As filed with the Securities and Exchange Commission on September 1, 2022
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Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEWGIOCO GROUP, INC.ELYS GAME TECHNOLOGY, CORP.
(Exact name of registrant as specified in its charter)
Delaware | 7372 | 33-0823179 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Newgioco Group, Inc.Elys Game Technology, Corp.
107 E. Warm Spring Road
130 Adelaide Street West, Suite 701Las Vegas, Nevada 89119
Toronto, Ontario, Canada M5H 2K4
+39-391-306-4134(628) 258-5148
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)office)
Michele Ciavarella B.Sc.
Executive Chairman and Interim Chief Executive Officer
Newgioco Group, Inc.
130 Adelaide Street West, Suite 701
Toronto, Ontario Canada M5H 2K4
+39-391-306-4134
Elys Game Technology, Corp.
107 E. Warm Spring Road
Las Vegas, Nevada 89119
(628) 258-5148
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies toCopies to:
Leslie Marlow, Esq. 1271 Avenue of the Americas New York, New York 10020 Telephone: (212) 985-5358 _________________________
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Approximate date of commencement of proposed sale to the publicpublic:: As soon as practicable From time to time after the effective date of this Registration Statement.
If any of the securitiesSecurities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering. offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering. offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statementRegistration Statement number of the earlier effective registration statementRegistration Statement for the same offering. offering: ☐
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 | Smaller reporting company | ☒ | ||
Emerging | Growth Company ☐ |
If an emerging growth company, indicate by check markcheckmark if the registrant has not elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered |
Proposed maximum aggregate offering price(1) | Amount of registration fee(8) | ||||||
Units consisting of: | $ | 11,500,000 | $ | 1,492.70 | ||||
(i) Common stock, par value $0.0001 per share (2)(3) | — | — | ||||||
(ii) Warrants to purchase shares of common stock (4)(5)(6) | — | — | ||||||
Shares of common stock issuable upon exercise of warrants(2)(3)(6) | $ | 14,375,000 | $ | 1,865.88 | ||||
Representative’s Warrants (6) | — | — | ||||||
Shares of common stock underlying Representative’s Warrants(2)(6)(7) | $ | 625,000 | $ | 81.13 | ||||
Total | $ | 26,500,000 | $ | 3,439.71 | (9) |
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The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statementregistration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. WeThe selling stockholder identified in this prospectus may not sell these securities until the registration statement related to these securities filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell or a solicitation ofthese securities and it is not soliciting an offer to buy these securities and we are not soliciting offers to buy these securities in any statejurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, | DATED |
Up to 3,166,227 Shares of Common Stock
Issuable Upon Exercise of Warrants
This prospectus relates to the resale, from time to time, by the selling stockholder identified in this prospectus, of up to 3,166,227 shares of our common stock, $0.01 per share, (the “Common Stock”) issuable upon exercise of certain outstanding warrants (the “Warrants”) issued by us in a private placement, concurrently with Common Stock and Pre-Funded Warrants issued in a registered direct offering.
3,623,188 Units
Each Unit Consisting of
One ShareWe are not selling any shares of Common Stock and
One Warrant to Purchase One Share will not receive any proceeds from the sale of the Common Stock by the selling stockholder (the “Selling Stockholder”) under this prospectus. Upon the exercise of the Warrants for all 3,166,227 shares of Common Stock by payment of cash, however, we will receive aggregate gross proceeds of approximately $3.0 million.
This isThese shares will be resold from time to time by the entity listed in the section titled “Selling Stockholder” beginning on page 28, which we refer to as the Selling Stockholder. The shares of Common Stock offered under this prospectus by the Selling Stockholder are issuable upon exercise of Warrants issued in a firm commitment public offeringprivate placement pursuant to the Securities Purchase Agreement entered into by and between Elys Game Technology, Corp. and the Selling Stockholder, dated as of 3,623,188 units, each unit consistingJune 13, 2022 (the “Purchase Agreement”). We are not selling any securities under this prospectus and will not receive any of one sharethe proceeds from the sale of common stock, par value $0.0001 per share, and one warrant to purchase one share of common stock based on an assumed public offering price per unit of $2.76 (the last reported sale price of our common stock on The Nasdaq Capital Market on July 23, 2020).
securities by the Selling Stockholder.
The units have no stand-alone rights, will not be certificated and there will be no trading market forSelling Stockholder may sell the units. The shares of common stockCommon Stock described in this prospectus in a number of different ways and warrants comprising the units will separate immediately upon completionat varying prices. We provide more information about how a Selling Stockholder may sell its shares of this offering and prior to any trading of the common stock and warrants.
The warrants includedCommon Stock in the units are exercisable immediately, have an exercise pricesection titled “Plan of $3.45 per share (basedDistribution” on an assumed public offering price of $2.76 per unit),page 30. We will pay the expenses incurred in registering the securities covered by the prospectus, including legal and expire five years from the date of issuance.accounting fees.
Our common stockCommon Stock is currently tradedlisted on the Nasdaq Capital Market under the symbol “NWGI.“ELYS.” On July 23, 2020,August 30, 2022, the last reported sale price of our common stockCommon Stock on the Nasdaq Capital Market was $2.76$0.5426 per share.
We urge prospective purchasers of our Common Stock to obtain current information about the market prices of our Common Stock.
Investing in our securities involves risks. Seesignificant risks, including those set forth in the “Risk Factors” section of this prospectus beginning on page 99.
See “Plan of Distribution” beginning on page 30 of this prospectus for a discussionmore information on this offering.
No underwriter or person has been engaged to facilitate the sale of shares of Common Stock in this offering. All costs associated with the risks that you should consider in connection with an investment in our securities.registration were borne by us.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
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We have granted the underwriters an option to buy up to an additional shares of common stock and/or warrants to purchase up to 543,478 additional shares of common stock (equal to 15% of the number of shares of common stock and warrants underlying the units sold in the offering) from us in any combination thereof at the assumed public offering price per share of common stock and per warrant, less the underwriting discounts and commissions, to cover over-allotments, if any. The underwriters may exercise this option at any time during the 45-day period from the date of this prospectus.
The underwriters expect to deliver the securities against payment on or about ____________, 2020.
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The date of this prospectus is _________, 2020, 2022
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TABLE OF CONTENTS
Table of Contents
Page | |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS | 1 |
INDUSTRY AND MARKET DATA | |
PROSPECTUS SUMMARY | 3 |
RISK FACTORS | 9 |
USE OF PROCEEDS | 27 |
DIVIDEND POLICY | 27 |
SELLING STOCKHOLDER | 28 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
BUSINESS | 54 |
MANAGEMENT AND BOARD OF DIRECTORS | |
CORPORATE GOVERNANCE | 71 |
EXECUTIVE COMPENSATION | |
BOARD OF DIRECTORS COMPENSATION | 78 |
SECURITY OWNERSHIP OF | |
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS | |
DESCRIPTION OF SECURITIES | 88 |
EXPERTS | 95 |
WHERE YOU CAN FIND ADDITIONAL INFORMATION | |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION | |
INDEX TO FINANCIAL STATEMENTS | F-1 |
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You should rely only on the information contained in this prospectus andor in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have authorized for use in connection with this offering. Neither we nornot, and the underwriters haveSelling Stockholder has not, authorized anyone to provide you with any information other than that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is different. We are offeringlegal to offer and sell and seeking offers to buy, the securities covered hereby only in jurisdictions where offers and sales are permitted.our securities. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities covered hereby.our securities. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
For investors outside the United States: Neither we nor any ofWe have not and the underwriters have taken any actionSelling Stockholder has not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities covered hereby and the distribution of this prospectus outside of the United States.
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We further notebelieve that the representations, warrantiesdata obtained from these industry publications and covenantsthird-party research, surveys and studies are reliable. We are ultimately responsible for all disclosure included in this prospectus.
This prospectus contains or incorporates by reference summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All the summaries are qualified in their entirety by usthe actual documents. Copies of some of the documents referred to herein have been filed or have been incorporated by reference as exhibits to the registration statement of which this prospectus forms a part, and you may obtain copies of those documents as described in any agreementthis prospectus under the heading “Where You Can Find Additional Information.”
Smaller Reporting Company – Scaled Disclosure
Pursuant to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, as indicated herein, we have elected to comply with the scaled disclosure requirements applicable to “smaller reporting companies,” including providing two years of audited financial statements.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, in addition to historical information, certain 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”), that isincludes information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus or incorporated herein by reference.
You should read this prospectus and the documents we have filed as an exhibitexhibits to the registration statement, of which this prospectus is a part, were made solelycompletely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.
Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading “Risk Factors” and in our Annual Report on Form 10-K for the benefit ofyear ended December 31, 2021 under the parties to such agreement, including,headings “Risk Factors” and “Business,” as updated in some cases, forour Quarterly Reports on Form 10-Q and other filings with the purpose of allocating risk among the parties to such agreements,Securities and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurateExchange Commission (the “SEC”).
Forward-looking statements speak only as of the date whenthey are made. Accordingly, such representations, warranties and covenantsYou should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be relied on as accurately representing the current state of our affairs.drawn that we will make additional updates with respect to those or other forward-looking statements.
Except whereNew factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the context requires otherwise,impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus the “Company,” “Newgioco,” “we,” “us” and “our” refer to Newgioco Group, Inc., a Delaware corporation formed in 1998, and, where appropriate, its subsidiaries, Ulisse GmbH, a company organized under the laws of Austria, Odissea Betriebsinformatik Beratung GmbH, a company organized under the laws of Austria, Multigioco Srl., a company organized under the laws of the Republic of Italy, Newgioco Group, Inc. (Canada), a company organized under the Canadian laws, Virtual Generation Limited, a company organized under the laws of Republic of Malta, Newgioco Colombia SAS a company orgianised under the laws of Colombia, and Elys Gameboard Technologies, LLC a Delaware limited liability company.
particularly our forward-looking statements, by these cautionary statements.
INDUSTRY AND MARKET DATA
This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
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PROSPECTUS SUMMARY
The followingThis summary highlights certain of the information contained elsewhere in this prospectus. Because this is only a summary, however, itprospectus and does not contain all of the information that you should consider beforein making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and it is qualifiedthe related notes that are incorporated by reference into this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its entirety by, and should be read in conjunction with, the more detailed informationeach case included elsewhere in this prospectus. Before you make an investment decision, you should read this entire prospectus carefully, including the risks of investing in our securities discussed under the section ofIn this prospectus, entitled “Risk Factors.unless the context otherwise requires, the terms “we,” You should also carefully read our“us,” “our,” “Elys” and the “Company” refer to Elys Game Technology, Corp. Except as disclosed in the prospectus, the financial statements and the exhibits to the registration statement of whichselected historical financial data and other financial information included in, or incorporated by reference into, this prospectus is a part. Unless otherwise indicated, all share amounts and per share amounts in this prospectus have been presented on a pro forma basis to reflect the reverse stock splitare those of our outstanding shares of common stock at a ratio of 1-for-8 that we effected on December 12, 2019.Elys Game Technology, Corp.
Company Overview
We are an international, vertically integrated commercial-stage company engaged in two principal aspects of the leisure gaming industry as (1) a business-to-consumer (“B2C”) licensed retail gaming operator (known as an “Operator”) offering our products through two sales distribution channels (i) retail land-based or on-site physical venues and (ii) online through PC, tablet and mobile distribution, and (2) as a business-to-business (“B2B”) betting technology provider (known as a “Provider”) offering our proprietary betting technology either (1) directly to licensed operators or (2) through value-added re-sellers or systems integrators in the leisure betting industry.
As an Operator in the regulated Italian leisure betting market, we operate on a single-tier distribution strategy by collecting wagers on leisure betting products including a variety of lottery, casino gaming and sports bets through two channels: (i) online through websites on internet browsers, mobile applications and physical venues known as “web-shops” (internet cafes; kiosks, coffee-shops, convenience stores, restaurants and bars, etc.) where patrons can load their online gaming account through PC’s situated at each venue, and (ii) land-based through physical land-based retail venues (off-track betting shops, SSBT (“self-serve betting terminal”) kiosks, coffee-shops, convenience stores, restaurants, taverns and bars, etc.). We currently provide our B2C gaming services in Italy through our subsidiaries,subsidiary, Multigioco Srl (“Multigioco”), and Ulisse GmbH (“Ulisse”). Thesewhich operations are carried out undervia both land-based andor online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”), and our Austrian Bookmaker license, that permitpermits us to distribute leisure betting products such as sports betting, lotto tickets,and virtual sports betting online poker and casino gaming products through both physical, land-based retail locations as well as online through our licensed principal website www.newgioco.it or commercial webskins linked to our principallicensed website and through mobile devices.
In Italy, our gaming products Management implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco and services are offeredallowed the Austria Bookmaker license that was regulated by the Austrian Federal Finance Ministry (“BMF”) to customers at the following three venues:terminate.
We currently service approximately 79,000 active online user accountsalso provide bookmaking services in the U.S. market via our recently acquired subsidiary US Bookmaking in certain regulated states where we offer B2B bookmaking and platform services to our customers. Our intention is to focus our attention on expanding the U.S. market. We recently began operations 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 area of Washington, D.C., and in October 2021 we entered into an indeterminate numberagreement with Ocean Casino Resort in Atlantic City and commenced operations in the state of walk-in customers at a combination of the three types of venues: 1,200 web-cafés (or “web-shops”), 7 corners and 117 agency locations.New Jersey in March 2022.
As a globalAdditionally, we provide B2B gaming technology Provider, we ownthrough our Odissea subsidiary which owns and operateoperates 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 built-invirtual sports book. As a Provider, we employ a multi-tier distribution strategy on both a direct to customer channel and on a Software-as-a-Service (“SaaS”) basis.
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platform through our Virtual Generation subsidiary. The Platform is certified byalso provides seamless application programming interface integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the ADMcapability to incorporate e-sports and daily fantasy sports providers. Management implemented a growth strategy to expand B2B gaming technology operations in the Malta Gaming Authority (“MGA”) in MaltaU.S. and is owned by our subsidiary Odissea Betriebsinformatik Beratung GmbH (“Odissea”). The software architecture was developedconsidering further expansion in Canada and built on the latest Microsoft.Net Core framework, supporting both online customer gaming accounts as well as land-based bet processing capability with multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) backed by a real-time customer relationship management (“CRM”) and business intelligence (“BI”) program for streamlined cross-platform marketing as well as a synchronized financial accounting processes. Data is communicated directly to on-the-ground sales and marketing agents that manage and maintain both our online and land-based retail distribution. The Platform allows our independent B2B and white-label end users to (i) rapidly and effectively model their gaming businesses and client gaming accounts, (ii) monitor and analyze performance on an ongoing basis, (iii) share dashboards, and (iv) generate management reports all within a fully integrated solution. In addition, our clients can use the built-in artificial intelligence and adaptive business intelligence modules to evaluate actual performance and leverage insights from analytics to make informed, timely decisions to drive future business. The unique ’shop-client’ architecture of the Platform to our knowledge, is the first of its kindLatin American countries in the leisure betting industry. Elys was built around the specific needs of leisure betting operators and proven through our existing Multigioco distribution throughout Italy.
On January 30, 2019, we expanded our operations with our acquisition of Virtual Generation Limited (“VG” or “Virtual Generation”), which owns and has developed a virtual gaming software platform (“VGS”). VG is a Gaming Laboratories International (“GLI”) certified virtual sports and gaming software developer with a portfolio of products, including greyhound and horse racing; league play football (i.e., soccer); keno; and American Roulette. In addition, VG’s platform allows for customization for country-specific sports generation including applications in Latin American and African markets as well as unique tribal games tailored for the U.S. tribal gaming market. VG’s operations have grown in the highly competitive virtual sports market to approximately 18.5 million bet tickets sold in 2019. VG now operates in the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.
Organizational Structurenear future.
Our operations are carried out through three geographically organized groups: (i) an operational group which is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration and risk management trading in Naples and Teramo, Italy and San Gwann, Malta; (ii) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and (iii) a corporate group which is based in North America, which includes an executive suite situated in Las Vegas, Nevada and operates out of our principal executive officesa Canadian office in Toronto, Canada and satellite offices in Fort Lauderdale and Boca Raton, FloridaOntario through which we carry outcarry-out corporate activities, handle day-to-day reporting duties,and U.S. development planning, and through which various employees, independent contractors and vendors are engaged.
OurFor the period ended June 30, 2022, transaction revenue streams primarily consistsgenerated through our subsidiary Multigioco consisted of transactional revenue and service revenue. Through our subsidiaries Multigioco acquired on August 15, 2014 and Ulisse acquired July 1, 2016, we generate transactional revenue through collection of bets from sports wagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based betting web-shops and websites as well as land-based retail betting shops located throughout Italy, and throughItaly; while our subsidiary, Odissea acquired July 1, 2016, we generate service revenue generated from providingby our Platform services to third party operators on a B2B basis. In addition, our revenue duringis primarily derived from bet and wager processing in Italy through Multigioco, and in the year ended December 31, 2019 included revenue generated by VG acquired January 30, 2019, for 11 months of the year ended December 31, 2019, consisting of royalties invoiced for the sale of virtual gamesU.S., through authorized agents. We generated revenue of $35,583,131 for the year ended December 31, 2019 and $34,575,097 for the year ended December 31, 2018, substantially all of which was generated from revenue from operations or services provided in Italy. For the years ended December 31, 2019 and 2018, net gaming revenues represented 98.9% and 99.2%, respectively of our revenue and Platform and service revenue represented 1.1% and 0.8%, respectively of revenue. We generated revenue of $10,170,174 for the three months ended March 31, 2020 and $9,266,294 for the three months ended March 31, 2019, substantially all of which was generated from revenue from operations or services provided in Italy. For the three months ended March 31, 2020 and 2019, net gaming revenues represented 99.92% and 99.01%, respectively of our revenue and Platform and service revenue represented 0.08% and 0.99%, respectively of revenue. We also formed a non-operating subsidiary Newgioco Group, Inc in Canada on January 17, 2017 for potential future operations in Canada, Elys Technology Group, Limited in Malta on April 4, 2019 for future opportunities, on November 26, 2019 we formed Newgioco Colombia SAS to develop our operations through South and Central America, and on May 28, 2020 we formed Elys Gameboard Technologies LLCand USB. Since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns in StateItaly subsided, management simplified our Italian footprint by focusing our investment towards the Multigioco operations and discontinued Ulisse presence in Italy during the second quarter of Delaware for development of our U.S. sports betting operations.
Our Strengths
We believe we have established ourselves as one of the leaders in the Italian leisure betting market. Below are our strengths that we believe should enable us to capture a meaningful share of the United States and global leisure betting market:
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Our Strategy
Our goal is to expand our market presence by entering new foreign markets while at the same time further penetrating the Italian and additional European markets. We expect new markets to be a large source of our future growth, in particular, the United States market is one where we intend to offer the use of our Platform to existing commercial and tribal casinos, retail betting operators and franchise enterprises.
Development of U.S. and Other Foreign Markets
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Further Penetration in the Italian Market
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Development in U.S. Market2021.
We believe that the U.S. sports betting and online gaming market presents a large opportunity to deploy our Platform is considered one of the newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a SaaSB2B basis, including expansion through Europe, South America, South Africa and the developing market in the United States. During the three and six months ended June 30, 2022 and 2021, we also generated service 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 recently acquired subsidiary, US Bookmaking. We intend to several potential independent commercialleverage our partnerships in Europe, South America, South Africa and tribal casino and gaming operators throughoutthe developing market in the United States following a 2018 U.S. Supreme Court decision. to cross-sell our Platform services to expand the global distribution of our betting solutions.
We have analyzed the technical specifications checklist supplied by Gaming Laboratories International (“GLI”) to verify that coding in our software meets the functional specifications set forthoperate two business segments in the GLI-33 standards (The Gaming Laboratories International technical standard for event wagering systems). We believeleisure gaming industry and our revenue is derived as follows:
1. | Betting establishments |
Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. | Betting platform software and services |
SaaS based service revenue through providing our Platform currently meets the majorityand virtual sports products to betting operators.
This Management’s Discussion and Analysis includes a discussion of the GLI-33 certification standards and we expect to be in a position to send our software to GLI for certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase is expected to begin by October 2020operations for the verificationthree months and six months ended June 30, 2022 and 2021, which includes the operations of mobileUS Bookmaking for the three months and website functionality. Upon obtaining GLI-33 certification and obtaining regulatory approvals to operate, we expect to be well-positioned to commence processing sports bets in the U.S. on a SaaS basis through our Platform.six months ended June 30, 2022.
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Recent Developments
As partFinancing
On June 15, 2022, we raised $3 million in gross proceeds and issued (i) an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock to a single investor (the “Investor”) in a registered direct offering, pursuant to a prospectus supplement to our multi-year business growth strategy, we made significant investments for expansion into new markets outsidecurrently effective registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021 and (ii) in a concurrent private placement, warrants to purchase an aggregate of Italy, including preparationup to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share and expiration date of December 15, 2027, subject to customary adjustments thereunder. If after the six month anniversary of the platformissuance date there is no effective registration statement registering the shares underlying the Warrants for resale, then the GLI-33 certification, professional services, trade show marketingWarrants are exercisable on a cashless basis. On July 12, 2022, the investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
Strategic agreements entered into with Lottomatica (currently known as G.B.O, S.p.A)
We entered into a Master Technology Development and brand promotionLicense Agreement and a Technical Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based and on-line applications by Lottomatica in the second half of 2018U.S. and first half of 2019 to enter and then build a foundation aimed at accelerating our recently announced U.S. expansion plans. To support these principal objectives, we initiated an ambitious investment strategy that is fundamental to the successful execution of our long-term business plan. These fundamental investments have resulted in short-term, non-recurring expenses related to key elements such as regulatory and policy requirements and establishing a centralized US-based headquarters. In the third quarter of 2018, we also established a plan to relocate our CEO to the U.S., commenced the recruitment and evaluation of key officers,Canadian markets, as well as allocatingpotentially worldwide. The contract is for a period of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that after a period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to the SBP for €4.0 million.
The Technical Services Agreement was entered into with our subsidiary Odissea to provide engineering services, develop and deliver the software development team at Odisseaand provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement is for codinga period of ten years and submissionis based on cost plus a percentage of our Platform for GLI-33 certification to GLI for the U.S. market.services provided.
In March 2019, wea separate Virtual Service Agreement entered into between our subsidiary Virtual Generation and Goldbet S.p.A., a five-year agreement with Fleetwood Gaming, Inc. forsubsidiary of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the exclusive rights to distribute our Platform at select non-tribal locations such as sports bars and taverns in the state of Montana. The multi-year agreement is expected to allow Fleetwood to install ourLottomatica’s Platform throughout Fleetwood's distributionthe Lottomatica vast network of retail outlets and on the online services in Montana.Italy. The agreement provides for an exclusivity period of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and us to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues.
In April 2019, wea separate Assignment Agreement entered into between our subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100 Sports Rights to Multigioco, which will allow us to expand our land-based distribution network to approximately 110 point-of-sale locations. We expect to open the additional 100 outlets over the remainder of the calendar year. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a five-year agreementminimal value.
Operational Developments
Management has implemented a strategic business initiative to reduce expenditures, improve efficiencies and maximize profitability within the underlying operating units. During the six months ended June 30, 2022, we managed to achieve a net income position of approximately $0.19 million in our European operations which consist of Multigioco, Odissea, Ulisse, Virtual Generation and Elys Technology Services, despite the closure of all of our Ulisse CTD locations in the prior year. Our U.S. USB subsidiary performance has been disappointing, producing a net loss of $1.16 million on revenues of $0.6 million for the six months ended June 30, 2022, primarily due to personnel costs which increased to $0.7 million and amortization of intangibles of $0.5 million. We are attempting to address this operational performance with the Chippewa Cree TribeUSB management team. Our other U.S. operation, Elys Gameboard, commenced operations in Box Elder, Montana to install our Platform at the Northern Winz Casino. In this regard, in September 2019, we transacted the first legal Class 1 real-money betOctober 2021 and had produced a net loss of $0.37 million, with one operational customer. We are pursuing several new customers both in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting events or games that are not classed as mainstream sports bets.
In October 2019, we engaged experienced U.S. bookmaker Kevin Slicker to lead the development of our U.S. designed betting platform and products and also entered into multi-year agreements with Handle 19, Inc. and Grand Central, LLC, two retail sports bar operators in Washington DC to provide sports betting products and services in their establishments upon the completion of their licensing process.
In March 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as a strategic advisor to assist the Company with tactical analysis for repositioning of Italian operations within regulatory developmentsD.C. area as well as U.S. product deploymentsin Maryland and go-to-market programs.Ohio and once secured we expect to achieve profitable operations within the next twenty four months.
We are also taking steps to reduce corporate overhead and have restructured our operations by streamlining roles and reducing non-essential operating expenditures. Corporate overhead expenditures, net of one-time severance and restructuring expenses of $1.2 million, and non-cash option expense of $1.17 million were reduced by approximately $0.58 million during the six month period ended June 30, 2022. Non-cash stock option expense increased by $0.59 million over the prior year primarily due to the stock options granted to key members of management during the prior year.
On February 15, 2020 the CompanySummary Risk Factors
Our business and Handle 19, Inc. entered into a Management Services Provider (“MSP”) agreement which is in effect for an initial term of 12 months commencing from the first date on which both parties receive the necessary licenses from the District of Columbia Office of Lottery and Gaming, and Handle 19 may extend for an additional forty-eight (48) months at its sole discretion.
On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.
On June 11, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example, checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP). The procedures for Stage 2 certification, involves a more detailed and formal compliance audit and independent testing of the ISMS against the requirements specified in ISO-27001, and is expectedability to be completed in approximately 4 months.
The commencement of betting transactions in Montana and Washington, DCexecute our business strategy are subject to obtaininga number of risks of which you should be aware of before you decide to buy our securities. These risks include, but are not limited to, the required certification, licensingfollowing which you should carefully consider and approvals fromwhich are discussed more fully in the Gambling Control Division of the Montana Department of Justice and the District of Columbia Office of the Lottery and Charitable Games, respectively, which has not been determined as of the date“Risk Factors” section of this registration statement.prospectus.
Risks Related to our Financial Condition
• | The effects of the COVID-19 pandemic have strained and negatively impact our businesses and operations. | |
• | Because we have a limited operating history, we may not be able to successfully manage our business. | |
• | We have incurred substantial losses in the past and it may be difficult to achieve profitability. | |
• | If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected. | |
• | If we fail to comply with the rules under Sarbanes-Oxley, or, if we discover additional material weaknesses in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. | |
• | We have material weaknesses and other deficiencies in our internal control and accounting procedures. | |
• | We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities. |
Risks Related to our Business
• | Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results. | |||||
• | USB has had limited operations to date. | |||||
• | If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason our business would be materially adversely impacted . | |||||
• | Our inability to acquire such additional rights or operators or restrictions from using any licenses associated with such acquired operators, will result in an adverse effect on our operating results. | |||||
• | If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected. | |||||
• | If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected. | |||||
• | If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted. | |||||
• | We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us. | |||||
• | A decline in the popularity of our gaming websites or those of our Platform clients will negatively impact our business and risk our future growth. | |||||
• | Because our gaming operations are largely concentrated within Italy at present, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. | |||||
• | Our current expansion strategy may be difficult to implement because the licensing and certification requirements to operate in the United States is complex and licensing requirements in other countries are currently indeterminable. | |||||
• | Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business. | |||||
• | If we are not able to maintain and enhance our brand, our business may be adversely affected. | |||||
• | Any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations. | |||||
• | If we are unable to collect payments from third party service providers or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected. | |||||
• | Our business may be adversely impacted if we have a security incident or breach involving unauthorized access to customer data. | |||||
• | Privacy concerns may result in significant costs and compliance challenges and adversely affect our business. | |||||
• | If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected. | |||||
• | We may be unable to prevent third parties from using our technologies. | |||||
• | If we fail to manage our growth effectively, we may be unable to execute our business plan. | |||||
• | We may not be able to successfully scale our technology and manage the growth of our business. | |||||
• | Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all. | |||||
• | Our research and development efforts are costly and subject to international risks. | |||||
• | If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays. | |||||
• | We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future. | |||||
• | We may be liable for reporting errors made by operators we acquire. | |||||
• | We will rely upon executive officers or key personnel of operators we may acquire for transition services. | |||||
• | Any violation of any anti-corruption laws could have a negative impact on us. | |||||
• | War, terrorism, other acts of violence or natural or manmade disasters could have a material adverse impact on our business, results of operations, or financial condition | |||||
Corporate InformationRisks Related to our Industry
• | Economic conditions that have an adverse effect on the gaming industry may have an adverse effect on our results of operations. |
• | Intense competition in the leisure gaming industry may adversely affect our revenue and profitability. |
• | We expect that competition from internet gaming will continue to grow and intensify in the United States. |
• | If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations. |
• | Regulators at the federal and provincial level in Italy are monitoring and restricting the issuance and renewal of gaming licenses which could have an adverse effect on our growth. |
• | Our inability to acquire such additional location rights or operators or any restrictions, could result in an adverse effect on our operating results. |
• | Our records and submissions to regulatory agencies may contain inaccurate or unsupportable submissions which may result in an under or overstatement of our revenues and subject us to various penalties and may adversely affect our operations. |
• | We may become the subject of Italian federal and provincial investigations in the future . |
• | Our current operations are international in scope creating a variety of potential operational challenges. |
• | We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations. |
Newgioco Group, Inc.Risks Related to Ownership of our Securities
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• | Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. | |
• | Future sales of shares of our Common Stock or the perception in the public markets that these sales may occur, may depress our stock price. | |
• | We may issue additional shares of Common Stock and preferred stock without stockholder approval, which would dilute the current holders of our Common Stock. | |
• | The rights of the holders of our Common Stock may be impaired by the potential issuance of preferred stock. | |
• | If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline. | |
• | Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our Common Stock. | |
• | Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval. | |
• | Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. | |
• | Our certificate of incorporation has an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against us. | |
• | We do not intend to pay cash dividends on our shares of Common Stock so any returns will be limited to the value of our shares. | |
• | An active trading market for our Common Stock may not be maintained. | |
• | Warrants that we have issued are speculative in nature and have certain provisions that could deter an acquisition of our company. |
Corporate Information
Elys Game Technology, Corp. is a Delaware corporation incorporated on August 26, 1998. On November 2, 2020, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Certificate of Incorporation to reflect our corporate name change from “Newgioco Group, Inc.” to “Elys Game Technology, Corp.” On November 6, 2020, we filed a Certificate of Correction (“Certificate of Correction”) to the Certificate of Amendment to correct and delete the errant references in the Certificate of Amendment regarding a stockholder meeting.
Our principal headquarters are locatedWe currently maintain an executive suite situated at 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4,107 E. Warm Springs Road, Las Vegas, Nevada 89119, and the offices of our wholly-ownedwholly owned subsidiaries are located in Canada, Italy, Malta, Colombia and Austria. Our subsidiaries include: Multigioco Srl (acquired on August 15, 2014), as well as Ulisse GmbH and Odissea Betriebsinformatik Beratung GmbH (both acquired on July 1, 2016), Virtual Generation Limited (acquired on January 30, 2019), Newgioco Group, Inc. (Canada) formed on January 17, 2017, Elys Technology Group Limited, a company organized under the laws of Republic of Malta on April 4, 2019, Newgioco Colombia SAS, a company organized under the laws of Colombia formed on November 26, 2019, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware. Our telephone number is +39-391-306-4134.1-628-258-5148. Our corporate website address is www.newgiocogroup.com.www.elysgame.com. The information contained on our website is not incorporated by reference into this registration statement, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statement or in deciding whether to purchase or sell our securities.
We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “New Gioco”, “Aleabet”“NewAleabet”, “OriginalBet”, “LovingBet” and “Elys.” Solely for convenience, the trademarks, service marks and trade names in this registration statement are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statement are the property of their respective owners.
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Summary Risks
Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware of before you decide to buy our securities. These risks include, but are not limited to, the following which you should carefully consider and which are discussed more fully in “Risk Factors” beginning on page 9 of this prospectus.
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Recent Results
Our consolidated financial statements for the three and six months ended June 30, 2020 are not yet available. Our expectations with respect to our unaudited results for the period discussed below are based upon management estimates. The estimates set forth below were prepared based upon a number of assumptions, estimates and business decisions that are inherently subject to significant business and economic conditions and competitive uncertainties and contingencies, many of which are beyond our control. This summary is not meant to be a comprehensive statement of our unaudited financial results for this period and our actual results may differ from these estimates. Due to the lack of sporting events, resulting from the COVID-19 pandemic, from approximately March 15, 2020 through June 30, 2020, we experienced an unprecedented decrease in overall revenue. With the commencement of sporting events in June 2020, we are experiencing an increase in revenue in the third quarter of 2020 to date. On a preliminary unaudited basis, we expect our revenue for the three months ended June 30, 2020 to be between $4.3 million and $5.3 million, as compared to revenue of approximately $9.1 million for the three months ended June 30, 2019 and our revenue for the six months ended June 30, 2020 to be between $14.5 million and $15.5 million as compared to revenue of approximately $18.4 million for the six months ended June 30, 2019. We expect the decrease in revenue to be offset by a decrease in selling expenses for the three months ended June 30, 2020, which we estimate to be between $3.5 million and $4.5 million, compared to approximately $6.3 million for the three months ended June 30, 2019, and between $9.7 million and $10.7 million for the six months ended June 30, 2020, as compared to approximately $13.7 million for the six months ended June 30, 2019. The estimates of revenue and selling expenses are our preliminary estimates based on currently available information and they do not present all necessary information for an understanding of our financial condition as of June 30, 2020 or our results of operations for the three and six months ended June 30, 2020. As we complete the process of our quarter-end financial close and finalize our second quarter 2020 unaudited financial statements, we will be required to make significant judgments in a number of areas that may result in the estimates provided herein being different than the final financial information. The preliminary estimates have been prepared by and are the responsibility of our management. Our independent registered public accounting firm has not audited, reviewed or performed any procedures with respect to the preliminary estimates or the accounting treatment thereof and does not express an opinion or any other form of assurance with respect thereto. We expect to complete our unaudited financial statements for the quarter ended June 30, 2020 subsequent to the completion of this offering. It is possible that we or our independent registered public accounting firm may identify items that require us to make adjustments to the preliminary estimates of revenue and selling expenses set forth above and those changes could be material. Accordingly, undue reliance should not be placed on the preliminary estimates. The preliminary estimates are not necessarily indicative of any future period and should be read together with the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this prospectus, and our financial statements, related notes and other financial information included herein. Based on additional information compiled by the Company, we have updated the above estimates of our revenue and selling expenses from the estimates presented in Amendment No.2, dated August 4, 2020, to the Company’s registration statement on Form S-1, and also to reflect the reclassification of certain 2019 selling expenses to general administration expenses, which reclassification is reflected in the restated financial statements for the quarter ended June 30, 2019 included in the Quarterly Report on Form 10-Q/A filed with the SEC on August 5, 2020 and is expected to be reflected in restated financial statements for the quarter ended September 30, 2019 that we intend to file with the SEC.
The Offering
THE OFFERING
Securities offered by |
| Up to
| Common Stock |
26,860,810 shares of | |||
Common Stock to be outstanding after this offering, assuming exercise of all of the Warrants issued pursuant to the Purchase Agreement | 30,027,037 shares | ||
Terms of the offering | The Selling Stockholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on | ||
Use of Proceeds | We will not receive any proceeds from the sale of the shares of Common Stock by the Selling Stockholder. We may receive up to approximately $3.0 million in aggregate gross proceeds from cash exercise of the Warrants, based on the per share exercise price of the Warrants. Any proceeds we receive from the exercise of the Warrants will be used for working capital and other general corporate purposes. See “Use of Proceeds.” | ||
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Nasdaq Capital Market Symbol | ||
Our | ||
Warrants. |
Except as otherwise indicated all information inherein, the number of shares of our Common Stock to be outstanding after this prospectus assumes:offering is based on 26,860,810 shares of Common Stock outstanding as of August 25, 2022 and excludes:
● | 2,278,438 shares of our Common Stock issuable upon the price of | |
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We effected a 1-for-8 reverse stock split
● | 4,066,261 additional shares of our Common Stock reserved for future issuance under our equity incentive plans as of July 31, 2022; and |
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● | 3,664,168 shares of our Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $1.17 per share as of July 31, 2022. |
Summary Financial Data
The summary statement of operations data for the years ended December 31, 2019 and 2018 are derived from our audited financial statements and related notes that are included elsewhere in this prospectus. The summary statement of operations data for the three months ended March 31, 2020 and 2019 and the summary balance sheet data as of March 31, 2020 were derived from our unaudited financial statements and related notes that are included elsewhere in this prospectus. In our opinion, such unaudited consolidated financial statements include all adjustments consisting of only normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative of our results in any future period and results from our interim period may not necessarily be indicative of the results of the entire year.
You should read the following summary financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. The summary financial data in this section is not intended to replace our financial statements and the related notes and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.
For the Three Months Ended March 31, | For the Years Ended December 31, | |||||||||||||||
2020 | 2019 | 2019 | 2018 | |||||||||||||
Revenue | $ | 10,170,174 | 9,266,294 | $ | 35,583,131 | $ | 34,575,097 | |||||||||
Costs and Expenses: | ||||||||||||||||
Selling Expenses | 6,215,161 | 7,407,706 | 27,584,492 | 24,142,110 | ||||||||||||
General and administrative expenses | 2,820,961 | 3,197,454 | 10,994,554 | 10,588,162 | ||||||||||||
Total Costs and Expenses | 9,036,122 | 10,605,160 | 38,579,046 | 34,730,272 | ||||||||||||
Income (Loss) From Operations | 1,134,052 | (1,338,866 | ) | (2,995,915 | ) | (155,175 | ) | |||||||||
Comprehensive Income (Loss) | $ | 45,579 | (3,244,182 | ) | (9,394,091 | ) | $ | (3,812,800 | ) | |||||||
Income (loss) per common share – basic and diluted | $ | 0.01 | $ | (0.33 | ) | $ | (0.91 | ) | $ | (0.38 | ) | |||||
Weighted average number of common shares outstanding–basic and diluted | 12,209,833 | 9,549,358 | 10,226,432 | 9,485,993 |
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2020:
Balance sheet data: | As of March 31, 2020(1) | Pro Forma(2) | Pro Forma as adjusted(3) | |||||||||
Cash and cash equivalents | $ | 6,828,398 | $ | 6,743,123 | $ | 12,397,857 | ||||||
Total assets | $ | 29,080,128 | $ | 28,994,853 | $ | 34,649,587 | ||||||
Total liabilities | $ | 18,876,761 | $ | 18,084,307 | $ | 15,189,041 | ||||||
Accumulated deficit | $ | (23,084,226 | ) | $ | (23,084,226 | ) | $ | (23,084,226 | ) | |||
Total Stockholders’ Equity | $ | 10,203,367 | $ | 10,910,546 | $ | 19,460,546 |
(1) The actual basis as of March 31, 2020.
(2)The pro forma balance sheet data gives effect to (i) the issuance of an additional 106,735 shares of common stock upon conversion of debentures in the aggregate amount of CDN$146,599 (approximately $103,853) that includes accrued interest thereon of CDN$12,599 (approximately $8,925), and the aggregate amount of $237,699 that includes accrued interest thereon of $37,699 subsequent to March 31, 2020; (ii) the issuance of 149,860 shares of common stock as payment of the principal amount of €332,000 (approximately $365,627) owed under the terms of the Virtual Generation promissory note subsequent to March 31, 2020; (iii) the payment of €62,400 (approximately $70,128) under the notes issued to the sellers of Virtual Generation subsequent to March 31, 2020; and (iv) the payment of the aggregate amount of CDN$12,121 (approximately $9,087 at an exchange rate of $0.75) that includes accrued interest thereon of CDN$2,121 (approximately $1,590 at an exchange rate of $0.75) and the aggregate amount of $6,060 that includes accrued interest thereon of $1,060 under the debentures that matured May 31, 2020 and extinguishment of such debentures subsequent to March 31, 2020.
(3)The pro forma as adjusted balance sheet data gives effect to the pro forma adjustments described in footnote (2) above and our receipt of the estimated net proceeds from the sale of the units that we are offering at an assumed public offering price of $2.76 per unit (based on the assumed offering price of $2.759 per share of common stock and $0.001 per accompanying warrant which is the last reported sale price of our common stock on The Nasdaq Capital Market on July 23, 2020) after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the repayment of $2,859,266 for payment of principal and interest on debentures. The pro forma as adjusted is illustrative only and will be adjusted based on the actual initial public offering price.
Each $0.25 increase (decrease) in the assumed public offering price of $2.76 per unit would result in an incremental increase (decrease) in our cash and cash equivalents, working capital, total assets, and stockholders’ equity by $833,333, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 250,000 units offered by us would result in an incremental increase (decrease) in our cash and cash equivalents, working capital, total assets, and stockholders’ equity by $634,800, assuming that the anticipated assumed public offering price of $2.76 per unit remains the same, and after deducting the estimated underwriting discounts and commissions.
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RISK FACTORS
Investors should carefully considerIn addition to the risks described below before deciding whether to investother information contained in our securities. If any ofthis registration statement, the following risks actually occurs, ourrisk factors should be considered carefully in evaluating the Company. Our business, financial condition, liquidity, or results of operations could be materially adversely affected by any of these risks. Accordingly, when we refer to “our operators” below, it is with reference to operators that we currently own or are in the process of acquiring or may acquire in the future, regardless of the level of ownership or operators that are involved in joint ventures with us. The risks and uncertainties described below are not the only ones facing our company, additional risks and uncertainties not presently known to us or that we currently consider immaterial may also have an adverse effect on us. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially and adversely affected. In such case, the trading price of our securities could decline and you could lose all or part of your investment. Our actual results could differ materially from those anticipated in the forward-looking statements made throughout this prospectus as a result of different factors, including the risks we face described below.
Risks Related to Our Businessour Financial Condition
Our Business Has Been Negatively Impacted ByThe effects of the COVID-19 Pandemic.pandemic have strained and negatively impact our businesses and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain.
In December 2019, a novel strainThe outbreak and spread of coronavirus SARS-CoV-2, the virus which causes COVID-19 was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple countries, including the United States. The impact of the COVID-19 coronavirus outbreak caused the temporary closures of our retail locations throughout Italy, suspension of professional sports competitions throughout the world negatively impacting our ability to offer sports gaming products, and could have a negative impact on our business.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and the related adverse public health developments, have adversely affected work forces, economies and financial markets globally. The outbreak had caused the temporary closures of our physical locations throughout Italy where we provide our gaming services throughout Italy, of which some locations began to re-open on May 4, 2020services. Although most major sporting events and the remainder reopened June 9, 2020, andleagues have recommenced, the suspension of professional sports competitions throughout the world negatively impactingimpacted our ability to offer sports gaming products. The recent quarantines, the timingproducts, and length of containment and eradication solutions, travel restrictions, absenteeism by infected workersCOVID-19 could have had ana continued material adverse impact our saleson economic and operating results. We have been unable to meetmarket conditions and trigger a period of continued global economic slowdown, especially in light of potential subsequent waves or new strains of the extended deadlines for our filings withvirus. Our revenue depends on the SEC due to the travel restrictions imposed by the governments in Italy, the USAcontinuation of major league sports and other European countriessporting events, and we may not generate as a resultmuch revenue as we would have without the cancellations or postponements that occurred in the wake of the pandemic that prevented our officers and management as well as professional staff of our independent public accounting firm from travelling to our office locations located in Italy to compile and review information necessary to complete our filing within the extended time period allowed by the SEC. In addition, the pandemic could result in an economic downturn that could impact the demand for our products. We expect this global pandemic will continue to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict.COVID-19.
In response to the spread of COVID-19 as well as guidance from public health directives, and orders of national and local government and health authorities, we havehad implemented work-from-home policies to support the community efforts to reduce the transmission of COVID-19 and protect employees, complying with guidance from national and local government and health authorities.employees. We implemented a number of measures to ensure employee safety and business continuity. Business travel has beenwas suspended, and online and teleconference technology was and still is used to meet virtually rather than in person. The effects of the governmental orders and our work-from-home policies havehad negatively impact productivity, disruptdisrupted our business and delaydelayed our progress in implementing our business plan the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.
In addition, the outbreak of the COVID-19 coronavirus could disrupt our Our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or other workplace, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.have mostly resumed normal operations within local government guidelines.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 outbreak may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak,any future outbreaks, additional travel restrictions and the reimplementation of social distancing in Italy, the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in Italy, the United States and other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harmcontinue to impact on our business.
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We have a limited operating history with respect to our gaming operations upon which you can evaluate our prospects and our potential value. We began our gaming operations in 2014, when we completed the acquisition of Multigioco, a corporation organized under the laws of the Republic of Italy, which is now our wholly owned subsidiary and was granted its ADM Comunitaria GAD (Online Gaming) license on July 4, 2012. As a result of the acquisition of Multigioco, our principal business became a licensed leisure gaming operator offering web-based and land-based sports betting, lottery and gaming products for our customers. The subsidiary that owns our Platform, Odissea, was acquired by us along with our Austrian bookmaker subsidiary, Ulisse in June 2016. In January 2019, we acquired VG,Virtual Generation, a company that owns and has developed a virtual gaming software platform.platform and we acquired US Bookmaking in July 2021. In addition, we commenced processing sports bets in the U.S. on a B2B basis in Washington D.C. in October 2021. Therefore, it is difficult to evaluate our business. If we cannot successfully manage our business, we may not be able to generate future profits and may not be able to support our operations.
The likelihood of our success and performance must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the highly competitive environment in which we operate.
We have incurred substantial losses in the past and it may be difficult to achieve profitability.
We have a history of losses and are anticipated to incur additional losses in the development of our business. For the year ended December 31, 20192021, we had a net loss of $9.3$15.1 million after an intangible impairment charge of $17.4 million and a revised contingent purchase consideration credit of $11.9 million and a net loss of $3.6$6.4 million and for the yearsix months ended June 30, 2022. As of June 30, 2022 and December 31, 2018. As of December 31, 2019 and March 31, 20202021 we had accumulated deficits of $23.2$54.6 million and $23.1$48.2 million, 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 bythe hiring of additional personnel, upgrading our technology and infrastructure and expanding into new geographical markets. To the extentEven if we are successful in increasing our customer base, we expect to also incur increased losses in the short term despite the fact that our Platform is easily scalable because coststerm. 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. If we are unable to maintain our profitability, the value of our business and common stock may decrease. Although we cannot assure that we will be able to maintain a profitable level of operations to meet our obligations arising from normal business operations, in recent years we have generated sufficient revenue to maintain our existing operations and continue our moderate organic growth.
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, 20192021 and as of June 30, 2022 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. In addition, as of December 31, 2019 and 2018, our management concluded that we had a material weakness in internal control over financial reporting related to a limited segregation of duties due to our limited resources and the small number of employees. 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 to helping 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.
On May 1, 2020, our Audit Committee, following discussions with management, determined that the audited financial statements for the year ended December 31, 2018 contained in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 8, 2019 should no longer be relied upon. The determination of the Audit Committee to restate the above-referenced financial statements was based upon certain errors to its financial statements that were identified by management during the course of preparing our financial statements for the fiscal year ended December 31, 2019. These errors consisted primarily of the following: (i) the understatement of non-cash consolidated depreciation and amortization by $788,666; (ii) the understatement of unrealized foreign exchange losses of $178,976. In addition, the Company identified other miscellaneous immaterial adjustments amounting to $9,506. We also analyzed the impact of the aforementioned adjustments and other accumulated misstatements on the financial statements for the interim and annual periods prior to the fiscal year ended December 31, 2018, and concluded that a cumulative opening retained earnings adjustment is appropriate as the correction of the errors in each prior period would not be material individually or in the aggregate to any such prior interim or annual period. However, we concluded that correcting the cumulative impact of the errors would be material to its results of operations for the year ended December 31, 2018 and the three subsequent quarters and therefore, the Audit Committee also determined that the unaudited consolidated financial statements for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 contained in our Quarterly Reports on Form 10-Q previously filed with the SEC on May 15, 2019, August 16, 2019 and November 14, 2019 should no longer be relied upon.
Our failureIf we do not have sufficient capital resources to repaycomplete acquisitions and manage our outstanding debentures on their maturity dateoperations, our ability to implement our business plan could potentially result in legal action against us.be adversely affected.
We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. We continue to embark on an aggressive roll out of our operation in the U.S. market over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. Accordingly, we will need capital to implement our business plan, and may seek to finance operator acquisitions and development projects through bank, debt or equity financings. Disruptions to financial markets or other challenging economic conditions may adversely impact our ability to complete any such financings or the terms of any such financings may be unacceptable or unfavorable to us. To the extent that we issue equity securities in connection with our proposed acquisition, our current stockholders will experience dilution of their holdings. To the extent we incur debt, we may be subject to restrictive covenants that impact our ability to conduct our business. We can provide no assurance that we will be able to obtain financing necessary to implement our business plan or that any such financing will be on terms acceptable to us or be sufficient to fund existing operations over the next twelve months from the date hereof.
As
If we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
Section 404 of July 15, 2020,Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. If we had convertible debenturesfail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of $610,000 and CDN$307,000 (approximately $229,145) including $134,098 and CDN$65,331 (approximately $48,763)our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accrued interest that have matured and have been extendedaccordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary for 120 days until September 28, 2020; and a total of $1,068,000 and CDN$1,150,000 (approximately $865,824) including $227,060 and CDN$216,967 (approximately $161,944) in accrued interest dueus to certain accredited investors that have not been convertedproduce reliable financial reports and are unsecuredimportant to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and bear interest at 10%operating results could be harmed, investors could lose confidence in our reported financial information, and are in default asthe trading price of May 31, 2020. We are currently in the process of repaying the outstanding balance periodically. The debenture holdersour Common Stock could declare a default under the debentures and if the default were to remain uncured, they would have the right to institute legal proceedings. It is anticipated that the debentures will be repaid in full out of the proceeds of the offering.
drop significantly.
We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities, which bank credit facilities may not be available at reasonable terms, if at all.
We have recently initiated an ambitious investment strategy including taking steps to enter the U.S. market which has led to an increase in expenses. Our ability to execute our growth plan is dependent upon our ability to generate profits from operations in the future, bank credit facilities and/or our ability to obtain additional financing and such financing may not be available on reasonable terms, if at all.
Risks Related to our Business
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in U.S. trade policy and European policies could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
· | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes; |
· | a global or regional economic slowdown in any of our market segments; |
· | changes in government policies and regulations affecting the Company or its significant customers; |
· | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether; |
· | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs; |
· | postponement of spending, in response to tighter credit, financial market volatility and other factors; |
· | rapid material escalation of the cost of regulatory compliance and litigation; |
· | difficulties protecting intellectual property; |
· | longer payment cycles; |
· | credit risks and other challenges in collecting accounts receivable; and |
· | the impact of each of the foregoing on outsourcing and procurement arrangements. |
USB has had limited operations to date.
USB has had limited operations to date. USB is subject to many of the risks common to an entity in operations for only a short number of years, including its ability to implement its business plan, market acceptance of its proposed business and products, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of its ability to generate revenues. There is no assurance that its activities will be successful or will result in any revenues or profit, and the likelihood of its success must be considered in light of the stage of its development. Even if it generates revenue, there can be no assurance that it will be profitable. In addition, no assurance can be given that it will be able to consummate its business strategy and plans, as described herein, or that financial, technological, market, or other limitations may force it to modify, alter, significantly delay, or significantly impede the implementation of such plans, including due to COVID-19.
If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted.impacted, and it could result in the impairment of the carrying value of a substantial portion of our assets.
Our ability to generate revenue from gaming operations in Italy is dependent upon our ability to maintain our Italian online and land-based licenses. We currently hold fourthree gaming licenses upon which our business is dependent: a Bersani license, a Monti license, and a GAD license and an Austrian bookmaker license. Each of the fourthree licenses that we hold can be terminated by the regulator at any time if we fail to comply with their regulations. In addition, our GAD license that was issued to Multigioco in 2011 is up for renewal in 20212022 and our Bersani and Monti land-based licenselicenses that provides rights to seven corners and three agencies is currently up for renewal at such time as the ADM should determine (which is expected to occur between 20202022 and 2022) as is our Monti land-based license that provides rights to two agencies. Inasmuch2023). Insofar as the renewal process for licenses is conducted through a call to tender auction process, even if we have fully complied in all respects with all requirements of the ADM, there is no guarantee that we will be the highest bidder at auction and therefore there is no guarantee that our licenses or location rights will be renewed.continue to operate. In addition, although our software is currently certified for use in Italy and in the U.S. for land-based application, any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify. We have also obtained our first U.S. based license from the Office of Lottery and Gaming in the District of Columbia. If we are unable to renew our licenses or obtain new licenses or software recertification, our business would be materially adversely impacted.impacted, and we may need to impair the carrying value of a substantial portion of our assets.
In order to expand our land-based operations in Italy, we will be required to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our operating results.
Rights to online and land-based licenses are only available in Italy at limited times when licenses are being renewed. In addition, the maximum number of land-based location rights that any one operator may bid on at auction is 20% of the total market being auctioned. Due to such limitations on acquiring new location rights in Italy, our ability to expand the number of land-based locations that we operate will depend in large part upon our ability to acquire operators that hold land-based licenses and location rights. We expect a significant portion of our additional revenue to be derived from gaming revenue earned by operators that we have recently acquired or will acquire in the future. Although the operators which we have acquired and those that we acquire in the future may have active gaming licenses and location rights, we can provide no assurance that the existing license and location rights of any particular operator we have acquired or that we acquire in the future will be renewed or retained or that we will be able to acquire additional operators and increase our client base. If we are restricted from acquiring target operators or their client base, our operating results may will be adversely affected.
If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected.
Our retail leisure betting business, website and web-shops operate in an industry that is subject to:
rapid technological change; | ||
the proliferation of new and changing online gaming sites; | ||
frequent new product introductions and updates; and | ||
changes in customer preferences and demands. |
If we fail to anticipate and effectively respond to any of the above changes, the demand for our products and services that we currently offer or that we may offer in the future may be reduced. Additionally, increasing incremental sales to our current customer base will require additional sales and marketing efforts, which may not be successful. Any failure to attract new customers or maintain and expand current customer relationships will have an adverse effect on our business and results of operations. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction and failure to attract and retain consumers of our products which could have a material adverse effect on our business, financial condition and operating results.
If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected.
We anticipate that the future growth and success of our business will be dependent upon our successful acquisition of operators and development of new technologies, such as our recent acquisition of VG.Virtual Generation and US Bookmaking. We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. The difficulties and risks associated with the integration of the operations of new operators into our existing business, include:
11
the possibility that we will fail to implement our business plans for the integrated company, including as a result of new legislation or regulation in the gaming industry that affects the timing or costs associated with our operations or our acquisition plans; | ||
possible inconsistencies between our standards, controls, procedures, policies and compensation structures and those of operators that we acquire; | ||
the increased scope and complexity of our operations following the acquisition of multiple operators; | ||
the potential loss of key employees and the costs associated with our efforts to retain key employees; | ||
provisions in contracts that we and the acquired operators have with third parties that may limit our flexibility to take certain actions; | ||
risks and limitations on our ability to consolidate the corporate and administrative infrastructures of new operators with our existing infrastructures; and | ||
failure to discover liabilities of operators prior to our acquisitions of such operators; and the possibility of unanticipated delays, costs or inefficiencies associated with the integration of operations of new operators with our existing operations. |
As a result of these difficulties and risks, we may not be able to successfully grow our business.
If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted.
In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, and technology and content providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be more effective in providing incentives to third parties to favor their products or services or to prevent or reduce the use of our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our solutions by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer.
We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us.
Our business strategy includes expanding our products and services and we may seek acquisitions of synergistic companies to do so. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuance of equity securities; the potential incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diverting our management'smanagement’s attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired companies.
We may misjudge the value or worth of an acquired product, company or business. In addition, our future success will depend in part on our ability to integrate and manage the associated acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require a substantial capital investment by us. We may not have the necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our preferred or common stock,Common Stock, which could dilute each current shareholder’s ownership interest in our company. Our operating results and financial condition will be adversely affected if we fail to implement our business strategy or if we invest resources in a strategy that ultimately proves unsuccessful.
If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected.
We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. We intend embarking on an aggressive roll out of our operation in the US markets over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. Although we believe that our existing cash resources together with the revenue from operations will be sufficient to fund existing operations over the next twelve months from the date hereof, if revenue should decrease, we will not be able to fully implement our US roll out unless we raise additional capital. Accordingly, we will need capital to implement our business plan, and may seek to finance operator acquisitions and development projects through bank, debt or equity financings. Disruptions to financial markets or other challenging economic conditions may adversely impact our ability to complete any such financings or the terms of any such financings may be unacceptable or unfavorable to us. To the extent that we issue equity securities in connection with any proposed acquisitions, our current stockholders will experience dilution of their holdings. To the extent we incur debt, we may be subject to restrictive covenants that impact our ability to conduct our business. We can provide no assurance that we will be able to obtain financing necessary to implement our business plan or that any such financing will be on terms acceptable to us.
