Notes to Unaudited Condensed Consolidated
Financial Statements
1. Nature of Business
On November 2, 2020, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect its corporate
name change from Newgioco Group, Inc. to Elys Game Technology, Corp.
Established in the state of Delaware in 1998,
Elys Game Technology, Corp. (“Elys” or the “Company”) is an international, vertically integrated commercial-stage
company engaged in various aspects of the leisure gaming industry. The Company is a licensed gaming operator in the regulated Italian
leisure betting market offering gaming services, including a variety of lottery, casino gaming and sports betting products through
two distribution channels: an online channel and a land-based retail channel. Additionally, the Company is a global gaming technology
company (known as a “Provider”), which owns and operates a betting software designed with a unique “distributed
model” (“shop-client”) software architecture colloquially named Elys Game Board (the “Platform”).
The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing
and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described
above. The omni-channel software design is fully integrated with a built-in player gaming account management system and sports
book.
The entities included in these unaudited condensed
consolidated financial statements are as follows:
Name
|
|
Acquisition or Formation Date
|
|
Domicile
|
|
Functional Currency
|
|
|
|
|
|
|
|
Elys Game Technology, Corp.
|
|
Parent Company
|
|
USA
|
|
US Dollar
|
Multigioco Srl (“Multigioco”)
|
|
August 15, 2014
|
|
Italy
|
|
Euro
|
Ulisse GmbH (“Ulisse”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)
|
|
July 1, 2016
|
|
Austria
|
|
Euro
|
Virtual Generation Limited (“VG”)
|
|
January 31, 2019
|
|
Malta
|
|
Euro
|
Newgioco Group Inc. (“NG Canada”)
|
|
January 17, 2017
|
|
Canada
|
|
Canadian Dollar
|
Elys Technology Group Limited
|
|
April 4, 2019
|
|
Malta
|
|
Euro
|
Newgioco Colombia SAS
|
|
November 22, 2019
|
|
Colombia
|
|
Colombian Peso
|
Elys Gameboard Technologies, LLC
|
|
May 28, 2020
|
|
USA
|
|
US Dollar
|
The Company distributed all of the earnings
of Naos Holdings Limited and dissolved the Company effective December 31, 2019.
The operations of the Company’s previous
subsidiary, Rifa Srl, were absorbed into the operations of Multigioco Srl with effect from January 30, 2020, the remaining legal
entity was dissolved with effect from January 20, 2020.
The Company operates in two lines of business:
(i) provider of certified betting platform software services to leisure betting establishments in Italy and 11 other countries
and; (ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy. The Company’s
operations are carried out through the following three geographically organized groups:
|
a)
|
an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
|
|
b)
|
a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and
|
|
c)
|
a
corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and
U.S. offices in Fort Lauderdale and Boca Raton, Florida, through which we carry-out corporate activities, handle day-to-day
reporting and U.S. development planning, and through which various employees, independent contractors and vendors are
engaged.
|
9
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2020. The balance sheet at December 31, 2019 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, 2019, as filed with the
U.S. Securities and Exchange Commission (“SEC”).
All amounts referred to in the Notes to the
unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
Impact of COVID-19
As a result of the global outbreak of the COVID-19
virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictions and closures of public gatherings
and travel which included betting shops, arcades and bingo halls across Italy until April 3, 2020. Accordingly, the Company temporarily
closed approximately 150 betting shop locations throughout Italy as a result of the decree until May 4, 2020, when the Company
began reopening physical web-shop locations. Subsequently, on March 10, 2020 the Italian government imposed further restrictions
on travel throughout Italy as well as transborder crossings and have either postponed or cancelled most professional sports events
which has had an effect on the Company’s overall sports betting handle and revenues and may negatively impact the Company’s
operating results. On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy
reopened. The closing of physical betting shop locations did not affect our online and mobile business operations which mitigated
some of the impact. To date, despite the global resurgence of COVID-19 cases, all betting shops remain open for business, however
the Italian Government is closely monitoring the pandemic and has indicated that although it’s important to keep the economy
operational, it may be compelled to impose limited restrictions on social gatherings.
We anticipate that COVID-19 will continue to
negatively impact our operating results in future periods, however, the duration and scope of the COVID-19 outbreak worldwide,
including the impact to the state and local economies is not readily determinable at this time.
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.
Certain items in the prior periods were reclassified
to conform to the current period presentation.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into US Dollars at the exchange rate in effect at year end and the results of operations and cash flows
at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
All revenues were generated in Euro and Colombian
Pesos during the years presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
10
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Business Combinations
The Company allocates the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded
as goodwill.
Such valuations require management to make
significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible
assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from
a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These
estimates and assumptions include valuing equity securities issued in share-based payment arrangements, determining the fair value
of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements,
convertible debentures, contingencies and the value of deferred taxes and related valuation allowances. Certain estimates, including
evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to
the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on
the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates
all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Loss Contingencies
The Company may be subject to claims, suits,
government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect
taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or
publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims
for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable
that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and
a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed
Consolidated Financial Statements.
The Company evaluates, on a regular basis,
developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and
related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment
is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final
resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.
Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact
on its business, consolidated financial position, results of operations, or cash flows.
To date, none of these types of litigation
matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial
condition. The Company has insured and continues to insure against most of these types of claims.
11
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that
are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little
or no market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant
would use.
The carrying value of the Company's accounts
receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable
approximate fair value because of the short-term maturity of these financial instruments.
Derivative Financial Instruments
ASC 815 generally provides three criteria that,
if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value
under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur
and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument
subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be
conventional, as described.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents
as of September 30, 2020 and December 31, 2019, respectively.
The Company primarily places cash balances
in the United States with high-credit quality financial institutions located in the United States which are insured by the Federal
Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance
Corporation up to a limit of CDN$100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo
Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of
the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up
to a limit of €100,000 per institution.
12
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Gaming Accounts Receivable
Gaming accounts receivable represent gaming
deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted
method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the
Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates
the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts
based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
The Company does not require collateral to support customer receivables. The Company recorded a bad debt expense of $214,820 and
$0 for the three months ended September 30, 2020, respectively, and $214,820 and $0 for nine months ended September 30, 2020 and
2019, respectively.
Gaming Accounts Payable
Gaming accounts payable represent customer
balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used
or withdrawn by the customers. Customers can request payment of winnings from the Company at any time and the payment to customers
can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances
are non-interest bearing.
Long-Lived Assets
The Company evaluates the carrying value of
its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value
of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the
expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the
estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate,
current estimated net sales proceeds from pending offers.
Property, Plant and Equipment
Property, plant and equipment is stated at
acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they
increase the future economic benefits embodied in an item of property, plant and equipment. All other expenditures are recognized
as expenses in the statement of operations as incurred.
Depreciation is charged on a straight-line
basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put
into operation. The range of the estimated useful lives is as follows:
Description
|
|
Useful Life
(in years)
|
|
|
|
Leasehold improvements
|
|
Life of the underlying lease
|
Computer and office equipment
|
|
3 to 5
|
Furniture and fittings
|
|
7 to 10
|
Computer Software
|
|
3 to 5
|
Vehicles
|
|
4 to 5
|
Intangible Assets
Intangible assets are stated at acquisition
cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line
basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the
Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book
value.
