluates, on a regular basis,
developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and
related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment
is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final
resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact
on its business, consolidated financial position, results of operations, or cash flows.
To date, none of these types of litigation
matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial
condition. The Company has insured and continues to insure against most of these types of claims.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that
are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant
would use.
The carrying value of the Company's accounts
receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable
approximate fair value because of the short-term maturity of these financial instruments.
11
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Derivative Financial Instruments
ASC 815 generally provides three criteria that, if
met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of
ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents
as of June 30, 2021 and December 31, 2020, respectively.
The Company primarily places cash balances
in the USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit
Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance
Corporation up to a limit of CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of
the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up
to a limit of €100,000 per institution.
Gaming Accounts Receivable
Gaming accounts receivable represent gaming
deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted
method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the
Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three
months and six months ended June 30, 2021 and 2020.
Gaming Accounts Payable
Gaming accounts payable represent customer
balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used
or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers
can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances
are non-interest bearing.
Long-Lived Assets
The Company evaluates the carrying value of
its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value
of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the
expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate,
current estimated net sales proceeds from pending offers.
12
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Property, Plant and Equipment
Plant and equipment is stated at acquisition cost
less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future
economic benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses in the statement of operations
as incurred.
Depreciation is charged on a straight-line basis over
the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The
range of the estimated useful lives is as follows:
Plant and Equipment
Useful lives
Description
|
|
Useful Life
(in years)
|
|
|
|
Leasehold improvements
|
|
Life of the underlying lease
|
Computer and office equipment
|
|
3
|
to
|
5
|
Furniture and fittings
|
|
7
|
to
|
10
|
Computer Software
|
|
3
|
to
|
5
|
Vehicles
|
|
4
|
to
|
5
|
Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
The range of the estimated useful lives is as follows:
Intangible
Useful lives
|
|
|
|
|
Description
|
|
Useful Life
(in years)
|
|
|
|
Betting Platform Software
|
|
15
|
Ulisse Bookmaker License
|
|
Indefinite
|
Multigioco and Rifa ADM Licenses
|
|
1.5
|
-
|
7
|
Location contracts
|
|
5
|
-
|
7
|
Customer relationships
|
|
10
|
-
|
15
|
Trademarks/Tradenames
|
|
14
|
Websites
|
|
5
|
The Ulisse Bookmaker License has
no expiration date and is therefore not amortized but is tested for impairment on an annual basis in terms of ASC 350 using estimated
fair value.
13
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Goodwill
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
The Company annually assesses whether the carrying
value of its reporting units exceed their fair values and, if necessary, records an impairment loss equal to any such excess. Each interim
reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of the reporting
units exceeds their fair value. If the carrying amount of the reporting units exceeds their fair value, an asset impairment charge will
be recognized in an amount equal to that excess.
As of June 30, 2021, there were no qualitative
indications that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic has had and is
expected to continue to have a significant impact on our land-based business, the impact is expected to be mitigated because web-based
turnover generated by the Company has increased.
Leases
The Company accounts for leases in terms of ASC 842.
In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition
of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the
implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the
end of the lease term. Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial
leases, are included in property, plant and equipment with a corresponding financial liability raised at the date of lease inception.
Interest incurred on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will
not acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected
as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right
of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied
in the operating lease agreement.
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2015 forward, are open
and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection
of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is
not currently under examination and it has not been notified of a pending examination.
14
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include
license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer
has been made and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of
each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on
an accrual basis as earned.
Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants
granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the
Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not
included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.
Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
15
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Accounting Policies and Estimates (continued)
Recent Accounting Pronouncements
The FASB issued several updates during the
period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected
to have a material impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
|
(i)
|
the operating of web based as well as land-based leisure betting establishments situated throughout Italy and only web based distribution in Austria; and
|
|
(ii)
|
provider of certified betting Platform software services to leisure betting establishments in Italy and other countries.
|
3. Restricted Cash
Restricted cash consists of the following:
|
|
Cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank.
|
|
|
The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. The line of credit was repaid during the six months ended June 30, 2021. See Note 9.
|
4. Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
value
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
64,940
|
|
|
$
|
(31,826
|
)
|
|
$
|
33,114
|
|
|
$
|
39,707
|
|
Computer and office equipment
|
|
|
1,026,120
|
|
|
|
(764,884
|
)
|
|
|
261,236
|
|
|
|
247,572
|
|
Fixtures and fittings
|
|
|
293,802
|
|
|
|
(244,095
|
)
|
|
|
49,707
|
|
|
|
54,465
|
|
Vehicles
|
|
|
103,537
|
|
|
|
(49,588
|
)
|
|
|
53,949
|
|
|
|
63,382
|
|
Computer software
|
|
|
230,450
|
|
|
|
(136,535
|
)
|
|
|
93,915
|
|
|
|
84,465
|
|
|
|
$
|
1,718,849
|
|
|
$
|
(1,226,928
|
)
|
|
$
|
491,921
|
|
|
$
|
489,591
|
|
The aggregate depreciation charge to operations was
$108,470 and $120,578
for the six months ended June 30, 2021 and 2020, respectively. The depreciation policies followed by the Company are described
in Note 2.
