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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

 

FORM 10-Q

_________________

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

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

 

1-561-838-3325

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock ELYS The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated Filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

 

As of August 11, 2023, the registrant had 38,812,842 shares of common stock, $0.0001 par value per share, outstanding.

 

 
 

 TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION PAGE
     
  Cautionary Statement Regarding Forward Looking Statements 3
     
Item 1 Financial Statements  
  Consolidated Balance Sheets (unaudited) 4
  Consolidated Statements of Operations and Comprehensive Loss (unaudited) 5
  Consolidated Statements of Changes in Stockholders' Equity (unaudited) 6
  Consolidated Statements of Cash Flows (unaudited) 7
  Notes to Consolidated Financial Statements (unaudited) 9
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation 39
Item 3 Quantitative and Qualitative Disclosures About Market Risk 54
Item 4 Controls and Procedures 54
     
PART II - OTHER INFORMATION 55
     
Item 1 Legal Proceedings 55
Item 1A Risk Factors 56
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 58
Item 3 Defaults Upon Senior Securities 58
Item 4 Mine Safety Disclosures 58
Item 5 Other Information 58
Item 6 Exhibits 59
     
SIGNATURES 60

 

 

  

 

 

 

 

 

 

 

 
 
 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to in this Quarterly Report on Form 10-Q and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Elys Game Technology, Corp. cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Elys Game Technology, Corp. or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth below, under Part II, “Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those identified under Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on April 17, 2023.

 

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

 

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

 

 

 

 

 

 

 

 
 
 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Balance Sheets

(Unaudited)

  

June 30,

2023

 

December 31,

2022

Current Assets          
Cash and cash equivalents  $2,547,136   $3,400,166 
Accounts receivable   723,517    731,962 
Gaming accounts receivable   1,370,095    1,431,497 
Prepaid expenses   1,042,356    900,205 
Related party receivable   22,511    22,511 
Other current assets   413,128    338,871 
Total Current Assets   6,118,743    6,825,212 
           
Non - Current Assets          
Restricted cash         364,701 
Property and equipment   1,078,702    610,852 
Right of use assets   1,676,329    1,498,703 
Intangible assets   10,347,276    10,375,524 
Goodwill   3,416,337    1,662,278 
Marketable securities         19,999 
Total Non - Current Assets   16,518,644    14,532,057 
Total Assets  $22,637,387   $21,357,269 
           
Current Liabilities          
Accounts payable and accrued liabilities  $7,492,698    6,790,523 
Gaming accounts payable   2,166,345    2,213,532 
Taxes payable   302,114    179,720 
Related party payable   573,706    422,129 
Promissory notes payable - related parties   787,551    752,000 
Operating lease liability   423,402    369,043 
Financial lease liability   3,815    6,831 
Bank loan payable - current portion   3,042    3,151 
Total Current Liabilities   11,752,673    10,736,929 
           
Non-Current Liabilities          
Deferred tax liability   1,431,071    1,696,638 
Operating lease liability   1,213,364    1,157,979 
Financial lease liability   1,373    2,288 
Bank loan payable   151,138    148,169 
Convertible notes payable, net of discount of $181,351     186,266       
Convertible notes payable – related parties, net of discount of $893,926   1,160,241       
Other long-term liabilities   756,807    464,851 
Total Non – Current Liabilities   4,900,260    3,469,925 
Total Liabilities   16,652,933    14,206,854 
           
Stockholders' Equity          
Common stock, $0.0001 par value, 80,000,000 shares authorized; 38,812,842 and 30,360,810 shares issued and outstanding as of June 30, 2023 and December 31, 2022   3,881    3,036 
Additional paid-in capital   78,831,744    74,249,244 
Accumulated other comprehensive (loss) income   (507,443)   (600,619)
Accumulated deficit   (72,343,728)   (66,501,246)
Total Stockholders' Equity   5,984,454    7,150,415 
Total Liabilities and Stockholders’ Equity  $22,637,387   $21,357,269 

 

See notes to the unaudited condensed consolidated financial statements

 

4

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited) 

 

             
  

For the Three Months Ended

June 30,

 

For the Six Months Ended

June 30,

   2023  2022  2023  2022
Revenue  $11,336,641   $10,347,735   $23,768,787   $22,583,721 
                     
Costs and Expenses                    
Selling expenses   9,565,920    7,868,719    19,434,074    17,154,951 
General and administrative expenses   4,968,342    4,317,984    9,416,089    8,888,410 
Depreciation and amortization   344,001    453,274    691,324    892,232 
Restructuring and severance expenses         1,205,689          1,205,689 
Total Costs and Expenses   14,878,263    13,845,666    29,541,487    28,141,282 
                     
Loss from Operations   (3,541,622)   (3,497,931)   (5,772,700)   (5,557,561)
                     
Other (Expenses) Income                    
Interest expense, net of interest income   (75,291)   (9,678)   (111,227)   (13,537)
Amortization of debt discount   (55,710)         (73,270)      
Other income   4,598    29,103    13,444    68,852 
Changes in fair value of contingent purchase consideration         (465,761)         (915,774)
Other expense   (7,653)   (9,941)   (16,681)   (11,011)
Gain (loss) on marketable securities   (999)   15,000    (19,999)   92,500 
Total Other (Expenses) Income   (135,055)   (441,277)   (207,733)   (778,970)
                     
Loss Before Income Taxes   (3,676,677)   (3,939,208)   (5,980,433)   (6,336,531)
Income tax provision   127,556    123,949    137,951    (32,944)
Net Loss  $(3,549,121)  $(3,815,259)  $(5,842,482)  $(6,369,475)
                     
Other Comprehensive (Loss) Income                    
Foreign currency translation adjustment   5,529    (358,456)   93,176    (510,231)
                     
Comprehensive Loss  $(3,543,592)  $(4,173,715)  $(5,749,306)  $(6,879,706)
                     
Loss per common share – basic and diluted  $(0.10)  $(0.16)  $(0.18)  $(0.27)
Weighted average number of common shares outstanding – basic and diluted   33,898,731    24,118,752    33,201,603    23,818,620 

 

 

 

 

See notes to the unaudited condensed consolidated financial statements

 

5

 

 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Changes in Stockholders' Equity

Six months ended June 30, 2023 and June 30, 2022

(Unaudited)  

                                                 
   Common Stock  Additional  Accumulated
Other
      
   Shares  Amount  Paid-In Capital  Comprehensive Income  Accumulated Deficit  Total
                   
Six months ended June 30, 2022                              
Balance at December 31, 2021   23,363,732   $2,336   $66,233,292   $(251,083)  $(48,243,028)  $17,741,517 
                               
Proceeds from open market sales   56,472    6    131,559                131,565 
Brokers Fees on open market sales             (3,949)             (3,949)
Restricted stock compensation   162,835    16    424,984                425,000 
Stock based compensation expense   —            597,972                597,972 
Foreign currency translation adjustment   —                  (151,775)         (151,775)
Net loss   —                        (2,554,216)   (2,554,216)
Balance at March 31, 2022   23,583,039   $2,358   $67,383,858   $(402,858)  $(50,797,244)  $16,186,114 
                               
Proceeds from open market sales   111,544    11    255,477                255,488 
Brokers Fees on open market sales             (7,663)             (7,663)
Proceeds from private placement   2,625,000    263    2,486,925                2,487,188 
Proceeds from prefunded warrants   —            512,758                512,758 
Brokers fees on private placement   —            (245,950)               (245,950)
Stock based compensation expense             1,296,118              1,296,118 
Foreign currency translation adjustment                  (358,456)        (358,456)
Net loss   —                        (3,815,259)   (3,815,259)
Balance at June 30, 2022   26,319,583   $2,632   $71,681,523   $(761,314)  $(54,612,503)  $16,310,338 
                               

 

 

   Common Stock  Additional  Accumulated
Other
      
   Shares  Amount  Paid-In Capital  Comprehensive Income  Accumulated Deficit  Total
                   
Six months ended June 30, 2023                              
Balance at December 31, 2022   30,360,810   $3,036   $74,249,244   $(600,619)  $(66,501,246)  $7,150,415 
                               
Fair value of common stock issued for Acquisition of Engage  IT Services, Srl   3,018,461    302    1,735,313                1,735,615 
Fair value of warrant issued with convertible debt   —            485,922                485,922 
Restricted stock awards   5,366,155    537    170,885                171,422 
Fair value of restricted stock issued to settle liabilities   67,416    6    59,994                60,000 
Fair value of options issued to settle liabilities   —            125,000                125,000 
Stock based compensation expense   —            545,198                545,198 
Foreign currency translation adjustment   —                  87,647          87,647 
Net loss   —                        (2,293,361)   (2,293,361)
Balance at March 31, 2023   38,812,842   $3,881   $77,371,556   $(512,972)  $(68,794,607)  $8,067,858 
                               
Fair value of warrant issued with convertible debt   —            662,623                662,623 
Restricted stock awards   —            257,133                257,133 
Stock based compensation expense   —            540,432                540,432 
Foreign currency translation adjustment   —                  5,529          5,529 
Net loss   —                        (3,549,121)   (3,549,121)
Balance at June 30, 2023   38,812,842   $3,881   $78,831,744   $(507,443)  $(72,343,728)  $5,984,454 

 

 

See notes to the unaudited condensed consolidated financial statements 

 

6   

 
 
 

 ELYS GAME TECHNOLOGY, CORP.

Consolidated Statements of Cash Flows

(Unaudited)  

 

       
  

For the six months

ended June 30,

   2023  2022
       
Net Loss  $(5,842,482)  $(6,369,475)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization   691,323    892,232 
Gain on disposal of property and equipment   (5,124)      
Amortization of debt discount   73,269       
Restricted stock awards   428,555    425,000 
Stock-based compensation expense   1,085,630    1,894,090 
Non-cash interest   110,193    9,151 
Loss on dissolution of subsidiary   327       
Change in fair value of contingent purchase consideration         915,774 
Unrealized loss (gain) on marketable securities   19,999    (92,500)
Movement in deferred taxation   (265,567)   (159,077)
Changes in Operating Assets and Liabilities, net of assets acquired and liabilities assumed          
Prepaid expenses   (139,161)   (1,024,859)
Accounts payable and accrued liabilities   337,625    (1,700,177)
Accounts receivable   18,402    (132,614)
Gaming accounts receivable   85,334    1,313,461 
Gaming accounts liabilities   (84,640)   329,183 
Taxes payable   113,755    153,526 
Due from related parties   569,900    1,056 
Other current assets   (44,554)   (86,891)
Long term liability   110,864    42,300 
Net Cash Used in Operating Activities   (2,736,352)   (3,589,820)
           
Cash Flows from Investing Activities          
Cash on acquisition of subsidiary   94,450       
Acquisition of property and equipment and intangible assets   (1,076,326)   (229,075)
Net Cash Used in Investing Activities   (981,876)   (229,075)
           
Cash Flows from Financing Activities          
Proceeds from convertible notes   350,000       
Proceeds from convertible notes, related parties   2,000,000       
Proceeds from Subscriptions – Net of Fees         2,616,679 
Proceeds from pre-funded warrants         512,758 
Proceeds from related party promissory notes         260,000 
Repayment of bank overdraft         (7,233)
Repayment of bank loan         (33,184)
Repayment of financial leases   (4,051)   (4,038)
Net Cash provided by Financing Activities   2,345,949    3,344,982 
           
Effect of change in exchange rate   154,548    (858,166)
           
Net decrease in cash   (1,217,731)   (1,332,079)
Cash, cash equivalents and restricted cash – beginning of the period   3,764,867    7,706,357 
Cash, cash equivalents and restricted cash – end of the period  $2,547,136   $6,374,278 
           
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows          
Cash and cash equivalents  $2,547,136   $6,018,635 
Restricted cash included in non-current assets         355,643 
   $2,547,136   $6,374,278 

 

7  

 
 
 

 

 

 

 

Supplemental disclosure of cash flow information      
Cash paid during the period for:      
Interest  $1,287   $4,898 
Income tax  $5,222   $47,311 
           
Supplemental cash flow disclosure for non-cash activities          
Fair value of common stock issued on acquisition of Engage IT Services Srl  $1,735,615   $   
Fair value of warrant issued with convertible debt  $1,148,545   $   
Fair value of restricted stock issued to settle liabilities  $60,000   $   
Fair value of options issued to settle liabilities  $125,000   $   

 

 

 

 

 

 

 

 

 

 

See notes to the unaudited condensed consolidated financial statements

 

 

 

 

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Nature of Business

 

Established in the State of Delaware in 1998, Elys Game Technology, Corp (“Elys” or the “Company”), provides gaming services in the U.S. market via Elys Gameboard Technologies, LLC and Bookmakers Company US, LLC (“US Bookmaking”) in certain licensed states where the Company offers bookmaking and platform services to the Company’s customers. The Company’s intention is to focus its attention on expanding its operations in the U.S. market. In this regard, the Company operates in Washington D.C. through a Class B Managed Service Provider and Class B Operator license to operate a sportsbook within the Grand Central Restaurant and Sportsbook located in the Adams Morgan district and the Over Under Sportsbook Rooftop Lounge in Washington, D.C. In March 2022 the Company began providing platform and bookmaking services at Ocean Casino Resort in Atlantic City, New Jersey. Through its acquisition of US Bookmaking, the Company also provides sportsbook services to tribal casinos in New Mexico, North Dakota, Colorado and Michigan.

 

The Company also provides business-to-consumer (“B2C”) gaming services in Italy through its subsidiary, Multigioco. Multigioco has both a land-based retail license and an online interactive gaming license regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”). Through Multigioco the Company offers leisure betting products such as sports betting, and virtual sports betting products at physical locations as well as online through the Company’s website www.newgioco.it through linked commercial webskins and on mobile devices. Management implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco which allowed the Austrian Bookmakers license, that was regulated by the Austrian Federal Finance Ministry (“BMF”), to terminate.

 

Additionally, the Company provides business-to-business (“B2B”) gaming technology through its Odissea subsidiary which owns and operates a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming account management system, built-in sports book and a virtual sports platform through its Virtual Generation subsidiary. The Platform also provides seamless integration of application programming interface of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to incorporate e-sports and daily fantasy sports providers. Management is implementing a growth strategy to expand B2B gaming technology operations in the U.S. and is considering further expansion in Canada and Latin American countries in the near future.

