Established in the state of Delaware in 1998, ELYS
GAME TECHNOLOGY, CORP. (“Elys” or the “Company”) is an international, vertically integrated commercial-stage company
engaged in various aspects of the leisure gaming industry. The Company’s subsidiaries hold gaming licenses to operate in the Italian
and Austrian leisure betting markets offering gaming services, including a variety of lottery, casino gaming and sports betting products
through two distribution channels: an online channel and a land-based retail channel. Additionally, the Company is a global gaming technology
company (known as a “Provider”), which owns and operates a betting software designed with a unique “distributed model”
(“shop-client”) software architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully
integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel
functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software
design is fully integrated with a built-in player gaming account management system and sports book.
The entities included in these unaudited condensed
consolidated financial statements are as follows:
The Company operates in two lines of business: (i)
provider of certified betting Platform software services to leisure betting establishments in Italy and other countries and; (ii) the
operating of web based as well as land based leisure betting establishments situated throughout Italy and web based in Austria.
The Company’s operations are carried out through
the following three geographically organized groups:
a)
an operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, Malta;
b)
a technology group which is based in Innsbruck, Austria and manages software development, training, and administration; and
c)
a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and satellite offices in the USA in San Francisco, California, through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.
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
months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31,
2021. The balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements at that
date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information,
please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”).
All amounts referred to in the Notes to the unaudited
condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
For the purposes
of its listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting
Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion
Policy to National Instrument 51-102“ Continuous Disclosure Obligations”(“NI 51-102CP”) which permits the
Company to prepare its financial statements in accordance with U.S. GAAP.
Principles of consolidation
The unaudited condensed consolidated financial statements
include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company accounts
and transactions have been eliminated in the unaudited condensed consolidated financial statements.
Foreign operations
The Company translated the assets and liabilities
of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and the results of operations and cash flows
at the average rate throughout the quarter. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
All revenues were generated in Euro and Colombian
Peso during the periods presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
Business Combinations
The Company allocates the fair value of purchase consideration
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant
perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Use of Estimates
The preparation of unaudited condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions
include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation
of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, convertible debentures, contingencies
and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables
and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions.
It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ
from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions
and record adjustments when necessary.
Loss Contingencies
The Company may be subject to claims, suits, government
investigations, and other proceedings involving competition and antitrust, intellectual property, gaming license, privacy, indirect taxes,
labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using
the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate
amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount
can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it
discloses the range of the possible loss in the Notes to the unaudited condensed Consolidated Financial Statements.
The Company evaluates, on a regular basis, developments
in its legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of
possible losses disclosed and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine
both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters,
there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of the Company’s
estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial
position, results of operations, or cash flows.
To date, none of these types of litigation matters,
most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition.
The Company has insured and continues to insure against most of these types of claims.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement and Disclosures,
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring
fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are
observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no
market data exists, therefore using estimates and assumptions developed by us, which reflect those that a market participant would use.
The carrying value of the Company's accounts receivables,
gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair
value because of the short-term maturity of these financial instruments.
Derivative Financial Instruments
ASC 815 generally provides three criteria that, if
met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815.
ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of March 31,
2021 and December 31, 2020, respectively.
The Company primarily places cash balances in the
USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation
up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of
CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi
(FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association
of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.
Gaming Accounts Receivable
Gaming accounts receivable represent gaming deposits
made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through
one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank
accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its
gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection
experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral
to support customer receivables. The Company recorded no bad debt expense for the three months ended March 31, 2021 and 2020.
Gaming Accounts Payable
Gaming accounts payable represent customer balances,
including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the
customers. Customers can request payment of winnings from the Company at any time and the payment to customers can be made through bank
wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.
Long-Lived Assets
The Company evaluates the carrying value of its long-lived
assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when
events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future
cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged
to earnings.
Fair value is based upon discounted cash flows of
the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current
estimated net sales proceeds from pending offers.
Plant and Equipment
Plant and equipment is stated at acquisition cost
less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic
benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses in the statement of operations
as incurred.
Depreciation is charged on a straight-line basis over
the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The
range of the estimated useful lives is as follows:
Description
Useful Life
(in years)
Leasehold improvements
Life of the underlying lease
Computer and office equipment
3 to 5
Furniture and fittings
7 to 10
Computer Software
3 to 5
Vehicles
4 to 5
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:
Description
Useful Life
(in years)
Betting Platform Software
15
Ulisse Bookmaker License
Indefinite
Multigioco and Rifa ADM Licenses
1.5 - 7
Location contracts
5 - 7
Customer relationships
10 - 15
Trademarks/Tradenames
14
Websites
5
The Ulisse Bookmaker License has
no expiration date and is therefore not amortized but is tested for impairment on an annual basis in terms of ASC 350 using estimated
fair value.