13
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
The range of the estimated useful lives is
as follows:
Description
|
|
Useful Life
(in years)
|
Betting Platform Software
|
|
15
|
Ulisse Bookmaker License
|
|
Indefinite
|
Multigioco and Rifa ADM Licenses
|
|
1.5 - 7
|
Location contracts
|
|
5 - 7
|
Customer relationships
|
|
10 - 15
|
Trademarks/Tradenames
|
|
14
|
Websites
|
|
5
|
The Ulisse Bookmaker has no expiration date
and is therefore not amortized.
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 goodwill exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim
reporting period, the Company performs a qualitative assessment to determine whether events or circumstances have occurred which
indicate that the carrying amount of goodwill exceeds its fair value. If there are indications that impairment may be appropriate
the Company will perform a quantitative analysis to determine if impairment is necessary.
As of September 30, 2020, there were no qualitative
indications that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic had and is expected
to have an impact on the Company’s business, the impact is expected to be temporary and the Company has a mitigating factor
in that the web-based turnover generated by the Company has increased, mitigating a portion of the effect of the COVID-19 pandemic
on the Company's land-based turnover.
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense
is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary
differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to
reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely
than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
ASC Topic 740-10-40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2015 forward,
are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years
for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination.
The Company is not currently under examination and it has not been notified of a pending examination.
14
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Revenue Recognition
The Company recognizes revenue when control
of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to
receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games,
slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes
and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the
Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets
and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the betting Platform include
license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer
has been made and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of
each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on
an accrual basis as earned.
Stock-Based Compensation
The Company records its compensation expense
associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes
option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant
date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the
option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on
the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term
of those awards. Forfeitures of stock options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.
If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized
and any previously recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources,
including foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income
(loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants
granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the
Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not
included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.
On December 12, 2019, the Company effected
a 1 for 8 reverse stock split, all references made to share or per share amounts in the accompanying unaudited condensed consolidated
financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.
Related Parties
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions
are recorded at fair value of the goods or services exchanged.
15
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Accounting Policies and Estimates
(continued)
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06,
debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40). Certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion
features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded
features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU is effective for fiscal years and
interim periods beginning after December 15, 2021.
The effects of this ASU on the Company’s
condensed consolidated financial statements is currently being assessed and is expected to have an immaterial impact on the financial
statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments”, which replaces
the incurred loss methodology with an expected credit loss methodology that is referred to as the current expected credit loss
(CECL) methodology. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.
The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated
deficit and are effective for the Company beginning with fiscal year 2020, including interim periods. The measurement of expected
credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables
and held-to-maturity debt securities. An entity with trade receivables will be required to use historical loss information, current
conditions, and reasonable and supportable forecasts to determine expected lifetime credit losses. Pooling of assets with similar
risk characteristics is also required.
Since adopted on January 1, 2020, there has
not been any material impact on the Company’s financial position, results of operations, and related disclosures.
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740), this update reduce the complexity in accounting for income taxes by removing certain exceptions
to accounting for income taxes and deferred taxes and simplifying the accounting treatment of franchise taxes, a step up in the
tax basis of goodwill as part of business combinations, the allocation of current and deferred tax to a legal entity not subject
to tax in its own financial statements, reflecting changes in tax laws or rates in the annual effective rate in interim periods
that include the enactment date and minor codification improvements.
This ASU is effective for fiscal years and
interim periods beginning after December 15, 2020.
The effects of this ASU on the Company’s
financial statements is not considered to be material.
The FASB issued several updates during the
period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected
to have a material impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from
which it derives revenue. These segments are:
|
(i)
|
provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and;
|
|
(ii)
|
the operating of web based as well as land based leisure betting establishments situated throughout Italy.
|
Comparatives
Certain items in the prior year were reclassified
to conform to the current period presentation. These reclassifications had no impact on net loss or comprehensive loss.
16
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
3. Acquisition of subsidiaries
VG Acquisition
On January 17, 2019, the Company entered into
a Share Purchase Agreement (“VG SPA”), with the shareholders of VG organized under the laws of Republic of Malta (the
“VG Sellers”) and acquired all of the issued and outstanding ordinary shares of VG, together with all the ordinary
shares of Naos Holding Limited, a company organized under the laws of Republic of Malta (“Naos”) that owned 3,999 of
the 4,000 issued and outstanding ordinary shares of VG. VG owns and has developed a virtual gaming software platform.
In terms of the agreement, the purchase price
was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed, as follows:
|
|
Amount
|
Purchase consideration, net of discount of $382,778
|
|
$
|
4,193,375
|
|
Fair value of assets acquired
|
|
|
|
|
Cash
|
|
|
47,268
|
|
Current assets
|
|
|
178,181
|
|
Property, Plant and Equipment
|
|
|
41,473
|
|
Betting Platform
|
|
|
4,004,594
|
|
|
|
|
4,271,516
|
|
Less: liabilities assumed
|
|
|
(78,141
|
)
|
Less: Imputed Deferred taxation on identifiable intangible acquired (Betting Platform)
|
|
|
(1,401,608
|
)
|
Total identifiable assets less liabilities assumed
|
|
|
2,791,767
|
|
Goodwill arising on acquisition
|
|
|
1,401,608
|
|
Total purchase consideration
|
|
$
|
4,193,375
|
|
The Betting Platform value was determined by
management, based on prior experience, and is being amortized over a period of 15 years, the expected useful life.
4. Restricted Cash
Restricted cash consists of the following:
|
·
|
cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank as well as Wirecard Bank as a security deposit for Ulisse betting operations.
|
|
·
|
The Company previously maintained a $1,000,000 deposit at Metropolitan
Commercial bank as security against a $1,000,000 line of credit. See Note 10. This line of credit was repaid during August 2020
and the cash deposit is no longer restricted.
|
5. Property,
Plant and equipment
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
value
|
|
Net book
value
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
60,054
|
|
|
$
|
(22,893
|
)
|
|
$
|
37,161
|
|
|
$
|
32,405
|
|
Computer and office equipment
|
|
|
1,020,833
|
|
|
|
(679,566
|
)
|
|
|
341,267
|
|
|
|
312,824
|
|
Fixtures and fittings
|
|
|
151,099
|
|
|
|
(92,801
|
)
|
|
|
58,298
|
|
|
|
57,598
|
|
Vehicles
|
|
|
102,178
|
|
|
|
(37,703
|
)
|
|
|
64,475
|
|
|
|
72,526
|
|
Computer software
|
|
|
138,128
|
|
|
|
(100,191
|
)
|
|
|
37,937
|
|
|
|
45,372
|
|
|
|
$
|
1,472,292
|
|
|
$
|
(933,154
|
)
|
|
$
|
539,138
|
|
|
$
|
520,725
|
|
The aggregate depreciation charge to operations
was $173,983 and $169,892 for the nine months ended September 30, 2020 and 2019, respectively. The depreciation policies followed
by the Company are described in Note 2.