 

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

 

Name   Acquisition or Formation Date   Domicile   Functional Currency
             
Elys Game Technology, Corp. (“Elys”)   Parent Company   USA   U.S. dollar
Multigioco Srl (“Multigioco”)   August 15, 2014   Italy   Euro
Ulisse GmbH (“Ulisse”)   July 1, 2016   Austria   Euro
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)   July 1, 2016   Austria   Euro
Virtual Generation Limited (“VG”)   January 31, 2019   Malta   Euro
Newgioco Group Inc. (“NG Canada”)   January 17, 2017   Canada   Canadian dollar
Newgioco Colombia SAS   November 22, 2019   Colombia   Colombian peso
Elys Gameboard Technologies, LLC   May 28, 2020   USA   U.S. dollar
Bookmakers Company US, LLC   July 15, 2021   USA   U.S. dollar
Elys US Game Technologies and Services, LLC   July 1, 2022   USA   U.S. dollar
Engage IT Services, Srl   January 29, 2023   Italy   Euro

 

On January 12, 2023, Elys Technology Group Limited, a previously wholly owned subsidiary, was dissolved and its operations were assumed by Virtual Generation Limited.


 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Nature of Business (continued)

 

The Company operates two lines of business: (i) the operating of online  betting as well as retail leisure betting at establishments situated throughout Italy and; (ii) licensing our certified betting Platform software and services to global leisure betting establishments and operators.

 

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

 

a) an operational group based in Europe that maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
b) an operational group based in the U.S. with offices in Las Vegas, Nevada;
c) a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and
d) a corporate group which is based in North America and maintains an executive suite in Las Vegas, Nevada and a space in Toronto, Ontario, Canada through which the Company carries-out corporate activities, handles day-to-day reporting and U.S. development planning, and through which various employees, independent contractors and vendors are engaged.

 

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, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. The balance sheet at December 31, 2022 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 17, 2023.

 

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

 

The Company previously had a secondary listing on the NEO exchange in Canada, which was terminated on December 31, 2021. For the purposes of its previous listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy to National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102CP”) which permits the Company to prepare its financial statements in accordance with U.S. GAAP.

 

Principles of consolidation

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

 

Foreign operations

 

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

 

All revenues were generated in either Euros, Colombian Pesos or U.S. dollars during the periods presented.

 

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

 

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, using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived intangible assets and goodwill, the collectability of receivables, leasing arrangements, convertible debentures, contingent purchase consideration, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

 

Loss Contingencies

 

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

 

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

 

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 developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

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

 

Derivative Financial Instruments

 

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

 

Cash and Cash Equivalents

 

The Company primarily places cash balances in the U.S. with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $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.

 

To date, the Company has not been affected by the recent U.S. bank failures and we do not anticipate any adverse impact on the Company’s cash balances.

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three and six months ended June 30, 2023. 

 

12

 

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Gaming Accounts Payable

 

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

 

Long Lived Assets

 

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

 

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

 

Property and Equipment

 

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

 

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

 

Property and Equipment Useful lives    
Description   Useful Life (in years)
     
Leasehold improvements   Life of the underlying lease
Computer and office equipment   3 to 5   years
Furniture and fittings   7 to 10   years
Computer Software   3 to 5   years
Vehicles   4 to 5   years

    

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
Multigioco and Rifa ADM Licenses   1.5 to 7
Location contracts   5 to 7
Customer relationships   10 to 18
Trademarks/Tradenames   10 to 14
Websites   5
Non-compete agreements   4

 

 

   

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

 

Goodwill was recently assessed on December 31, 2022 and as of June 30, 2023 there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate.

 

Leases

 

The Company accounts for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition of financial leases or operating leases, by evaluating the terms of the lease, including the following: the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term.

 

Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases 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 operating lease liability raised at the date of lease inception. The right of use asset and the operating lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.

 

Income Taxes

 

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

 

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

 

In Italy, tax years beginning 2017 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2017 forward, are subject to examination. The Company is not currently under examination, and it has not been notified of a pending examination.

 

14 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

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 Unaudited Condensed 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.

  

Revenue Recognition

 

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

 

Revenues from the Betting Platform include software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled.

 

  License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned.

 

  Training fees, installation fees are recognized when each task has been completed.

 

  Product support services are recognized based on the nature of the agreement with our customers, ad-hoc support service revenue will be recognized when the task is completed and revenue from product support service contracts will be recognized on a periodic basis where we charge a recurring fee to provide ongoing support services.

 

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 expenses related to Restricted Stock Units (“RSU’s”) granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.

 

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

 

15 

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Comprehensive Income (Loss)

 

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

 

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 include no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.

 

Related Parties

 

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

 

Recent Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended June 30, 2023. None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

 

Reporting by segment

 

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

 

  (i)  the operating of online as well as retail leisure betting establishments situated throughout Italy, and

  

  (ii)   Licensing of certified betting Platform software and services to leisure betting establishments in the U.S. and 9 other countries.

  

3. Going Concern

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

 

The accompanying financial statements for the period ended June 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund ongoing development work of its gaming platforms and operations until we are able to generate revenue streams from our additional gaming platforms and become profitable. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about the Company’s ability to continue as a going concern for one year from the date of issuance of these unaudited condensed consolidated financial statements. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

 

16 

 

 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

4. Acquisition of subsidiaries

 

On January 29, 2023 (the “Closing Date”), the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Engage IT Services, Srl, a company organized under the laws of Italy (“Engage IT”), from its founding shareholders (the “Sellers”). The Purchase Agreement provided that, upon the terms and subject to the conditions set forth therein, the Company would acquire all of the shares of Engage IT and Engage IT became a wholly owned subsidiary of Elys.

 

Founded in 2016 by the Company’s current Head of Global Technology, Luca Pasquini, along with Alessandro Alpi and Michael Denney, Engage IT employs 27 specialist technicians, developers and software engineers that specialize in the design, implementation and management of SQL databases, agile project management, and solutions based on the Microsoft cloud platform (Azure) and in the development of .NET applications. Since 2016, Engage has also provided contract services to the Company, playing a key role in the development of the Company’s Elys Gameboard sportsbook technology and Player Account Management Platform (PAM).

 

Pursuant to the terms of the Purchase Agreement, on the Closing Date, the Company paid the “Dollar Equivalent” of €1,080,000 for all of the shares of Engage IT on a debt free basis, which amount may be increased or decreased based on the working capital surplus or deficit, and any indebtedness due to or from Engage IT by or from any one or more of the Sellers to be determined 10 days prior to June 30, 2023, the calculation of the working capital surplus or deficit was not performed prior to June 30, 2023 and will be performed at a later date, if applicable, based on ongoing discussions with the management of Engage IT. The Company satisfied the payment by the issuance 3,018,461 shares of common stock (the “Exchange Shares”), valued at $1,735,615, equal to the “Dollar Equivalent” of the Purchase Price, calculated at the exchange rate at the time of closing, at a price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company’s common stock for the twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date or US $0.39 per share, which may be adjusted for any stock split, reverse stock split, stock dividend, recapitalization, combination, exchange or similar event; or any subsequent equity sale or rights offering of Elys, and is subject to shareholder approval if required. Additionally, the Company may repurchase the Exchange Shares in cash in whole or in part at any time on or prior to June 30, 2023. The Company did not exercise its right to acquire the Exchange Shares.

 

The Purchase Agreement contains customary representations, warranties and covenants of Elys and the Sellers. Subject to certain customary limitations, the Sellers have agreed to indemnify Elys and its officers and directors against certain losses related to, among other things, breaches of the Sellers’ representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase Agreement.

 

The preliminary purchase price allocation was as follows:

 

   Amount
Consideration     
3,018,461 shares of common stock at fair market value  1,735,615 
Total purchase consideration  $1,735,615 
      
Recognized amounts of identifiable assets acquired and liabilities assumed     
Cash  $94,450 
Accounts receivable – Related party   555,634 
Other Current assets   22,377 
Property and equipment   36,135 
Right-of-use assets   47,335 
   $755,931 
Less: liabilities assumed     
Current liabilities assumed  $(425,882)
Related party payables   (130,278)
Operating lease liabilities   (47,335)
Non-current liabilities assumed   (171,051)
   $(774,546)
Net identifiable assets acquired and liabilities assumed   (18,615)
Goodwill   1,754,230 
   $1,735,615 

 

17 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

4. Acquisition of subsidiaries (continued)  

  

The amount of revenue and earnings included in the Company’s consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2023 and the revenue and earnings of the combined entity had the acquisition date been January 1, 2022, is presented as follows: 

    Revenue   Earnings
                 
Actual for the period from acquisition to June 30, 2023   $        $ (497,860 )
                 
2023 supplemental pro forma from January 1, 2023 to June 30, 2023   $ 23,768,787     $ (5,799,837 )
                 
2022 supplemental pro forma from January 1, 2022 to June 30, 2022   $ 22,590,434     $ (6,446,224 )

 

The 2023 supplemental pro forma information was adjusted to exclude $73,811 of intercompany profit that would not have been capitalized to platform costs, the associated adjustment to amortization expense of platform costs amounting to $67,544 and the associated deferred taxation calculated on the elimination of the intercompany profit and adjustment to amortization expense amounting to $14,184. The 2022 supplemental pro forma information was adjusted to exclude  $216,049 of intercompany profit that would not have been capitalized to platform costs and an estimated once-off legal expense of $15,000, that would not have been incurred had this transaction taken place on January 1, 2022. There was no associated adjustment to amortization expense as the platform cost associated with the intercompany profit was not being depreciated during the six months ended June 30, 2022. 

 

5. Property and equipment 

 

                                 
  

June 30,

2023

  December 31, 2022
   Cost  Accumulated depreciation 

Net book

value

 

Net book

value

             
Leasehold improvements  $140,402   $(51,678)  $88,724   $17,876 
Computer and office equipment   1,254,446    (923,834)   330,612    307,602 
Fixtures and fittings   492,125    (295,363)   196,762    160,122 
Vehicles   14,848    (14,848)            
Computer software   724,546    (261,942)   462,604    125,252 
   $2,626,367   $(1,547,665)  $1,078,702   $610,852 

 

The aggregate depreciation charge to operations was $104,379 and $111,156 for the six months ended June 30, 2023 and 2022, respectively. The depreciation policies followed by the Company are described in Note 2.

 

6. Leases

 

The Company’s portfolio of leases contains both finance and operating leases that relate to real estate agreements, vehicles and office equipment agreements.

 

Operating leases

 

Real estate agreements

 

The Company has several property lease agreements in Italy and Austria and one lease agreement in the U.S. which have terms in excess of a twelve months period, these property leases are for our administrative operations in these countries. The Company does not and does not intend to take ownership of the properties at the end of the lease term. 

 

18

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Leases (continued)

  

Vehicle agreements

 

The Company leases several vehicles for business use purposes, the terms of these leases range from twenty-four to forty-eight months. The Company does not and does not intend to take ownership of the vehicles at the end of the lease term.

 

Finance Leases

 

Office equipment agreements

 

The Company has entered into several finance leases for office equipment, the term of these leases range from thirty-six to sixty months. The Company takes ownership of the office equipment at the end of the lease term.

 

Right of use assets

 

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

 

  

June 30,

2023

 

December 31,

2022

Non-current assets          
Right of use assets - operating leases, net of amortization  $1,676,329   $1,498,703 
Right of use assets - finance leases, net of depreciation – included in property and equipment  $5,165   $8,884 

 

 

 Lease costs consists of the following:   

                 
   Six Months Ended June 30,
   2023  2022
Finance lease cost:          
Amortization of financial lease assets  $3,837   $3,920 
Interest expense on lease liabilities   195    257 
           
Operating lease cost   251,402    170,964 
           
Total lease cost  $255,434   $175,141 

 

Other lease information:  

   Six Months ended June 30,
   2023  2022
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases  $(195)  $(257)
Operating cash flows from operating leases   (251,402)   (170,964)
Financing cash flows from finance leases   (4,051)   (4,038)
           
Weighted average remaining lease term – finance leases   1.78 years     1.47 years 
Weighted average remaining lease term – operating leases   3.96 years    4.30 years 
           
Weighted average discount rate – finance leases   5.73%   3.73%
Weighted average discount rate – operating leases   3.17%   2.72%

 

 

19 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Leases (continued)

 

 

Maturity of Leases

 

Finance lease liability

 

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

 

 

Finance Lease Liability   Amount
Remainder of 2023   $ 3,021  
2024     1,281  
2025     497  
2026     497  
2027     372  
Total undiscounted minimum future lease payments     5,668  
Imputed interest     (480 )
Total finance lease liability   $ 5,188  
         
Disclosed as:        
Current portion   $ 3,815  
Non-Current portion     1,373  
    $ 5,188  

 

Operating lease liability

 

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

 

 

Operating lease liability   Amount 
Remainder of 2023  $256,364 
2024   444,264 
2025   403,807 
2026   334,581 
2027 and thereafter   271,603 
Total undiscounted minimum future lease payments   1,710,619 
Imputed interest   (73,853)
Total operating lease liability  $1,636,766 
      
Disclosed as:     
Current portion  $423,402 
Non-Current portion   1,213,364 
   $1,636,766 

 

 

20

 

 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

7. Intangible Assets

 

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.

 

Intangible assets consist of the following:

                                 
   

June 30,

2023

  December 31, 2022
    Cost   Accumulated amortization   Net book value   Net book value
Betting platform software   $ 9,144,884     $ (2,102,124 )   $ 7,042,760     $ 6,776,486  
Licenses     975,520       (967,605 )     7,915       11,864  
Location contracts     1,000,000       (1,000,000 )                  
Customer relationships     3,395,927       (1,304,336 )     2,091,591       2,323,905  
Trademarks     1,537,461       (349,158 )     1,188,303       1,263,269  
Non-compete agreements     764,167       (764,167 )                  
Websites     56,707       (40,000 )     16,707           
    $ 16,874,666     $ (6,527,390 )   $ 10,347,276     $ 10,375,524  

 

The Company recorded $562,020 and $775,208 in amortization expense for finite-lived assets for the three months ended June 30, 2023 and 2022, respectively.

 

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

Amortization Expense  
          Amount  
  Remainder of 2023     $ 640,961  
  2024       1,266,092  
  2025       1,266,092  
  2026       1,266,092  
  2027       1,266,092  
  Total estimated amortization expense     $ 5,705,329  

 

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.

 

8. Goodwill

   June 30, 2023  December 31, 2022
Cost          
Opening balance as of January 1,  $28,686,661   $28,687,051 
Acquisition of Engage IT Services, Srl   1,754,230       
Foreign exchange movements   (171)   (390)
Closing balance as of period end   30,440,720    28,686,661 
           
Accumulated Impairment charge          
Opening balance as of January 1,   (27,024,383)   (12,522,714)
Impairment charge         (14,501,669)
Closing balance as of period end   (27,024,383)   (27,024,383)
           
Goodwill, net of impairment charges  $3,416,337   $1,662,278 

 

 

21 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

8. Goodwill (continued)

 

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

 

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

 

9. Marketable Securities

 

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

 

The is no evidence of activity in Zoompass and although the shares are quoted on the Nasdaq OTC market, no financial results have been reported and trading volumes are minimal, therefore the investment in Zoompass has been written off.