Goodwill
The Company allocates the fair value of purchase consideration
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant
perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company annually assesses
whether the carrying value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such
excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying
amount of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment
charge will be recognized in an amount equal to that excess.
As of March 31, 2021, there were no qualitative indications
that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic has had, and is expected to continue
to have a significant impact on our land-based business, the impact is expected to be mitigated because web-based turnover generated by
the Company has increased.
Leases
The Company accounts for leases in terms of ASC 842.
In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition
of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the
implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the
end of the lease term. Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial
leases, are included in plant and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred
on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will not acquire the asset
at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current
right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and
the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating
lease agreement.
Income Taxes
The Company uses the asset and liability method of
accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized
for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting
from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the
weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will
not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2015 forward, are open
and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection
of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is
not currently under examination and it has not been notified of a pending examination.
Revenue Recognition
The Company recognizes revenue when control of its
products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from
its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and
horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers.
Revenues are recorded when the game is closed which is representative of the point in time at which the Company has satisfied its performance
obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded
when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include license
fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made
and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of each licensee’s
level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned.
Stock-Based Compensation
The Company records its compensation expense associated
with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes option
pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value.
Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the
Company records expense related to Restricted Stock Units (“RSU’s”) granted based on the fair value of those awards
on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock
options and RSUs are recognized as they occur.
Stock-based compensation expense for a stock-based
award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the
outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously
recognized compensation expense is reversed.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change
in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including
foreign currency translation adjustments.
Earnings Per Share
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic”
and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss)
available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect
the potential dilution of securities that could share in the earnings of an entity and include options and warrants granted and convertible
debt, adding back any expenditure directly associated with the convertible instruments, if any. When the Company incurs a net loss, the
effect of the Company’s outstanding stock options and warrants and convertible debt are not included in the calculation of diluted
earnings (loss) per share as the effect would be anti-dilutive.
Related Parties
Parties are considered to be related to the Company
if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value
of the goods or services exchanged.
Recent Accounting Pronouncements
The FASB issued several updates during the period,
none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material
impact on the consolidated financial statements upon adoption.
Reporting by segment
The Company has two operating segments from which
it derives revenue. These segments are:
(i)
the operating of web based as well as land-based leisure betting establishments situated throughout Italy and only web based distribution in Austria; and
(ii)
provider of certified betting Platform software services to leisure betting establishments in Italy and other countries.
Cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank.
·
The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. The line of credit was repaid during the three months ended March 31, 2021. See Note 9.
The aggregate depreciation charge to operations was
$50,777 and $51,125 for the quarter ended March 31, 2021 and 2020, respectively. The depreciation policies followed by the Company are
described in Note 2.
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 $175,829
and $175,748 in amortization expense for finite-lived assets for the three months ended March 31, 2021 and 2020, respectively.
Licenses obtained by the
Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani
and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker
License through the acquisition of Ulisse.
The estimated amortization expense over the next
five year period is as follows:
Goodwill represents the excess purchase price paid
over the fair value of assets acquired, including any other identifiable intangible assets.
The Company evaluates goodwill for impairment on an
annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined
by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than
carrying value and the impairment is deemed to be permanent in nature.
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 $0.265 per share on March 31, 2021, resulting in an unrealized gain recorded to earnings related to these securities of $195,000
for the three months ended March 31, 2021.
The Company
maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, of which $0 was drawn as of March
31, 2021, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, and
no maturity date as long as the security deposit of $1,000,000 remains in place, see Note 3.
The accounting treatment relating to the convertible
debentures issued was in accordance with the guidance in ASC 480 and ASC 815.
As of March 31, 2021 and December 31, 2020, the Company
has outstanding, Canadian Dollar denominated convertible debentures in the aggregate principal amount of CDN $0 and CDN $35,000 (approximately
$27,442), respectively.
Convertible debentures of
$10,000 and CDN $65,000 (approximately $48,416) that had matured on May 31, 2020 were extended to August 29, 2020, of which CDN $35,000
was acquired by a related party prior to extension, and a further $600,000 and CDN $242,000 (approximately $180,257) that had matured,
had the maturity date extended to September 28, 2020, of which $500,000 and CDN $207,000 were acquired by a related party, prior to extension.
All of the convertible debentures with extended maturity dates, with the exception of one convertible debenture of CDN $35,000, were repaid
during 2020. The remaining convertible debenture of CDN $35,000 was repaid in the current period.
During the year
ended December 31, 2020, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN $317,600,
including interest thereon of CDN $45,029 and investors in U.S. Dollar convertible debentures converted the aggregate principal amount
of $400,000, including interest thereon of $70,492 into 230,134 shares of common stock.