17
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
6. Leases
Right of use assets included in the consolidated
balance sheet are as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Non-current assets
|
|
|
|
|
|
|
|
|
Right of use assets - operating leases, net of amortization
|
|
$
|
662,166
|
|
|
$
|
792,078
|
|
Right of use assets - finance leases, net of depreciation – included in property, plant and equipment
|
|
$
|
29,306
|
|
|
$
|
37,091
|
|
Lease costs consists of the following:
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
Finance lease cost:
|
|
$
|
10,412
|
|
|
$
|
9,834
|
|
Amortization of right-of-use assets
|
|
|
9,509
|
|
|
|
8,764
|
|
Interest expense on lease liabilities
|
|
|
903
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
|
186,308
|
|
|
|
154,797
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
196,720
|
|
|
$
|
164,631
|
|
Other lease information:
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
(903
|
)
|
|
$
|
(1,070
|
)
|
Operating cash flows from operating leases
|
|
|
(186,308
|
)
|
|
|
(154,797
|
)
|
Financing cash flows from finance leases
|
|
|
(9,319
|
)
|
|
|
(8,341
|
)
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new finance leases
|
|
|
—
|
|
|
|
15,043
|
|
Right-of-use assets disposed of under operating leases prior to lease maturity
|
|
|
—
|
|
|
|
(32,337
|
)
|
Right-of -use assets obtained in exchange for new operating leases
|
|
$
|
—
|
|
|
$
|
—
|
|
Weighted average remaining lease term – finance leases
|
|
|
2.90 years
|
|
|
|
3.67 years
|
|
Weighted average remaining lease term – operating leases
|
|
|
3.07 years
|
|
|
|
3.61 years
|
|
Weighted average discount rate – finance leases
|
|
|
3.60
|
%
|
|
|
3.50
|
%
|
Weighted average discount rate – operating leases
|
|
|
3.42
|
%
|
|
|
3.53
|
%
|
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases
as of September 30, 2020 are as follows:
|
|
Amount
|
|
2020
|
|
|
$
|
3,554
|
|
|
2021
|
|
|
|
10,874
|
|
|
2022
|
|
|
|
9.071
|
|
|
2023
|
|
|
|
7,268
|
|
|
2024
|
|
|
|
843
|
|
|
Total undiscounted minimum future lease payments
|
|
|
|
31,610
|
|
|
Imputed interest
|
|
|
|
(1,686
|
)
|
|
Total finance lease liability
|
|
|
$
|
29,924
|
|
|
Disclosed as:
|
|
|
|
|
|
|
Current portion
|
|
|
$
|
3,293
|
|
|
Non-Current portion
|
|
|
|
26,631
|
|
|
|
|
|
$
|
29,924
|
|
18
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
6. Leases (continued)
Maturity of Leases (continued)
Operating lease liability
The amount of future minimum lease payments
under operating leases as of September 30, 2020 are as follows:
|
|
Amount
|
2020
|
|
$
|
57,238
|
|
2021
|
|
|
226,462
|
|
2022
|
|
|
188,455
|
|
2023
|
|
|
157,232
|
|
2024 and beyond
|
|
|
30,013
|
|
Total undiscounted minimum future lease payments
|
|
|
659,400
|
|
Imputed interest
|
|
|
(34,337
|
)
|
Total operating lease liability
|
|
$
|
625,063
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
52,035
|
|
Non-Current portion
|
|
|
573,028
|
|
|
|
$
|
625,063
|
|
7. Intangible Assets
Intangible assets consist of the following:
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Cost
|
|
Accumulated amortization
|
|
Net book
value
|
|
Net book
value
|
Betting platform software
|
|
$
|
5,689,965
|
|
|
$
|
(921,819
|
)
|
|
$
|
4,768,146
|
|
|
$
|
5,052,645
|
|
Licenses
|
|
|
10,699,517
|
|
|
|
(853,280
|
)
|
|
|
9,846,237
|
|
|
|
9,929,495
|
|
Location contracts
|
|
|
1,000,000
|
|
|
|
(875,831
|
)
|
|
|
124,169
|
|
|
|
231,312
|
|
Customer relationships
|
|
|
870,927
|
|
|
|
(346,574
|
)
|
|
|
524,353
|
|
|
|
569,700
|
|
Trademarks
|
|
|
119,086
|
|
|
|
(48,535
|
)
|
|
|
70,551
|
|
|
|
73,875
|
|
Websites
|
|
|
40,000
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
18,419,495
|
|
|
$
|
(3,086,039
|
)
|
|
$
|
15,333,456
|
|
|
$
|
15,857,027
|
|
The Company evaluates intangible assets for
impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible
asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized
only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
The Company recorded $527,011 and $511,929
in amortization expense for finite-lived assets for the nine months ended September 30, 2020 and 2019, respectively.
Licenses obtained by the Company in the acquisitions
of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based
licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License
through the acquisition of Ulisse.
19
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
8. Goodwill
|
|
September 30, 2020
|
|
December 31, 2019
|
Opening balance
|
|
$
|
1,663,385
|
|
|
$
|
262,552
|
|
Acquisition of VG
|
|
|
—
|
|
|
|
1,401,608
|
|
Foreign exchange movements
|
|
|
(220
|
)
|
|
|
(775
|
)
|
Closing balance
|
|
$
|
1,663,165
|
|
|
$
|
1,663,385
|
|
Goodwill represents the excess purchase price
paid over the fair value of assets acquired, including any other identifiable intangible assets.
On January 30, 2019, the Company acquired VG,
as disclosed in Note 3 above. The goodwill on acquisition arose as the proceeds paid on acquisition exceeded the fair value of
the identifiable assets less assumed liabilities and imputed deferred tax liabilities on identifiable intangible assets by $1,401,608.
The Company evaluates goodwill for impairment
on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment
is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the
fair value is less than carrying value and the impairment is deemed to be permanent in nature.
9. Marketable Securities
Investments in marketable securities consists
of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in
earnings.
The shares of Zoompass were last quoted on
the OTC market at $0.26 per share on September 30, 2020, resulting in an unrealized gain recorded to earnings related to these
securities of $472,500 and an unrealized gain of $100,000 for the nine months ended September 30, 2020 and 2019, respectively.
10. Line of Credit - Bank
The Company maintained a $1,000,000 secured
revolving line of credit from Metropolitan Commercial Bank in New York, which bore a fixed rate of interest of 3.00% on the outstanding
balance with an interest only monthly minimum payment, no maturity or due date and was secured by a $1,000,000 security deposit,
see Note 4. The line of credit was repaid during August 2020.
11. Convertible Debentures
The accounting treatment relating to the convertible
debentures issued was in accordance with the guidance in ASC 480 and ASC 815.
As of September 30, 2020 and December 31, 2019,
the Company has outstanding, US Dollar convertible debentures in the aggregate principal amount of $100,000 and $2,083,000, respectively
and Canadian Dollar denominated convertible debentures in the aggregate principal amount of CDN$307,000 (approximately $230,423)
and CDN$1,794,600 (approximately $1,381,737), respectively. The aggregate principal amount of convertible debentures outstanding
at September 30, 2020, was repaid during the period ended November 16, 2020.
During the nine months ended September 30,
2020 and the year ended December 31, 2019, investors in Canadian Dollar convertible debentures converted an aggregate principal
amount of CDN$317,600 and CDN$5,006,565, respectively including interest thereon of CDN$45,029 and CDN$770,705, respectively, and
investors in US Dollar convertible debentures converted an aggregate principal amount of $400,000 and $1,185,000, respectively,
including interest thereon of $70,492 and $133,959, respectively, into 230,326 and 1,866,528 shares of common stock, respectively.