We derive a significant portion of our revenue from gaming sales through our website and websites of our betting Platform clients. A decline in the popularity of our websitegaming websites or those of our Platform clients will negatively impact our business and risk our future growth.
We currently derive and expect to continue to derive substantially all of our primary source of revenue and service fees from the sales of gaming products and services sold through our website or websites operated by clients of our betting Platform. As such, the growth and market demand for our products and services are dependent upon, among other things, our ability to attract and retain new users and having existing users increase their activity on these websites. If we are unable to maintain or grow our revenue from sales through our website and our client’s websites, our future growth and revenues may be adversely affected.
Because our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified.
Due to the fact that our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. As such, our business may be significantly affected by risks common to the Italian leisure betting market. For example, the changing government regulations on Italian gaming licenses or on the tolerance toward European licenses, as well as general economic conditions in Italy and the impact of any events that disrupt our ability to offer our products and services can adversely affect our business. We cannot control the government process that awards domestic gaming licenses to operators.operators or the tolerance of allowing other European license holders to operate in Italy. Reductions in the number of licenses and frequency of issuing licenses by any government regulator can impact our ability to operate our business.
Our current expansion strategy, which includes expansion through VGVirtual Generation in the various countries in which it operates and in the United States through the use of our Platform certifications, may be difficult to implement because the licensing and certification requirements to operate in the United States are complex and other countries are currently indeterminable.
Our current expansion strategy includes soliciting existing licensed operators in the United States offering sports betting in states that allow sports betting to use our Platform. WeFurthermore, we have analyzed the technical specifications checklist supplied by GLI to verify that coding in our softwareonline product meets the functional specifications set forth in the GLI-33 certification standards which is the latest level of GLI certification(The Gaming Laboratories International technical standard for event wagering systems, andsystems). In September 2020, we believe that our Platform currently meets the majority ofobtained GLI-33 certification standards; however, since the individual stateson our land-based sports betting platform and commenced processing sports bets in the UnitedU.S. on a B2B basis in Washington D.C. in October 2021. We also began the process of licensing our platform in other States that allow sports betting have not yet determined what certificationsbetting. However, before being able to commence operations in any state we will be required for our Platform to obtain licenses and other governmental approvals and there can be usedno assurance that we will be able to do so. Each state has its own approval process and approval in such states, it is impossible for us to know with certainty whether our Platform will meet the certification requirements to operateone state does not guarantee approval in the United States.any other state. We also intend to expand our operations through VGVirtual Generation in the various countries in which it operates; however, to date we have not had operations in most of those countries and there can be no assurance that our expansion in those countries will be successful.
We depend upon our officers and other key employees. Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business.
Our future operations and successes depend in large part upon the continued service of our officers and other key employees. Changes in our management could have an adverse effect on our business. We are dependent upon the active participation of several key management personnel including Michele Ciavarella, our Chief Executive Officer (CEO), Alessandro Marcelli, our Vice President of Operations, and Luca Pasquini, our Vice President of Technology, all of whom provide our strategic direction. Any failure to retain our key management could negatively affect our ability to recruit and retain personnel. We do not carry key person life insurance on any of our senior management or other key personnel. In addition, several members of our Chief Executive Officer is akey management personnel are Canadian citizen with a principal residence in Canada, and our Vice President Operations and Vice President Technology are Italian citizens with their principal residences in Italy.citizens. If they become unable or ineligible to legally travel to and work in the United States, their ability to perform some of their duties for our company could be materially adversely affected.
We must hire highly skilled technical personnel as employees and/or as independent contractors in order to develop our products. As of the date of this registration statement,prospectus, we have 5897 employees and 1516 independent contractors. The competition for highly skilled technical, managerial and other personnel is intense and we may not be able to retain or recruit such personnel. Our recruiting and retention success is substantially dependent on our ability to offer competitive salaries and benefits to our employees. We must compete with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and contractors. To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits offered to employees in order to attract and retain such personnel. The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results. If we fail to attract and retain the technical and managerial personnel, we need to be successful, our business, operating results and financial condition could be materially adversely affected.
If we are not able to maintain and enhance our brand, our business, operating results and financial condition may be adversely affected.
We believe that maintaining and enhancing our reputation for our advanced, cost effective sports betting and gaming technology software is critical to our relationships with our existing customers and operators and to our ability to attract new customers and operators. We also believe that the importance of brand recognition and software creativity will increase as competition in our market increases. We devote significant resources to developing and maintaining our brand and innovative betting technology leadership, with a focus on identifying and interpreting emerging trends in the market, shaping and guiding industry dialogue, and expanding the adoption of online sports betting and gaming software solutions. Our brand promotion activities may not ultimately be successful or yield increased revenue. In addition, independent industry analysts provide reviews of our platform, as well as products and services offered by our competitors, and perception of our betting platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand and business may be adversely affected.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers and operators or fail to attract potential new customers and operators, all of which would adversely affect our business, results of operations and financial condition.
13
We currently depend on and may continue to be dependent on third parties to provide certain components and products we distribute through our online gaming platform, and any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations.
We currently depend on third parties to provide some products through our Platform. The costs associated with relying on third parties may increase our operating and development costs and negatively affect our ability to operate because we cannot control the developer's personnel, schedule or resources. We may experience delays in finalizing Platform updates. In addition, our reliance upon third party developers exposes us to risks, including reduced control over quality assurance and costs of development. If any of the foregoing occurs, we could lose our current and prospective customers. In addition, we may be required to rely on certain technology that we license from third-parties, including software that we integrate and use with software that we may develop internally. We cannot provide any assurances that these third-party technology licenses will be available to us on commercially reasonable terms, if at all. The inability to establish any of these technology licenses, or the loss of such licenses if established, could result in delays in completing any Platform updates or changes until equivalent technology can be identified, licensed and integrated. Any such delays could materially adversely affect our business, operating results and financial condition.
Specifically, our agreements with Microgame and SNAI to develop and operate some components of our gaming products and process certain land-based retail transactions is important to our operations. If we fail to comply with any of the terms or conditions of any such agreement, Microgame or SNAI may terminate our agreement or if such agreement expires and we are unable to find a suitable replacement, our business, operating results and financial condition would be materially adversely affected.
We depend on payments from third-party service providers, including government regulated gaming agencies. If we are unable to collect such payments or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected.
We depend, in part, on private entities and regulated third-party sources of payment for the gross gaming revenue earned by our operators. The amount our operators receive for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including future changes to the payment systems, the cost containment and utilization decisions of third-party service providers and the global economy. We have no assurance that future changes to betting odds from data providers for sporting events, table rake from poker providers and tax rates on game offerings, cost containment measures implemented by private third-party service providers, or other factors affecting payments for gaming services or our ability to collect such payments will not adversely affect our, financial condition and operating results.
If we have a security incident or breach involving unauthorized access to customer data, our Platform may be perceived as lacking sufficient security, customers may reduce their use of, or stop using our Platform and we may incur significant liabilities
Our Platform involves the storage and transmission of our customer’s confidential and proprietary information, which may include the personal data and information on their customers, players, suppliers and agents. As a result, unauthorized access or use of customer data could expose us to regulatory actions, litigation, investigations, remediation costs, damage to our reputation and brand, disclosure obligations, loss of customer and partner confidence in the security of our solutions and resulting fees, costs, expenses, loss of revenues, and other potential liabilities. While we have security measures in place designed to protect the integrity of customer information and prevent data loss, misappropriation, and other security breaches, if these measures are inadequate or are compromised as a result of third-party action, including intentional misconduct by computer hackers, theft, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liabilities. Cybersecurity challenges, including threats to our IT infrastructure or those of our customers or third-party providers, are often targeted at companies such as ours, and may take a variety of forms ranging from malware, phishing, ransomware, man-in-the-middle attacks, session hijacking, denial-of-service, password attacks, viruses, worms and other malicious software programs or cybersecurity attacks to “mega breaches” targeted against hosted software and cloud based IT services. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. Because cybersecurity attacks and techniques change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate their business with us or switch their business to a competitor, result in reputational damage, cause us to pay remediation costs or issue service credits or refunds to customers for improper bets or false claims of improper bets, or result in lawsuits, regulatory fines or other action or liabilities, which could adversely affect our business and results of operations.
Many states in the United States as well as foreign governments have enacted laws requiring companies to provide notice of data security breaches involving certain types of personal data, and significant fines on companies involved in such incidents may be imposed. In addition, some of our regulators and certifying agents contractually require notification of data security breaches. Security compromises experienced by us or by our competitors may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new clients, cause existing clients to switch to a competing betting software provider, or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.
14
Privacy concerns and domestic or foreign privacy laws or regulations may result in significant costs and compliance challenges, reduce demand for our solutions, and adversely affect our business.
Our clients can use our Platform to collect, use and store certain personal data regarding their agents, employees, players/customers and suppliers. National and local governments, agencies, and authorities in the countries in which we and our clients operate have adopted or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of personal data obtained from consumers and individuals, which could impact our ability to offer our solutions in certain jurisdictions or our customers’ ability to deploy our solutions globally. Privacy-related laws are particularly stringent in Europe. If we or our third-party sub-processors fail to adequately comply with privacy-related laws, regulations and standards, it may limit the use and adoption of our solutions, reduce overall demand for our solutions, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Moreover, if we or our third-party sub-processors fail to adhere to adequate data protection practices around the usage of our clients’ personal data, it may damage our reputation and brand.
In 2016 the EU adopted a new regulation governing data privacy called the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR establishes requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to four percent of worldwide annual handle or 20 million euro, whichever is higher. Customers, particularly in the EU, are seeking assurances from their suppliers, including us, that thetheir processing of personal data of EU nationals is in accordance with the GDPR, and if we are unable to provide adequate assurances to such customers, demand for our solutions and our business could be adversely affected. In addition, we must continue to seek assurances from our third-party sub-processorssubprocessors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. Compliance with privacy laws and regulations, particularly the GDPR, that are applicable to our business and the businesses of our clients is costly and time-consuming. Such laws and regulations may adversely affect our clients’ ability and willingness to process, handle, store, use and transmit personal data of their employees, players/customers and suppliers, which in turn could limit the use, effectiveness and adoption of our solutions and reduce overall demand. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness or use of our betting Platform. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, including challenges to onward transfer mechanisms such as Privacy Shield and model contractual clauses, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, as well as limitations on data collection, use, disclosure and transfer for us and our clients.
In addition, the other bases on which we and our clients rely for the transfer of data, such as certain contractual clauses, continue to be subjected to regulatory and judicial scrutiny. If we or our clients are unable to transfer data between and among countries and regions in which we operate, it could decrease demand for our betting software solutions, require us to restrict our business operations, and impair our ability to maintain and grow our client base, expand geographically and increase our revenues.
If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected.
We have historically relied on retail agents, affiliates and partners, such as referral partners, resellers, and integration partners (collectively “partners”), to attract new clients and sell additional services to our existing clients and players. Our agreements with our partners are generally non-exclusive and some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships, and they may not regard us as to be of significant importance for their businesses. Our partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our Platform. We may also terminate our relationships with partners who choose to work with our competitors or for other reasons. Moreover, we may have difficulty attracting effective partners to sell our Platform to other clients and players, particularly given our smaller size relative to larger franchise and well-established betting operators. If we are not able to maintain and grow our partner relationships, our business could be adversely affected.
Our partners also may impair our ability to enter into other desirable strategic relationships. If our partners do not effectively market and sell our betting products and Platform solution, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our clients and players, our ability to sell our Platform and our business may be adversely affected. Similarly, the loss of a substantial number of our partners, and our possible inability to replace them, the failure to recruit additional partners, any reduction or delay in their sales of our betting Platform, or any conflicts between partner sales and our direct sales and marketing activities could materially and adversely affect our business and results of operations.
15
If we fail or are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage, proprietary technology and our brand.
Our success is dependent, in part, upon protecting our proprietary technology which supports our betting Platform and other operations. We rely on a combination of proprietary programming and source codes, copyright, trademarks, service marks, trade secret laws and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We do not have any patent applications pending anywhere we operate and may not be able to obtain patent protection for the technology covered in any future patent applications should we enter such applications. In addition, any patents, if any, that are issued to us in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our solutions and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of jurisdictions outside the United States. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our solutions and proprietary information may increase.
Although we enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, we do not currently enter into confidentiality and invention assignment agreements with all of our employees and consultants and as a result, our business may be harmed. No assurance can be given that the agreements we enter into will be effective in controlling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our solutions.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or harm our business and reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we would be able to license that technology on commercially reasonable terms or at all from them. Any inability to license third party technology in the future would have a material adverse effect on our business or operating results and would adversely affect our ability to compete.
We have experienced rapid growth and organizational change in recent periods and if we fail to manage our growth effectively, we may be unable to execute our business plan.
We increased our number of full-time and part-time employees from 15 as of August 15, 2014 to 5897 as of July 15, 2020December 31, 2021 as we have expanded our operations, completed additional business acquisitions and experienced growth in number of customers and operators. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our headcount and operations both domestically and internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significant additional investment in our infrastructure. We will be required to continually improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively, which could negatively affect our results of operations and overall business. In addition, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross margins or operating expenses in any particular quarter. Moreover, if we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our software solutions may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.
We may not be able to successfully scale our technology and manage the growth of our business if we are unable to improve our internal systems, processes and controls.
We need to continue to improve our internal systems, processes and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud. We have licensed technology from third parties to help us improve our internal systems, processes and controls. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could impair our ability to provide our solutions or professional services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our solutions or increase our technical support costs.
Our estimates of market opportunity and forecasts of market growth included in this registration statementprospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not all geographic or regional metrics covered by our market opportunity estimates will necessarily implement regulated or online gaming at all, and in some cases many potential customers and operators may choose to continue using their existing betting platform provider, or choose a solution offered by our competitors. It is impossible to build every product feature that every customer wants, and our competitors may develop and offer features that our solutions do not offer. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of customers covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this registration statement,prospectus, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry. Furthermore, we have historically focused our selling and marketing efforts in regulated markets in Europe, specifically Italy. In order for us to successfully address the broader market opportunity, we will need to successfully market and sell our betting Platform to larger enterprise customers and also further expand our international presence. If any of these risks materialize, it could adversely affect our results of operations.
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 years ended December 31, 20192021 and 2018,2020, we spent approximately $410,000$2.0 million and $415,000$1.7 million for research and development.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. This company is creating a custom-made platform for us which will make us industry leaders in the market. We have made and expect to continue to make significant investments in development and related opportunities, such as our acquisition of VG,US Bookmaking, 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.
If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays, which may adversely affect our business.
We derive significant revenue from the use of our websites and Platform. In the past, we have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our Platform. As we transition to larger infrastructure and pursue geographic expansion, we may experience interruptions, delays and outages in service and availability, and we expectmay experience a decline in our gross gaming margin to decline modestly in the near term reflecting the costs of this transition.
We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, vendor issues, human or software errors, viruses, security attacks, fraud, general Internet availability issues, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation, business and results of operations.
We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future and may be unable to cause all or a portion of the cash of such operators to be distributed to us.
We anticipate having a complete or a majority ownership in the operators we may acquire in the future. We expect any future agreements we execute with such operators will provide for the distribution of available cash to us. However, it is possible that these agreements may impose limits on the ability of our acquired operators to make distributions of cash to us. If we are unable to cause sufficient cash to be distributed from one or more of the operators we may acquire in the future, our ability to pay our obligations as they become due may be harmed.
If we acquire an operator that has made submission and reporting errors prior to our acquisition, we may be liable for such errors that which may have a material adverse effect on our business.
Historical submissions and reporting errors in gaming accounts made by an operator we may acquire in the future, may require us to provide refunds to customers and may also subject us to civil penalties, which involve monetary damages. If operators we may acquire in the future overpaid their obligation, it is unlikely that we would be able to collect funds that were owed to the operator prior to our acquisition. There can be no assurance that a compliance audit will disclose any future liabilities for underpayments or overpayments that any of our operators may have incurred.
If any executive officers or key personnel of operators we may acquire are unable to assist with the transition of operations and customers, our business may be adversely affected.
In connection with any potential acquisition of operators, we believe that it is necessary and desirable to retain the services of executive officers and key personnel of such operators to assist with the transition and integration of operations and customers into our existing operations; however, no assurances can be given that such executive officers and key personnel will be willing and able to assist us with such transition and integration. In the event that such executive officers and key personnel are unable to assist us after the consummation of the future acquisition of an operator, we may need to hire additional personnel to assist with the transaction, which new personnel may not be readily available to us or on acceptable terms.
Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.
OurThe majority of our revenue is derived from operations outside the United States, which exposes us to complex foreign and U.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties, and the Securities and Exchange Commission (the “SEC”)SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Violations or allegations of non-compliance with any such laws or regulations may adversely affect our business, performance, prospects, value, financial condition, and results of operations.
War, terrorism, other acts of violence or natural or manmade disasters may affect the markets in which we operate,operates, our customers, our delivery of software and customer service, and could have a material adverse impact on our business, results of operations, or financial condition.
Our business may be adversely affected by instability, disruption or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm or pandemic events and spread of disease. Such events may cause customers to suspend their decisions on using our products and services, make it impossible for our customers to visit our physical locations, cause restrictions, postponements and cancellations of sports events that attract large crowds and public gatherings, and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our personnel and to physical facilities and operations, which could materially adversely affect our financial results.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, in addition to historical information, certain 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”), that includes information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus or incorporated herein by reference.
You should read this prospectus and the documents we have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.
Risks, Relateduncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2021 under the headings “Risk Factors” and “Business,” as updated in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus particularly our forward-looking statements, by these cautionary statements.
INDUSTRY AND MARKET DATA
This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes that are incorporated by reference into this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus. In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” “Elys” and the “Company” refer to Elys Game Technology, Corp. Except as disclosed in the prospectus, the financial statements and selected historical financial data and other financial information included in, or incorporated by reference into, this prospectus are those of Elys Game Technology, Corp.
Overview
We currently provide our B2C gaming services in Italy through our subsidiary, Multigioco Srl (“Multigioco”), which operations are carried out via both land-based or online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”) that permits us to distribute leisure betting products such as sports betting, and virtual sports betting products through both physical, land-based retail locations as well as online through our licensed website www.newgioco.it or commercial webskins linked to our licensed website and through mobile devices. Management implemented a consolidation strategy in the Italian market by integrating all B2C operations into Multigioco and allowed the Austria Bookmaker license that was regulated by the Austrian Federal Finance Ministry (“BMF”) to terminate.
We also provide bookmaking services in the U.S. market via our recently acquired subsidiary US Bookmaking in certain regulated states where we offer B2B bookmaking and platform services to our customers. Our Industryintention is to focus our attention on expanding the U.S. market. We recently began operations 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 area of Washington, D.C., and in October 2021 we entered into an agreement with Ocean Casino Resort in Atlantic City and commenced operations in the state of New Jersey in March 2022.
Additionally, we provide B2B gaming technology through our 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 our Virtual Generation subsidiary. The Platform also provides seamless application programming interface integration 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 implemented 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.
Our corporate group is based in North America, which includes an executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Ontario 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.
For the period ended June 30, 2022, transaction revenue generated through our subsidiary Multigioco consisted of wagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based betting web-shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated by our Platform is primarily derived from bet and wager processing in Italy through Multigioco, and in the U.S., through Elys Gameboard Technologies and USB. Since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns in Italy subsided, management simplified our Italian footprint by focusing our investment towards the Multigioco operations and discontinued Ulisse presence in Italy during the second quarter of 2021.
We believe that our Platform is considered one of the newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a B2B basis, including expansion through Europe, South America, South Africa and the developing market in the United States. During the three and six months ended June 30, 2022 and 2021, we also generated service 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 recently acquired subsidiary, US Bookmaking. 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.
We operate two business segments in the leisure gaming industry and our revenue is derived as follows:
1. | Betting establishments |
Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. | Betting platform software and services |
SaaS based service revenue through providing our Platform and virtual sports products to betting operators.
This Management’s Discussion and Analysis includes a discussion of our operations for the three months and six months ended June 30, 2022 and 2021, which includes the operations of US Bookmaking for the three months and six months ended June 30, 2022.
Recent Developments
Financing
On June 15, 2022, we raised $3 million in gross proceeds and issued (i) an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock to a single investor (the “Investor”) in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021 and (ii) in a concurrent private placement, warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share and expiration date of December 15, 2027, subject to customary adjustments thereunder. If after the six month anniversary of the issuance date there is no effective registration statement registering the shares underlying the Warrants for resale, then the Warrants are exercisable on a cashless basis. On July 12, 2022, the investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
Strategic agreements entered into with Lottomatica (currently known as G.B.O, S.p.A)
We entered into a Master Technology Development and License Agreement and a Technical Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based and on-line applications by Lottomatica in the U.S. and Canadian markets, as well as potentially worldwide. The contract is for a period of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that after a period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to the SBP for €4.0 million.
The Technical Services Agreement was entered into with our subsidiary Odissea to provide engineering services, develop and deliver the software and provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement is for a period of ten years and is based on cost plus a percentage of the services provided.
In a separate Virtual Service Agreement entered into between our subsidiary Virtual Generation and Goldbet S.p.A., a subsidiary of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and us to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues.
In a separate Assignment Agreement entered into between our subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100 Sports Rights to Multigioco, which will allow us to expand our land-based distribution network to approximately 110 point-of-sale locations. We expect to open the additional 100 outlets over the remainder of the calendar year. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a minimal value.
Operational Developments
Management has implemented a strategic business initiative to reduce expenditures, improve efficiencies and maximize profitability within the underlying operating units. During the six months ended June 30, 2022, we managed to achieve a net income position of approximately $0.19 million in our European operations which consist of Multigioco, Odissea, Ulisse, Virtual Generation and Elys Technology Services, despite the closure of all of our Ulisse CTD locations in the prior year. Our U.S. USB subsidiary performance has been disappointing, producing a net loss of $1.16 million on revenues of $0.6 million for the six months ended June 30, 2022, primarily due to personnel costs which increased to $0.7 million and amortization of intangibles of $0.5 million. We are attempting to address this operational performance with the USB management team. Our other U.S. operation, Elys Gameboard, commenced operations in October 2021 and had produced a net loss of $0.37 million, with one operational customer. We are pursuing several new customers both in the Washington D.C. area as well as in Maryland and Ohio and once secured we expect to achieve profitable operations within the next twenty four months.
We are also taking steps to reduce corporate overhead and have restructured our operations by streamlining roles and reducing non-essential operating expenditures. Corporate overhead expenditures, net of one-time severance and restructuring expenses of $1.2 million, and non-cash option expense of $1.17 million were reduced by approximately $0.58 million during the six month period ended June 30, 2022. Non-cash stock option expense increased by $0.59 million over the prior year primarily due to the stock options granted to key members of management during the prior year.
Summary Risk Factors
Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware of before you decide to buy our securities. These risks include, but are not limited to, the following which you should carefully consider and which are discussed more fully in the “Risk Factors” section of this prospectus.
Risks Related to our Financial Condition
• | The effects of the COVID-19 pandemic have strained and negatively impact our businesses and operations. | |
• | Because we have a limited operating history, we may not be able to successfully manage our business. | |
• | We have incurred substantial losses in the past and it may be difficult to achieve profitability. | |
• | If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected. | |
• | If we fail to comply with the rules under Sarbanes-Oxley, or, if we discover additional material weaknesses in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. | |
• | We have material weaknesses and other deficiencies in our internal control and accounting procedures. | |
• | We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities. |
Risks Related to our Business
• | Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results. | |||||
• | USB has had limited operations to date. | |||||
• | If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason our business would be materially adversely impacted . | |||||
• | Our inability to acquire such additional rights or operators or restrictions from using any licenses associated with such acquired operators, will result in an adverse effect on our operating results. | |||||
• | If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected. | |||||
• | If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected. | |||||
• | If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted. | |||||
• | We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us. | |||||
• | A decline in the popularity of our gaming websites or those of our Platform clients will negatively impact our business and risk our future growth. | |||||
• | Because our gaming operations are largely concentrated within Italy at present, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. | |||||
• | Our current expansion strategy may be difficult to implement because the licensing and certification requirements to operate in the United States is complex and licensing requirements in other countries are currently indeterminable. | |||||
• | Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business. | |||||
• | If we are not able to maintain and enhance our brand, our business may be adversely affected. | |||||
• | Any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations. | |||||
• | If we are unable to collect payments from third party service providers or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected. | |||||
• | Our business may be adversely impacted if we have a security incident or breach involving unauthorized access to customer data. | |||||
• | Privacy concerns may result in significant costs and compliance challenges and adversely affect our business. | |||||
• | If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected. | |||||
• | We may be unable to prevent third parties from using our technologies. | |||||
• | If we fail to manage our growth effectively, we may be unable to execute our business plan. | |||||
• | We may not be able to successfully scale our technology and manage the growth of our business. | |||||
• | Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all. | |||||
• | Our research and development efforts are costly and subject to international risks. | |||||
• | If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays. | |||||
• | We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future. | |||||
• | We may be liable for reporting errors made by operators we acquire. | |||||
• | We will rely upon executive officers or key personnel of operators we may acquire for transition services. | |||||
• | Any violation of any anti-corruption laws could have a negative impact on us. | |||||
• | War, terrorism, other acts of violence or natural or manmade disasters could have a material adverse impact on our business, results of operations, or financial condition | |||||
Risks Related to our Industry
• | Economic conditions |
• | Intense competition in the leisure gaming industry may adversely affect our revenue and profitability. |
• | We expect that competition from internet gaming will continue to grow and intensify in the United States. |
• | If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations. |
• | Regulators at the federal and provincial level in Italy are monitoring and restricting the issuance and renewal of gaming licenses which could have an adverse effect on our growth. |
• | Our inability to acquire such additional location rights or operators or any restrictions, could result in an adverse effect on our operating results. |
• | Our records and submissions to regulatory agencies may contain inaccurate or unsupportable submissions which may result in an under or overstatement of our revenues and subject us to various penalties and may adversely affect our operations. |
• | We may become the subject of Italian federal and provincial investigations in the future . |
• | Our current operations are international in scope creating a variety of potential operational challenges. |
• | We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations. |
Risks Related to Ownership of our Securities
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• | Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. | |
• | Future sales of shares of our Common Stock or the perception in the public markets that these sales may occur, may depress our stock price. | |
• | We may issue additional shares of Common Stock and preferred stock without stockholder approval, which would dilute the current holders of our Common Stock. | |
• | The rights of the holders of our Common Stock may be impaired by the potential issuance of preferred stock. | |
• | If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline. | |
• | Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our Common Stock. | |
• | Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval. | |
• | Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. | |
• | Our certificate of incorporation has an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against us. | |
• | We do not intend to pay cash dividends on our shares of Common Stock so any returns will be limited to the value of our shares. | |
• | An active trading market for our Common Stock may not be maintained. | |
• | Warrants that we have issued are speculative in nature and have certain provisions that could deter an acquisition of our company. |
Corporate Information
Elys Game Technology, Corp. is a Delaware corporation incorporated on August 26, 1998. On November 2, 2020, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Certificate of Incorporation to reflect our corporate name change from “Newgioco Group, Inc.” to “Elys Game Technology, Corp.” On November 6, 2020, we filed a Certificate of Correction (“Certificate of Correction”) to the Certificate of Amendment to correct and delete the errant references in the Certificate of Amendment regarding a stockholder meeting.
We currently maintain an executive suite situated at 107 E. Warm Springs Road, Las Vegas, Nevada 89119, and the offices of our wholly owned subsidiaries are located in Canada, Italy, Malta, Colombia and Austria. Our telephone number is 1-628-258-5148. Our corporate website address is www.elysgame.com. The information contained on our website is not incorporated by reference into this registration statement, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statement or in deciding whether to purchase or sell our securities.
We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “New Gioco”, “NewAleabet”, “OriginalBet”, “LovingBet” and “Elys.” Solely for convenience, the trademarks, service marks and trade names in this registration statement are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statement are the property of their respective owners.
THE OFFERING
Securities offered by the Selling Stockholder | Up to 3,166,227 shares of Common Stock | |
Common Stock Outstanding prior to this offering | 26,860,810 shares of Common Stock(1) | |
Common Stock to be outstanding after this offering, assuming exercise of all of the Warrants issued pursuant to the Purchase Agreement | 30,027,037 shares | |
Terms of the offering | The Selling Stockholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. See “Plan of Distribution.” | |
Use of Proceeds | We will not receive any proceeds from the sale of the shares of Common Stock by the Selling Stockholder. We may receive up to approximately $3.0 million in aggregate gross proceeds from cash exercise of the Warrants, based on the per share exercise price of the Warrants. Any proceeds we receive from the exercise of the Warrants will be used for working capital and other general corporate purposes. See “Use of Proceeds.” | |
Risk Factors | Investment in our securities involves a high degree of risk and could result in a loss of your entire investment. See “Risk Factors” beginning on page 9 of this prospectus. | |
Nasdaq Capital Market Symbol | Our Common Stock is listed on the Nasdaq Capital Market under the symbol “ELYS.” |
(1) | Does not include the shares of our Common Stock underlying the Warrants. |
Except as otherwise indicated herein, the number of shares of our Common Stock to be outstanding after this offering is based on 26,860,810 shares of Common Stock outstanding as of August 25, 2022 and excludes:
● | 2,278,438 shares of our Common Stock issuable upon the exercise of outstanding stock options with a weighted average exercise price of $2.90 per share as of July 31, 2022; |
● | 4,066,261 additional shares of our Common Stock reserved for future issuance under our equity incentive plans as of July 31, 2022; and |
● | 3,664,168 shares of our Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $1.17 per share as of July 31, 2022. |
RISK FACTORS
In addition to the other information contained in this registration statement, the following risk factors should be considered carefully in evaluating the Company. Our business, financial condition, liquidity, or results of operations could be materially adversely affected by any of these risks. Accordingly, when we refer to “our operators” below, it is with reference to operators that we currently own or are in the process of acquiring or may acquire in the future, regardless of the level of ownership or operators that are involved in joint ventures with us. The risks and uncertainties described below are not the only ones facing our company, additional risks and uncertainties not presently known to us or that we currently consider immaterial may also have an adverse effect on us. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially and adversely affected.
Risks Related to our Financial Condition
The effects of the COVID-19 pandemic have strained and negatively impact our businesses and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain.
The outbreak and spread of COVID-19 and the related adverse public health developments, have adversely affected work forces, economies and financial markets globally. The outbreak had caused the closures of physical locations throughout Italy where we provide our gaming services. Although most major sporting events and leagues have recommenced, the suspension of professional sports competitions throughout the world negatively impacted our ability to offer sports gaming products, and COVID-19 could have a continued material adverse impact on economic and market conditions and trigger a period of continued global economic slowdown, especially in light of potential subsequent waves or new strains of the virus. Our revenue depends on the continuation of major league sports and other sporting events, and we may not generate as much revenue as we would have without the cancellations or postponements that occurred in the wake of COVID-19.
In response to the spread of COVID-19 as well as guidance from public health directives, and orders of national and local government and health authorities, we had implemented work-from-home policies to support community efforts to reduce the transmission of COVID-19 and protect employees. We implemented a number of measures to ensure employee safety and business continuity. Business travel was suspended, and online and teleconference technology was and still is used to meet virtually rather than in person. The effects of the governmental orders and our work-from-home policies had negatively impact productivity, disrupted our business and delayed our progress in implementing our business plan and our ability to conduct our business in the ordinary course. Our operations have mostly resumed normal operations within local government guidelines.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 outbreak may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of any future outbreaks, additional travel restrictions and the reimplementation of social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. We do not yet know the full extent or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could continue to impact on our business.
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We have a limited operating history with respect to our gaming operations upon which you can evaluate our prospects and our potential value. We began our gaming operations in 2014, when we completed the acquisition of Multigioco, a corporation organized under the laws of the Republic of Italy, which is now our wholly owned subsidiary and was granted its ADM Comunitaria GAD (Online Gaming) license on July 4, 2012. As a result of the acquisition of Multigioco, our principal business became a licensed leisure gaming operator offering web-based and land-based sports betting, lottery and gaming products for our customers. The subsidiary that owns our Platform, Odissea, was acquired by us along with our Austrian bookmaker subsidiary, Ulisse in June 2016. In January 2019, we acquired Virtual Generation, a company that owns and has developed a virtual gaming software platform and we acquired US Bookmaking in July 2021. In addition, we commenced processing sports bets in the U.S. on a B2B basis in Washington D.C. in October 2021. Therefore, it is difficult to evaluate our business. If we cannot successfully manage our business, we may not be able to generate future profits and may not be able to support our operations.
The likelihood of our success and performance must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the highly competitive environment in which we operate.
We have incurred substantial losses in the past and it may be difficult to achieve profitability.
We have a history of losses and are anticipated to incur additional losses in the development of our business. For the year ended December 31, 2021, we had a net loss of $15.1 million after an intangible impairment charge of $17.4 million and a revised contingent purchase consideration credit of $11.9 million and a net loss of $6.4 million for the six months ended June 30, 2022. As of June 30, 2022 and December 31, 2021 we had accumulated deficits of $54.6 million and $48.2 million, 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.
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, 2021 and as of June 30, 2022 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 to helping 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.
If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected.
We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. We continue to embark on an aggressive roll out of our operation in the U.S. market over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. Accordingly, we will need capital to implement our business plan, and may seek to finance operator acquisitions and development projects through bank, debt or equity financings. Disruptions to financial markets or other challenging economic conditions may adversely impact our ability to complete any such financings or the terms of any such financings may be unacceptable or unfavorable to us. To the extent that we issue equity securities in connection with our proposed acquisition, our current stockholders will experience dilution of their holdings. To the extent we incur debt, we may be subject to restrictive covenants that impact our ability to conduct our business. We can provide no assurance that we will be able to obtain financing necessary to implement our business plan or that any such financing will be on terms acceptable to us or be sufficient to fund existing operations over the next twelve months from the date hereof.
If we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over 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 discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping 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 Common Stock could drop significantly.
We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities, which bank credit facilities may not be available at reasonable terms, if at all.
We have recently initiated an ambitious investment strategy including taking steps to enter the U.S. market which has led to an increase in expenses. Our ability to execute our growth plan is dependent upon our ability to generate profits from operations in the future, bank credit facilities and/or our ability to obtain additional financing and such financing may not be available on reasonable terms, if at all.
Risks Related to our Business
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in U.S. trade policy and European policies could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
· | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes; |
· | a global or regional economic slowdown in any of our market segments; |
· | changes in government policies and regulations affecting the Company or its significant customers; |
· | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether; |
· | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs; |
· | postponement of spending, in response to tighter credit, financial market volatility and other factors; |
· | rapid material escalation of the cost of regulatory compliance and litigation; |
· | difficulties protecting intellectual property; |
· | longer payment cycles; |
· | credit risks and other challenges in collecting accounts receivable; and |
· | the impact of each of the foregoing on outsourcing and procurement arrangements. |
USB has had limited operations to date.
USB has had limited operations to date. USB is subject to many of the risks common to an entity in operations for only a short number of years, including its ability to implement its business plan, market acceptance of its proposed business and products, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of its ability to generate revenues. There is no assurance that its activities will be successful or will result in any revenues or profit, and the likelihood of its success must be considered in light of the stage of its development. Even if it generates revenue, there can be no assurance that it will be profitable. In addition, no assurance can be given that it will be able to consummate its business strategy and plans, as described herein, or that financial, technological, market, or other limitations may force it to modify, alter, significantly delay, or significantly impede the implementation of such plans, including due to COVID-19.
If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted, and it could result in the impairment of the carrying value of a substantial portion of our assets.
Our ability to generate revenue from gaming operations in Italy is dependent upon our ability to maintain our Italian online and land-based licenses. We currently hold three gaming licenses upon which our business is dependent: a Bersani license, a Monti license, and a GAD license. Each of the three licenses that we hold can be terminated by the regulator at any time if we fail to comply with their regulations. In addition, our GAD license that was issued to Multigioco in 2011 is up for renewal in 2022 and our Bersani and Monti land-based licenses that provides rights to seven corners and three agencies is currently up for renewal at such time as the ADM should determine (which is expected to occur between 2022 and 2023). Insofar as the renewal process for licenses is conducted through a call to tender auction process, there is no guarantee that we will be the highest bidder at auction and therefore there is no guarantee that our licenses or location will continue to operate. In addition, although our software is currently certified for use in Italy and in the U.S. for land-based application, any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify. We have also obtained our first U.S. based license from the Office of Lottery and Gaming in the District of Columbia. If we are unable to renew our licenses or obtain new licenses or software recertification, our business would be materially adversely impacted, and we may need to impair the carrying value of a substantial portion of our assets.
In order to expand our land-based operations in Italy, we will be required to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our operating results.
Rights to online and land-based licenses are only available in Italy at limited times when licenses are being renewed. In addition, the maximum number of land-based location rights that any one operator may bid on at auction is 20% of the total market being auctioned. Due to such limitations on acquiring new location rights in Italy, our ability to expand the number of land-based locations that we operate will depend in large part upon our ability to acquire operators that hold land-based licenses and location rights. We expect a significant portion of our additional revenue to be derived from gaming revenue earned by operators that we have recently acquired or will acquire in the future. Although the operators which we have acquired and those that we acquire in the future may have active gaming licenses and location rights, we can provide no assurance that the existing license and location rights of any particular operator we have acquired or that we acquire in the future will be renewed or retained or that we will be able to acquire additional operators and increase our client base. If we are restricted from acquiring target operators or their client base, our operating results may will be adversely affected.
If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected.
Our retail leisure betting business, website and web-shops operate in an industry that is subject to:
· | rapid technological change; | |
· | the proliferation of new and changing online gaming sites; | |
· | frequent new product introductions and updates; and | |
· | changes in customer preferences and demands. |
If we fail to anticipate and effectively respond to any of the above changes, the demand for our products and services that we currently offer or that we may offer in the future may be reduced. Additionally, increasing incremental sales to our current customer base will require additional sales and marketing efforts, which may not be successful. Any failure to attract new customers or maintain and expand current customer relationships will have an adverse effect on our business and results of operations. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction and failure to attract and retain consumers of our products which could have a material adverse effect on our business, financial condition and operating results.
If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected.
We anticipate that the future growth and success of our business will be dependent upon our successful acquisition of operators and development of new technologies, such as our acquisition of Virtual Generation and US Bookmaking. We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. The difficulties and risks associated with the integration of the operations of new operators into our existing business, include:
· | the possibility that we will fail to implement our business plans for the integrated company, including as a result of new legislation or regulation in the gaming industry that affects the timing or costs associated with our operations or our acquisition plans; | |
· | possible inconsistencies between our standards, controls, procedures, policies and compensation structures and those of operators that we acquire; | |
· | the increased scope and complexity of our operations following the acquisition of multiple operators; | |
· | the potential loss of key employees and the costs associated with our efforts to retain key employees; | |
· | provisions in contracts that we and the acquired operators have with third parties that may limit our flexibility to take certain actions; | |
· | risks and limitations on our ability to consolidate the corporate and administrative infrastructures of new operators with our existing infrastructures; and | |
· | failure to discover liabilities of operators prior to our acquisitions of such operators; and the possibility of unanticipated delays, costs or inefficiencies associated with the integration of operations of new operators with our existing operations. |
As a result of these difficulties and risks, we may not be able to successfully grow our business.
If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted.
In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, and technology and content providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be more effective in providing incentives to third parties to favor their products or services or to prevent or reduce the use of our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our solutions by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer.
We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us.
Our business strategy includes expanding our products and services and we may seek acquisitions of synergistic companies to do so. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuance of equity securities; the potential incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diverting our management’s attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired companies.
We may misjudge the value or worth of an acquired product, company or business. In addition, our future success will depend in part on our ability to integrate and manage the associated acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require a substantial capital investment by us. We may not have the necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our preferred or Common Stock, which could dilute each current shareholder’s ownership interest in our company. Our operating results and financial condition will be adversely affected if we fail to implement our business strategy or if we invest resources in a strategy that ultimately proves unsuccessful.
We derive a significant portion of our revenue from gaming sales through our website and websites of our betting Platform clients. A decline in the popularity of our gaming websites or those of our Platform clients will negatively impact our business and risk our future growth.
We currently derive and expect to continue to derive substantially all of our primary source of revenue and service fees from the sales of gaming products and services sold through our website or websites operated by clients of our betting Platform. As such, the growth and market demand for our products and services are dependent upon, among other things, our ability to attract and retain new users and having existing users increase their activity on these websites. If we are unable to maintain or grow our revenue from sales through our website and our client’s websites, our future growth and revenues may be adversely affected.
Because our gaming operations are currently concentrated inwithin Italy, we are subject to greater risks than a single industry and geographic area (Italy)gaming company that is more geographically and internationally diversified.
Due to the fact that our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. As such, our business may be significantly affected by international, nationalrisks common to the Italian leisure betting market. For example, the changing government regulations on Italian gaming licenses or on the tolerance toward European licenses, as well as general economic conditions in Italy and local economic conditions. A downturnthe impact of any events that disrupt our ability to offer our products and services can adversely affect our business. We cannot control the government process that awards domestic gaming licenses to operators or the tolerance of allowing other European license holders to operate in Italy. Reductions in the overall economynumber of licenses and frequency of issuing licenses by any government regulator can impact our ability to operate our business.
Our current expansion strategy, which includes expansion through Virtual Generation in the various countries in which it operates and in the United States through the use of our Platform certifications, may be difficult to implement because the licensing and certification requirements to operate in the United States are complex and other countries are currently indeterminable.
Our current expansion strategy includes soliciting existing licensed operators in the United States offering sports betting in states that allow sports betting to use our Platform. Furthermore, we have analyzed the technical specifications checklist supplied by GLI to verify that coding in our online product meets the functional specifications set forth in the GLI-33 standards (The Gaming Laboratories International technical standard for event wagering systems). In September 2020, we obtained GLI-33 certification on our land-based sports betting platform and commenced processing sports bets in the U.S. on a B2B basis in Washington D.C. in October 2021. We also began the process of licensing our platform in other States that allow sports betting. However, before being able to commence operations in any state we will be required to obtain licenses and other governmental approvals and there can be no assurance that we will be able to do so. Each state has its own approval process and approval in one state does not guarantee approval in any other state. We also intend to expand our operations through Virtual Generation in the various countries in which it operates; however, to date we have not had operations in most of those countries and there can be no assurance that our expansion in those countries will be successful.
We depend upon our officers and other key employees. Our inability to retain such officers and key employees or economyrecruit additional qualified personnel may have a material adverse effect on our business.
Our future operations and successes depend in a specific region such as Italy or a reductionlarge part upon the continued service of our officers and other key employees. Changes in demand for gaming in such area, mayour management could have an adverse effect on our business. We are dependent upon the active participation of several key management personnel all of whom provide our strategic direction. Any failure to retain our key management could negatively affect our ability to recruit and retain personnel. We do not carry key person life insurance on any of our senior management or other key personnel. In addition, several members of our key management personnel are Canadian and Italian citizens. If they become unable or ineligible to legally travel to and work in the United States, their ability to perform some of their duties for our company could be materially adversely affected.
We must hire highly skilled technical personnel as employees and/or as independent contractors in order to develop our products. As of the date of this prospectus, we have 97 employees and 16 independent contractors. The competition for highly skilled technical, managerial and other personnel is intense and we may not be able to retain or recruit such personnel. Our recruiting and retention success is substantially dependent on our ability to offer competitive salaries and benefits to our employees. We must compete with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and contractors. To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits offered to employees in order to attract and retain such personnel. The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results. If we fail to attract and retain the technical and managerial personnel, we need to be successful, our business, operating results and financial condition orcould be materially adversely affected.
If we are not able to maintain and enhance our brand, our business, operating results and financial condition may be adversely affected.
We believe that maintaining and enhancing our reputation for our advanced, cost effective sports betting and gaming technology software is critical to our relationships with our existing customers and operators and to our ability to attract new customers and operators. We also believe that the importance of operations.brand recognition and software creativity will increase as competition in our market increases. We cannot predict the effect or duration of an economic slowdown in Italy ordevote significant resources to developing and maintaining our brand and innovative betting technology leadership, with a focus on identifying and interpreting emerging trends in the market, shaping and guiding industry dialogue, and expanding the adoption of online sports betting and gaming software solutions. Our brand promotion activities may not ultimately be successful or yield increased revenue. In addition, independent industry or the impact such slowdown may have on the demand foranalysts provide reviews of our leisure gamingplatform, as well as products and services.services offered by our competitors, and perception of our betting platform in the marketplace may be significantly influenced by these reviews. If economic conditions deterioratethese reviews are negative, or less positive as compared to those of our consumers will have less disposable income to spend on wagerscompetitors’ products and services, our brand and business may be adversely affected.
Intense competition inThe promotion of our brand requires us to make substantial expenditures, and we anticipate that the leisure gaming industryexpenditures will increase as our market becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers and operators or fail to attract potential new customers and operators, all of which would adversely affect our revenuebusiness, results of operations and profitability.financial condition.
We currently depend on and may continue to be dependent on third parties to provide certain components and products we distribute through our online gaming platform, and any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations.
We operate in a highly competitive environment and we compete for operators, customers and advertiserscurrently depend on third parties to provide some products through our Platform. The costs associated with numerous well-established leisure gaming operators, as well as numerous smaller and newer gaming website operators. Many of our principal competitors have substantially longer operating histories, greater financial, technical, marketing or other resources, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution and presence than we have. Our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can by integrating or bundling such products with their other product offerings or may develop new technologies or services that are more attractive to other operators or our customers. Acquisitions and consolidation in our industry may provide our competitors with even more resources orrelying on third parties may increase the likelihood of our competitors offering bundled or integrated products with whichoperating and development costs and negatively affect our ability to operate because we cannot effectively compete. New innovative start-upscontrol the developer's personnel, schedule or resources. We may experience delays in finalizing Platform updates. In addition, our reliance upon third party developers exposes us to risks, including reduced control over quality assurance and existing large companies that are making significant investments in researchcosts of development. If any of the foregoing occurs, we could lose our current and development could also launch new products and services that are competitive with ours and that could gain market acceptance quickly.prospective customers. In addition, we face potential competitionmay be required to rely on certain technology that we license from participants in adjacent marketsthird-parties, including software that we integrate and use with software that we may enter our markets by leveraging related technologies and partnering withdevelop internally. We cannot provide any assurances that these third-party technology licenses will be available to us on commercially reasonable terms, if at all. The inability to establish any of these technology licenses, or acquiring other companies or providing alternative approaches to provide similar results.
With the introductionloss of new technologies, the evolution of our Platform and new market entrants, we expect competition to intensify in the future. Increased competition generallysuch licenses if established, could result in reduced sales, reduced margins, lossesdelays in completing any Platform updates or the failurechanges until equivalent technology can be identified, licensed and integrated. Any such delays could materially adversely affect our business, operating results and financial condition.
Specifically, our agreements with Microgame and SNAI to develop and operate some components of our Platformgaming products and process certain land-based retail transactions is important to achieve or maintain more widespread market acceptance,our operations. If we fail to comply with any of which could harmthe terms or conditions of any such agreement, Microgame or SNAI may terminate our business.agreement or if such agreement expires and we are unable to find a suitable replacement, our business, operating results and financial condition would be materially adversely affected.
We expect that competitiondepend on payments from internetthird-party service providers, including government regulated gaming will continue to grow and intensify in the United States.
We intend to expand the use of our Platform in the United States; however, that will be dependent upon changes in legislation and we expect that we will face increased competition from other leisure betting operators as the potential for legalized internet gaming continues to grow. Several states in the United States are currently considering legislation that would legalize internet gaming at the state level. As a result of the Justice Department’s (“DOJ”) December 2011 opinion concerning the applicability of the Wire Act to internet gaming, certain states including Nevada, Delaware and New Jersey have enacted legislation to authorize various forms of intrastate internet gaming. In addition, the recently revised DOJ opinion on the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) and competition from internet lotteries and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert customers from our products and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic customers as a result of initiatives in some states to consider legislation to legalize intrastate internet wagering. There have also been proposals that would specifically legalize internet gaming under federal law.agencies. If we are unable to executecollect such payments or these payments decrease or do not increase as our U.S. strategy,costs increase, our financial condition and operating results may be adversely affected.
We depend, in part, on private entities and regulated third-party sources of payment for the gross gaming revenue earned by our operators. The amount our operators receive for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including future changes to the payment systems, the cost containment and utilization decisions of third-party service providers and the global economy. We have no assurance that future changes to betting odds from data providers for sporting events, table rake from poker providers and tax rates on game offerings, cost containment measures implemented by private third-party service providers, or other factors affecting payments for gaming services or our ability to collect such payments will not adversely affect our, financial condition and operating results.
If we have a security incident or breach involving unauthorized access to customer data, our Platform may be perceived as lacking sufficient security, customers may reduce their use of, or stop using our Platform and we may incur significant liabilities
Our Platform involves the storage and transmission of our customer’s confidential and proprietary information, which may include the personal data and information on their customers, players, suppliers and agents. As a result, unauthorized access or use of customer data could expose us to regulatory actions, litigation, investigations, remediation costs, damage to our reputation and brand, disclosure obligations, loss of customer and partner confidence in the security of our solutions and resulting fees, costs, expenses, loss of revenues, and other potential liabilities. While we have security measures in place designed to protect the integrity of customer information and prevent data loss, misappropriation, and other security breaches, if these measures are inadequate or are compromised as a result of third-party action, including intentional misconduct by computer hackers, theft, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liabilities. Cybersecurity challenges, including threats to our IT infrastructure or those of our customers or third-party providers, are often targeted at companies such as ours, and may take a variety of forms ranging from malware, phishing, ransomware, man-in-the-middle attacks, session hijacking, denial-of-service, password attacks, viruses, worms and other malicious software programs or cybersecurity attacks to “mega breaches” targeted against hosted software and cloud based IT services. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. Because cybersecurity attacks and techniques change frequently, we may be unable to anticipate reactthese techniques or implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate their business with us or penetrate the U.S. marketswitch their business to a competitor, result in a timely manner, our competitive position could weaken,reputational damage, cause us to pay remediation costs or issue service credits or refunds to customers for improper bets or false claims of improper bets, or result in lawsuits, regulatory fines or other action or liabilities, which could adversely affect our business and results of operations.
If we failMany states in the United States as well as foreign governments have enacted laws requiring companies to comply with applicable lawsprovide notice of data security breaches involving certain types of personal data, and regulations, we could suffer penalties orsignificant fines on companies involved in such incidents may be required to make significant changes to our operations.imposed. In addition, changessome of our regulators and certifying agents contractually require notification of data security breaches. Security compromises experienced by us or by our competitors may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in lawsour industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new clients, cause existing clients to switch to a competing betting software provider, or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and regulations with respect to the gaming industry, and the application or interpretation of existing laws and regulations applicable to our operations may have a material adverse effect onadversely affect our business financial condition and results of operations.operating results.
Privacy concerns and domestic or foreign privacy laws or regulations may result in significant costs and compliance challenges, reduce demand for our solutions, and adversely affect our business.
Our business is highly regulated,clients can use our Platform to collect, use and store certain personal data regarding their agents, employees, players/customers and suppliers. National and local governments, agencies, and authorities in the countries in which we are subject to manyand our clients operate have adopted or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of personal data obtained from consumers and individuals, which could impact our ability to offer our solutions in certain jurisdictions or our customers’ ability to deploy our solutions globally. Privacy-related laws are particularly stringent in Europe. If we or our third-party sub-processors fail to adequately comply with privacy-related laws, regulations and standards, it may limit the use and adoption of our solutions, reduce overall demand for our solutions, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Moreover, if we or our third-party sub-processors fail to adhere to adequate data protection practices around the federal, provincialusage of our clients’ personal data, it may damage our reputation and local government levelsbrand.
In 2016 the EU adopted a new regulation governing data privacy called the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR establishes requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to four percent of worldwide annual handle or 20 million euro, whichever is higher. Customers, particularly in the jurisdictionsEU, are seeking assurances from their suppliers, including us, that their processing of personal data of EU nationals is in whichaccordance with the GDPR, and if we operate. Theseare unable to provide adequate assurances to such customers, demand for our solutions and our business could be adversely affected. In addition, we must continue to seek assurances from our third-party subprocessors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. Compliance with privacy laws and regulations, requireparticularly the GDPR, that are applicable to our operatorsbusiness and the businesses of our clients is costly and time-consuming. Such laws and regulations may adversely affect our clients’ ability and willingness to process, handle, store, use and transmit personal data of their employees, players/customers and suppliers, which in turn could limit the use, effectiveness and adoption of our solutions and reduce overall demand. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness or use of our betting Platform. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, including challenges to onward transfer mechanisms such as Privacy Shield and model contractual clauses, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, as well as limitations on data collection, use, disclosure and transfer for us and our operations meet various licensing, certification and other requirements, including those relating to:clients.
In addition, | ||
Furthermore, the rulesother bases on which we and regulations governingour clients rely for the gaming industrytransfer of data, such as certain contractual clauses, continue to be subjected to regulatory and judicial scrutiny. If we or our clients are evolvingunable to transfer data between and subject to interpretation in the territoriesamong countries and regions in which we operate, and the territories in which we may operate in the future. Promulgation of new laws, changes in current laws, and changes in interpretations by courts and other government agencies of existing laws, mayit could decrease demand for our betting software solutions, require us to modifyrestrict our business operations, and impair our ability to maintain and grow our client base, expand geographically and increase our revenues.
If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected.
We have historically relied on retail agents, affiliates and partners, such as referral partners, resellers, and integration partners (collectively “partners”), to attract new clients and sell additional services to our existing clients and players. Our agreements with our partners are generally non-exclusive and some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships, and they may not regard us as to be of significant importance for their businesses. Our partners may terminate their respective relationships with us with limited or ceaseno notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our Platform. We may also terminate our relationships with partners who choose to work with our competitors or for other reasons. Moreover, we may have difficulty attracting effective partners to sell our Platform to other clients and players, particularly given our smaller size relative to larger franchise and well-established betting operators. If we are not able to maintain and grow our partner relationships, our business could be adversely affected.
Our partners also may impair our ability to enter into other desirable strategic relationships. If our partners do not effectively market and sell our betting products and Platform solution, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our clients and players, our ability to sell our Platform and our business may be adversely affected. Similarly, the loss of a substantial number of our partners, and our possible inability to replace them, the failure to recruit additional partners, any reduction or delay in their sales of our betting Platform, or any conflicts between partner sales and our direct sales and marketing activities could materially and adversely affect our business and results of operations.
If we fail or are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage, proprietary technology and our brand.
Our success is dependent, in part, upon protecting our proprietary technology which supports our betting Platform and other operations. Compliance with changes in suchWe rely on a combination of proprietary programming and source codes, copyright, trademarks, service marks, trade secret laws and regulationscontractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may increasebe inadequate. We will not be able to protect our operating expenses.intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We do not have any patent applications pending anywhere we operate and may not be able to obtain patent protection for the technology covered in any future patent applications should we enter such applications. In addition, our failureany patents, if any, that are issued to comply with current or future laws and regulations may expose us to significant liabilities. Our inability or failure to comply with laws and regulations that govern the gaming industry in the territoriesfuture may not provide us with competitive advantages or may be successfully challenged by third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our solutions and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of jurisdictions outside the United States. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our solutions and proprietary information may increase.
Although we enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, we do not currently enter into confidentiality and invention assignment agreements with all of our employees and consultants and as a result, our business may be harmed. No assurance can be given that the agreements we enter into will be effective in whichcontrolling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our solutions.
In order to protect our intellectual property rights, we operate may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our licenses whichintellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or harm our business and reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we would be able to license that technology on commercially reasonable terms or at all from them. Any inability to license third party technology in the future would have a material adverse effect on our business or operating results and would adversely affect our ability to compete.
We have experienced rapid growth and organizational change in recent periods and if we fail to manage our growth effectively, we may be unable to execute our business plan.
We increased our number of full-time and part-time employees from 15 as of August 15, 2014 to 97 as of December 31, 2021 as we have expanded our operations, completed additional business acquisitions and experienced growth in number of customers and operators. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial conditionsand other resources. We intend to further expand our headcount and operations both domestically and internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significant additional investment in our infrastructure. We will be required to continually improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively, which could negatively affect our results of operations and overall business. In addition, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross margins or operating expenses in any particular quarter. Moreover, if we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our software solutions may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.
We may not be able to successfully scale our technology and manage the growth of our business if we are unable to improve our internal systems, processes and controls.
We need to continue to improve our internal systems, processes and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud. We have licensed technology from third parties to help us improve our internal systems, processes and controls. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could impair our ability to provide our solutions or professional services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our solutions or increase our technical support costs.