16
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
5. Leases
Right of use assets are included in the consolidated
balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
Non-current assets
|
|
|
|
|
Right of use assets - operating leases, net of amortization
|
|
$
|
520,865
|
|
|
$
|
687,568
|
|
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment
|
|
$
|
20,413
|
|
|
$
|
27,119
|
|
Lease costs consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
Finance lease cost:
|
|
|
|
|
Amortization of financial lease assets
|
|
$
|
5,970
|
|
|
$
|
6,216
|
|
Interest expense on lease liabilities
|
|
|
454
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
128,468
|
|
|
|
117,954
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
134,892
|
|
|
$
|
124,784
|
|
Other lease information:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
(454
|
)
|
|
$
|
(614
|
)
|
Operating cash flows from operating leases
|
|
|
(128,468
|
)
|
|
|
(117,954
|
)
|
Financing cash flows from finance leases
|
|
|
(5,994
|
)
|
|
|
(6,682
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term – finance leases
|
|
|
2.42 years
|
|
|
|
3.07 years
|
|
Weighted average remaining lease term – operating leases
|
|
|
2.39 years
|
|
|
|
3.30 years
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate – finance leases
|
|
|
3.73
|
%
|
|
|
3.57
|
%
|
Weighted average discount rate – operating leases
|
|
|
3.56
|
%
|
|
|
3.42
|
%
|
17
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
5. Leases (continued)
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
are as follows:
Finance lease liability
|
|
Amount
|
|
|
|
Remainder of 2021
|
|
$
|
4,652
|
|
2022
|
|
|
9,170
|
|
2023
|
|
|
7,347
|
|
2024
|
|
|
852
|
|
Total undiscounted minimum future lease payments
|
|
|
22,021
|
|
Imputed interest
|
|
|
(994
|
)
|
Total finance lease liability
|
|
$
|
21,027
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
4,294
|
|
Non-Current portion
|
|
|
16,733
|
|
|
|
$
|
21,027
|
|
Operating lease liability
The amount of future minimum lease payments
under operating leases are as follows:
Operating lease liability
|
|
Amount
|
|
|
|
Remainder of 2021
|
|
$
|
125,223
|
|
2022
|
|
|
214,966
|
|
2023
|
|
|
173,333
|
|
2024
|
|
|
30,340
|
|
Total undiscounted minimum future lease payments
|
|
|
543,862
|
|
Imputed interest
|
|
|
(22,997
|
)
|
Total operating lease liability
|
|
$
|
520,865
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
116,845
|
|
Non-Current portion
|
|
|
404,020
|
|
|
|
$
|
520,865
|
|
18
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
6. Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31, 2020
|
|
|
Cost
|
|
Accumulated amortization
|
|
Net book value
|
|
Net book value
|
Betting platform software
|
|
$
|
5,689,965
|
|
|
$
|
(1,206,317
|
)
|
|
$
|
4,483,648
|
|
|
$
|
4,673,314
|
|
Licenses
|
|
|
5,800,877
|
|
|
|
(939,467
|
)
|
|
|
4,861,410
|
|
|
|
4,917,733
|
|
Location contracts
|
|
|
1,000,000
|
|
|
|
(982,974
|
)
|
|
|
17,026
|
|
|
|
88,455
|
|
Customer relationships
|
|
|
870,927
|
|
|
|
(391,920
|
)
|
|
|
479,007
|
|
|
|
509,237
|
|
Trademarks
|
|
|
119,185
|
|
|
|
(54,774
|
)
|
|
|
64,411
|
|
|
|
68,843
|
|
Websites
|
|
|
40,000
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
13,520,954
|
|
|
$
|
(3,615,452
|
)
|
|
$
|
9,905,502
|
|
|
$
|
10,257,582
|
|
The Company evaluates
intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of
impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with
an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent
in nature.
The Company recorded
$351,850 and $392,378 in amortization expense for finite-lived assets for the six months ended June 30, 2021 and 2020, respectively.
Licenses obtained
by the Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well
as a Bersani and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well
as an Austrian Bookmaker License through the acquisition of Ulisse.