20
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
11. Convertible Debentures (continued)
The Aggregate convertible debentures outstanding
consisted of the following:
|
|
September 30,
2020
|
|
December 31, 2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
3,464,737
|
|
|
$
|
8,529,751
|
|
Repaid
|
|
|
(2,471,409
|
)
|
|
|
—
|
|
Conversion to equity
|
|
|
(634,431
|
)
|
|
|
(5,240,736
|
)
|
Foreign exchange movements
|
|
|
(28,475
|
)
|
|
|
175,722
|
|
|
|
|
330,422
|
|
|
|
3,464,737
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
524,227
|
|
|
|
520,523
|
|
Interest expense
|
|
|
198,019
|
|
|
|
719,004
|
|
Repaid
|
|
|
(539,246
|
)
|
|
|
—
|
|
Conversion to equity
|
|
|
(103,958
|
)
|
|
|
(731,731
|
)
|
Foreign exchange movements
|
|
|
(1,773
|
)
|
|
|
15,504
|
|
|
|
|
77,269
|
|
|
|
524,227
|
|
Debenture Discount
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
(627,627
|
)
|
|
|
(4,587,228
|
)
|
Amortization
|
|
|
627,627
|
|
|
|
3,959,601
|
|
|
|
|
—
|
|
|
|
(627,627
|
)
|
Convertible Debentures, net
|
|
$
|
407,691
|
|
|
$
|
3,361,337
|
|
12. Deferred Purchase Consideration
In terms of the acquisition of VG on January
31, 2019, disclosed in Note 3 above, the Company issued non-interest bearing promissory notes of €3,803,000 owing to both
related parties and non-related parties. The value of the promissory notes payable related parties was €1,521,200 and to non-related
parties was €2,281,800.
The promissory notes payable to non-related
parties is to be settled as follows:
|
(a)
|
an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that was one month after the Closing Date; and
|
|
(b)
|
an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced on March 1, 2019.
|
Pursuant to the terms of the Purchase Agreement
that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380
tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which
shares were issued effective January 2020.
The amount due to the non-related VG Sellers
amounted to €300,000 (approximately $336,810) and was settled during January 2020 by the issuance of 79,641 shares of common
stock at $4.23 per share.
21
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
12. Deferred Purchase Consideration (continued)
The movement on deferred purchase consideration
consists of the following:
Description
|
|
September 30,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Promissory note due to non-related parties
|
|
$
|
1,802,384
|
|
|
$
|
2,745,811
|
|
Additional earnout earned
|
|
|
—
|
|
|
|
336,810
|
|
Settled by the issuance of common shares
|
|
|
(724,467
|
)
|
|
|
(616,387
|
)
|
Repayment in cash
|
|
|
(455,827
|
)
|
|
|
(607,555
|
)
|
Foreign exchange movements
|
|
|
36,317
|
|
|
|
(56,295
|
)
|
|
|
|
658,407
|
|
|
|
1,802,384
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(120,104
|
)
|
|
|
(242,089
|
)
|
Amortization
|
|
|
91,830
|
|
|
|
117,192
|
|
Foreign exchange movements
|
|
|
(1,293
|
)
|
|
|
4,793
|
|
|
|
|
(29,567
|
)
|
|
|
(120,104
|
)
|
Deferred purchase consideration, net
|
|
$
|
628,840
|
|
|
$
|
1,682,280
|
|
13. Bank Loan Payable
In September 2016, the Company obtained a loan
of €500,000 (approximately $580,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The
loan has an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate, subject to quarterly review and is amortized
over 57 months ending March 31, 2021. Monthly repayments of €9,760 (approximately $11,000) began in January 2017.
The Company made payments in the aggregate
principal amount of €27,165 (approximately $30,539) for the nine months ended September 30, 2020.
The Company was granted a CDN$40,000 (approximately
$29,822) COVID assistance loan on April 20, 2020, with a term of 68 months and a coupon of 0%.
14. Other long term liabilities
Other long term liabilities represents the
Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees
on termination or retirement as well as shop deposits that are held by Ulisse.
Balances of other long term liabilities were
as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Severance liability
|
|
$
|
271,501
|
|
|
$
|
211,734
|
|
Customer deposit balance
|
|
|
382,046
|
|
|
|
407,810
|
|
Total other long term liabilities
|
|
$
|
653,547
|
|
|
$
|
619,544
|
|
15. Related Parties
Effective September 21, 2020, the Board of
Directors (the “Board”) appointed Mr. Monteverdi, as President of the Company.
Mr. Monteverdi has previously served as an
independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological
capabilities of the Company’s Elys Game Board betting platform and has established a strong rapport with the Company’s
current management team.
22
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
15. Related Parties (continued)
In connection with his appointment, the Company
and Mr. Monteverdi have entered into a written employment agreement (the “Employment Agreement”) for an initial four-year
term, which provides for the following compensation terms:
|
·
|
an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board;
|
|
|
|
|
·
|
the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and
|
|
|
|
|
·
|
Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
|
Mr. Monteverdi is also eligible to participate
in the Company’s 2018 Equity Incentive Plan and to participate in the Company’s employee benefit plans as in effect
from time to time on the same basis as generally made available to other senior executives of the Company or in the alternative
may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.
In addition, the Employment Agreement also
provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during
the term of the Employment Agreement, his employment is terminated by the Company other than for “cause,” death or
disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive
from the Company in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his
base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent
fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs
within the first twelve (12) months of the Agreement, the amount shall be Executive’s MBO Bonus for the-then current fiscal
year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus
(if any) which would have been payable to Mr. Monteverdi had he remained in employment with the Company during the entire year
in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was
employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which
such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal
to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents,
until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible
to receive such coverage under a subsequent employer’s insurance plan.
Mr. Monteverdi’s receipt of the termination
payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his
employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the
following paragraph.
Notes Payable, Related Party
The Company received an advance of $301,071
in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a Company controlled by the
brother of our CEO. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party,
consists of the following:
|
|
September 30,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
—
|
|
|
$
|
318,078
|
|
Additions
|
|
|
301,071
|
|
|
|
—
|
|
Settled by issuance of common shares
|
|
|
—
|
|
|
|
(318,078
|
)
|
|
|
|
301,071
|
|
|
|
—
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
—
|
|
|
|
113,553
|
|
Interest expense
|
|
|
—
|
|
|
|
25,830
|
|
Conversion to equity
|
|
|
—
|
|
|
|
(139,383
|
)
|
|
|
|
—
|
|
|
|
—
|
|
Promissory Notes Payable – Related Party
|
|
$
|
301,071
|
|
|
$
|
—
|
|
23
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
15. Related Parties (continued)
Deferred Purchase consideration, Related
Party
In terms of the acquisition of VG on January
17, 2019, disclosed in Note 3 above, the Company issued non-interest bearing promissory notes in the principal amount of €3,803,000
owing to both related parties and non-related parties. The value of the promissory notes payable to non-related parties was €2,281,800
and to related parties was €1,521,200.
The related party promissory notes are due
to Luca Pasquini, a director and officer of the Company and Gabriele Peroni, an officer of the Company.
The promissory notes are to be settled as follows:
|
(a)
|
an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the closing of the acquisition (the “Closing Date”); and
|
|
(b)
|
an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.
|
Pursuant to the terms of the Purchase Agreement
that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock
equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform
grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380
tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which
shares were issued effective January 2020.
The amount due to the related party VG Sellers
amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094 shares of common
stock at $4.23 per share.