Our estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not all geographic or regional metrics covered by our market opportunity estimates will necessarily implement regulated or online gaming at all, and in some cases many potential customers and operators may choose to continue using their existing betting platform provider, or choose a solution offered by our competitors. It is impossible to build every product feature that every customer wants, and our competitors may develop and offer features that our solutions do not offer. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of customers covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry. Furthermore, we have historically focused our selling and marketing efforts in regulated markets in Europe, specifically Italy. In order for us to successfully address the broader market opportunity, we will need to successfully market and sell our betting Platform to larger enterprise customers and also further expand our international presence. If any of these risks materialize, it could adversely affect our results of operations.
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 years ended December 31, 2021 and 2020, we spent approximately $2.0 million and $1.7 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. This company is creating a custom-made platform for us which will make us industry leaders in the market. We have made and expect to continue to make significant investments in development and related opportunities, such as our acquisition of US Bookmaking, 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.
If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays, which may adversely affect our business.
We derive significant revenue from the use of our websites and Platform. In the past, we have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our Platform. As we transition to larger infrastructure and pursue geographic expansion, we may experience interruptions, delays and outages in service and availability, and we may experience a decline in our gross gaming margin in the near term reflecting the costs of this transition.
We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, vendor issues, human or software errors, viruses, security attacks, fraud, general Internet availability issues, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation, business and results of operations.
Regulators atWe may not have exclusive control over the federal and provincial level in Italy are monitoring and restricting the issuance and renewaldistribution of gaming licenses which could have an adverse effect on our growth.
Federal regulators in Italy are enforcing new restrictions to reduce the number of independent operators in the gaming industry, and a moratorium on new licenses for gaming operators in Italy has been implemented. The success of our business depends upon our ability to acquire operators in new regional locations throughout Italy. The restrictions on the licensing of new operators may make it more difficult for us to locatecash from any operators that we may acquire in the future and may be ableunable to acquire. Our inabilitycause all or a portion of the cash of such operators to be distributed to us.
We anticipate having a complete or a majority ownership in the operators we may acquire in the future. We expect any future agreements we execute with such operators will provide for the distribution of available cash to us. However, it is possible that these agreements may impose limits on the ability of our acquired operators to make distributions of cash to us. If we are unable to cause sufficient cash to be distributed from one or more of the operators we may acquire in the future, our ability to pay our obligations as they become due may be harmed.
If we acquire an operator that has made submission and expandreporting errors prior to our operations into new regional locations throughout Italyacquisition, we may be liable for such errors that may have a material adverse effect on our business.
Historical submissions and reporting errors in gaming accounts made by an operator we may acquire in the future, may require us to provide refunds to customers and may also subject us to civil penalties, which involve monetary damages. If operators we may acquire in the future overpaid their obligation, it is unlikely that we would be able to collect funds that were owed to the operator prior to our acquisition. There can be no assurance that a compliance audit will disclose any future liabilities for underpayments or overpayments that any of our operators may have incurred.
If any executive officers or key personnel of operators we may acquire are unable to assist with the transition of operations and customers, our business may be adversely affected.
In connection with any potential acquisition of operators, we believe that it is necessary and financial condition.desirable to retain the services of executive officers and key personnel of such operators to assist with the transition and integration of operations and customers into our existing operations; however, no assurances can be given that such executive officers and key personnel will be willing and able to assist us with such transition and integration. In the event that such executive officers and key personnel are unable to assist us after the consummation of the future acquisition of an operator, we may need to hire additional personnel to assist with the transaction, which new personnel may not be readily available to us or on acceptable terms.
Our recordsAny violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.
The majority of our revenue is derived from operations outside the United States, which exposes us to complex foreign and submissionsU.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to regulatory agencies may contain inaccuratecompliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or unsupportable submissions whichretaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in an undersevere criminal and civil sanctions as well as other penalties, and the SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Violations or overstatementallegations of our revenues and subject us to various penalties andnon-compliance with any such laws or regulations may adversely affect our operations.
A major component of the regulatory environment is the interpretation of winnings and tax calculation procedures established by the ADM. Inaccurate or unsupportable submissions, inaccurate records for gaming coin-in or handle (turnover), client data and erroneous winning claims could result in inaccurate revenues being reported. Such errors are subject to correction or retroactive adjustment in later periods and may be reflected in financial statements for periods subsequent to the period in which the revenue was recorded. We may also be required to refund a portion of the revenue that we have received which, depending on its magnitude, may damage our reputation and relationship with regulatory agencies and may have a material adverse effect on our results of operations or cash flows.
The ADM in Italy conducts weekly account audits and sweeps for taxes in addition to random onsite inspections for online connection to the ADM network as well as searches for nefarious programming or routers which can alter the reporting requirements of the ADM. It is possible that our acquired operators will receive letters from ADM auditors requesting payment of fines for alleged violations and errors and as such will incur expenses associated with responding to, and appealing such requests, as well as the costs of paying any shortfalls in addition to the possible fines and penalties. Demands for payments can also occur even if an operator is acquired by means of an asset transfer. Our inability to dispute demands or pay requests for underpayments may have a material adverse effect on ourbusiness, performance, prospects, value, financial condition, and results of operations.
WeWar, terrorism, other acts of violence or natural or manmade disasters may becomeaffect the subjectmarkets in which we operates, our customers, our delivery of Italian federalsoftware and provincial investigations in the futurecustomer service, and could have a material adverse impact on our business, results of operations, or financial condition.
Our business may be adversely affected.
Both Italian federalaffected by instability, disruption or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and provincial government agencies have heightenednatural or manmade disasters, including famine, flood, fire, earthquake, storm or pandemic events and coordinated civilspread of disease. Such events may cause customers to suspend their decisions on using our products and criminal enforcement efforts as partservices, make it impossible for our customers to visit our physical locations, cause restrictions, postponements and cancellations of numerous ongoing investigations of gaming companies, as well as their executivessports events that attract large crowds and managers.public gatherings, and give rise to sudden significant changes in regional and global economic conditions and cycles. These investigations relateevents also pose significant risks to among other things diversion practices if an agent or store owner were to disconnect (i.e., remove ethernet plug from internet) the betting terminal or PC from the ADM network.
In addition, we may employ executives and managers, some of which may have worked at other gaming companies that are or may become the subject of ADM investigations and private litigation. Such executives and managers may be included in governmental investigations or named as defendants in private litigation. A governmental investigation of us, our executives or our managers could divert our management’s attention, result in significant expenses, as well as negative publicity and adversely affect our business.
Our current operations are international in scope and we are planning further geographic expansion, creating a variety of potential operational challenges.
We currently have an office location in Canada, a satellite office in the United States and business operations and offices in Europe and intend to open additional offices in the United States and possibility other countries. If we expand in the future, our offices, personnel and operations may be further dispersed around the world. In connection with such expansion, we may face a number of challenges, including costs associated with developing softwareto physical facilities and providing support in additional languages, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycles and difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries and a geographically and culturally diverse workforce and customer base. Failure to overcome any of these challenges could negatively affect our business and results of operations.
We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations.
We conduct transactions, including intercompany transactions, in currencies other than the U.S. dollar. As we grow our international operations, we expect the amount of our revenues denominated in foreign currencies to increase. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar could affect our reported revenues and operating results due to transactional and translational re-measurements that are reflected in our results of operations. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.
We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
Risks Related to Ownership of Our Securities
The price of our securities may fluctuate significantly.
An investment in our securities is risky and should be made only if an investor can withstand a significant loss and wide fluctuations in the market value of their investment. Some factors that may cause the market price of our securities to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this registration statement are:
In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our securities could decline for reasons unrelated to our business, financial condition and results of operations. Any of these factors may make it more difficult or impossible for investors to sell our securities or obtain a return on their investment. In the past, shareholders have instituted securities class action litigation against some companies following periods of market volatility. If we become involved in such securities litigation, we could, among other things, incur substantial costs and the attention of our management could be diverted from our business.
Future sales of shares of our common stock or the perception in the public markets that these sales may occur, may depress our stock price.
The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our common stock could decline. Any issuance of additional common stock, or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares. and make it more difficult for us to sell equity securities at any time in the future if at all.
We may issue additional shares of common stock and preferred stock without stockholder approval, which would dilute the current holders of our common stock. In addition, the exercise or conversion of currently outstanding securities would further dilute holders of our common stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common and preferred stock. We may issue shares of our common stock or preferred stock to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders’ ownership interest, which among other things would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our common stock or if our convertible debt holders convert their debt.
The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.
Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, would dilute the rights of our common stockholders and could be used to discourage, delay or prevent a change of control of our company, which could materially adversely affect the price of our common stock.financial results.
If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We currently do not have any analyst coverage. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if we should have analyst coverage and one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.
Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a de-listing of our common stock.
Our shares of common stock are currently listed on the Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the corporate governance requirements, filing annual and quarterly reports with the SEC on a timely basis, minimum bid price requirement or the minimum stockholder’s equity requirement, the Nasdaq Capital Market may take steps to de-list our common stock. Any such steps for de-listing would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase their common stock when they wish to do so. There can be no assurance can be given that we will be able to satisfy our continued listing requirements and maintain the listing of our common stock on the Nasdaq Capital Market. On July 2, 2020, we received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that as a result of our failure to file our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 before the deadline set forth under applicable regulations of the SEC), we no longer comply with Nasdaq’s continued listing requirements as set forth in Nasdaq Listing Rule 5250(c)(1). The notification letter stated that, under Nasdaq rules, we had 60 calendar days, or until August 31, 2020, to submit a plan to regain compliance with Nasdaq’s continued listing requirements and if Nasdaq accepts the plan, Nasdaq can grant an exception of up to 180 calendar days from the filing due date, or December 28, 2020, to regain compliance. On July 22, 2020, we filed our Quarterly Report on Form 10-Q for the three months ended March 31, 2020. There can be no assurance that in the future we will continue to satisfy the Nasdaq continued listing requirements.
Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.
Gilda Pia Ciavarella, the spouse of our Chief Executive Officer is the beneficial owner of 4,303,240 shares of our common stock and therefore our Chief Executive Officer is deemed to beneficially own approximately 35.1% of our outstanding shares of common stock on a fully diluted basis as of the date of the filing of this registration statement. As a result, Ms. Ciavarella, has the ability to effectively control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets and the ability to control the management and affairs of our company. In addition, other members of our senior management team beneficially own 19.9% of our outstanding shares of common stock on a fully diluted basis as of the date of the filing of this registration statement. Accordingly, this concentration of ownership might harm the market price of our common stock by:
Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control of our company. For example, our Board has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could materially adversely affect the market price of our common stock.
Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware. This provision may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, which could discourage potential takeover attempts, reduce the price that investors may be willing to pay for shares of our common stock in the future and result in our market price being lower than it would be without these provisions.
Our certificate of incorporation has an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against the Company.
Our certificate of incorporation provides that the Delaware Court of Chancery, to the fullest extent permitted by law, is the sole and exclusive forum for certain actions including claims in the right of our company brought by a stockholder that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity or as to which the Delaware corporate law confers jurisdiction upon the Court of Chancery of the State of Delaware.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law-based shareholder class actions, derivative suits and other intra-corporate disputes. Our management believes limiting state law-based claims to Delaware mitigate against the potential risk of another forum misapplying Delaware law is avoided. In addition, Delaware courts have a well-developed body of case law and we believe limiting the forum for the adjudication of any disputes will prevent costly and duplicative litigation and avoid the risk of inconsistent outcomes. Our Bylaws limit any stockholder’s ability to bring a claim in a forum it believes is favorable to shareholders in disputes with directors, officers or other employees.
The exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Although our certificate contains the choice of forum provision described above, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or our directors, officers, employees or stockholders, which may discourage such lawsuits against the Company and our directors, officers, employees or stockholders. Alternatively, if a court were to find this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.
We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
We effected a reverse stock split on December 12, 2019, which may decrease the liquidity of the shares of our common stock.
The liquidity of the shares of our common stock may be affected adversely by our recently effected reverse stock split given the reduced number of shares that is now outstanding following the reverse stock split. In addition, the reverse stock split increased the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.
Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors.
An active trading market for our common stock may not be maintained, or we may fail to satisfy applicable Nasdaq Capital Market (“Nasdaq”) listing requirements.
Our common stock is currently traded on Nasdaq, but we can provide no assurance that we will be able to maintain an active trading market for our shares on Nasdaq or any other exchange in the future. The fact that a significant portion of our outstanding shares of common stock is closely held by a few individuals, results in it being more difficult for us to maintain an active trading market. If there is no active market for our common stock, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all, our stock price could decline, and we may be unable to maintain compliance with applicable Nasdaq listing requirements.
Risks Related to this Offering
You will experience immediate and substantial dilution in the book value per share of the common stock you purchase.
The public offering price per unit will be substantially higher than the net tangible book value per share of our common stock immediately prior to the offering. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price when they purchased their securities. For a further description of the dilution that investors in this offering will experience, see “Dilution.”
In addition, to the extent that outstanding warrants or convertible debentures have been or may be exercised or converted or other shares issued, you may experience further dilution.
Our management will have broad discretion over the use of proceeds from this offering and may not use the proceeds effectively.
We intend to use the net proceeds from this offering for working capital and general corporate purposes. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for repayment of debt in the amount of $2,859,266 with the balance being used for general corporate purposes that may not improve our operating results or enhance the value of our securities.
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the amount of cash used in our operations, which can be highly uncertain, subject to substantial risks and can often change. Investors will be relying on our judgment regarding the application of the net proceeds of this offering.
The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term and intermediate-term, investment-grade, interest-bearing securities, investment grade securities and government securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Sales of additional shares of common stock, including by us or our directors and officers following expiration or early release of the lock-up period, could cause the price of our common stock to decline.
Sales of substantial amounts of our common stock in the public market, or the availability of such shares for sale, by us or by others, including the issuance of shares of common stock upon the exercise of outstanding options and warrants, could adversely affect the price of our common stock. In connection with this offering, we and our directors and officers have entered into lock-up agreements for a period of 180 days following this offering. We and our directors and officers may be released from the lock-up prior to its expiration period at the sole discretion of the representative of the underwriters. See “Underwriting.” Upon expiration or earlier release of the lock-up, we and our directors and officers may sell shares of our common stock into the market, which could adversely affect the market price of our common stock.
There is no assurance that we will not continue to experience volatility in our share price.
Our stock is thinly traded due to the limited number of shares available for trading on the Nasdaq, thus causing large swings in price. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and holders of our common stock may be unable to resell their securities at or near their original offering price or at any price. Our public offering price per unit may vary from the market price of our common stock after the offering. If an active market for our stock develops and continues, our stock price may nevertheless be volatile. If our stock experiences volatility, investors may not be able to sell their common stock at or above the public offering price per unit. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short period of time. As a result, our shareholders could suffer losses or be unable to liquidate their holdings.
Market prices for our common stock will be influenced by a number of factors, including:
Market price fluctuations may negatively affect the ability of investors to sell our shares at consistent prices.
The warrants are speculative in nature.
The warrants offered hereby do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price, subject to certain adjustments. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay an exercise price of $3.45 (based on an assumed public offering price of $2.76 per unit), or ____% of the public offering price of the common stock. Moreover, following this offering, the market value of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their public offering price. Furthermore, each warrant will expire five years from the original issuance date. In the event our common stock price does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
Holders of the warrants will have no rights as a common stockholder until they acquire our common stock.
Until holders of the warrants acquire shares of our common stock upon exercise of the warrants, the holders will have no rights with respect to shares of our common stock issuable upon exercise of the warrants. Upon exercise of the warrants, the holder will be entitled to exercise the rights of a common stockholder as to the security exercised only as to matters for which the record date occurs after the exercise.
There is no established market for the warrants to purchase shares of our common stock being offered in this offering.
There is no established trading market for the warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the warrants will be limited.
The exercise price of the warrants offered by this prospectus will not be adjusted for certain dilutive events.
The exercise price of the warrants offered by this prospectus are subject to adjustment for certain events, including, but not limited to, the payment of a stock dividend, stock splits, certain issuances of capital stock, options, convertible securities and other securities. However, the exercise prices will not be adjusted for dilutive issuances of securities and there may be transactions or occurrences that may adversely affect the market price of our common stock or the market value of such warrants without resulting in an adjustment of the exercise prices of such warrants.
Provisions of the warrants offered by this prospectus could discourage an acquisition of us by a third party.
In addition to the provisions of our certificate of incorporation and our bylaws, certain provisions of the warrants offered by this prospectus could make it more difficult or expensive for a third party to acquire us. The warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the warrants. These and other provisions of the warrants offered by this prospectus could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, in addition to historical information, certain 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”). Forward looking, that includes information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.prospectus or incorporated herein by reference.
You should read this prospectus and the documents we have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.
Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading “Risk Factors.Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2021 under the headings “Risk Factors” and “Business,” as updated in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus particularly our forward-looking statements, by these cautionary statements.
USE OF PROCEEDS
INDUSTRY AND MARKET DATA
This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We estimateobtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the net proceeds of this offering will be approximately $8.55 million, assuming the sale of 3,623,188 units at an assumed public offering price of $2.76 per unit (consisting of $2.759 per share of common stockresults and $0.001 for each accompanying warrant) after deducting the estimated underwriting discountestimates from our internal research are reliable, such results and estimated offering expenses payableestimates have not been verified by us, and excluding the proceeds, if any from the exercise of the warrants. We will only receive additional proceeds from the exercise of the warrants issuable in connection with this offering if the warrants are exercised at their exercise price and the holders of such warrants pay the exercise price in cash upon such exercise and do not utilize the cashless exercise provision of the warrants.
independent source.
A $0.25 increase (decrease) in the assumed public offering price of $2.76 per unit would increase (decrease) the expected net proceeds of the offering to us by approximately $833,333, assuming that the number of units sold by us remains the same. We may also increase or decrease the number of units we are offering. An increase (decrease) of 250,000 in the number of units sold in this offering would increase (decrease) the expected net proceeds of the offering to us by approximately $634,800, assuming that the assumed combined public offering price per unit remains the same.
We intend to use approximately $2,895,266 of the net proceeds from this offering to repay outstanding amounts (principal of $2,452,233 and accrued interest of approximately $443,033 owed under debentures that we issued in May 2018 and bear interest at a rate of ten percent (10%) per annum. The $2,452,233 of principal amount of debentures outstanding, includes debentures in the principal amount of $700,049 that were due May 31, 2020 and extended their maturity date to September 28, 2020 and debentures in the principal amount of $1,751,564 that matured on May 31, 2020 that were not formally extended and are in default. We intend to use the remaining net proceeds from this offering for working capital and general corporate purposes.
The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions.
We cannot predict with certainty all of the particular uses for the proceeds of this offering. Accordingly, we will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short-and intermediate-term, interest-bearing, investment-grade securities and government securities.
DIVIDEND POLICY
PROSPECTUS SUMMARY
We have never declared nor paid any cash dividends on our common stock,This summary highlights information contained elsewhere in this prospectus and currently intend to retaindoes not contain all of our cash and any earnings for usethe information that you should consider in making your investment decision. Before investing in our business and, therefore, do not anticipate paying any cash dividends onsecurities, you should carefully read this entire prospectus, including our common stock in the foreseeable future. Any future determination to pay cash dividends on our common stock will be at the discretion of the Board of Directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2020:
As of March 31, 2020 | ||||||||||||
Actual(1) | Pro Forma(1) | Pro Forma as adjusted(1) | ||||||||||
Cash and cash equivalents | $ | 6,828,398 | $ | 6,743,123 | $ | 12,397,857 | ||||||
Total assets | $ | 29,080,128 | $ | 28,994,853 | $ | 34,649,587 | ||||||
Total liabilities | $ | 18,876,761 | $ | 18,084,307 | $ | 15,189,041 | ||||||
Stockholders’ Equity: | $ | 10,203,367 | $ | 10,910,546 | $ | 19,460,546 | ||||||
Common stock, $0.0001 par value; 80,000,000 shares authorized, actual, 12,276,878 shares issued and outstanding, actual; as adjusted; 16,156,661 shares issued and outstanding | 1,227 | 1,253 | 1,615 | |||||||||
Additional paid-in capital | $ | 33,575,113 | $ | 34,282,266 | $ | 42,831,904 | ||||||
Accumulated other comprehensive income | $ | (288,747 | ) | $ | (288,747 | ) | $ | (288,747 | ) | |||
Accumulated deficit | $ | (23,084,226 | ) | $ | (23,084,226 | ) | $ | (23,084,226 | ) | |||
Total Stockholders’ Equity | $ | 10,203,367 | $ | 10,910,546 | $ | 19,460,546 | ||||||
Total capitalization | $ | 29,080,128 | $ | 28,994,853 | $ | 34,649,587 |
(1) On an actual basis as of March 31, 2020.
(2) On a pro forma basis to give effect to (i) the issuance of an additional 106,735 shares of common stock upon conversion of debentures in the aggregate amount of CDN$146,599 (approximately $103,853) that includes accrued interest thereon of CDN$12,599 (approximately $8,925),statements and the aggregate amount of $237,699related notes that includes accrued interest thereon of $37,699 subsequent to March 31, 2020; (ii)are incorporated by reference into this prospectus and the issuance of 149,860 shares of common stock as payment of the principal amount of €332,000 (approximately $365,627) owedinformation set forth under the terms of the Virtual Generation promissory note subsequent to March 31, 2020; (iii) the payment of €62,400 (approximately $70,128) under the notes issued to the sellers of Virtual Generation subsequent to March 31, 2020;headings “Risk Factors” and (iv) the payment of the aggregate amount of CDN$12,121 (approximately $9,087 at an exchange rate of $0.75) that includes accrued interest thereon of CDN$2,121 (approximately $1,590 at an exchange rate of $0.75) and the aggregate amount of $6,060 that includes accrued interest thereon of $1,060 under the debentures that matured May 31, 2020 and extinguishment of such debentures subsequent to March 31, 2020.
(3) On a pro forma as adjusted basis to give effect to the pro forma adjustments described in footnote (2) above and our receipt of estimated net proceeds from the sale of the units that we are offering at an assumed public offering price of $2.76 per unit (the assumed public offering price is $2.759 per share of common stock and $0.001 per accompanying warrant which is the last reported sale price of our common stock on The Nasdaq Capital Market on July 23, 2020), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the repayment of $2,895,266 for payment of principal and interest on debentures.
You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notesin each case included elsewhere in this prospectus. In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” “Elys” and the “Company” refer to Elys Game Technology, Corp. Except as disclosed in the prospectus, the financial statements and selected historical financial data and other financial information included in, or incorporated by reference into, this prospectus are those of Elys Game Technology, Corp.
Overview
Each $0.25 increase (decrease)
We currently provide our B2C gaming services in Italy through our subsidiary, Multigioco Srl (“Multigioco”), which operations are carried out via both land-based or online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”) that permits us to distribute leisure betting products such as sports betting, and virtual sports betting products through both physical, land-based retail locations as well as online through our licensed website www.newgioco.it or commercial webskins linked to our licensed website and through mobile devices. Management implemented a consolidation strategy in the assumed public offering price of $2.76 per unit would result in an incremental increase (decrease) in our cashItalian market by integrating all B2C operations into Multigioco and cash equivalents, working capital, total assets and stockholders’ equityallowed the Austria Bookmaker license that was regulated by $833,333, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 250,000 units offered by us would result in an incremental increase (decrease) in our cash and cash equivalents, working capital, total assets and stockholders’ equity by $634,800, assuming the assumed public offering price of $2.76 per unit remains the same, and after deducting the estimated underwriting discounts and commissions.
Austrian Federal Finance Ministry (“BMF”) to terminate.
We also provide bookmaking services in the U.S. market via our recently acquired subsidiary US Bookmaking in certain regulated states where we offer B2B bookmaking and platform services to our customers. Our intention is to focus our attention on expanding the U.S. market. We recently began operations 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 area of Washington, D.C., and in October 2021 we entered into an agreement with Ocean Casino Resort in Atlantic City and commenced operations in the state of New Jersey in March 2022.
If
Additionally, we provide B2B gaming technology through our 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 underwriters’ optiontwo 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 our Virtual Generation subsidiary. The Platform also provides seamless application programming interface integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to purchase additional sharesincorporate e-sports and daily fantasy sports providers. Management implemented 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.
Our corporate group is based in North America, which includes an executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Ontario 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.
For the period ended June 30, 2022, transaction revenue generated through our subsidiary Multigioco consisted of common stock and/or warrantswagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from usonline based betting web-shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated by our Platform is exercisedprimarily derived from bet and wager processing in full, as adjusted cashItaly through Multigioco, and cash equivalents, total stockholders’ equityin the U.S., through Elys Gameboard Technologies and total capitalization would be $13,777,857, $20,840,546,USB. Since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns in Italy subsided, management simplified our Italian footprint by focusing our investment towards the Multigioco operations and 36,029,587, respectively (assuming no exercisediscontinued Ulisse presence in Italy during the second quarter of 2021.
We believe that our Platform is considered one of the warrants).
newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a B2B basis, including expansion through Europe, South America, South Africa and the developing market in the United States. During the three and six months ended June 30, 2022 and 2021, we also generated service 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 recently acquired subsidiary, US Bookmaking. 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.
The numberWe operate two business segments in the leisure gaming industry and our revenue is derived as follows:
1. | Betting establishments |
Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. | Betting platform software and services |
SaaS based service revenue through providing our Platform and virtual sports products to betting operators.
This Management’s Discussion and Analysis includes a discussion of our operations for the three months and six months ended June 30, 2022 and 2021, which includes the operations of US Bookmaking for the three months and six months ended June 30, 2022.
Recent Developments
Financing
On June 15, 2022, we raised $3 million in gross proceeds and issued (i) an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock to a single investor (the “Investor”) in a registered direct offering, pursuant to a prospectus supplement to our common stock thatcurrently effective registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021 and (ii) in a concurrent private placement, warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share and expiration date of December 15, 2027, subject to customary adjustments thereunder. If after the six month anniversary of the issuance date there is no effective registration statement registering the shares underlying the Warrants for resale, then the Warrants are exercisable on a cashless basis. On July 12, 2022, the investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
Strategic agreements entered into with Lottomatica (currently known as G.B.O, S.p.A)
We entered into a Master Technology Development and License Agreement and a Technical Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based and on-line applications by Lottomatica in the U.S. and Canadian markets, as well as potentially worldwide. The contract is for a period of ten years, after which the source code will be outstanding immediatelyassigned to Lottomatica. An option was also granted to Lottomatica that after this offeringa period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to the SBP for €4.0 million.
The Technical Services Agreement was entered into with our subsidiary Odissea to provide engineering services, develop and deliver the software and provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement is for a period of ten years and is based on 12,276,878 sharescost plus a percentage of commonthe services provided.
In a separate Virtual Service Agreement entered into between our subsidiary Virtual Generation and Goldbet S.p.A., a subsidiary of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and us to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues.
In a separate Assignment Agreement entered into between our subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100 Sports Rights to Multigioco, which will allow us to expand our land-based distribution network to approximately 110 point-of-sale locations. We expect to open the additional 100 outlets over the remainder of the calendar year. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a minimal value.
Operational Developments
Management has implemented a strategic business initiative to reduce expenditures, improve efficiencies and maximize profitability within the underlying operating units. During the six months ended June 30, 2022, we managed to achieve a net income position of approximately $0.19 million in our European operations which consist of Multigioco, Odissea, Ulisse, Virtual Generation and Elys Technology Services, despite the closure of all of our Ulisse CTD locations in the prior year. Our U.S. USB subsidiary performance has been disappointing, producing a net loss of $1.16 million on revenues of $0.6 million for the six months ended June 30, 2022, primarily due to personnel costs which increased to $0.7 million and amortization of intangibles of $0.5 million. We are attempting to address this operational performance with the USB management team. Our other U.S. operation, Elys Gameboard, commenced operations in October 2021 and had produced a net loss of $0.37 million, with one operational customer. We are pursuing several new customers both in the Washington D.C. area as well as in Maryland and Ohio and once secured we expect to achieve profitable operations within the next twenty four months.
We are also taking steps to reduce corporate overhead and have restructured our operations by streamlining roles and reducing non-essential operating expenditures. Corporate overhead expenditures, net of one-time severance and restructuring expenses of $1.2 million, and non-cash option expense of $1.17 million were reduced by approximately $0.58 million during the six month period ended June 30, 2022. Non-cash stock outstanding asoption expense increased by $0.59 million over the prior year primarily due to the stock options granted to key members of March 31, 2020,management during the prior year.
Summary Risk Factors
Our business and doesour ability to execute our business strategy are subject to a number of risks of which you should be aware of before you decide to buy our securities. These risks include, but are not include, aslimited to, the following which you should carefully consider and which are discussed more fully in the “Risk Factors” section of July 23, 2020:this prospectus.
Risks Related to our Financial Condition
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• | Because we have a limited operating history, we may not be able to successfully manage our business. | |
• | We have incurred substantial losses in the past and it may be difficult to achieve profitability. | |
• | If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected. | |
• | If we fail to comply with the rules under Sarbanes-Oxley, or, if we discover additional material weaknesses in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. | |
• | We have material weaknesses and other deficiencies in our internal control and accounting procedures. | |
• | We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities. |
Risks Related to our Business
• | Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results. | |||||
• | USB has had limited operations to date. | |||||
• | If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason our business would be materially adversely impacted . | |||||
• | Our inability to acquire such additional rights or operators or restrictions from using any licenses associated with such acquired operators, will result in an adverse effect on our operating results. | |||||
• | If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected. | |||||
• | If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected. | |||||
• | If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted. | |||||
• | We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us. | |||||
• | A decline in the popularity of our gaming websites or those of our Platform clients will negatively impact our business and risk our future growth. | |||||
• | Because our gaming operations are largely concentrated within Italy at present, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. | |||||
• | Our current expansion strategy may be difficult to implement because the licensing and certification requirements to operate in the United States is complex and licensing requirements in other countries are currently indeterminable. | |||||
• | Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business. | |||||
• | If we are not able to maintain and enhance our brand, our business may be adversely affected. | |||||
• | Any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations. | |||||
• | If we are unable to collect payments from third party service providers or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected. | |||||
• | Our business may be adversely impacted if we have a security incident or breach involving unauthorized access to customer data. | |||||
• | Privacy concerns may result in significant costs and compliance challenges and adversely affect our business. | |||||
• | If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected. | |||||
• | We may be unable to prevent third parties from using our technologies. | |||||
• | If we fail to manage our growth effectively, we may be unable to execute our business plan. | |||||
• | We may not be able to successfully scale our technology and manage the growth of our business. | |||||
• | Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all. | |||||
• | Our research and development efforts are costly and subject to international risks. | |||||
• | If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays. | |||||
• | We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future. | |||||
• | We may be liable for reporting errors made by operators we acquire. | |||||
• | We will rely upon executive officers or key personnel of operators we may acquire for transition services. | |||||
• | Any violation of any anti-corruption laws could have a negative impact on us. | |||||
• | War, terrorism, other acts of violence or natural or manmade disasters could have a material adverse impact on our business, results of operations, or financial condition | |||||
Risks Related to our Industry
• | Economic conditions that have an adverse effect on the gaming industry may have an adverse effect on our results of operations. |
• | Intense competition in the leisure gaming industry may adversely affect our revenue and profitability. |
• | We expect that competition from internet gaming will continue to grow and intensify in the United States. |
• | If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations. |
• | Regulators at the federal and provincial level in Italy are monitoring and restricting the issuance and renewal of gaming licenses which could have an adverse effect on our growth. |
• | Our inability to acquire such additional location rights or operators or any restrictions, could result in an adverse effect on our operating results. |
• | Our records and submissions to regulatory agencies may contain inaccurate or unsupportable submissions which may result in an under or overstatement of our revenues and subject us to various penalties and may adversely affect our operations. |
• | We may become the subject of Italian federal and provincial investigations in the future . |
• | Our current operations are international in scope creating a variety of potential operational challenges. |
• | We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations. |
Risks Related to Ownership of our Securities
.
• | Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. | |
• | Future sales of shares of our | |
• | The rights of the holders of our Common Stock may be impaired by the potential issuance of preferred stock. | |
• | If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline. | |
• | Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our Common Stock. | |
• | Because certain of our stockholders control a significant number of shares of our | |
• | Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. | |
• | Our certificate of | |
• | We do not intend to pay cash dividends on our shares of Common Stock so any returns will be limited to the value of our shares. | |
• | An active trading market for our Common Stock may not be maintained. | |
• | Warrants that we have issued are speculative in nature and have certain provisions that could deter an acquisition of our company. |
Corporate Information
Elys Game Technology, Corp. is a Delaware corporation incorporated on August 26, 1998. On November 2, 2020, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Certificate of Incorporation to reflect our corporate name change from “Newgioco Group, Inc.” to “Elys Game Technology, Corp.” On November 6, 2020, we filed a Certificate of Correction (“Certificate of Correction”) to the Certificate of Amendment to correct and delete the errant references in the Certificate of Amendment regarding a stockholder meeting.
We currently maintain an executive suite situated at 107 E. Warm Springs Road, Las Vegas, Nevada 89119, and the offices of our wholly owned subsidiaries are located in Canada, Italy, Malta, Colombia and Austria. Our telephone number is 1-628-258-5148. Our corporate website address is www.elysgame.com. The information contained on our website is not incorporated by reference into this registration statement, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statement or in deciding whether to purchase or sell our securities.
We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “New Gioco”, “NewAleabet”, “OriginalBet”, “LovingBet” and “Elys.” Solely for convenience, the trademarks, service marks and trade names in this registration statement are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statement are the property of their respective owners.
THE OFFERING
Securities offered by the Selling Stockholder | Up to 3,166,227 shares of Common Stock | |
Common Stock Outstanding prior to this offering | ||
Common Stock to be outstanding after this offering, assuming exercise of all of the Warrants issued pursuant to the Purchase Agreement |
| |
Terms of the offering | The Selling Stockholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. See “Plan of Distribution.” | |
Use of Proceeds | We will not receive any proceeds from the sale of the shares of | |
Risk Factors
| Investment in our securities involves a high degree of risk and could result in a loss of your entire investment. See “Risk Factors” beginning on page 9 of this prospectus. | |
Nasdaq Capital Market Symbol | Our Common Stock is listed on the Nasdaq Capital Market under the symbol “ELYS.” |
Unless
(1) | Does not include the shares of our Common Stock underlying the Warrants. |
Except as otherwise indicated herein, the number of shares of our Common Stock to be outstanding after this offering is based on 26,860,810 shares of Common Stock outstanding as of August 25, 2022 and excludes:
● | 2,278,438 shares of our Common Stock issuable upon the exercise of outstanding stock options with a weighted average exercise price of $2.90 per share as of July 31, 2022; |
● | 4,066,261 additional shares of our Common Stock reserved for future issuance under our equity incentive plans as of July 31, 2022; and |
● | 3,664,168 shares of our Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $1.17 per share as of July 31, 2022. |
RISK FACTORS
In addition to the other information contained in this registration statement, the following risk factors should be considered carefully in evaluating the Company. Our business, financial condition, liquidity, or results of operations could be materially adversely affected by any of these risks. Accordingly, when we refer to “our operators” below, it is with reference to operators that we currently own or are in the process of acquiring or may acquire in the future, regardless of the level of ownership or operators that are involved in joint ventures with us. The risks and uncertainties described below are not the only ones facing our company, additional risks and uncertainties not presently known to us or that we currently consider immaterial may also have an adverse effect on us. If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially and adversely affected.
Risks Related to our Financial Condition
The effects of the COVID-19 pandemic have strained and negatively impact our businesses and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain.
The outbreak and spread of COVID-19 and the related adverse public health developments, have adversely affected work forces, economies and financial markets globally. The outbreak had caused the closures of physical locations throughout Italy where we provide our gaming services. Although most major sporting events and leagues have recommenced, the suspension of professional sports competitions throughout the world negatively impacted our ability to offer sports gaming products, and COVID-19 could have a continued material adverse impact on economic and market conditions and trigger a period of continued global economic slowdown, especially in light of potential subsequent waves or new strains of the virus. Our revenue depends on the continuation of major league sports and other sporting events, and we may not generate as much revenue as we would have without the cancellations or postponements that occurred in the wake of COVID-19.
In response to the spread of COVID-19 as well as guidance from public health directives, and orders of national and local government and health authorities, we had implemented work-from-home policies to support community efforts to reduce the transmission of COVID-19 and protect employees. We implemented a number of measures to ensure employee safety and business continuity. Business travel was suspended, and online and teleconference technology was and still is used to meet virtually rather than in person. The effects of the governmental orders and our work-from-home policies had negatively impact productivity, disrupted our business and delayed our progress in implementing our business plan and our ability to conduct our business in the ordinary course. Our operations have mostly resumed normal operations within local government guidelines.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 outbreak may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of any future outbreaks, additional travel restrictions and the reimplementation of social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. We do not yet know the full extent or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could continue to impact on our business.
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We have a limited operating history with respect to our gaming operations upon which you can evaluate our prospects and our potential value. We began our gaming operations in 2014, when we completed the acquisition of Multigioco, a corporation organized under the laws of the Republic of Italy, which is now our wholly owned subsidiary and was granted its ADM Comunitaria GAD (Online Gaming) license on July 4, 2012. As a result of the acquisition of Multigioco, our principal business became a licensed leisure gaming operator offering web-based and land-based sports betting, lottery and gaming products for our customers. The subsidiary that owns our Platform, Odissea, was acquired by us along with our Austrian bookmaker subsidiary, Ulisse in June 2016. In January 2019, we acquired Virtual Generation, a company that owns and has developed a virtual gaming software platform and we acquired US Bookmaking in July 2021. In addition, we commenced processing sports bets in the U.S. on a B2B basis in Washington D.C. in October 2021. Therefore, it is difficult to evaluate our business. If we cannot successfully manage our business, we may not be able to generate future profits and may not be able to support our operations.
The likelihood of our success and performance must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the highly competitive environment in which we operate.
We have incurred substantial losses in the past and it may be difficult to achieve profitability.
We have a history of losses and are anticipated to incur additional losses in the development of our business. For the year ended December 31, 2021, we had a net loss of $15.1 million after an intangible impairment charge of $17.4 million and a revised contingent purchase consideration credit of $11.9 million and a net loss of $6.4 million for the six months ended June 30, 2022. As of June 30, 2022 and December 31, 2021 we had accumulated deficits of $54.6 million and $48.2 million, 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.
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, 2021 and as of June 30, 2022 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 to helping 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.
If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected.
We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. We continue to embark on an aggressive roll out of our operation in the U.S. market over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. Accordingly, we will need capital to implement our business plan, and may seek to finance operator acquisitions and development projects through bank, debt or equity financings. Disruptions to financial markets or other challenging economic conditions may adversely impact our ability to complete any such financings or the terms of any such financings may be unacceptable or unfavorable to us. To the extent that we issue equity securities in connection with our proposed acquisition, our current stockholders will experience dilution of their holdings. To the extent we incur debt, we may be subject to restrictive covenants that impact our ability to conduct our business. We can provide no assurance that we will be able to obtain financing necessary to implement our business plan or that any such financing will be on terms acceptable to us or be sufficient to fund existing operations over the next twelve months from the date hereof.
If we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over 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 discover additional material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping 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 Common Stock could drop significantly.
We expect to continue relying on our discretionary available cash and available bank credit facilities to fund our additional acquisitions or enter into new business opportunities, which bank credit facilities may not be available at reasonable terms, if at all.
We have recently initiated an ambitious investment strategy including taking steps to enter the U.S. market which has led to an increase in expenses. Our ability to execute our growth plan is dependent upon our ability to generate profits from operations in the future, bank credit facilities and/or our ability to obtain additional financing and such financing may not be available on reasonable terms, if at all.
Risks Related to our Business
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
Our operations and performance depend on global, regional and U.S. economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders. These events are currently escalating and creating increasingly volatile global economic conditions. Resulting changes in U.S. trade policy and European policies could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.
The above factors, including a number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
· | effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes; |
· | a global or regional economic slowdown in any of our market segments; |
· | changes in government policies and regulations affecting the Company or its significant customers; |
· | industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether; |
· | new or stricter trade policies and tariffs enacted by countries, such as China, in response to changes in U.S. trade policies and tariffs; |
· | postponement of spending, in response to tighter credit, financial market volatility and other factors; |
· | rapid material escalation of the cost of regulatory compliance and litigation; |
· | difficulties protecting intellectual property; |
· | longer payment cycles; |
· | credit risks and other challenges in collecting accounts receivable; and |
· | the impact of each of the foregoing on outsourcing and procurement arrangements. |
USB has had limited operations to date.
USB has had limited operations to date. USB is subject to many of the risks common to an entity in operations for only a short number of years, including its ability to implement its business plan, market acceptance of its proposed business and products, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of its ability to generate revenues. There is no assurance that its activities will be successful or will result in any revenues or profit, and the likelihood of its success must be considered in light of the stage of its development. Even if it generates revenue, there can be no assurance that it will be profitable. In addition, no assurance can be given that it will be able to consummate its business strategy and plans, as described herein, or that financial, technological, market, or other limitations may force it to modify, alter, significantly delay, or significantly impede the implementation of such plans, including due to COVID-19.
If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted, and it could result in the impairment of the carrying value of a substantial portion of our assets.
Our ability to generate revenue from gaming operations in Italy is dependent upon our ability to maintain our Italian online and land-based licenses. We currently hold three gaming licenses upon which our business is dependent: a Bersani license, a Monti license, and a GAD license. Each of the three licenses that we hold can be terminated by the regulator at any time if we fail to comply with their regulations. In addition, our GAD license that was issued to Multigioco in 2011 is up for renewal in 2022 and our Bersani and Monti land-based licenses that provides rights to seven corners and three agencies is currently up for renewal at such time as the ADM should determine (which is expected to occur between 2022 and 2023). Insofar as the renewal process for licenses is conducted through a call to tender auction process, there is no guarantee that we will be the highest bidder at auction and therefore there is no guarantee that our licenses or location will continue to operate. In addition, although our software is currently certified for use in Italy and in the U.S. for land-based application, any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify. We have also obtained our first U.S. based license from the Office of Lottery and Gaming in the District of Columbia. If we are unable to renew our licenses or obtain new licenses or software recertification, our business would be materially adversely impacted, and we may need to impair the carrying value of a substantial portion of our assets.
In order to expand our land-based operations in Italy, we will be required to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our operating results.
Rights to online and land-based licenses are only available in Italy at limited times when licenses are being renewed. In addition, the maximum number of land-based location rights that any one operator may bid on at auction is 20% of the total market being auctioned. Due to such limitations on acquiring new location rights in Italy, our ability to expand the number of land-based locations that we operate will depend in large part upon our ability to acquire operators that hold land-based licenses and location rights. We expect a significant portion of our additional revenue to be derived from gaming revenue earned by operators that we have recently acquired or will acquire in the future. Although the operators which we have acquired and those that we acquire in the future may have active gaming licenses and location rights, we can provide no assurance that the existing license and location rights of any particular operator we have acquired or that we acquire in the future will be renewed or retained or that we will be able to acquire additional operators and increase our client base. If we are restricted from acquiring target operators or their client base, our operating results may will be adversely affected.
If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected.
Our retail leisure betting business, website and web-shops operate in an industry that is subject to:
· | rapid technological change; | |
· | the proliferation of new and changing online gaming sites; | |
· | frequent new product introductions and updates; and | |
· | changes in customer preferences and demands. |
If we fail to anticipate and effectively respond to any of the above changes, the demand for our products and services that we currently offer or that we may offer in the future may be reduced. Additionally, increasing incremental sales to our current customer base will require additional sales and marketing efforts, which may not be successful. Any failure to attract new customers or maintain and expand current customer relationships will have an adverse effect on our business and results of operations. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction and failure to attract and retain consumers of our products which could have a material adverse effect on our business, financial condition and operating results.
If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected.
We anticipate that the future growth and success of our business will be dependent upon our successful acquisition of operators and development of new technologies, such as our acquisition of Virtual Generation and US Bookmaking. We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. The difficulties and risks associated with the integration of the operations of new operators into our existing business, include:
· | the possibility that we will fail to implement our business plans for the integrated company, including as a result of new legislation or regulation in the gaming industry that affects the timing or costs associated with our operations or our acquisition plans; | |
· | possible inconsistencies between our standards, controls, procedures, policies and compensation structures and those of operators that we acquire; | |
· | the increased scope and complexity of our operations following the acquisition of multiple operators; | |
· | the potential loss of key employees and the costs associated with our efforts to retain key employees; | |
· | provisions in contracts that we and the acquired operators have with third parties that may limit our flexibility to take certain actions; | |
· | risks and limitations on our ability to consolidate the corporate and administrative infrastructures of new operators with our existing infrastructures; and | |
· | failure to discover liabilities of operators prior to our acquisitions of such operators; and the possibility of unanticipated delays, costs or inefficiencies associated with the integration of operations of new operators with our existing operations. |
As a result of these difficulties and risks, we may not be able to successfully grow our business.
If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted.
In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, and technology and content providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be more effective in providing incentives to third parties to favor their products or services or to prevent or reduce the use of our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our solutions by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer.
We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us.
Our business strategy includes expanding our products and services and we may seek acquisitions of synergistic companies to do so. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuance of equity securities; the potential incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diverting our management’s attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired companies.
We may misjudge the value or worth of an acquired product, company or business. In addition, our future success will depend in part on our ability to integrate and manage the associated acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require a substantial capital investment by us. We may not have the necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our preferred or Common Stock, which could dilute each current shareholder’s ownership interest in our company. Our operating results and financial condition will be adversely affected if we fail to implement our business strategy or if we invest resources in a strategy that ultimately proves unsuccessful.
We derive a significant portion of our revenue from gaming sales through our website and websites of our betting Platform clients. A decline in the popularity of our gaming websites or those of our Platform clients will negatively impact our business and risk our future growth.
We currently derive and expect to continue to derive substantially all of our primary source of revenue and service fees from the sales of gaming products and services sold through our website or websites operated by clients of our betting Platform. As such, the growth and market demand for our products and services are dependent upon, among other things, our ability to attract and retain new users and having existing users increase their activity on these websites. If we are unable to maintain or grow our revenue from sales through our website and our client’s websites, our future growth and revenues may be adversely affected.
Because our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified.
Due to the fact that our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. As such, our business may be significantly affected by risks common to the Italian leisure betting market. For example, the changing government regulations on Italian gaming licenses or on the tolerance toward European licenses, as well as general economic conditions in Italy and the impact of any events that disrupt our ability to offer our products and services can adversely affect our business. We cannot control the government process that awards domestic gaming licenses to operators or the tolerance of allowing other European license holders to operate in Italy. Reductions in the number of licenses and frequency of issuing licenses by any government regulator can impact our ability to operate our business.
Our current expansion strategy, which includes expansion through Virtual Generation in the various countries in which it operates and in the United States through the use of our Platform certifications, may be difficult to implement because the licensing and certification requirements to operate in the United States are complex and other countries are currently indeterminable.
Our current expansion strategy includes soliciting existing licensed operators in the United States offering sports betting in states that allow sports betting to use our Platform. Furthermore, we have analyzed the technical specifications checklist supplied by GLI to verify that coding in our online product meets the functional specifications set forth in the GLI-33 standards (The Gaming Laboratories International technical standard for event wagering systems). In September 2020, we obtained GLI-33 certification on our land-based sports betting platform and commenced processing sports bets in the U.S. on a B2B basis in Washington D.C. in October 2021. We also began the process of licensing our platform in other States that allow sports betting. However, before being able to commence operations in any state we will be required to obtain licenses and other governmental approvals and there can be no assurance that we will be able to do so. Each state has its own approval process and approval in one state does not guarantee approval in any other state. We also intend to expand our operations through Virtual Generation in the various countries in which it operates; however, to date we have not had operations in most of those countries and there can be no assurance that our expansion in those countries will be successful.
We depend upon our officers and other key employees. Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business.
Our future operations and successes depend in large part upon the continued service of our officers and other key employees. Changes in our management could have an adverse effect on our business. We are dependent upon the active participation of several key management personnel all of whom provide our strategic direction. Any failure to retain our key management could negatively affect our ability to recruit and retain personnel. We do not carry key person life insurance on any of our senior management or other key personnel. In addition, several members of our key management personnel are Canadian and Italian citizens. If they become unable or ineligible to legally travel to and work in the United States, their ability to perform some of their duties for our company could be materially adversely affected.
We must hire highly skilled technical personnel as employees and/or as independent contractors in order to develop our products. As of the date of this prospectus, we have 97 employees and 16 independent contractors. The competition for highly skilled technical, managerial and other personnel is intense and we may not be able to retain or recruit such personnel. Our recruiting and retention success is substantially dependent on our ability to offer competitive salaries and benefits to our employees. We must compete with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and contractors. To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits offered to employees in order to attract and retain such personnel. The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results. If we fail to attract and retain the technical and managerial personnel, we need to be successful, our business, operating results and financial condition could be materially adversely affected.
If we are not able to maintain and enhance our brand, our business, operating results and financial condition may be adversely affected.
We believe that maintaining and enhancing our reputation for our advanced, cost effective sports betting and gaming technology software is critical to our relationships with our existing customers and operators and to our ability to attract new customers and operators. We also believe that the importance of brand recognition and software creativity will increase as competition in our market increases. We devote significant resources to developing and maintaining our brand and innovative betting technology leadership, with a focus on identifying and interpreting emerging trends in the market, shaping and guiding industry dialogue, and expanding the adoption of online sports betting and gaming software solutions. Our brand promotion activities may not ultimately be successful or yield increased revenue. In addition, independent industry analysts provide reviews of our platform, as well as products and services offered by our competitors, and perception of our betting platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand and business may be adversely affected.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers and operators or fail to attract potential new customers and operators, all of which would adversely affect our business, results of operations and financial condition.
We currently depend on and may continue to be dependent on third parties to provide certain components and products we distribute through our online gaming platform, and any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations.
We currently depend on third parties to provide some products through our Platform. The costs associated with relying on third parties may increase our operating and development costs and negatively affect our ability to operate because we cannot control the developer's personnel, schedule or resources. We may experience delays in finalizing Platform updates. In addition, our reliance upon third party developers exposes us to risks, including reduced control over quality assurance and costs of development. If any of the foregoing occurs, we could lose our current and prospective customers. In addition, we may be required to rely on certain technology that we license from third-parties, including software that we integrate and use with software that we may develop internally. We cannot provide any assurances that these third-party technology licenses will be available to us on commercially reasonable terms, if at all. The inability to establish any of these technology licenses, or the loss of such licenses if established, could result in delays in completing any Platform updates or changes until equivalent technology can be identified, licensed and integrated. Any such delays could materially adversely affect our business, operating results and financial condition.
Specifically, our agreements with Microgame and SNAI to develop and operate some components of our gaming products and process certain land-based retail transactions is important to our operations. If we fail to comply with any of the terms or conditions of any such agreement, Microgame or SNAI may terminate our agreement or if such agreement expires and we are unable to find a suitable replacement, our business, operating results and financial condition would be materially adversely affected.
We depend on payments from third-party service providers, including government regulated gaming agencies. If we are unable to collect such payments or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected.
We depend, in part, on private entities and regulated third-party sources of payment for the gross gaming revenue earned by our operators. The amount our operators receive for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including future changes to the payment systems, the cost containment and utilization decisions of third-party service providers and the global economy. We have no assurance that future changes to betting odds from data providers for sporting events, table rake from poker providers and tax rates on game offerings, cost containment measures implemented by private third-party service providers, or other factors affecting payments for gaming services or our ability to collect such payments will not adversely affect our, financial condition and operating results.
If we have a security incident or breach involving unauthorized access to customer data, our Platform may be perceived as lacking sufficient security, customers may reduce their use of, or stop using our Platform and we may incur significant liabilities
Our Platform involves the storage and transmission of our customer’s confidential and proprietary information, which may include the personal data and information on their customers, players, suppliers and agents. As a result, unauthorized access or use of customer data could expose us to regulatory actions, litigation, investigations, remediation costs, damage to our reputation and brand, disclosure obligations, loss of customer and partner confidence in the security of our solutions and resulting fees, costs, expenses, loss of revenues, and other potential liabilities. While we have security measures in place designed to protect the integrity of customer information and prevent data loss, misappropriation, and other security breaches, if these measures are inadequate or are compromised as a result of third-party action, including intentional misconduct by computer hackers, theft, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liabilities. Cybersecurity challenges, including threats to our IT infrastructure or those of our customers or third-party providers, are often targeted at companies such as ours, and may take a variety of forms ranging from malware, phishing, ransomware, man-in-the-middle attacks, session hijacking, denial-of-service, password attacks, viruses, worms and other malicious software programs or cybersecurity attacks to “mega breaches” targeted against hosted software and cloud based IT services. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. Because cybersecurity attacks and techniques change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate their business with us or switch their business to a competitor, result in reputational damage, cause us to pay remediation costs or issue service credits or refunds to customers for improper bets or false claims of improper bets, or result in lawsuits, regulatory fines or other action or liabilities, which could adversely affect our business and results of operations.
Many states in the United States as well as foreign governments have enacted laws requiring companies to provide notice of data security breaches involving certain types of personal data, and significant fines on companies involved in such incidents may be imposed. In addition, some of our regulators and certifying agents contractually require notification of data security breaches. Security compromises experienced by us or by our competitors may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new clients, cause existing clients to switch to a competing betting software provider, or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.
Privacy concerns and domestic or foreign privacy laws or regulations may result in significant costs and compliance challenges, reduce demand for our solutions, and adversely affect our business.
Our clients can use our Platform to collect, use and store certain personal data regarding their agents, employees, players/customers and suppliers. National and local governments, agencies, and authorities in the countries in which we and our clients operate have adopted or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of personal data obtained from consumers and individuals, which could impact our ability to offer our solutions in certain jurisdictions or our customers’ ability to deploy our solutions globally. Privacy-related laws are particularly stringent in Europe. If we or our third-party sub-processors fail to adequately comply with privacy-related laws, regulations and standards, it may limit the use and adoption of our solutions, reduce overall demand for our solutions, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Moreover, if we or our third-party sub-processors fail to adhere to adequate data protection practices around the usage of our clients’ personal data, it may damage our reputation and brand.
In 2016 the EU adopted a new regulation governing data privacy called the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR establishes requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to four percent of worldwide annual handle or 20 million euro, whichever is higher. Customers, particularly in the EU, are seeking assurances from their suppliers, including us, that their processing of personal data of EU nationals is in accordance with the GDPR, and if we are unable to provide adequate assurances to such customers, demand for our solutions and our business could be adversely affected. In addition, we must continue to seek assurances from our third-party subprocessors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. Compliance with privacy laws and regulations, particularly the GDPR, that are applicable to our business and the businesses of our clients is costly and time-consuming. Such laws and regulations may adversely affect our clients’ ability and willingness to process, handle, store, use and transmit personal data of their employees, players/customers and suppliers, which in turn could limit the use, effectiveness and adoption of our solutions and reduce overall demand. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness or use of our betting Platform. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, including challenges to onward transfer mechanisms such as Privacy Shield and model contractual clauses, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, as well as limitations on data collection, use, disclosure and transfer for us and our clients.
In addition, the other bases on which we and our clients rely for the transfer of data, such as certain contractual clauses, continue to be subjected to regulatory and judicial scrutiny. If we or our clients are unable to transfer data between and among countries and regions in which we operate, it could decrease demand for our betting software solutions, require us to restrict our business operations, and impair our ability to maintain and grow our client base, expand geographically and increase our revenues.
If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected.
We have historically relied on retail agents, affiliates and partners, such as referral partners, resellers, and integration partners (collectively “partners”), to attract new clients and sell additional services to our existing clients and players. Our agreements with our partners are generally non-exclusive and some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships, and they may not regard us as to be of significant importance for their businesses. Our partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our Platform. We may also terminate our relationships with partners who choose to work with our competitors or for other reasons. Moreover, we may have difficulty attracting effective partners to sell our Platform to other clients and players, particularly given our smaller size relative to larger franchise and well-established betting operators. If we are not able to maintain and grow our partner relationships, our business could be adversely affected.
Our partners also may impair our ability to enter into other desirable strategic relationships. If our partners do not effectively market and sell our betting products and Platform solution, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our clients and players, our ability to sell our Platform and our business may be adversely affected. Similarly, the loss of a substantial number of our partners, and our possible inability to replace them, the failure to recruit additional partners, any reduction or delay in their sales of our betting Platform, or any conflicts between partner sales and our direct sales and marketing activities could materially and adversely affect our business and results of operations.
If we fail or are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage, proprietary technology and our brand.
Our success is dependent, in part, upon protecting our proprietary technology which supports our betting Platform and other operations. We rely on a combination of proprietary programming and source codes, copyright, trademarks, service marks, trade secret laws and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We do not have any patent applications pending anywhere we operate and may not be able to obtain patent protection for the technology covered in any future patent applications should we enter such applications. In addition, any patents, if any, that are issued to us in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our solutions and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of jurisdictions outside the United States. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our solutions and proprietary information may increase.