The estimated amortization expense over
the next five year period is as follows:
Amortization Expense
|
|
Amount
|
|
Remainder of 2021
|
|
|
$
|
270,593
|
|
|
2022
|
|
|
|
450,365
|
|
|
2023
|
|
|
|
449,845
|
|
|
2024
|
|
|
|
448,113
|
|
|
2025
|
|
|
|
448,113
|
|
|
Total estimated amortization expense
|
|
|
$
|
2,067,029
|
|
7. Goodwill
|
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
Opening balance
|
|
$
|
1,663,120
|
|
|
$
|
1,663,385
|
|
Foreign exchange movements
|
|
|
(229
|
)
|
|
|
(265
|
)
|
Closing balance
|
|
$
|
1,662,891
|
|
|
$
|
1,663,120
|
|
Goodwill represents the excess purchase price
paid over the fair value of assets acquired, including any other identifiable intangible assets.
The Company evaluates goodwill for impairment
on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment
is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the
fair value is less than carrying value and the impairment is deemed to be permanent in nature.
19
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
8. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
The shares of Zoompass were last quoted on
the OTC market at $0.15 per share on June 30, 2021, resulting in an unrealized loss recorded to earnings related to these securities
of $92,500 for the six months ended June 30, 2021.
9. Line of Credit - Bank
The Company
maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, of which $0 was drawn as of June 30, 2021, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and
no maturity date as long as the security deposit of $1,000,000 remains in place, see Note 3.
10. Convertible Debentures
The accounting treatment relating to the convertible
debentures issued was in accordance with the guidance in ASC 480 and ASC 815.
As of June 30, 2021 and December 31, 2020, the Company
has outstanding, Canadian Dollar denominated convertible debentures in the aggregate principal amount of CDN $0 and CDN $35,000 (approximately
$27,442), respectively.
Convertible debentures of
$10,000 and CDN $65,000 (approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000
was acquired by a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured,
had the maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension.
All of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were repaid
during 2020. The remaining convertible debenture of CDN $35,000 was repaid in the current period.
During the year
ended December 31, 2020, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600,
including interest thereon of CDN $45,029 and investors in U.S. Dollar convertible debentures converted the aggregate principal amount
of $400,000, including interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate convertible debentures outstanding
consists of the following:
Convertible Debentures
|
|
June 30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
27,442
|
|
|
$
|
3,464,737
|
|
Repaid
|
|
|
(27,562
|
)
|
|
|
(2,778,349
|
)
|
Conversion to equity
|
|
|
—
|
|
|
|
(634,431
|
)
|
Foreign exchange movements
|
|
|
120
|
|
|
|
(24,515
|
)
|
|
|
|
—
|
|
|
|
27,442
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
7,105
|
|
|
|
524,227
|
|
Interest expense
|
|
|
4,696
|
|
|
|
207,595
|
|
Repaid
|
|
|
(11,833
|
)
|
|
|
(619,992
|
)
|
Conversion to equity
|
|
|
—
|
|
|
|
(103,958
|
)
|
Foreign exchange movements
|
|
|
32
|
|
|
|
(767
|
)
|
|
|
|
—
|
|
|
|
7,105
|
|
Debenture Discount
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
(627,627
|
)
|
Amortization
|
|
|
—
|
|
|
|
627,627
|
|
|
|
|
—
|
|
|
|
—
|
|
Convertible Debentures, net
|
|
$
|
—
|
|
|
$
|
34,547
|
|
20
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
11. Deferred Purchase Consideration
During the current period, the Company
paid the remaining balance of €20,800 (approximately $25,262) to non-related parties in terms of the Virtual Generation promissory
note.
The movement on deferred purchase consideration
to non-related parties consists of the following:
Deferred Purchase Consideration
|
|
June 30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
Promissory note due to non-related parties
|
|
$
|
25,434
|
|
|
$
|
1,802,384
|
|
Settled by the issuance of common shares
|
|
|
—
|
|
|
|
(724,467
|
)
|
Repayment in cash
|
|
|
(25,262
|
)
|
|
|
(1,105,455
|
)
|
Foreign exchange movements
|
|
|
(172
|
)
|
|
|
52,972
|
|
|
|
|
—
|
|
|
|
25,434
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(7,761
|
)
|
|
|
(120,104
|
)
|
Amortization
|
|
|
7,700
|
|
|
|
114,333
|
|
Foreign exchange movements
|
|
|
61
|
|
|
|
(1,990
|
)
|
|
|
|
—
|
|
|
|
(7,761
|
)
|
Deferred purchase consideration, net
|
|
$
|
—
|
|
|
$
|
17,673
|
|
12. Bank Loan Payable
In September 2016, the Company obtained a loan of
€500,000
(approximately USD $580,000)
from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan originally has an underlying interest rate
of 4.5
points above Euro Inter Bank Offered Rate, was subject to quarterly review and was to be amortized over 57
months ending June 30, 2021 with monthly repayments of €9,760.