The movement on deferred purchase consideration
consists of the following:
Description
|
|
September 30,
2020
|
|
December 31,
2019
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
Promissory notes due to related parties
|
|
$
|
1,279,430
|
|
|
$
|
1,830,541
|
|
Additional earnout earned
|
|
|
—
|
|
|
|
224,540
|
|
Settled by the issuance of common shares
|
|
|
(482,978
|
)
|
|
|
(410,925
|
)
|
Repayment in cash
|
|
|
(92,444
|
)
|
|
|
(328,734
|
)
|
Foreign exchange movements
|
|
|
27,555
|
|
|
|
(35,992
|
)
|
|
|
|
731,563
|
|
|
|
1,279,430
|
|
Present value discount on future payments
|
|
|
|
|
|
|
|
|
Present value discount
|
|
|
(80,069
|
)
|
|
|
(161,393
|
)
|
Amortization
|
|
|
61,220
|
|
|
|
78,128
|
|
Foreign exchange movements
|
|
|
(862
|
)
|
|
|
3,196
|
|
|
|
|
(19,711
|
)
|
|
|
(80,069
|
)
|
Deferred purchase consideration, net
|
|
$
|
711,852
|
|
|
$
|
1,199,361
|
|
24
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
15. Related Parties (continued)
Related party (payables) receivables
Related party payables and receivables represent
non-interest-bearing (payables) receivables that are due on demand.
The balances outstanding are as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Related Party payables
|
|
|
|
|
|
|
|
|
Gold Street Capital Corp.
|
|
$
|
—
|
|
|
$
|
(2,551
|
)
|
Luca Pasquini
|
|
|
(4,591
|
)
|
|
|
—
|
|
|
|
$
|
(4,591
|
)
|
|
$
|
(2,551
|
)
|
Related Party Receivables
|
|
|
|
|
|
|
|
|
Luca Pasquini
|
|
$
|
1,456
|
|
|
$
|
4,123
|
|
Amounts due to Gold Street Capital Corp., the
major stockholder of Elys, are for reimbursement of expenses.
Amounts due to Luca Pasquini is for advances
made to various subsidiaries for working capital purposes.
Michele Ciavarella
On July 5, 2019, the Company granted to Mr.
Ciavarella, the Chief Executive Officer and chairman of the board and officer of the Company, ten year options to purchase 39,375
shares of common stock at an exercise price of $2.96 per share.
On August 29, 2019, the Company granted to
Mr. Ciavarella ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
On September 4, 2019, Mr. Ciavarella converted
$500,000 of accrued salaries into 125,000 shares of common stock at. Conversion price of $4.00 per share.
Gold Street Capital
Gold Street Capital is wholly owned by Gilda
Ciavarella, the spouse of Mr. Ciavarella.
On September 4, 2019, the Company issued 15,196
shares of common stock to Gold Street Capital in settlement of $48,508 of advances made to the Company for certain reimbursable
expenses.
Luca Pasquini
On January 31, 2019, the Company acquired VG
for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve
month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of September 30, 2020,
the Company has paid Mr. Pasquini cash of €167,200 (approximately $187,290) and issued 112,521 shares valued at €300,000
(approximately $334,791).
In addition, due to the attainment of an earnout
clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Pasquini’s
share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during
January 2020.
On August 29, 2019, the Company granted to
Mr. Pasquini, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
25
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
15. Related Parties (continued)
Gabriele Peroni
On January 31, 2019, the Company acquired VG
for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of VG and was due gross proceeds of €800,000 (approximately
$915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period
and by the issuance of common stock valued at €300,000 over an eighteen month period. As of September 30, 2020, the Company
has paid Mr. Peroni cash of €208,800 (approximately $233,888) and issued 112,521 shares valued at €300,000 (approximately
$334,791).
In addition, due to the attainment of an earnout
clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Peroni’s
share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during
January 2020.
On August 29, 2019, the Company granted to
Mr. Peroni, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.
Alessandro Marcelli
On August 29, 2019, the Company granted to
Mr. Marcelli, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
Franco Salvagni
On August 29, 2019, the Company granted to
Mr. Salvagni, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
Beniamino Gianfelici
On August 29, 2019, the Company granted to
Mr. Gianfelici, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80
per share.
Mark Korb
On July 5, 2019, the Company granted to Mr.
Korb, the chief financial officer of the Company, seven year options to purchase 25,000 shares of common stock at an exercise price
of $2.72 per share.
Paul Sallwasser
On July 5, 2019, the Company granted to Mr.
Sallwasser, a director of the Company, ten year options to purchase 20,625 shares of common stock at an exercise price of $2.96
per share.
Steven Shallcross
On July 5, 2019, the Company granted to Mr.
Shallcross, a director of the Company, ten year options to purchase 10,313 shares of common stock at an exercise price of $2.96
per share.
16. Stockholders’ Equity
The Company issued the following shares of
common stock to promissory note holders in terms of the agreement entered into for the acquisition of VG, as disclosed in Note
3 above.
|
·
|
On January 1, 2020, 22,030 shares of common stock valued at $93,077;
|
|
·
|
On January 1, 2020, 132,735 shares of common stock valued at $561,350;
|
|
·
|
On February 27, 2020, 23,890 shares of common stock valued at $91,541;
|
|
·
|
On March 1, 2020, 25,690 shares of common stock valued at $96,372;
|
|
·
|
On April 1, 2020, 61,040 shares of common stock valued at $90,745;
|
|
·
|
On May 1, 2020, 24,390 shares of common stock valued at $91,265;
|
|
·
|
On June 1, 2020, 29,300 shares of common stock valued at $92,321;
|
|
·
|
On July 1, 2020, 35,130 shares of common stock valued at $91,265.
|
26
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
16. Stockholders’ Equity (continued)
For the nine months ended September 30, 2020,
the Company issued a total of 230,326 shares of common stock, valued at $739,004, upon the conversion of convertible debentures
into equity and for the year ended December 31, 2019, the Company issued a total of 1,866,528 shares of common stock, valued at
$5,972,507, upon the conversion of convertible debentures into equity (Note 11).
On April 22, 2019, the Company issued 14,083
shares of common stock, valued at $45,066, to certain convertible debenture holders as an incentive for them to transfer their
convertible debentures to another investor.
Between September 4, 2019 and September 17,
2019, the Company issued 284,721 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461
and other liabilities amounting to $553,525.
On August 17, 2020, the Company closed its
underwritten public offering of 4,166,666 units at a price of $2.40 per unit for gross proceeds of $9,999,998, before underwriting
commission of $800,000 and other offering expenses. Each unit consists of one share of common stock and one five year warrant exercisable
for one share of common stock at an exercise price of $2.50 per share.
The Company granted the underwriters a forty-five
day option to purchase up to 624,999 shares of common stock and/or warrants at a price of $2.39 per share and $0.01 per five year
warrant exercisable for one share of common stock at an exercise price of $2.50 per share. The underwriters were also issued a
five year warrant exercisable for 208,333 shares of common stock at an exercise price of $3.00 per share.
On September 3, 2020, the underwriters executed
a partial exercise of the option to purchase 624,999 units and purchased only the warrants at a purchase price of $0.01 per warrant,
less underwriters commission of $500, for net proceeds of $5,250.
17. Warrants
In terms of the underwritten public offering
disclosed in note 16 above, the Company granted 4,166,666 five year warrants, exercisable at $2.50 per share to the subscribers.
In addition, the Company granted the underwriter 208,333 three year warrants exercisable at $3.00 per share, and in terms of the
underwriters’ over-allotment option, the Company granted an additional 624,999 five year warrants exercisable at $2.50 per
share to the Underwriter.
These warrants were assessed in terms of ASC480-10,
Distinguishing between Liabilities and Equity, and ASC 815-10, Derivatives and Hedging Transactions to determine
if they met equity classification or liability classification. After considering the guidance provided by the ASC under both ASC
480-10 and ASC 815-10, the Company determined that equity classification was appropriate.