Although we enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, we do not currently enter into confidentiality and invention assignment agreements with all of our employees and consultants and as a result, our business may be harmed. No assurance can be given that the agreements we enter into will be effective in controlling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our solutions.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or harm our business and reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we would be able to license that technology on commercially reasonable terms or at all from them. Any inability to license third party technology in the future would have a material adverse effect on our business or operating results and would adversely affect our ability to compete.
We have experienced rapid growth and organizational change in recent periods and if we fail to manage our growth effectively, we may be unable to execute our business plan.
We increased our number of full-time and part-time employees from 15 as of August 15, 2014 to 97 as of December 31, 2021 as we have expanded our operations, completed additional business acquisitions and experienced growth in number of customers and operators. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our headcount and operations both domestically and internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significant additional investment in our infrastructure. We will be required to continually improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively, which could negatively affect our results of operations and overall business. In addition, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross margins or operating expenses in any particular quarter. Moreover, if we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our software solutions may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.
We may not be able to successfully scale our technology and manage the growth of our business if we are unable to improve our internal systems, processes and controls.
We need to continue to improve our internal systems, processes and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud. We have licensed technology from third parties to help us improve our internal systems, processes and controls. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could impair our ability to provide our solutions or professional services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our solutions or increase our technical support costs.
Our estimates of market opportunity and forecasts of market growth included in this prospectus assumesmay prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not all geographic or givesregional metrics covered by our market opportunity estimates will necessarily implement regulated or online gaming at all, and in some cases many potential customers and operators may choose to continue using their existing betting platform provider, or choose a solution offered by our competitors. It is impossible to build every product feature that every customer wants, and our competitors may develop and offer features that our solutions do not offer. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of customers covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry. Furthermore, we have historically focused our selling and marketing efforts in regulated markets in Europe, specifically Italy. In order for us to successfully address the broader market opportunity, we will need to successfully market and sell our betting Platform to larger enterprise customers and also further expand our international presence. If any of these risks materialize, it could adversely affect our results of operations.
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 years ended December 31, 2021 and 2020, we spent approximately $2.0 million and $1.7 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. This company is creating a custom-made platform for us which will make us industry leaders in the market. We have made and expect to continue to make significant investments in development and related opportunities, such as our acquisition of US Bookmaking, 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.
If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays, which may adversely affect our business.
We derive significant revenue from the use of our websites and Platform. In the past, we have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our Platform. As we transition to larger infrastructure and pursue geographic expansion, we may experience interruptions, delays and outages in service and availability, and we may experience a decline in our gross gaming margin in the near term reflecting the costs of this transition.
We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, vendor issues, human or software errors, viruses, security attacks, fraud, general Internet availability issues, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation, business and results of operations.
We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future and may be unable to cause all or a portion of the cash of such operators to be distributed to us.
We anticipate having a complete or a majority ownership in the operators we may acquire in the future. We expect any future agreements we execute with such operators will provide for the distribution of available cash to us. However, it is possible that these agreements may impose limits on the ability of our acquired operators to make distributions of cash to us. If we are unable to cause sufficient cash to be distributed from one or more of the operators we may acquire in the future, our ability to pay our obligations as they become due may be harmed.
If we acquire an operator that has made submission and reporting errors prior to our acquisition, we may be liable for such errors that may have a material adverse effect on our business.
Historical submissions and reporting errors in gaming accounts made by an operator we may acquire in the future, may require us to provide refunds to customers and may also subject us to civil penalties, which involve monetary damages. If operators we may acquire in the future overpaid their obligation, it is unlikely that we would be able to collect funds that were owed to the operator prior to our acquisition. There can be no assurance that a compliance audit will disclose any future liabilities for underpayments or overpayments that any of our operators may have incurred.
If any executive officers or key personnel of operators we may acquire are unable to assist with the transition of operations and customers, our business may be adversely affected.
In connection with any potential acquisition of operators, we believe that it is necessary and desirable to retain the services of executive officers and key personnel of such operators to assist with the transition and integration of operations and customers into our existing operations; however, no assurances can be given that such executive officers and key personnel will be willing and able to assist us with such transition and integration. In the event that such executive officers and key personnel are unable to assist us after the consummation of the future acquisition of an operator, we may need to hire additional personnel to assist with the transaction, which new personnel may not be readily available to us or on acceptable terms.
Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.
The majority of our revenue is derived from operations outside the United States, which exposes us to complex foreign and U.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Violations or allegations of non-compliance with any such laws or regulations may adversely affect our business, performance, prospects, value, financial condition, and results of operations.
War, terrorism, other acts of violence or natural or manmade disasters may affect the markets in which we operates, our customers, our delivery of software and customer service, and could have a material adverse impact on our business, results of operations, or financial condition.
Our business may be adversely affected by instability, disruption or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm or pandemic events and spread of disease. Such events may cause customers to suspend their decisions on using our products and services, make it impossible for our customers to visit our physical locations, cause restrictions, postponements and cancellations of sports events that attract large crowds and public gatherings, and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our personnel and to physical facilities and operations, which could materially adversely affect our financial results.
Risks Related to Our Industry
Economic conditions, particularly in Italy and Europe, that have an adverse effect on the gaming industry may have an adverse effect on our results of operations.
Our business operations are currently concentrated in a single industry and largely in one geographic area (Italy) that is affected by international, national and local economic conditions. A downturn in the overall economy or economy in a specific region such as Italy or a reduction in demand for gaming in such area, may have an adverse effect on our financial condition or results of operations. We cannot predict the effect or duration of an economic slowdown in Italy or in the gaming industry, or the impact such slowdown may have on the demand for our leisure gaming products and services. If economic conditions deteriorate our consumers will have less disposable income to spend on wagers and our business may be adversely affected.
Intense competition in the leisure gaming industry may adversely affect our revenue and profitability.
We operate in a highly competitive environment and we compete for operators, customers and advertisers with numerous well-established leisure gaming operators, as well as numerous smaller and newer gaming website operators. Many of our principal competitors have substantially longer operating histories, greater financial, technical, marketing or other resources, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution and presence than we have. Our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can by integrating or bundling such products with their other product offerings or may develop new technologies or services that are more attractive to other operators or our customers. Acquisitions and consolidation in our industry may provide our competitors with even more resources or may increase the likelihood of our competitors offering bundled or integrated products with which we cannot effectively compete. New innovative start-ups and existing large companies that are making significant investments in research and development could also launch new products and services that are competitive with ours and that could gain market acceptance quickly. In addition, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies or providing alternative approaches to provide similar results. We also face competition for employees with the necessary technical skills.
With the introduction of new technologies, the evolution of our Platform and new market entrants, we expect competition to intensify in the future. Increased competition generally could result in reduced sales, reduced margins, losses or the failure of our Platform to achieve or maintain more widespread market acceptance, any of which could harm our business.
We expect that competition from internet gaming will continue to grow and intensify in the United States.
We intend to expand the use of our Platform in the United States; however, that will be dependent upon changes in legislation and our ability to obtain licenses and other regulatory approvals and we expect that we will face increased competition from other leisure betting operators as the potential for legalized internet gaming continues to grow. Several states in the United States are currently considering legislation that would legalize internet gaming at the state level. As a result of the Justice Department’s (“DOJ”) December 2011 opinion concerning the applicability of the Wire Act to internet gaming, certain states including Nevada, Delaware and New Jersey have enacted legislation to authorize various forms of intrastate internet gaming. In addition, the recently revised DOJ opinion on the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) and competition from internet lotteries and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert customers from our products and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic customers as a result of initiatives in some states to consider legislation to legalize intrastate internet wagering. There have also been proposals that would specifically legalize internet gaming under federal law. If we are unable to execute our U.S. strategy, anticipate, react to or penetrate the U.S. market in a timely manner, our competitive position could weaken, which could adversely affect our business and results of operations.
If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations. In addition, changes in laws and regulations with respect to the gaming industry, and the application or interpretation of existing laws and regulations applicable to our operations may have a material adverse effect on our business, financial condition and results of operations.
Our business is highly regulated, and we are subject to many laws and regulations at the federal, provincial and local government levels in the jurisdictions in which we operate. These laws and regulations require that our operators and our operations meet various licensing, certification and other requirements, including those relating to:
· | ownership of our operators; | |
· | our and our operators’ relationships with sponsors and other referral sources; | |
· | approvals and other regulations affecting the acquisition of operators, capital expenditures or the addition of services; | |
· | qualifications of management and support personnel; | |
· | maintenance and protection of records; | |
· | billing for services by gaming product providers, including appropriate treatment of overpayments and credit balances; | |
· | privacy and security of individually identifiable personal information; | |
· | online gaming and gaming in general; | |
· | commercial advertising; | |
· | subscription rates; and | |
· | foreign investments. |
·Furthermore, the rules and regulations governing the gaming industry are evolving and subject to interpretation in the territories in which we operate and the territories in which we may operate in the future. Promulgation of new laws, changes in current laws, and changes in interpretations by courts and other government agencies of existing laws, may require us to modify or cease our operations. Compliance with changes in such laws and regulations may increase our operating expenses. In addition, our failure to comply with current or future laws and regulations may expose us to significant liabilities. Our inability or failure to comply with laws and regulations that govern the assumed public offering pricegaming industry in the territories in which we operate may result in the loss of our unit is $2.76 per unit (the assumed public offering price is $2.759 per sharelicenses which would have a material adverse effect on our business, financial conditions and results of common stock and $0.001 per accompanying warrant);operations.
· no exerciseRegulators at the federal and provincial level in Italy are monitoring and restricting the issuance and renewal of the outstanding warrants described above and no conversion of the convertible debentures described above;gaming licenses which could have an adverse effect on our growth.
· no exerciseFederal regulators in Italy are enforcing new restrictions to reduce the number of the underwriters’ option to purchase up to an additional 543,478 shares of common stock from us in this offering;
· no exercise of the warrants includedindependent operators in the units;
· no exercise of the representative’s warrants;gaming industry, and
· a 1-for-8 reverse stock splitmoratorium on new licenses for gaming operators in Italy has been implemented. The success of our issuedbusiness depends upon our ability to acquire operators in new regional locations throughout Italy. The restrictions on the licensing of new operators may make it more difficult for us to locate operators that we may be able to acquire. Our inability to acquire operators and outstanding shares of common stock effectedexpand our operations into new regional locations throughout Italy may have a material adverse effect on December 12, 2019.
our business and financial condition.
DILUTIONWe might be required to acquire additional location rights under our licenses or acquire operators that have existing location rights under their licenses in order to remain in compliance with laws that are required to operate in Italy. Our inability to acquire such additional location rights or operators could result in an adverse effect on our operating results.
Rights to land-based licenses and online licenses are only distributed during infrequent license renewal auctions held by the ADM. Since June 30, 2016, the last renewal date that passed, the ADM has postponed the renewal auction and imposed a moratorium on the issuance of new sports betting licenses and the standardization of regulations in Italy. The outcome of ongoing proceedings in the European Court of Justice regarding the application of Italian regulations for wagering under the Intra-EU model remains pending. In the Interim, the ADM is delaying the Italian license renewal process. As such, the ADM has temporarily instituted operating authorizations for pre-2016 concessions that allow operators, including Multigioco to continue to operate until the next license renewal is announced and concluded. The outcome and duration of this process is presently unknown. No assurance can be provided that our gaming website and locations of any particular operator we have acquired or that we may acquire in the future will be permitted to operate or that we will be able to acquire additional operators and increase our client base.
Our records and submissions to regulatory agencies may contain inaccurate or unsupportable submissions which may result in an under or overstatement of our revenues and subject us to various penalties and may adversely affect our operations.
A major component of the regulatory environment is the interpretation of winnings and tax calculation procedures established by the US and Italian gaming regulators. Inaccurate or unsupportable submissions, inaccurate records for gaming coin-in or handle (turnover), client data and erroneous winning claims could result in inaccurate revenues being reported. Such errors are subject to correction or retroactive adjustment in later periods and may be reflected in financial statements for periods subsequent to the period in which the revenue was recorded. We may also be required to refund a portion of the revenue that we have received which, depending on its magnitude, may damage our reputation and relationship with regulatory agencies and may have a material adverse effect on our results of operations or cash flows.
The ADM in Italy conducts weekly account audits and sweeps for taxes in addition to random onsite inspections for online connection to the ADM network as well as searches for nefarious programming or routers which can alter the reporting requirements of the ADM. It is possible that our acquired Austrian operator, that did not hold a domestic Italian license and was operating under inter-European business principles, could receive letters from ADM auditors requesting the payment of fines for alleged violations and errors. As such, we will incur expenses associated with responding to and appealing such requests, as well as the costs of paying any shortfalls in addition to the possible fines and penalties. Demands for payments can also occur even if an operator is acquired by means of an asset transfer. Our inability to dispute demands or pay requests for underpayments may have a material adverse effect on our financial condition and results of operations.
We may become the subject of Italian federal and provincial investigations in the future and our business may be adversely affected.
Both Italian federal and provincial government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of gaming companies, as well as their executives and managers. These investigations relate to, among other things diversion practices if an agent or store owner were to disconnect (i.e., remove ethernet plug from internet) the betting terminal or PC from the ADM network.
In addition, we may employ executives and managers, some of whom may have worked at other gaming companies that are or may become the subject of ADM investigations and private litigation. Such executives and managers may be included in governmental investigations or named as defendants in private litigation. A governmental investigation of us, our executives or our managers could divert our management’s attention, result in significant expenses, as well as negative publicity and adversely affect our business.
Our current operations are international in scope and we are planning further geographic expansion, creating a variety of potential operational challenges.
We currently have an office location in Canada, business operations and office location in the United States and business operations and offices in Europe and intend to open additional offices in other countries. If you investwe expand in the future, our offices, personnel and operations may be further dispersed around the world. In connection with such expansion, we may face a number of challenges, including costs associated with developing software and providing support in additional languages, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycles and difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries and a geographically and culturally diverse workforce and customer base. Failure to overcome any of these challenges could negatively affect our business and results of operations.
We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations.
We conduct transactions, including intercompany transactions, in currencies other than the U.S. dollar. As we grow our international operations, we expect the amount of our revenues denominated in foreign currencies to increase. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar could affect our reported revenues and operating results due to transactional and translational re-measurements that are reflected in our unitsresults of operations. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in this offering, your interest will be dilutedour business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our Common Stock could be adversely affected.
We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the difference betweenadverse financial effects of unfavorable movements in foreign exchange rates over the assumed public offeringlimited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
Risks Related to Ownership of our Securities
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. On July 25, 2022, we received a Nasdaq Staff Determination letter notifying us that for the preceding 30 consecutive business days we were not in compliance with the requirement that our common stock maintain a minimum bid price of $1.00 per share.
We have until January 23, 2023 to comply with the $1.00 per share minimum bid price requirement. To remain listed, our common stock must have a closing bid price of at least $1.00 per share for ten consecutive business days prior to January 23, 2023. We intend to actively monitor the bid price of our common stock and will consider available options to regain compliance with the Nasdaq listing requirements.
If we do not achieve compliance with the $1.00 per share minimum bid price requirement, the Nasdaq Staff would be required to issue us a delisting notice. We would have the opportunity to appeal a delisting notice to a Nasdaq Hearings Panel, which would delay any delisting until at least the date of the hearing. The Nasdaq Hearings Panel has discretion to grant an exception for up to 180 days after the initial delisting determination but it is not required to do so and may order a lesser exception period or order an immediate delisting. We may also fail to satisfy other Nasdaq continued listing requirements in the future.
Any delisting of our common stock by Nasdaq could adversely affect our ability to attract new investors, decrease the liquidity of the outstanding shares of common stock, reduce the price at which such shares trade and increase the transaction costs inherent in trading such shares with overall negative effects for our shareholders. In addition, delisting of the common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our stock at all.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a de-listing of our Common Stock.
Our shares of Common Stock are currently listed on The Nasdaq Capital Market. If we fail to 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, The Nasdaq Capital Market may take steps to de-list our Common Stock. Any such steps for de-listing would likely have a negative effect on the price of our Common Stock and would impair stockholders’ ability to sell or purchase their Common Stock when they wish to do so. No assurance can be given that we will be able to satisfy our continued listing requirements and maintain the listing of our Common Stock on The Nasdaq Capital Market.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our Common Stock could incur substantial losses.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. Our closing share price on January 4, 2021 was $5.38 with a high closing price of $7.21 and a closing share price on December 31, 2021 of $2.72 and a closing share price on August 30, 2022 of $0.5426. These fluctuations do not appear to be based on any business fundamentals. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the recent outbreak of war in the Ukraine has caused broad stock market and industry fluctuations. The stock market generally and the market for gaming companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our Common Stock. The market price for our Common Stock may be influenced by many factors, including the following:
· | sale of our Common Stock by our stockholders, executives, and directors; | |
· | volatility and limitations in trading volumes of our securities; | |
· | our ability to obtain financings to implement our business plans, including the acquisitions of operators; | |
· | the timing and success of introductions of new products by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors; | |
· | our ability to attract new customers; | |
· | the continued impact of COVID-19; | |
· | changes in our capital structure or dividend policy, future issuances of securities and sales of large blocks of securities by our stockholders; | |
· | our cash position; | |
· | announcements and events surrounding financing efforts, including debt and equity securities; | |
· | our inability to enter into new markets or develop new products; | |
· | reputational issues; | |
· | our inability to successfully manage our business or achieve profitability; | |
· | announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or our competitors; | |
· | changes in general economic, political and market conditions in any of the regions in which we conduct our business; | |
· | changes in industry conditions or perceptions; | |
· | analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage; | |
· | departures and additions of key personnel; | |
· | disputes and litigation related to intellectual properties, proprietary rights, and contractual obligations; | |
· | changes in applicable laws, rules, regulations, or accounting practices and other dynamics; | |
· | market conditions or trends in the gaming industry; and | |
· | other events or factors, many of which may be out of our control. |
These broad market and industry factors may seriously harm the market price of our Common Stock, regardless of our operating performance. Since the stock price of our Common Stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our Common Stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices or that future sales of our Common Stock will not be at prices lower than those sold to investors.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due to short sellers need to purchase of shares of Common Stock, known as a “short squeeze.” These short squeezes have caused extreme volatility in the Common Stock price of those companies and in the market and have led to the price per share of common stockCommon Stock of those companies trading at a significantly inflated price that is partdisconnected from the underlying value of the unit andcompany. Many investors who have purchased shares of Common Stock in those companies at an inflated price face the risk of losing a significant portion of their original investment as adjusted net tangible book valuethe price per share has declined steadily as interest in those stocks has abated. While we have no reason to believe our shares of Common Stock would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares of Common Stock at a rate that is significantly disconnected from our underlying value.
Future sales of shares of our Common Stock or the perception in the public markets that these sales may occur, may depress our stock price.
The market price of our Common Stock could decline significantly as a result of sales of a large number of shares of our Common Stock in the market. In addition, if our significant stockholders sell a large number of shares, or if our warrant holders exercise their warrants and sell the underlying shares or if we issue a large number of shares, the market price of our Common Stock could decline. Any issuance of additional Common Stock, or Common Stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our Common Stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of Common Stock could depress the market for our shares. and make it more difficult for us to sell equity securities at any time in the future if at all.
We may issue additional shares of Common Stock and preferred stock without stockholder approval, which would dilute the current holders of our Common Stock. In addition, the exercise or conversion of currently outstanding securities would further dilute holders of our Common Stock.
Our board of directors has authority, without action or vote of our shareholders, to issue shares of common and preferred stock. We may issue shares of our Common Stock or preferred stock immediately after this offering. Net tangible book valueto complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our Common Stock. These issuances would dilute our stockholders’ ownership interest, which among other things would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our Common Stock or if our convertible debt holders convert their debt.
The rights of the holders of our Common Stock may be impaired by the potential issuance of preferred stock.
Our certificate of incorporation gives our Board the right to create one or more new series of preferred stock. As a result, the Board may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our Common Stock. Preferred stock, which could be issued with the right to more than one vote per share, is equal towould dilute the amountrights of our total tangible assets, less total liabilities, divided byCommon Stockholders and could be used to discourage, delay or prevent a change of control of our company, which could materially adversely affect the price of our Common Stock.
If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline.
The trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We currently have limited analyst coverage. If securities analysts do not cover our Common Stock, the lack of research coverage may adversely affect the market price of our Common Stock. Furthermore, if we should have analyst coverage and one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.
Because certain of our stockholders control a significant number of shares of our Common Stock, they may have effective control over actions requiring stockholder approval.
Gilda Pia Ciavarella, the spouse of our Executive Chairman of the Board is the beneficial owner of 4,728,478 shares of our Common Stock and therefore our Executive Chairman is deemed to beneficially own approximately 20.9% of our outstanding shares of Common Stock on a fully diluted basis as of the date of the filing of this prospectus. As a result, Ms. Ciavarella, has the ability to effectively control the outcome of matters submitted to our common stock. Asstockholders for approval, including the election of March 31, 2020,directors and any merger, consolidation or sale of all or substantially all of our net tangible book value was approximately $(7,140,952),assets and the ability to control the management and affairs of our company. In addition, other members of our senior management team beneficially own 2.6% of our outstanding shares of Common Stock on a fully diluted basis as of the date of the filing of this prospectus. Accordingly, this concentration of ownership might harm the market price of our Common Stock by:
· | delaying, deferring or preventing a change in corporate control; | |
· | impeding a merger, consolidation, takeover or other business combination involving us; or | |
· | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or approximately $(0.58) per share.
discourage takeover attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control of our company. For example, our Board has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could materially adversely affect the market price of our Common Stock.
Our pro forma net tangible book value as
Furthermore, because we are incorporated in Delaware, we are governed by the provisions of March 31, 2020 was $(6,433,773)Section 203 of the General Corporation Law of the State of Delaware. This provision may prohibit or $(0.51) perrestrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, which could discourage potential takeover attempts, reduce the price that investors may be willing to pay for shares of our common stock. Pro forma net tangible book value per share gives effectCommon Stock in the future and result in our market price being lower than it would be without these provisions.
Our certificate of incorporation has an exclusive forum for adjudication of disputes provision which limits the forum to (i) the issuanceDelaware Court of Chancery for certain actions against the Company.
Our certificate of incorporation provides that the Delaware Court of Chancery, to the fullest extent permitted by law, is the sole and exclusive forum for certain actions including claims in the right of our company brought by a stockholder that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity or as to which the Delaware corporate law confers jurisdiction upon the Court of Chancery of the State of Delaware.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law-based shareholder class actions, derivative suits and other intra-corporate disputes. Our management believes limiting state law-based claims to Delaware mitigate against the potential risk of another forum misapplying Delaware law is avoided. In addition, Delaware courts have a well-developed body of case law and we believe limiting the forum for the adjudication of any disputes will prevent costly and duplicative litigation and avoid the risk of inconsistent outcomes. Our Bylaws limit any shareholder’s ability to bring a claim in a forum it believes is favorable to shareholders in disputes with directors, officers or other employees.
The exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Although our certificate contains the choice of forum provision described above, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or our directors, officers, employees or stockholders, which may discourage such lawsuits against the Company and our directors, officers, employees or stockholders. Alternatively, if a court were to find this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional 106,735costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
We do not intend to pay cash dividends on our shares of common stock upon conversionCommon Stock so any returns will be limited to the value of debenturesour shares.
We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
An active trading market for our Common Stock may not be maintained, or we may fail to satisfy applicable Nasdaq Capital Market listing requirements.
Our Common Stock is currently traded on Nasdaq Capital Market, but we can provide no assurance that we will be able to maintain an active trading market for our shares on Nasdaq Capital Market or any other exchange in the aggregate amountfuture. The fact that a significant portion of CDN$146,599 (approximately $103,853)our outstanding shares of Common Stock is closely held by a few individuals, results in it being more difficult for us to maintain an active trading market. If there is no active market for our Common Stock, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all, our stock price could decline, and we may be unable to maintain compliance with applicable Nasdaq Capital Market listing requirements.
The Warrants as well as the warrants that includes accrued interest thereonwe issued in our 2020 public offering are speculative in nature and have certain provisions that could deter an acquisition of CDN$12,599 (approximately $8,925)our company.
The Warrants as well as the warrants that we issued in our 2020 public offering do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price, subject to certain adjustments. Moreover, the market value of such warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their exercise price. Furthermore, each Warrant will expire five years and six months from the original date of issuance and the aggregate amount of $237,699 that includes accrued interest thereon of $37,699 subsequent to March 31, 2020; (ii)warrants issued in our 2020 public offering will expire five years from the original issuance of 149,860 shares of common stock as paymentdate. In the event our Common Stock price does not exceed the exercise price of the principal amountwarrants during the period when the warrants are exercisable, the warrants may not have any value.
In addition to the provisions of €332,000 (approximately $365,627) owedour certificate of incorporation and our bylaws, certain provisions of the Warrants and the warrants issued in our 2020 public offering could make it more difficult or expensive for a third party to acquire us. The Warrants and the warrants issued in our 2020 public offering prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the termswarrants. These and other provisions of the Virtual Generation promissory note subsequentwarrants could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to March 31, 2020; (iii) the payment of €62,400 (approximately $70,128) under the notes issued to the sellers of Virtual Generation subsequent to March 31, 2020; and (iv) the payment of the aggregate amount of CDN$12,121 (approximately $9,087 at an exchange rate of $0.75) that includes accrued interest thereon of CDN$2,121 (approximately $1,590 at an exchange rate of $0.75) and the aggregate amount of $6,060 that includes accrued interest thereon of $1,060 under the debentures that matured May 31, 2020 and extinguishment of such debentures subsequent to March 31, 2020.
After giving effect to the pro forma adjustments and the assumed sale by us of 3,623,188 units in this offering at an assumed public offering price of $2.76 per unit ($2.759 per share of common stock and $0.001 per warrant) and after deducting the estimated underwriting discount and estimated offering expenses payable by us and the repayment of $2,895,266 for payment of principal and interest on debentures, our pro forma as adjusted net tangible book value as of March 31, 2020 would have been approximately $2,116,227, or approximately $0.13 per share. This represents an immediate increase in pro forma net tangible book value of $0.64 per share to existing stockholders and an immediate dilution of $2.63 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution:
Assumed public offering price per share (attributing no value to the warrants) | $ | 2.76 | ||
Pro forma net tangible book value per share as of March 31, 2020 | $ | (0.51 | ) | |
Increase in pro forma net tangible book value per share after this offering | $ | 0.64 | ||
Pro forma as adjusted net tangible book value per share after giving effect to this offering | $ | 0.13 | ||
Dilution per share to new investors | $ | (2.63 | ) |
you.
USE OF PROCEEDS
Each $0.25 increase (decrease)
We will not receive any proceeds upon the sale of the shares of our Common Stock by the Selling Stockholder in this offering. We will receive approximately $3.0 million of proceeds if all the Warrants are exercised for cash. We currently intend to use these proceeds for working capital and other general corporate purposes.
DIVIDEND POLICY
We do not anticipate declaring or paying any cash dividends to holders of our Common Stock in the assumed public offering priceforeseeable future. We currently intend to retain future earnings, if any, to finance the growth of $2.76 per unit would result in an incremental increase (decrease)our business. If we decide to pay cash dividends in the as adjusted net tangible book value per share by $0.05,future, the declaration and payment of such dividends will be at the dilution per share to new investors in this offering by $0.20, assuming the number of units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase of 250,000 in the number of units sold in this offering would result in an incremental increase (decrease)sole discretion of our as adjusted net tangible book value by approximately $634,800board of directors and decreasemay be discontinued at any time. In determining the dilution per share to new investors in this offering by $0.03, assumingamount of any future dividends, our board of directors will take into account any legal or contractual limitations, our actual and anticipated future earnings, cash flow, debt service and capital requirements and other factors that the anticipated assumed public offering priceour board of $2.76 per unit remains the same.directors may deem relevant.
DETERMINATION OF OFFERING PRICE
The foregoing discussionSelling Stockholder will determine at what price it may sell the offered shares (if any), and table do not take into account further dilution to new investors that could occursuch sales may be made at prevailing market prices, or at privately negotiated prices.
SELLING STOCKHOLDER
The shares of Common Stock being offered by the Selling Stockholder(s) are those issuable upon the exercise of outstanding warrants or conversion of convertible debentures having a per share exercise price or conversion price less than the per share offering price to the public in this offering. In addition, we may choose to raiseWarrants. For additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities,information regarding the issuance of these securities, could resultsee the section of this prospectus entitled “Prospectus Summary—Registered Direct Offering and Concurrent Private Placement” for a more detailed description of the offering. We are registering the shares of Common Stock issuable upon exercise of the Warrants in further dilutionorder to our stockholders.permit the Selling Stockholder(s) to offer the shares for resale from time to time. Except for the ownership of the Warrants, the transactions contemplated pursuant to the Purchase Agreement and other financings completed by us, the Selling Stockholder(s) have not had any material relationship with us within the past three years.
The term “Selling Stockholder(s)” also includes any transferees, pledgees, donees, or other successors in interest to the Selling Stockholder named in the table below. We will file a supplement to this prospectus (or a post-effective amendment hereto, if necessary) to name successors to the named Selling Stockholder(s) who are able to use this prospectus to resell the shares of Common Stock offered hereby.
The following table sets forth certain information with respect to the Selling Stockholder, including (i) the shares of our Common Stock beneficially owned by the Selling Stockholder prior to this offering, (ii) the number of shares being offered by the Selling Stockholder pursuant to this prospectus and (iii) the Selling Stockholder’s beneficial ownership after completion of this offering. The registration of the shares of Common Stock issuable to the Selling Stockholder upon the exercise of the Warrants does not necessarily mean that the Selling Stockholder will sell all or any of such shares, but the number of shares and percentages set forth in the final two columns below assume that all shares of Common Stock being offered by the Selling Stockholder are sold.
The table is based on information supplied to us by the Selling Stockholder, with beneficial ownership and percentage ownership determined in accordance with the rules and regulations of the SEC, and includes voting or investment power with respect to shares of Common Stock. This information does not necessarily indicate beneficial ownership for any other purpose. In computing the number of shares of our common stockCommon Stock beneficially owned by the Selling Stockholder and the percentage ownership of the Selling Stockholder, shares of Common Stock subject to Warrants held by the Selling Stockholder that will be outstanding immediatelyare exercisable within 60 days after August 25, 2022, are deemed outstanding. The percentage of beneficial ownership after this offering is based on 12,276,87826,860,810 shares of common stockCommon Stock outstanding ason August 25, 2022.
This prospectus covers the resale of March 31, 2020,3,166,227 shares of our Common Stock that may be sold or otherwise disposed of by the Selling Stockholder. Such shares are issuable to the Selling Stockholder upon the exercise of the Warrants. Each Warrant is exercisable for one share of our Common Stock at an exercise price of $0.9475 per share. The Warrants have a term of five years and six months from the date of issuance, are exercisable six months from the date of issuance and have an exercise price of $0.9475 per share, subject to customary adjustments thereunder. See the sections of this prospectus entitled “Prospectus Summary—Registered Direct Offering and Concurrent Private Placement” and “Description of Our Securities— Pre-Funded Warrants and Warrants Issued in June 2022” for a more detailed description of the Warrants. The Selling Stockholder may sell all, some or none of the shares registered in this offering, but the number of shares and percentages set forth in the final two columns under “Shares of Common Stock Beneficially Owned Immediately Following This Offering” below assume that all shares of Common Stock being offered by the Selling Stockholder are sold. See “Plan of Distribution.”
In accordance with the terms of the Purchase Agreement with the Selling Stockholder, this prospectus generally covers the resale of the maximum number of shares of Common Stock issuable upon exercise of the Warrants issued to the Selling Stockholder in the Private Placement. Because the number of Common Shares may be adjusted for reverse and forward share splits, share dividends, share combinations and other similar transactions, the number of shares of Common Stock that will actually be issued may be more or less than the number of shares of Common Stock being offered by this prospectus. Under the terms of the Warrants, the Selling Stockholder may not exercise the Warrants to the extent such exercise would cause such Selling Stockholder, together with its affiliates, to beneficially own a number of shares of Common Stock which would exceed 4.99% or 9.99% of our then outstanding shares of Common Stock following such exercise, excluding for purposes of such determination, of shares of Common Stock not yet issuable upon exercise of the Warrants which have not been exercised. The number of shares of Common Stock does not include, asreflect this limitation. The Selling Stockholder may sell all, some or none of July 23, 2020:its shares in this offering. See “Plan of Distribution.”
Shares of Common Stock Beneficially Owned Prior to this Offering(1)(2) | Maximum Number of Shares of Common Stock to be Offered for Resale in this Offering(2)(3) | Shares of Common Stock Beneficially Owned Immediately Following This Offering(1)(2)(3) | ||||||||||||||||||
Name | Number | Percentage | Number | Number | Percentage | |||||||||||||||
Armistice Capital Master Fund Ltd. | 5,448,161 | (4) | 18.1 | % | 3,166,227 | 2,281,934 | 8.5 | % | ||||||||||||
(1) | This table and the information in the notes below are based upon information supplied by the Selling Stockholder. |
(2) | The shares of Common Stock underlying the Warrants held by the Selling Stockholder are exercisable beginning on December 15, 2022; however, for purposes of this table we have assumed that all Warrants are immediately exercisable for 3,166,227 shares of our Common Stock. In addition, the terms of the Warrants held by the Selling Stockholder include a blocker provision that restricts exercise to the extent the securities beneficially owned by the Selling Stockholder and its affiliates would represent beneficial ownership in excess of 4.99% of our Common Stock outstanding immediately after giving effect to such exercise, subject to the holder’s option upon notice to us to increase this beneficial ownership limitation; provided that any increase of such beneficial limitation percentage shall only be effective upon 61 days’ prior notice to us and such increased beneficial ownership percentage shall not exceed 9.99% of our shares of Common Stock. |
(3) | Assumes the exercise in full of the Warrants and sale of all 3,166,227 shares of our Common Stock registered pursuant to this prospectus, although the Selling Stockholder is under no obligation known to us to sell any shares of Common Stock at this time. |
(4) | Consists of (i) 2,281,934 shares of our Common Stock, and (ii) 3,166,227 shares of our Common Stock issuable upon the exercise of the Warrants, at an exercise price of $0.9475, all of which are directly held by Armistice Capital Master Fund Ltd. (the “Master Fund”), a Cayman Islands exempted company, and may be deemed to be indirectly beneficially owned by Armistice Capital, LLC (“Armistice Capital”), the investment manager of the Master Fund, and Steven Boyd, the Managing Member of Armistice Capital. Armistice Capital and Steven Boyd disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein. The Warrants are subject to a 4.99% beneficial ownership limitation that prohibits the Master Fund from exercising any portion of them if, following such exercise, the Master Fund’s ownership of our Common Stock would exceed the beneficial ownership limitation. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, New York 10022. |
PLAN OF DISTRIBUTION
Each Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on The Nasdaq Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
● |
● |
● |
● | an exchange distribution in accordance with the rules of the applicable exchange; |
● | privately negotiated transactions; |
● | settlement of short sales; |
● | in transactions through broker-dealers that agree with the Selling Stockholder to sell a specified number of such securities at a stipulated price per security; |
● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
● | a combination of any such methods of sale; or |
● | any other method permitted pursuant to applicable law. |
The Selling Stockholder may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction, a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholder may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
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Unless we specifically state otherwise,The Company is required to pay certain fees and expenses incurred by the information in this prospectus assumes or gives effect to:Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
·that the public offering priceWe agreed to keep this prospectus effective until no Selling Stockholder owns any Warrants or any shares of our unit is $2.76 per unit (the assumed public offering price is $2.759 per share of common stock and $0.001 per accompanying warrant);
·noCommon Stock issuable upon exercise of the outstanding warrants described aboveWarrants. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and no conversionis complied with.
Pursuant to applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the convertible debentures described above;resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
·no exercise of the underwriters’ option to purchase up to an additional 543,478 shares of common stock from us in this offering;
·no exercise of the warrants included in the units;
·no exercise of the representative’s warrants; and
·a 1-for-8 reverse stock split of our issued and outstanding shares of common stock effected on December 12, 2019.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus. All amounts in this prospectus are in U.S. dollars, unless otherwise noted.
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 Newgioco Group, Inc.Elys Game Technology, Corp. and its consolidated subsidiaries.
We currently provide our B2C gaming services in Italy through our subsidiary, Multigioco Srl (“Multigioco”), which operations are carried out via both land-based or online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”) that permits us to distribute leisure betting products such as sports betting, and virtual sports betting products through both physical, land-based retail locations as well as online through our licensed website www.newgioco.it or commercial webskins linked to our licensed website and through mobile devices. Management implemented a licensed gaming Operatorconsolidation strategy in the regulated Italian leisure betting market holding an “online”, “retail”by integrating all B2C operations into Multigioco and “CED retail”allowed the Austria Bookmaker license that was regulated by the Austrian Federal Finance Ministry (“BMF”) to terminate.
We also provide bookmaking services in the U.S. market via our recently acquired subsidiary US Bookmaking in certain regulated states where we offer B2B bookmaking and platform services to our customers. Our intention is to focus our attention on expanding the U.S. market. We recently began operation is Washington, D.C. through our Multigiocoa Class B Managed Service Provider and Ulisse subsidiaries, respectively. AsClass B Operator license to operate a sportsbook within the Grand Central Restaurant and Sportsbook located in the Adams Morgan area of Washington, D.C., and in October 2021 we entered into an Operator, we collect gaming wagersagreement with Ocean Casino Resort in Atlantic City and sports bets through two distribution channels: (i) online through websites on internet browsers, mobile applications and physical venues known as “web-shops” (internet cafes; kiosks, coffee-shops, convenience stores, restaurants and bars, etc.) where patrons can load their online gaming account through PC’s situated at each venue, and (ii) through physical land-based retail venues (off-track betting shops, SSBT (“self-serve betting terminal”) kiosks, coffee-shops, convenience stores, restaurants, taverns and bars, etc.).
commenced operations in the state of New Jersey in March 2022.
Additionally, we are a globalprovide B2B gaming technology companythrough our Odissea subsidiary which owns and operates a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”) through our Odissea subsidiary.. 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 our VGVirtual Generation subsidiary. The Platform also provides seamless application programming interface integration 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 implemented 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.
Our corporate group is based in North America, which includes a head officean executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Canada with satellite offices in Fort Lauderdale and Boca Raton, FloridaOntario through which our CEO and CFOwe carry-out corporate activities, handle corporate responsibilities, day-to-day reporting duties,and U.S. development planning, and through which various employees, independent contractors and vendors are engaged.
We operate two business segments inFor the leisure gaming industry and our revenue is derived as follows:
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Currently,period ended June 30, 2022, transaction revenue generated through our subsidiariessubsidiary Multigioco and Ulisse, consistconsisted of wagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based betting web-shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated by our Platform is primarily derived from bet and wager processing in Italy through our Multigioco, and in the U.S., through Elys Gameboard Technologies and USB. Since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns in Italy subsided, management simplified our Italian footprint by focusing our investment towards the Multigioco operations and discontinued Ulisse operationspresence in Italy.Italy during the second quarter of 2021.
We believe that our Platform is considered one of the newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a B2B basis, including expansion through Europe, South America, South Africa and the developing market in the United States. During the three and six months ended March 31, 2020June 30, 2022 and the year ended December 31, 2019,2021, we also generated service revenue from royalties through authorized agents by providing our virtual sports products through our VGVirtual Generation subsidiary inand generated service revenues through the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua,provision of bookmaking and Turkey.platform services through our recently acquired subsidiary, US Bookmaking. We intend to leverage our partnerships in these 12 countriesEurope, 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.
We operate two business segments in the leisure gaming industry and our revenue is derived as follows:
1. | Betting establishments |
Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. | Betting platform software and services |
SaaS based service revenue through providing our Platform and virtual sports products to betting operators.
This Management’s Discussion and Analysis includes a discussion of our operations for the yearthree months and six months ended December 31, 2019,June 30, 2022 and 2021, which reflectsincludes the operations of VG and Naos Holdings Limited (“Naos”) for the eleven months of the year ended December 31, 2019. The operations of VG and Naos are not included in the discussion for the year ended December 31, 2018 due to the fact that the acquisition was consummated in January 2019. This Management’s Discussion and Analysis also includes a discussion of our operationsUS Bookmaking for the three months and six months ended March 31, 2020June 30, 2022.
Recent Developments
Financing
On June 15, 2022, we raised $3 million in gross proceeds and 2019,issued (i) an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock to an investor in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-256815), which reflectswas initially filed with the operationsU.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021 and (ii)in a concurrent private placement, warrants to purchase an aggregate of forup to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share and expiration date of December 15, 2027, subject to customary adjustments thereunder. If after the full quarter ended March 31, 2020 and VG and Naos for twosix month anniversary of the three monthsissuance date there is no effective registration statement registering the shares underlying the Warrants for resale, then the quarter ended March 31, 2019.Warrants are exercisable on a cashless basis. On July 12, 2022, the investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12.
Recent DevelopmentsStrategic agreements entered into with Lottomatica (currently known as G.B.O, S.p.A)
Impact of COVID-19
As result ofWe entered into a Master Technology Development and License Agreement and a Technical Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based and on-line applications by Lottomatica in the global outbreak of the COVID-19 virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictionsU.S. and closures of public gatherings and travel which included betting shops, arcades and bingo halls across Italy until April 3, 2020. Accordingly, we had 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 webshop locations. On June 19, 2020 all land-based betting shops, including corner locations such as bars, coffee shops throughout Italy reopened. The closing of physical betting shop locations did not affect our online and mobile business operations which has mitigated some of the impact. Subsequently, on March 10, 2020 the Italian government imposed further restrictions on travel throughout ItalyCanadian markets, as well as transborder crossings,potentially worldwide. The contract is for a period of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that hampered our effortsafter a period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to meet its filing deadlines, and have either postponed or cancelled most professional sports events which has had an effect on our overall sports betting handle and revenues and may negatively impact our operating results.the SBP for €4.0 million.
We anticipate that COVID-19 will continueThe Technical Services Agreement was entered into with our subsidiary Odissea to negatively impact our operating results in future periods, however,provide engineering services, develop and deliver the durationsoftware and scopeprovide operational and product management support to Lottomatica on the SBP. The initial term of the COVID-19 outbreak worldwide, including the impact to the stateagreement is for a period of ten years and local economies is not readily determinable at this time.
Acquisition of VG
In January 2019, we expanded our operations in Europe with our acquisition of allbased on cost plus a percentage of the issued and outstanding ordinary shares of VG and Naos. The sellers included Mr. Luca Pasquini, our Vice President of Technology and a member of our Board of Directors, and Mr. Gabriele Peroni, our Vice President of Business Development, each of whom owned 20% each of the issued and outstanding shares of Naos.
VG is a Gaming Laboratories International (GLI) certified virtual sports and gaming software developer with a portfolio of products including greyhound and horse racing; league play football (i.e., soccer), keno; and American Roulette.
VG’s operations have grown rapidly in the highly competitive virtual sports market to approximately 18 million bet tickets traded in 2019. VG now operates in the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.
Pursuant to the VG purchase agreement we paid the sellers €4,000,000 (approximately $4,580,000 at a Euro – exchange rate of 1.143) as follows:
In addition, pursuant to the terms of the VG purchase agreement, we agreed to pay the sellers as an earnout payment in shares of our common stock within one month from the end of the 2019 fiscal year such number of shares as shall equal to an aggregate amount of €500,000 (approximately $561,000), if the amounts of bets made by the users through the VGS platform related to our 2019 fiscal year are at least 5% higher than the amounts of bets made by the users through the VGS platform related to our 2018 fiscal year. Based on 18,449,380 tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock equal at a price of $4.23 per share, which shares were issued effective January 2020.
As of March 31, 2020, we made total cash payments to the former shareholders of VG under the VG Share Purchase Agreement equal to €1,002,400 (approximately $1,119,300) which includes €894,400 (approximately $998,700) under the promissory note we issued to them, and we have issued 341,235 shares valued at €830,000 (approximately $905,300)) of common stock to the former shareholders of VG pursuant to the promissory note. The remaining amounts under the promissory note due to the vendors in cash was €1,664,000 (approximately $1,868,200) and €581,000 (approximately $648,700) to be paid in a number of shares of our common stock as determined by the average of the closing prices of such shares on the last ten trading days immediately preceding the payment dates.
services provided.
ExpansionIn a separate Virtual Service Agreement entered into between our subsidiary Virtual Generation and New Markets
United States Operations DevelopmentGoldbet S.p.A., a subsidiary of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and us to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues.
In May 2018,a separate Assignment Agreement entered into between our subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100 Sports Rights to Multigioco, which will allow us to expand our land-based distribution network to approximately 110 point-of-sale locations. We expect to open the additional 100 outlets over the remainder of the calendar year. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a minimal value.
Operational Developments
Management has implemented a strategic business initiative to reduce expenditures, improve efficiencies and maximize profitability within the underlying operating units. During the six months ended June 30, 2022, we managed to achieve a net income position of approximately $0.19 million in our European operations which consist of Multigioco, Odissea, Ulisse, Virtual Generation and Elys Technology Services, despite the closure of all of our Ulisse CTD locations in the prior year. Our U.S. Supreme Court (“SCOTUS”) ruled that the Professional and Amateur Sports Protection Act (the “PASPA”) was unconstitutional as it violates the Tenth Amendment prohibition against forcing states to implement federal laws. Enacted in 1992, PASPA generally prohibited states from authorizing, licensing or sponsoring bettingUSB subsidiary performance has been disappointing, producing a net loss of $1.16 million on competitive games in which amateur or professional athletes participate. PASPA did not make sports betting a federal crime; rather, it allowed the attorney generalrevenues of $0.6 million for the Departmentsix months ended June 30, 2022, primarily due to personnel costs which increased to $0.7 million and amortization of Justice,intangibles of $0.5 million. We are attempting to address this operational performance with the USB management team. Our other U.S. operation, Elys Gameboard, commenced operations in October 2021 and had produced a net loss of $0.37 million, with one operational customer. We are pursuing several new customers both in the Washington D.C. area as well as professionalin Maryland and amateur sports organizations, to bring civil actions to enjoin violations of the act. The SCOTUS decision opens the door for all states to legalize and regulate sports gambling within their borders. States such as Nevada, New Jersey, Delaware, West Virginia, Rhode Island, Pennsylvania, Arkansas, Montana, Illinois, Indiana, Iowa, Tennessee, New York, New Mexico, New Hampshire, North Carolina, Oregon, Michigan, Mississippi, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. Additionally, states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Ohio and Maryland are considering active bills.once secured we expect to achieve profitable operations within the next twenty four months.
We are also taking steps to reduce corporate overhead and have restructured our operations by streamlining roles and reducing non-essential operating expenditures. Corporate overhead expenditures, net of one-time severance and restructuring expenses of $1.2 million, and non-cash option expense of $1.17 million were reduced by approximately $0.58 million during the six month period. Non-cash stock option expense increased by $0.59 million over the prior year primarily due to the stock options granted to key members of management during the prior year.
Disclosure pertaining to Russia’s invasion of Ukraine
Russia recently invaded Ukraine with Belarus complicit in the invasion. The conflict between these two countries is ongoing.
We do not have any direct or indirect exposure to Ukraine, Belarus or Russia, through our operations, employee base or any investments in any of these countries. In addition, our securities are not traded on any stock exchanges in these three countries. We do not believe that the U.S. sports bettingsanction levied against Russia or Belarus or individuals and entities associated with these two countries will have a material impact on our operations or business, if any.
We do not believe that we have any direct or indirect reliance on goods sourced from Russia, Ukraine or Belarus or countries that are supportive of Russia.
We provide online gaming market presents a large opportunity to deploy our Platform on a Software as a Service (SaaS) basisservices and platform services to several potential independent commercialcustomers, including our own internal usage of our developed software, we employ the latest encryption techniques and tribal casinofirewall practices and gaming operators throughoutconstantly monitor the United States. We have analyzed the technical specifications checklist supplied by GLI to verify that coding inusage of our software meets the functional specifications set forth in the GLI-33 standards (The Gaming Laboratories International technical standard for event wagering systems). We believe that our Platform currently meets the majority of the GLI-33 certification standards and we expect to be in a position to send our software to GLI for certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase intended to begin by October 2020required for the verificationregulated markets which we operate in, this, however, may not be sufficient to prevent the heightened risk of mobile and website functionality. Upon obtaining GLI-33 certification and obtaining regulatory approvals to operate, we expect to be well-positioned to commence processing sports bets in the U.S. on a SaaS basis through our Platform.
As part of our multi-year business growth strategy, we made significant investments for expansion into new markets outside of Italy, including preparation of the platform for the GLI-33 certification, professional services, trade show marketing and brand promotion in the second half of 2018 and first half of 2019 to enter and then build a foundation aimed at accelerating our recently announced U.S. expansion plans. To support these principal objectives, we initiated an ambitious investment strategy that is fundamental to the successful execution of our long-term business plan. These fundamental investments have resulted in short-term, non-recurring expenses related to key elements such as regulatory and policy requirements and establishing a centralized US-based headquarters. In the third quarter of 2018, we also established a plan to relocate our CEO to the U.S., commenced the recruitment and evaluation of key officers, as well as allocating a software development team at Odissea for coding and submission of our Platform for GLI-33 certification for the U.S. market.
In March 2019, we entered into a five-year agreement with Fleetwood Gaming, Inc. for the exclusive rights to distribute our Platform at select non-tribal locations such as sports bars and taverns in the state of Montana. The multi-year agreement is expected to allow Fleetwood to install our Platform throughout Fleetwood's distribution network in Montana.
In April 2019, we entered into a five-year agreement with the Chippewa Cree Tribe in Box Elder, Montana to install our Platform at the Northern Winz Casino. In this regard, in September 2019, we transacted the first legal Class 1 real-money bet in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting eventscybersecurity attacks emanating from Russia, Ukraine, Belarus, or games that are not classed as mainstream sports bets.
In October 2019, we engaged experienced U.S. bookmaker Kevin Slicker to lead the development of our U.S. designed betting platform and products and also entered into multi-year agreements with Handle 19, Inc. and Grand Central, LLC, two retail sports bar operators in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process.
In March 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as a strategic advisor to assist the Company with tactical analysis for repositioning of Italian operations within regulatory developments as well as U.S. product deployments and go-to-market programs.
On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.
On June 11, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example, checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP). The procedures for Stage 2 certification, involves a more detailed and formal compliance audit and independent testing of the ISMS against the requirements specified in ISO-27001, and is expected to be completed in approximately 4 months.any other country.
The commencement of betting transactions in Montana and Washington, DC are subject to obtaining the required certification, licensing and approvals from the Gambling Control Divisionimpact of the Montana Departmentinvasion by Russia of JusticeUkraine has increased volatility in trading prices and commodities throughout the District of Columbia Office ofworld, to date, we have not seen a material impact on our operations, however, a prolonged conflict may impact on consumer spending, in general, which could have an adverse impact on the Lottery and Charitable Games, respectively, which has not been determinedleisure gaming industry as of the date of this registration statement.a whole.
Inflation
Macro-economic conditions could affect consumer spending adversely and consequently our operations, however we have not seen any material impact to date.
Foreign Exchange
We operate in several foreign countries, including Austria, Italy, Malta, Colombia and Canada and we incur operating expenses and have foreign currency denominated assets and liabilities associated with these operations. Transactions involving our corporate expenditures are generally denominated in U.S. dollars and Canadian dollars while the functional currency of our subsidiaries is in Euro. Changes and fluctuations in the foreign exchange rate between the U.S. Dollar and the Euro, Canadian dollar and Colombian Peso will have an effect on our results of operations.
Critical Accounting Policies and Estimates
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 this registration statement of which this prospectus forms a part for further information.
The critical accounting policies that involved significant estimation included the following:
Impairment of Indefinite Lived Assets and Goodwill
We carried intangible assets in the amount of $14.8 million and goodwill in the amount of $16.2 million as more fully described in Notes 7 and 8 to the condensed consolidated financial statements. The intangible assets and goodwill are allocated between reporting units. The Company tests its goodwill and intangible assets with an indefinite useful life annually for impairment or more frequently if indicators for impairment exist. Impairment for goodwill is determined by comparing the fair value of the respective reporting unit to their carrying amount. For impairment testing of indefinite-lived intangibles. The Company determines the fair value of the reporting units using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital. In addition, management recently reviewed the future revenue and profit projections of US Bookmaking based on the forecasts provided by the vendors at the time of performing the business valuation, which factored in the ability to source new customers. The customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired over the forecast period and the resultant downward impact on forecasted revenue streams. We reviewed the forecasts and made appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add over the forecast period. Since performing this analysis we have no reason to believe that further impairment is necessary as of June 30, 2022.
Fair Value of Contingent Consideration
As of June 30, 2022, the Company carried contingent purchase consideration in the amount of $13.8 million as more fully described in Note 12 to the condensed consolidated financial statements. The contingent consideration relates to the business combination of US Bookmaking on July 15, 2021. The contingent consideration is based upon achievement of certain EBITDA milestones during the next 4 years, payable 50% in cash and 50% in stock, the contingent consideration is up to $41.8 million. At each reporting period, the Company estimates changes in the fair value of the contingent consideration and any change in fair value is recognized in the consolidated statements of operations and comprehensive (loss) income.
The basis for determining contingent purchase consideration at each reporting period is based on cumulative EBITDA for the period July 15, 2021 to December 31, 2025, with the first measurement period being December 31, 2022. The forecasts provided by the vendors at the time of performing the business valuation was based on achieving a certain number of new customers on an annual basis. The customer acquisition process has proven to take longer than expected with a resultant impact on forecasted revenue streams over the contingent earnout period. Management revised its estimated revenues as of December 31, 2021. These forecasts were reviewed and adjusted to ensure they appeared reasonable based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add in a fiscal period. We have no reason to believe that the contingent purchase consideration, which was remeasured at December 31, 2021, needs to be re-evaluated as of June 30, 2022.
Recently Issued Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements included in this registration statement of which this prospectus forms a part for further information for information regarding recently issued accounting standards.
Results of Operations
Results of operations for the quarters ended March 31, 2020 and March 31, 2019.
Comparison of the three months ended March 31, 2020 and 2019.
This Management’s Discussion and Analysis includes a discussion of our operationsOperations for the three months ended March 31, 2020June 30, 2022 and 2019. The operations of VG and Naos were only included for two of the three months ended March 31, 2019 due to the fact that the acquisition was consummated in January 2019.
June 30, 2021
Revenues
The following table represents disaggregated revenues from our gaming operations for the three months ended March 31, 2020June 30, 2022 and 2019.2021. 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 Commission Revenues represents commissions on lotto ticket sales andauthorities. Service Revenues is revenue invoiced for our ELYSElys software service and royalties invoiced for the sale of virtual products.
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Turnover | ||||||||
Web-based | $ | 92,376,106 | $ | 86,575,901 | ||||
Land-based | 23,602,084 | 50,399,564 | ||||||
Total Turnover | 115,978,190 | 136,975,465 | ||||||
Winnings/Payouts | ||||||||
Web-based | 86,095,623 | 82,262,937 | ||||||
Land-based | 18,191,402 | 44,356,302 | ||||||
Total Winnings/payouts | 104,287,025 | 126,619,239 | ||||||
Gross Gaming Revenues | ||||||||
Web-based | 6,280,483 | 4,312,964 | ||||||
Land-based | 5,410,682 | 6,043,262 | ||||||
Gross Gaming Revenues | $ | 11,691,165 | $ | 10,356,226 | ||||
Less: ADM Gaming Taxes | (1,530,795 | ) | (1,193,746 | ) | ||||
Net Gaming Revenues | $ | 10,160,370 | $ | 9,162,480 | ||||
Betting platform software and services | 9,804 | 103,814 | ||||||
Revenue | $ | 10,170,174 | $ | 9,266,294 |
We generated total revenues of $10,170,174 and $9,266,294 for the three months ended March 31, 2020 and 2019, respectively, an increase of $903,880 or 9.8%.