 

10. Bank Loan Payable

 

Included in bank loans is a Small Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of US Bookmaking with a principal outstanding of $150,000. The SBA Loan bears interest at 3.75% per annum and is repayable in monthly installments of $731 which began in June 2021, and matures in May 2050. The SBA Loan is collateralized by all of US Bookmaking’s tangible and intangible assets. The balance outstanding at June 30, 2023 consists of principal outstanding of $144,430 and interest thereon of $9,750.

  

Since the acquisition of US Bookmaking, the Company has repaid principal of $4,402 and has total accrued and unpaid interest of $9,750 on this loan as of June 30, 2023.

 

The maturity of bank loans payable as of June 30, 2023 is as follows 

Bank loans payable   Amount
Within 1 year  $3,097 
1 to 2 years   3,158 
2 to 3 years   3,248 
3 to 4 years   3,372 
5 years and thereafter   141,305 
Total  $154,180 
Disclosed as:     
Current portion  $3,042 
Non-Current portion   151,138 
   $154,180 

 

11. Convertible notes payable

 

On January 30, 2023 (the "Closing Date"), the Company closed a private placement offering of up to 2,000 units and entered into Subscription Agreements with a group of accredited investors (the "Investors"), which Investors included Braydon Capital Corp. a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella. Each Unit sold to Investors was sold at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”).

 

The Investors purchased a total of 850 units and the Company issued Debentures for the total principal amount of $850,000 (the "Principal Amount") to the Investors and warrants to purchase 2,179,487 shares of common stock of the Company.

 

 

22

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

11. Convertible notes payable (continued)

 

The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company’s common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 2,179,487 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment (“Redemption”) by the Company.

 

In addition, the Company may accelerate this right of conversion on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Conversion Price for five (5) trading days in a thirty (30) day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.

 

If at any time that the common shares issuable to the Investors on conversion of the Debenture in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debenture is redeemable by the Company at any time or times prior to the Maturity Date on not less than ten (10) Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investor has the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debenture into common shares of the Company.

 

The warrants are exercisable at an exercise price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the warrant at the time of exercise. The initial exercise price of the warrant is $0.39 per share, subject to a down-round adjustment to a floor exercise price of $0.35 per share.

 

The Company may accelerate the right to exercise the Warrant on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrant and the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Exercise Price for five (5) trading days in a thirty (30) day period.

 

The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debenture and Warrant. 

 

The number of shares of common stock that may be issued upon exercise of the Warrants and Debentures is subject to an Exchange Cap (as defined in the Debentures and Warrants) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.

 

On March 5, 2023, the Company obtained written consents from holders of shares of Common Stock representing approximately 54.1% of the total issued and outstanding shares of voting stock of the Company on March 1, 2023, the record date, approving the for purposes of The Nasdaq Stock Market LLC Rules 5635 (b) and 5635(d), the issuance of all of the outstanding shares of the Company’s Common Stock to be issued upon (i) conversion of the Debentures and (ii) exercise of the common stock purchase warrants, dated January 30, 2023, issued to such investors by us pursuant to the Subscription Agreement. 

 

The convertible notes were evaluated in terms of ASC 470, Debt, and is carried at amortized cost. The warrants issued in conjunction with the convertible notes were evaluated in terms of ASC 480, Distinguishing Liabilities from Equity and in terms of ASC 815, Derivatives and Hedging, the Company determined that the warrants met the definition of equity in terms of ASC 480 and did not fall within the scope of ASC 815, therefore the value of the warrants, determined using a Black-Scholes valuation model (see Note 16 below), was recorded as a debt discount which is amortized using the effective interest method over the term of the convertible notes. 

 

23 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

11. Convertible notes payable (continued)

 

On May 5, 2023 (the "Second Closing Date"), the Company closed a private placement offering of up to 1,500 units and entered into a Subscription Agreement with a single accredited investor, Gold Street Capital Corp. (the "Investor"), which is a company owned by Gilda Pia Ciavarella, a related party and spouse of the Company’s Executive Chairman, Michele Ciavarella. Each Unit sold to the Investor was sold at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”).

 

The Investor purchased a total of 1,500 units and the Company issued Debentures for the total principal amount of $1,500,000 (the "Principal Amount") to the Investor and warrants to purchase 3,138,075 shares of common stock of the Company.

 

The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a price equal to $0.48 per share or the Nasdaq consolidated closing bid price of the Company common stock on the Nasdaq stock market on the Closing Date, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 3,138,075 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment by the Company.

 

In addition, the Company may accelerate this right of conversion on at least ten business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred percent of the Conversion Price for five trading days in a thirty day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.

 

If at any time that the common shares issuable to the Investor on conversion of the Debentures in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debentures are redeemable by the Company at any time or times prior to the Maturity Date on not less than ten Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investor has the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debentures into common shares of the Company.

 

The Warrants are exercisable at an exercise price equal to $0.48 per share or the Nasdaq consolidated closing bid price of the Company common stock on the Nasdaq stock market on the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each Warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the Warrant at the time of exercise.

 

The Company may accelerate the right to exercise the Warrants on at least ten business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred percent of the Exercise Price for five trading days in a thirty day period.

 

The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debenture and Warrant.

 

The number of shares of common stock that may be issued upon conversion of the Debentures and exercise of the Warrants is subject to an Exchange Cap (as defined in the Debenture and Warrant) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.

 

The Debentures are secured by a senior security interest in all of the assets of the Company pursuant to a Security Agreement. The Company’s primary assets consist of certain business operations and licenses in multiple jurisdictions, trademarks and other intellectual property, betting technology and products. Following an event of default under the Debenture, the Investor will have all available rights under the Security Agreement and applicable law to enforce their rights as a secured creditor, including to sell, assign, transfer, pledge, encumber or otherwise dispose of the secured assets, and to exercise any other available rights and remedies upon the occurrence of an event of default as described in the Debenture.

 

24 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

11. Convertible notes payable (continued)

 

Convertible notes payable to related parties is disclosed under Note 13 below.

 

Convertible notes payable to non-related parties consists of the following:

Convertible notes payable 

June 30,

2023

Principal outstanding     
Opening balance as of January 1, 2023  $   
Advances to the Company   350,000 
Closing balance as of June 30, 2023   350,000 
      
Accrued Interest     
Opening balance as of January 1, 2023   —   
Accrued interest   17,617 
Closing balance as of June 30, 2023   17,617 
      
Debt Discount     
Opening balance as of January 1, 2023   —   
Debt discount on relative fair value of warrants   (200,086)
Amortization of debt discount   18,735 
Closing balance as of June 30, 2023   (181,351)
      
Total  $186,266 

  

12. Other Long-term Liabilities

 

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

 

Balances of other long-term liabilities were as follows:

   

June 30,

2023

 

December 31,

2022

Severance liability   $ 756,807     $ 464,851  

  

13. Related Parties

 

Promissory notes payable – Related Parties

 

The movement on promissory notes payable – Related Parties, consists of the following:

   

June 30,

2023

 

December 31,

2022

Principal outstanding                
Opening balance as of January 1, 2023 and 2022, respectively.   $ 715,000     $ 50,000  
Loans advanced – Braydon Capital Corp              360,000  
Loans advanced – Victor Salerno              305,000  
Closing balance as of June 30 2023 and December 31, 2022, respectively.     715,000       715,000  
                 
Accrued Interest                
Opening balance as of January 1, 2023 and 2022, respectively.     37,000       1,878  
Accrued interest     35,551       35,122  
Closing balance as of June 30 2023 and December 31, 2022, respectively.     72,551       37,000  
                 
Total   $ 787,551     $ 752,000  

    

25 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

13. Related Parties (continued)

 

Convertible notes payable – Related parties

 

On January 30, 2023, the Company issued convertible notes payable, as disclosed under Note 11 above. Forte Fixtures subscribed for $500,000 of the convertible notes, Forte Fixtures is owned by Mr. Claudio Ciavarella, the brother of our Chairman and interim CEO.

 

On May 4 , 2023, the Company issued convertible notes payable as disclosed under Note 11 above. Gold Street Capital subscribed for the full $1,500,000 of the convertible notes, Gold Street Capital is owned by Gilda Ciavarella, the wife of our Chairman and interim CEO.

 

Convertible notes payable – related party, consists of the following:

   

June 30,

2023

Principal outstanding        
Opening balance as of January 1, 2023   $     
Advances to the Company     2,000,000  
Closing balance as of June 30, 2023     2,000,000  
         
Accrued Interest        
Opening balance as of January 1, 2023         
Accrued interest     54,167  
Closing balance as of June 30, 2023     54,167  
         
Debt Discount        
Opening balance as of January 1, 2023     —    
Debt discount on relative fair value of warrants     (948,460 )
Amortization of debt discount     54,534  
Closing balance as of June 30, 2023     (893,926 )
         
Total   $ 1,160,241  

  

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,

2023

 

December 31,

2022

  Related Party payable                
Related Party payables Engage IT Services, Srl   $ —       $ (406,467 )
Related Party payables Luca Pasquini     (174,684 )     (459 )
Related Party payables Michele Ciavarella     (399,022 )     (15,203 )
Related Party payables     $ (573,706 )   $ (422,129 )
                   
Related Party Receivable                
Related Party receivables Victor Salerno   (22,511 )   (22,511 )
Related Party Receivable     $ 22,511 )   $ (22,511 )

 

 

 

 

  Engage IT Services, Srl.

 

The Company acquired Engage IT with effect from January 29, 2023. Engage IT performed software development work for the Company’s wholly owned subsidiary, Gameboard. As of December 31, 2022, Gameboard owed Engage IT $406,467 for development work performed. The intercompany balance eliminates on consolidation for the six months ended June 30, 2023. 

26 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

13. Related Parties (continued)

 

Luca Pasquini 

 

On September 26, 2022, Mr. Pasquini was awarded 500,000 restricted shares of common stock valued at $226,800 for services rendered to the Company.

 

On January 29, 2023, the Company acquired Engage IT, Mr. Pasquini owned 34% of Engage IT prior to the acquisition. The purchase price was settled by the issuance of common stock, of which Mr. Pasquini received 1,026,277 shares of common stock which resulted in him becoming an effective 5.7% shareholder of the Company. 

 

Michele Ciavarella

 

On September 26, 2022, Mr. Ciavarella was awarded 300,000 restricted shares of common stock valued at $136,080 for services rendered to the Company.

 

On February 14, 2023, Mr. Ciavarella, the Company’s Executive Chairman and interim CEO, voluntarily offered and agreed to reduce his annual base compensation to $372,000 for fiscal 2023, subject to a review of his total compensation package.

 

Carlo Reali

 

On January 5, 2022, the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.

 

On March 29, 2022, the Company issued Mr. Reali ten-year options exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per share, vesting equally over a 4-year period commencing on January 1, 2023.

 

The Company does not have a formal employment with Mr. Reali and awarded him €40,000 (approximately $42,930) as compensation for the Interim Chief Financial Officer role; Mr. Reali will continue to receive the compensation that he currently receives which is an annual base salary of €76,632 (approximately $82,244).

 

On September 26, 2022, Mr. Reali was awarded 200,000 restricted shares of common stock valued at $90,720 for services rendered to the Company.

 

Victor Salerno

 

Prior to the acquisition of US Bookmaking, Victor Salerno had advanced US Bookmaking $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 is repayable on October 1, 2022.

 

Between February 23, 2022 and September 22, 2022, Mr. Salerno advanced US Bookmaking an additional $305,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable between June 30, 2022 and November 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an additional 25% penalty and additional interest of 5% per annum. These notes were advanced to US Bookmaking without the consent of the Company, which is required as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021. Therefore, the Company acknowledges the advance of funds to US Bookmaking by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute. As of June 30, 2023, these notes remain outstanding. Interest has been accrued on these notes, however we intend to dispute the validity of these notes and have accordingly not repaid them or accrued penalty interest in terms of these notes.

 

On January 23, 2023, Mr. Salerno voluntarily resigned as a member of the Board.

 

Paul Sallwasser

 

On February 14, 2023, the Company granted Mr. Sallwasser ten-year options exercisable for 154,132 shares of common stock at an exercise price of $0.89 per share, of which 77,254 vested immediately and the remaining 76,878 vesting equally over a ten- month period commencing on March 1, 2023. 

27 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

13. Related Parties (continued)

 

Steven Shallcross

 

On February 14, 2023, the Company granted Mr. Shallcross ten-year options exercisable for 131,631 shares of common stock at an exercise price of $0.89 per share, of which 54,753 vested immediately and the remaining 76,878 vesting equally over a ten- month period commencing on March 1, 2023.

 

On February 14, 2023, the Company issued Mr. Shallcross 22,472 shares of common stock valued at $20,000 from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Shallcross.

 

Andrea Mandel-Mantello

 

On February 14, 2023, the Company granted Mr. Mandel-Mantello ten-year options exercisable for 131,631 shares of common stock at an exercise price of $0.89 per share, of which 54,753 vested immediately and the remaining 76,878 vesting equally over a ten-month period commencing on March 1, 2023.

 

On February 14, 2023, the Company issued Mr. Mandel-Mantello 44,944 shares of common stock valued at $40,000 from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Mandel-Mantello

 

Aiden Ciavarella

 

The Company recently employed Aiden Ciavarella to train as part of our U.S. project and risk management team lead. Aiden earns an annual salary of $85,000. There is no formal employment agreement with Aiden who is the son of our chairman and interim CEO, Michele Ciavarella. 

 

14. Stockholders’ Equity

 

Pursuant to the acquisition of Engage IT Srl, as disclosed in Note 4 above, on January 29, 2023, the Company issued 3,018,461 shares of common stock valued at $1,753,615, in settlement of the purchase price.

 

On January 29, 2023, the Company issued 5,366,155 shares of restricted common stock valued at $3,085,339 from its 2018 Stock Incentive Plan to certain developers and project managers in its IT subsidiaries, these shares will vest equally and are amortized on a monthly basis over a thirty-six month period to incentivize these employees who are essential to the Company’s development efforts.