A summary of all of the Company’s warrant
activity during the period January 1, 2019 to September 30, 2020 is as follows:
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
|
|
Outstanding January 1, 2019
|
|
|
|
76,566
|
|
|
|
$
|
4.32
|
|
|
$
|
4.32
|
|
|
Granted
|
|
|
|
1,096,224
|
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
Forfeited/cancelled
|
|
|
|
(27,000
|
)
|
|
|
|
5.04
|
|
|
|
5.04
|
|
|
Exercised
|
|
|
|
(40,761
|
)
|
|
|
|
4.64
|
|
|
|
4.64
|
|
|
Expired
|
|
|
|
(15,555
|
)
|
|
|
|
4.64
|
|
|
|
4.64
|
|
|
Outstanding December 31, 2019
|
|
|
|
1,089,474
|
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
Granted
|
|
|
|
5,374,371
|
|
|
|
|
2.50 to 5.00
|
|
|
|
2.62
|
|
|
Forfeited/cancelled
|
|
|
|
(1,089,474
|
)
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding September 30, 2020
|
|
|
|
5, 374,371
|
|
|
|
$
|
2.50 to 5.00
|
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize information
about warrants outstanding as of September 30, 2020:
|
|
Warrants outstanding
|
|
Warrants exercisable
|
|
Exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average remaining years
|
|
|
|
Weighted average exercise price
|
|
|
|
Number of shares
|
|
|
|
Weighted average exercise price
|
|
$
|
2.50
|
|
|
|
4,791,665
|
|
|
|
4.89
|
|
|
$
|
2.50
|
|
|
|
4,791,665
|
|
|
$
|
2.50
|
|
$
|
3.00
|
|
|
|
208,333
|
|
|
|
2.88
|
|
|
|
3.00
|
|
|
|
208,333
|
|
|
|
3.00
|
|
$
|
3.75
|
|
|
|
301,644
|
|
|
|
1.66
|
|
|
|
3.75
|
|
|
|
301,644
|
|
|
|
3.75
|
|
$
|
5.00
|
|
|
|
72,729
|
|
|
|
2.53
|
|
|
|
5.00
|
|
|
|
72,729
|
|
|
|
5.00
|
|
|
|
|
|
|
5,374,371
|
|
|
|
4.60
|
|
|
$
|
2.62
|
|
|
|
5,374,371
|
|
|
$
|
2.62
|
|
27
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
18. Stock Options
In September 2018, our stockholders approved
our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be granted as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards. No awards were granted under the 2018 Equity Incentive
Plan as of December 31, 2018. During July 2019, our Board granted an aggregate of 95,313 options to purchase common stock, of which
options to purchase 25,000 shares of common stock were granted to our Chief Financial Officer, options to purchase 39,375 shares
of common stock were granted to our Chief Executive Officer and options to purchase 30,938 shares of common stock were granted
to directors. During August 2019, our Board granted an aggregate of 150,000 options to purchase shares of common stock of which
options to purchase 25,000 shares of common stock were granted to each of Michele Ciavarella, our Chief Executive Officer, Alessandro
Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele Peroni, our Vice President
Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici, our Vice President
Regulatory Affairs. On November 11, 2019 our Board granted options to purchase 70,625 shares of common stock to various employees
at an exercise price of $2.80 per share.
On September 21, 2020, our Board granted non-plan
options to purchase 648,000 shares to our newly appointed president, Mr. Matteo Monteverdi at an exercise price of $1.84 per share.
These options were valued using a Black-Scholes valuation model at $1,204,986.
The following assumptions were used in the
Black-Scholes model:
|
|
Nine months ended
September 30, 2020
|
Exercise price
|
|
$
|
1.84
|
|
Risk free interest rate
|
|
|
0.68
|
%
|
Expected life of options
|
|
|
10 years
|
|
Expected volatility of underlying stock
|
|
|
231.4
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
As of September 30, 2020, there was an aggregate
of 315,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 834,062 reserved for future
grants.
A summary of all of the Company’s option
activity during the period January 1, 2019 to September 30, 2020 is as follows:
|
|
Number of shares
|
|
Exercise price per share
|
|
Weighted average exercise price
|
Outstanding January 1, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted – plan options
|
|
|
315,938
|
|
|
|
2.72 to 2.96
|
|
|
|
2.84
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2019
|
|
|
315,938
|
|
|
$
|
2.72 to 2.96
|
|
|
|
2.84
|
|
Granted – non-plan options
|
|
|
648,000
|
|
|
|
1.84
|
|
|
|
1.84
|
|
Forfeited/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2020
|
|
|
963,938
|
|
|
$
|
1.84 to 2.96
|
|
|
$
|
2.16
|
|
The following tables summarize information
about stock options outstanding as of September 30, 2020:
|
|
Options outstanding
|
|
Options exercisable
|
Exercise price
|
|
Number of shares
|
|
Weighted
average
remaining years
|
|
Weighted
Average
exercise price
|
|
Number of shares
|
|
Weighted
average
exercise price
|
$
|
1.84
|
|
|
|
648,000
|
|
|
|
9.98
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$
|
2.72
|
|
|
|
25,000
|
|
|
|
5.75
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
$
|
2.80
|
|
|
|
220,625
|
|
|
|
8.98
|
|
|
|
|
|
|
|
97,800
|
|
|
|
|
|
$
|
2.96
|
|
|
|
70,313
|
|
|
|
8.77
|
|
|
|
|
|
|
|
67,734
|
|
|
|
|
|
|
|
|
|
|
963,938
|
|
|
|
8.80
|
|
|
$
|
2.16
|
|
|
|
165,534
|
|
|
$
|
2.86
|
|
As of September 30, 2020, there were unvested
options to purchase 798,404 shares of common stock. Total expected unrecognized compensation cost related to such unvested options
is $1,659,003 which is expected to be recognized over a period of 47 months.
The intrinsic value of the options at September
30, 2020 was $142,560.
28
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
19. Revenues
The following table represents disaggregated
revenues from our gaming operations for the three and nine months ended September 30, 2020 and 2019. Net Gaming Revenues represents
Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out,
commissions paid to agents, and taxes due to government authorities, while betting platform and services is revenue invoiced for
our Platform software service, fees earned on lotto ticket sales and royalties invoiced for the sale of virtual products.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
September 30, 2020
|
|
September 30, 2019
|
Turnover
|
|
|
|
|
|
|
|
|
Turnover web-based
|
|
$
|
117,879,687
|
|
|
$
|
46,455,077
|
|
|
$
|
300,111,151
|
|
|
$
|
221,678,726
|
|
Turnover land-based
|
|
|
25,823,099
|
|
|
|
69,454,078
|
|
|
|
53,635,357
|
|
|
|
130,471,298
|
|
Total Turnover
|
|
|
143,702,786
|
|
|
|
115,909,155
|
|
|
|
353,746,508
|
|
|
|
352,150,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings/Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winnings web-based
|
|
|
110,841,093
|
|
|
|
46,114,283
|
|
|
|
281,541,363
|
|
|
|
210,234,778
|
|
Winnings land-based
|
|
|
21,495,660
|
|
|
|
62,107,751
|
|
|
|
43,286,978
|
|
|
|
113,663,329
|
|
Total Winnings/payouts
|
|
|
132,336,753
|
|
|
|
108,222,034
|
|
|
|
324,828,341
|
|
|
|
323,898,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Gaming Revenues
|
|
|
11,366,033
|
|
|
|
7,687,121
|
|
|
|
28,918,167
|
|
|
|
28,251,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: ADM Gaming Taxes
|
|
|
1,698,192
|
|
|
|
1,097,725
|
|
|
|
4,294,680
|
|
|
|
3,464,464
|
|
Net Gaming Revenues
|
|
|
9,667,841
|
|
|
|
6,589,396
|
|
|
|
24,623,487
|
|
|
|
24,787,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Betting platform and services
|
|
|
33,955
|
|
|
|
166,449
|
|
|
|
58,752
|
|
|
|
340,041
|
|
Revenue
|
|
$
|
9,701,796
|
|
|
$
|
6,755,845
|
|
|
$
|
24,682,239
|
|
|
$
|
25,127,494
|
|
20. Loss on extinguishment of convertible debt
The Company entered into extension agreements
with convertible debenture holders in the aggregate principal amount of $10,000 and CDN$65,000 (approximately $48,416) that had
matured on May 31, 2020 and extended the maturity date to August 29, 2020 and a further aggregate principal amount of $600,000
and CDN$242,000 (approximately $180,257) that had matured on May 31, 2020 and extended the maturity date to September 28, 2020.