Subsequently, in terms of a directive by the Italian Government, in order to provide financial
relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a period of six months and extend the
maturity date of the loan to March 31, 2022, the interest rate remained the same at 4.5% above the Euro Inter Bank Offered Rate and monthly
repayments were revised to €9,971.
The Company made payments in the aggregate
principal amount of €55,870 (approximately USD $67,336) for the six months ended June 30, 2021.
13. Other long-term liabilities
Other long-term liabilities represents the
Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees
on termination or retirement as well as shop deposits that are held by Ulisse.
Balances of other long-term liabilities were
as follows:
Other long-term liabilities
|
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
Severance liability
|
|
$
|
321,902
|
|
|
$
|
297,120
|
|
Customer deposit balance
|
|
|
22,518
|
|
|
|
366,947
|
|
Total other long-term liabilities
|
|
$
|
344,420
|
|
|
$
|
664,067
|
|
21
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated Financial
Statements
14. Related Parties
Notes Payable, Related Party
On March 11,
2020, the Company received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and
Millwork, Inc., a Company controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
Note Payable, Related Party
|
|
June 30,
2021
|
|
December 31,
2020
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Additions
|
|
$
|
—
|
|
|
$
|
300,000
|
|
Repayment
|
|
|
—
|
|
|
|
(200,000
|
)
|
Applied to warrant exercise
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
—
|
|
|
|
22,521
|
|
Repayment
|
|
|
—
|
|
|
|
(14,465
|
)
|
Applied to warrant exercise
|
|
|
—
|
|
|
|
(8,056
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Promissory Notes Payable – Related Party
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible notes
acquired, Related party
Forte Fixtures and Millworks
acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal
amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an
aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible
notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending
the maturity date of the convertible debentures, Forte Fixtures was granted 2 year warrants exercisable for 134,508 shares of common
stock at an exercise price of $3.75 per share and 6 year warrants exercisable for 33,627 shares of common stock at an exercise price
of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506.
Deferred Purchase consideration, Related
Party
During the current period, the Company paid the remaining
balance of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration
consists of the following:
22
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
14. Related Parties (continued)
Related party (payables) receivables
Related party payables and receivables represent
non-interest-bearing (payables) receivables that are due on demand.
The balances outstanding are as follows:
Related Party Receivables
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Related Party payables
|
|
|
|
|
|
|
|
|
Related Party payables
|
Luca Pasquini
|
|
$
|
(564
|
)
|
|
$
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Related Party Receivables
|
|
|
|
|
|
|
|
|
Related Party Receivables
|
Luca Pasquini
|
|
$
|
1,472
|
|
|
$
|
1,519
|
|
Gold Street
Capital
Gold Street Capital is wholly
owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital acquired
certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible
notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid during the current period..
As an incentive for extending
the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants
exercisable at an exercise price of $3.75 per share, and six-year warrants exercisable at an exercise price of $5.00 per share. Gold
Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock at $3.75 per share and six-year warrants exercisable
for 2,383 shares of common stock at $5.00 per share.
Luca Pasquini
On January 31, 2019, the
Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month
period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the Company has
paid Mr. Pasquini the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000
(approximately $334,791).
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
Amounts due to and from Luca Pasquini is for advances
made to various subsidiaries for working capital purposes.
Michele Ciavarella
Mr. Ciavarella agreed to receive $140,000 of his 2021
fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock
valued at $140,000 on the date of issue.
On January 22, 2021, the
Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him.
23
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
14. Related Parties (continued)
Gabriele Peroni
On January 31, 2019, the
Company acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation
and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment
in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month
period. As of June 30, 2020, the Company has paid Mr. Peroni the full cash amount of €500,000 (approximately $604,380) and issued
112,521 shares valued at €300,000 (approximately $334,791).
On January 22, 2021, the
Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him.
Alessandro Marcelli
On January 22, 2021, the
Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him.
Franco Salvagni
On January 22, 2021, the
Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him.
Beniamino Gianfelici
On January 22, 2021, the
Company issued Mr. Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation due to him.
Steven Shallcross
On January 22, 2021, the
Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’
fees due to him.
Andrea Mandel-Mantello
On June 29, 2021,
the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective
immediately and Mr. Mandel-Mantello will serve on the audit committee.
15. Stockholders’ Equity
For the six months ended June 30, 2021, the
Company issued a total of 467,990 shares of common stock, valued at $2,676,901 for the settlement of compensation and directors’
fees to certain of the Company’s related parties, refer note 14 above.