 

A summary of the vesting of restricted stock during the period January 1, 2023 to June 30, 2023 is as follows:

 

Vesting of Restricted Stock   Total
restricted
shares
  Weighted
average
fair market
value per
share
  Total
unvested
restricted
shares
  Weighted
average
fair market
value per
share
  Total vested
restricted
shares
  Weighted
average
fair market
value per share
Outstanding January 1, 2023     —       $ —         —       $ —         —       $ —    
Granted and issued     5,366,155       0.575       5,366,155       0.575       —         —    
Forfeited/Cancelled     —         —         —         —         —         —    
Vested     —         —         (745,305 )     (0.575 )     745,305       0.575  
Outstanding June 30, 2023     5,366,155     $ 0.575       4,620,850     $ 0.575       745,305     $ 0.575  

 

The restricted stock granted, issued and exercisable at June 30, 2023 is as follows:

 

      Restricted Stock Granted and Vested  
Grant date Price     Number Granted     Weighted Average Fair Value per Share  
$ 0.575       5,366,155     $ 0.575  
                     

  

 

28 

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

14. Stockholders’ Equity (continued)

 

In lieu of $60,000 of director’s fees due and outstanding, the Company approved the issuance of 67,416 shares of common stock, respectively, under the 2018 equity incentive plan.

  

The Company has recorded a restricted stock expense of $428,555 for the six months ended June 30, 2023. 

 

15. Warrants

 

On January 30, 2023 and May 5, 2023, as disclosed in Note 11 above, the Company closed a private placement offering of 2,350 units and entered into Subscription Agreements with a group of accredited investors (the “Investors”), which Investors included Braydon Capital Corp. a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella and Gold Street Capital, a company owned by Gilda Ciavarella, the wife of Michele Ciavarella. Each Unit sold to Investors was sold at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”).

 

The Investors purchased a total of 2,350 units and the Company issued Debentures for the total principal amount of $2,350,000 (the “Principal Amount”) to the Investors and warrants to purchase 5,317,562 shares of common stock of the Company.

 

The warrants are exercisable at an exercise price equal to the volume weighted average price per share (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market for the period of twenty consecutive trading days beginning on the twenty-third trading day immediately preceding the Closing Date and concluding at the close of trading on the third trading day immediately preceding the Closing Date, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the warrant at the time of exercise. The initial exercise price of the January 30, 2023 warrant is $0.39 per share and the May 5, 2023 warrant is $0.48 per share, both subject to a down-round adjustment to a floor exercise price of $0.35 per share.

 

The Company may accelerate the right to exercise the Warrants on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Exercise Price for five (5) trading days in a thirty (30) day period.

 

The Warrants provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debentures and Warrants. 

 

The number of shares of common stock that may be issued upon exercise of the Warrants and Debentures is subject to an Exchange Cap (as defined in the Debentures and Warrants) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets.

 

On February 14, 2023, the Company engaged Shareholder Intelligence Services, LLC (“ShareIntel”) to utilize their patented, proprietary service offerings to obtain share trading analytic metrics designed to determine if the Company has been the target of improper and potentially illegal trading activities, including illegal naked short selling, in an effort to allow the Company to better monitor trading activity, including potential violations of SEC Regulation SHO, which governs stock and option share locate, close out and fail to deliver requirements.

 

The Company issued a warrant to purchase up to 200,000 shares of Common Stock to ShareIntel, as consideration for services provided. The Consultant Warrant is exercisable at a price of $0.89 per share and vests at a rate of 1,000 warrant shares for each reduction of 10,000 shares of Reduction in Imbalances (Shorts) and will expire three years from the date of issuance. These warrants only vest upon the attainment of the goals discussed above. 

 

 

29

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

15. Warrants (continued)

 

The warrants granted during the six months ended June 30, 2023 were valued using a Black-Scholes pricing model. The relative fair value of the warrants, exercisable for 5,317,562 Common Shares, issued to the convertible note holders for the six months ended June 30, 2023 was $1,148,545, in addition, the warrants issued to ShareIntel were valued at $136,808.

 

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

 

Assumptions  

Six months ended

June 30, 2023

Exercise price   $ 0.39 to 0.89  
Risk free interest rate     3.58 to 4.32 %
Expected life of options     3   years
Expected volatility of underlying stock     126.9 to 133.7 %
Expected dividend rate     0 %

  

 

A summary of all of the Company’s warrant activity during the period January 1, 2022 to June 30, 2023 is as follows:

 

Warrants   Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2022     546,336     $ 2.50 to 5.00     $ 2.66  
Granted – pre-funded warrants     541,227       0.0001       0.0001  
Granted     3,166,227       0.9475       0.9475  
Forfeited/cancelled     (48,395     3.75       3.75  
Exercised – pre-funded warrants     (541,227)       0.0001       0.0001  
Outstanding December 31, 2022     3,664,168     $ 0.9475 to 5.00     $ 1.17  
Granted     5,517,562       0.39 to 0.89       0.46  
Forfeited/cancelled     (11,768     5.00       5.00  
Exercised     —         —         —    
Outstanding June 30, 2023     9,169,962     $ 0.39 to 2.50     $ 0.74  

  

   

The following tables summarize information about warrants outstanding as of June 30, 2023:

 

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  
$0.39     2,179,487       2.59               2,179,487          
$0.48     3,138,075       2.84               3,138,075          
$0.89     200,000       2.63               —            
$0.9475     3,166,227       4.46               3,166,227          
$2.50     486,173       2.14               486,173          
      9,169,962       3.30     $ 0.74       8,969,962     $ 0.73  

 

 The outstanding warrants have an intrinsic value of $0 as of June 30, 2023.

 

 

 

30

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Stock Options

 

On November 21, 2022, the Board approved an Amendment to the Plan (“Amendment No. 3”) to increase by 9,000,000 the number of shares that may be granted under the Plan. Amendment No. 3 to the 2018 Plan will increase the number of shares of common stock with respect to which awards may be granted under the 2018 Plan from an aggregate of 7,000,000 shares of Common Stock to 16,000,000 shares of common stock.

 

On December 30, 2022, the Company held its 2022 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 3 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 9,000,000 shares of common stock.

 

On February 14, 2023, the Compensation Committee of the Company’s Board granted the Company’s non-executive directors, under the Company’s Stock Incentive Plan; (i) an award of 131,631 stock options to each of Steven Shallcross and Andrea Mandell-Mantello, of which 54,753 vested immediately and the remaining 76,878 vest monthly over a ten month period; and (ii) an award of 154,132 stock options to Paul Sallwasser, of which 77,254 vested immediately and 76,878 vest monthly over a ten month period.

 

The options awarded during the six months ended June 30, 2023 were valued at $371,000 on the date of issuance using a Black-Scholes pricing model.

 

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

 

Assumptions  

Six months ended

June 30, 2023

Exercise price   $     0.89  
Risk free interest rate         3.77 %
Expected life of options     10 years
Expected volatility of underlying stock         200.0 %
Expected dividend rate     0 %

 

  

A summary of all of the Company’s option activity during the period January 1, 2022 to June 30, 2023 is as follows:

 

Stock Option Activity Number of shares   Exercise price per share   Weighted average exercise price  
Outstanding January 1, 2022     2,766,438     $ 1.84 to 5.10     $ 2.92  
Granted     270,000       0.454 to 2.50       1.67  
Forfeited/cancelled     (652,375     1.84 to 2.80       1.85  
Exercised              —             
Outstanding December 31, 2022     2,384,063     $ 0.454 to 5.10     $ 3.07  
Granted     417,394           0.89       0.89  
Forfeited/cancelled     (110,000     0.45 to  2.50       1.57  
Exercised              —             
Outstanding June 30, 2023     2,691,457     $ 0.454 to 5.10     $ 2.79  

 

  

31

 
 
 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Stock Options (continued)

 

The following tables summarize information about stock options outstanding as of June 30, 2023: 

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  
$0.45     60,000       9.25                           
$0.89     417,394       9.64               279,013          
$2.03     659,000       7.26               616,167          
$2.50     100,000       8.75               25,000          
$2.72     25,000       3.01               25,000          
$2.80     216,250       6.23               203,099          
$2.96     70,313       6.02               70,313          
$3.43     25,000       8.47               9,000          
$4.03     1,020,000       8.01               513,333          
$4.07     25,000       0.13               9,000          
$4.20     25,000       7.84               17,000          
$5.10     48,500       8.21               48,500          
      2,691,457       7.83     $ 2.79       1,815,425     $ 2.68  

 

  

As of June 30, 2023, there were unvested options to purchase 876,032 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $2,185,488 which is expected to be recognized over a period of 30 months.

 

As of June 30, 2023, there was an aggregate of 2,691,457 options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan, and an aggregate of 9,588,872 rrestricted shares granted to certain officers, employees, and directors and directors of the Company with 3,719,671 shares available for future grants.

 

The options outstanding at June 30, 2023 had an intrinsic value of $0.

 

32

 

 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

17. Revenues

 

The following table represents disaggregated revenues from our gaming operations for the three and six months ended June 30, 2023 and 2022. 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, Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products. 

 

                                 
  

 For the Three Months ended

June 30,

 

 For the Six Months ended

June 30,

   2023  2022  2023  2022
Handle (Turnover)                    
Web-based  $205,491,902   $186,441,824   $405,414,937   $402,222,106 
Land-based   9,221,129    1,818,081    17,789,650    3,603,188 
Total Handle (Turnover)   214,713,031    188,259,905    423,204,587    405,825,294 
                     
Winnings/Payouts                    
Web-based   192,967,680    173,924,052    379,098,831    374,777,873 
Land-based   7,663,671    1,557,874    14,429,635    2,958,287 
Total Winnings/Payouts   200,631,351    175,481,925    393,528,465    377,736,160 
                     
Gross Gaming Revenues                    
Web-based   12,524,222    12,517,772    26,316,106    27,444,233 
Land-based   1,557,458    260,207    3,360,015    644,901 
Total Gross Gaming Revenues   14,081,680    12,777,979    29,676,121    28,089,134 
                     
Less: ADM Gaming Taxes   (3,381,599)   (3,117,380)   (7,121,350)   (6,848,210)
Net Gaming Revenues   10,700,081    9,660,599    22,554,771    21,240,925 
Add: Service Revenues   636,560    687,136    1,214,016    1,342,796 
Revenues  $11,336,641   $10,347,735   $23,768,787   $22,583,721 

 

18. Net Loss per Common Share

 

Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted 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” 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. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.

 

For the three and six months ended June 30, 2023 and 2022, the following restricted shares, 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, 2023

 

Three and six Months ended

June 30, 2022

       
Restricted shares   4,620,850       
Convertible notes payable   5,317,562       
Options   2,691,457    2,926,438 
Warrants   9,169,962    4,205,395 
    21,799,831    7,131,833 

 

 

33 

 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. 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.

 

  (ii) Betting platform software and services

 

Provider of certified betting Platform software services to leisure betting establishments in the U.S. and 9 other countries.

 

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

 

 

                                 
   June 30, 2023
   Betting establishments  Betting platform software and services  All other  Total
             
Purchase of Non-Current assets  $534,401   $522,954   $18,971   $1,076,326 
Assets                    
Current assets  $3,398,577   $2,206,717   $513,449   $6,118,743 
Non-Current assets   3,035,571    13,420,262    62,811    16,518,644 
Liabilities                    
Current liabilities   (7,049,119)   (3,140,448)   (1,563,106)   (11,752,673)
Non-Current liabilities   (1,664,005)   (1,889,747)   (1,346,508)   (4,900,260)
Intercompany balances   6,759,095    (5,477,088)   (1,282,007)      
Net asset position  $4,480,119   $5,119,696   $(3,615,361)  $5,984,454 

 

 

                                 
   June 30, 2022
   Betting establishments  Betting platform software and services  All other  Total
             
Purchase of Non-Current assets  $157,296   $66,208   $5,571   $229,075 
Assets                    
Current assets  $5,694,098   $2,286,286   $1,834,260   $9,814,644 
Non-Current assets   2,524,416    30,455,689    105,835    33,085,940 
Liabilities                    
Current liabilities   (5,289,319)   (1,536,891)   (1,498,586)   (8,324,796)
Non-Current liabilities   (1,197,653)   (17,067,797)         (18,265,450)
Intercompany balances   5,098,265    (3,198,714)   (1,899,551)      
Net asset position  $6,829,807   $10,938,573   $(1,458,042)  $16,310,338 

 

 

34 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. Segmental Reporting (continued)

 

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

 

                                         
   Six Months ended June 30, 2023
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
                
Net Gaming Revenue  $22,554,771   $     $     $     $22,554,771 
Betting platform and services revenue         1,214,016                1,214,016 
Intercompany Service revenue   54,080    1,976,065          (2,030,145)      
    22,608,851    3,190,081    —      (2,030,145)   23,768,787 
Operating expenses                         
Intercompany service expense   1,976,065          54,080    (2,030,145)      
Selling expenses   19,354,332    79,742                19,434,074 
General and administrative expenses   3,344,065    3,297,260    2,774,764          9,416,089 
Depreciation and amortization   126,487    552,083    12,754          691,324 
 Total operating expenses   24,800,949    3,929,085    2,841,598    (2,030,145)   29,541,487 
                          
Loss from operations   (2,192,098)   (739,004)   (2,841,598)         (5,772,700)
                          
Other Income (expenses)                         
Interest expense, net   (338)   (38,156)   (72,733)         (111,227)
Amortization of debt discount               (73,270)         (73,270)
Other income   12,444    1,000                13,444 
Other expense   (25)   (14,581)   (2,075)         (16,681)
Loss on marketable securities               (19,999)         (19,999)
Total other income (expenses)   12,081    (51,737)   (168,077)         (207,733)
                          
Loss before Income Taxes   (2,180,017)   (790,741)   (3,009,675)        (5,980,433)
Income tax provision         137,951                137,951 
Net Loss  $(2,180,017)  $(652,790)  $(3,009,675)  $     $(5,842,482)

 

 

35 

 

 

 
 
 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. Segmental Reporting (continued)

 

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

 

                                         
   Six months ended June 30, 2022
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
Revenue  $21,498,130   $1,085,591   $     $     $22,583,721 
Intercompany Service revenue   76,591    1,090,245          (1,166,836)      
    21,574,721    2,175,836    —      (1,166,836)   22,583,721 
Operating expenses                         
Intercompany service expense   1,090,245    76,591          (1,166,836)      
Selling expenses   16,991,805    163,146                17,154,951 
General and administrative expenses   2,941,303    3,943,324    2,896,015          9,780,642 
Restructuring and severance expenses               1,205,689          1,205,689 
 Total operating expenses   21,023,353    4,183,061    4,101,704    (1,166,836)   28,141,282 
                          
Income (Loss) from operations   551,368    (2,007,225)   (4,101,704)         (5,557,561)
Other (expenses) Income                         
Interest expense, net of interest income   (1,075)   (12,462)               (13,537)
Other income   66,473    2,379                68,852 
Change in Fair value of contingent purchase consideration         (915,774)               (915,774)
Other expense   (7)   (11,004)               (11,011)
Gain on marketable securities               92,500          92,500 
Total other income (expense)   65,391    (936,681)   92,500          (778,970)
                          
Income (Loss) before Income Taxes   616,759    (2,944,086)   (4,009,204)         (6,336,531)
Income tax provision   (192,021)   159,077                (32,944)
Net Income (Loss)  $424,738   $(2,785,009)  $(4,009,204)  $     $(6,369,475)

 

   

 

36

 

 

 
 
 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

20. Subsequent Events

 

On July 11, 2023 (the “Third Closing Date”), the Company closed a private placement offering of up to 3,000 units and entered into a Subscription Agreement (the “Agreement”) with a group of accredited investors(the “Investors”),, which Investors included Gold Street Capital Corp., which is a company owned by Gilda Ciavarella, a related party and spouse of the Company’s Executive Chairman, Michele Ciavarella, and Braydon Capital Corp. a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella. The amount received from Braydon Capital included the conversion of a promissory note advanced by Braydon Capital of $360,000 and accrued interest up to the closing date. Each Unit sold to the Investors were sold at a per unit price of $1,000 and were comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”). The purpose of the private placement is to provide working capital for general corporate purposes in advance of launching the Company’s online channel and mobile app product for U.S. and Canadian markets.