In terms of the agreements entered into with the convertible note holders, the Company agreed to issue the convertible note holders
two year warrants exercisable for an aggregate of 301,644 shares of common stock at an exercise price of $3.75 per share and three
year warrants exercisable for an aggregate of 72,729 shares of common stock at an exercise price of $5.00 per share. These warrants
were valued using a Black-Scholes valuation model at $719,390.
The following assumptions were used in the
Black-Scholes model:
|
|
Nine months ended
September 30, 2020
|
Exercise price
|
|
|
$3.75 to $5.00
|
|
Risk free interest rate
|
|
|
0.16% to 0.19%
|
|
Expected life of warrants
|
|
|
2 to 3 years
|
|
Expected volatility of underlying stock
|
|
|
139.5% to 183.5%
|
|
Expected dividend rate
|
|
|
0%
|
|
The Company considered the extension of the
maturity date in terms of ASC 470 – Debt, and determined that, based on the guidance contained in ASC 470 that the extension
of the maturity date and the value of the warrants issued to the convertible debt holders resulted in an extinguishment of the
existing convertible debt and the creation of a new convertible debt.
In terms of ASC 470, the valuation of the warrants
of $719,930 is expensed immediately upon the convertible debt extinguishment and any transaction related expenses, of which there
were none, would be amortized over the term of the convertible debt.
29
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
21. Net Income (Loss) per Common Share
Basic income (loss) per share is based on the
weighted-average number of common shares outstanding during each period. Diluted income (loss) per share is based on basic shares
as determined above, plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” options
and warrants using the treasury stock method and the inclusion of all convertible securities, including convertible debentures,
assuming these securities were converted at the beginning of the period or at the time of issuance, if later, adding back any direct
incremental expenses related to the convertible securities, including interest expense, debt discount amortization. The computation
of diluted net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss
per share.
The computation of the diluted income per share
for the three and nine months ended September 30, 2020 was anti-dilutive due to the losses realized.
For the three and nine months ended September
30, 2020 and 2019, the following options, warrants and convertible debentures were excluded from the computation of diluted loss
per share as the result of the computation being anti-dilutive:
|
|
Three and Nine Months ended
|
Description
|
|
September 30, 2020
|
|
September 30, 2019
|
Options
|
|
|
963,938
|
|
|
|
245,313
|
|
Warrants
|
|
|
5,374,371
|
|
|
|
1,089,133
|
|
Convertible debentures
|
|
|
—
|
|
|
|
2,541,156
|
|
|
|
|
6,338,309
|
|
|
|
3,875,602
|
|
22. Segmental Reporting
The Company has two reportable operating segments.
These segments are:
|
(i)
|
Betting establishments
|
The operating of web based as well
as land based leisure betting establishments situated throughout Italy; and
|
(ii)
|
Betting platform software and services
|
Provider of certified betting Platform
software services to leisure betting establishments in Italy and 11 other countries.
The operating assets and liabilities of the
reportable segments are as follows:
|
|
September 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
Purchase of non-current assets
|
|
$
|
112,506
|
|
|
$
|
60,168
|
|
|
$
|
-
|
|
|
$
|
172,674
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
6,940,838
|
|
|
|
265,782
|
|
|
|
4,944,614
|
|
|
|
12,151,234
|
|
Non-current assets
|
|
|
12,490,886
|
|
|
|
6,311,200
|
|
|
|
620,090
|
|
|
|
19,422,176
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(5,847,368
|
)
|
|
|
(489,859
|
)
|
|
|
(5,385,225
|
)
|
|
|
(11,722,452
|
)
|
Non-current liabilities
|
|
|
(1,320,714
|
)
|
|
|
(1,279,434
|
)
|
|
|
(30,023
|
)
|
|
|
(2,630,171
|
)
|
Intercompany balances
|
|
|
4,591,801
|
|
|
|
(61,400
|
)
|
|
|
(4,530,401
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
16,855,443
|
|
|
$
|
4,746,289
|
|
|
$
|
(4,380,945
|
)
|
|
$
|
17,220,787
|
|
30
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
22. Segmental Reporting (continued)
The segment operating results of the reportable
segments are disclosed as follows:
|
|
Nine months ended September 30, 2020
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Net Gaming Revenue
|
|
$
|
24,623,487
|
|
|
$
|
58,752
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,682,239
|
|
Intercompany Service revenue
|
|
|
62,159
|
|
|
|
1,971,089
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
—
|
|
|
|
|
24,685,646
|
|
|
|
2,029,841
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
24,682,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
1,971,089
|
|
|
|
62,159
|
|
|
|
—
|
|
|
|
(2,033,248
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
17,316,388
|
|
|
|
10,762
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,327,150
|
|
General and administrative expenses
|
|
|
3,216,798
|
|
|
|
2,750,780
|
|
|
|
2,893,315
|
|
|
|
—
|
|
|
|
8,860,893
|
|
|
|
|
22,504,275
|
|
|
|
2,823,701
|
|
|
|
2,893,315
|
|
|
|
(2,033,248
|
)
|
|
|
26,188,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
2,181,371
|
|
|
|
(793,860
|
)
|
|
|
(2,893,315
|
)
|
|
|
—
|
|
|
|
(1,505,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
62,888
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,933
|
|
Other expense
|
|
|
(109,098
|
)
|
|
|
(525
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(109,623
|
)
|
Interest expense, net
|
|
|
(2,292
|
)
|
|
|
(66
|
)
|
|
|
(226,808
|
)
|
|
|
—
|
|
|
|
(229,166
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(780,678
|
)
|
|
|
—
|
|
|
|
(780,678
|
)
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(719,390
|
)
|
|
|
—
|
|
|
|
(719,390
|
)
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
472,500
|
|
|
|
—
|
|
|
|
472,500
|
|
Total other (expenses) income
|
|
|
(48,502
|
)
|
|
|
(546
|
)
|
|
|
(1,254,376
|
)
|
|
|
—
|
|
|
|
(1,303,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes
|
|
|
2,132,869
|
|
|
|
(794,406
|
)
|
|
|
(4,147,691
|
)
|
|
|
—
|
|
|
|
(2,809,228
|
)
|
Income tax provision
|
|
|
(674,273
|
)
|
|
|
64,386
|
|
|
|
(162,112
|
)
|
|
|
—
|
|
|
|
(771,999
|
)
|
Net Loss
|
|
$
|
1,458,596
|
|
|
$
|
(730,020
|
)
|
|
$
|
(4,309,803
|
)
|
|
$
|
—
|
|
|
$
|
(3,581,227
|
)
|
31
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
22. Segmental Reporting (continued)
The operating assets and liabilities of the reportable segments
are as follows:
|
|
September 30, 2019
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Total
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
$
|
94,709
|
|
|
$
|
35,156
|
|
|
$
|
—
|
|
|
$
|
129,865
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
6,358,147
|
|
|
|