The Aggregate convertible debentures outstanding consists
of the following:
During the current period, the Company paid
the remaining balance of €20,800 (approximately $25,262) to non-related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration to
non-related parties consists of the following:
In September 2016, the Company obtained a loan of
€500,000 (approximately USD $580,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan
has an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate, subject to quarterly review and is amortized over 57
months ending March 31, 2021. Monthly repayments of €9,760 (approximately USD $11,000) 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 in the aggregate principal
amount of €27,773 (approximately USD $33,491) for the three months ended March 31, 2021.
Other long-term liabilities represents the Italian
“Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination
or retirement as well as shop deposits that are held by Ulisse.
Balances of other long-term liabilities were as follows:
On March 11,
2020, the Company received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and
Millwork, Inc., a Company controlled by the brother of our Executive Chairman. The PN bears no interest and is repayable on demand.
The movement on notes payable, Related Party, consists
of the following:
March 31,
2021
December 31,
2020
Principal Outstanding
Additions
$
—
$
300,000
Repayment
—
(200,000
)
Applied to warrant exercise
—
(100,000
)
—
—
Accrued Interest
Opening balance
—
—
Interest expense
—
22,521
Repayment
—
(14,465
)
Applied to warrant exercise
—
(8,056
)
—
—
Promissory Notes Payable – Related Party
$
—
$
—
Convertible notes acquired,
Related party
Forte Fixtures and Millworks
acquired certain convertible notes from third parties that had matured on May 31, 2020. The convertible notes had an aggregate principal
amount of $150,000 and only the accrued interest of $70,000 on a note with an aggregate principal amount of $350,000 and notes with an
aggregate principal amount of CDN $207,000, the maturity date of these convertible notes was extended to September 28, 2020. The convertible
notes together with interest thereon, amounting to $445,020 were repaid between August 23, 2020 and October 21, 2020.
As an incentive for extending
the maturity date of the convertible debentures, Forte Fixtures was granted 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.
Deferred Purchase consideration, Related Party
During the current period, the Company paid the remaining
balance of €312,500 (approximately $385,121) to related parties in terms of the Virtual Generation promissory note.
The movement on deferred purchase consideration consists
of the following:
Description
March 31,
2021
December 31,
2020
Principal Outstanding
Promissory notes due to related parties
$
382,128
$
1,279,340
Settled by the issuance of common shares
—
(482,978
)
Repayment in cash
(385,121
)
(471,554
)
Foreign exchange movements
2,993
57,230
—
382,128
Present value discount on future payments
Present value discount
(5,174
)
(80,069
)
Amortization
5,133
76,222
Foreign exchange movements
41
(1,327
)
—
(5,174
)
Deferred purchase consideration, net
$
—
$
376,954
Related party (payables) receivables
Related party payables and receivables represent non-interest-bearing
(payables) receivables that are due on demand.
The balances outstanding are as follows:
March 31,
2021
December 31,
2020
Related Party payables
Luca Pasquini
$
(558
)
$
(565
)
Related Party Receivables
Luca Pasquini
$
1,457
$
1,519
Gold Street Capital
Gold Street Capital is wholly
owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.
Gold Street Capital acquired
certain convertible notes that had matured on May 31, 2020, amounting to CDN $35,000 from third parties, the maturity date of these convertible
notes was extended to September 28, 2020. The convertible notes together with interest thereon, amounting to CDN $44,062 (approximately
$34,547) was outstanding at December 31, 2020. This amount was repaid during the current period end.
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 at $3.75 per share and three-year warrants exercisable
for 2,383 shares of common stock at $5.00 per share.
Luca Pasquini
On January 31, 2019, the
Company acquired VG for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of VG and was due gross proceeds of €800,000
(approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month
period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of March 31, 2021, the Company has
paid Mr. Pasquini the full cash amount cash of €500,000 (approximately $604,380) and issued 112,521 shares valued at €300,000
(approximately $334,791).
On January 22, 2021, the
Company issued Mr. Pasquini 44,968 shares of common stock valued at $257,217, in settlement of accrued compensation due to him.
Amounts due to and from Luca Pasquini is for advances
made to various subsidiaries for working capital purposes.
Michele Ciavarella
Mr. Ciavarella agreed to receive $140,000 of his 2021
fiscal year compensation as a restricted stock award, on January 22, 2021, the Company issued Mr. Ciavarella 24,476 shares of common stock
valued at $140,000 on the date if 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.
Gabriele Peroni
On January 31, 2019, the
Company acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation
and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment
in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month
period. As of March 31, 2020, the Company has paid Mr. Peroni the full cash amount of €500,000 (approximately $604,380) and issued
112,521 shares valued at €300,000 (approximately $334,791).