 

The Investors purchased a total of 2,400 units and the Company issued Debentures for the total principal amount of $2,400,000,  in addition, Braydon Capital converted $386,000 of promissory notes into 386 units for the total principal amount of $386,000.

 

The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debentures plus all accrued and unpaid interest at a price equal to $0.40 per share by each of the Investors, except that Debentures issued to Gold Street are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 6,951,905 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment (“Redemption”) by the Company.

 

In addition, the Company may accelerate this right of conversion on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on the conversion and (i) the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Conversion Price for five (5) trading days in a thirty (30) day period or (ii) the Company wishes to redeem or pre-pay the Debentures prior to the Maturity Date.

 

If at any time that the common shares issuable to the Investors on conversion of the Debentures in whole or in part would be free trading without resale restrictions or statutory hold periods, the Debentures are redeemable by the Company at any time or times prior to the Maturity Date on not less than ten (10) Business Days prior written notice from the Company to the Investor of the proposed date of Redemption (the “Redemption Date”), without bonus or penalty, provided, however, that prior to the Redemption Date, the Investors have the right to convert the whole or any part of the principal and accrued and unpaid interest of the Debentures into common shares of the Company.

 

The Warrants are exercisable at an exercise price equal to $0.40 per share by each of the Investors, except that Warrants issued to Gold Street are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each Warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the Warrant at the time of exercise.

 

The Company may accelerate the right to exercise the Warrants on at least ten (10) business days prior written notice to the Holder if there is an effective Registration Statement registering, or a current prospectus available for, the resale of the common shares issuable on exercise of the Warrants and the closing price of the Company’s common shares exceeds two hundred (200%) per cent of the Exercise Price for five (5) trading days in a thirty (30) day period.

 

The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debentures and Warrants.

 

The number of shares of common stock that may be issued upon conversion of the Debentures and exercise of the Warrants is subject to an Exchange Cap (as defined in the Debenture and Warrant) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets. 

 

37

 

 

 
 
 

 

 

 

ELYS GAME TECHNOLOGY, CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

20. Subsequent Events (continued) 

 

The Debentures are secured by a senior security interest in all of the assets of Elys Game Technology, Corp. pursuant to a Security Agreement. The Company’s primary assets consist of certain business operations and licenses in multiple jurisdictions, trademarks and other intellectual property, betting technology and products as further described in the Company’s annual report on Form 10-K filed with the SEC on April 17, 2023. Following an event of default under the Debentures, the Investors will have all available rights under the Security Agreement and applicable law to enforce their rights as secured creditors, including to sell, assign, transfer, pledge, encumber or otherwise dispose of the secured assets, and to exercise any other available rights and remedies upon the occurrence of an event of default as described in the Debentures.

 

The Debentures can be declared due and payable upon an “Event of Default.” As more fully described in the Purchase Agreement, each of the following, among other things, constitutes an “Event of Default” under the Debentures:

 

  (a) default in the payment of any principal or interest on the Debentures as and when the same shall become due and payable, and continuance of such default for a period of five (5) Business Days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given by the Holder;

 

  (b) the institution of bankruptcy or insolvency proceedings against the Company, or the institution of proceedings seeking reorganization or winding-up of the Company or any other bankruptcy, insolvency or analogous laws, or the issuing of sequestration or process of execution against the Company or any substantial part of its property, or the appointment of a receiver or manager of the Company or of any substantial part of its property, and, in each case, the continuance of any such proceedings unstayed, undischarged and in effect for a period of fifteen (15) days from the date thereof;

 

  (c) or the institution by the Company of proceedings to be adjudicated bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it, or the passing of a resolution authorizing the filing by it, of a petition or answer or consent seeking reorganization or relief under bankruptcy laws or any other bankruptcy, insolvency or analogous laws, or the consent by it to the filing of any such petition or to the appointment of a receiver of the Company or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the Company’s admitting in writing its inability to pay its debts generally as they become due or taking corporate action in furtherance of any of the aforesaid purposes.

 

 

38

 

 

 
 
 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on April 17, 2023 under the heading “Risk Factors” and the Risk Factors as described in Item 1A of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

 

Overview

  

Except as expressly stated, the financial condition and results of operations discussed throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Elys Game Technology, Corp. and its consolidated subsidiaries.

 

We currently offer our B2C gaming services in Italy through our subsidiary, Multigioco. Multigioco operates under both retail and online interactive gaming licenses issued and regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”). The Company’s leisure betting offerings, such as sports betting, and virtual sports betting are offered through both physical locations as well as online through our licensed website www.newgioco.it or commercial webskins and mobile devices. Our management implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco and allowed the Austria Bookmaker license to terminate.

 

We also offer B2B bookmaking and platform services to our customers in certain regulated states in the U.S. market via our subsidiary US Bookmaking and Gameboard. We intend to focus on expanding the U.S. market. Currently, the Company operates a sportsbook in Washington D.C. through a Class B Managed Service Provider and Class B Operator license within the Grand Central Restaurant and Sportsbook and the Over Under Sportsbook Rooftop Lounge. In March 2022 the Company began providing platform and bookmaking services at Ocean Casino Resort in Atlantic City, New Jersey. Through its acquisition of US Bookmaking, the Company also provides sportsbook services to tribal casinos in New Mexico, North Dakota and Michigan.

 

Additionally, we provide B2B gaming technology through our Odissea subsidiary which offers the Elys betting software platform which has been designed with a unique “distributed model” architecture. The Elys platform leverages 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. The omni-channel software design is fully integrated with a built-in player gaming account management system, built-in sports book and a virtual sports platform through our Virtual Generation subsidiary. The Platform seamlessly integrates via an application programming interface with third-party supplied products such as online casino, poker, lottery and horse racing. It also has the capability to incorporate e-sports and daily fantasy sports providers. Management is implementing a growth strategy to expand our B2B gaming technology operations in the U.S. and is considering further expansion in Canada and Latin American countries in the near future.

 

Our corporate group is based in North America, with an executive suite situated in Las Vegas, Nevada and Toronto, Ontario, Canada. Executives and other personnel at these offices carry-out corporate activities, handle day-to-day reporting and U.S. development planning.

 

For the six months ended June 30, 2023, Multigioco generated wagering and gaming revenue from: (i) the spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online betting web-shops and websites as well as retail betting shops located throughout Italy. Our Service revenue was generated by our Elys Platform primarily derived from bet and wager processing in Italy through Multigioco, and in the U.S., through Gameboard and US Bookmaking.

 

We believe that our Platform is considered one of the newest betting software platforms in the world. Our plan is to globally expand our Platform offering on a B2B basis through Europe, South America, South Africa and in the United States. During the six months ended June 30, 2023 and 2022, we also generated revenue from royalties through authorized agents by providing our virtual sports products through our Virtual Generation subsidiary and generated service revenues through the provision of bookmaking and platform services through our subsidiaries, US Bookmaking and Gameboard. We intend to leverage our partnerships in Europe, South America, South Africa and the developing market in the United States to cross-sell our Platform services to expand the global distribution of our betting solutions.

39 

 

 
 
 

 

Our revenue is generated from two business segments in the leisure gaming industry:

 

1. Betting establishments

 

Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or physical betting shop establishments or through third party agents that operate white-label websites and/or retail venues; and

 

2. Betting platform software and services

 

SaaS based service revenue through the provision of our Platform and virtual sports products to betting operators.

 

This Management’s Discussion and Analysis includes a discussion of our operations for the three and six months ended June 30, 2023 and 2022, which includes the operations of Engage IT for the five months ended June 30, 2023.

 

Global Issues

  

Inflation

 

Macro-economic conditions could affect consumer spending adversely and consequently our future operating results. The U.S. has entered a period of significant inflation, and this may impact consumption of our products and services and may increase our costs overall. However, as of the date of this report, we have not seen a material impact on our business plan due to recent inflationary concerns in the U.S.

 

Foreign Exchange Risks

 

We operate in several foreign countries, including Italy and Colombia. Changes and fluctuations in the foreign exchange rate between the U.S. Dollar and other foreign currencies, including the Euro and the Colombian Peso, may in future have an effect our results of operations. 

 

40

 

 

 
 
 

 

Recent Developments

 

Convertible debenture issuance

 

On July 11, 2023, we closed a private placement offering of up to 3,000 units pursuant to Subscription Agreements with accredited investors. The investors included Gold Street Capital Corp., which is a company owned by Gilda Ciavarella, a related party and spouse of the Company’s Executive Chairman, Michele Ciavarella, and Braydon Capital Corp. a company owned by Claudio Ciavarella, a related party and brother of the Company’s Executive Chairman, Michele Ciavarella. The amount received from Braydon Capital included the conversion of a promissory note advanced by Braydon Capital of $360,000 and accrued interest up to the closing date. Each Unit was sold to the Investors at a per unit price of $1,000 and was comprised of (i) a 12% convertible debenture in the principal amount of $1,000 (the “Debentures”), and (ii) warrants to purchase shares of the Company’s common stock (the “Warrants”). The purpose of the private placement is to provide working capital for general corporate purposes in advance of launching the Company’s online channel and mobile app product for U.S. and Canadian markets.

 

The Investors purchased a total of 2,400 units and the Company issued Debentures for the total principal amount of $2,400,000 (the  "Principal Amount") in addition, Braydon Capital converted $386,000 of promissory notes into 386 units for the total principal amount of $386,000.

 

The Debentures mature three years from their date of issuance and bear interest at a rate of 12% per annum compounded annually and payable on the maturity date. Each Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debentures plus all accrued and unpaid interest at a price equal to $0.40 per share by each of the Investors, except that Debentures issued to Gold Street are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Debenture, at any time up to the Maturity Date. The Debentures are initially convertible into 6,951,905 shares of common stock, subject to anti-dilution adjustment as provided in the Debentures. The holder is guaranteed to receive a minimum of five months of interest in the event of an early repayment (“Redemption”) by the Company.

 

The Warrants are exercisable at an exercise price equal to $0.40 per share by each of the Investors, except that Warrants issued to Gold Street are exercisable at the Nasdaq consolidated closing bid price (calculated to the nearest one-hundredth of one cent) of the Company common stock on the Nasdaq stock market on the Closing Date, or $0.42 per share, subject to adjustment as provided in the Warrant and expire three years after the issuance date. Each Warrant is exercisable on a cashless basis in the event that there is not an effective registration statement registering the shares underlying the Warrant at the time of exercise.

 

The Warrants and Debentures provide that if the Company issues or sells common stock of securities convertible or exercisable into common stock for a price lower than the exercise price of conversion price that the exercise price and conversion price will be reduced to such price, subject to a floor price of $0.35 and subject to certain exempt issuances set forth in the Debentures and Warrants.

 

The number of shares of common stock that may be issued upon conversion of the Debentures and exercise of the Warrants is subject to an Exchange Cap (as defined in the Debenture and Warrant) unless shareholder approval to exceed the Exchange Cap is approved. The parties agree to amend the Debentures and Warrants as necessary in order to comply with the requirements of the Nasdaq Capital Markets. 

 

The Debentures are secured by a senior security interest in all of the assets of Elys Game Technology, Corp. pursuant to a Security Agreement. The Company’s primary assets consist of certain business operations and licenses in multiple jurisdictions, trademarks and other intellectual property, betting technology and products as further described in the Company’s annual report on Form 10-K filed with the SEC on April 17, 2023. Following an event of default under the Debentures, the Investors will have all available rights under the Security Agreement and applicable law to enforce their rights as secured creditors, including to sell, assign, transfer, pledge, encumber or otherwise dispose of the secured assets, and to exercise any other available rights and remedies upon the occurrence of an event of default as described in the Debentures.

  

Critical Accounting Estimates

 

The critical accounting policies that involved significant estimation included the following:

 

 Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note 2 - Summary of Significant Accounting Policies of the Notes to the condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q for further information. 

 

41 

 

 
 
 

 

 

Recently Issued Accounting Pronouncements

 

See Note 2 - Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding recently issued accounting standards.

 

Results of Operations

 

Results of Operations for the three months ended June 30, 2023 and the three months ended June 30, 2022

 

Revenues

 

The following table represents disaggregated revenues from our gaming operations for the three months ended June 30, 2023 and 2022. Net Gaming Revenues is calculated based on Turnover (also referred to as “Handle”) which equals the total bets processed for the period, less customer winnings paid out, and taxes due to government authorities. Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

 

   Three months ended      
  

June 30,

2023

  June 30,
2022
 

Increase

(decrease)

  Percentage change
Turnover            
Turnover web-based  $205,491,902   $186,441,824   $19,050,078    10.2%
Turnover land-based   9,221,129    1,818,081    7,403,048    407.2%
Total Turnover   214,713,031    188,259,905    26,453,126    14.1%
                     
Winnings/Payouts                    
Winnings web-based   192,967,680    173,924,052    19,043,628    10.9%
Winnings land-based   7,663,671    1,557,874    6,105,797    391.9%
Total Winnings/payouts   200,631,351    175,481,926    25,149,425    14.3%
                     
Gross Gaming Revenues                    
Gross Gaming Revenues Web-based   12,524,222    12,517,772    6,450    0.1%
Gross Gaming Revenues Land-based   1,557,458    260,207    1,297,251    498.5%
    14,081,680    12,777,979    1,303,701    10.2%
                     
Less: Gaming Taxes   (3,381,599)   (3,117,380)   (264,219)   8.5%
Net Gaming Revenues   10,700,081    9,660,599    1,039,482    10.8%
Add: Service Revenues   636,560    687,136    (50,576)   (7.4)%
Total Revenues  $11,336,641   $10,347,735   $988,906    9.6%

 

Total Revenues

 

The change in total revenues is primarily due to the following:

 

Web-based turnover

 

Our web-based turnover was approximately $205.5 million and $186.4 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately $19.1 million or 10.2%.