Three Months Ended | ||||||||||||||||
June 30, 2022 | June 30, 2021 | Increase (decrease) | Percentage change | |||||||||||||
Turnover | ||||||||||||||||
Turnover web-based | $ | 186,441,824 | $ | 219,874,610 | $ | (33,432,786 | ) | (15.2 | )% | |||||||
Turnover land-based | 1,818,081 | 218,129 | 1,599,952 | 733.5 | % | |||||||||||
Total Turnover | 188,259,905 | 220,092,739 | (31,832,834 | ) | (14.5 | )% | ||||||||||
Winnings/Payouts | ||||||||||||||||
Winnings web-based | 173,924,052 | 205,048,852 | (31,124,800 | ) | (15.2 | )% | ||||||||||
Winnings land-based | 1,557,874 | 166,369 | 1,391,505 | 836.4 | % | |||||||||||
Total Winnings/payouts | 175,481,926 | 205,215,221 | (29,733,295 | ) | (14.5 | )% | ||||||||||
Gross Gaming Revenues | 12,777,979 | 14,877,518 | (2,099,539 | ) | (14.1 | )% | ||||||||||
Less: Gaming Taxes | 3,117,380 | 3,285,273 | (167,893 | ) | (5.1 | )% | ||||||||||
Net Gaming Revenues | 9,660,599 | 11,592,245 | (1,931,646 | ) | (16.7 | )% | ||||||||||
Add: Service Revenues | 687,136 | 97,704 | 589,432 | 603.3 | % | |||||||||||
Total Revenues | $ | 10,347,735 | $ | 11,689,949 | $ | (1,342,214 | ) | (11.5 | )% |
The change in total sales channel revenuesturnover (handle) is primarily due to the following:
Web-based turnover increaseddecreased by $5,800,205approximately $33.4 million or 6.7%15.2%. The decrease in turnover is attributable to the following; (i) during the current year the U.S. Dollar exchange rate against the Euro has strengthened from an average rate of $1.205 to $1.094 or 9.2%, resulting in a net currency loss in turnover of approximately $25.7 million, (ii) the closure of the Ulisse Data Transmission Centers (“CTD”) locations during the prior year, resulted in a decline in revenues of approximately $14.5 million; offset by an increase is primarilyin turnover from Multigioco of approximately $6.7 million or 3.6%. Despite the slow-down in the growth of web-based revenues due to a significant increase in the numbersoftening of web-shops opened in 2019COVID restrictions, we still managed to grow this line of our business as well as the addition of virtual games productswe continue to the online channel.gain market share. The ratiopercentage of payouts on onlineweb-based turnover improve to 93.2% inremained static at 93.3% for the current period compared to 95.0% during the prior period. The payout ratio varies based on the skillthree months ended June 30, 2022 and luck of our customers and can fluctuate significantly from period to period.2021 respectively.
Land-based turnover decreasedincreased by $26,797,480approximately $1.6 million or 53.2% which resulted from of the conversion of 20 land-based CED venues to webshops (online reload centers) and the government mandated closure on March 8, 2020 all of our land-based betting shops733.5%. The increase is due to the breakoutsoftening of COVID restrictions during the COVID pandemic.current year, resulting in more people frequenting land-based locations which led to an improvement in turnover at our Multigioco land based operations, we expect this revenue to increase dramatically as we roll out our approximately 100 land-based locations from our recently acquired operating rights. The ratiopercentage of payouts on land-based turnover declined to 85.7% from 76.3% for the three months ended June 30, 2022 and 2021 respectively.
The turnover mix impacts our Gross Gaming Revenue (“GGR”). Our turnover for the three months ended June 30, 2022 is as follows; Sports betting turnover represented 19.7% (June 30, 2021 – 23.0%); casino style games represented 79.5% (June 30, 2021 – 76.0%); and other was 0.8% (June 30, 2021 - 1.0%). The shift towards more casino style games during the three months ended June 30, 2022, has a negative impact on our gross gaming revenues as the margin earned on our sports book averaged 16.6% (June 30, 2021 – 14.8%) and for our casino style games averaged 4.5% (June 30, 2021 - 4.4%), resulting in a blended GGR of 6.8% (June 30, 2021 6.8%). The percentage decrease in sports book turnover and GGR is primarily due to the closure of all Ulisse Italian based locations in June 2021. Although the sports betting hold improved to 77.1%16.6% from 14.8%, the lower sports betting turnover and GGR as a percentage of overall turnover and revenue resulted in the current period from 88.0% ina static overall blended GGR (or hold) of 6.8%.
Gaming taxes decreased by approximately $0.2 million or 5.1%, over the prior period. The payout ratio variesrelative rate of our gaming taxes, which is based on Gross Gaming Revenues was 24.4% and 22.1% for the skillthree months ended June 30, 2022 and luck2021 respectively. The increase in tax rate is attributable to the closure of our customers and can fluctuatethe Ulisse CTD operations in June 2021, Ulisse had a significantly from periodlower tax rate due to period.its incorporation being situated outside of Italy.
ADM gaming taxesService revenues increased by $337,049approximately $0.6 million or 28.2% over the prior period603.3%. This is primarily due the increased gaming tax rates institutedto; (i) revenues generated by the Italian gaming regulator on January 1, 2019USB operations of approximately $0.3 million and by the(ii) a general increase in our overall turnover by 9.8% over the prior period.
Bettingother service-based revenues across our platform software and services revenue decreased by $94,010 or 90.6%. Our customer base is currently, primarily internal to the group, our outside customers were affected by the COVID-19 pandemic.companies. This revenue remains insignificant to total revenues during the yearsperiods presented.
Selling expenses
We incurred selling expenses of $6,215,161approximately $7.9 million and $7,407,706$9.6 million for the three months ended March 31, 2020June 30, 2022 and 2019,2021, respectively, a decrease of $1,192,545approximately $1.7 million or 16.1%17.7%. Selling expenses are commissions that are paid to our sales agents and are directly tied to handle (turnover) as they are based on a percentage of handle (turnover)turnover (handle) and are not affected by the winnings that are paid.paid out. Therefore, increases in handle,turnover (handle), will typically result in increases in selling expenses but may not result in increases in overall revenue if winnings/payouts, that are subject to the unknown outcome of sports events that we have no control over, are very high. During the three months ended March 31, 2020 ourThe percentage of selling expenses to gross gaming revenuesturnover was approximately 53.7%fairly consistent at 4.2% compared to 71.5%4.4% for the three months ended March 31, 2019, primarily due to revised commission agreements with agents as more customers converted to online betting.
June 30, 2022 and 2021, respectively.
General and Administrative Expenses
General and administrative expenses were $2, 820,961approximately $4.8 million and $3,197,454 during$4.8 million for the three months ended March 31, 2020June 30, 2022 and 2019, respectively,2021, respectively. The general and administrative expenses remained consistent over the prior year despite the addition of the current operating loss from USB business, which added approximately $0.6 million of general and administrative costs for the three months ended June 30, 2022 and an increase in group non-cash stock based compensation expense of approximately $0.3 million for the three months ended June 30, 2022. Management has embarked on a decrease of $376,493 or 11.8%. The decreasecost reduction exercise, eliminating all unnecessary expenditure and focusing on returning the business to profitability, including the costs identified in expenditure is due to non-recurring expenses incurred in 2019 for trade shows and marketing related to or U.S. business development, growth of our betting operations in Italy.USB subsidiary.
(Loss) IncomeRestructuring and severance expenses
Restructuring and severance expenses was approximately $1.2 million and $0 for the three months ended June 30, 2022 and 2021, respectively. As mentioned above, 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 $0.75 million, for the immediate vesting of options.
Loss from Operations
The income from operations was $1,134,052 and loss from operations was $(1,338,866)approximately $3.5 million and $2.7 million for the three months ended March 31, 2020June 30, 2022 and 2019,2021, respectively, an increase of $2,472,918approximately $0.8 million or 184.7%29.6%. The increase in operating profitloss is primarily duedirectly attributable to the overall improvementdecrease in revenue, discussed above,offset by the reductiondecreasing in selling expenses and generalthe increase in restructuring and administrativeseverance expenses as discussed above.
Interest Expense, Net of Interest Income
Interest expense was $139,974 and $147,636immaterial for the three months ended March 31, 2020June 30, 2022 and 2019,2021.
Other income
Other income was approximately $0.03 million and $0.09 million for the three months years ended June 30, 2022 and 2021, respectively, a decrease of $7,662approximately $0.06 million or 5.2%66.7%. The decrease is attributable to the conversion of debenturesOther income includes additional Covid relief funds received in Ulisse during the prior year.period.
AmortizationChange in fair value of debt discountcontingent purchase consideration
AmortizationChange in fair value of debt discountcontingent purchase consideration was $450,229approximately $0.5 million and $1,356,476$0 for the three months ended March 31, 2020June, 2022 and 2019,2021 respectively, a decreasean increase of $906,247 or 66.8%, primarilyapproximately $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 toon the conversionacquisition of debentures during the prior year. The conversion of debentures in the prior year took place predominantly in the last 3 months of fiscal 2019, thereby reducing the base of the debt discount to be amortized inUSB.
Other expense
Other expense was immaterial for the three months ended March 31, 2020.June 30, 2022 and 2021.
Gain (loss)(Loss) on Marketable Securities
The Gaingain on marketable securities was $130,000approximately $0.02 million for the three months ended June 30, 2022 and the loss on marketable securities was $(25,000)approximately $0.29 million for the three months ended March 31, 2020,June 30, 2021, an increase of approximately $0.31 million or 107.1%. The losses and 2019, respectively. The gain (loss)gains on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each quarter. The shares in Zoompass were acquired by the Company as settlement of a litigation matter.matter, we have no influence over the performance of Zoompass.
Income (Loss)Loss Before Income Taxes
IncomeLoss before income taxes was $685,647approximately $3.9 million and loss before income taxes was $2,867,978$2.9 million for the three months ended March 31, 2020June 30, 2022 and 2019,2021, respectively, an increase in income of $3,553,625approximately $1.0 million or 123.9%34.5%. The increase is attributable to the increase in gross revenues,loss from operations, the reduction in selling expenses and general and administrative expenses, and the reductionchange in the debt discount amortization, discussed above.fair value of contingent purchase consideration, offset by the movement in the gain on marketable securities during the current period.
Income Tax Provision
The income tax provision was $528,038a credit of approximately $0.1 million and $245,974$0.1 million for the three months ended March 31, 2020June 30, 2022 and 2019,2021, respectively, an increase of $282,064 or 114.7%. The current yearperiod credit is due to the reversal of a portion of a tax charge consists of incomeprovision raised in the previous quarter on our Multigioco operations and a deferred tax charge of $551,398credit on intangible amortization.
Net Loss
Net loss was approximately $3.8 million and deferred taxation credit of $(23,360). The effective tax rate$2.8 million for the three months ended March 31, 2020 is effectively 80.4%. This is due to taxable income earned in two operating subsidiaries, resulting in a taxation chargeJune 30, 2022 and 2021, respectively, an increase of $551,398, offset by a loss generated at the corporate level of $1,080,007 which results in a net operating loss which is not provided forapproximately $1.0 million or 35.7% due to the uncertainty of future realization of this loss.increase in loss before income taxes, discussed above.
Net Income (Loss)
Net income was $157,609 and net loss was $3,113,952 for the three months ended March 31, 2020 and 2019, respectively, an increase in net income of $3,271,561 or 105.1%, due to improved income from operations and cost reduction as discussed above.
Comprehensive Loss
Our reporting currency is the U.S. dollar while the functional currency of our subsidiesItalian, Maltese and Austrian subsidiaries is the Euro, the local currency in Italy, Malta and Austria and the functional currency of our Canadian subsidiary is the Canadian Dollar.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 year-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 adjustment of $(112,030)approximately $(0.36) million and $(130,230) and$0.085 for the three months ended March 31, 2020June 30, 2022 and 2019,2021, respectively. We expected a translation adjustment loss due to the recent strengthening of the U.S. Dollar against the Euro, as the majority of our operations are denominated in Euro’s.
Results of Operations for the six months ended June 30, 2022 and the six months ended June 30, 2021
Revenues
The following table represents disaggregated revenues from our gaming operations for the six months ended June 30, 2022 and 2021. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, and taxes due to government authorities, while Service Revenues represents commissions on lotto ticket sales and Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.
Six Months Ended | ||||||||||||||||
June 30, 2022 | June 30, 2021 | Increase (decrease) | Percentage change | |||||||||||||
Turnover | ||||||||||||||||
Turnover web-based | $ | 402,222,106 | $ | 451,206,769 | $ | (48,984,663 | ) | (10.9 | )% | |||||||
Turnover land-based | 3,603,188 | 12,043,959 | (8,440,771 | ) | (70.1 | )% | ||||||||||
Total Turnover | 405,825,294 | 463,250,728 | (57,425,434 | ) | (12.4 | )% | ||||||||||
Winnings/Payouts | ||||||||||||||||
Winnings web-based | 374,777,873 | 420,647,267 | (45,869,394 | ) | (10.9 | )% | ||||||||||
Winnings land-based | 2,958,287 | 10,331,307 | (7,373,020 | ) | (71.4 | )% | ||||||||||
Total Winnings/payouts | 377,736,160 | 430,978,574 | (53,242,414 | ) | (12.4 | )% | ||||||||||
Gross Gaming Revenues | 28,089,134 | 32,272,154 | (4,183,020 | ) | (13.0 | )% | ||||||||||
Less: Gaming Taxes | 6,848,210 | 6,614,311 | 233,899 | 3.5 | % | |||||||||||
Net Gaming Revenues | 21,240,924 | 25,657,843 | (4,416,919 | ) | (17.2 | )% | ||||||||||
Add: Service Revenues | 1,342,797 | 189,434 | 1,153,363 | 608.8 | % | |||||||||||
Total Revenues | $ | 22,583,721 | $ | 25,847,277 | $ | (3,263,556 | ) | (12.6 | )% |
The change in turnover (handle) is primarily due to the following:
Web-based turnover decreased by approximately $49.0 million or 10.9%. The decrease in turnover is attributable to the following; (i) during the current year the U.S. Dollar exchange rate against the Euro has strengthened from an average rate of $1.205 to $1.094 or 9.2%, resulting in a net currency loss in turnover of approximately $41.6 million, (ii) the closure of the CTD locations during the prior year, resulted in a decline in revenues of approximately $31.5 million; offset by an increase in turnover from Multigioco of approximately $24.1 million or 6.4%. Despite the slow-down in the growth of web-based revenues due to the softening of COVID restrictions, we still managed to grow this line of our business as we continue to gain market share. The percentage of payouts on web-based turnover remained static at 93.2% for the six months ended June 30, 2022 and 2021 respectively.
Land-based turnover decreased by approximately $8.4 million or 70.1%. The decrease in turnover is attributable to the following; (i) during the current year the U.S. Dollar exchange rate against the Euro has strengthened from an average rate of $1.205 to $1.094 or 9.2%, resulting in a net currency loss in turnover of approximately $1.1 million, (ii) the closure of the CTD locations during the prior year, resulted in a decline in revenues of approximately $10.7 million; offset by an increase in turnover from Multigioco of approximately $3.4 million or 1,666.7%, due to the softening of COVID restrictions during the current year, resulting in more people frequenting land-based locations which led to an improvement in turnover at our Multigioco land based operations. we expect this revenue to increase dramatically as we roll out our approximately 100 land-based locations from our recently acquired operating rights. The percentage of payouts on land-based turnover improved to 82.1% from 85.8% for the six months ended June 30, 2022 and 2021 respectively.
The turnover mix impacts our Gross Gaming Revenue (“GGR”). Our turnover for the six months ended June 30, 2022 is as follows; Sports betting turnover represented 19.7% (June 30, 2021 – 23.9%); casino style games represented 79.5% ( June 30, 2021 – 75.1%); and other was 0.8% (June 30, 2021 – 1.0%). The shift towards more casino style games during the six months ended June 30, 2022, has a negative impact on our gross gaming revenues as the margin earned on our sports book averaged 17.5% (June 30, 2021 – 15.9%) and for our casino style games averaged 4.4% (June 30, 2021 - 4.2%), resulting in a blended GGR of 6.9% (June 30, 2021 7.0%). The percentage decrease in sports book turnover and GGR is primarily due to the closure of all Ulisse Italian based locations in June 2021. Although the sports betting hold improved to 17.5% from 15.9%, the lower sports betting turnover and GGR as a percentage of overall turnover and revenue resulted in a static overall blended hold of 6.9%.
Gaming taxes increased by approximately $0.2 or 3.5% over the prior period. The relative rate of our gaming taxes, which is based on Gross Gaming Revenues was 24.4% and 20.5% for the six months ended June 30, 2022 and 2021, respectively. The increase is attributable to the closure of the Ulisse CTD operations in June 2021, Ulisse had a significantly lower tax rate due to its incorporation being situated outside of Italy.
Service revenues increased by approximately $1.2 million or 608.8%. This is primarily due to; (i) revenues generated by USB operations of approximately $0.6 million and (ii) a general increase in our other service-based revenues across our platform companies. This revenue remains insignificant to total revenues during the periods presented.
Selling expenses
We incurred selling expenses of approximately $17.2 million and $20.3 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of approximately $3.1 million or 15.3%. Selling expenses are commissions that are paid to our sales agents as a percentage of turnover (handle) and are not affected by the winnings that are paid out. Therefore, increases in turnover (handle), will typically result in increases in selling expenses but may not result in increases in overall revenue if winnings/payouts, that are subject to the unknown outcome of sports events that we have no control over, are very high. The percentage of selling expenses to turnover decreased to 4.2% from 4.4% for the six months ended June 30, 2022 and 2021, respectively.
General and Administrative Expenses
General and administrative expenses were approximately $9.8 million and $8.9 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $0.9 million or 10.1%. The increase over the prior year is attributable to the following; an increase in general and administrative expenses of approximately $1.3 million related to the acquisition of USB on July 15, 2021, of which approximately $0.7 million relates to personnel costs; which was offset by a decrease in general and administrative expenses at our European operations and corporate office by approximately $0.9 million in line with our mandate to focus on profitability. Management continues to focus on cost reduction, eliminating all unnecessary expenditure and focusing on returning the business to profitability, including the costs identified in our USB subsidiary.
Restructuring and severance expenses
Restructuring and severance expenses was approximately $1.2 million and $0 for the six months ended June 30, 2022 and 2021, respectively. As mentioned above, 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 $0.75 million, for an immediate vesting of options.
Loss from Operations
The loss from operations was approximately $5.6 million and $3.3 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $2.3 million or 69.7%. The increase in loss from operations is primarily due to the following: (i) the decrease in revenue, the increase in general and administrative expenses and restructuring and severance costs, offset by the decrease in selling expenses, as discussed above.
Interest Expense, Net of Interest Income
Interest expense was immaterial for the six months ended June 30, 2022 and 2021.
Amortization of debt discount
The Amortization of debt discount in the prior period related to convertible debentures which were repaid or converted in the prior year.
Other income
Other income was approximately $0.07 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of approximately $0.03 million or 82.5%. In the prior year, other income included a COVID tax credit of $0.09 million received from the Agenzia delle Dogane e dei Monopoli (“ADM”) for taxes previously charged; $0.2 million of COVID relief funds received by Ulisse during the prior period.
Other expense
Other expense was approximately $0.01 million and $0.03 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of approximately $0.02 million or 66.7%. In the prior year, other expenses included an administrative penalty of $0.03 million related to ADM taxes provided for by Multigioco.
(Loss) gain on Marketable Securities
The gain on marketable securities was approximately $0.09 million and the loss on marketable securities was approximately $0.09 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $0.18 million. The losses and gains on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each quarter. The shares in Zoompass were acquired by the Company as settlement of a litigation matter, we have no influence over the performance of Zoompass.
Loss Before Income Taxes
Loss before income taxes was approximately $6.3 million and $3.1 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $3.2 million or 103.2%. The increase is primarily attributable to the increase in loss from operations and the change in fair value of contingent purchase consideration, as discussed above
Income Tax Provision
The income tax provision was approximately $0.03 million and $0.28 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of approximately $0.25 million. The current year charge decreased due to the closure of the Ulisse CTD operations in June 2021 in the prior period.
Net Loss
Net loss was approximately $6.4 million and $3.4 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately $3.0 million or 88.2% due to the increase in loss before income taxes and the reduction in income tax provision, 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 year-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 adjustment of approximately $0.5 million and $(0.26) million for the six months ended June 30, 2022 and 2021, respectively. We expected a translation adjustment loss due to the recent strengthening of the U.S. Dollar against the Euro, as the majority of our operations are denominated in Euro’s.
Results of operations for the years ended December 31, 20192021 and December 31, 2018.2020.
The comparisons below include a discussion of our operations for the yearyears ended December 31, 2019,2021 and 2020, which includes the results of operations of US Bookmaking subsequent to its acquisition of VG and Naos on JanuaryJuly 31, 2019.2021.
Revenues
The following table represents disaggregated revenues from our gaming operations for the years ended December 31, 20192021 and 2018.2020. 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. Commission and service revenues represent commissions on lotto ticket sales and revenue invoiced for our Elys softwarePlatform service and royalties invoiced for the sale of virtual products.
Years Ended | ||||||||||||||||
December 31, 2019 | December 31, 2018 | Increase/ (decrease) | Percentage change | |||||||||||||
Turnover | ||||||||||||||||
Web-based | $ | 328,385,837 | $ | 235,891,170 | $ | 92,494,667 | 39.2 | % | ||||||||
Land-based | 125,747,337 | 177,334,592 | (51,587,255 | ) | (29.1 | )% | ||||||||||
Total Turnover | 454,133,174 | 413,225,762 | 40,907,412 | 9.9 | % | |||||||||||
Winnings/Payouts | ||||||||||||||||
Web-based | 309,214,993 | 223,064,978 | 86,150,015 | 38.6 | % | |||||||||||
Land-based | 105,011,619 | 152,446,130 | (47,434,511 | ) | (31.1 | )% | ||||||||||
Total Winnings/payouts | 414,226,612 | 375,511,108 | 38,715,504 | 10.3 | % | |||||||||||
Gross Gaming Revenues | 39,906,562 | 37,714,654 | 2,191,908 | 5.8 | % | |||||||||||
Less: ADM Gaming Taxes | 4,697,085 | 3,417,150 | 1,279,935 | 37.5 | % | |||||||||||
Net Gaming Revenues | 35,209,477 | 34,297,504 | 911,973 | 2.7 | % | |||||||||||
Betting platform software and services | 373,654 | 277,593 | 96,061 | 34.6 | % | |||||||||||
Total Revenues | $ | 35,583,131 | $ | 34,575,097 | 1,008,034 | 2.9 | % |
Years Ended | ||||||||||||||||
December 31, 2021 | December 31, 2020 | Increase/ (decrease) | Percentage change | |||||||||||||
Turnover | ||||||||||||||||
Web-based | $ | 826,789,619 | $ | 505,369,803 | $ | 321,419,816 | 63.6 | % | ||||||||
Land-based | 15,071,218 | 68,888,592 | (53,817,374 | ) | (78.1 | )% | ||||||||||
Total Turnover | 841,860,837 | 574,258,395 | 267,602,442 | 46.6 | % | |||||||||||
Winnings/Payouts | ||||||||||||||||
Winnings web-based | 771,852,252 | 473,794,175 | 298,058,077 | 62.9 | % | |||||||||||
Winnings land-based | 12,842,577 | 56,467,865 | (43,625,288 | ) | (77.3 | )% | ||||||||||
Total Winnings/payouts | 784,694,829 | 530,262,040 | 254,432,789 | 48.0 | % | |||||||||||
Gross Gaming Revenues | 57,166,008 | 43,996,355 | 13,169,653 | 29.9 | % | |||||||||||
Less: Gaming Taxes | 12,657,930 | 6,874,752 | 5,783,178 | 84.1 | % | |||||||||||
Net Gaming Revenues | 44,508,078 | 37,121,603 | 7,386,475 | 19.9 | % | |||||||||||
Betting platform software and services | 1,038,713 | 144,764 | 893,949 | 617.5 | % | |||||||||||
Total Revenues | $ | 45,546,791 | $ | 37,266,367 | $ | 8,280,424 | 22.2 | % |
The Company generated total revenues of $35,583,131$45,546,791 and $34,575,097$37,266,367 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $1,008,034$8,280,424 or 2.9%22.2%.
The change in total revenues is primarily due to the following:
Web-based turnover increased by $92,494,667$321,419,816 or 39.2%63.6%. The increase in web-based turnover is primarilywas due to the significant number of new online players while the physical betting shops were closed for a significant increase inportion of the number of web-shops opened in 2019 as well as the addition of virtual games productscurrent year, only re-opening on June 14, 2021 due to the online channel.pandemic. The payoutincrease over the prior year was impacted by the temporary shutdown of betting shops in Italy on March 8, 2020 due to COVID-19. This trend has continued with more people relying on using web based platforms to place wagers. The ratio of payouts on web-basedonline turnover improved to 94.2% from 94.6%93.8% in the prior year resultingto 93.4% in more profitability on the turnover generated of approximately $1.3 million.current year. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period and year to year.
period.
Land-based turnover decreased by $51,587,255$53,817,374 or 29.1%78.1%. The decrease over the prior period was impacted by the shutdown of betting shops in land-based turnover is primarilyItaly that started on March 8, 2020 due to conversion of land-based customers to web-based customersCOVID-19 and the closuremajority of approximately 20 underperformingwhich were effectively terminated on June 14, 2021. The impact was significant for both our Ulisse operation, which ceased operations in Italy in June 2021 and our Multigioco land-based locationsoperation, which impact was offset by increased online based gaming in Italy.both Multigioco and Ulisse during the period January to June 2021. The payout ratio of payouts on land-based turnover decreaseddeteriorated to 83.5%85.2% in the current year from 86.0%, resulting82.0% in more profitability on the turnover generated of $3.1 million.prior year. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period.
Disaggregated sportsbook hold decreased to 15.7% from 18.9% of handle for the years ended December 31, 2021 and 2020, respectively, a decrease of 3.2 percentage points in sportsbook hold while our casino style game hold increased to 4.2% from 3.8% for the years ended December 31, 2021 and 2020, respectively, an increase of 0.4 percentage points. The blended hold decreased to 6.8% from 7.7% for the years ended December 31, 2021 and 2020, respectively, a decrease of 0.9 percentage points. The decrease in sports betting hold had an overall negative impact on our overall gross gaming revenue. The shift towards growing our online channel, with higher pay-out casino games and lower margin poker rake, resulted in an overall decrease in blended conversion of turnover to revenue.
Gaming taxes increased by $5,783,178 or 84.1% over the prior year. The relative rate of our gaming taxes, which is based on Gross Gaming Revenues, of 22.2% for the year ended December 31, 2021 is significantly higher than the 15.6% for the year ended December 31, 2020, respectively, and is primarily due to the mix of our Gross Gaming revenues shifting to Multigioco which has an average gaming tax of approximately 24.4% compared to Ulisse with a significantly lower tax rate due to its incorporation being situated outside of Italy. The increase in taxes is due to the shift of Ulisse business to Multigioco with effect from June 2021.
Gross gaming
Service revenues increased by $2,191,908$893,949 or 5.8%617.5%. Although we had an overall increase in total turnover of 9.9%, the volume of web-based turnover as a percentage of total turnover increased from 57.1% in 2018 to 72.3% in 2019. Web-based turnover has a higher payout ratio in the current year of 94.2% compared to land-based turnover which has a payout ratio of 83.5% in the current year, this resulted in web-based revenue growing by 5.8% over the prior year compared to total revenue growing by 9.9%
ADM gaming taxes increased by $1,279,935 or 37.5% over the prior periodThis is predominantly due to the increased gaming tax rates institutedrevenues generated by the Italian gaming regulator in 2019 along with the increase in overall betting handle which gaming taxour Colombian operations and our newly acquired US Bookmaking operations. Our Platform services customer base is based on.
Betting platform softwarecurrently limited primarily to services provided to external US and servicesinternational retail customers and internal group operations of Multigioco, Ulisse and Virtual Generation. This revenue while increasing by 34.6%, remains insignificant to total revenues during the yearsperiods presented.
Selling expenses
We incurred selling expenses of $27,584,492$36,274,752 and $24,142,110$26,109,221 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $3,442,382$10,165,531 or 14.3%38.9%. Selling expenses are commissions that are paid to our sales agents and are directly tied to handle (turnover) as they are based on a percentage of handle (turnover) and are not affected by the winnings that are paid. Therefore, increases in handle, will typically result in increases in selling expenses but may not result in increases in overall revenue if winnings/payouts, that are subject to the unknown outcome of sports events over which we have no control, are very high. DuringDue to a concerted effort to manage the rates at which we agree to pay commissions to selling agents, based on a 46.6% increase in turnover during the year ended December 31, 2019,2021, our percentage of selling expenses to gross gaming revenuesturnover was approximately 69.1%4.3%, compared to 64.0%4.5% for the year ended December 31, 2018, primarily due to an aggressive strategy in the Italian gaming market to gain market share resulting in revised commission agreements with agents.2020.
General and Administrative Expenses
General and administrative expenses were $10,994,554$18,817,959 and $10,588,162$13,789,391 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $406,392$5,028,568 or 3.8%36.5%. The increase in general and administrative expenditure is in line with expectationsdue to the following:
i) | Personnel costs were $6,846,226 and $4,815,047 for the years ended December 31, 2021 and 2020, respectively, an increase of $2,031,179 or 42.2%. This included the addition of personnel costs in US Bookmaking of $373,831, an increase in salary expenses of approximately $1,657,348, primarily due to; (i) the increase in personnel at corporate level associated with our expansion into the U.S. market, including the head of special projects, head of corporate affairs and salary increases to our CEO in line with market related salaries; and (ii) an increase in the headcount of our development personnel in our European operations. |
ii) | Stock based compensation expense was $1,845,019 and $518,506 for the years ended December 31, 2021 and 2020, respectively, an increase of $1,326,513 or 255.8%. The increase is primarily due to the issuance of 1,193,500 options during the current year and the amortization expense associated with these options and the 648,000 options issued to our head of special projects during the last quarter of 2020. |
(iii) | Platform related fees were $2,799,473 and $2,060,132 for the years ended December 31, 2021 and 2020, respectively, an increase of $739,341 or 35.9%, this is primarily due to the increase in turnover of 46.6%, a portion of our platform fees is linked to turnover. |
(iv) | Professional fees were $2,496,045 and $1,316,272 for the years ended December 31, 2021 and 2020, respectively, an increase of $1,179,773 or 89.6%. the increase is primarily due to legal fees associated with absorbing the Ulisse business into Multigioco and fees associated with licensing the Elys platform in the first U.S. state during the current year, as well as licensing and administrative consultants associated with the launch into the US market. |
(v) | The remaining decrease of $248,238 consists of several individually immaterial expense items. |
Impairment of indefinite lived assets and includes the grantgoodwill
Impairment of stock options during the year ended December 31, 2019 resulting in an expense of $201,106indefinite lived assets and $0goodwill was $17,350,628 and $4,900,000 for the years ended December 31, 20192021 and 2018,2020, respectively. We evaluated our long-lived assets for impairment in terms of ASC 350 and determined that an impairment charge of the remaining value of our Ulisse bookmakers license was appropriate of $4,827,914 as we have decided to concentrate a significant amount of our efforts on developing the U.S. market. In addition, we considered the fair value of purchased goodwill on the acquisition of US Bookmaking in terms of ASC 360, and determined that, based on management’s revised future projections that an impairment charge of $12,522,714 was appropriate. In the prior year we impaired the Ulisse bookmakers license by $4,900,000 in terms of an ASC 350 evaluation.
As discussed below under contingent purchase consideration, management recently reviewed the future revenue and profit projections of US Bookmaking based on the forecasts provided by the vendors at the time of performing the business valuation, factoring in the ability to source new customers. The customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired over the forecast period and the resultant downward impact on forecasted revenue streams. We reviewed the forecasts and made appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add over the forecast period. Management is currently forecasting expected discounted cash flows over the forecast period to be approximately 40% lower than originally estimated. This has a significant impact on our current valuation of US Bookmaking, resulting in a goodwill impairment charge of approximately $12,522,714.
Loss from Operations
The loss from operations was $2,995,915$26,896,548 and $155,175$7,532,245 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $2,840,740.$19,364,303 or 257.1%. The increase in loss from operations is primarily due to the following: (i) the impairment of the Ulisse license of $4,827,914 and the impairment of the Goodwill on the acquisition of US Bookmaking of $12,522,714; (ii) an increase of $10,165,531 in selling expenses, of $3,442,382 offsetwhich are based on turnover that had increased by 46.6% and (iii) an increase in revenueU.S. corporate related expenses as we increased the size of $1,008,034 as discussed above.our operation and personnel to enter into the U.S. market.
Interest Expense, Net of Interest Income
Interest expense was $972,443$20,985 and $619,709$328,663 for the years ended December 31, 20192021 and 2018,2020, respectively, an increasea decrease of $352,734$307,678 or 56.9%93.6%. The increasedecrease is attributableprimarily related to the conversion of convertible debentures into equity, primarily in the prior year period. Interest during the current year represents minor interest on the convertible debentures which were issued during 2018, a significant amount of these debentures were only in existence for a portion of prior year.remaining debenture and other bank loans and related party payables.
Amortization of debt discount
Amortization of debt discount was $4,154,922$12,833 and $1,995,128$818,182 for the years ended December 31, 201920210 and 2018,2020, respectively, an increasea decrease of $2,159,794$805,349 or 108.3%98.4%. The increasedecrease is attributableprimarily due to the debt discount arising on the issuancesconversion of convertible debentures into equity, primarily in 2018, a significant amount of these convertible debentures were only in existence for a portion ofthe prior year, in addition convertible debentures amounting to $5,240,206 and interest thereon of $732,136 was converted to equity during the current year, of which approximately $3,725,000 was converted in December 2019,period, resulting in accelerated amortization and the accelerationmaturity of the debt discount amortization.convertible notes in May 2020.
Virtual Generation bonus earnout
Change in fair value of contingent purchase consideration
The Virtual Generation bonus earnout
Change in fair value of contingent purchase consideration was $561,351$11,857,558 and $0 for the years ended December 31, 20192021 and 2018, respectively. In terms2020, respectively, a decrease of $11,857,558. The change in fair value of contingent purchase consideration includes the reevaluation of the Securities Purchase Agreement entered into with the Virtual Generation sellers in January 2019, the sellers were entitled to an additional paymentfair value of €500,000 on achievement of a growth on gross tickets sold of 5%. This contingent bonus earnout was not included in the original purchase consideration as we considered thaton the possibilityacquisition of achieving the 5% growth in gross tickets was remote. On December 31, 2019, we issued an aggregate of 132,735 shares of common stock as full payment of the earnout.US Bookmaking.
LossContingent purchase consideration on share issuances
Loss on share issuances was $44,063 and $0the acquisition of US bookmaking is due to the vendors for the years ended December 31, 20192022 to December 31, 2025. The basis for determining contingent purchase consideration at each reporting period is based on cumulative EBITDA for the period July 15, 2021 to December 31, 2025, with the first measurement period being December 31, 2022. The forecasts provided by the vendors at the time of performing the business valuation was based on achieving a certain number of new customers on an annual basis. The customer acquisition process has proven to take longer than expected with a resultant impact on forecasted revenue streams over the contingent earnout period. Management revised its estimated revenues during January 2022. These forecasts were reviewed and 2018, respectively, an increaseadjusted to ensure they appeared reasonable based on our current understanding of $44,063 or 100%.addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add in a fiscal period. The lossmost significant impact on share issuances was primarily relatedthe contingent purchase consideration is expected to shares issuedbe in the 2022 fiscal year, where we currently forecast that no contingent purchase consideration will be payable. This has a knock-on effect on the future 2023 to certain convertible debenture holders to induce them to transfer their convertible debentures to another holder.2024 fiscal periods as the calculation of contingent purchase consideration is based on cumulative EBITDA.
Other income
Other income was $149,565$227,788 and $0$165,375 for years ended December 31, 20192021 and 2018, respectively.2020, respectively, an increase of $62,413 or 37.7%. Other income representincluded approximately $201,171 of Covid relief funds received by Odissea during the current year.
Other expense
Other expense was $49,967 and $86,933 for the years ended December 31, 2021 and 2020, respectively, a decrease of $36,966 or 42.5%. Other expense represents several individually insignificant amounts receivedsuch as minor fines and penalties and non-operational commitments not related to operations, expensed during the year.
Imputed interestLoss on related party advancesextinguishment of convertible debt
Imputed interestThe loss on related party advancesextinguishment of convertible debt was $0 and $761$719,390 for the years ended December 31, 20192021 and 2018, respectively. This amount is immaterial.
Gain on litigation settlement
Gain on litigation settlement was $516,120 for the year ended December 31, 2018 and no Gain on litigation settlement for the year ended December 31, 2019,2020, respectively, a decrease of $516,120$719,390 or 100%. DuringIn May 2020, we issued additional warrants to certain debenture holders who agreed to extend the year ended December 31, 2018, we settledmaturity date of their debentures by between 90 and 120 days to allow us to complete a legal dispute with an entity we had invested funds intofund raising exercise resulting in a non-cash charge of $719,390. These warrants were valued using a Black-Scholes valuation model that were recorded as a discount against the issuegross value of the Zoompass marketable securities to usconvertible debentures with the following assumptions: no dividend yield, expected volatility of between 139.5% and the forgiveness183.5%, risk free interest rate between 0.16% and 0.19% and warrant life of a debt we owed to this entity.approximately 2 - 3 years.
Loss on issuance of convertible debt
Loss on issuance of convertible debt was $0 and $196,403 for the years ended December 31, 2019 and 2018, respectively, a decrease of $196,403 or 100%. The loss in the prior year arose on the issuance of convertible debentures between January 1, 2018 and May 31, 2018.
Loss(Loss) gain on Marketable Securities
The loss on marketable securities was $97,500$460,000 and $75,000the gain on marketable securities was $290,000 for the years ended December 13, 2019,31, 2021, and 2018, respectively.2020, respectively, a decrease of $750,000 or 258.6%. The gain and loss on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each period. The shares in Zoompass were acquired by the Company as settlement of the litigation matter mentioned above.matter.
Loss Before Income Taxes
Loss before income taxes was $8,676,629$15,354,987 and $2,526,056$9,030,038 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $6,150,573$6,324,949 or 243.5%70.0%. The increase is primarily attributable to the increase in the loss from operations, including the impairment of $2,840,740;indefinite lived assets and goodwill, and the increaseloss on marketable securities, as discussed above, offset by the change in the fair value of contingent purchase consideration, a decrease in interest expense and a decrease in the amortization of debt discount, of $2,159,794; the Virtual Generation bonus earnout of $561,351; and the gain on litigation settlement in the prior year of $516,120 as discussed above.
Income Tax Provision
The income tax provision was $598,176a credit of $290,476 and $1,102,701a charge of $906,644 for the years ended December 31, 20192021 and 2018,2020, respectively, a decrease of $504,525$1,197,120 or 45.8%132.0%. The decrease in the income tax provision is attributable to the reduction in earnings at our operating subsidiaries discussed under revenue and selling expenses abovedeferred tax movements on imputed goodwill charges and the deferredreversal of a tax movement of $85,654 on intangible assets.charge from prior years related to commissions not recognized as an expense in the prior year.
Net Loss
Net loss was $9,274,805$15,064,511 and $3,628,757$9,936,682 for the years ended December 31, 20192021 and 2018,2020, respectively, an increase of $5,646,048$5,127,829 or 155.6%51.6%, due to the reasons discussed above.
Comprehensive Loss
Our reporting currency is the U.S. dollar while the functional currency of our subsidies is the Euro, the local currency in Italy and Austria, and the functional currency of our Canadian subsidiary is the Canadian dollar.dollar and the functional currency of our Colombian operations is the Colombian Peso. The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using year-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 loss of $119,286$519,031 and $184,043a foreign currency translation gain of $444,665 for the years ended December 31, 20192021 and 2018,2020, respectively.
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 property 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 aggressively expand into the US market.
To date, we financed our business primarily though debt and equity placements and cash generated from operations. Recently, we have financed our business from the closingsale of physical betting shop locations until May 4, 2020, whenshares of our common stock pursuant to the Company began reopening physical webshop locations, had not affected the Company’s online and mobile business operations which mitigated someterms of the impact. Open Market Sales AgreementSM that we entered into with Jefferies LLC on November 19, 2021, and a registered direct offering and concurrent private placement with an investor that closed on June 15, 2022.
Between March 28, 2022 and April 13, 2022, we sold 168,016 shares of common stock for gross proceeds of $387,053, less brokerage fees of $11,612 pursuant to the Open Market Sales AgreementSM that we entered into with Jefferies LLC on November 19, 2021.
On March 10, 2020June 13, 2022, we entered into a Securities Purchase Agreement with the Italian government imposed further restrictionsInvestor whereby we issued an aggregate of 2,625,000 shares of our common stock and Pre-Funded Warrants to purchase 541,227 shares of common stock in a registered direct offering, in addition we issued a warrant for 3,166,227 shares of common stock, exercisable at $0.9475 per share with a maturity date of December 15, 2027, to the Investor in a concurrent private placement. The registered direct offering and concurrent private placement closed on travel throughout ItalyJune 15, 2022. The gross proceeds from the offering were approximately $3,000,000 and the net proceeds from the offering were approximately $2.6 million after deducting certain fees due to the Placement Agent and our estimated transaction expenses.
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 transborder crossingsthe gaming platforms we license to third parties.
Based on our forecasts, we believe that hamperedwe have adequate resources to continue operating for the Company’s effortsnext twelve months. We plan to meet its filing deadlines,continue our expansion plans in both the U.S. and haveItalian markets at a rate of growth that we believe is sustainable and achievable by us. If additional accretive opportunities arise during the execution of our business plans, we might consider raising additional cash through either postponeddebt 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 our operating results. On June 19, 2020 all land-based betting shops, including corner locationsequity funding, if such as bars, coffee shops throughout Italy reopened. We anticipatedebt or equity raise is available at terms that COVID-19 may negatively impact our operating results in future periods, however, the specific impact is not readily determinableare acceptable to us, if at this time.
all.
The ongoing COVID-19 pandemic has impacted our Italian based operations, we have seen a shift towards web-based turnover (Handle) from our land-based turnover with the permanent closure of our Ulisse betting shop locations. The percentage Hold or Gross Gaming Revenue generated from our turnover is typically lower on web-based business which generally favors more casino type gaming at lower margins, as discussed above.
Assets
At March 31, 2020,June 30, 2022, we had total assets of $29,080,128approximately $42.9 million compared to $27,825,182approximately $44.6 million at December 31, 2019.2021. A decrease of approximately $1.7 million, primarily due to a decrease in cash balances of approximately $1.3 million, a decrease in gaming receivables of approximately $1.5 million, offset by an increase in prepaid expenditure of approximately $1.0 million, primarily related to prepaid software development expenses for the US market, the balance of the movement is made up of several individually insignificant asset movements.
On December 31, 2021, we had total assets of $44,578,841 compared to total assets of $35,857,979 on December 31, 2020. The increase of $8,720,862 is primarily related to the increase in cash balancesGoodwill of $14,501,217 after impairment charges of $12,522,714 on the acquisition of US Bookmaking, the impairment charge was due to a revision on the greater numbertiming of online players.
At December 31, 2019, we had total assets of $27,825,182 compared to total assets of $22,653,481 at December 31, 2018. The increase is primarily related tomanagement’s expected profitability over the earnout period. An increase in intangible assets of $3,329,047 and goodwill of $1,400,833 related$5,299,979 due to the acquisition of the Virtual Generation licenses amounting to $4,004,594, acquired on January 31, 2019 under the terms of the Securities Purchase Agreement entered into as disclosed in Note 3 to the financial statements for the year ended December 31, 2019US Bookmaking and 2018, offset by amortization of intangiblesincluded non-compete agreements, tradenames and foreign currency movements totaling $675,547, the recording of right of use assets relating to operating leases of $792,078 in terms of ASC 842, offset by acustomer relationships. A reduction in cash balances and restricted cash balances of $1,107,305.$12,338,412 primarily due to the cash paid in the acquisition of US Bookmaking of $5,973,839, the cash used in operation of $7,553,511, predominantly from U.S. operations, which included the funding of expenses related to the setup of U.S. operations, including consultants and legal expenses related to licensing activities and the absorption of cash in Ulisse as it wound down its operations and settled its outstanding liabilities, including accounts payable, gaming payables and tax liabilities, offset by net proceeds from financing activities of $2,857,084, which included proceeds from warrants exercised of $3,962,482 and the repayment of the bank line of credit of $500,000 and deferred purchase consideration of $410,383.
Liabilities
At March 31, 2020,June 30, 2022, we had $18,876,761approximately $26.6 million and $26.8 million in total liabilities and compared to total liabilities of $19,023,897 at December 31, 2019.2021. The increasedecrease is primarily attributable to the increase in gaming accounts payable, offset by a decrease in accounts payable and accrued liabilities. Asliabilities of July 15, 2020, we had convertible debentures of $610,000 and CDN$307,000 (approximately $229,145) including $134,098 and CDN$65,331 (approximately $48,763) in accrued interest that have matured and have been extended for 120 days until September 28, 2020; and a total of $1,068,000 and CDN$1,150,000 (approximately $865,824) including $227,060 and CDN$216,967 (approximately $161,944) in accrued interestapproximately $2.0 million, primarily due to certain accredited investors that have not been convertedthe concerted effort to reduce expenditure and are unsecuredthe payment of several significant corporate legal bills during the current period, an increase in operating lease liabilities of approximately $0.5 million, due to a new Multigioco property lease entered into to accommodate the groups expansion, an increase in contingent purchase consideration of approximately $0.9 million, and bear interest at 10%an increase in promissory notes payable to a shareholder and are in default asdirector of May 31, 2020. We are currently in the process of repaying the outstanding balance periodically. The debenture holders could declare a default under the debentures and if the default were to remain uncured, they would have the right to institute legal proceedings.
approximately $0.26 million.
AtOn December 31, 2019,2021, we had total liabilities of $19,023,897$26,837,324 compared to $12,714,078 at$15,701,626 on December 31, 2018.2020. The increase of $11,135,698 is attributableprimarily due to the Contingent Purchase Consideration of $12,859,399 which was fair valued during the current period based on management’s revised estimate of the profitability of US Bookmaking, an increase in the deferred purchase consideration payable to related and non-related parties incurred for the acquisitiontax liability of Virtual Generation during January 2019 as discussed in Note 3 to the financial statements for the year ended December 31, 2019 and 2018, the increase$2,069,465, a decrease in accounts payable balancesand accrued liabilities of $2,831,233, the deferred purchase consideration$1,140,867 and a decrease of $474,463 in Gaming Payables, primarily due to the Virtual Generation sellerswinding down of $2,881,641, offset byUlisse operations and the netrepayment of longer outstanding liabilities at corporate level, a reduction in convertible debttax liabilities of $1,101,709, which reduction includes$899,071 due to the amortizationlower profitability of debt discountour European operations this year, in particular, the winding down of $4,154,922, interest accruals of $719,931, foreign currency adjustments of $184,214Ulisse operations, and the conversionrepayment of convertible debt, including interest thereon, into equitythe $500,000 bank line of $5,972,343.credit.
Working Capital
Working capital remained static at approximately $1.5 million at June 30, 2022 and December 31, 2021.
We had $6,828,398$7,319,765 in cash and cash equivalents at March 31, 2020 compared to $5,182,598 on December 31, 2019 and $6,289,9032021 compared to $18,945,817 on December 31, 2018.2020.
We had a working capital deficitsurplus of $7,679,497 at March 31, 2020 compared to a working capital deficit$1,556,306 as of $9,153,291 at December 31, 20192021 and a working capital surplus of $134,190 at$7,879,631 on December 31, 2018. The decrease in the working capital deficit at March 31, 2020 compared to December 31, 2019 is due to the increase in cash as a result of the growth in online players and reduction in the balance due to deferred purchase consideration related to the acquisition of Virtual Generation as disclosed in Note 12 and 15 to the financial statements resulting in the acquisition of primarily long term assets in the form of licenses funded by primarily a short-term promissory note and the conversion of debt into shares of common stock. The increase in the working capital deficit at December 31, 2019 compared to December 31, 2018 is due to the acquisition of Virtual Generation as disclosed in Note 3 to the financial statements for the year ended December 31, 2019 and 2018 resulting in the acquisition of primarily long term assets in the form of licenses funded by short-term deferred compensation and the classification of convertible debentures of $3,361,337 as current liabilities due to their maturities falling within the next twelve months.2020.
We maintain a $1,000,000 secured revolving linecontinue to embark on an aggressive roll out of creditour operation in the U.S. market over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. We believe that we will need to raise additional cash resources either from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3% onequity markets or from debt funding during the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit. The outstanding balance on the Metropolitan Commercial Bank facility at March 31, 2020 was $1,000,000.
We currently believe thatnear term as our existing cash resources together with the revenue from operations that we expect to generate will not be sufficient to meet our anticipated needsfund existing operations over the next twelve months from the date hereof. Historically, we have primarily financed our operations through revenue generated from providing online and land-based gaming products, services, and Platform services in Italy and the sales of our securities and we expect to continue to seek to obtain required capital in a similar manner. Recently, we have spent, and expect to continue to spend, a substantial amount of funds in connection with our expansion strategy. We intend embarking on an aggressive roll out of our operation in the US markets over the next twenty four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements.
strategy
Accumulated Deficit
As of March 31, 2020,June 30, 2022, we had accumulated deficit of $23,084,226. As of December 31, 2019, we had accumulated deficit of $23,241,835approximately $54.6 million compared to accumulated deficit of $13,967,030approximately $48.2 million at December 31, 2018.2021.
Cash Flows from Operating Activities
Net cash provided byused in operating activities was approximately $3.6 million and $1.8 million for the threesix months ended March 31, 2020 was $1,960,063 compared to $984,488June 30, 2022 and 2021, respectively, an increase of netapproximately $1.8 million. The increase in cash used in operating activities foris primarily due to the three months ended March 31, 2019.increase in operating loss of approximately $3.0 million as discussed under results of operations above, offset by an increase in non-cash movements of approximately $2.6 million, primarily due to an increase in the movement in stock based compensation expense of approximately $1.3 million, including the accelerated amortization of stock options granted to a severed executive whose options vested immediately, the movement in the change in the fair value of contingent purchase consideration of approximately $0.9 million, due to the accretion expense expected on the USB earnout, and the increase in the movement of depreciation and amortization of approximately $0.45 million, primarily due the amortization of intangibles on the acquisition of USB.
Cash flows from operating activities resulted in net cash used in operating activities of $145,520$7,553,511 and $165,493 for the yearyears ended December 31, 2019, compared to net cash provided by operating activities of $1,401,302 for the year ended December 31, 2018.2021 and 2020, respectively. The $1,546,822 decrease$(7,388,018) increase in cash used in operating activities is primarily related to; (i) the increase in net loss of $(5,127,829) offset by (ii) a net movement in non-cash items of $1,148,714, including a movement in impairment costs of long-lived assets and goodwill of $12,450,628, an increase in the movement of stock option compensation expense of $1,326,513, an increase in the movement in loss on marketable securities of $750,000, offset by a change in the fair value of contingent purchase consideration of $11,857,558, the decrease in the movement in the loss on extinguishment of debt of $(719,390) and a decrease in the movement on the amortization of debt discount of $805,349; and (iii) an increase in working capital movement of $(3,408,903), primarily due to the decrease in movement of gaming accounts payable of $(1,552,573) and the movement in taxes payable of $(1,445,398), primarily related to the winding down of Ulisse operations, an increase in the movement of the gaming accounts receivable balances of $880,226 due to the increase in loss frombusiness activity at our Multigioco operation, an increase in the movement of prepaid expenses of $534,099, predominantly due to prepaid licensed software for US operations, of $5,731,702 offset by non-cash amortizationan increase in accounts payable of deferred costs of $4,097,721.$1,585,327, primarily related to an increase in payables balances at our Multigioco operation and an increase in corporate payables due to the expansion activities into the U.S. market taking place at the corporate level.
Cash Flows from Investing Activities
Net cash used in investing activities for the threesix months ended March 31, 2020June 30, 2022 was $51,293approximately $0.2 million compared to $258,532 of net cash used in investing activities of approximately $0.1 million for the threesix months ended March 31, 2019. InJune 30, 2021. We invested funds in computer related software and hardware predominantly for the prior period we paid net cash of $216,150 on the acquisition of Virtual Generation.U.S. based expansion strategy.
The net cash used in investing activities for the year ended December 31, 20192021 was $468,348 compared to $4,725,856$6,690,919 and $291,501 for the year ended December 31, 2018 that was attributed directly2020, the increase over the prior year is primarily due to the asset purchasesacquisition of Ulisse and Multigioco on May 31, 2018 pursuantUS Bookmaking amounting to the Ulisse Put Option and the Multigioco Put Option. During the current year we acquired Virtual Generation for an initial cash outlay,$5,973,839, net of cash receivedbalances acquired and the acquisition of $47,268property and have subsequently paidequipment and intangibles of $717,080, primarily to support the sellers an additional $672,871 in cash.U.S. expansion efforts.
Cash Flows from Financing Activities
Net cash used inprovided by financing activities for the threesix months ended March 31, 2020June 30, 2022 was $87,299approximately $3.1 million compared to $61,356approximately $2.9 million for the six months ended June 30, 2022. In the current period, a net amount of approximately $2.6 million was raised from a registered direct offering discussed above, after broker fees and expenses of approximately $0.4 million, and a further, approximately $0.25 million was raised from ATM sales, as discussed above. In the prior year net cash provided by financing activities consisted primarily of net proceeds of approximately $3.9 million raised from the exercise of warrants related to the underwritten public offering in August 2020, offset by the repayment of the bank letter of credit of approximately $0.5 million and the payment of deferred purchase consideration of approximately $0.4 million.
Net cash provided by financing activities for the for the year ended December 31, 2021 was $2,857,084 and net cash provided by financing activities for the three monthsyear ended MarchDecember 31, 2019.2020 was $12,711,416. The net cash used ingenerated by financing activities during the current periodyear included the repaymentwarrant exercises of deferred purchase consideration,$3,962,482, offset by the proceeds from a promissory note issued to a related party.
Net cash used in financing activities for the year ended December 31, 2019 was $479,445 compared to cash provided by financing activities of $4,499,088 for the year ended December 31, 2018. We raised funding through the issue of convertible debentures in the prior year of $6,883,906 and repurchased common shares totaling $2,261,307 in the prior year. The common share repurchase was attributed to the asset purchases of Ulisse and Multigioco on May 31, 2018 pursuant to the Ulisse Put Option and the Multigioco Put Option. In the current year we made payment of $672,871 to the Virtual Generation sellers offset by net proceedsrepayment of the bank line of credit of $250,000.$500,000 and deferred purchase price payments of $410,383. In the prior year, we raised net proceeds of $8,966,122 in a public offering and further proceeds of $8,541,896 on warrants exercised, a portion of the proceeds were used to repay debentures of $2,778,349 and the bank line of credit of $500,000 as well as deferred purchase price payments of $1,577,010.
Contractual Obligations
ContractualCurrent accounting standards require disclosure of material obligations at March 31, 2020 consist of the following:and commitments to make future payments under contracts, such as debt, lease agreements, and purchase obligations.
The amount of future minimum lease payments under finance leases are as follows:
Amount | ||||||
Remainder of 2022 | $ | 3,989 | ||||
2023 | 6,488 | |||||
2024 | 753 | |||||
Total undiscounted minimum future lease payments | $ | 11,230 |
The amount of future minimum lease payments under operating leases are as follows:
Amount | ||||||
Remainder of 2022 | $ | 165,030 | ||||
2023 | 288,991 | |||||
2024 | 218,147 | |||||
2025 | 196,715 | |||||
2026 and thereafter | 321,741 | |||||
Total undiscounted minimum future lease payments | $ | 1,190,624 |
InflationOff-Balance-Sheet Arrangements
We do not believe that general price inflation will have a material effect on our business in the near future.
Foreign Exchange
We operate in several foreign countries, including Austria, Italy, Malta and Canada and we incur operating expenses and have foreign currency denominated assets and liabilities associated with these operations. Transactions involving our corporate expenditures are generally denominated in U.S. dollars and Canadian dollars while the functional currency of our subsidiaries is in Euro. Convertible debentures have also been issued in both U.S. dollars and Canadian dollars. Changes and fluctuations in the foreign exchange rate between the Euro and the U.S. dollar and the Canadian dollar and the U.S. dollar will have an effect on our results of operations.
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.entities.
Related Party Transactions
Deferred Purchase consideration, Related Party
During the first and second quarter of the prior year, we paid the remaining balance of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.
Related Party Transactions
Notes Payable, Related Party
We had three promissory notes entered into in 2015 and 2016 with a related party with an aggregate principal amount outstanding of $318,078. The promissory notes bore interest at 12% per annum and were due on demand.
On September 4, 2019, in terms of an agreement entered into with the note holder, the promissory notes amounting to $318,078 together with interest thereon of $139,383, totaling $457,461 were exchanged for 142,956 shares of common stock at the market price of $3.20 per share.
We received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millwork, Inc., a company controlled by the brother of our CEO. The PN bears no interest and is repayable on demand.
Deferred Purchase consideration, Related Party
In terms of the acquisition of Virtual Generation on January 31, 2019, we 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 related parties was €1,521,200.
The related party promissory notes are due to Luca Pasquini, a director and officer and Gabriele Peroni, an officer.
The promissory notes are to be settled as follows:
Pursuant to the terms of the Purchase Agreement we entered into with VG, we 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 the VG Sellers have qualified for the earnout payment.