Between January 4, 2021, and May 28, 2021,
investors exercised warrants for 1,490,809 shares of common stock for gross proceeds of $3,922,481 at an average exercise price
of $2.63 per share.
On January 22, 2021, the Company issued 24,476 restricted
shares of common stock valued at $140,000 to Michele Ciavarella in terms of a compensation election he made for the 2021 fiscal year.
24
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
16. Warrants
A summary of all of the Company’s warrant
activity during the period January 1, 2020 to June 30, 2021 is as follows:
Warrants
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
Warrants: Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Exercise price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants: Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020
|
|
|
1,089,474
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
Granted
|
|
|
5,374,371
|
|
|
|
2.50
|
to
|
5.00
|
|
|
|
2.62
|
|
Forfeited/cancelled
|
|
|
(1,089,474
|
)
|
|
|
4.00
|
|
|
|
4.00
|
|
Exercised
|
|
|
(3,321,226
|
)
|
|
|
2.50
|
to
|
5.00
|
|
|
|
2.62
|
|
Outstanding December 31, 2020
|
|
|
2,053,145
|
|
|
$
|
2.50
|
to
|
5.00
|
|
|
|
2.63
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(1,490,809
|
)
|
|
|
2.50
|
to
|
3.75
|
|
|
|
2.63
|
|
Outstanding June 30, 2021
|
|
|
562,336
|
|
|
$
|
2.50
|
to
|
5.00
|
|
|
$
|
2.66
|
|
The following tables summarize information
about warrants outstanding as of June 30, 2021:
Warrants outstanding, Exercise Price
|
|
|
|
Warrants outstanding
|
|
Warrants exercisable
|
Exercise price
|
|
|
Number of shares
|
|
|
|
Weighted average remaining years
|
|
|
|
Weighted average exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average exercise price
|
|
$2.50
|
|
|
502,173
|
|
|
|
4.14
|
|
|
$
|
2.50
|
|
|
|
502,173
|
|
|
$
|
2.50
|
|
$3.75
|
|
|
48,395
|
|
|
|
0.92
|
|
|
|
3.75
|
|
|
|
48,395
|
|
|
|
3.75
|
|
$5.00
|
|
|
11,768
|
|
|
|
1.12
|
|
|
|
5.00
|
|
|
|
11,768
|
|
|
|
5.00
|
|
|
|
|
562,336
|
|
|
|
3.80
|
|
|
$
|
2.66
|
|
|
|
562,336
|
|
|
$
|
2.66
|
|
17. Stock Options
In September 2018, our stockholders
approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board
approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares
that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an increase
in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the
Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to
the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority
to grant under the plan by an additional 1,850,000 shares of common stock.
In addition, pursuant to the employment
agreement entered into with Mr. Monteverdi, the Company granted a non-plan option to purchase
648,000 shares of common stock at an exercise price of $1.84 that vest pro rata on each of
September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
The Company issued a ten year option exercisable for
50,000 shares at an exercise price of $2.62 to an employee.
25
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
17. Stock Options (continued)
On May 3, 2021, the Company issued a ten year
option exercisable for 25,000 shares at an exercise price of $4.20 per share to an employee.
The options awarded
during the six months ended June 30, 2021 were valued using a Black-Scholes option pricing model.
The following assumptions
were used in the Black-Scholes model:
Assumptions
|
|
Six months ended
June 30, 2021
|
Exercise price
|
|
$
|
2.62
|
to
|
4.20
|
|
Risk free interest rate
|
|
|
0.92
|
to
|
1.63
|
%
|
Expected life of options
|
|
|
10 years
|
|
Expected volatility of underlying stock
|
|
|
226.3
|
to
|
229.8
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
As of June 30, 2021, there was an aggregate
of 1,049,938 options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan and 1,950,062
reserved for future grants.