 

We highlight the following movements in our web-based Euro turnover: (i) sports betting turnover increased significantly by approximately €15.1 million or 43.2%; (ii) our casino gaming turnover increased by approximately €7.4 million or 5.9%; offset by (iii) a reduction in on-line poker gaming turnover of €3.6 million or 23.7%.

 

For the three months ended June 30, 2023 and 2022, all of our web-based turnover was generated by Multigioco. 

 

 

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Currency impact on Web-based turnover

 

Our web-based turnover expressed in Euro increased by approximately €13.2 million or 7.5%, however in U.S dollars we recorded an increase in turnover of approximately $19.1 million or 10.2%. We would have realized turnover growth of approximately $14.6 million or 7.8% on a constant currency basis. The slight differential between the growth percentage in Euro of 7.5% and on a constant currency basis of 7.8% is due to us using a year-to-date average exchange rate in our currency calculations.

 

Land-based turnover

 

Our land-based turnover was approximately $9.2 million and $1.8 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately $7.4 million or 407.2%.

 

During the three months ended June 30, 2023, the 61 newly activated land-based locations had a positive impact on our land-based turnover and our GGR, discussed below.

 

We highlight that our land-based Euro turnover increased by €6.8 million or 397.0%, including an increase in sports betting turnover of €5.6 million or 627.0% and an increase in virtual sports betting of €1.1 million or 182.1%, as a direct result of the increase in our number of land-based locations. We typically earn higher margins on sports and virtual sports betting.

 

For the three months ended June 30, 2023, all of our land-based turnover was generated by Multigioco.

 

Currency impact on land-based turnover

 

Our land-based turnover expressed in Euro increased by approximately €6.8 million or 397.0%, however in U.S dollars we recorded an increase in turnover of $7.4 million or 407.2%. We would have realized turnover growth of approximately $7.2 million or 396.9% on a constant currency basis. The slight differential between the growth percentage in Euro of 397.0% and on a constant currency basis of 396.9% is due to us using a year-to-date average exchange rate in our currency calculations.

 

Gross Gaming Revenue (“GGR”)

 

Gross Gaming Revenue was approximately $14.1 million (€12.9 million) and $12.8 million (€12.0 million) for the three months ended June 30, 2023 and 2022, respectively, an increase of $1.3 million or 10.2%. The increase in GGR in Euro was €0.9 million or 7.3%. Refer to currency impact on Gross Gaming Revenues below.

 

The percentage of payouts on web-based turnover increased to 93.9% from 93.3% and on land-based turnover declined to 83.1% from 85.7%, for the three months ended June 30, 2023 and 2022, respectively.

 

The return on casino type games is typically fixed at a certain percentage while the return on skill games is dependent on the skill of the players but does not vary significantly from year to year, however the return on sports betting is dependent on the outcome of the sporting games which is unpredictable and is managed by our risk management team, generally producing a better return than the other revenue streams.

 

The turnover mix impacts our Gross Gaming Revenue (“GGR”). Our turnover for the three months ended June 30, 2023, is as follows: sports betting turnover represented 25.3% (compared to June 30, 2022 of 19.7%); casino style games represented 73.4% (compared to June 30, 2022 of 79.5%); and other was 1.3% (compared to June 30, 2022 of 0.8%).

 

The margin earned on our sports book averaged 15.0% (compared to June 30, 2022 of 16.6%) and our casino style games averaged 3.5% (compared to June 30, 2022 of 4.5%), resulting in a blended GGR of 6.6% (compared to June 30, 2022 of 6.8%). Although margins were down on both sports betting and casino style games, the significant increase in sports betting turnover had a positive impact on blended GGR.

   

Currency impact on Gross Gaming Revenues

 

Our GGR expressed in Euro increased by approximately €0.9 million or 7.3%, however in U.S dollars we recorded an increase in GGR of $1.3 million or 10.2%. We would have realized GGR growth of approximately $0.9 million or 7.3% on a constant currency basis.

 

Gaming Taxes

 

Gaming taxes increased by approximately $0.3 million or 8.5%. Gaming taxes are a percentage of GGR and decreased to 24.0% from 24.4%, for the three months ended June 30, 2023 and 2022, respectively. The decrease is primarily due to the mix of our Gross Gaming Revenues with lower overall tax on sports betting operations compared to other casino type products.

 

 

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Service Revenues

 

Service revenues decreased by approximately $0.05 million or 7.4%. This is primarily due to a reduction in service revenues from our U.S. operations as we work on stabilizing the US Bookmaking operation. This revenue remains insignificant to total revenues during the periods presented.

 

Selling expenses

 

Selling expenses includes both commissions that are paid to our sales agents as a percentage of turnover (handle), which is not affected by winnings paid out, and a percentage of GGR which is affected by winnings paid out. We also incur fees paid to third party providers, based on Net Gaming Revenues (“NGR”). Therefore, increases in turnover (handle), will correlate in increases in selling expenses and may result in only a slight increases in overall revenue if winnings or payouts, that are subject to the unknown outcome of sports events that we have no control over, are outside our normal expectations The percentage of selling expenses to turnover increased to 4.5% from 4.2% for the three months ended June 30, 2023 and 2022, respectively. Based on the mix of commissions paid on turnover to commissions paid on GGR and NGR.

 

We incurred selling expenses of approximately $9.6 million and $7.9 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately $1.7 million or 21.6%.

 

General and administrative Expenses

 

General and administrative expenses were approximately $5.0 million and $4.3 million for the three months ended June 30, 2023 and 2022, respectively, an increase of $0.7 million or 15.1%. The increase over the prior year is attributable to the following: (i) an increase in personnel costs of costs of $0.7 million, consisting of an increase in stock-based compensation of $0.3 million and an increase in salaries and wages of approximately $0.4 million. The increase in stock-based compensation is primarily due to the issuance of restricted stock to key IT management and the salaries and wages associated with our recent acquisition of Engage IT, offset by a reduction in salaries and wages at corporate level.

 

Depreciation and amortization

 

Depreciation and amortization was approximately $0.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively. The decrease of $0.1 million was primarily due to the impact on the current year amortization of intangibles, of the prior year impairment of long-lived intangible assets associated with the acquisition of US Bookmaking.

 

Restructuring and severance expenses

 

Restructuring and severance expenses were approximately $0 and $1.2 million for the three months ended June 30, 2023 and 2022, respectively. Management has embarked on a cost reduction exercise, streamlining operations and eliminating duplicated effort wherever possible, ensuring that management is lean and efficient. We eliminated a senior role within the corporate office resulting in a severance expense of approximately $0.4 million and an acceleration of a non-cash stock-based compensation charge of approximately $0.8 million, for an immediate vesting of options.

 

Loss from Operations

 

Loss from operations was approximately $3.5 million and $3.5 million for the three months ended June 30, 2023 and 2022, an increase of $0.0 million. The increase in revenue and the reduction in depreciation and amortization expense and restructuring and severance expenses was offset by the increase in general and administrative expenses and selling expenses, discussed in detail above.

 

Interest expense, net

 

Interest expense, net, was approximately $0.08 million and $0.01 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately $0.07 million. The increase is primarily due to the convertible debt funding advanced to us during the current year and the promissory note funding advanced to us during the second and third quarters of the prior year.

 

Amortization of debt discount

 

Amortization of debt discount was approximately $0.05 million and $0 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately $0.05 million. The increase is due to the amortization of debt discount on the convertible notes issued during the current year. 

 

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Other income

 

Other income was approximately $0.01 million  and $0.03 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.02 million or 84.2%.

 

Change in fair value of contingent purchase consideration

 

Change in fair value of contingent purchase consideration was approximately $0 and $0.5 million for the three months ended June 30, 2023 and 2022 respectively, a decrease of approximately $0.5 million. The change in fair value of contingent purchase consideration is the accretion expense associated with the present value of contingent purchase consideration due on the acquisition of US Bookmaking. In the prior year, the entire contingent purchase consideration was impaired based on management’s estimation that earning the contingent purchase consideration was extremely remote.

 

Other expense

 

Other expense was immaterial for the three months ended June 30, 2023 and 2022.

 

Gain (Loss) on Marketable Securities

 

The loss on marketable securities was approximately $0.0 million and the gain on marketable securities was $0.02 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.02 million or 106.7%. During the current period, the shares in Zoompass were written down entirely due to the lack of activity at Zoompass.

  

Loss Before Income Taxes

 

Loss before income taxes was approximately $3.7 million and $3.9 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.2 million or 6.7%. The decrease in loss before income taxes was primarily due to a decrease in the changes in fair value of contingent purchase consideration, offset by an increase in interest expense and amortization of debt discount, as discussed above.

 

Income Tax Provision

 

The income tax provision was a credit of approximately $0.1 million and a credit of $0.1 million  for the three months ended June 30, 2023 and 2022, respectively. The income tax provision included a deferred taxation credit of approximately $0.04 million and $0.08 million related to platform development costs which reverse over the life of platform.

 

Net Loss

 

Net loss was approximately $3.5 million and $3.8 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.3 million or 7.0%, primarily due to the decrease in loss before income taxes as discussed above. 

 

Comprehensive Loss

 

Our reporting currency is the U.S. dollar while the functional currency of our Italian, Maltese, and Austrian subsidiaries is the Euro, the functional currency of our Canadian subsidiary is the Canadian dollar, and the functional currency of our Colombian operation is the Colombian Peso. The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining other comprehensive income.

 

We recorded a foreign currency translation gain of approximately $5,500 and a foreign currency translation loss of $0.36 million for the three months ended June 30, 2023 and 2022, respectively. During the current quarter the U.S. dollar weakened slightly against the year-end Euro closing rate and in the prior year, the U.S. dollar strengthened significantly against the Euro, resulting in the swing in the foreign currency translation difference.

 

 

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Results of Operations for the six months ended June 30, 2023 and the six months ended June 30, 2022

 

Revenues

 

The following table represents disaggregated revenues from our gaming operations for the six months ended June 30, 2023 and 2022. Net Gaming Revenues is calculated based on Turnover (also referred to as “Handle”), which equals the total bets processed for the period, less customer winnings paid out, and taxes due to government authorities, Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

 

 

   Six months ended      
  

June 30,

2023

  June 30,
2022
 

Increase

(decrease)

  Percentage change
Turnover            
Turnover web-based  $405,414,937   $402,222,106   $3,192,831    0.8%
Turnover land-based   17,789,650    3,603,188    14,186,462    393.7%
Total Turnover   423,204,587    405,825,294    17,379,293    4.3%
                     
Winnings/Payouts                    
Winnings web-based   379,098,831    374,777,873    4,320,958    1.2%
Winnings land-based   14,429,635    2,958,287    11,471,348    387.8%
Total Winnings/payouts   393,528,466    377,736,160    15,792,306    4.2%
                     
Gross Gaming Revenues                    
Gross Gaming Revenues Web-based   26,316,106    27,444,233    (1,128,127)   (4.1)%
Gross Gaming Revenues Land-based   3,360,015    644,901    2,715,114    421.0%
    29,676,121    28,089,134    1,586,987    5.6%
                     
Less: Gaming Taxes   (7,121,350)   (6,848,210)   (273,140)   4.0%
Net Gaming Revenues   22,554,771    21,240,924    1,313,847    6.2%
Add: Service Revenues   1,214,016    1,342,797    (128,781)   (9.6)%
Total Revenues  $23,768,787   $22,583,721   $1,185,066    5.2%

 

Total Revenues

 

The change in total revenues is primarily due to the following:

 

Web-based turnover

 

Our web-based turnover was approximately $405.4 million and $402.2 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately $3.2 million or 0.8%.

 

We highlight the following movements in our web-based Euro turnover: (i) sports betting turnover increased significantly by approximately €30.5 million or 41.7%; (ii) our casino gaming turnover increased by approximately €10.7 million or 4.3%; offset by (iii) a reduction in on-line poker gaming turnover of €22.3 million or 52.3%.

 

For the six months ended June 30, 2023 and 2022, all of our web-based turnover was generated by Multigioco.

  

Currency impact on Web-based turnover

 

Our web-based turnover expressed in Euro increased by approximately €7.2 million or 2.0%, however in U.S dollars we recorded an increase in turnover of approximately $3.2 million or 0.8%. We would have realized turnover growth of approximately $7.9 million or 2.0% on a constant currency basis.

 

Land-based turnover

 

Our land-based turnover was approximately $17.8 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately $14.2 million or 393.7%.

.

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During the six months ended June 30, 2023, the 61 newly activated land-based locations had a significantly positive impact on our land-based turnover and our GGR, discussed below.

 

We highlight that our land-based Euro turnover increased by €13.2 million or 399.5%, including an increase in sports betting turnover of €11.1 million or 669.6% and an increase in virtual sports betting of €2.2 million or 177.8%, as a direct result of the increase in our number of land-based locations. We typically earn higher margins on sports and virtual sports betting.

 

For the six months ended June 30, 2023, all of our land-based turnover was generated by Multigioco.

 

Currency impact on land-based turnover

 

Our land-based turnover expressed in Euro increased by approximately €13.2 million or 399.5%, however in U.S dollars we recorded an increase in turnover of $14.2 million or 393.7%. We would have realized turnover growth of approximately $14.4 million or 399.5% on a constant currency basis.

 

Gross Gaming Revenue (“GGR”)

 

Gross Gaming Revenue was approximately $29.7 million (€27.4 million) and $28.1 million (€25.7 million) for the six months ended June 30, 2023 and 2022, respectively, an increase of $1.6 million or 5.6%. The increase in GGR in Euro was €1.8 million or 6.9%. Refer to currency impact on Gross Gaming Revenues below.

 

The percentage of payouts on web-based turnover increased to 93.5% from 93.2% and on land-based turnover declined to 81.1% from 82.1%, for the six months ended June 30, 2023 and 2022, respectively.

 

The return on casino type games is typically fixed at a certain percentage while the return on skill games is dependent on the skill of the players but does not vary significantly from year to year, however the return on sports betting is dependent on the outcome of the sporting games which is unpredictable and is managed by our risk management team, generally producing a better return than the other revenue streams.

 

The turnover mix impacts our Gross Gaming Revenue (“GGR”). Our turnover for the six months ended June 30, 2023, is as follows: sports betting turnover represented 26.5% (compared to June 30, 2022 of 19.7%); casino style games represented 72.3% (compared to June 30, 2022 of 79.5%); and other was 1.2% (compared to June 30, 2022 of 0.8%).