280,096
|
|
|
|
205,206
|
|
|
|
6,843,449
|
|
Non-current assets
|
|
|
12,537,674
|
|
|
|
6,735,267
|
|
|
|
1,381,854
|
|
|
|
20,654,795
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(4,636,009
|
)
|
|
|
(305,908
|
)
|
|
|
(12,330,363
|
)
|
|
|
(17,272,280
|
)
|
Non-current liabilities
|
|
|
(942,499
|
)
|
|
|
(1,384,123
|
)
|
|
|
(407,880
|
)
|
|
|
(2,734,502
|
)
|
Intercompany balances
|
|
|
4,218,078
|
|
|
|
228,472
|
|
|
|
(4,446,550
|
)
|
|
|
—
|
|
Net asset position
|
|
$
|
17,535,391
|
|
|
$
|
5,553,804
|
|
|
$
|
(15,597,733
|
)
|
|
$
|
7,491,462
|
|
The segment operating results of the reportable segments are disclosed
as follows:
|
|
Nine months ended September 30, 2019
|
|
|
Betting establishments
|
|
Betting platform software and services
|
|
All other
|
|
Adjustments
|
|
Total
|
Net Gaming Revenue
|
|
$
|
24,925,084
|
|
|
$
|
202,410
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,127,494
|
|
Intercompany Service revenue
|
|
|
158,615
|
|
|
|
1,815,504
|
|
|
|
—
|
|
|
|
(1,974,119
|
)
|
|
|
—
|
|
|
|
|
25,083,699
|
|
|
|
2,017,914
|
|
|
|
—
|
|
|
|
(1,974,119
|
)
|
|
|
25,127,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany service expense
|
|
|
1,815,504
|
|
|
|
158,615
|
|
|
|
—
|
|
|
|
(1,974,119
|
)
|
|
|
—
|
|
Selling expenses
|
|
|
17,425,803
|
|
|
|
248,282
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,674,085
|
|
General and administrative expenses
|
|
|
3,591,310
|
|
|
|
2,002,305
|
|
|
|
3,295,802
|
|
|
|
—
|
|
|
|
8,889,417
|
|
|
|
|
22,832,617
|
|
|
|
2,409,202
|
|
|
|
3,295,802
|
|
|
|
(1,974,119
|
)
|
|
|
26,563,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
2,251,082
|
|
|
|
(391,288
|
)
|
|
|
(3,295,802
|
)
|
|
|
—
|
|
|
|
(1,436,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
40,589
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,589
|
|
Interest expense, net
|
|
|
(11,079
|
)
|
|
|
—
|
|
|
|
(629,096
|
)
|
|
|
—
|
|
|
|
(640,175
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,974,439
|
)
|
|
|
—
|
|
|
|
(2,974,439
|
)
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,943
|
)
|
|
|
—
|
|
|
|
(35,943
|
)
|
Loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
100,000
|
|
Total other (expenses) income
|
|
|
29,510
|
|
|
|
—
|
|
|
|
(3,539,478
|
)
|
|
|
—
|
|
|
|
(3,509,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes
|
|
|
2,280,592
|
|
|
|
(391,288
|
)
|
|
|
(6,835,280
|
)
|
|
|
—
|
|
|
|
(4,945,976
|
)
|
Income tax provision
|
|
|
(758,789
|
)
|
|
|
43,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(715,575
|
)
|
Net Income (Loss)
|
|
$
|
1,521,803
|
|
|
$
|
(348,074
|
)
|
|
$
|
(6,835,280
|
)
|
|
$
|
—
|
|
|
$
|
(5,661,551
|
)
|
32
ELYS GAME TECHNOLOGY, CORP.
(formerly Newgioco Group, Inc.)
Notes to Unaudited Condensed Consolidated
Financial Statements
23. Subsequent Events
On October 1, 2020, Richard Cooper resigned
as a director of the Company and Philippe Blanc was appointed as a director. Mr. Blanc serves on the audit committee and his term
as a director will continue until such time as his successor is duly elected and qualified, or until his earlier resignation or
removal.
On October 1, 2020, the Board granted to each
of Michele Ciavarella, Alessandro Marcelli, Luca Pasquini, Gabriele Peroni, Frank Salvagni, Beniamino Gianfelici and Mark Korb,
an option to purchase 140,000, 56,000, 58,000, 36,000, 36,000, 35,000 and 58,000 shares of the Company’s common stock, respectively,
under the Company’s 2018 Equity Incentive Plan. The shares of common stock underlying the option awards each vest pro rata
on a monthly basis over a thirty-six month period. The options are exercisable for a period of ten years from the date of grant
and have an exercise price of $2.03 per share.
On October 1, 2020, the Board also granted
to each of Paul Sallwasser, Steven Shallcross and Philippe Blanc, as non-executive members of the Board, an option to purchase
55,000, 35,000 and 55,000 shares of the Company’s common stock, respectively, under the Company’s 2018 Equity Incentive
Plan. The shares of common stock underlying the option awards each vest pro rata on a monthly basis over a twelve month period.
The options are exercisable for a period of ten years from the date of grant and have an exercise price of $2.03 per share.
On October 1, 2020, the Board approved an amendment
(the “First Amendment”) to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the
maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year
to: (i) chairperson or lead director – 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares
of common stock, which reflects an increase in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 2, 2020, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect its corporate
name change from Newgioco Group, Inc. to Elys Game Technology, Corp. and on November 6, 2020 the Company filed a Certificate of
Correction to the Certificate of Amendment with the Secretary of State of the State of Delaware.
In connection with the name change, the Company’s
shares of common stock began trading on the Nasdaq Stock Market LLC under the new ticker symbol “ELYS” on November
10, 2020 and ceased trading under the ticker symbol “NWGI”.
Subsequent to September 30, 2020, the Company
repaid the remaining convertible debentures in the aggregate principal amount of $100,000 and CDN$307,000, including interest thereon,
thereby extinguishing the remaining convertible debenture liability.
The global coronavirus pandemic has created
a significant disruption and uncertainty since March 2020. On March 11, 2020, the Company reported that approximately 150 betting
shop locations throughout Italy were temporarily closed and that the closing of the physical locations did not affect the Company’s
continuing online and mobile operations. The Company also implemented a smart-work initiative to permit the safe separation of
office staff during that period because government forced lockdowns made it impossible for the Company to access its administrative
offices in Europe. Additionally, the cancellation of sports events around the world disrupted the Company’s ability to provide
its sports betting products through both our land-based establishments and online channels. These restrictions and other difficulties,
of both not having sports betting events available to wager on and the backlog of tasks imposed on the Company’s employees
upon the return to work, affected the Company’s ability to consistently deliver its products to market. The ongoing pandemic
and continuing resurgences of transmission of COVID-19 continues to cause uncertainty of our ability to keep our land-based establishments
open and to continue to offer sports betting products on both land-based and online channels.
The Company has evaluated subsequent events
through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events
that would have required adjustment or disclosure in the financial statements.
33