A summary of all of the Company’s option
activity during the period January 1, 2020 to June 30, 2021 is as follows:
Stock Option Activity
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
Stock Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2020
|
|
|
315,938
|
|
|
$
|
2.72
|
to
|
2.96
|
|
|
$
|
2.84
|
|
Granted
|
|
|
1,307,000
|
|
|
|
1.84
|
to
|
2.03
|
|
|
|
1.95
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2020
|
|
|
1,622,938
|
|
|
$
|
1.84
|
to
|
2.96
|
|
|
|
2.11
|
|
Granted
|
|
|
75,000
|
|
|
|
2.62
|
to
|
4.20
|
|
|
|
3.15
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2021
|
|
|
1,697,938
|
|
|
$
|
1.84
|
to
|
4.20
|
|
|
$
|
2.16
|
|
The following tables summarize information
about stock options outstanding as of June 30, 2021:
Stock options outstanding
|
|
|
|
Options outstanding
|
|
Options exercisable
|
Exercise price
|
|
Number of shares
|
|
Weighted
average
remaining years
|
|
Weighted
Average
exercise price
|
|
Number of shares
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.84
|
|
|
|
648,000
|
|
|
|
9.24
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$
|
2.03
|
|
|
|
659,000
|
|
|
|
9.26
|
|
|
|
|
|
|
|
237,250
|
|
|
|
|
|
$
|
2.62
|
|
|
|
50,000
|
|
|
|
9.42
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$
|
2.72
|
|
|
|
25,000
|
|
|
|
5.01
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
$
|
2.80
|
|
|
|
220,625
|
|
|
|
8.23
|
|
|
|
|
|
|
|
96,706
|
|
|
|
|
|
$
|
2.96
|
|
|
|
70,313
|
|
|
|
8.02
|
|
|
|
|
|
|
|
70,313
|
|
|
|
|
|
$
|
4.20
|
|
|
|
25,000
|
|
|
|
9.84
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
1,697,938
|
|
|
|
9.02
|
|
|
$
|
2.12
|
|
|
|
429,269
|
|
|
$
|
2.407
|
|
As of June 30, 2021, there were unvested options
to purchase 1,268,669 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is
$2,377,821 which is expected to be recognized over a period of 38 months.
The intrinsic value of the options at June
30, 2021 was $3,237,161.
26
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
18. Revenues
The following table represents disaggregated revenues
from our gaming operations for the three months and six months ended June 30, 2021 and 2020. Net Gaming Revenues represents Turnover (also
referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, and taxes due to government
authorities, while Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
Turnover
|
|
|
|
|
|
|
|
|
Turnover web-based
|
|
$
|
219,874,610
|
|
|
$
|
89,855,358
|
|
|
$
|
451,206,769
|
|
|
$
|
182,231,464
|
|
Turnover land-based
|
|
|
218,129
|
|
|
|
4,210,173
|
|
|
|
12,043,959
|
|
|
|
27,812,258
|
|
Total Turnover
|
|
|
220,092,739
|
|
|
|
94,065,531
|
|
|
|
463,250,728
|
|
|
|
210,043,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings web-based
|
|
|
205,048,852
|
|
|
|
84,604,648
|
|
|
|
420,647,267
|
|
|
|
170,700,270
|
|
Winnings land-based
|
|
|
166,369
|
|
|
|
3,599,916
|
|
|
|
10,331,307
|
|
|
|
21,791,318
|
|
Total Winnings/payouts
|
|
|
205,215,221
|
|
|
|
88,204,564
|
|
|
|
430,978,574
|
|
|
|
192,491,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues
|
|
|
14,877,518
|
|
|
|
5,860,967
|
|
|
|
32,272,154
|
|
|
|
17,552,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes
|
|
|
3,285,273
|
|
|
|
1,065,693
|
|
|
|
6,614,311
|
|
|
|
2,596,488
|
|
Net Gaming Revenues
|
|
|
11,592,245
|
|
|
|
4,795,274
|
|
|
|
25,657,843
|
|
|
|
14,955,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
|
|
|
97,704
|
|
|
|
14,995
|
|
|
|
189,434
|
|
|
|
24,797
|
|
Revenue
|
|
$
|
11,689,949
|
|
|
$
|
4,810,269
|
|
|
$
|
25,847,277
|
|
|
$
|
14,980,443
|
|
19. Net loss per Common Share
Basic income (loss) per share is based on the
weighted-average number of common shares outstanding during each period. Diluted income (loss) per share is based on basic shares
as determined above, plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” options
and warrants using the treasury stock method and the inclusion of all convertible securities, including convertible debentures,
assuming these securities were converted at the beginning of the period or at the time of issuance, if later, adding back any direct
incremental expenses related to the convertible securities, including interest expense, debt discount amortization. The computation
of diluted net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss
per share.
The computation of the diluted income per share
for the three months and six months ended June 30, 2021 and 2020 was anti-dilutive due to the losses realized.
For the three months and six months ended June
30, 2021 and 2020, the following options, warrants and convertible debentures were excluded from the computation of diluted loss
per share as the result of the computation was anti-dilutive:
Net loss per Common Share
|
|
|
|
|
|
|
|
|
Description
|
|
Three and six Months ended June 30, 2021
|
|
Three and six Months ended June 30, 2020
|
|
|
|
|
|
Options
|
|
|
1,697,938
|
|
|
|
315,938
|
|
Warrants
|
|
|
562,336
|
|
|
|
374,373
|
|
Convertible debentures
|
|
|
—
|
|
|
|
1,041,002
|
|
|
|
|
2,260,274
|
|
|
|
1,731,313
|
|
27
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
20. Segmental Reporting
The Company has two reportable operating segments.