 

The margin earned on our sports book averaged 15.5% (compared to June 30, 2022 of 17.5%) and our casino style games averaged 3.9% (compared to June 30, 2022 of 4.4%), resulting in a blended GGR of 7.0% (compared to June 30, 2022 of 6.9%). Although margins were down on both sports betting and casino style games, the significant increase in sports betting turnover had a positive impact on blended GGR.

   

Currency impact on Gross Gaming Revenues

 

Our GGR expressed in Euro increased by approximately €1.8 million or 6.9%, however in U.S dollars we recorded an increase in GGR of $1.6 million or 5.6%. We would have realized GGR growth of approximately $1.9 million or 6.9% on a constant currency basis.

 

Gaming Taxes

 

Gaming taxes increased by approximately $0.3 million or 4.0%. Gaming taxes are a percentage of GGR and decreased to 24.0% from 24.4%, for the six months ended June 30, 2023 and 2022, respectively. The decrease is primarily due to the mix of our Gross Gaming Revenues with lower overall tax on sports betting operations compared to other casino type products.

 

Service Revenues

 

Service revenues decreased by approximately $0.1 million or 9.6%. This is primarily due to a reduction in service revenues from our US operations due to the loss of some revenue in our US Bookmaking operation. This revenue remains insignificant to total revenues during the periods presented.

 

Selling expenses

 

Selling expenses includes both commissions that are paid to our sales agents as a percentage of turnover (handle), which is not affected by winnings paid out, and a percentage of GGR which is affected by winnings paid out. We also incur fees paid to third party providers, based on Net Gaming Revenues (“NGR”). Therefore, increases in turnover (handle), will mostly result in increases in selling expenses and may result in only a slight increase in overall revenue if winnings or payouts, that are subject to the unknown outcome of sports events that we have no control over, are outside our normal expectations The percentage of selling expenses to turnover increased to 4.6% from 4.2% for the six months ended June 30, 2023 and 2022, respectively. Based on the mix of commissions paid on turnover to commissions paid on GGR and NGR.

 

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We incurred selling expenses of approximately $19.4 million and $17.2 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately $2.3 million or 13.3%.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $9.4 million and $8.9 million for the six months ended June 30, 2023 and 2022, respectively, an increase of $0.5 million or 5.9%. The increase over the prior year is attributable to the following: (i) an increase in personnel costs of $0.8 million, consisting of an increase in stock-based compensation of $0.3 million and an increase in salaries and wages of approximately $0.5 million. The increase in stock-based compensation is primarily due to the issuance of restricted stock to key IT management and the salaries and wages associated with our recent acquisition of Engage IT, offset by a reduction in salaries and wages at corporate level.

 

Depreciation and amortization

 

Depreciation and amortization was approximately $0.7 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of $0.2 million, primarily due to the impact on the current year amortization of intangibles due to the prior year impairment of long-lived intangible assets associated with the acquisition of US Bookmaking.

 

Restructuring and severance expenses

 

Restructuring and severance expenses were approximately $0 and $1.2 million for the six months ended June 30, 2023 and 2022, respectively. Management has embarked on a cost reduction exercise, streamlining operations and eliminating duplicated effort wherever possible, ensuring that management is lean and efficient. We eliminated a senior role within the corporate office resulting in a severance expense of approximately $0.4 million and an acceleration of a non-cash stock-based compensation charge of approximately $0.8 million, for an immediate vesting of options.

 

Loss from Operations

 

The loss from operations was approximately $5.8 million and $5.6 million for the six months ended June 30, 2023 and 2022, an increase of $0.2 million. The increase in revenue and the reduction in depreciation and amortization expense and restructuring and severance expenses was offset by the increase in general and administrative expenses and selling expenses, discussed in detail above.

 

Interest expense, net

 

Interest expense, net, was approximately $0.11 million and $0.01 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately $0.1 million. The increase is primarily due to the convertible debt funding advanced to us during the current year and the promissory note funding advanced to us during the second and third quarters of the prior year.

 

Amortization of debt discount

 

Amortization of debt discount was approximately $0.07 million and $0 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately $0.07 million. The increase is due to the amortization of debt discount on the convertible notes issued during the current year.

 

Other income

 

Other income was approximately $0.01 million and $0.07 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.06 million or 80.4%. The amounts are immaterial.

 

Change in fair value of contingent purchase consideration

 

Change in fair value of contingent purchase consideration was approximately $0 and $0.9 million for the six months ended June 30, 2023 and 2022 respectively, a decrease of approximately $0.9 million.  The change in fair value of contingent purchase consideration is the accretion expense associated with the present value of contingent purchase consideration due on the acquisition of US Bookmaking. In the prior year, the entire contingent purchase consideration was impaired based on management’s estimation that earning the contingent purchase consideration was extremely remote. 

 

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Other expense

 

Other expense was immaterial for the three months ended June 30, 2023 and 2022.

 

Gain (Loss) on Marketable Securities

 

The loss on marketable securities was approximately $0.02 million and the gain on marketable securities was $0.09 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.11 million or 121.6%. During the current period, the shares in Zoompass were written down entirely due to the lack of activity at Zoompass.

  

Loss Before Income Taxes

 

Loss before income taxes was approximately $6.0 million and $6.3 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.3 million or 5.6%. The decrease in loss before income taxes was primarily due to a decrease in the changes in fair value of contingent purchase consideration, offset by an increase in loss from operations, interest expense and amortization of debt discount, as discussed above.

 

Income Tax Provision

 

The income tax provision was a credit of approximately $0.1 million and a charge of $0.03 million for the six months ended June 30, 2023 and 2022, respectively. The income tax provision included a deferred taxation credit of approximately $0.3 million and $0.2 million related to platform development costs which reverse over the life of platform.

 

Net Loss

 

Net loss was approximately $5.8 million and $6.4 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.6 million or 8.3%, primarily due to the decrease in loss before income taxes, offset by the decrease in taxation provision as discussed above. 

 

Comprehensive Loss

 

Our reporting currency is the U.S. dollar while the functional currency of our Italian, Maltese, and Austrian subsidiaries is the Euro, the functional currency of our Canadian subsidiary is the Canadian dollar, and the functional currency of our Colombian operation is the Colombian Peso. The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining other comprehensive income.

 

We recorded a foreign currency translation gain of approximately $0.1 million and a foreign currency translation loss of $0.5 million for the six months ended June 30, 2023 and 2022, respectively. During the current quarter the U.S. dollar weakened slightly against the year-end Euro closing rate and in the prior year, the U.S. dollar strengthened significantly against the Euro, resulting in the swing in the foreign currency translation difference.

 

Liquidity and Capital Resources

 

Our principal cash requirements have included the funding of acquisitions, repayments of convertible debt and deferred purchase consideration, the purchase of plant and equipment, and working capital needs. Working capital needs generally result from expenses incurred in developing our gaming platform for the various markets we operate in and new markets we are developing as well as our intention to continue our expansion plans in the U.S. market.

 

We finance our business primarily though debt and equity placements and cash generated from operations. Our ability to generate sufficient cash flow from operations is dependent on the continued demand for our gaming services we offer to our customers through our land-based and web-based locations as well as the gaming platforms we license to third parties.

 

We finance our business to provide adequate funding for at least 12 months, based on forecasted operating results and working capital needs, and in the future, we anticipate that we would need to raise additional cash through equity or debt funding.

 

Recently we have financed our business through convertible debt placements due to unfavorable equity market conditions, previously we financed our business from registered direct offerings and to a very limited extent, the sale of shares of our common stock pursuant to the terms of an Open Market Sales AgreementSM (“ATM”) that we entered into with Jefferies LLC on November 19, 2021. The ATM is currently not active, and we are considering our options with respect to the ATM.

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On January 30, 2023 and May 5, 2023, we closed a convertible note funding for gross proceeds of $2,350,000, we issued warrants exercisable for 5,317,562 shares of common stock to the convertible note holders as part of the funding arrangement. The funding included gross proceeds of $1,500,000 from related parties. Subsequent to June 30, 2023, on July 11, 2023, we raised an additional $2,400,000 of convertible note funding.

 

Our ability to generate sufficient cash flow from operations is dependent on the continued demand for our gaming services we offer to our customers through our land-based and web-based locations as well as the gaming platforms we license to third parties.

 

Based on our forecasts, we believe that we will have to source additional funding through either debt or equity funding to execute our growth plan and to continue operating for the next twelve months from the date of filing this report. We can make no assurance that such debt or equity will be available at terms that are acceptable to us, if at all. We plan to continue our expansion plans in both the U.S. and Italian markets at a rate of growth that we believe is sustainable and achievable by us.

 

Assets

At June 30, 2023 and December 31, 2022, we had total assets of approximately $22.6 million and $21.4 million, respectively, an increase of $1.2 million. The increase is primarily due to an increase in goodwill of $1.8 million related to the acquisition of Engage IT on January 29, 2023, an increase in property and equipment and intangibles of $0.4 million, an increase in right of use assets of $0.2 million offset by a decrease in cash balances of $1.2 million.

 

Liabilities

 

At June 30, 2023 and December 31, 2022, we had approximately $16.6 million and $14.2 million in total liabilities, respectively, an increase of $2.4 million. The increase is primarily attributable to an increase in convertible notes payable of a gross $1.3 million, net of debt discount of $1.1 million, an increase in accounts payable and accrued liabilities of $0.8 million and an increase in other long-term liabilities of $0.3 million related to statutory severance accruals included in the acquisition of Engage IT.

 

Working Capital

 

The working capital deficit was approximately $5.6 million and $3.9 million at June 30, 2023 and December 31, 2022, respectively.

  

Accumulated Deficit

 

We had an accumulated deficit of $72.3 million and $66.5 million as of June 30, 2023 and December 31, 2022, respectively.

 

Cash Flows from Operating Activities

 

Net cash used in operating activities was approximately $2.7 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately $0.9 million or 23.8%.

 

The decrease in cash used in operating activities is primarily due to the following:

 

  · A decrease in operating losses of approximately $0.5 million, as discussed under results of operations above;

 

  · An increase in the movement of changes in operating assets and liabilities of $2.1 million, primarily due to the following: (i) an increase in the movement of accounts payable and accrued liabilities of $2.0 million, primarily due to the timing of payments to our suppliers and vendors; (ii) a decrease in the movement of prepaid expenses of $0.9 million due to the capitalization of developments costs during the fourth quarter of the prior year and; (iii) an increase in the movement of related party payables of $0.6 million due to funds advanced by our chairman in anticipation of a further convertible funding round; (iv) an increase in the movement of accounts receivable of $0.2 million, due to collection of outstanding balances in our US Bookmaking subsidiary; offset by (v) an increase in the movement of gaming accounts receivable of $1.2 million due to the timing of receipts from our gaming customers and; (vi) a decrease in the movement of gaming accounts payable of $0.4 million due to the timing of payments to our agents and customers;

 

  · A decrease of $1.7 million in non-cash movements, primarily due to the following: (i) the movement of the change in fair value of contingent purchase consideration of $0.9 million, the contingent purchase consideration was impaired during December 2022 as we believe that the US Bookmaking sellers will not reach their earnout targets; (ii) a reduction in the movement of share based compensation of $0.8 million, primarily due to the acceleration of severance related stock option expense in the prior year.

 

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Cash Flows from Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2023 and 2022 was $1.0 million and $0.2 million, an increase of $0.8 million. The increase is primarily due to the capitalization of platform development expenses of $0.5 million and the acquisition of computer software to support the Multigioco operations of $0.5 million.

 

On January 29, 2023, we acquired Engage IT, by issuing 3,018,461 shares of common stock valued at $1,735,615. Included in the assets acquired was cash of $0.094 million.

  

Cash Flows from Financing Activities

 

Net cash provided by financing activities for the six months ended June 30, 2023 and 2022 was $2.3 million and $3.3 million, a decrease of $1.0 million. During the current period, we raised $2.35 million from convertible note funding to support the operations and, in the prior year, we raised approximately $3.1 million from a registered directed placement and a further advance of $0.26 million from a related party to fund the US Bookmakers operation.

 

Contractual Obligations

 

Contractual obligations consist of short-term funding commitments to acquire kiosks, and operating and finance lease obligations as disclosed in the Notes to the financial statements.

 

We do not believe that we have any obligations for contingent purchase consideration based on our assessment of US Bookmaking’s ability to reach the pre-set earnout targets.

 

Off-Balance-Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that we expect to be material to investors. We do not have any non-consolidated, special-purpose entities.

 

Related Party Transactions

 

Promissory notes payable – Related Parties

 

The movement on promissory notes payable – Related Parties, consists of the following:

   

June 30,

2023

 

December 31,

2022

Principal outstanding                
Opening balance as of January 1, 2023 and 2022, respectively.   $ 715,000     $ 50,000  
Loans advanced – Braydon Capital Corp     —         360,000  
Loans advanced – Victor Salerno     —         305,000  
Closing balance as of June 30 2023 and December 31, 2022, respectively.     715,000       715,000  
                 
Accrued Interest                
Opening balance as of January 1, 2023 and 2022, respectively.     37,000       1,878  
Accrued interest     35,551       35,122  
Closing balance as of June 30 2023 and December 31, 2022, respectively.     72,551       37,000  
                 
Total   $ 787,551     $ 752,000   

 

   

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Convertible notes payable – Related parties

 

On January 30, 2023, the Company issued convertible notes payable, as disclosed under Note 11 above. Forte Fixtures subscribed for $500,000 of the convertible notes, Forte Fixtures is owned by Mr. Claudio Ciavarella, the brother of our Chairman and interim CEO.

 

On May 5, 2023, the Company issued convertible notes payable as disclosed under Note 11 above. Gold Street Capital subscribed for the full $1,500,000 of the convertible notes, Gold Street Capital is owned by Gilda Ciavarella, the wife of our Chairman and interim CEO.

 

Convertible notes payable – related party, consists of the following:

   

June 30,

2023

 
Principal outstanding        
Opening balance as of January 1, 2023   $ —    
Advances to the Company     2,000,000  
Closing balance as of June 30, 2023     2,000,000  
         
Accrued Interest        
Opening balance as of January 1, 2023     —    
Accrued interest     54,167  
Closing balance as of June 30, 2023     54,167  
         
Debt Discount        
Opening balance as of January 1, 2023     —    
Debt discount on valuation of warrants     (956,977 )
Amortization of debt discount     54,534  
Closing balance as of June 30, 2023      (902,444 ) 
         
Total   $ 1,151,723   

   

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:

 

     

June 30,

2023

 

December 31,

2022

  Related Party payable                
  Engage IT Services, Srl   $ —       $ (406,467 )
  Luca Pasquini     (174,684 )     (459 )
  Michele Ciavarella     (399,022 )     (15,203 )
      $ (573,706 )   $ (422,129 ) 
                   
  Related Party Receivable                
  Victor Salerno   $ 22,511     $ 22,511  
      $ 22,511     $ 22,511   

  

 

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Engage IT Services, Srl.