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 | March 31, 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 | (336,727 | ) | (410,925 | ) | ||||
Repayment in cash | (92,444 | ) | (328,734 | ) | ||||
Foreign exchange movements | (15,905 | ) | (35,992 | ) | ||||
834,354 | 1,279,430 | |||||||
Present value discount on future payments | ||||||||
Present value discount | (80,069 | ) | (161,393 | ) | ||||
Amortization | 21,685 | 78,128 | ||||||
Foreign exchange movements | 1,395 | 3,195 | ||||||
(56,989 | ) | (80,069 | ) | |||||
Deferred purchase consideration, net | $ | 777,365 | $ | 1,199,361 |
Related party payables and receivables
December 31, 2021 | ||||
Principal Outstanding | ||||
Promissory notes due to related parties | $ | 382,128 | ||
Repayment in cash | (385,121 | ) | ||
Foreign exchange movements | 2,993 | |||
— | ||||
Present value discount on future payments | ||||
Present value discount | (5,174 | ) | ||
Amortization | 5,133 | |||
Foreign exchange movements | 41 | |||
— | ||||
Deferred purchase consideration, net | $ | — |
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:
March 31, 2020 | December 31, 2019 | December 31, 2018 | June 30, 2022 | December 31, 2021 | ||||||||||||||||
Related Party payables | ||||||||||||||||||||
Gold Street Capital Corp. | $ | (31,213 | ) | $ | (2,551 | ) | (39,237 | ) | ||||||||||||
Luca Pasquini | (21,217 | ) | — | — | $ | (173 | ) | $ | (502 | ) | ||||||||||
Victor Salerno | (321,144 | ) | (51,878 | ) | ||||||||||||||||
$ | (321,317 | ) | $ | (52,380 | ) | |||||||||||||||
(52,430 | ) | (2,551 | ) | (39,237 | ) | |||||||||||||||
Related Party Receivables | ||||||||||||||||||||
Luca Pasquini | $ | 867 | $ | 4,123 | — | $ | — | $ | 1,413 |
Amounts due to Gold Street Capital Corp., the major stockholder of Newgioco Group, 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, we issued to Mr. Ciavarella, the Chief Executive Officer and chairman of the board and officer, ten year options to purchase 39,375 shares of common stock at an exercise price of $2.96 per share.
On August 29, 2019, we issued 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, we issued 15,196 shares of common stock to Gold Street Capital in settlement of $48,508 of advances made to us for certain reimbursable expenses.
Luca Pasquini
On January 31, 2019, we acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini, who at the time of acquisition was an executive officer and director of the Corporation, was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of March 31, 2020,June 30, 2021, we had paid Mr. Pasquini the full cash amount of €145,600€500,000 (approximately $162,639)$604,380) and issued 76,059112,521 shares valued at €215,800€300,000 (approximately $241,313)$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 whichOn January 22, 2021, we issued Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547Pasquini 44,968 shares of common stock during January 2020.valued at $257,217, in settlement of accrued compensation due to him.
On August 29, 2019,July 11, 2021, we entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system, the total contract price was €390,000 (approximately $459,572), in addition, on October 14, 2021, we entered into a further agreement with Engage, to provide gaming software and maintenance and support of the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000). Mr. Pasquini owns 34% of Engage
On September 13, 2021, Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company and on October 4, 2021, Mr. Pasquini became the Global Head of Engineering of the Company’s subsidiary Odissea Betriebsinformatik Beratung GmbH and ceased to be Vice President of Technology and an executive officer of the Company.
Michele Ciavarella
Mr. Ciavarella, the Company’s Executive Chairman of the Board, agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, we issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue.
On January 22, 2021, we issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him.
On July 15, 2021, Mr. Pasquini, ten yearCiavarella, our Executive Chairman y, was appointed as our interim Chief Executive Officer and President, effective July 15, 2021. Mr. Ciavarella will serve as our Executive Chairman and interim Chief Executive Officer until the earlier of his resignation or removal from office.
Mr. Ciavarella agreed to receive his 2021 bonus and a portion of his 2022 salary as a restricted stock award. On January 7, 2022, we issued Mr. Ciavarella 162,835 shares of common stock valued at $425,000 on the date of issue.
Carlo Reali
On January 5, 2022, we promoted Carlo Reali to the role of Interim Chief Financial Officer.
On March 29, 2022, we issued Mr. Reali ten-year options to purchase 25,000exercisable for 100,000 shares of common stock, at an exercise price of $2.80$2.50 per share.share, vesting equally over a 4 year period commencing on January 1, 2023.
We do not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that he currently receives which is an annual base salary of €76,631 (approximately $83,847).
Victor Salerno
Gabriele Peroni
On January 31, 2019,July 15, 2021, we consummated the acquisition of USB and in terms of the Purchase Agreement, we acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352),100% of USB, from its members (the “Sellers”). Mr. PeroniSalerno was a 20%68% owner of Virtual GenerationUSB and was due gross proceedsreceived $4,080,000 of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a paymentthe $6,000,000 paid in cash upon closing and 860,760 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 March 31, 2020, we had paid Mr. Peroni cash of €187,200 (approximately $209,107) and issued 76,059 shares valued at €215,800 (approximately $241,313).
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 26,5471,265,823 shares of common stock issued on closing.
Together with the consummation of the acquisition of USB, we entered into a 4 year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees.
Mr. Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during January 2020.the past two years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary.
Pursuant to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.
On August 29, 2019, we issuedSeptember 13, 2021, the Board appointed Mr. Salerno, the President and founder of our newly acquired subsidiary, USB, to serve as a member of the Board.
Prior to the acquisition of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Peroni,Salerno, which amount earns interest at 8% per annum, compounded monthly and is repayable on December 31, 2023.
Between February 23, 2022 and May 18, 2022, Mr. Salerno advanced USB a total of $260,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable on June 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an additional 25% penalty. These notes were advanced to USB without our consent, as per the terms of the Members Interest Purchase Agreement entered into on July 15, 2021. Therefore, we acknowledge the advances of funds to USB by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute.
Paul Sallwasser
On September 13, 2021, we granted Mr. Sallwasser ten year options to purchase 25,000exercisable for 21,300 shares of common stock at an exercise price of $2.80 per share.$5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Alessandro MarcelliSteven Shallcross
On August 29, 2019,January 22, 2021, we issued to Mr. Marcelli, an officer,Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’ fees due to him.
On September 13, 2021, we granted Mr. Shallcross ten year options to purchase 25,000exercisable for 13,600 shares of common stock at an exercise price of $2.80 per share.$5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Franco SalvagniAndrea Mandel-Mantello
On AugustJune 29, 2019,2021, the board of directors appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately and Mr. Mandel-Mantello serves on the audit committee of the Board.
On September 13, 2021, we issued togranted Mr. Salvagni, an officer of ours,Mandel-Montello ten year options to purchase 25,000exercisable for 13,600 shares of common stock at an exercise price of $2.80 per share.$5.10, vesting equally over a twelve month period commencing on September 13, 2021.
Beniamino GianfeliciCritical Estimates
On August 29, 2019, we issued to Mr. Gianfelici, an officer of ours, 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, we issued to Mr. Korb, the chief financial officer of us, 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, we issued to Mr. Sallwasser, a director of ours, 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 issued to Mr. Shallcross, a director of ours, ten year options to purchase 10,313 shares of common stock at an exercise price of $2.96 per share.
The balances of our related party payable and receivable, representing non-interest-bearing (payables) receivables that are due on demand, and were outstanding as of December 31, 2019, and 2018 as follows:
Critical Accounting Policies and Estimates
Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"(“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 Audited Consolidated Financial Statements and the Unaudited Condensed Consolidated Financial Statements included elsewhere in the registration statement of which this Registration Statementprospectus forms a part for further information.
The critical accounting policies that involved significant estimation included the following:
Impairment of Indefinite Lived Assets and Goodwill
We carried intangible assets in the amount of $14.8 million and goodwill in the amount of $16.2 million as more fully described in Notes 7 and 8 to the condensed consolidated financial statements included in the registration statement of which this prospectus forms a part. The intangible assets and goodwill are allocated between reporting units. The Company tests its goodwill and intangible assets with an indefinite useful life annually for impairment or more frequently if indicators for impairment exist. Impairment for goodwill is determined by comparing the fair value of the respective reporting unit to their carrying amount. For impairment testing of indefinite-lived intangibles. The Company determines the fair value of the reporting units using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital. In addition, management recently reviewed the future revenue and profit projections of US Bookmaking based on the forecasts provided by the vendors at the time of performing the business valuation, which factored in the ability to source new customers. The customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired over the forecast period and the resultant downward impact on forecasted revenue streams. We reviewed the forecasts and made appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add over the forecast period. Since performing this analysis we have no reason to believe that further impairment is necessary as of June 30, 2022.
Fair Value of Contingent Consideration
As of June 30, 2022, the Company carried contingent purchase consideration in the amount of $13.8 million as more fully described in Note 12 to the condensed consolidated financial statements. The contingent consideration relates to the business combination of US Bookmaking on July 15, 2021. The contingent consideration is based upon achievement of certain EBITDA milestones during the next 4 years, payable 50% in cash and 50% in stock, the contingent consideration is up to $41.8 million. At each reporting period, the Company estimates changes in the fair value of the contingent consideration and any change in fair value is recognized in the consolidated statements of operations and comprehensive (loss) income.
The basis for determining contingent purchase consideration at each reporting period is based on cumulative EBITDA for the period July 15, 2021 to December 31, 2025, with the first measurement period being December 31, 2022. The forecasts provided by the vendors at the time of performing the business valuation was based on achieving a certain number of new customers on an annual basis. The customer acquisition process has proven to take longer than expected with a resultant impact on forecasted revenue streams over the contingent earnout period. Management revised its estimated revenues as of December 31, 2021. These forecasts were reviewed and adjusted to ensure they appeared reasonable based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, our expected share of revenue and the expectation of how many new clients we would realistically be able to add in a fiscal period. We have no reason to believe that the contingent purchase consideration, which was remeasured at December 31, 2021, needs to be re-evaluated as of June 30, 2022.
Business Combination
As of July 15, 2021, we acquired 100% of US Bookmaking for a consideration of $6 million in cash, the issuance of 1,265,823 shares of our Common Stock plus an opportunity to the seller to receive up to an additional $41.8 million based upon achievement of certain EBITDA milestones during the upcoming four years as more fully described in Note 3 to the consolidated financial statements. We determined the fair values of the tangible and intangible assets acquired and the liabilities assumed using valuation techniques, and goodwill using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital (WACC).
We retained the services of a specialist valuation company to assist in assessing the reasonableness of the assumptions used in valuing the business as well as to perform a purchase price allocation. These assumptions were deemed reasonable at the time of performing the valuation.
Recently Issued Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies of the Notes to the Audited Consolidated Financial Statements and the Unaudited Condensed Consolidated Financial Statements included elsewhere in the registration statement of which this Registration Statementprospectus forms a part for information regarding recently issued accounting standards.
BUSINESS
Company Overview
We are an international, vertically integrated commercial-stage company engaged in two principal aspects of the leisure gaming industry as (1) a business-to-consumer (“B2C”) licensed retail gaming operator (known as an “Operator”) offering our products through two sales distribution channels in (i) retail land-based or on-site physical venues and (ii) online through PC, tablet and mobile distribution, and (2) as a business-to-business (“B2B”) betting technology provider (known as a “Provider”) offering our proprietary betting technology either (1) directly to licensed operators or (2) through value-added re-sellers or systems integrators in the leisure betting industry.
As an Operator in the regulated Italian leisure betting market, we operate on a single-tier distribution strategy by collecting wagers on leisure betting products including a variety of lottery, casino gaming and sports bets through two channels: (i) online through websites on internet browsers, mobile applications and physical venues known as “web-shops” (internet cafes; kiosks, coffee-shops, convenience stores, restaurants and bars, etc.) where patrons can load their online gaming account through PC’s situated at each venue, and (ii) land-based through physical land-based retail venues (off-track betting shops, SSBT (“self-serve betting terminal”) kiosks, coffee-shops, convenience stores, restaurants, taverns and bars, etc.). We currently provide our gaming services through our subsidiaries, Multigioco Srl (“Multigioco”), and Ulisse GmbH (“Ulisse”). These operations are carried out under both land-based and online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”), and our Austrian Bookmaker license, that permit us to distribute leisure betting products such as sports betting, lotto tickets, virtual sports betting, online poker and casino gaming products through both physical, land-based retail locations as well as online through our licensed principal website www.newgioco.it or commercial webskins linked to our principal website and through mobile devices.
In Italy, our gaming products and services are offered to customers at the following three venues:
We currently service approximately 79,000 active online user accounts and an indeterminate number of walk-in customers at a combination of the three types of venues: 1,200 web-cafés (or “web-shops”), 7 corners and 117 agency locations.
As a global gaming technology Provider, we owncompany which owns and operateoperates a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”) through our subsidiary, Odissea Betriebsinformatik Beratung GmbH (“Odissea”). 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 twoour distribution channels described above.below. The omni-channel software design is fully integrated with a built in player gaming account management system, built-in sports book and a built-invirtual sports book. As a Provider, we employ a multi-tier distribution strategy on both a directplatform through our subsidiary, Virtual Generation Limited (“Virtual Generation”). The Platform also provides seamless application programming interface integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to customer channelincorporate e-sports and daily fantasy sports providers.
We believe that our Platform is considered one of the newest betting software platforms in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a Software-as-a-Servicebusiness-to-business (“SaaS”B2B”) basis.basis, including expansion through Europe, South America, South Africa and the developing market in the United States. We also generate service 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 recently acquired subsidiary, Bookmakers Company US, LLC d/b/a U.S. Bookmaking (“US Bookmaking”). We intend to leverage our partnerships in these countries to cross-sell our Platform services to expand the global distribution of our betting solutions.
The Platform is certified by the ADM andAgenzia delle Dogane e dei Monopoli (“ADM”), the Malta Gaming Authority (“MGA”) in Malta and Gaming Laboratories International (“GLI”) and is owned by our subsidiary Odissea Betriebsinformatik Beratung GmbH (“Odissea”).subsidiary. The software architecture was developed and built on the latest Microsoft.Net Core framework, supporting both online customer gaming accounts as well as land-based bet processing capability with multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) backed by a real-time customer relationship management (“CRM”) and business intelligence (“BI”) program for streamlined cross-platform marketing as well as a synchronized financial accounting processes. Data is communicated directly to on-the-ground sales and marketing agents that manage and maintain both our online and land-based retail distribution. The Platform allows our independent B2B and white-label end userscustomers to (i) rapidly and effectively model their gaming businesses and clientmanage gaming accounts, (ii) monitor and analyze performance on an ongoing basis, (iii) share dashboards, and (iv) generate management reports all within a fully integrated solution. In addition, our clients can use the built-in artificial intelligence and adaptive business intelligence modules to evaluate actual performance and leverage insights from analytics to make informed, timely decisions to drive future business. The unique ’shop-client’ architecture of the Platform is to our knowledge is the first of its kinda one-of-a-kind solution in the leisure betting industry. Elys was built around the specific needs of leisure betting operators and proven through our existing Multigioco distribution throughout Italy.
On January 30, 2019,Our intention is to focus our attention on developing and expanding the U.S. market. We currently provide gaming services in the U.S. market on a B2B basis via our recently acquired subsidiary , US Bookmaking, in certain licensed states where we offer bookmaking and platform services to our customers and recently expanded our operations is Washington, D.C. through a Class B Managed Service Provider and Class B Operator license to operate a sportsbook within the Grand Central Bar and Grill located in the Adams Morgan area of Washington, D.C., and have recently entered into an agreement to provide services with another location in Washington, D.C. In addition, in March 2022 we commenced operations with Ocean Resort Casino in Atlantic City, New Jersey. Our penetration into the U.S. market is significant as we have demonstrated that we can provide our acquisition of Virtual Generation Limitedbookmaking and platform services to both smaller retail locations and large casino operators using the same technology and platform base for all potential customers with minimal modification required to our operating systems and bookmaking services, which is extremely cost effective.
We provide our gaming services in Italy through our subsidiary, Multigioco Srl (“VG” or “Virtual Generation”Multigioco”), which ownsoperations are carried out via both land-based or online retail gaming licenses regulated by the ADM that permits us to distribute leisure betting products such as sports betting, and has developed a virtual gaming software platform (“VGS”), and its holding company, Naos Holdings Limited (“Naos”). VG is a Gaming Laboratories International (“GLI”) certified virtual sports and gaming software developer with a portfolio ofbetting products including greyhound and horse racing; league play football (i.e., soccer); keno; and American Roulette. In addition, VG’s platform allows for customization for country-specific sports generation including applications in Latin American and African marketsthrough both physical, land-based retail locations as well as unique tribal games tailored foronline through our licensed website www.newgioco.it or commercial webskins linked to our licensed website and through mobile devices. Our Austria Bookmaker license that was regulated by the Austrian Federal Finance Ministry (“BMF”) permitted us to operate online sports betting in certain European jurisdictions through our subsidiary, Ulisse GmbH (“Ulisse”), under the free-trade principles incorporated within bilateral Intra-EU trade agreements that refers to all trade, including e-commerce transactions in most goods, services and products between member states of the European Union (“EU”). Since the majority of Ulisse Data Transmission Centers (CTD) locations were not expected to re-open after the COVID-19 related lockdowns in Italy subsided, management decided to simplify our Italian footprint by focusing our investment towards the Multigioco operations and discontinued Ulisse presence in Italy during Q2-2021. Management decided during the fourth quarter of 2021 to focus all of its attention and technical resources on developing the significant opportunities and new business leads in the U.S. tribalmarket. After careful consideration of the potential of developing gaming market. VG’s operations have grown in the highly competitive virtual sports marketAustrian and other European markets, management decided to approximately 18.5 million bet tickets sold in 2019. VG now operates inlet the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.Austrian license lapse.
In Italy, our gaming products and services are offered to customers throughout the following three distribution channels:
● | Online gaming websites or mobile solutions where players, through an online account and an e-wallet, using the internet, can play online poker, online casinos games, sports betting wagers, play i-lottery games etc. |
● | Punti Virtuali di Ricarica (“PVR”) (translated as Virtual Reload Centers) or Web-shop (“web cafe” or “internet cafe”): A PVR or web-shop is a physical location that is operated by third-party independent businesses that promote our online gaming websites, acquires online customers and via manned or self-service automated terminals permit online-players to make cash deposits that are electronically credited to their personal online gaming accounts. While at the PVR online-players could also play games and wager through their personal online account by using the public internet accessing communal PC’s available at the venue. |
● | Corner or Punto Sportivo (translated as Sporting Point-of-sale): A corner is distinguished from an agency insofar as the principal business situated at the location that is operated by third-party independent businesses and is an activity that is primarily different from gaming (such as a coffee shop or convenience store) with a terminal connected to the ADM network. The primary purpose of such facility is not gaming, but rather, there is only a small ‘corner’ for extra cash flow in exchange for a fee and/or commission. Specifically, a maximum of 30% of floor space of a corner location can be dedicated to gaming where gaming transactions are collected and processed by a counter clerk. |
We currently service approximately 100,000 online user accounts and an indeterminate number of walk-in customers at a combination of the three types of venues: approximately 1,300 web-shops, 8 corners and 1 land based shop.
Our corporate group is based in North America, which includes an executive suite situated in Las Vegas Nevada and a Canadian office in Toronto, Ontario 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.
For the period ended June 30, 2022, transaction revenue generated through our subsidiary Multigioco consisted of wagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based betting web-shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated by our Platform is primarily derived from bet and wager processing in Italy through Multigioco, and in the U.S., through Elys Gameboard Technologies and USB. Since the majority of CTD locations were not expected to re-open after the COVID-19 related lockdowns in Italy subsided, management simplified our Italian footprint by focusing our investment towards the Multigioco operations and discontinued Ulisse presence in Italy during the second quarter of 2021.
In the USA we operate as a B2B, the same as the “Corner or Punto Sportivo”. We are licensed to operate in several regulated states including Washington, D.C. (District of Columbia) and New Jersey. The locations oversee the wagers and paying out winnings and use our technology and support for the bookmaking services and our operating platform. We earn revenue generated from the use of the Platform as well as a share of the Net Gaming Revenue (NGR).
We operate two business segments in the leisure gaming industry and our revenue is derived as follows:
1. | Betting establishments |
Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and
2. | Betting platform software and services |
SaaS based service revenue through providing our Platform and virtual sports products to betting operators.
Organizational Structure
Our operations are carried out through three geographically organized groups: (i) an operational group which isgroups based in Europe and maintains administrative offices headquartered in Rome, Italy withand satellite offices for operations administration and risk management trading in Naples and Teramo, Italy and San Gwann, Malta;Malta, as well as Las Vegas, Nevada for U.S. operations; (ii) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and (iii) a corporate group which is based in North America and operates out of our principalmaintains an executive officessuite in Las Vegas, Nevada and a Canadian office in Toronto, Canada and satellite offices in Fort Lauderdale and Boca Raton, FloridaOntario through which we carry outcarry-out corporate activities, handle day-to-day reporting duties,and U.S. development planning, and through which various employees, independent contractors and vendors are engaged.
Our revenue streams primarily consistsStrategy
Our goal is to expand our market presence by expanding our penetration into the U.S. market, entering new foreign markets while at the same time further penetrating the Italian and additional European markets. We expect the U.S. market and other new markets, such as Canada and Africa, to be a large source of transactional revenue and service revenue. Through our subsidiaries Multigioco acquired on August 15, 2014 and Ulisse acquired July 1, 2016,future growth, in particular, the U.S. market is one where we generate transactional revenue through collectionintend to offer the use of bets from sports wagering and gaming from online betting and land-based betting shops located throughout Italy, and through our subsidiary, Odissea acquired July 1, 2016, we generate service revenue from providing our Platform services to third partyexisting commercial and tribal casinos, retail betting operators on a B2B basis. In addition, our revenue during the year ended December 31, 2019 included revenue generated by VG acquired January 30, 2019, for 11 months of the year ended December 31, 2019, consisting of royalties invoiced for the sale of virtual games through authorized agents. We generated revenue of $35,583,131 for the year ended December 31, 2019 and $34,575,097 for the year ended December 31, 2018, respectively, and we generated revenue of $10,170,174 for the three months ended March 31, 2020 and $9,266,294 for the three months ended March 31, 2019, respectively. Substantially all of our revenue was generated from operations or services provided in Italy. For the years ended December 31, 2019 and 2018, net gaming revenues represented 98.9% and 99.2%, and net gaming revenues represented 99.9% and 98.9% for the three months ended March 31, 2020 and March 31, 2019, respectively of our revenue and Platform and service revenue represented 1.1% and 0.8%, and Platform and service revenue represented 0.1% and 1.1% for the three months ended March 31, 2020 and March 31, 2019,respectively of revenue. We also formed a non-operating subsidiary Newgioco Group, Inc in Canada on January 17, 2017 for potential future operations in Canada, Elys Technology Group, Limited in Malta on April 4, 2019 for future opportunities, on November 26, 2019 we formed Newgioco Colombia SAS to develop our operations through South and Central America, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware for development of our U.S. sports betting operations.franchise enterprises.
Our Strengths
We believe we have established ourselves as one of the leaders in the Italian leisure betting market. Below are our strengths that we believe should enable us to capture a meaningful share of the United States and global leisure betting market:
Highly Differentiated Technology Platform. Built from the ground-up, the Platform is designed to be a highly flexible and robust sportsbook engine able to cope with the demands of today’s betting operators and players. The Platform is |
Market Momentum. We believe that our unique |
Scalable Platform at Minimal Cost. Our Platform is highly scalable. Expansion of the Platform under our existing infrastructure requires little |
Growing Industry. Online gambling is growing in popularity. Gamblers worldwide increasingly prefer Internet and mobile channels for their betting activities due to the ease of access offered and safety provided. Extensive usage of digital processes and growing bettor demand is driving the market for online betting platforms. Recent liberalization and state-by-state legislation in the United States has resulted in new opportunities in the United States sports betting market. We anticipate that the United States market will begin to have a strong and steady uptake in active wagers. |
Highly Experienced Senior Management Team. We are led by a dedicated and highly experienced senior management team with significant industry experience and proven ability to develop novel solutions. Each of the members of our senior management have more than 20 years of relevant |
Our Strategy
Our goal is to expand our market presence by entering new foreign markets while at the same time further penetrating the Italian and additional European markets. We expect new markets to be a large source of our future growth, in particular, the United States market is one where we intend to offer the use of our Platform to existing commercial and tribal casinos, retail betting operators and franchise enterprises.
Development of U.S. and Other Foreign Markets
The North America Sports Betting Market. In the U.S., until 2018 the Interstate Wire Act of 1961 combined with the Professional and Amateur Sports Protection Act of 1992 (“PASPA” or the “Bradley Act”), prohibited sports betting in the U.S. in all but four grandfathered states (Montana, Oregon, Nevada, Delaware). In May 2018, the U.S. Supreme Court overturned PASPA in a 6-3 decision that found the law conflicted with the Tenth Amendment leaving individual states to decide whether to allow its residents to bet on sports. As described below under the section “Developments in the U.S. Market”, many states, such as New Jersey, Montana, New Hampshire, Pennsylvania and others, have moved quickly to establish sports betting as a means to increase their respective capital resources. While several states have recently passed legislation to allow online gambling, we believe that the U.S. sports betting market will take 5 – 10 years to fully develop. We believe that the United States represents a large addressable market opportunity for us with our Elys betting Platform. Additionally, in Canada we are observing promising legislative developments and we expect a new digital gaming regulatory framework, combined with the permission of single-wagering sport betting events, to be in place soon. This additional jurisdiction could represent a meaningful opportunity for our gaming solution. | ||
Mergers and Acquisition in the Global Gaming Industry.
Mergers and Acquisition in the Global Gaming Industry. In an effort to scale and grow the business, we intend to evaluate potential acquisitions that can be easily integrated into our business. The global gaming industry is still very much fragmented. There have been a significant number of noteworthy consolidations such as: (1) The Stars Group/SkyBet (July 2018) and CrownBet/William Hill Australia (April 2018); (2) Paddy Power/Betfair (February 2016) and with Stars Group (April 2020); (3) GVC/BWIN Ladbrokes/Coral (March 2018), and (4) in gaming machine and lottery concentration (IGT/GTECH (April 2015); as well as others such as Pollard/Innova (July 2017); NYX Gaming Group/Scientific Games (January 2018), which we believe provide us with an opportunity to capitalize on the acquisition of smaller operators forced to compete against newly formed larger players. In addition to the above, and specifically in the U.S., we observed consolidations and acceleration of gaming operators acquiring sports betting technology providers like (1) DraftKings acquiring SBTech (April 2020; (2) Caesars Entertainment acquiring William Hill (September 2020); and (3) Bally’s Corporation acquiring Bet.Works (November 2020) which strengthens our position as one of few remaining, truly independent sport betting providers in the market.
Further Penetration in the Italian Market
● | Acquisitions of Smaller |
Government legislated consolidation of the regulated Italian lottery and gaming market have driven smaller regional operators in Italy to our licensed brand “New Gioco”TM in both the online and land-based sales channels. The Italian regulated gaming market is the largest in the EU and is extremely fragmented. Recent new regulations in Italy have made it more difficult for smaller regional operators throughout Italy to operate and we believe that our innovative and cost-effective Platform is an attractive alternative for such smaller regional operators throughout Italy that will not be able to maintain the new standards set out by the Italian regulator on their own.
● | Organic Growth. |
The Italian online gaming market continues to drive substantial growth in our core operations. From January 1, 2021 through December 31, 2021, we increased the number of registered online accounts to over 100,000 players and webshop locations we operate in Italy from approximately 1,200 to approximately 1,300 and believe that there is ample room for continued growth in the Italian market.
Development in U.S. MarketExpansion and New Markets
Developments in the U.S. Market
In May 2018, the U.S. Supreme Court (“SCOTUS”) ruled that the PASPA was unconstitutional as it violated the Tenth Amendment prohibition against forcing states to implement federal laws. Enacted in 1992, PASPA generally prohibited states from authorizing, licensing or sponsoring betting on competitive games in which amateur or professional athletes participate. PASPA did not make sports betting a federal crime; rather, it allowed the attorney general for the Department of Justice, as well as professional and amateur sports organizations, to bring civil actions to enjoin violations of the act. The SCOTUS decision opens the door for all states to legalize and regulate sports gambling within their borders. States such as Nevada, New Jersey, Delaware, West Virginia, Rhode Island, Pennsylvania, Arkansas, Montana, Illinois, Indiana, Iowa, Tennessee, New York, New Mexico, New Hampshire, North Carolina, Oregon, Michigan, Mississippi, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. In addition, additional states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Ohio and Maryland are considering active bills.
We believe that the U.S. sports betting and online gaming market presents a large opportunity to deploy our Platform on a SaaSbusiness-to-business-to-consumer (“B2B2C”) basis to several potential independent commercial and tribal casino and gaming operators throughout the United States following a 2018States. In September 2020, our retail sports betting solution obtained Gaming Laboratories International (“GLI”) certification allowing our technology to be ready for deployment in the U.S. Supreme Court decision. Weland-based gaming segment. Furthermore, we have analyzed the technical specifications checklist supplied by Gaming Laboratories International (“GLI”)GLI to verify that coding in our softwareonline product meets the functional specifications set forth in the GLI-33 standards (The Gaming Laboratories InternationalGLI’s technical standard for event wagering systems). We believe that our online Platform currently meets the majority of the GLI-33 certification standards and we expect to be in a position to send our digital software to GLI for certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase intended to begin by October 2020 for the verification of mobile and website functionality.2022. Upon obtaining GLI-33 certification and obtaining regulatory approvals to operate in the digital segment, we also expect to be well-positioned to commence processing online sports bets in the U.S. on a SaaSB2B2C basis through our Platform.
As part of our multi-year business growth strategy, during 2021 and 2020 we made significant investments for expansion into new markets outsidethe U.S. market with the acquisition of Italy, including preparationUS Bookmaking, the acquisition of the platform for theoperating licenses and customers in Washington, D.C. and New Jersey and GLI-33 certification of our Platform, professional services, trade show marketing and brand promotion in the second half of 2018 and first half of 2019 to enter and then to build a foundation aimed at accelerating our recently announced U.S. expansion plans. To support these principal objectives, we initiated an ambitious investment strategy that is fundamental to the successful execution of our long-term business plan. These fundamental investments have resulted in short-term, non-recurring expenses related to key elements such as regulatory and policy requirements and establishing a centralized US-based headquarters. In the third quarter of 2018, we also established a plan to relocate our CEO to the U.S., commenced the recruitment and evaluation of key officers, as well as allocating a software development team at Odissea for coding and submission of our Platform for GLI-33 certification to GLI for the U.S. market.
In March 2019, we entered into a five-year agreement with Fleetwood Gaming, Inc. for the exclusive rights to distribute our Platform at select non-tribal locations such as sports bars and taverns in the state of Montana. The multi-year agreement is expected to allow Fleetwood to install our Platform throughout Fleetwood's distribution network in Montana.
In April 2019, we entered into a five-year agreement with the Chippewa Cree Tribe in Box Elder, Montana to install our Platform at the Northern Winz Casino. In this regard, in September 2019, we transacted the first legal Class 1 real-money bet in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting events or games that are not classed as mainstream sports bets.
In October 2019, we engaged experienced U.S. bookmaker Kevin Slicker to lead the development of our U.S. designed betting platform and products and also entered into multi-year agreements with Handle 19, Inc. and Grand Central, LLC, two retail sports bar operators in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process.
In March 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as a strategic advisor to assist the Company with tactical analysis for repositioning of Italian operations within regulatory developments as well as U.S. product deployments and go-to-market programs.
On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.
On June 11,September 1, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001obtained ISO-27001:2013 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example, checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP).management. The procedures for Stage 2 certification, involvesprocess involved a more detailed and formal compliance audit and independent testing of the ISMS againstInformation Security Management System (ISMS) that now certifies Odissea to manage the requirements specified in ISO-27001,security of sensitive third party information such as financial assets, legal and is expected to be completed in approximately 4 months.personal details.
· | Products and Services and Distribution Methods |
The commencement of betting transactions in Montana and Washington, DC are subject to obtaining the required certification, licensing and approvals from the Gambling Control Division of the Montana Department of Justice and the District of Columbia Office of the Lottery and Charitable Games, respectively, which has not been determined as of the date of this registration statement.
Products and Services and Distribution Methods
Betting Platform
We believe that our Platform, engineered and launched by our software development team at Odissea, is a highly efficient, cutting edge betting Platform technology that supports the processing of online client gaming account protocols as well as land-based betting protocols with seamless multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) and integrated with a real-time CRM and Business Intelligence program for streamlined cross-platform marketing as well as a synchronized financial accounting process.
Payment channels for both deposit and withdrawals online are as set forth below:
·Player indirect – meaning that the customer makes a deposit indirectly to their gaming account through a licensed agent (such as a cash deposit to their gaming account at a web-shop counter (e-credit to player account)).
·Player direct – meaning that the customer makes a deposit directly to their own gaming account through one or more of the following methods:
● | Player indirect – meaning that the player makes a deposit indirectly to their gaming account through a licensed agent (such as a cash deposit to their gaming account at a web-shop counter (e-credit to player account)). | |
● | Player direct – meaning that the player makes a deposit directly to their own gaming account through one or more of the following methods: |
Credit |
ATM/ |
Bank |
Postal |
Payment channels for both play of wagers and settlement of winnings at the land-based or retail agency or corner counter is as follows:
·Player direct – meaning that the customer pays for the wager in cash and accepted debit or credit cards.
● | Player direct – meaning that the customer pays for the wager in cash and accepted debit or credit cards. |
We currently employ a customizable client-focused and cost-effective “hands-on” method, rather than a “general approach” to our Platform design with the goal of empowering our player-facing customers, agents and employees to enhance the players’ experience by allowing personalized dashboard design and customer care for all customer call-ins to our service agents. We believe that this strategy has been highly effective in the Italian retail betting market and has been instrumental in increasing our revenues, net earnings and player retention.
Gaming Product Offerings
Our online sales channel (websites and web-shops) in Italy offers a full suite of gaming products that can be played in both real-money or free-play modes which include:
Sports Betting: Considered the largest and most well-known industry segment offering both pre-match and live in-game betting events on a wide variety of sports. |
Online Casino: includes the following: |
Traditional Online | ||
● | Traditional Online Table Games: Table games such as roulette, blackjack and |
Poker: Texas Hold’em and Omaha in both cash and tournament formats. |
Bingo and Skilled and Interactive Games: Games that are programmed with a random number generator to ensure constant fairness for all parties. These games include card games such as tresette (3 Sevens), scopa (Sweep) and briscola (Trump). |
Virtual Sports Betting: Various computer generated sport and racing events that are programmed with |
Horse Racing: Live track horse racing events. |
Our land-based customer locations generally offer only sports betting, and may also carry virtual sports betting and horse racing and physical slot machines.in Italy.
Current Markets, Other Services and Facilities
In addition to complementing gaming offerings originally provided by our acquired operators with our Newgioco branding, we intend to add new products and services with the assistance of gaming specialists, software providers and market research professionals, such as we have done with our acquisition of VG.professionals. We believe that we can generate additional revenues by establishing more marketing centers and web-shops.web-shops in Italy and expand our services in restaurants, bars and other similar small businesses across the U.S.
WeIn Italy, we currently service approximately 79,000 active100,000 online user accounts and estimate that our online user base will increasecontinue to over 100,000 in two yearsfurther increase based on projections of both organic growth and acquisitions of existing operators. In addition, we also service an indeterminate number of walk-in customers at our physical locations throughout the U.S. and Italy. AsSubject to licensing requirements in each state, we increase our customer base in Italy, our betting handle in our Italian operations reached approximately $454 million by the end of 2019. We also expect to begin to penetrate the U.S. market and expect to have approximately 3-5 SaaS operator customers with approximately 20,000 active end-users playing onincrease our Platformpenetration in the U.S. and other North American markets in 2020. The increase in customers is expected to result in anticipated revenue growth of between 25-35% in 2020 and expected operating margins in the 10-15% range, as a result of an improvement in operating leverage.2022.
Our client’s range in age from ages 18 through 79 and are a mix of 70% male and 30% female. In addition, we separate our revenue source by (a) sports betting, (b) casino and card game betting and (c) poker. Our in-house analysis indicates that sports betting and casino games are more popular than poker and other card games among our customer base. Furthermore, sports betting is our most profitable revenue stream yielding the highest percentage of our gross gaming revenue at 51%52% of revenues, which is representative of industry metrics when measured by completed sports seasons on a year over year basis. Our second largest source of revenue is currently casino followed by poker. We anticipate a shift in revenue in the future and that our largest source of our future revenue growth will be from SaaS,B2B2C, which is expected to have the highest gross margin followed by sportsbook, casino and poker.
Our internal analysis further indicates different gaming patterns among our male and female online users. Male players prefer sports-bets, while approximately 10% of them also explore casino and poker. Conversely, female players prefer casino and bingo while approximately 1% try our other games such as poker, sports-betting or lotteries.
Most of our users are currently located throughout Italy, with the highest concentrations in larger centers such as Rome and Naples.
We expect that users from any operators that we acquire will continue to utilize our services and anticipate that any operators we acquire will have existing revenues from users who frequent their establishments and venues or use their gaming websites. In addition to acquiring customers through the acquisition of operators, we intend to obtain additional licenses and pursue contracts and relationships with other operators that we believe will attract and secure new users as we increase our customer base globally.
Revenue Streams
Our revenue streams are as follows:primarily consist of transactional income and service revenue.
Transactional revenue-GamingIn the U.S. we currently generate service revenue from providing our platform and bookmaking services on a B2B basis to retail locations and casino operators in the U.S. market, through our subsidiaries, Elys Gameboard Technologies, (“Gameboard”) and US Bookmaking. We also intend to expand our presence in the U.S. market and are considering expanding our operations to provide a digital solution to customers in the U.S. on a business-to-consumer (“B2C”) basis.
In Italy, we currently generate transactional revenue through collection of bets from sports wagering and gaming from online betting and land-based betting shops located throughout Italy through our subsidiary Multigioco. We also generate service revenue from providing our Platform services to third party operators on a B2B basis through our Odissea subsidiary.
Gaming revenues
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 we have satisfied itsour performance obligation. In addition, we receive 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.
Service revenue-BettingBetting platform
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 our 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.
Mobile Browser Application
Based upon customer demand for improved performance, speed, and ease-of-use for sports betting on mobile devices, we engaged a dedicated internal team of engineers to this distribution channel and have already launched and intend to continue to launch several new and innovative features.
In June 2019, we launched our second-generationOur next-generation mobile browser and application based betting platformsolution on our Elys Platform.Platform is constantly evolving and being customized for deployment in each specific country market. The new mobile platformsolution is dedicated to improving the user experience with respect to sports betting with a unique modular design that allows quick go-to-market with plug-and-play features, we have the ability to tailor the mobile app to each market, including specific look and feel features, while end users quickly get to the desired bet ticket with just a few clicks. The new modular architecture design of our second-generation mobile platform includes features inherent in the leading-edge Material Design framework developed by GoogleTM in 2014. Material Design is a visual language that synthesizes the classic principles of good design with the innovation of technology and science allowing the flexibility to quickly create new layouts for a variety of both enterprise brands and chain store locations, private brands and applications to add other features such as loyalty rewards for restaurants and cruise lines, push marketing for customer acquisition and retention and importantly, the ability to offer both online and land-based betting distribution under a variety of gaming regulations.
Our Websites
The ADM requires that all gaming websites be owned only by the license holder (Multigioco). WeIn Italy, we own our branded urlURL (uniform resource locator) www.newgioco.itnewgioco.it that we operate in accordance with the ADM GAD licensing requirements and either directly operate ouror through white label websites (main page - newgioco.it) and all white-label websiteswith online customers, or alternatively, contract the websites to third party agents or promoters operating webskin urlsURLs under the newgioco.it licensed main page.
website. Our main licensed gaming website, www.newgioco.it,newgioco.it, currently processes live and virtual sports bets and mobile sports betting transactions through our Platform, while online casino and poker are provided under a third-party service provider agreement with Microgame SpA, and lotto products are provided by Lottomatica SpA.
Our gaming websites are tailored for the Italian market and Odissea provides and operates all aspects of our online gaming websitewebsites including servers, routers, software development, (for the Newgioco branded website operations), sportsbook trading, telephone betting, licensing, website hosting, payment solutions, security, and gaming related customer support needs.
Our main and white-label websites are tailored for the Italian gaming market. We maintain a web-based platform directly under theThe branded website www.newgioco.it whichnewgioco.it serves both players directly and web-shops (i.e., internet café’s). through the online channel of our Platform. There are some variations in website style because we offer different services through distinctive marketing campaigns:campaigns.
Newgioco is mainly devoted to marketing for shops, including marketing with respect to campaigns, branding, and proposals/marketing for prospective operators to become a “Newgioco shop” and is the landing page for all white-label websites. A landing page refers to a webpage that is generally owned by a promoter (which can also be referred to as a betting shop) which redirects their marketing (social network, friends or other forms of marketing) to this main webpage. Apart from a few advertisements, the landing page links patrons to sign-up or register directly on the newgioco.it main page except that a promotional code is tied to the link, such that the web promoter can funnel its marketing through a subnet. In the case of Italy, the entire subnet (a subnet is a logical grouping of connected network devices; nodes on a subnet tend to be located in close physical proximity to each other such as on a LAN) must be connected to the ADM network (and all games offered through the network) must be certified and approved by SOGEI (an entity authorized to conduct such certification and approval by the Italian Ministry of Finance).
Our www.newgioco.itnewgioco.it website offers wagering in many categories of sports events. We intend to capture a larger share of the Italian sports betting market by focusing on the Serie A, Serie B, and Serie C soccer matches as well as virtual sports betting, online poker, online casino and slots, skill games, and Italian horse racing through agent-based sales campaigns.
Our direct sales campaigns aimed at end users and agent basedagent-based sales campaigns are offered through white-label pages or webskins that direct gaming transactions through our mainlicensed website www.newgioco.it.newgioco.it. We currently operate eleven such webskins as follows:
● | ● |
● | ● |
● | ● |
● clubgames.it | ● newbetlive5k.it |
● | ● guadagnomatematicobet.it |
● |
Webskins or white-label pages are dedicated to the end-user, or player, and focus on regional campaigns and gaming offerings directed at local players, such as welcome bonuses, poker rake rebate for poker players, etc. A white-label page is a complete gaming website (similar to the main website of the licenser (in our case Multigioco)) but with the interface and logo of the promoter. The promoter earns fees based on a percentage of the handle (turnover) generated through their website.
In relation to the third-party websites, the promoter (“partner”, “shop”, “agent” or “promoter”) is responsible for marketing strategies, administration and costs. The promoter may utilize special promotions, draws and incentives to drive players to their website to increase gaming handle (turnover) or visits. Generally, these regional promoters operate in areas that are remote or distant from our central operations based in Rome. Therefore, some promotions may be tied to local events in the jurisdictions surrounding the “home base” of the promoter rather than originating from our main operations. The relationship with local shops and players from the promoter region remains with the promoter since there may be regional nuances that attract their clientele to our gaming offerings. Notwithstanding the foregoing, the gaming business is owned by the underlying licensor (i.e., Multigioco) and is included in our overall financial results as gaming handle (turnover).
The promoter does not have direct access to our client gaming accounts and is therefore not legally responsible or liable for maintaining gaming account balances. Instead, the licensor is legally responsible for compliance and client gaming account control such as anti-money laundering, know-your-client and minimum age restrictions, and is also required to ensure that all payouts due to players are credited to each players’ gaming account and are available to players within seven business days of the completion of the play.
In the Italian market, our websites are only published in Italian. We may include additional languages in the future if we determine that such services are commercially viable and if we agree to pay the related development fees. We currently have plans to expand our websites to include additional languages in the future.
Although we have a diverse portfolio of product and service offerings through our websites, we intend to focus on creating in-house cost savings and synergies by undertaking strategic acquisitions of competing webskin operators and to operate them under our Newgioco branding. We intend to replicate our successful operational model developed in the regulated Italian market through the U.S. and into other international markets.
Information contained on our website is not incorporated by reference into, and does not form any part of, this prospectus. We have included our website address as a factual reference and do not intend it to be an active link to our website. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the investor relations page of our internet website as soon as reasonably practicable.
Intellectual Property
We do not own any patents or have any patent applications pending in Italy or any other jurisdiction. As a result of our acquisitions of Multigioco, Rifa and the gaming assets of Newgioco Srl, we obtained the rights to the domestic distribution brand known throughout Italy as New Gioco, and in July 2015, we obtained a trademark on the brand and logo for New Gioco. Our prior subsidiary Rifa was amalgamated into Multigioco with effect on January 20, 2020.
As a result of the acquisition of Odissea, we obtained the intellectual property and technical know-how relating tobehind our Elys betting Platform.
We also have proprietary rights to a number of trademarks, service marks and trade names used in this registration statementprospectus which are important to our business including “Aleabet”“NewGioco”, “OriginalBet”, “LovingBet” and “Elys.”
Research and Development
We are continually updating the Platform and the products that we offer. We incurred expenses in the amount of $410,000approximately $2.0 million and $415,000$1.7 million for each of the years ended December 31, 20192021 and 2018,2020, respectively for research and development. We expect that expenses we incur for development and improving our betting software to be continuous recurring research and development expenses.
Industry Overview
See the section entitled COVID-19 Update found elsewhere in this prospectus for additional information regarding the impact of the COVID-19 pandemic on our industry.
Overview of the US Gaming Market
In May 2018, the U.S. Supreme Court ruled that the national ban on sports betting (PASPA) was unconstitutional, paving the way for states to enact laws authorizing sports gambling.
The future of sports betting in the United States remains very promising for future years. Despite the sudden COVID-related suspensions of nearly all sports from March to early summer of 2020, the first two years since the repeal of PASPA still saw growth for legal sports betting, both in terms of market expansion in legal states and new legislation paving the pathway to regulated sports betting in additional jurisdictions.
As of February 2022, twenty-six jurisdictions (including the District of Columbia) have some form of legal sports betting available. Nine others, including the states of Washington and North Carolina, have authorized legal sports betting but not yet opened their market. Larger markets such as California and Texas remain uncertain at this time.
Overview of the Italian Leisure Betting Industry
Leisure betting describes consumer entertainment products such as purchase of lottery tickets, scratch off tickets, sports betting and online casino, which customers play on a daily or regular basis.
Gambling has been culturally rooted since Roman times, and as such, Italian gaming laws are governed by a well-defined set of regulations which are considered to be some of the most advanced and robust regulations in the world. The ADM has created a barrier to entry into the gaming industry in Italy through its implementation of processes and regulations aimed at consolidating and reducing the number of licenses including, but not limited to, increased insurance requirements, increased minimum number of locations, creating favorable conditions for operators such as Newgioco.locations.
Overview of the Global Leisure Gaming Market
The easing of government regulations on sports betting is expected to be a primary growth driver for the global online gambling market. We believe that the tax revenue in addition to increase in employment opportunities derived from online gambling will motivate governments around the globe to legalize online gambling. In May 2018, the U.S. Supreme Court ruled that the national ban on sports betting (PASPA) was unconstitutional, paving the way for states to enact laws authorizing sports gambling.
In addition to the repeal of PASPA, as of December 2019, four states, Delaware, Pennsylvania, Nevada and New Jersey, as well as the U.S. Virgin Islands, allowed online gaming, while other states have indicated their support for enacting laws authorizing land-based and/or online sports betting (including Mississippi, Oregon, Montana, Indiana, Iowa, New Hampshire, West Virginia, Rhode Island, New Mexico, Colorado, Washington and Illinois).gambling
The global online gambling market is gaining popularity in Europe, the Middle East and Africa (EMEA) because online sports betting sites generate substantial revenues for governments. Their significant contribution to national revenues is encouraging several countries to legalize online gambling.
The global online gambling market is characterized by the presence of several vendors competing to gain market dominance. Some small vendors are operating only in specific product verticals such as casino and lottery, while other vendors are operating in multiple areas including poker and sports betting. The growth opportunity for these vendors is increasing due to the rise in the number of online gambling providers and improved access to the internet around the world, as well as the increase in the number of players.
Certain key vendors in the global online gambling market are:
● Bet 365 (Hillside Group); | ● bet-at-home.com; |
● The Stars Group (formerly Poker Stars); | ● GVC Holdings; |
● Paddy Power | ● Ladbrokes Coral Group (now merged with GVC Holdings); |
● DraftKings; | ● GAN Limited |
● 888 Holdings; | ● IGT/ |
● William Hill; | ● Kindred (Unibet Group). |
Other notable product vendors in the market also include Betsson, Gamenet/Intralot/Goldbet, Camelot Group, Genting UK, NetEnt, Playtech (acquired Snaitech), and Rank Group. See “Competition” below for additional information on major operators in Italy.
The sports betting segment is expected to grow with the increased popularity of global soccer sporting events such as the FIFA World Cup and ongoing global growth of cricket and rugby tournaments. In addition, online betting is popular in many sports events that take place around the globe including basketball, horse and greyhound racing, ice hockey, baseball, golf, tennis and American football. Sports betting is becoming more popular due to the expansion of wagering on these sports through online channels.
Competition
Competition in the leisure gaming industry is moderate with operators competing for customers in various geographic markets. These include online operations of “land-based”“land- based” casino operators, poker rooms, sports/race books, bingo, skills games, lottery, betting exchanges as well as internet or web only based operators. The global reach of the internet together with the abundant supply of games and operators means that users can easily switch gaming platforms and operators, thereby increasing competition. Government and other regulations make it more difficult for operators to expand their footprint in certain markets leading to the consolidation of operators in such markets, while the easing of regulations in some markets has permitted more operators to expand to new marketplaces.
We compete with several private and publicly listed companies that provide land-based and/or online gaming, many of which have greater sources of financing, greater name recognition and have been engaged in the industry longer than we have. In addition, current land-based casino competitors, many of which have longer operating histories, greater brand recognition and greater financial and other resources than us, may provide Internet gaming services in the future.
We face direct competition in Italy from established online gaming sites including:
Lottomatica S.p.A.: |
· | Snaitech: (recently acquired by Playtech) an Italian corporation that deals with the management of betting odds and horse racing contests; |
· | Sisal: (wholly owned by CVC Capital Partners) one of the oldest Italian gaming companies offering Internet betting, lotteries, |
· | GVC Holdings/BWIN: one of the largest online gaming companies in the world focused primarily on sports betting, as well as online casino and poker; |
· | Ladbrokes/Gala Coral Group/Eurobet: a UK based betting and gambling company which was acquired by GVC Holdings in March 2018; |
· | Bet365 (Hillside Media): a UK based online gambling company offering sports betting, poker, casino, games, and bingo, as well as video streams of sporting events; |
· | PaddyPower/Betfair (Flutter Entertainment): is a London Stock Exchange listed company and a constituent of the FTSE 100 Index. The company is a bookmaking business created by the merger of Paddy Power and Betfair, and operates under various brands including Betfair, Paddy Power, Sportsbet, TVG and FanDuel; |
· | The Stars Group (PokerStars): a Canadian online gaming company formerly known as Amaya Gaming Group produces and offers online gaming products and services including poker, casino and sportsbook through its online gaming division, Stars Interactive under the brands PokerStars, PokerStars Casino, BetStars and Full Tilt Poker and in May 2020, The Stars Group completed its merger with Flutter Entertainment; |
· | 888 Holdings: a multinational online gambling company which operates several international gambling websites including 888casino (one of the oldest online casino websites); 888poker and 888bingo; and |
· | William Hill: a UK based bookmaker founded in 1934 is listed on the London Stock Exchange and a constituent of the FTSE 250 Index operates an online sportsbook and offers online casino games, ‘skill games’, online bingo and online poker. The company operates approximately 2,300 betting shops and employs over 16,000 people worldwide. |
Government Regulations
We conduct business in a number of jurisdictions, of which Italy has historically contributed the most significant recurring gaming revenue, while our VGVirtual Generation subsidiary operates as a vendor or supplier to the gaming industry in such other jurisdictions. We are subject to various government regulations in the jurisdictions in which we currently operate or intend to operate in as set forth below. Current and future laws and regulations may impede the growth of regulated online and land-based gaming and wagering. Any noncompliance with the various laws and regulations that our operations are subject to may harm our business and results of operations.
Italy
In Italy, the operation of land-based and online gaming activities requires a license awarded by the ADM. The ADM is responsible for, among other things:
There are currently two main categories of licenses (land-based and online) issued or awarded by the ADM in three series:
The Monti and Bersani licenses provide distribution authorization to operate both Negozio Sportivo (agency) and Punto Sportivo (corner) land-based establishments as well as GAD online (web-based) distribution. Land-based Monti licenses and Bersani licenses are subject to and expected to be consolidated under a new decree at renewal auction which is expected to be called for renewal tender between 2020 and 2022, to match up with the limited number of Comunitaria Series GAD licenses expiring in 2021.
We currently hold, through our subsidiaries four gaming licenses upon which our business is dependent: (i) a Bersani license, (ii) a Monti license, (iii) a GAD license and (iv) an Austrian bookmaker license. Our Italian Bersani, Monti and GAD licenses are issued by the ADM, while our Austrian bookmaker license is issued by the Austrian Gambling Authority (BMF). Each Italian license is typically valid for a term of nine years while the Austrian license has a lifetime duration and, in both cases, can be terminated if we fail to comply with required regulations in each country. The renewal process for the Bersani license and Monti license, is a call to tender auction process held at the same time for all licensees approximately once every nine years with the highest bidders being awarded not only licenses but rights to operate a certain number of land-based locations. In addition, the maximum number of land-based license rights that any one operator may bid on at auction is 20% of the total market being auctioned.
Each of the Bersani and Monti land-based licenses allow us to offer specific gaming products through physical retail locations that require one license right per each physical location. The rights granted under the Bersani and Monti licenses are not fixed to any specific physical location and can be moved at the discretion of the licensee to any physical address so long as the physical address has a police issued municipal license (as prescribed by article 86, paragraph 3, of the Italian Unified Text of Public Security Law (TULPS)) to sell gaming products and so long as the physical locations meet the ADM requirements, most of which are zoning requirements that require that the location is situated at a minimum distance from schools, churches and ATM’s and banks. Multigioco currently holds one land-based Bersani license with seven corner location rights that were issued to it in 2006, expired in 2016 and is up for renewal at such time as the ADM determines to hold an auction, which is expected to take place between 2020 and 2022 and one land-based Monti license with three agency location rights that were issued to it in 2010, expired in 2016 and is up for renewal at such time as the ADM determines to hold an auction, which is expected to take place between 2020 and 2022. Although both Monti and Bersani land-based licenses expired in 2016, until the ADM holds the auction for renewal of the licenses, we have been granted a Letter of Authority which permits us to continue our operations in Italy until the next government organized license renewal is held. Our failure to successfully acquire the requisite number of location rights we desire at the renewal auction in Italy may adversely impact our business. In such event, we will most likely either acquire rights in the secondary market from someone selling rights they acquired at auction at prices which are typically higher than the auction prices of the ADM or open additional web-shops, which will be less expensive but also have lower profit margins than the land-based operations. For a description of the risks associated with the licenses and their renewal, see “Risk Factors”, including “If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted” and “In order to expand our land-based operations in Italy, we will be required to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our operating results”.
Multigioco was awarded a Comunitaria Series GAD license by the ADM in 2011. The licenses provide Multigioco the right to:
An online account allows a player to fund an account through a variety of electronic payment channels such as credit cards, ATM/debit cards and bank wires. The GAD license allows us the opportunity to open an unlimited number of web-shops and to close any of the web-shops that we open in our sole discretion. We currently operate approximately 1,200 web-shops throughout Italy. Our GAD license expires on June 15, 2021 and can be renewed provided that we have not violated any regulations. Although we believe that we will be able to renew this license through a tender notice process, no assurances can be given that the renewal will be timely, if at all.
Ulisse holds one Austrian bookmaker license that it was issued in June 2018 which has no termination date but may be terminated or cancelled by the regulator if Ulisse fails to comply with any regulations. We currently operate 114 CED retail locations in Italy under our Austrian bookmaker license.
In addition, our software Platform has been certified for use in Italy in accordance with the ADM requirements by Quinel M. Limited, an international technology auditor that conducted an audit of the Platform in June 2017. The purpose of the certification is to prove the effectiveness and accuracy of communications between the supplier interface and the user/operator interface. Any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify.
United States
There is no federal United States legislation that explicitly addresses the legality of online gambling. However, there are several acts that impact online gambling.
The Federal Wire Act of 1961 makes the placing of sports bets over the telephone illegal. The Federal Wire Act of 1961 does not explicitly refer to online gambling, leaving its applicability to on online gambling open to interpretation.
The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits any person engaged in the business of betting or wagering from knowingly accepting payments related to unlawful bets or wagers transmitted over the Internet. While the UIGEA does not define online gambling as being illegal, the UIGEA instructs the U.S. Treasury Department and Federal Reserve to impose obligations upon financial institutions and other payment processors to establish procedures designed to block online gaming-related financial transactions. It also expressly requires Internet bets and wagers to comply with the law of the jurisdiction where the wagers are initiated and received (i.e., within state borders). As a result of the UIGEA we may not accept bets received by use of wire communications facilities, including telephones and computers, unless such bets originated and terminated in jurisdictions where such betting or wagering is legal.