These segments are:
|
(i)
|
Betting establishments
|
The operating of web based as well
as land based leisure betting establishments situated throughout Italy; and
|
(ii)
|
Betting platform software and services
|
Provider of certified betting Platform
software services to leisure betting establishments in Italy and 11 other countries.
Segment Reporting
The operating assets and liabilities of the
reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of non-current assets
|
|
$
|
15,005
|
|
|
$
|
67,116
|
|
|
$
|
40,311
|
|
|
$
|
122,432
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
10,877,808
|
|
|
|
913,319
|
|
|
|
9,385,445
|
|
|
|
21,176,572
|
|
Non-current assets
|
|
|
6,939,721
|
|
|
|
6,077,751
|
|
|
|
1,364,113
|
|
|
|
14,381,585
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(8,146,135
|
)
|
|
|
(763,734
|
)
|
|
|
(871,731
|
)
|
|
|
(9,781,600
|
)
|
Non-current liabilities
|
|
|
(762,301
|
)
|
|
|
(1,178,665
|
)
|
|
|
—
|
|
|
|
(1,940,966
|
)
|
Intercompany balances
|
|
|
3,874,380
|
|
|
|
208,117
|
|
|
|
(4,082,497
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
12,783,473
|
|
|
$
|
5,256,788
|
|
|
$
|
5,795,330
|
|
|
$
|
23,835,591
|
|
The segment operating results of the reportable
segments are disclosed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Revenue
|
|
$
|
25,657,843
|
|
|
$
|
189,434
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,847,277
|
|
Intercompany Service revenue
|
|
|
207,118
|
|
|
|
2,608,669
|
|
|
|
—
|
|
|
|
(2,815,787
|
)
|
|
|
—
|
|
|
|
|
25,864,961
|
|
|
|
2,798,103
|
|
|
|
—
|
|
|
|
(2,815,787
|
)
|
|
|
25,847,277
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
2,608,669
|
|
|
|
207,118
|
|
|
|
—
|
|
|
|
(2,815,787
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
20,269,209
|
|
|
|
9,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,278,399
|
|
General and administrative expenses
|
|
|
3,507,099
|
|
|
|
2,505,973
|
|
|
|
2,887,082
|
|
|
|
—
|
|
|
|
8,900,154
|
|
|
|
|
26,384,977
|
|
|
|
2,722,281
|
|
|
|
2,887,082
|
|
|
|
(2,815,787
|
)
|
|
|
29,178,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from operations
|
|
|
(520,016
|
)
|
|
|
75,822
|
|
|
|
(2,887,082
|
)
|
|
|
—
|
|
|
|
(3,331,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
361,316
|
|
|
|
1,029
|
|
|
|
8,017
|
|
|
|
—
|
|
|
|
370,362
|
|
Other expense
|
|
|
(24,119
|
)
|
|
|
(4,019
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,138
|
)
|
Interest expense, net
|
|
|
(4,890
|
)
|
|
|
1
|
|
|
|
(5,154
|
)
|
|
|
—
|
|
|
|
(10,043
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,833
|
)
|
|
|
—
|
|
|
|
(12,833
|
)
|
Loss on extinguishment of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
(92,500
|
)
|
|
|
—
|
|
|
|
(92,500
|
)
|
Total other income (expense)
|
|
|
332,307
|
|
|
|
(2,989
|
)
|
|
|
(102,470
|
)
|
|
|
—
|
|
|
|
226,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes
|
|
|
(187,709
|
)
|
|
|
72,833
|
|
|
|
(2,989,552
|
)
|
|
|
—
|
|
|
|
(3,104,428
|
)
|
Income tax provision
|
|
|
(192,878
|
)
|
|
|
(83,623
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(276,501
|
)
|
Net Loss
|
|
$
|
(380,587
|
)
|
|
$
|
(10,790
|
)
|
|
$
|
(2,989,552
|
)
|
|
$
|
—
|
|
|
$
|
(3,380,929
|
)
|
28
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
20. Segmental Reporting (continued)
The operating assets and liabilities of the reportable segments
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of non-current assets
|
|
$
|
56,613
|
|
|
$
|
31,804
|
|
|
$
|
—
|
|
|
$
|
88,417
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
5,631,846
|
|
|
|
990,614
|
|
|
|
538,098
|
|
|
|
7,160,558
|
|
Non-current assets
|
|
|
12,530,024
|
|
|
|
6,403,878
|
|
|
|
1,870,903
|
|
|
|
20,804,805
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,668,018
|
)
|
|
|
(476,375
|
)
|
|
|
(10,130,392
|
)
|
|
|
(16,274,785
|
)
|
Non-current liabilities
|
|
|
(1,265,500
|
)
|
|
|
(1,293,206
|
)
|
|
|
(29,351
|
)
|
|
|
(2,588,057
|
)
|
Intercompany balances
|
|
|
4,866,760
|
|
|
|
(740,080
|
)
|
|
|
(4,126,680
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
16,095,112
|
|
|
$
|
4,884,831
|
|
|
$
|
(11,877,422
|
)
|
|
$
|
9,102,521
|
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Revenue
|
|
$
|
14,955,646
|
|
|
$
|
24,797