 

The Company acquired Engage IT with effect from January 29, 2023. Engage IT performed software development work for the Company’s wholly owned subsidiary, Gameboard. As of December 31, 2022, Gameboard owed Engage IT $406,467 for development work performed. The intercompany balance eliminates on consolidation for the six months ended June 30, 2023. 

Luca Pasquini

 

On September 26, 2022, Mr. Pasquini was awarded 500,000 restricted shares of common stock valued at $226,800 for services rendered to the Company.

 

On January 29, 2023, the Company acquired Engage IT, Mr. Pasquini owned 34% of Engage IT prior to the acquisition. The purchase price was settled by the issuance of common stock, of which Mr. Pasquini received 1,026,277 shares of common stock which resulted in him becoming an effective 5.7% shareholder of the Company. 

 

Michele Ciavarella

 

On September 26, 2022, Mr. Ciavarella was awarded 300,000 restricted shares of common stock valued at $136,080 for services rendered to the Company.

 

On February 14, 2023, Mr. Ciavarella, the Company’s Executive Chairman and interim CEO, voluntarily offered and agreed to reduce his annual base compensation to $372,000 for fiscal 2023, subject to a review of his total compensation package.

 

Carlo Reali

 

On January 5, 2022, the Company promoted Carlo Reali to the role of Interim Chief Financial Officer.

 

On March 29, 2022, the Company issued Mr. Reali ten-year options exercisable for 100,000 shares of common stock, at an exercise price of $2.50 per share, vesting equally over a 4 year period commencing on January 1, 2023.

 

The Company does not have a formal employment agreement with Mr. Reali and awarded him €40,000 (approximately $42,930) as compensation for the Interim Chief Financial Officer role. Mr. Reali will continue to receive the compensation that he currently receives which is an annual base salary of €76,632 (approximately $82,244).

 

On September 26, 2022, Mr. Reali was awarded 200,000 restricted shares of common stock valued at $90,720 for services rendered to the Company.

 

Victor Salerno

 

Prior to the acquisition of US Bookmaking, Victor Salerno had advanced US Bookmaking $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 is repayable on October 1, 2022.

 

Between February 23, 2022 and September 22, 2022, Mr. Salerno advanced US Bookmaking an additional $305,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable between June 30, 2022 and November 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an additional 25% penalty and additional interest of 5% per annum. These notes were advanced to US Bookmaking without the consent of the Company, which is required as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021. Therefore, the Company acknowledges the advance of funds to US Bookmaking by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute. As of June 30, 2023, these notes remain outstanding. Interest has been accrued on these notes, however we intend to dispute the validity of these notes and have accordingly not repaid them or accrued penalty interest in terms of these notes.

 

On January 23, 2023, Mr. Salerno voluntarily resigned as a member of the Board.

 

Paul Sallwasser

 

On February 14, 2023, the Company granted Mr. Sallwasser ten-year options exercisable for 154,132 shares of common stock at an exercise price of $0.89 per share, of which 77,254 vested immediately and the remaining 76,878 vesting equally over a ten-month period commencing on March 1, 2023.

 

 

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Steven Shallcross

 

On February 14, 2023, the Company granted Mr. Shallcross ten-year options exercisable for 131,631 shares of common stock at an exercise price of $0.89 per share, of which 54,753 vested immediately and the remaining 76,878 vesting equally over a ten-month period commencing on March 1, 2023.

 

On February 14, 2023, the Company issued Mr. Shallcross 22,472 shares of common stock valued at $20,000 from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Shallcross.

 

Andrea Mandel-Mantello

 

On February 14, 2023, the Company granted Mr. Mandel-Mantello ten-year options exercisable for 131,631 shares of common stock at an exercise price of $0.89 per share, of which 54,753 vested immediately and the remaining 76,878 vesting equally over a ten-month period commencing on March 1, 2023.

 

On February 14, 2023, the Company issued Mr. Mandel-Mantello 44,944 shares of common stock valued at $40,000 from the 2018 equity incentive plan in lieu of 2022 cash director’s fees owing to Mr. Mandel-Mantello.

 

Aiden Ciavarella

 

The Company recently employed Aiden Ciavarella to train as part of our U.S. project and risk management team lead. Aiden earns an annual salary of $85,000. There is no formal employment agreement with Aiden who is the son of our chairman and interim CEO, Michele Ciavarella.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Elys Game Technology, Corp is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

Item 4. Controls and Procedures.

 

Management's Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

As required by SEC Rule 13a-15(b), our management, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on the foregoing evaluation, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), concluded that due to our limited resources our disclosure controls and procedures were not effective. Specifically, our internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees. Management has determined that this control deficiency constitutes a material weakness which can result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

 

Management has increased its number of staff in accounting functions and currently has a consulting agreement with a seasoned financial expert who, together with senior management will ensure that: (i) a formal accounting policy framework is put in place; (ii) policies and procedures are implemented to ensure that all significant accounting, legal, regulatory and risk management procedures are adequately documented and communicated effectively to all management and staff, as appropriate; and (iii) an approval framework will be implemented and adequately documented to ensure that management responsible for financial reporting is aware of all material aspects of the business that may impact financial reporting.

 

Changes in Internal Control Over Financial Reporting

 

There were no further changes made to our available personnel during the three months ended June 30, 2023, we continue to address our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) over the next 12 to 24 months. These changes included assigning clear tasks to an outside consultant that occurred during the previous quarter and is reasonably likely to materially affect our internal control over financial reporting.  

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

  

On November 14, 2022, the Company held a mediation with Messrs. Salerno, Kocienski and Walker. There was no agreed upon outcome at the mediation. On November 17, 2022, the Company (“Plaintiff”) filed suit in the District Court, Clark County, Nevada, Case No. A-22-861452-B against Victor J. Salerno and Robert Kocienski, as “Sellers Representatives” and Robert Walker, John F. Kocienski, Farrell Drozd, William M. Bigelow, Edwin Spaunhurst, Louis Anthony Defilippis and Pennie Bigelow, as “Sellers” together with the Sellers Representatives (collectively the “Defendants”), for Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Fiduciary Duty, Fraudulent Misrepresentation and Inducement, Business Disparagement, Conversion, and Unjust Enrichment. The Company seeks judgment against Defendants for: damages caused by Defendants in an amount in excess of $15,000 for each claim for relief; exemplary and punitive damages in an amount no less than three times the amount awarded to Plaintiff for compensatory damages; pre-judgment and post-judgment interest as provided by law; an award of attorney’s fees and costs as special damages; an award of Plaintiff’s costs, disbursements, and attorney’s fees incurred in the action; and for such other and further relief as the Court may deem just and proper. On December 5, 2022, the Defendants filed an Answer and Counterclaim wherein they asserted counterclaims against the Company for Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Negligent, Misrepresentation, Intentional/Fraudulent Misrepresentation, and Intentional Interference with Contract. The Company and Defendants are currently engaged in discovery and the Company is vigorously disputing the counterclaims asserted by the Defendants.

 

On December 2, 2022, Messrs. Salerno, Kocienski, Walker, and J. Salerno (“Plaintiffs”) commenced an action against Bookmakers Company US, LLC, dba US Bookmaking in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-862001-C. Plaintiffs asserted claims for Breach of Contract, Failure to Repay Promissory Note, Unjust Enrichment, and Breach of Covenant of Good Faith and Fair Dealing. Plaintiffs seek damages against Bookmakers Company US, LLC in an amount in excess of $15,000 and various other forms of relief. The Company, only on behalf of its subsidiary US Bookmaking, answered the complaint and asserted counterclaims for Breach of Fiduciary Duty, Breach of Loyalty, Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Equitable Indemnification, and Contribution. The parties are currently engaged in discovery and the Company, on behalf of US Bookmaking, is vigorously disputing the claims asserted by the Plaintiffs.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to and currently are not aware of any legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. 

 

 

 

 

 

 

 

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Item 1A. Risk Factors.

 

Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022. Except as disclosed below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

Risks related to our financial position

   

We have incurred substantial losses in the past and it may be difficult to achieve profitability.

 

We have a history of losses and we anticipate that we will incur additional losses in the development of our business. For the six months ended June 30, 2023 we had a net loss of $5.8 million and for the year ended December 31, 2022 we had a net loss of $18.3 million, after an intangible impairment charge of $20.6 million and a revised contingent purchase consideration credit of $12.9 million. We had accumulated deficits of $72.3 million and $66.5 million for the periods ended June 30, 2023 and December 31, 2022, respectively. Since we are currently in the early stages of our development and strategy, we intend to continue to invest in sales and marketing, product and solution development and operations, including the hiring of additional personnel, upgrading our technology and infrastructure and expanding into new geographical markets. Even if we are successful in increasing our customer base, we expect to also incur increased losses in the short term. Costs associated with entering new markets, acquiring clients, customers and operators are generally incurred up front, while service and transactional revenues are generally recognized at future dates if at all. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenues enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.  

 

Our financial statements have been prepared assuming a going concern.

 

Our financial statements as of June 30, 2023 were prepared under the assumption that we will continue as a going concern for the next twelve months from the date of issuance of these financial statements. Our independent registered public accounting firm has issued a report on our annual financial statements for the year ended December 31, 2022, that includes an explanatory paragraph referring to our losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, re-negotiate or extend existing indebtedness, obtain further operating efficiencies, reduce expenditures and ultimately, create profitable operations. We may not be able to raise additional funding or extend our debt or obtain additional capital on reasonable terms, if at all. Our financial statements do not include any adjustments that would result from the outcome of this uncertainty. 

 

 

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We have material weaknesses and other deficiencies in our internal control and accounting procedures.

 

Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, 2022 and as of June 30, 2023 and concluded that we had a material weakness in our internal controls due to our limited resources and therefore our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure about our internal control over financial reporting. More specifically, our internal control over financial reporting was not effective due to material weaknesses related to a segregation of duties due to our limited resources and small number of employees. Due to limited staffing, we are not always able to detect minor errors or omissions in financial reporting. If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we continue to have material weaknesses and other deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to address the adequacy of our internal control and disclosure controls and procedures our business may be harmed. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important in helping to prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our securities could drop significantly.

 

Risks Related to our Business

 

Our research and development efforts are costly and subject to international risks and may not contribute significantly to revenues for several years, if at all.

 

In order to remain competitive, we must continue to invest in research and development. During the six months ended June 30, 2023 and 2022, we spent approximately $1.4 million and $0.6 million for research and development and during the years ended December 31, 2022 and 2021, we spent approximately $1.1 million and $2.0 million for research and development, respectively, this R&D is mainly compromised of salary and wages at Odissea our platform supply company and a third party vendor, Engage IT, which the Company has subsequently acquired. This company is creating a custom-made platform for us. We have made and continue to make significant investments in development and related opportunities, such as our acquisition of US Bookmaking and Engage IT, and these investments could adversely affect our operating results if not offset by increases in revenues. However, we may not receive significant revenue from these investments for several years, if at all.

 

Further, our competitors may expend a greater amount of funds on their research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially and adversely affect our business and results of operations.

 

We may not be able to meet the continued listing requirements for the Nasdaq Stock Market. If our common stock is delisted from the Nasdaq Stock Market, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired.

 

Our common stock is currently listed on the Nasdaq Capital Market. We must satisfy the continued listing requirements of The Nasdaq Capital Market, such as the corporate governance requirements, minimum bid price requirement or the minimum stockholder’s equity requirement. On July 25, 2022, we received a letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the prior 30 consecutive business days, we no longer met Nasdaq’s requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until January 23, 2023, to regain compliance with the Rule and, on January 24, 2023, the Company was provided an additional 180 calendar day compliance period, or until July 24, 2023.  As of July 24, 2023, we had not regained compliance with Listing Rule 5550(a)(2) and Nasdaq indicated that it would be filing Form 25-NSE with the Securities and Exchange Commission to remove our stock from listing and registration on Nasdaq unless we appeal Nasdaq’s determination to a Hearing Panel. The Company has submitted a hearing request to the Hearing Panel which stays the filing of the Form 20-NSE pending the Hearing Panel’s decision which is scheduled for October 5, 2023.  We can give no assurance that the Hearing Panel will make a determination in our favor or that our stock price will increase such that we regain compliance with Rule 5550(a)(2).  If the Hearing Panel does not rule in our favor and if we do not maintain compliance with the Nasdaq continuing listing requirements, our common stock may be delisted from the Nasdaq Capital Market and it could be more difficult to buy or sell our securities and to obtain accurate quotations, and the price of our common stock could suffer a material decline. In addition, a delisting would impair our ability to raise capital through the public markets, could deter broker-dealers from making a market in or otherwise seeking or generating interest in our securities and might deter certain institutions and persons from investing in our securities at all.

 

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None that were not previously disclosed in other filings with the Securities and Exchange Commission.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.  

 

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Item 6. Exhibits

 

Exhibit Number   Description
3.1   Amended and Restated Certificate of Incorporation dated September 18, 2018 (Incorporated by reference to the Registrant’s Form 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 3, 2018)
3.2   Bylaws (Incorporated by reference to the Registrant’s Form 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 22, 2002)
3.3   Certificate of Amendment dated December 9, 2019 to the Amended and Restated Certificate of Incorporation dated December 18, 2018 (Incorporated by reference to the Registrant’s Form 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on December 12, 2019)
3.4   Certificate of Amendment dated November 2, 2020 to the Certificate of Incorporation of Elys Game Technology, Corp. dated September 18, 2018 (Incorporated by reference to the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on November 6, 2020)
3.5   Certificate of Correction of Elys Game Technology, Corp. dated November 6, 2020 to Certificate of Incorporation dated September 18, 2018 (Incorporated by reference to the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on November 6, 2020)
4.1   Form of Consultant Warrant (Incorporated by reference to Exhibit 4.1 the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on February 22, 2023)
10.1   Form of Subscription Document between the Company and the Investors (Incorporated by reference to Exhibit 10.1 the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on February 7, 2023
10.2   Form of Debenture (Incorporated by reference to Exhibit 10.2 the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on February 7 2023)
10.3   Form of Warrant (Incorporated by reference to Exhibit 10.2 the Registrant’s Form 8-K, File No. 001-39170, filed with the Securities and Exchange Commission on February 7 2023
31.1*   Certification of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

 

 

* Filed herewith    

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 14, 2023 Elys Game Technology, Corp.
 

 

By: /s/ Michele Ciavarella

 

Michele Ciavarella

Interim Chief Executive Officer and President

(Principal Executive Officer)

 

  By: /s/ Carlo Reali
 

Carlo Reali

Interim Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)