In May 2018, the U.S. Supreme Court ruled that the Professional and Amateur Sports Protection Act (the “PASPA”) was unconstitutional as it violated the Tenth Amendment prohibition against forcing states to implement federal laws. Enacted in 1992, PASPA generally prohibited states from authorizing, licensing or sponsoring betting on competitive games in which amateur or professional athletes participate. PASPA did not make sports betting a federal crime; but rather, it allowed the attorney general for the Department of Justice, as well as professional and amateur sports organizations, to bring civil actions to enjoin violations of PASPA. The U.S. Supreme Court decision opens the door for all states to legalize and regulate sports gambling within their borders. States such as Nevada, New Jersey, Delaware, West Virginia, Rhode Island, Pennsylvania, Arkansas, Montana, Illinois, Indiana, Iowa, Tennessee, New York, New Mexico, New Hampshire, North Carolina, Oregon, Michigan, Mississippi, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. Additionally,In addition, additional states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Ohio and Maryland are considering active bills.
Italy
Italian operation of land-based and online gaming activities requires a license awarded by the ADM. The ADM is responsible for, among other things:
· | regulating games and enforcing relevant regulatory provisions; |
· | issuing licenses, and supervising compliance by licensees; |
· | monitoring the distribution of gaming services; and |
· | collecting gaming taxes. |
There are currently two main categories of licenses (land-based and online) issued or awarded by the ADM in three series:
· | Series 1 first issued by legal decree in 1992, renewed in 2009 under the Abruzzo decree and are colloquially branded as “Monti” licenses, that expired in 2016 and are expected to be called for renewal tender between 2021 and 2023; |
· | Finance Act series which were awarded by tender in 2006 and are known as “Bersani” Licenses that expired in 2016 and are expected to be called for renewal tender between 2021 and 2023; and |
· | New series Gioco a Distanza (Games at a Distance) (“GAD”) issued by application process under the Comunitaria decree in 2010 expire in 2021 and are expected to be renewed through a license tender auction. |
The Monti and Bersani licenses provide distribution authorization to operate both Negozio Sportivo (agency) and Punto Sportivo (corner) land-based establishments as well as GAD online (web-based) distribution. Land-based Monti licenses and Bersani licenses are subject to and expected to be consolidated under a new decree at renewal auction which is expected to be called for renewal tender between 2022 and 2023, to match up with the limited number of Comunitaria Series GAD licenses which expired in 2021.
We currently hold, through our Multigioco subsidiary, three gaming licenses upon which our business is dependent: (i) a Bersani license, (ii) a Monti license, and (iii) a GAD license. Our Italian Bersani, Monti and GAD licenses are issued by the ADM. Each Italian license is typically valid for a term of nine years which can be terminated if we fail to comply with required regulations in each country. The renewal process for the Bersani license and Monti license, is a call to tender auction process held at the same time for all licensees approximately once every nine years with the highest bidders being awarded not only licenses but rights to operate a certain number of land-based locations. In addition, the maximum number of land-based license rights that any one operator may bid on at auction is 20% of the total market being auctioned.
Each of the Bersani and Monti land-based licenses allow us to offer specific gaming products through physical retail locations that require one license right per each physical location. The rights granted under the Bersani and Monti licenses are not fixed to any specific physical location and can be moved at the discretion of the licensee to any physical address so long as the physical address has a police issued municipal license (as prescribed by article 86, paragraph 3, of the Italian Unified Text of Public Security Law (TULPS)) to sell gaming products and so long as the physical locations meet the ADM requirements, most of which are zoning requirements that require that the location is situated at a minimum distance from schools, churches and ATM’s and banks. Multigioco currently holds one land-based Bersani license with seven corner location rights that was issued to it in 2006, and one land-based Monti license with three agency location rights that was issued to it in 2010. Each of the Monti and Bersani licenses held by Multigioco expired in 2016. Although both of these land-based “concession” series of licenses expired for all Italian licensed operators in 2016, the ADM has granted a letter of authority which permits us to continue our land-based operations in Italy until the government holds the next organized auction for the renewal of licenses, which is expected to take place between 2022 and 2023.
By extending the pre-2016 concession licenses, the ADM has instituted an environment that authorizes licensed Operators to continue operating until the next license renewal auction. In this regard, certain non-Italian, European-based operators have commenced civil proceedings in the European Court of Justice against the ADM’s efforts to prohibit access to the regulated Italian betting market by foreign operators. The outcome of these proceedings and the effect on our business in the Italian market are presently unknown.
Multigioco was awarded a Comunitaria Series GAD license by the ADM in 2011. The licenses provide Multigioco the right to:
· | offer gaming products that ADM authorizes for deployment in Italy through online channels which include websites and apps displayed on a PC, tablet or mobile phone; |
· | enter into licensing, joint venture and acquisition agreements with shops and private enterprises as concessionaires that provide various local services such as convenience stores, bars, cafes, and restaurants in Italy; |
· | establish web cafe`s as permitted by the regulations enforced by the ADM regional office within Italy; and |
· | take such steps such as know your client (“KYC”) and anti-money laundering controls (“AML”) that are deemed necessary to develop the business of regulated gaming in Italy. |
An online account allows a player to fund an account through a variety of electronic payment channels such as credit cards, ATM/debit cards and bank wires. The GAD license allows us the opportunity to open an unlimited number of web-shops and to close any of the web-shops that we open in our sole discretion. We currently operate approximately 1,300 web-shops throughout Italy. Our GAD license expired on June 15, 2021 and can be renewed provided that we have not violated any regulations. Although we believe that we will be able to renew this license through a tender notice process, no assurances can be given that the renewal will be timely, if at all.
Our Italian licenses could also be terminated if we fail to comply with required regulations in Italy.
In addition, our software Platform has been certified for use in Italy in accordance with the ADM requirements by Quinel M. Limited, an international technology auditor that conducted an audit of the Platform in June 2017. The purpose of the certification is to prove the effectiveness and accuracy of communications between the supplier interface and the user/operator interface. Any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify.
As a result of ongoing proceedings in the European Court of Justice regarding the application of Italian regulation for wagering under the Intra-EU model since the past renewal date of June 30, 2016 the ADM has imposed a moratorium on the issuance of new sports betting licenses and standardization of regulations. In the interim, the ADM is delaying the Italian license renewal process and has temporarily instituted operating authorizations for pre-2016 concessions that allow operators, including Multigioco, to continue to operate until the next license renewal is announced and concluded. The outcome and duration of this process is presently unknown.
Ulisse held one Austrian bookmaker license that was issued in June 2018 which had no termination date but could be terminated or cancelled by the regulator if Ulisse had failed to comply with any regulations. In accordance with established inter-European business principles that permit the formation and operation of business within EU state members, we previously operated gaming websites and 110 CTD retail locations in Italy under our Austrian bookmaker license. All 110 CTD retails locations were closed for the greater part of 2020 due to the COVID-19 restrictions. Management decided during the fourth quarter of 2021 to focus all of its attention and technical resources on developing the significant opportunities and new business leads in the U.S. market. After careful consideration of the potential of developing gaming operations in the Austrian and other European markets, management decided to let the Austrian license lapse and acquired the Ulisse customer relationships through Multigioco, operating under the Multigioco licenses and platform.
United Kingdom and European Union
The United Kingdom and certain European UnionEU countries, such as Germany, France, Spain and Greece, have enacted online gaming laws and regulations. To the extent that we operate in any of these jurisdictions, our operations will need to be in compliance with the laws and regulations of such jurisdiction.
Additional Government Regulations
We are subject to general business regulations and laws which cover among others, taxation, virtual currencies, identity theft, account management guidelines, privacy, disclosure rules, security and marketing.
For a description of the risks associated with the licenses and their renewal see the Risk Factors. Our failure to successfully acquire the requisite number of location rights we desire at the renewal auction in Italy may adversely impact our business. In such event, we will most likely either acquire rights in the secondary market from someone selling rights they acquired at auction at prices which are typically higher than the auction prices of the ADM or open additional web-shops, which will be less expensive but also have lower profit margins than the land-based operations.
Human Capital Resources; Employees
As a multinational company our business success is dependent upon our global workforce which spans five countries. As of July 1, 2020,the date of this prospectus, we employed one1 person directly located in Canada, and 5 people in the United States and engaged three5 persons as independent contractors, while our subsidiaries Multigioco employed 3346 full-time employees and 1 part time employee located in Italy, and approximately 1211 independent contractors and sales agents, Odissea employed 718 full-time employees located in Austria, Ulisse employed 101 full-time employees, Elys Technology Group employed 6 employees and Virtual Generation employed 1 full time employee.employees between Italy, Malta and its international offices. Approximately 19% of our employees are part of our technology team and 81% are involved in finance, general management and other administrative functions. In July 2021, we acquired US Bookmaking that has 16 employees based in Las Vegas, Nevada. None of our employees are covered by a collective bargaining agreement, and we consider our relations with our employees to be very good. Although, management continually seeks to add additional talent to its work force, management believes that it has sufficient human capital to operate its business successfully. Our recruitment programs are regionally focused, and hiring is done at a local level to ensure compliance with applicable regulations.
We also offer our employees a compensation packages with premier health and welfare programs for employees and family members. In addition, every employee is eligible for equity awards to share in the Company’s financial success. Our paid time off programs enable our workforce to enjoy personal time away from their job responsibilities.
In early March 2020, we implemented a safe work plan to protect the health of our employees in response to the COVID-19 pandemic, including closing our administrative offices. We had encouraged most of our employees to work from home, and we implemented health and safety protocols in our administrative offices to ensure that we are ready for the safe return of our employees to our offices, in order to ensure the success of our employees during the shift to remote work, we developed training resources for managers to ensure they had the proper skills to lead remote teams and provided training to employees on how to be effective while working remotely.
Most of our employees have returned to our workplaces during the second and third quarter of 2021 as local government restrictions were eased. We allow employees to work from home where circumstances warrant it and anticipate that we will continue this policy in the foreseeable future.
COVID-19 Update
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 on public gatherings and travel, and closures of physical venues that included betting shops, arcades and bingo halls across Italy. Accordingly, we had temporarily closed all betting shop locations throughout Italy as a result of the decree until May 4, 2020. Subsequently, on March 10, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and had either postponed or cancelled most professional sports events which had an effect on the Company’s overall sports betting handle and revenues and negatively impacted the Company’s operating results.
On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy temporarily reopened until November 2020 when the Italian government imposed new lockdowns that were lifted on June 14, 2021. The closing of physical betting shop locations did not affect our online and mobile business operations which has mitigated some of the impact. Due to the high percentage of vaccinations administered in Italy, we do not anticipate further severely restrictive lockdowns.
During Q2 2021, management decided to close our Ulisse operations in Italy due to the uncertainty at that time of the duration and scope of the COVID-19 outbreak, while focusing investments on growing our U.S. market and the more familiar Multigioco brand, the result of which management believes has reduced the complexity and improved the efficiency of our gaming operations in Italy.
Currently there are no restrictive lockdowns in any of the markets that we operate in.
Corporate Information
Newgioco Group, Inc.Elys Game Technology, Corp. is a Delaware corporation incorporated on August 26, 1998. On November 2, 2020, we filed a Certificate of Amendment (the “Certificate of Amendment”) to our Certificate of Incorporation to reflect our corporate name change from “Newgioco Group, Inc.” to “Elys Game Technology, Corp.”. On November 6, 2020, we filed a Certificate of Correction (“Certificate of Correction”) to the Certificate of Amendment to correct and delete the errant references in the Certificate of Amendment regarding a stockholder meeting.
Our principal headquarters are locatedWe currently maintain an executive suite situated at 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4,107 East Warm Springs Road, Las Vegas, Nevada, 89119, and the offices of our wholly-owned subsidiaries are located in Canada, Italy, Malta, Colombia and Austria. Our current subsidiaries include: Multigioco Srl (acquired on August 15, 2014), as well as Ulisse GmbH and Odissea Betriebsinformatik Beratung GmbH (both acquired on July 1, 2016), Virtual Generation Limited (acquired on January 30, 2019), Newgioco Group, Inc. (Canada) formed on January 17, 2017 for potential future operations in Canada, Elys Technology Group Limited, a company organized under the laws of Republic of Malta on April 4, 2019 for future business opportunities in Europe, Newgioco Colombia SAS, a company organized under the laws of Colombia formed on November 26, 2019 to develop our operations through South and Central America, Gameboard, a limited liability company organized in the State of Delaware, on May 28, 2020 we formed Elys Gameboard Technologies, LLC in Stateto develop our U.S. business operations and US Bookmaking, a company organized under the laws of Delaware.Nevada, acquired on July 15, 2021. Our prior subsidiaries included Rifa Srl from January 1, 2015 that was amalgamated into Multigioco with effect on January 20, 2020 and Naos Holding Limited a non-operating holding company from January 30, 2019 that was discontinued with effect on December 31, 2019. Our telephone number is +39-391-306-4134.1-628-258-5148. Our corporate website address is www.newgiocogroup.com.www.elysgame.com. The information contained on our website is not incorporated by reference into this registration statement,prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statementprospectus or in deciding whether to purchase or sell our securities.
We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statementprospectus which are important to our business including “New Gioco”, “Aleabet”, “OriginalBet”, “LovingBet” and “Elys.”“Elys”. Solely for convenience, the trademarks, service marks and trade names in this registration statementprospectus are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statementprospectus are the property of their respective owners.
Description of Property
The Company has two mailing addresses:We maintain an executive suite located at 107 East Warms Springs Road, Las Vegas, Nevada, 89119, and a Canadian office at 130 Adelaide St. West, Suite 701, Toronto, Ontario, M5H 2K4, Canada (its main office),Canada. The Company pays $5,000 per month for the offices situated in Las Vegas, Nevada and 671 Westburne Dr., Concord, Ontario, L4K 4Z1, Canada and also handles corporate matters at Suite 280, 1900 Glades Rd, Boca Raton, Florida 33431, USA. Thesepays no rent for the offices are provided to the Company on a rent-free basis by unaffiliated third parties.situated in Toronto, Ontario.
Our subsidiary Multigioco rentsrented office space on a year-by-year basis located at Via J.F. Kennedy, 6 Grottaferrata, Roma,Macchia dello Sterparo 31, Frascati, Rome, for approximately $2,200$2,722 per month. With effect from February 15, 2022, the lease was terminated and a new lease was entered into at Villa Cavalletti, Via Maggio 73, Grottaferrata, Rome at a monthly rental of approximately $11,200 per month. The office is used primarily for administrative functions. There are no gaming operations carried out at this office.
Our subsidiaries Ulisse and Odissea rent office space on a year-by-year basis at Salurnerstrasse 12 – 6020, Innsbruck, Austria and pay approximately $1,300$1,430 and approximately $1,480$1,700 per month, respectively. The offices are used primarily for administrative functions. There are no gaming operations carried out at this office.
Our subsidiary Virtual Generation shares an office space for 1 employee with 6 employees of Elys Technology Group forour customer service provider in Malta situated at Level 2, Farrugia Building, 9, St., Michael Street, San Gwann, Malta. Ulisse pays the rent
We believe that our current office spaces are adequate and suitable for thisour anticipated needs, and those of our subsidiaries, and that suitable additional space on behalf of Virtual Generation and Elys Technology Group.will be available at commercially reasonable prices as needed.
MANAGEMENT AND BOARD OF DIRECTORS
Directors, Executive Officers and Corporate Governance
All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified or they have resigned. The officers of our company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.
Our current directors and executive officers, their ages and their positions, as of the date of this registration statement,prospectus, as follows:
Name | Age | Position |
Michele Ciavarella | Executive Chairman and Interim Chief Executive Officer | |
Director | ||
Victor Salerno | 78 | Director |
Carlo Reali | 53 | Interim Chief Financial Officer |
Executive Officer and Director Biographies
Michele Ciavarella – Executive Chairman and Interim Chief Executive Officer and Chairman of the Board
Michele Ciavarella has served as our Chief Executive OfficerChairman of the Board since June 2011December 30, 2021 and has served as our Chairman of the Board of Directors since June 26, 2019. From June 2011 until December 30, 2020, he also served as our Chief Executive Officer. On July 15, 2021, he was appointed as the interim Chief Executive Officer and President of the Company. In addition, Mr. Ciavarella has served our company in various roles and executive capacities since 2004 including President, Chief Executive Officer and Director of Operations. From 2004 to 2011, Mr. Ciavarella was engaged in senior executive and director roles for a variety of private and publicly listed companies including Kerr Mines Ltd. (formerly known as Armistice Resources Corp.), Firestar Capital Management Corporation, Mitron Sports Enterprises, Process Grind Rubber and Dagmar Insurance Services. He also served as the Business Development Officer for Forte Fixtures and Millwork, Inc., a family owned business in the commercial retail fixture manufacturing industry from January 2007 until October 2013. From 1990 until 2004, Mr. Ciavarella served as a senior executive, financial planner, life insurance underwriter and financial advisor for Manulife Financial Corporation and Sun Life Financial.Financial, Inc. Mr. Ciavarella received his Bachelor of Science degree from Laurentian University in Sudbury, Ontario. Mr. Ciavarella has been focused on incubating and executing on business building strategies for the priorlast 25 years.
We believe that Mr. Ciavarella is qualified to serve as a member of our Board because ofdue to his practical experience in a broad range of competencies including executive, financial and operational application of lean business process management, as well as extensive c-level and board level experience, and his leadership skills and diversified industry experience combined with a track record of growing businesses, both organically and through acquisitions and joint ventures.
Alessandro MarcelliPaul Sallwasser – Vice President OperationsDirector
Alessandro MarcelliPaul Sallwasser was appointed to serve on our Board on June 13, 2019. Mr. Sallwasser is a certified public accountant, joined the audit staff of Ernst & Young LLP in 1976 and remained with Ernst & Young LLP for 38 years. Mr. Sallwasser served a broad range of clients primarily in the healthcare and biotechnology industries of which a significant number were SEC registrants. He became a partner of Ernst & Young in 1988 and from 2011 until he retired from Ernst & Young LLP in 2014, Mr. Sallwasser served in the national office as our President from 2014 to 2017a member of the Quality and since 2014 to presentRegulatory Matters Group working with regulators and the Public Company Accounting Oversight Board (PCAOB). Mr. Sallwasser currently serves as the Chief Executive Officer of a private equity fund that is focused on investing in healthcare companies in the South Florida area. Mr. Sallwasser has also served as our Vice President Operations. Mr. Marcelli has more than 20 yearsmember of professional experience in the technology industry having a broad rangeBoard of applicable cross-border experience including a key role as Project ManagerDirectors of Software with NATOYoungevity International, Inc. (“Youngevity”) since June 5, 2017. Youngevity (Nasdaq Capital Market: YGYI) was founded in 1996 working within the Turkish Army. He was employed with Vodafone Group plc from 1997and develops and distributes health and nutrition related products through 2010its global independent direct selling network, also known as manager of the operationalmulti-level marketing, and maintenance center for central and south Italy operations.
Mr. Marcelli has extensive experience in communications, team building as well as management skills in fast changing environments. Since 2007, Mr. Marcelli has been the Managing Director of Multigioco and has been instrumental in its growth, expanding the Newgioco/Multigioco brandsells coffee products to approximately $450 million in gross annual gaming turnover during his tenure.
Luca Pasquini – Vice President Technology and Director
Luca Pasquini has served as a member of our Board and our Vice President Technology since August 2016. Mr. Pasquini brings 30 years of information technology experience and has served as team leader, service manager and project manager in various software and technology development projects. Since 2013, Mr. Pasquini has served as co-founder and Chief Executive Officer of Odissea Betriebsinformatik Beratung GmbH where he was instrumental in the engineering and creation of a powerful, state-of-the art sports betting and gaming technology system. From 2011 to 2013, Mr. Pasquini served as IT Manager of GoldBet sportwetten GmbH where he provided executive oversight of technology adaptation and software development. Mr. Pasquini has also been instrumental in assembling a solid team of gaming specialist software engineers that have developed our innovative bookmaker platform and a full suite of gaming products. Mr. Pasquini is a graduate of technical engineering studies at Instituto Superiore Valdarno in San Giovanni Valdarno, Italy.commercial customers.
We believe that Mr. PasquiniSallwasser is qualified to serve as a member of our Board becausedue to his vast audit and accounting experience, which includes his status as an “audit committee financial expert,” as defined by the rules of the SEC.
Steven A. Shallcross – Director
Steven A. Shallcross was appointed to serve on our Board on June 13, 2019. Mr. Shallcross has also served as a member of the Board of Directors of Synthetic Biologics, Inc. (NYSE American: SYN) since December 6, 2018 and currently serves as Synthetic Biologics’ Chief Executive Officer, a position he was appointed to on December 6, 2018, and as Synthetic Biologics’ Chief Financial Officer. Mr. Shallcross was appointed as Synthetic Biologics’ Interim Chief Executive Officer on December 5, 2017 and has served as its Chief Financial Officer, Treasurer and Secretary since joining Synthetic Biologics in June 2015. Synthetic Biologics is a clinical-stage company focused on developing therapeutics designed to preserve the microbiome to protect and restore the health of patients.
From May 2013 through May 2015, Mr. Shallcross served as Executive Vice President and Chief Financial Officer of Nuo Therapeutics, Inc. (formerly Cytomedix, Inc.). In January 2016, Nuo Therapeutics, Inc. filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware and on April 25, 2016, the Bankruptcy Court entered an order granting approval of Nuo’s plan of reorganization. From July 2012 to May 2013, Mr. Shallcross held the offices of Executive Vice President, Chief Financial Officer and Treasurer of Empire Petroleum Partners, LLC, a motor fuel distribution company. From July 2011 to March 2012, Mr. Shallcross was Acting Chief Financial Officer of Senseonics Inc, a privately-held medical device company located in Germantown, MD. From January 2009 to March 2011, he served as Executive Vice President and Chief Financial Officer of Innocoll AG (formerly privately held Innocoll Holdings, Inc.), a global, commercial-stage biopharmaceutical company specializing in the development and commercialization of collagen-based products. He also served as the Chief Financial Officer and Treasurer of Vanda Pharmaceuticals, Inc. for four years, leading the company through its successful IPO and follow-on offering and previously served as the Senior Vice President and Chief Financial Officer of Middlebrook Pharmaceuticals, Inc. (formerly Advancis Pharmaceutical Corporation). In addition, Mr. Shallcross also served as the Chief Financial Officer of Bering Truck Corporation. Since April 2021, Mr. Shallcross has served on the board of directors of TwinVee Powercats, Co., a designer, manufacturer and marketer of recreational and commercial power catamaran boats. He holds an MBA from the University of Chicago’s Booth School of Business, a Bachelor of Science degree in Accounting from the University of Illinois, Chicago, and is a Certified Public Accountant in the State of Illinois.
We believe that Mr. Shallcross is qualified to serve as a member of our Board due to his practicalsignificant strategic, operational, business and financial experience, an established track record of leading the financial development and strategy for several publicly traded companies and his familiarity with financial matters facing public reporting companies. Mr. Shallcross has a broad understanding of the financial markets, financial statements as well as generally accepted accounting principles.
Andrea Mandel-Mantello
Mr. Mandel-Mantello was appointed to serve on our Board on June 29, 2021. Mr. Mandel-Mantello serves on the audit committee. Mr. Mandel-Mantello has approximately 40 years of experience in international corporate finance, M&A and equity banking matters. Since July 1997, he has served as the Founder and Chief Executive Officer of Advicorp PLC, a London-based investment banking firm. He also has served since February 2012, as a member of the board of directors of GABF Ltd. (The Great Bagel Factory), which was acquired by Chef Express UK Ltd (Cremonini Group), and from July 2011 as a member of the board of directors and President of Cesare Ragazzi Laboratories (AdviHair S.r.l.), a Bologna, Italy based leading hair treatment and hair restoration company acquired out of bankruptcy. From February 1988 until January 1997 Mr. Mandel-Mantello was an Executive Director – Corporate Finance based in London at Swiss Bank Corporation Group (now known as UBS Group AG).
We believe that Mr. Mandel-Mantello is qualified to serve as a member of our Board due to his significant strategic, operational, business and financial experience. Mr. Mandel-Mantello has a broad rangeunderstanding of competencies includingthe financial markets, financial statements as well as generally accepted accounting principles.
Victor Salerno
Mr. Salerno was appointed to serve on our board on September 13, 2021. Mr. Salerno is the President and founder of the Company’s newly acquired subsidiary, US Bookmaking. Mr. Salerno founded US Bookmaking, based in Las Vegas Nevada, in 2016 and has built US Bookmaking into one of the leading sports betting companies to serve native American casinos. Mr. Salerno has enjoyed over forty years in the sports betting business where he served as Chairman of American Wagering, Inc (AWI). AWI operated over 130 Leroy’s Sports Books (Leroy’s) in Nevada. At AWI, Mr. Salerno launched the first computerized sports book platform, Computerized Bookmaking Services (CBS), which is still in use today. With the development of CBS, he was able to create the first bookmaking network hub which managed the betting lines and risk for the Leroy’s chain. He was the developer and first operator in Nevada to introduce self-service sports wagering kiosks, which were launched in 2002. His most significant accomplishment was the 2010 launch of mobile sports betting in the US with the Leroy’s App. Mr. Salerno has served as the President of the Nevada Association of Race and Sports Operators and as a member of the Nevada Pari-Mutuel Association’s leadership committee. In 2015, he was inducted into the American Gaming Association’s “Gaming Hall of Fame.”
We believe that Mr. Salerno is qualified to serve as a member of our Board due to his information technologysignificant industry experience in the US Gaming markets, his strategic, business and operational experience.
Mark KorbCarlo Reali – Interim Chief Financial Officer
Mr. Reali was appointed to serve as our Interim Chief Financial Officer on January 5, 2022. Mr. Reali joined the Company in January 2017 as finance manager with Multigioco S.r.l., a wholly owned subsidiary, and on October 15, 2020, was appointed and has served as the Company’s Group Financial Controller based in the Company’s administrative office in Grottaferrata, Italy. Prior to joining the Company, Mr. Reali was the Chairman and Executive Financial Manager of S.I.S. S.r.l. from January 2001 until its acquisition in July 2015 by SNAI S.p.A., a leader in the Italian gaming market, and remained with SNAI as Executive Finance Manager until August 2016. Mr. Reali holds a Science Degree from Instituto S. Maria in Rome, Italy and a Degree in Economics and Commerce from University of La Sapienza in Rome, Italy.
Involvement in Certain Legal Proceedings
On July 20, 2022, we received notice that on July 17, 2022, an action was commenced in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (collectively “Plaintiffs”), against the Company and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“USB,” and together with the Company collectively “Defendants”). Plaintiffs’ claims against us relate to the Membership Interest Purchase Agreement, dated July 5, 2021, pursuant to which Plaintiffs sold their membership interests in USB to us. Plaintiffs’ claims for relief asserted in the complaint include, without limitation, breach of contract, breach of implied covenants, intentional interference with contract and negligent misrepresentation. Plaintiffs seek a judgment for damages against us, including punitive damages, as well as declaratory relief against both the Company and USB. We believe the claims made by Plaintiff’s against the Defendants are completely without merit and intend to vigorously defend against the claims.
Except as disclosed herein, no bankruptcy petition has been filed by or against any business of which any director or executive officer was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
No current director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences).
No current director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, with the exception of the specific temporary restrictions that were limited to Canada and were mutually agreed to between Mr. Ciavarella and the Ontario Securities Commission (“OSC”). As previously disclosed with the SEC, in May 2011, Mr. Ciavarella entered into a Settlement Agreement with the OSC relating to unauthorized trading that occurred in his accounts in November of 2004, pursuant to which the OSC acknowledged that Mr. Ciavarella was not involved in, and Mr. Ciavarella acknowledged a failure to monitor the trading in his accounts, and Mr. Ciavarella agreed to not to trade in securities or act as an officer or director of a Canadian public corporation for a period of five years that expired on May 17, 2016. In addition, pursuant to the Settlement Agreement, Mr. Ciavarella made a payment of CDN $100,000 to the OSC for the purpose of educating investors or promoting or otherwise enhancing knowledge and information of persons regarding the operation of the securities and financial markets.
Except as set forth above, no director has been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated.
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics
We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at www.elysgame.com. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website and in a Current Report on Form 8-K to be filed with the SEC.
Our Board of Directors
Our Board currently consists of five members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board has determined that our three non-employee directors, Messrs. Sallwasser, Shallcross and Mandel-Mantello, each meet the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the SEC, including the rules relating to the independence of the members of our audit committee and compensation committee. Our Board considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the Nasdaq Stock Market and the rules and regulations of the SEC.
Board Committees
Our Board designated the following three committees of the Board: the audit committee, the compensation committee and the nominating and corporate governance committee. Charters for each of the three committees is available on our website at https://ir.elysgame.com/corporate-governance.
Board Members and Committee Composition
Audit Committee | Compensation Committee | Nominating and Governance Committee | ||||
Paul Sallwasser | Chairman | Member | Chairman | |||
Steven A. Shallcross | Member | Chairman | Member | |||
Andrea Mandel-Mantello | Member | — | — |
Audit Committee
Our audit committee is comprised of Messrs. Sallwasser, Shallcross and Mandel-Mantello. Mr. Sallwasser is Chairman of the audit committee. The primary purpose of the audit committee is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements. The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting firm. Specifically, the audit committee’s duties are to recommend to our Board the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the external auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our Board, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles. The Board has determined that each member of the audit committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market. The Board believes that each of Messrs. Sallwasser, Shallcross and Mandel-Mantello qualify as an “audit committee financial expert” (as defined in Item 407 of Regulation S-K).
Compensation Committee
Our compensation committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Shallcross is Chairman of the compensation committee. The compensation committee is responsible for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans. The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee, to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets in which our securities trade, as applicable. The Board has determined that each member of the compensation committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market.
Nominating and Governance Committee
Our nominating and governance committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the nominating and governance committee. The nominating and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of the Board in advance of annual meetings and whenever individual directors indicate that their status may change; annually considering new members for nomination to the Board ; causing the Board to annually review the independence of directors; and developing and monitoring our general approach to corporate governance issues as they may arise. The Board has determined that each member of the nominating and governance committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market.
Family Relationships
There are no family relationships between our officers and directors.
EXECUTIVE COMPENSATION
Set forth below is information for the fiscal years ended December 31, 2021 and 2020 relating to the compensation of each person who served as our principal executive officer and our executive officers whose compensation exceeded $100,000 (the “Named Executive Officers”).
Name and principal position | Year | Salary ($) | Bonus ($) | Awards ($) | Stock Compensation ($) | All Other Compensation ($) | Total Compensation ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michele Ciavarella | 2021 | 500,000 | (1) | 375,000 | (1) | — | 112,208 | — | 987,208 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Chairman of the Board, and interim Chief Executive Officer | 2020 | 261,667 | 465,938 | — | 80,023 | — | 807,628 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Matteo Monteverdi(2) | 2021 | 425,000 | — | — | 301,247 | 4,009 | (3) | 730,256 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Chief Executive Officer and President | 2020 | 131,667 | 54,861 | — | 82,006 | 120,360 | (4) | 388,894 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Luca Pasquini(5) | 2021 | 239,451 | — | — | 56,735 | — | 296,186 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Vice President of Technology and Director | 2020 | 227,976 | — | — | 27,308 | 1,030 | 256,314 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Alessandro Marcelli(6)(7) | 2021 | 292,208 | — | — | 55,382 | — | 347,590 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Vice President of Operations | 2020 | 227,976 | — | — | 26,969 | — | 254,945 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark Korb(8)(9)(10) | 2021 | 247,000 | — | — | 241,665 | 1,761 | 490,426 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Except as disclosed herein, no bankruptcy petition has been
No current director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, with the exception of the specific temporary restrictions that were limited to Canada and were mutually agreed to between Mr.
Code of Business Conduct and Ethics We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at www.elysgame.com. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website and in a Current Report on Form 8-K to be filed with the SEC. Our Board of Directors Our Board currently consists of five members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board has determined that our three non-employee directors, Messrs. Sallwasser, Shallcross and Mandel-Mantello, each meet the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the SEC, including the rules relating to the independence of the members of our audit committee and compensation committee. Our Board considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the Nasdaq Stock Market and the rules and regulations of the SEC. Board Committees Our Board designated the following three committees of the Board: the audit committee, the compensation committee and the nominating and corporate governance committee. Charters for each of the three committees is available on our website at https://ir.elysgame.com/corporate-governance. Board Members and Committee Composition
Audit Committee Our audit committee is comprised of Messrs. Sallwasser, Shallcross and Mandel-Mantello. Mr. Sallwasser is Chairman of the audit committee. The primary purpose of the audit committee is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements. The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting firm. Specifically, the audit committee’s duties are to recommend to our Board the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the external auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our Board, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles. The Board has determined that each member of the audit committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market. The Board believes that each of Messrs. Sallwasser, Shallcross and Mandel-Mantello qualify as an “audit committee financial expert” (as defined in Item 407 of Regulation S-K). Compensation Committee Our compensation committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Shallcross Nominating and
Family Relationships There are no family relationships between our officers and directors. EXECUTIVE COMPENSATION Set forth below is information for the fiscal years ended December
Salary ($) Bonus ($) On July 20, 2022, we received notice that on July 17, 2022, an action was commenced in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (collectively “Plaintiffs”), against the Company and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“USB,” and together with the Company collectively “Defendants”). Plaintiffs’ claims against us relate to the Membership Interest Purchase Agreement, dated July 5, 2021, pursuant to which Plaintiffs sold their membership interests in USB to us. Plaintiffs’ claims for relief asserted in the complaint include, without limitation, breach of contract, breach of implied covenants, intentional interference with contract and negligent misrepresentation. Plaintiffs seek a judgment for damages against us, including punitive damages, as well as declaratory relief against both the Company and USB. We believe the claims made by Plaintiff’s against the Defendants are completely without merit and intend to vigorously defend against the claims. Except as disclosed herein, no bankruptcy petition has been filed by or against any business of which any director or executive officer was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. No current director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences). No current director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, with the exception of the specific temporary restrictions that were limited to Canada and were mutually agreed to between Mr. Ciavarella and the Ontario Securities Commission (“OSC”). As previously disclosed with the SEC, in May 2011, Mr. Ciavarella entered into a Settlement Agreement with the OSC relating to unauthorized trading that occurred in his accounts in November of 2004, pursuant to which the OSC acknowledged that Mr. Ciavarella was not involved in, and Mr. Ciavarella acknowledged a failure to monitor the trading in his accounts, and Mr. Ciavarella agreed to not to trade in securities or act as an officer or director of a Canadian public corporation for a period of five years that expired on May 17, 2016. In addition, pursuant to the Settlement Agreement, Mr. Ciavarella made a payment of CORPORATE GOVERNANCE Code of Business Conduct and Ethics We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at Our Board of Directors Our Board currently consists of five members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board Board Committees Our Board Board Members and Committee Composition Audit Committee Compensation Committee Nominating and Governance Committee Audit Committee Our audit committee is comprised of Messrs. Compensation Committee Our compensation committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Shallcross is Chairman of the compensation committee. The compensation committee is responsible for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans. The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee, to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets in which our securities trade, as applicable. The Board has determined that each member of the compensation committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market. Nominating and Governance Committee Our nominating and governance committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the nominating and governance committee. The nominating and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of the Board Family Relationships EXECUTIVE COMPENSATION Set forth below is information for the fiscal years ended December 31, Salary ($) Bonus ($) Outstanding Equity Awards at Fiscal Year-End December 31, The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, Equity incentive plan awards: Number of securities underlying unearned options Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested Equity incentive plan awards: Number of Equity incentive plan awards: Number of unearned shares, units or other rights that have Equity incentive Market or payout value of unearned shares, units or other rights that have Employment Agreements During the year ended December 31, Michele Ciavarella, Executive Chairman, Interim Chief Executive Officer and President In connection with Mr. Ciavarella’s appointment as the Executive Chairman, we entered into an amendment, dated December 30, 2020 to his employment agreement, dated December 31, 2018, as amended on July 5, 2019, by and between the Company and Mr. Ciavarella. Pursuant to the Amendment, Mr. Ciavarella’s: (i) position at the Company was changed to Executive Chairman; (ii) term of employment was extended three years to December 31, 2024; and (iii) base salary was increased to $500,000. The Amendment further provides that in lieu of cash, and to the extent shares are then available for grant under the Company’s 2018 Equity Incentive Plan, as amended, Mr. Ciavarella may elect to receive, as of the first business day in January of each year of employment, up to 50% of his base salary as a restricted stock grant of shares of our Common Stock under the Plan, vesting monthly over a 12-month period. On December 31, 2018, effective as of September 13, 2018 (the “Effective Date”), we entered into an employment agreement (the “Ciavarella Agreement”) with We may terminate Mr. Ciavarella’s employment at any time without Cause or for Cause (as defined in the Ciavarella Agreement) and Mr. Ciavarella may terminate his employment at any time. In the event Mr. Ciavarella’s employment is terminated by us without Cause (as defined in the Ciavarella Agreement) or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella shall be entitled to receive the following: (i) an amount equal to one times the sum of (A) Mr. Ciavarella’s then base salary and (B) an amount equal to the highest annual incentive compensation paid to Mr. Ciavarella during the two most recently completed fiscal years (but not more than the bonus for the-then current fiscal year) payable over a period of twelve months; (ii) in lieu of any incentive compensation for the year in which such termination occurs, payment of an amount equal to (A) the Targeted Bonus (if any) which would have been payable to Mr. Ciavarella had Mr. Ciavarella remained in employment with us during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Ciavarella 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; (iii) reimbursement of expenses properly incurred by Mr. Ciavarella; (iv) if Mr. Ciavarella elects to continue medical coverage under our group health plan, an amount equal to the monthly premiums for such coverage less the amount of employee contributions payable until the earlier of twelve months and the date Mr. Ciavarella becomes eligible to receive such coverage under a subsequent employer’s insurance plan; and (v) except as otherwise provided at the time of grant, all outstanding stock options and restricted stock units issued to Mr. Ciavarella vest in full; provided, Upon termination by us of Mr. Ciavarella’s employment for Cause (as defined in the Ciavarella Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination date and (ii) reimbursement of expenses properly incurred by Mr. Ciavarella payable on the termination date. In the event Mr. Ciavarella’s employment is terminated for death or Disability (as defined in the Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination Victor Salerno - Director Together with the consummation of the acquisition of US Bookmaking, the Company entered into a four year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees. Mr. Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary. Pursuant to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business. On September 13, 2021, the Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking, to serve as a member of the Board. Mark Korb – Former Chief Financial Officer On July 5, 2021, the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the “Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined by the Company’s Board with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, On July 1, 2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s Common Stock. The shares of Common Stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period. The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per share. In addition, the Korb Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If his employment is terminated by the Company other than for “Cause,” death or Disability or by Mr. Korb for “Good Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive from the Company in equal installments over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the highest annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any) in respect of the two (2) most recent fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Korb had he remained in employment with the Company during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Korb was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Korb and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Korb becomes eligible to receive such coverage under a subsequent employer’s insurance plan. Mr. Korb’s receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the following paragraph. If the Korb Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to the termination date. The Korb Employment Agreement also provides that upon the Disability (as defined in the Korb Employment Agreement) of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary. On Matteo Monteverdi – Former President Effective September 21, 2020, the Board appointed Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive Officer of Mr. In connection with his appointment, Mr. In addition, the Employment Agreement also provides for certain payments and On BOARD OF DIRECTORS COMPENSATION The following table sets forth information for the fiscal year ended December 31, Fees Earned or Paid in Cash Option Awards Other Compensation Fees Earned or Paid in Cash Option Awards Other Compensation ___________________ Director Option Awards Each director is reimbursed for travel and other out-of-pocket expenses incurred in attending Board of Director and committee meetings. Fees and Equity Awards for Non-Employee Directors On July 5, 2019, we adopted a new formal plan for compensating our director for service in their capacity as directors. The plan was modified during the current year whereby Directors are entitled to annual compensation at Directors are also entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board Equity Compensation Plan Information In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which On October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to (x) increase the number of shares of Common Stock that the Company will have the authority to grant under the plan by an additional 1,850,000 shares of Common Stock, and (y) to increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director – 300,000 shares of Common Stock; and (ii) other non-employee director - 250,000 shares of Common Stock, which reflects an increase in the annual limits for awards to be granted to non-employee directors under the Plan. On November 20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of Common Stock that the Company will have authority to grant under the plan by an additional 1,850,000 shares of Common Stock. On October 29, 2021, the Board approved an Amendment to the Plan (“Amendment No. 2”) to increase by 4,000,000 the number of shares that may be granted under the Plan. Amendment No. 2 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 3,000,000 shares of Common Stock to 7,000,000 shares of Common Stock. On December Equity Compensation Plan Information During July 2019, we issued an aggregate of 95,313 options to purchase 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 granted options to purchase 95,000 shares of Common Stock to various employees at an exercise price of $2.03 per share. During September 2020, in terms of the employment agreement entered into with Mr. Monteverdi, the Company granted 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. During the period ended December 31, 2021, the Company issued ten year options to purchase 745,000 shares at exercise prices ranging from $2.62 to $4.20 per share to employees. On July 1, 2021, in compliance with the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the Company granted him ten year options to purchase 400,000 shares of Common Stock at an exercise price of $4.03 per share vesting annually commencing on September 1, 2022. On August 31, 2021, due to the resignation of an employee, unvested options for 50,000 shares of Common Stock were forfeited by the employee. On September 13, 2021, the Company granted the non-executive members of its board ten year options to purchase 48,500 shares of Common Stock at an exercise price of $5.10 per share, as a component of annual compensation. As of December 31, SECURITY OWNERSHIP OF The As of August 25, 2022, we had 26,860,810 shares of Common Stock outstanding. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of Common Stock issuable pursuant to the exercise of profits interest units, warrants or other rights that are either immediately exercisable or exercisable on or before October 25, 2022, which is approximately 60 days following August 25, 2022. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, Except as otherwise noted below, the address for each of * less than 1% MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information Our Stockholders As of CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The following includes a summary of transactions during our fiscal years ended December 31, June 30, 2022 December 31, 2021 Convertible notes acquired, Related Party Forte Fixtures and Millworks acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020. As an incentive for extending the maturity date of the convertible debentures, Forte Fixtures was granted two year Gold Street Capital Gold Street Capital is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella. Gold Street Capital acquired certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately $34,547) was outstanding at December 31, As an incentive for Luca Pasquini On January 31, 2019, the On January 22, 2021, the Company issued Mr. Pasquini 44,968 shares of Common Stock valued at $257,217, in settlement of accrued compensation due to him. On July 11, 2021, the Company entered into an agreement with Engage IT Services Srl. (“ On October 14, 2021, the Company entered into a On September Victor Salerno On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”). Mr. Salerno was a Together with the consummation of the acquisition of USB, the Company entered into a four year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a On September 13, 2021, the Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking to serve as a member of the Board. Prior to the acquisition of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023. Between February 23, 2022 and May 18, 2022, Mr. Salerno advanced USB a total of $260,000 in On July 20, 2022, the Company received notice that on July 17, 2022, an action was commenced in the Eighth Judicial District Court, Clark County, Nevada, Case No. A-22-855524-B, by Victor J. Salerno, Robert Kocienski and Robert Walker (“Plaintiffs”), against the Company and Bookmakers Company US LLC d/b/a U.S. Bookmaking (“USB,” and together with the Company collectively “Defendants”). Plaintiffs’ claims against the Company relate to the Membership Interest Purchase Agreement, dated July 5, 2021, pursuant to which Plaintiffs sold their membership interests in USB to the Company. Plaintiffs’ claims for relief asserted in the complaint include, without limitation, breach of contract, breach of implied covenants, intentional interference with contract and negligent misrepresentation. Plaintiffs seek a judgment for damages against the Company, including punitive damages, as well as declaratory relief against both the Company and USB. The Company believes the claims made by Plaintiff’s against the Defendants are completely without merit and intends to vigorously defend against the claims. Michele Ciavarella On October 1, 2020, the Company granted to Mr. Ciavarella, a ten year option to purchase 140,000 shares of Common Stock at an exercise price of $2.03 per share. Mr. Ciavarella agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of Common Stock valued at $140,000 on the date of On January On July 15, 2021, Michele Ciavarella, Executive Chairman of the Mr. Ciavarella agreed to receive his 2021 bonus and a Gabriele Peroni On January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately 4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of Common Stock valued at €300,000 over an eighteen month period. As of June 30, 2021, the Company has paid Mr. Peroni the full cash amount of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000 (approximately $334,791). On October 1, 2020, the Company granted to Mr. Peroni a ten year option to purchase 36,000 shares of Common Stock at an exercise price of $2.03 per share. On January 22, 2021, the Company issued Mr. Peroni 74,294 shares of Common Stock valued at $424,962, in settlement of accrued compensation due to him. Paul Sallwasser On October 1, 2020, the Company granted to Mr. Sallwasser a ten year option to purchase 55,000 shares of Common Stock at an exercise price of $2.03 per share, in lieu of directors fees. On September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of Common Stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of directors fees. Steven Shallcross On October 1, 2020, the Company granted to Mr. Shallcross a ten year option to purchase 35,000 shares of Common Stock at an exercise price of $2.03 per share, in lieu of a portion of his directors fees. On January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of Common Stock valued at $30,000, in settlement of directors’ fees due to him. On September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of Common Stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a portion of his directors fees. Mr. Shallcross earned cash directors fees of $40,000 for the years ended December 31, 2021 and 2020. Mark Korb On October 1, 2020, the Company granted to Mr. Korb a ten year option to purchase 58,000 shares of Common Stock at an exercise price of $2.03 per share. On July 5, 2021, the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the “Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined by the Company’s Board with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000 per month towards medical and welfare benefits. In On January 5, 2022, Mark Korb resigned as Chief Financial Officer of the. In connection with his resignation, the Company entered into an amendment to Mr. Korb’s employment agreement Andrea Mandel-Mantello On June 29, 2021, the Board appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately and Mr. Mandel-Mantello will serve on the audit committee. On September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of Mr. Mandel-Mantello earned cash directors fees of $20,000 for the Phillipe Blanc On October 1, 2020, the Company appointed Mr. Philippe Blanc as a director of the On October 1, 2020, the Company granted to Mr. Blanc a ten year On July 1, 2021, Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director of the Company, the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting capacity over two years. Mr. Blanc will receive €105,000 per annum as compensation. On 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. We do not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that he currently receives which is an annual base salary of $86,000. Richard Cooper On October 1, 2020, Mr. Cooper resigned as a director of the Company. Mr. Cooper received cash director fees of $30,000 for the year ended December 31, Clive Kabatznik On May 15, 2020, Mr. Kabatznik resigned as a director of the Director Independence Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, we have adopted the definition of “independent director” as set forth in Rule 5605 of the Nasdaq stock market. In summary, an “independent director” means a person other than our executive officers or employees or those of our subsidiaries or any other individual having a relationship which, in the opinion of our In applying this definition, our DESCRIPTION OF OUR SECURITIES The following description of our Issued and Outstanding. As of August 25, 2022, 26,860,810 shares of our Common Stock were issued and outstanding, which were held by 47 holders of record. Authorized Shares of Common Stock. Common Stock. Voting Rights.The holders of Dividend Rights.Holders of Liquidation Rights.In the event of our voluntary or involuntary liquidation, the holders of Other Rights and Preferences.The holders of our Fully Paid and Nonassessable. All of our issued and outstanding shares of Reverse Stock As described in more detail below, on December 12, 2019, we effected a one-for-eight reverse stock split of our authorized, issued and outstanding shares of On November 22, 2019, our Board of Directors approved the Reverse Stock Split of our authorized, issued and outstanding shares of As a result of the Reverse Stock Split, each eight (8) pre-split shares of As of the date of this prospectus, we have authorized 5,000,000 shares of preferred stock. We currently have no shares of preferred stock issued and have no plans to issue any shares of preferred stock at present. Securities Authorized for Issuance under Equity Compensation Plans Equity Compensation Plan Information In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which initially provided for a maximum of 1,150,000 shares of Common Stock that may be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. In November 2020, our stockholders approved an amendment to the 2018 Equity Incentive Plan (Amendment No. 1) to increase by 1,850,000 the number of shares that may be granted as awards under the 2018 Equity Incentive Plan. On December 8, 2021 the stockholders approved an amendment to the 2018 Equity Incentive Plan (Amendment No. 2) to increase by 4,000,000 the number of shares of Common Stock that may be issued as options, stock appreciation rights. restricted stock, stock units, other equity awards or cash awards. Warrants As of August 25, 2022, there were outstanding warrants to purchase up to 3,664,168 shares of our Common Stock at a weighted average exercise price of $1.17 per share exercisable between May 31, 2020 and December 15, 2027. The warrants provide for adjustment to the exercise price and number of shares of Common Stock issuable upon exercise of the warrant in the case of any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). Pre-Funded Warrants and Warrants Issued in June 2022 On June 15, 2022, we sold and issued (i) 2,625,000 shares of our Common Stock, (ii) Pre-Funded Warrants to purchase up to 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor does not exceed certain beneficial ownership limitations, and (iii) Warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock with an exercise price of $0.9475 per share, subject to customary adjustments thereunder. If after the six- month anniversary of the issuance date there is no effective registration statement registering the shares of Common Stock issuable upon exercise of the Warrants for resale, then the Warrants are exercisable on a cashless basis. Pursuant to the Purchase Agreement, the Selling Stockholder purchased these securities for an aggregate purchase price of approximately $3 million. Pursuant to the Purchase Agreement, we issued the 2,625,000 shares of our Common Stock and Pre-Funded Warrants in the Registered Offering and the Warrants to the Investor in a concurrent private placement pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. All Pre-Funded Warrants have been exercised. Certain Terms of the Pre-Funded Warrants and the Warrants Each Pre-Funded Warrant is exercisable for one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time after their original issuance until all of the Pre-Funded Warrants are exercised in full. The Pre-Funded Warrants were offered in lieu of shares of Common Stock to the Investor because the purchase of shares of Common Stock in the Registered Offering would otherwise result in said Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the Investor, 9.99%) of our outstanding Common Stock immediately following the consummation of the Registered Offering. Each Warrant is exercisable for one share of Common Stock at an exercise price of $0.9475 per share. The Warrants have a term of five years and six months from the date of issuance, are exercisable six months from the date of issuance and have an exercise price of $0.9475 per share, subject to customary adjustments thereunder. A holder (together with its affiliates) of the Pre-Funded Warrant or Warrant may not exercise any portion of the Common Stock underlying the Pre-Funded Warrant or Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option upon issuance, 9.99%) of our outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrant or Warrant, as applicable. In lieu of making the cash payment otherwise contemplated to be made to us upon exercise of a Pre-Funded Warrant or Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in Warrants, provided that such cashless exercise shall only be permitted if the Registration Statement is not effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not available for the issuance of shares of Common Stock to the Warrant holder. In addition, in certain circumstances, upon a Fundamental Transaction (as defined in the Pre-Funded Warrants and Warrants), the holders of the Warrants will have the right to receive as alternative consideration, for each share of Common Stock that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of our successor or acquiring corporation, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction by a holder of the number of shares of Common Stock for which the Warrants are exercisable immediately prior to such event. Notwithstanding the foregoing, in the event of a Fundamental Transaction, the holders of the Warrants have the right to require us or a successor entity to redeem the Warrants for an amount of consideration equal to the Black Scholes Value (as defined in the Warrants) of the remaining unexercised portion of the Warrants concurrently with or within thirty (30) days following the consummation of a Fundamental Transaction. In the event of a Fundamental Transaction, the holders of the Warrants will only be entitled to receive from us or our successor entity, as of the date of consummation of such Fundamental Transaction the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the Warrant, that is being offered and paid to the holders of the Common Stock in connection with the Fundamental Transaction, whether that consideration is in the form of cash, stock or any combination of cash and stock, or whether the holders of Common Stock are given the choice to receive alternative forms of consideration in connection with the Fundamental Transaction. There is no established trading market for the Warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited. The holders of the Warrants do not have the rights or privileges of holders of Common Stock or any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders. The Pre-Funded Warrants and the Warrants are governed by New York law. Stockholder Registration Rights The Warrants that were issued to the Warrants Issued in August 2020 Overview. The following summary of certain terms and provisions of the warrants issued in August 2020 is not complete and is subject to, and qualified in its entirety by, the provisions of the Warrant Agency Agreement between us and the Warrant Agent, and the form of warrant, both of which are filed as exhibits to the registration statement and related prospectus pursuant to which these warrants were issued. The warrants entitle the registered holder to purchase one share of our Common Stock at a price equal to $2.50 per share, subject to adjustment as discussed below, immediately following the issuance of such warrant and terminating at 5:00 p.m., New York City time, five years after the date of issuance The exercise price and number of shares of Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of Common Stock at prices below its exercise price. Exercisability. The warrants are exercisable at any time after their original issuance and at any time up to the date that is five (5) years after their original issuance, subject to our call option described below. The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. Under the terms of Exercise Limitation. A holder may not exercise any portion of a warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding Common Stock after exercise, as such percentage ownership is determined in accordance with the terms of the warrant, except that upon prior notice from the holder to us, the holder may elect to increase such limitation to a percentage not in excess of 9.99%. Exercise Price. The exercise price per whole share of Common Stock purchasable upon exercise of the warrants is $2.50. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock. Call Option. If there is a registration statement that covers the resale of the shares underlying the common warrants or all of such shares may be sold pursuant to Rule 144 upon cashless exercise without restrictions, including volume restrictions, we have the option to “call” the exercise of any or all of the common warrants, from time to time by giving a call notice to the holder only after any 10-consecutive trading day period during which the daily VWAP of the Common Stock is not less than 250% of the exercise price for the common warrants in effect for such 10-consecutive trading day period and the average daily volume for such period exceeds 100,000 shares per trading day. During the call period, the holder may exercise the common warrant and purchase the called Common Stock underlying the common warrant. If the holder fails to timely exercise the common warrant or a number of shares of Common Stock equal to number of called shares of Common Stock during the call period, our sole remedy will be to cancel an amount of called shares of Common Stock underlying the common warrant equal to such shortfall, with the common warrant no longer being exercisable with respect to such shares of Common Stock. The call period is a period of 30 trading days following the date on which the call notice is deemed given and effective. Fractional Shares. No fractional shares of Common Stock will be issued upon exercise of the warrants. If, upon exercise of the warrant, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the exercise price. If multiple warrants are exercised by the holder at the same time, we shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price. Transferability.Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent. Exchange Listing.There is no established trading market for the warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the warrants will be limited. Warrant Agent; Global Certificate.The warrants will be issued in registered form under a Warrant Agent Agreement between the Warrant Agent, Signature Stock Transfer, Inc., and us. The warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. Fundamental Transactions. In the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the holders of the warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. Rights as a Stockholder.The warrant holders do not have the rights or privileges of holders of Common Stock or any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders. Governing Law. The warrants and the Warrant Agent Agreement are governed by New York law. Debentures As of December 31, 2021, we do not have any debentures outstanding. Virtual Generation We issued to the former stockholders of In addition, pursuant to the terms of the Purchase Agreement that we entered into with Anti-Takeover Provisions of Delaware Law, our Certificate of Incorporation and our Bylaws We are incorporated in the State of Delaware. As a result, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless: In general, Section 203 defines a “business combination” to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of our company. Our Certificate of Incorporation and our Bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our Board of Directors or management team, including the following: (1) Potential Effects of Authorized but Unissued Stock We have shares of The existence of unissued and unreserved (2) Limitations of Director Liability and Indemnification of Directors, Officers and Employees Our Certificate of Incorporation limits the liability of directors to the fullest extent permitted by Delaware General Corporation Law. Our Certificate of Incorporation provides that directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Our Certificate of Incorporation also provides that we will indemnify our directors and officers to the extent permitted by law, and may indemnify employees and other agents. Our Certificate of Incorporation also provides that we may advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We have also entered into separate indemnification agreements with certain of our directors and officers. These agreements, among other things, require us to indemnify the directors and officers for any and all expenses (including reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by such directors or officers or on his or her behalf in connection with any action or proceeding arising out of their services as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request provided that such person follows the procedures for determining entitlement to indemnification and advancement of expenses set forth in the indemnification agreement. We believe that these provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The limitation of liability and indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Transferability.Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent. Exchange Listing.There is no established trading market for the warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the warrants will be limited. Rights as a Stockholder. The warrant holders do not have the rights or privileges of holders of Common Stock or any voting rights until they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders. Governing Law. The warrants and the Warrant Agent Agreement are governed by New York law. Debentures As of December 31, 2021, we do not have any debentures outstanding. Virtual Generation We issued to the former stockholders of Virtual Generation a non-interest bearing promissory note providing for the payment of (a) an aggregate of €2,392,000 (approximately $2,737,000) in cash in 23 equal and consecutive monthly installments of €104,000 (approximately $119,000) commencing February 2019; and (b) an aggregate of €1,411,000 (approximately $1,615,000) in shares of our Common Stock in seventeen (17) equal and consecutive monthly installments of €83,000 (approximately $95,000) 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. As of December 31, 2021, we have issued to such former stockholders of Virtual Generation 562,605 shares of Common Stock, representing payment of €1,411,000 (approximately $1,572,196) under the note. In addition, pursuant to the terms of the Purchase Agreement that we entered into with Virtual Generation, we agreed to pay the former stockholders of Virtual Generation as an earnout payment in shares of our Common Stock within one month from the end of the business year 2019 equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by the users through the Virtual Generation platform related to our 2019 fiscal year were at least 5% higher than the amounts of bets made by the users through the Virtual Generation platform related to our 2018 fiscal year. Based on the 18,449,380 tickets sold in 2019 the Virtual Generation sellers 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. Anti-Takeover Provisions of Delaware Law, our Certificate of Incorporation and our Bylaws We are incorporated in the State of Delaware. As a result, we are governed by the provisions of Section 203 of the Delaware General Corporation In general, Section 203 defines a “business combination” to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of Our Certificate of Incorporation (1) Potential Effects of Authorized but Unissued Stock We have shares of Common Stock and preferred stock available for future issuance without stockholder approval. We may utilize these additional shares for a variety of corporate purposes, including securities public offerings and other financings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock. The existence of unissued and unreserved Common Stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. In addition, the Board of Directors has the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the (2) Limitations of Director Liability and Indemnification of Directors, Officers and Employees Our Certificate of Incorporation limits the liability of directors to the fullest extent permitted by Delaware General Corporation Law. Our Certificate of Incorporation provides that directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: Our Certificate of Incorporation also provides that we will indemnify our directors and officers to the extent permitted by law, and may indemnify employees and other agents. Our Certificate of Incorporation also provides that we may advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We have also entered into separate indemnification agreements with certain of our directors and officers. These agreements, among other things, require us to indemnify the directors and officers for any and all Fractional Shares. No fractional shares of Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent. Exchange Listing. There is no established trading market for the warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the warrants will be limited. Warrant Agent; Global Certificate. The warrants will be issued in registered form under a Warrant Agent Agreement between the Warrant Agent, Signature Stock Transfer, Inc., and us. The warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. Fundamental Transactions. In the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our Rights as a Stockholder. The warrant holders do not have the rights or privileges of holders of Governing Law. The warrants and the Warrant Agent Agreement are governed by New York law. Virtual Generation We issued to the former stockholders of Virtual Generation a non-interest bearing promissory note providing for In addition, pursuant to the terms of the Purchase Agreement that we entered into with Virtual Generation, we agreed to We person became an interested stockholder, unless: following: We have The existence of unissued and unreserved Common Stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. In addition, the Board of Directors has the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest extent permissible under the Delaware General Corporation Law and subject to any limitations set forth in our Certificate of Incorporation. The purpose of authorizing the Board of Directors to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock. (2) Limitations of Director Liability and Indemnification of Directors, Officers and Employees Our Certificate of Incorporation limits the liability of directors to the fullest extent permitted by Delaware General Corporation Law. Our Certificate of Incorporation provides that directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: Our Certificate of Incorporation also provides that we will indemnify our directors and officers to the extent permitted by law, and may indemnify employees and other agents. Our Certificate of Incorporation also provides that we may advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We have also entered into separate indemnification agreements with certain of our directors and officers. These agreements, among other things, require us to indemnify the The limitation of liability and indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against Insofar as indemnification for liabilities Board of Choice of Forum Our Certificate of Incorporation provides that unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, all Internal Corporate Claims (as defined therein) shall be brought solely and A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class actions, derivative suits and other intra-corporate disputes. This exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. The While management believes limiting the Transfer Agent The transfer agent and Listing Our LEGAL MATTERS The validity of the EXPERTS The financial statements of WHERE YOU CAN FIND ADDITIONAL INFORMATION We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC. We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offering to sell. This prospectus, which constitutes DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and persons controlling us pursuant to the provisions described in Item 14 of the registration statement of which this prospectus forms a part or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our directors, officers, or controlling persons in the successful defense of any action, suit, or proceeding) is asserted by our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of the issue. ELYS TECHNOLOGY GROUP, CONSOLIDATED FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS Financial Statements for the Quarter Ended June 30, 2022 and 2021 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of 130 Adelaide Toronto, Ontario Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our Our Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Impairment Assessment of Goodwill and Intangible Assets As of December 31, 2021, the Company carried intangible assets in the amount of $15.6 million and goodwill in the amount of $16.2 million as more fully described in Notes 7 and 8 to the consolidated financial statements. The intangible assets and goodwill are allocated between reporting units. The Company tests its goodwill and intangible assets with an indefinite useful life annually for impairment or more frequently if indicators for impairment exist. Impairment for goodwill is determined by comparing the fair value of the respective reporting units to their carrying amount. For impairment testing of indefinite-lived intangible asset (Ulisse Bookmaker License) the Company fully impaired the indefinite-lived intangible asset due to the Company's decision not to renew the cash deposits required to retain the license. The Company determines the fair value of the reporting units using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital (WACC). We identified the impairment assessment for goodwill and intangible assets as a critical audit matter because of the significant estimates and assumptions management makes as part of the quantitative assessment to estimate the fair value of the reporting unit (goodwill) and the single asset (indefinite-lived intangible asset). The income approach requires significant management assumptions such as assumptions used in the cash flow forecast and the WACC. Auditing these significant assumptions and judgements involved a high degree of auditor judgment and an increased extent of effort, including the need to involve valuation specialists. F-2 The primary procedures we performed to address this critical audit matter included: Fair Value of Contingent Consideration As of December 31, 2021, the Company carried contingent purchase consideration in the amount of $13.6 million as more fully described in Note 14 to the consolidated financial statements. The contingent consideration relates to the business combination of Bookmakers Company US, LLC on July 15, 2021. The contingent consideration is based upon achievement of certain EBITDA milestones during the next 4 years, payable 50% in cash and 50% in stock, the contingent consideration is up to $41.8 million. At each reporting period, the Company estimates changes in the fair value of the contingent consideration and any change in fair value is recognized in the consolidated statements of operations and comprehensive (loss) income. We identified the fair value of contingent consideration as a critical audit matter because of the significant estimates and assumptions management makes as part of the quantitative assessment to estimate the fair value of the contingent consideration. The contingent consideration requires significant management assumptions such as assumptions regarding future operating results, discount rates and assumptions used in considering the probability of different operating result scenarios. Auditing these significant assumptions and judgements involved a high degree of auditor judgment and an increased extent of effort, including the need to involve valuation specialists. The primary procedures we performed to address this critical audit matter included: F-3 Business Combination As of July 15, 2021, the Company acquired 100% of Bookmakers Company US LLC for a consideration of $6 million in cash, the issuance of 1,265,823 shares of the Company's common stock plus an opportunity for the seller to receive up to an additional $41.8 million based upon achievement of certain EBITDA milestones during the upcoming four years as more fully described in Note 3 to the consolidated financial statements. The Company determined the fair values of the tangible and intangible assets acquired and the liabilities assumed using valuation techniques and goodwill using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital (WACC). We identified the valuation assessment for goodwill and intangible assets from business combination as a critical audit matter because of the significant estimates and assumptions used to identify and determine the fair value of the tangible and intangible assets acquired and the liabilities assumed. The relief from royalty method, excess earnings method and probable loss model requires significant management assumptions such as assumptions regarding future revenues and cash flows, discount rates, royalty rates, attrition rate of acquired customer based, discount rates and assumptions used in considering the probability of different scenarios. Auditing these significant assumptions and judgements involved a high degree of auditor judgment and an increased extent of effort, including the need to involve valuation specialists. The primary procedures we performed to address this critical audit matter included: Zurich, Switzerland, BDO AG We have served as the Company's auditor since 2019. Consolidated Balance Sheets December 31, 2019 December 31, 2018 December 31, 2021 December 31, 2020 See notes to consolidated financial statements Consolidated Statements of Operations and Comprehensive (Loss) Income See notes to consolidated financial statements Consolidated Statements of Changes in Stockholders' Equity See notes to consolidated financial statements Consolidated Statements of Cash Flows For the years ended December 31, For the years ended December 31, F-8 See notes to consolidated financial statements Notes to the 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, The Company also provides gaming services in Italy through its subsidiary, Multigioco, which operations are carried out via both land-based or online retail gaming licenses regulated Additionally, the Company is a global gaming technology company Our corporate group is based in North America, which includes an executive suite situated in Las Vegas, Nevada and a Canadian office in Toronto, Ontario 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. The Company and its subsidiaries are as follows: Odissea Betriebsinformatik Beratung GmbH (“Odissea”) F-10 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 1. Nature of Business (continued) On July 5, 2021, the Company entered into a Membership Purchase Agreement (the “Purchase Agreement”) to acquire 100% of Bookmakers Company US LLC, a Nevada limited liability company doing business as U.S. Bookmaking (“USB”), from its members (the “Sellers”). On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company. USB is a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management. Pursuant to the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s common stock with a market value of $4,544,304. The number of shares issued was calculated using an agreed upon value of $6,000,000 divided by $4.74 per share, based on the volume weighted average closing price of the stock for the 90 trading days preceding the closing date. The Sellers will have an opportunity to receive up to an additional $38 million plus a potential premium of 10% (or $3.8 million) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash. Refer to footnote 3 and 14 below. The Company operates in two lines of business: (i) provider of certified betting F-11 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 2. Accounting Policies and Estimates Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Principles of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company transactions are eliminated upon consolidation. All amounts referred to in the Notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise. 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). Gains and losses from foreign currency transactions are recognized in current operations. Business Combinations The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Use of Estimates The preparation of 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 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. F-12 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) 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 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. 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, 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. F-13 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) Derivative Financial Instruments ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described. The Company primarily places cash balances in the 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 release from the bad debt 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. F-14 Notes to the Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) 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 Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows: Plant and Equipment Useful lives Useful Life (in 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: Useful Life (in years) The Ulisse Bookmaker License has no expiration date and is therefore not amortized but is tested from impairment on an annual basis in terms of ASC 350 using estimated fair value. The company impaired the remaining balance of $4,827,914 of the Ulisse Bookmakers license during the current year. F-15 Notes to the 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 In terms of ASC 350, the Company Leases The Company accounts for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term. Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement. Income Taxes The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic In Italy, tax years beginning F-16 ELYS GAME TECHNOLOGY, CORP Notes to the 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 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. 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. 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 reflects 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. 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. Notes to the Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) In This ASU The effects of this ASU on the Company’s consolidated financial statements is currently being assessed and is not The FASB issued several additional 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: On Pursuant to the terms of the Purchase Agreement, The goodwill of $27,024,383 arising on consolidation consists largely of the reputation and knowledge of USB in the sports betting market in the US markets which should facilitate the Company’s penetration into the U.S. market. None of the goodwill is expected to be deducted for income tax purposes. F-18 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 3. Acquisition of subsidiaries (continued) 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: The The 2021 Supplemental pro forma information was adjusted to exclude $125,479 of non-recurring acquisition costs, in addition, the 2021 and 2020 supplemental pro forma information was adjusted to account for amortization of intangibles on acquisition of $579,519 and $1,070,067, respectively. ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 4. Restricted Cash Restricted cash consists of the following: December 31, 2019 December 31, 2018 December 31, 2021 Net book value Net book value The aggregate depreciation charge to operations was Operating leases The Company has several property lease agreements in Italy and Vehicle agreements The Company Notes to the Consolidated Financial Statements 6. Leases (continued) 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 December 31, 2021 December 31, 2020 Lease costs consists of the following: Other lease information: F-21 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 6. Leases (continued) Maturity of Leases Finance lease liability The amount of future minimum lease payments under finance leases Operating lease liability The amount of future minimum lease payments under operating leases December 31, 2019 December 31, 2018 Notes to the 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, as well as an Austrian Bookmaker License through the acquisition of Ulisse. Intangible assets consist of the following: F-23 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 7. Intangible Assets (continued) The Company recorded $1,120,757 and $703,191 in amortization expense for finite-lived assets for the year ended December 31, 2021 and 2020, respectively, and an impairment provision of $4,827,914 and $4,900,000 against indefinite lived licenses. The estimated amortization expense over the next five-year period is as follows: 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 COVID-19 pandemic has resulted in the closure of our land-based operations in the Italian market for an extended period of time and as the pandemic evolved and the markets in which the Company operated continued to experience resurgences of the virus, we remain uncertain as to the long-term impact on the Company’s land-based operations. As such, the Company has made a strategic decision to transfer its Ulisse customer relationships in Italy to Multigioco ahead of license renewals which are expected to take place within the The Company believes that the remaining carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets may be further impaired. ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 8. Goodwill December 31, 2021 December 31, 2020 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 As discussed under note 14 below - contingent purchase consideration, management recently reviewed the future revenue and profit projections of USB based on the forecasts provided by the vendors at the time of performing the business valuation, factoring in the ability to source new customers. The customer acquisition process has proven to take longer than expected with a resultant downward revision of new customers acquired over the forecast period and the resultant downward impact on forecasted revenue streams. The Company reviewed the forecasts and made appropriate adjustments based on our current understanding of the addressable market, the growth rates forecast by third party market analysts, the Company’s expected share of revenue and the expectation of how many new clients the Company would realistically be able to add over the forecast period. Management is currently forecasting expected discounted cash flows over the forecast period to be approximately 40% lower than originally estimated. This has a significant impact on the current valuation of USB, resulting in a goodwill impairment charge of approximately $12,522,714. 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. On December 31, 2020. 10. Line of Credit - Bank The Company Notes to the Consolidated Financial Statements 11. Convertible Debentures On February 26, 2018, the Company issued debenture units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February 25, 2020, and (iii) 20 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 20,938 shares of the Company’s common stock and 13,875 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private Placement debentures plus any accrued and unpaid interest may In April 2018, the Company issued debenture units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20 shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of CDN $135,000 ($105,200) debentures and received warrants to purchase up to 4,218.75 shares of the Company’s common stock and 2,700 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private Placement debentures plus any accrued and unpaid interest may On April 19, 2018, the Company re-issued debenture units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April 19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 shares of restricted common stock. The investors in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants to purchase up to 44,875 shares of the Company’s common stock and 28,720 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest On May 11, 2018, the Company issued debenture units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii) 20 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 4,093.75 shares of the Company’s common stock and 2,620 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private Placement plus any accrued and unpaid interest On May 31, 2018, the Company closed a private placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations. Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of $1,000 (the “U.S. Debentures”) maturing on May 31, 2020, (ii) 26 shares of our common stock and (ii) warrants to purchase up to 135.25 shares of the Company’s common stock (the “U.S. Warrants”). Each unit sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”), (ii) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 shares of our common stock (the “Canadian Warrants” and together with the U.S. Warrants, the “May Warrants”). The The convertible debentures F-26 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 11. Convertible Debentures (continued) The May Warrants and broker warrants were exercisable at an exercise price of $4.00 per share and expired on May 31, 2020. The accounting treatment of the above is as follows: The total debt discount above amounted to $6,524,567 which As an incentive for extending the maturity date of the convertible debentures, the debenture holders were granted two year warrants exercisable for 301,644 shares of common stock at an exercise price of $3.75 per share, of which 144,041 were granted to related parties and three year warrants exercisable for 72,729 shares of common stock at an exercise price of $5.00 per share, of which 36,010 were issued to related parties. All of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were repaid during 2020. The remaining convertible debenture of CDN $35,000 was repaid in 2021. During the year ended December 31, The Aggregate convertible debentures outstanding consists of the following: December 31, 2021 December 31, 2020 Notes to the Consolidated Financial Statements 12. Deferred Purchase Consideration In terms of the acquisition of Virtual Generation on January 31, 2019, The promissory notes payable to non-related parties are to be settled as follows: Pursuant to the terms of the Purchase Agreement that the Company entered into with The future payments on the promissory notes were discounted to present value using the Company’s average cost of funding of 10%. The discount During the year ended December 31, 2021, the Company paid the remaining balance of €20,800 (Approximately $25,262) to non-related parties in terms of the Virtual Generation promissory note. The movement on deferred purchase consideration consists of the following: December 31, 2021 December 31, 2020 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 13. Bank Loan Payable In September 2016, the Company obtained a loan of €500,000 (approximately $545,000) 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% above the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017. In terms of a directive by the Italian Government, in order to provide financial relief due to the Covid-10 pandemic, Multigioco was able to suspend repayments of the loan for a period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remains the same at 4.5% above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971. The Company made payments of Included in bank loans is a Small Business Administration Disaster Relief loan (“SBA Loan”) assumed on the acquisition of USB 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 USB’s tangible and intangible assets. Since acquisition of USB, The Company has repaid capital of $1,168 and has total accrued and unpaid interest of $5,524 on this loan as of December 31, 2021. The maturity of bank loans payable as of December 31, 2021 is as follows: 14. Contingent Purchase Consideration In terms of the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000 plus a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash. F-29 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 14. Contingent Purchase Consideration (continued) The Company had an independent third party valuation entity perform a Purchase Price Analysis which included Contingent purchase consideration is considered at each reporting period. Contingent purchase consideration is based on cumulative EBITDA for the Any change in the fair value of contingent purchase consideration is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement of the stated unadjusted accumulated EBITDA milestones and the methodology in determining the number of shares to be issued during each earnout period and the potential restriction on the number of shares available for issue, the contingent purchase consideration is classified as a liability. ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 15. Other Long-term Liabilities Other long-term liabilities represent the Balances of other long-term liabilities were as follows: December 31, 2021 December 31, 2020 16. Related Parties Notes Payable, Related Party The movement on notes payable, Related Party, consists of the following: December 31, 2021 December 31, 2020 Convertible notes acquired, Related Party Forte Fixtures and Millworks, Inc. acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020. As an incentive for extending the maturity date of the convertible debentures, Forte Fixtures and Millworks, Inc., was granted two year warrants exercisable for 134,508 shares of common stock at an exercise price of $3.75 per share and three year warrants exercisable for 33,627 shares of common stock at an exercise price of $5.00 per share. These warrants were exercised on December 30, 2020, for gross proceeds of $630,506. F-31 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. Related Parties (continued) Deferred Purchase consideration, Related Party In terms of the acquisition of Virtual Generation on January The related party promissory notes are due to Luca Pasquini, an employee and previously a director The promissory notes Pursuant to the terms of the Purchase Agreement that the Company entered into with The amount due to the related party The movement on deferred purchase consideration consists of the following: December 31, 2021 December 31, 2020 F-32 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. 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: December 31, 2021 December 31, 2020 Gold Street Capital Gold Street Capital is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella. As an incentive for extending the maturity date of the convertible debentures, all debenture holders, including Gold Street Capital, were granted two-year warrants exercisable at an exercise price of $3.75 per share, and three-year warrants exercisable at an exercise price of $5.00 per share. Gold Street Capital was granted two year-warrants exercisable for 9,533 shares of common stock common stock at $5.00 per share. Luca Pasquini On January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of On January 22, 2021, the Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him. On July 11, 2021, the Company entered into an agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system, the total contract price was €390,000 (approximately $459,572). Mr. Pasquini owns 34% of Engage. On October 14, 2021, the Company entered into a further agreement with Engage IT Services Srl.("Engage"), to provide gaming software and maintenance and support of the system for a period of 12 months, the total contract price was €1,980,000 (approximately $2,192,000). Mr. Pasquini owns 34% of Engage. On September 13, 2021, Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company. F-33 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. Related Parties (continued) Michele Ciavarella On October 1, 2020, the Company granted to Mr. Ciavarella, a ten year option to purchase 140,000 shares of common stock at an exercise price of $2.03 per share. Mr. Ciavarella agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue. On January 22, 2021, the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him. On July 15, 2021, Michele Ciavarella, Executive Chairman of the Company, was appointed as the interim Chief Executive Officer and President of the Company, effective July 15, 2021. Mr. Ciavarella will serve as the Company's Executive Chairman and interim Chief Executive Officer until the earlier of his resignation or removal from office. Victor Salerno On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing. Together with the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees. Mr. Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary. Pursuant to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business. In September 13, 2021, the Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, US Bookmaking, to serve as a member of the Board. Prior to the acquisition of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded monthly and repayable on December 31, 2023. F-34 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. Related Parties (continued) Matteo Monteverdi Effective September 21, 2020, the Board appointed Mr. Monteverdi, as President of the Company and effective December 30, 2020, Mr. Monteverdi was appointed as the Chief Executive Officer 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. In connection with his appointment, the Company and Mr. Monteverdi entered into a written employment agreement (the “Employment Agreement”) for an initial four-year term, which provides for the following compensation terms: 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. On July 15, 2021, Mr. Monteverdi resigned as the Company’s Chief Executive Officer and President to become the Company’s Head of Special Projects, all other terms of the employment contract remain the same. Gabriele Peroni On January 31, 2019, the Company acquired Virtual Generation ELYS GAME TECHNOLOGY, CORP Notes to the 16. Related Parties (continued) On On January 22, 2021, the Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him. Alessandro Marcelli On October 1, 2020, the Company granted to Mr. Marcelli a ten year option to purchase 56,000 shares of common stock at an exercise price of $2.03 per share. On January 22, 2021, the Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him. Franco Salvagni On On January 22, 2021, the Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him. Beniamino Gianfelici On On January 22, 2021, the Company issued Mr. Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation due to him. On On Steven Shallcross On On January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’ fees due to him. On September 13, 2021, the Company granted Mr. Shallcross ten year options F-36 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. Related Parties (continued) Mark Korb On October 1, 2020, the Company granted to Mr. Korb a ten year option to purchase 58,000 shares of common stock at an exercise price of $2.03 per share. On July 5, 2021, the Company entered into an employment agreement dated July 1, 2021 with Mark Korb, the Company’s Chief Financial Officer, (the “Korb Employment Agreement”), to employ Mr. Korb, on a full-time basis commencing September 1, 2021, as Chief Financial Officer for a term of four (4) years, at an annual base salary of $360,000 and such additional performance bonus payments as may be determined by the Company’s board of directors with a target bonus of 40% of his base salary. Mr. Korb will also be entitled to pension, medical, retirement and other benefits available to other Company senior officers and directors and he will receive an allowance of up to $2,000 per month towards medical and welfare benefits. In connection with the Korb Employment Agreement, on July 1, 2021, the Compensation Committee of the Board granted Mr. Korb, an option to purchase 400,000 shares of the Company’s common stock. The shares of common stock underlying the option award vest pro rata on a monthly basis over a forty-eight month period. The options are exercisable for a period of ten years from the date of grant and have an exercise price of $4.03 per share. In addition, the Korb Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If his employment is terminated by the Company other than for “Cause,” death or Disability or by Mr. Korb for “Good Reason” (each as defined in the Korb Employment Agreement), he will be entitled to receive from the Company in equal installments over a six month period (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the highest annual MBO Bonus (as defined in the Korb Employment Agreement”) paid to him (if any) in respect of the two (2) most recent fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first twelve (12) months of the Agreement, the amount shall be Mr. Korb’s MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Korb had he remained in employment with the Company during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Korb was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Korb and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Korb becomes eligible to receive such coverage under a subsequent employer’s insurance plan. Mr. Korb’s receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the following paragraph. If the Korb Employment Agreement is terminated by the Company for cause or by Mr. Korb for Good Reason, then Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the termination date and all expenses incurred by him prior to the termination date. The Korb Employment Agreement also provides that upon the Disability ( as defined in the Korb Employment Agreement) of Mr. Korb or his death, Mr. Korb will be entitled to receive accrued and unpaid base salary, earned and unused vacation days through the date of his declared Disability or death and all expenses incurred by him prior to such date and one times his base salary. Pursuant to the Korb Employment Agreement, Mr. Korb has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Korb has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the types services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business. On January 5, 2022, Mark Korb resigned as Chief Financial Officer of the Company. In connection with his resignation, the Company entered into an amendment to Mr. Korb’s employment agreement with the Company to provide that he will be employed by the Company as a non-executive employee with the title “Head of Corporate Affairs”, reporting directly to the Executive Chairman and that in such capacity he will be responsible for, among other things, various corporate initiatives and activities related to growth and capital strategies. All other terms of the employment agreement remain the same. F-37 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 16. Related Parties (continued) Andrea Mandel-Mantello On June 29, 2021, the Board appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately and Mr. Mandel-Mantello will serve on the audit committee. On September 13, 2021, the Company granted Mr. Mandel-Montello ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021, in lieu of a portion of his directors fees. Mr. Mandel-Mantello earned cash directors fees of $20,000 for the six months ended December 31, 2021. Phillipe Blanc On October 1, 2020, the Company appointed Mr. Philippe Blanc as a director of the Company. On October 1, 2020, the Company granted to Mr. Blanc a ten year option to purchase 55,000 shares of common stock at an exercise price of $2.03 per share, in lieu of directors fees. On July 1, 2021, Philippe Blanc resigned as a director of the Company, simultaneously with Mr. Blanc’s resignation as a director of the Company, the Company entered into a consulting agreement with Mr. Blanc to provide for his future services in a consulting capacity over two years. Mr. Blanc will receive €105,000 per annum as compensation. Carlo Reali On January 5, 2022, the Company promoted Carlo Reali to the role of Interim Chief Financial Officer. We do not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that he currently receives which is an annual base salary of $71,200 . Richard Cooper On October 1, 2020 Mr. Cooper resigned as a director of the Company. Mr. Cooper received cash director fees of $30,000 for the year ended December 31, 2020. Clive Kabatznik On May 15, 2020, Mr. Kabatznik resigned as a director of the Company. Mr. Kabatznik received cash director fees of $10,000 for the year ended December 31, 2020. 17. Stockholders’ Equity For the year ended December 31, 2021, the Company issued a total of 533,790 shares of common stock, valued at $3,012,481 for the settlement of third party liabilities, compensation and directors’ fees to certain of the Company’s related parties, refer note 16 above. Between January 4, 2021, and September 21, 2021, investors exercised warrants for 1,506,809 shares of common stock for gross proceeds of $3,962,481 at an average exercise price of $2.63 per share. On January 22, 2021, the Company issued 24,476 restricted shares of common stock valued at $140,000 to Michele Ciavarella in terms of a compensation election he made for the 2021 fiscal year. On July 15, 2021, the Company issued 1,265,823 shares of common stock to the Sellers of USB, at $4.74 per share with a market value of $4,544,304 on the date of acquisition. F-38 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 17. Stockholders’ Equity (continued) The Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual For the year ended December 31, On 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 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. On December 30, 2020, the Company entered into a settlement agreement with its previous chairman whereby it issued 8,469 shares of common stock at a value of Between December 18, 2020 and December 31, 2020, investors exercised warrants for 3,321,226 shares of common stock at exercise prices ranging from $2.50 to $5.00 per share for gross proceeds of $8,541,896, and the use of proceeds from promissory notes, related party of $108,056 was applied to the warrant exercise. 18. Warrants On May 31, 2020, in terms of convertible debt extension agreements entered into with investors, the Company granted two year warrants exercisable for 301,644 shares of common stock at an exercise price of $3.75 per share until May 31, 2022 and three year warrants exercisable for 72,729 shares of common stock at an exercise price of $5.00 per share until May 31, 2023. 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. F-39 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 18. Warrants (continued) The warrants issued during the year ended December 31, 2020, were assessed in terms of ASC The warrants awarded during the year ended December 31, 2020 were valued using a The following assumptions were used in the Black-Scholes model: Year ended December 31, 2020 A summary of all of the Company’s warrant activity during the period January 1, The following tables summarize information about warrants outstanding as of December 31, Exercise price Notes to the Consolidated Financial Statements In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. On October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director – 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an increase in the annual limits for awards On November 20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under the plan by an additional 1,850,000 shares of common stock. On October 29, 2021, the Board approved an Amendment to the Plan (“Amendment No. 2”) to increase by 4,000,000 the number of shares that may be granted under the Plan. Amendment No. 2 to the 2018 Plan will increase the number of shares of common stock with respect to which awards may be granted under the 2018 On December 8, 2021, the Company held its 2021 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved amendment 2 to During September 2020, in terms of the employment agreement entered into with Mr. Monteverdi, the Company granted options to purchase On October 1, 2020, the Board granted to each of Michele Ciavarella, On On October 1, 2020, the board granted options to purchase During the period ended December On July 1, 2021, in compliance with the terms of an employment agreement entered into with Mr. Korb, the Company’s CFO, the Company granted him ten year options to purchase 400,000 shares of common stock On September 13, 2021, the Company granted the non-executive members of its board ten year The options awarded during the year ended December 31, F-41 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 19. Stock Options (continued) The following assumptions were used in the Black-Scholes model: Year ended December 31, A summary of all of the Company’s option activity during the period January 1, The following Exercise price The intrinsic value of the options at December 31, Notes to the Consolidated Financial Statements 20. Revenues The following table represents disaggregated revenues from our gaming operations for the years ended December 31, Basic loss per share is based on the weighted-average number of common shares outstanding during each For the years ended December 31, Notes to the Consolidated Financial Statements 22. Income Taxes The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the years ended December 31, The Company's Italian subsidiaries are governed by the income tax laws of Italy. The corporate tax rate in Italy is The Company's Austrian subsidiaries are governed by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements after appropriate tax adjustments. The Company's Canadian subsidiary is governed by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada is 26.5% on income reported in the statutory financial statements after appropriate tax adjustments. The Company's Colombian subsidiary is governed by the income tax laws of Colombia. The corporate tax rate in Colombia is 31% on income reported in the statutory financial statements after appropriate tax adjustments. The Company continues to evaluate the accounting for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. The position ascertained inherently requires judgment and estimates by management. The reconciliation of income tax expense at the U.S. statutory rate of 21% during 2021 and December 31, 2019 December 31, 2018 December 31, 2021 December 31, 2020 The Company has accumulated a net operating loss carry forward (“NOL”) of approximately Utilization of NOLs are subject to limitation due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited in any one year by alternative minimum tax rules. Under Italian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, up to the limit of 80% of taxable annual income. This restriction does not apply to the operating loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting. Under Austrian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, up to the limit of 75% of taxable annual income. Under Canadian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. The provisions for income taxes consist of currently payable income tax in Colombia, Italy, Malta and Austria and deferred tax movements on intangible assets. ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 22. Income Taxes (continued) The December 31, 2021 December 31, 2020 The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities are as follows: December 31, 2021 December 31, 2020 The Net loss carry forward for US entities includes an adjustment of The following tax years remain subject to examination: The Company is not currently under examination and it has not been notified of a pending examination. There are no unrecognized tax benefits. 23. Segmental Reporting The Company has two reportable operating segments. These segments are: The operating of web based as well as land-based leisure betting establishments situated throughout Italy. Provider of certified betting Platform software services to leisure betting establishments in Italy and F-45 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 23. Segmental Reporting (continued) The operating assets and liabilities of the reportable segments are as follows: Betting establishments The segment operating results of the reportable segments are disclosed as follows: F-46 ELYS GAME TECHNOLOGY, CORP Notes to the Consolidated Financial Statements 23. Segmental Reporting (continued) The operating assets and liabilities of the reportable segments are as follows: Betting establishments The segment operating results of the reportable segments are disclosed as follows: Notes to the Consolidated Financial Statements 24. Subsequent Events To date, the current conflict between Russia and Ukraine has not had a direct impact on the Company. We do not have any exposure to either Russia or Ukraine from a business or personnel perspective. However a prolonged conflict or the spill-over of war into other European countries may, in, future impact on macro-economic conditions which could affect consumer spending adversely and consequently our operations. On March 18, 2022, the Company Up until April 13, 2022, in terms of 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. Consolidated Balance Sheets (Unaudited) March 31, 2020 June 30, 2022 December 31, 2021 See notes to the unaudited condensed consolidated financial statements Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, For the Three Months Ended June 30, For the Six Months Ended June 30, See notes to the unaudited condensed consolidated financial statements Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Accumulated Other Paid-in Capital Comprehensive Income See notes to the unaudited condensed consolidated financial statements Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, See notes to the unaudited condensed consolidated financial statements Notes to Unaudited Condensed Consolidated Financial Statements 1. Nature of Business Established in the state of Delaware in 1998, The Company also provides business-to-consumer (“B2C”) gaming services in Italy through its subsidiary, Multigioco, which operations are carried out via both land-based or online retail gaming licenses regulated Additionally, the Company Strategic agreements entered into with Lottomatica (currently known as G.B.O, S.p.A) During the course of the second quarter, the Company entered into a Master Technology Development and License Agreement and a Technical Services Agreement with Lottomatica to develop and provide a dedicated Sports Betting Platform (“SBP”) for use in both land-based and on-line applications by Lottomatica in the U.S. and Canadian markets, as well as potentially worldwide. The contract is for a period of ten years, after which the source code will be assigned to Lottomatica. An option was also granted to Lottomatica that after a period of four years from the commencement of the provision of the SBP, that Lottomatica may acquire the source code to the SBP for €4.0 million. The Technical Services Agreement was entered into with the Company’s subsidiary Odissea to provide engineering services, develop and deliver the software and provide operational and product management support to Lottomatica on the SBP. The initial term of the agreement is for a period of ten years and is based on cost plus a percentage of the services provided. In a separate Virtual Service Agreement entered into between the Company’s subsidiary Virtual Generation and Goldbet S.p.A., a subsidiary of Lottomatica, whereby Virtual Generation will license virtual event content to be implemented on the Lottomatica’s Platform throughout the Lottomatica vast network of retail outlets and on the online services in Italy. The agreement provides for an exclusivity period of two years from the date of certification of the virtual platform by the Italian regulator (ADM), which will only allow Lottomatica and the Company to make use of the platform. Virtual Generation will generate commission revenue based on a percentage of Net Gaming Revenues. In a separate Assignment Agreement entered into between the Company’s subsidiary, Multigioco, Lottomatica assigned ownership of approximately 100 Sports Rights to Multigioco, which will allow Multigioco to expand its land-based distribution network to approximately 110 point-of-sale locations. Multigioco expects to open the additional 100 outlets over the remainder of the calendar year. These rights are only valid until the ADM puts new location rights up for tender, which could take place at any time, and therefore were assigned a minimal value. F-54 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements The entities included in these unaudited condensed consolidated financial statements are as follows: The Company operates in two lines of business: (i) the operating of web based betting as well as land based leisure betting establishments situated throughout Italy and; (ii) provider of certified betting Platform software services to global leisure betting establishments The Company’s operations are carried out through the following ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended All amounts referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise. Principles of consolidation The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are Foreign operations The Company translated the assets and liabilities of its foreign subsidiaries into All revenues were generated in Euro, Colombian Peso and US Dollars during the Gains and losses from foreign currency transactions are recognized in current operations. Business Combinations The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. 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 and liabilities assumed, allocation of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, F-56 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) Loss Contingencies The Company may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, gaming license, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed Consolidated Financial Statements. The Company evaluates, on a regular basis, developments in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial position, results of operations, or cash flows. To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition. The Company has insured and continues to insure against most of these types of claims. Fair Value Measurements ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs in which little or no market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant would use. The carrying value of the Company's accounts receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair value because of the short-term maturity of these financial instruments. 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. F-57 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) 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 The Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of 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 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. Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows: Plant and Equipment Useful lives ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) Intangible Assets Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses. Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value. The range of the estimated useful lives is as follows: Useful Life (in years) 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 Leases The Company accounts for leases in terms of ASC 842. In terms of ASC 842, the F-59 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) 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 In Italy, tax years beginning 2015 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is not currently under examination and it has not been notified of a pending examination. Contingent Purchase Consideration The Company estimates and records the acquisition date estimated fair value of contingent consideration as part of the purchase price consideration for acquisitions. At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). An increase in the earn-out expected to be paid will result in a charge to operations in the year that the anticipated fair value of contingent consideration increases, while a decrease in the earn-out expected to be paid will result in a credit to operations in the year that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore, materially affect the Company’s future financial results. Additional information regarding contingent consideration is provided in Note 3. Revenue Recognition The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold. Revenues from the Betting Platform include F-60 Notes to Unaudited Condensed Consolidated Financial Statements 2. Accounting Policies and Estimates (continued) 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. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive. Related Parties Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged. Recent Accounting Pronouncements The FASB issued several updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption. Reporting by segment The Company has two operating segments from which it derives revenue. These segments are: ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 3. Acquisition of On USB is a provider of sports wagering services such as design and consulting, turn-key sports wagering solutions, and risk management. Pursuant to the terms of the Purchase Agreement, the consideration paid for all of the The Sellers will have an opportunity to receive up to an additional $38,000,000 (undiscounted) plus a The goodwill of $27,024,383 arising at the time of acquisition consists largely of the reputation and knowledge of USB in the sports betting market in the US markets which should facilitate the Company’s penetration into the U.S. market. All of the goodwill was assigned to the Betting platform software and services segment. None of the goodwill is expected to be deducted for income tax purposes. In terms of the agreement, the purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed as follows: F-62 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 3. Acquisition of Subsidiaries (continued) The 4. Restricted Cash Restricted cash consists of cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the 5. December 31, 2019 Net book value Net book value Property and equipment consists of the following: Net book value Net book value The aggregate depreciation charge to operations was 6. Leases Right of use assets included in the consolidated balance sheet are as follows: June 30, 2022 December 31, 2021 Lease costs consists of the following: F-63 Notes to Unaudited Condensed Consolidated Financial Statements 6. Leases (continued) Other lease information: Maturity of Leases Finance lease liability The amount of future minimum lease payments under finance leases are as follows: Operating lease liability The amount of future minimum lease payments under operating leases are as follows: ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 7. Intangible Assets Intangible assets consist of the following: June 30, 2022 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 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 The estimated amortization expense for all intangibles over the next five year period is as follows: 8. Goodwill June 30, 2022 December 31, 2021 Goodwill represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets. The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying ELYS GAME TECHNOLOGY, CORP. Notes to 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 into earnings. The shares of Zoompass were last quoted on the OTC market at 10. March 31, 2020 March 31, 2020 December 31, 2019 In September 2016, the Company obtained a loan of €500,000 (approximately In terms of a directive by the Italian Government, in order to provide financial relief due to the COVID-19 pandemic, Multigioco remained able to suspend repayments of the loan for a period of six months and the maturity date of the loan was extended to March 31, 2022, the interest rate remained the same at 4.5% above the Euro Inter Bank Offered Rate with monthly repayments revised to $9,971. The Company made payments Since acquisition of USB, the Company has repaid principal of $1,389 and has total accrued and unpaid interest of $5,409 on this loan as of June 30, 2022. The maturity of bank loans payable as of June 30, 2022 is as follows: 11. Contingent Purchase Consideration In terms of the acquisition of USB disclosed in Note 3 above, the Sellers will have an opportunity to receive up to an additional $38,000,000 plus a potential premium of 10% (or $3,800,000) based upon achievement of stated adjusted cumulative EBITDA milestones during the next four years, payable 50% in cash and 50% in the Company’s stock at a price equal to volume weighted average price of the company’s common stock for the 90 consecutive trading days preceding January 1 of each subsequent fiscal year for the duration of the earnout period ending December 31, 2025, subject to obtaining shareholder approval, if the aggregate number of shares to be issued pursuant to the Purchase Agreement exceeds 4,401,020 and with a cap of 5,065,000 on the aggregate number of shares to be issued. Any excess not approved by shareholders or exceeding the cap will be paid in cash. The Company had an independent third party valuation entity perform a Purchase Price Analysis which included the probability of the Sellers achieving the additional proceeds of $41,800,000. F-66 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 11. Contingent Purchase Consideration (continued) At each reporting period, the Company estimates changes in the fair value of contingent consideration, and any change in fair value is recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss). The estimate of the fair value of contingent consideration requires subjective assumptions to be made regarding future operating results, discount rates, and probabilities assigned to various potential operating result scenarios. Due to the uncertainty regarding the achievement of the stated unadjusted accumulated EBITDA milestones and the methodology in determining the number of shares to be issued during each earnout period and the potential restriction on the number of shares available for issue, the contingent purchase consideration is classified as a liability. June 30, 2022 December 31, 2021 12. Other Other long-term liabilities Balances of other March 31, 2020 December 31, 2019 June 30, 2022 March 31, 2020 December 31, 2019 Promissory Notes Payable – Related Party March 31, 2020 December 31, 2019 The balances outstanding are as follows: Luca Pasquini On January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini, who at the time of acquisition was an executive officer and director of the Corporation, was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of On F-67 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 13. Related Parties (continued) On September 13, 2021, Mr. Pasquini, the Company’s Vice President of Technology, resigned as a director of the Company and on October 4, 2021, Mr. Pasquini became the Global Head of Engineering of the Company’s subsidiary Odissea Betriebsinformatik Beratung GmbH and ceased to be Vice President of Technology and an executive officer of the Company. Michele Ciavarella Mr. Ciavarella, the Company’s Executive Chairman of the Board, agreed to receive $140,000 of his 2021 fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock valued at $140,000 on the date of issue. On January 22, 2021, the Company issued Mr. Ciavarella 175,396 shares of common stock valued at $1,003,265, in settlement of accrued compensation due to him. On July 15, 2021, Mr. Mr. Ciavarella agreed to receive his 2021 bonus and a portion of his 2022 salary as a restricted stock award. On January 7, 2022, the Company issued Mr. Ciavarella 162,835 shares of common stock valued at $425,000 on the date of issue. 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 The Company does not have a formal employment or other compensation related agreement with Mr. Reali; however, Mr. Reali will continue to receive the same compensation that he currently receives which is an annual base salary of €76,631 (approximately $83,847). Victor Salerno On July 15, 2021 the Company consummated the acquisition of USB and in terms of the Purchase Agreement the Company acquired 100% of USB, from its members (the “Sellers”). Mr. Salerno was a 68% owner of USB and received $4,080,000 of the $6,000,000 paid in cash upon closing and 860,760 of the 1,265,823 shares of common stock issued on closing. Together with the consummation of the acquisition of USB, the Company entered into a 4 year employment agreement with Mr. Salerno terminating on July 14, 2025 (the “Salerno Employment Agreement”), automatically renewable for a period of one year unless notified by either party of non-renewal. The employee will earn an initial base salary of $0 and thereafter $150,000 per annum commencing on January 1, 2022. Mr. Salerno is entitled to bonuses, equity incentives and benefits consistent with those of other senior employees. Mr. Salerno may be terminated for no cause or resign for good reason, which termination would entitle him to the greater of one year’s salary or the remaining term of the employment agreement plus the highest annual incentive bonus paid to him during the past two years. If Mr. Salerno is terminated for cause he is entitled to all unpaid salary and expenses due to him at the time of termination. If the employment agreement is terminated due to death, his heirs and successors are entitled to all unpaid salary, unpaid expenses and one times his annual base salary. Termination due to disability will result in Mr. Salerno being paid all unpaid salary and expenses and one times annual salary. Pursuant to the Salerno Employment Agreement, Mr. Salerno has also agreed to customary restrictions with respect to the disclosure and use of the Company’s confidential information and has agreed that work product or inventions developed or conceived by him while employed with the Company relating to its business is the Company’s property. In addition, during the term of his employment and if terminated for cause for the 12 month period following his termination of employment, Mr. Salerno has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the type of services he was authorized, conducted, offered or provided to the Company, (2) solicit or induce any of the Company’s employees or independent contractors to terminate their employment with the Company, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business. On September 13, 2021, the Board appointed Mr. Salerno, the President and founder of the Company’s newly acquired subsidiary, USB, to serve as a member of the Board. F-68 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements Victor Salerno (continued) Prior to the acquisition of USB, Mr. Salerno had advanced USB $100,000 of which $50,000 was forgiven and the remaining $50,000 is still owing to Mr. Salerno, which amount earns interest at 8% per annum, compounded monthly and is repayable on December 31, 2023. Between February 23, 2022 and May 18, 2022, Mr. Salerno advanced USB a total of $260,000 in terms of purported promissory notes, bearing interest at 10% per annum and repayable on June 30, 2022. These purported promissory notes contain a default clause whereby any unpaid principal would attract an additional 25% penalty. These notes were advanced to USB 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 USB by Mr. Salerno, however the terms of the advance and the default penalty have not been accepted and are subject to negotiation or dispute. Paul Sallwasser On September 13, 2021, the Company granted Mr. Sallwasser ten year options exercisable for 21,300 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021. Steven Shallcross On January 22, 2021, the Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’ fees due to him. On September 13, 2021, the Company granted Mr. Shallcross ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021. Andrea Mandel-Mantello On June 29, 2021, the board of directors of the Company appointed Mr. Mandel-Mantello to serve as a member of the Board. The appointment was effective immediately. Mr. Mandel-Mantello serves on the audit committee of the Board. On September 13, 2021, the Company granted Mr. Mandel-Mantello ten year options exercisable for 13,600 shares of common stock at an exercise price of $5.10, vesting equally over a twelve month period commencing on September 13, 2021. 14. Stockholders’ Equity For the six months ended June 30, 2022, the Company issued a total of 162,835 shares of common stock, valued at $425,000 for the settlement of compensation and directors’ fees to the Company’s executive chairman, refer note 13 above. Between March 28, 2022 and April 13, 2022, the Company sold 168,016 shares of common stock for gross proceeds of $387,053, less brokerage fees of $11,612 pursuant to the Open Market Sales AgreementSM that the Company entered into with Jefferies LLC on November 19, 2021. On June 10, 2022, the Company entered into an engagement letter (the “Engagement Letter”), with H.C. Wainwright & Co., LLC (the “Placement Agent”), pursuant to which the Placement Agent agreed to serve as the exclusive placement agent for the Company, on a reasonable best efforts basis, in connection with an offering of securities (the “Offering”). The Company agreed to pay the Placement Agent an aggregate cash fee equal to 6.0% of the gross proceeds received in the Offering. The Company also agreed to pay the Placement Agent $50,000 for fees and expenses of legal counsel and up to $15,950 for clearing fees. On June 13, 2022, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Investor”) providing for the issuance of (i) 2,625,000 shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor does not exceed certain beneficial ownership limitations, and (iii) warrants to purchase an aggregate of up to 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share, subject to customary adjustments thereunder. If after the six month anniversary of the issuance date there is no effective registration statement registering the shares underlying the Warrants for resale, then the Warrants are exercisable on a cashless basis. In July 12, 2022, the Investor exercised its pre-funded warrant for 541,227 shares at an exercise price of $0.0001 per share for gross proceeds of $54.12. F-69 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 14. Stockholders’ Equity (continued) The shares of Common Stock, the Pre-Funded Warrants, the Pre-Funded Warrant Shares and the Warrants are collectively referred to as the “Securities.” Pursuant to the Purchase Agreement, the Investor agreed to purchase the Securities for an aggregate purchase price of $3 million. Pursuant to the Purchase Agreement, on June 15, 2022, an aggregate of 2,625,000 Shares and Pre-Funded Warrants to purchase 541,227 shares of Common Stock were issued to an Investor in a registered direct offering (the “Registered Offering”) and registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a prospectus supplement to the Company’s currently effective registration statement on Form S-3 (File No. 333-256815), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 4, 2021, and was declared effective on June 14, 2021. The Company filed the prospectus supplement for the Registered Offering on June 15, 2022. Pursuant to the Purchase Agreement, the Company issued a Warrant exercisable for 3,166,227 shares of common stock, exercisable at $0.9475 per share and expire on December 15, 2027, to the Investor in a concurrent private placement pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Company has agreed to file a registration statement (the “Registration Statement”) to register the resale of the Warrant Shares within 90 days of the date of the Purchase Agreement and to use its commercially reasonable efforts to obtain effectiveness of the Registration Statement within 180 days following the closing of the Offering. 15. Warrants In terms of the Purchase Agreement discussed in note 14 above, on June 15, 2022, the Company issued, (i) Pre-Funded Warrants to purchase 541,227 shares of Common Stock with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and (ii) Warrants to purchase 3,166,227 shares of Common Stock, with an exercise price of $0.9475 per share, subject to customary adjustments thereunder. If after the six month anniversary of the issuance date there is no effective registration statement registering the Warrant Shares for resale, then the Warrants are exercisable on a cashless basis. Each Pre-Funded Warrant is exercisable for one share of Common Stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time after their original issuance until all of the Pre-Funded Warrants are exercised in full. Each Warrant is exercisable for one share of Common Stock at an exercise price of $0.9475 per share, subject to customary adjustments thereunder. The Warrants have a term of five years and six months, maturing on December 15, 2027 and are exercisable from December 15, 2022. A holder (together with its affiliates) of the Pre-Funded Warrant or Warrant may not exercise any portion of the Common Stock underlying the Pre-Funded Warrant or Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrant or Warrant, as applicable. In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Pre-Funded Warrant or Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in Warrants, provided that such cashless exercise shall only be permitted if the Registration Statement is not effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not available for the issuance of shares of Common Stock to the Warrant holder. In addition, in certain circumstances, upon a Fundamental Transaction, the holders of the Pre-Funded Warrants and Warrants will have the right to receive as alternative consideration, for each share of Common Stock that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation of the Company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction by a holder of the number of shares of Common Stock for which the Pre-Funded Warrants or Warrants are exercisable immediately prior to such event. Notwithstanding the foregoing, in the event of a Fundamental Transaction, the holders of the Warrants have the right to require the Company or a successor entity to redeem the Warrants for an amount of consideration equal to the Black Scholes Value (as defined in the Warrants) of the remaining unexercised portion of the Warrants concurrently with or within thirty (30) days following the consummation of a Fundamental Transaction. In the event of a Fundamental Transaction, the holders of the Warrants will only be entitled to receive from the Company or its successor entity, as of the date of consummation of such Fundamental Transaction the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the Warrant, that is being offered and paid to the holders of the Common Stock in connection with the Fundamental Transaction, whether that consideration is in the form of cash, stock or any combination of cash and stock, or whether the holders of Common Stock are given the choice to receive alternative forms of consideration in connection with the Fundamental Transaction. F-70 ELYS GAME TECHNOLOGY, CORP. Notes to Unaudited Condensed Consolidated Financial Statements 15. A summary of all of the Company’s warrant activity during the period January 1, * The prefunded warrants have an indefinite maturity date and have been excluded from the calculation of the weighted average remaining years and the weighted average exercise price disclosed below. The following tables summarize information about the pre-funded warrants outstanding as of June 30, 2022: Exercise price The following tables summarize information about warrants, other than pre-funded warrants outstanding as of Exercise price On October 1, 2020, the Board approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director – 300,000 shares of On November 20, 2020, the Company held its 2020 Annual Meeting of Stockholders. At the 2020 Annual Meeting, the Company’s stockholders approved an amendment to the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock During the period ended June 30, 2022, the Company issued ELYS GAME TECHNOLOGY, CORP. Notes to 16. Stock Options (continued) The options awarded during the six months ended June 30, 2022 were valued at $2.317 per share at the date of issuance using a Black-Scholes option pricing model. The following assumptions were used in the Black-Scholes model: Six months ended June 30, 2022 A summary of all of the Company’s option activity during the period January 1, The following tables summarize information about stock options outstanding as of Weighted average remaining years Weighted Average exercise price Weighted average exercise price Exercise price As of Notes to Unaudited Condensed Consolidated Financial Statements June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 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, The computation of the diluted income per share for the three and six months ended For the three and six months ended Notes to Unaudited Condensed Consolidated Financial Statements The Company has two reportable operating segments. These segments are: The operating of web based as well as land based leisure betting establishments situated throughout Italy; and only web based distribution throughout Italy, and Provider of certified betting Platform software services to global leisure betting establishments in Italy, the U.S. and The operating assets and liabilities of the reportable segments are as follows: Segment Reporting Betting establishments The segment operating results of the reportable segments are disclosed as follows: F-74 Notes to Unaudited Condensed Consolidated Financial Statements The operating assets and liabilities of the reportable segments are as follows: Betting establishments The segment operating results of the reportable segments are disclosed as follows: Notes to Unaudited Condensed Consolidated Financial Statements In July 12, 2022, the Legal matters On July 20, 2022, the Company received notice that on vigorously defend against the claims. Up to 3,166,227 Shares of Common Stock Issuable Upon Exercise of Warrants PROSPECTUS , 2022 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth all expenses to be paid by the Item 14. Indemnification of Directors and Officers. The Registrant is incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred. The Registrant’s certificate of incorporation and amended and restated Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any: The Registrant’s Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts. As permitted by the Delaware General Corporation Law, the Registrant has entered into indemnity agreements with The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of this registration statement, there is at present no pending litigation or proceeding involving any of the Registrant’s directors or executive officers as to which indemnification is required or permitted, and the Registrant is not aware of any threatened litigation or proceeding that may result in a claim for indemnification. The Registrant has an insurance policy in place that covers its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise. Item 15. Recent Sales of Unregistered Securities. The following information sets forth certain information with respect to all securities that we have sold during the last three years. We did not pay any commissions in connection with any of these sales. On June 15, 2022, the Registrant sold to an institutional investor (the “Investor”) (i) 2,625,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 541,227 shares of Common Stock (the “Pre-Funded Warrant Shares”) with an exercise price of $0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor does not exceed certain beneficial ownership limitations, and (iii) warrants (the “Warrants”) to purchase an aggregate of up to 3,166,227 shares of common stock (the “Warrant Shares”) with an exercise price of $0.9475 per share, subject to customary adjustments thereunder. The Shares, the Pre-Funded Warrants, the Pre-Funded Warrant Shares, the Warrants and the Warrant Shares are collectively referred to as the “Securities.” Pursuant to the Purchase Agreement, the Investor purchased the Securities for an aggregate purchase price of approximately $3 million. Pursuant to the Purchase Agreement, the Company issued the Shares and the Pre-Funded Warrants to the Investor in a registered offering and issued the Warrants to the Investor in a concurrent private placement pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. On July 15, 2021, pursuant to a Membership Purchase Agreement (the “Purchase Agreement”), dated July 5, 2021, by and between Elys Game Technology, Corp. (“Elys” or the “Company”), Bookmakers Company US LLC (“USB”) and the members of Bookmakers Company US LLC, the Company acquired 100% of USB, from its members (the “Sellers”) and USB became a wholly owned subsidiary of the Company. Pursuant to the terms of the Purchase Agreement, the consideration paid for all of the equity of USB was $6 million in cash plus the issuance of 1,265,823 shares of the Company’s common stock at a price of $4.74 per share based on the volume weighted average closing price of the stock for the 90 trading days preceding the closing date (the “Stock Consideration”). The following information sets forth certain information with respect to all securities that we have sold during the last three years. All issuances prior to December 31, 2019 do not reflect the Company’s Post December 31, 2019 Reverse Stock Split During July 2020, we issued an aggregate of 3,342 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was During the quarter ended June 30, 2020, we issued warrants to purchase an aggregate of 10,727 shares of our common stock at an exercise price of $3.75 per share expiring May 30, 2022 to those debenture holders that extended the maturity date of their debentures to September 28, 2020 and 251,853 warrants to purchase an aggregate of 251,853 shares of our common stock at an exercise price of $3.75 per share expiring on May 30, 2022 and 72,729 warrants to purchase an aggregate of 72,729 shares of our common stock at an exercise price of $5.00 per share expiring on May 30, 2023 to those debenture holders that extended the maturity of the debentures to September 28, 2020. During the quarter ended June 30, 2020, we issued an aggregate of 103,393 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid. During the quarter ended During July 2020, we issued an aggregate of 35,130 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Agreement. During the quarter ended June 30, 2020 we issued an aggregate of 114,730 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Agreement. During the quarter ended March 31, 2020 we issued an aggregate of 71,510 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Between December 12, 2019 to December 31, 2019, we issued an aggregate of 276,081 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid. Pre-December 12, 2019 Reverse Stock Split Between September 1, 2019 to December 11, 2019, we issued an aggregate of 8,615,734 pre-split (1,076,967 post-split) shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid. During the quarter ended December 31, 2019, we issued an aggregate of 651,680 pre-split (81,460 post-split) shares of common stock to the sellers of Virtual Generation pursuant to the terms of a Securities Purchase During the three months ended September 30, 2019, we issued an aggregate of 2,375,725 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid. During the three months ended September 30, 2019, we issued 833,210 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase On September 4, 2019, we issued (i) 1,000,000 shares of common stock to Michele Ciavarella in exchange for $500,000 of accrued salary owed to him (ii) 121,570 shares of common stock to Gold Street Capital Corp in exchange for $48,508 of accounts payable owed to it, and (iii) 1,143,652 shares of common stock to Braydon Capital Corp in exchange for debt and accrued interest thereon of $457,460.77. On September 17, 2019, we issued 12,540 shares of common stock to Andrei Sheptikita in exchange for $5,017 of accounts payable owed to him. During the six months ended June 30, 2019, we issued an aggregate of 1,731,868 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid. During the six months ended June 30, 2019, we issued 1,245,070 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase Item 16. Exhibits and Financial Statement Schedules. EXHIBIT INDEX ____________________ * herewith. (b) Financial Statement Schedules. All financial statement schedules are omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or the notes thereto. Item 17. Undertakings. The undersigned registrant hereby undertakes: To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the City of Las Vegas, Nevada, on the 1st day of September, 2022. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michele Ciavarella and Carlo Reali, and each of them, individually, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Signature /s/ Michele Ciavarella Carlo Reali (Principal Financial Officer and Principal Accounting Officer) /s/ /s/ Paul Sallwasser /s/ Steven A. Shallcross |