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,980,443
|
|
Intercompany Service revenue
|
|
|
—
|
|
|
|
1,209,799
|
|
|
|
—
|
|
|
|
(1,209,799
|
)
|
|
|
—
|
|
|
|
|
14,955,646
|
|
|
|
1,234,596
|
|
|
|
—
|
|
|
|
(1,209,799
|
)
|
|
|
14,980,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
1,209,799
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,209,799
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
10,165,294
|
|
|
|
7,233
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,172,527
|
|
General and administrative expenses
|
|
|
2,151,956
|
|
|
|
1,841,608
|
|
|
|
1,710,824
|
|
|
|
—
|
|
|
|
5,704,388
|
|
|
|
|
13,527,049
|
|
|
|
1,848,841
|
|
|
|
1,710,824
|
|
|
|
(1,209,799
|
)
|
|
|
15,876,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from operations
|
|
|
1,428,597
|
|
|
|
(614,245
|
)
|
|
|
(1,710,824
|
)
|
|
|
—
|
|
|
|
(896,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
25,660
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,660
|
|
Interest expense, net
|
|
|
(1,574
|
)
|
|
|
7
|
|
|
|
(171,506
|
)
|
|
|
—
|
|
|
|
(173,073
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(737,074
|
)
|
|
|
—
|
|
|
|
(737,074
|
)
|
Loss on extinguishment of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(719,390
|
)
|
|
|
—
|
|
|
|
(719,390
|
)
|
Gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
722,500
|
|
|
|
—
|
|
|
|
722,500
|
|
Total other (expense) income
|
|
|
24,086
|
|
|
|
7
|
|
|
|
(905,470
|
)
|
|
|
—
|
|
|
|
(881,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before Income Taxes
|
|
|
1,452,683
|
|
|
|
(614,238
|
)
|
|
|
(2,616,294
|
)
|
|
|
—
|
|
|
|
(1,777,849
|
)
|
Income tax provision
|
|
|
(469,950
|
)
|
|
|
41,965
|
|
|
|
(162,112
|
)
|
|
|
—
|
|
|
|
(590,097
|
)
|
Net (Loss) Income
|
|
$
|
982,733
|
|
|
$
|
(572,273
|
)
|
|
$
|
(2,778,406
|
)
|
|
|
—
|
|
|
$
|
(2,367,946
|
)
|
29
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
21. Subsequent Events
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.
On July 1, 2021, the Company approved the issue
of options exercisable for 640,000 shares of common stock to be issued to certain of the Company’s existing employees. The
options will be exercisable for a period of ten years from the date of grant, will vest monthly over a year from the date of grant.
On July 5, 2021, the Company entered into an
employment agreement dated July 1, 2021 with Mark Korb, age 53 ,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 thirty-six 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.
Pursuant to the 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.
In terms of an employment agreement entered
into with an employee on July 15, 2021, the Company issued an option to purchase 25,000 shares of the Company’s common stock.
The shares of common stock underlying the option award vest annually on the anniversary date of the employment agreement as to
an option to purchase 9,000 shares in year one and an option to purchase 8,000 shares in year two and three. The options are exercisable
for a period of ten years from the date of grant and have an exercise price of $4.07 per share.
30
ELYS GAME TECHNOLOGY, CORP.
Notes to Unaudited Condensed Consolidated
Financial Statements
21. Subsequent Events (continued)
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 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.
The Purchase Agreement contains customary representations,
warranties and covenants of Elys and the Sellers. Subject to certain customary limitations, the Sellers have agreed to indemnify
the Company and its officers and directors against certain losses related to, among other things, breaches of the Sellers’
representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase
Agreement.
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. The effective date of Mr. Ciavarella's appointment coincides with the resignation of Matteo Monteverdi as the Company’s
Chief Executive Officer and President to become the Company’s Head of Special Projects. 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.
Other than disclosed above, the Company has
evaluated subsequent events through the date the financial statements were issued and did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
31