On January 22, 2021, the
Company issued Mr. Peroni 74,294 shares of common stock valued at $424,962, in settlement of accrued compensation due to him.
Alessandro Marcelli
On January 22, 2021, the
Company issued Mr. Marcelli 34,002 shares of common stock valued at $194,491, in settlement of accrued compensation due to him.
Franco Salvagni
On January 22, 2021, the
Company issued Mr. Salvagni 70,807 shares of common stock valued at $405,016, in settlement of accrued compensation due to him.
Beniamino Gianfelici
On January 22, 2021, the
Company issued Mr. Gianfelici 63,278 shares of common stock valued at $361,950, in settlement of accrued compensation due to him.
Steven Shallcross
On January 22, 2021, the
Company issued to Mr. Shallcross, a director of the Company, 5,245 shares of common stock valued at $30,000, in settlement of directors’
fees due to him.
For the three months ended March 31, 2021, the Company
issued a total of 467,990 shares of common stock, valued at $2,676,901 for the settlement of compensation and directors’ fees to
certain of the Company’s related parties, refer note 14 above.
Between January 4, 2021 and March 29, 2021, investors
exercised warrants for 1,485,809 shares of common stock for gross proceeds of $3,909,981 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.
In September 2018, our stockholders
approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation
rights, restricted stock, stock units, other equity awards or cash awards.
On October 1, 2020, the Board
approved an amendment to the Company’s 2018 Equity Incentive Plan (the “Plan”) to increase the maximum number of shares
that may be granted as an award under the Plan to any non-employee director during any one calendar year to: (i) chairperson or lead director
– 300,000 shares of common stock; and (ii) other non-employee director - 250,000 shares of common stock, which reflects an increase
in the annual limits for awards to be granted to non-employee directors under the Plan.
On November 20, 2020, the
Company held its 2020 Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders approved an amendment to
the Company’s 2018 Equity Incentive Plan to increase the number of shares of common stock that the Company will have authority to
grant under the plan by an additional 1,850,000 shares of common stock.
In addition, pursuant to the employment
agreement entered into with Mr. Monteverdi, the Company granted a non-plan option to purchase
648,000 shares of common stock at an exercise price of $1.84 that vest pro rata on each of
September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.
The Company issued a ten year option exercisable for
50,000 shares at an exercise price of $2.62 to an employee.
The options awarded during
the three months ended March 31, 2021 were valued using a Black-Scholes option pricing model.
The following assumptions
were used in the Black-Scholes model:
Three months ended
March 31, 2021
Exercise price
$
2.62
Risk free interest rate
0.92
%
Expected life of options
10 years
Expected volatility of underlying stock
229.8
%
Expected dividend rate
0
%
As of March 31, 2021, there was an aggregate of 1,024,938
options to purchase shares of common stock granted under the Company’s 2018 Equity Incentive Plan and 1,975,062 reserved for future
grants.
A summary of all of the Company’s option activity
during the period January 1, 2020 to March 31, 2021 is as follows:
Number of shares
Exercise price per share
Weighted average exercise price
Outstanding January 1, 2020
315,938
$
2.72 to 2.96
$
2.84
Granted
1,307,000
1.84 to 2.03
1.95
Forfeited/cancelled
—
—
—
Exercised
—
—
—
Expired
—
—
—
Outstanding December 31, 2020
1,622,938
$
1.84 to 2.96
2.11
Granted
50,000
2.62
2.62
Forfeited/cancelled
—
—
—
Exercised
—
—
—
Outstanding March 31, 2021
1,672,938
$
1.84 to 2.96
$
2.12
The following tables summarize information about stock
options outstanding as of March 31, 2021:
Options outstanding
Options exercisable
Exercise price
Number of shares
Weighted
average
remaining years
Weighted
Average
exercise price
Number of shares
Weighted
average
exercise price
$
1.84
648,000
9.48
—
$
2.03
659,000
9.51
158,167
$
2.62
50,000
9.67
—
$
2.72
25,000
5.25
25,000
$
2.80
220,625
8.48
82,917
$
2.96
70,313
8.27
70,313
1,672,938
9.25
$
2.12
336,397
$
2.47
As of March 31, 2021, there were unvested options
to purchase 1,336,542 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $2,447,604
which is expected to be recognized over a period of 41 months.
The intrinsic value of the options at March 31, 2021
was $5,311,604.
The following table represents disaggregated revenues
from our gaming operations for the three months ended March 31, 2021 and 2020. Net Gaming Revenues represents Turnover (also referred
to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid to agents, and
taxes due to government authorities, while Commission 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.
Basic income (loss) per share is based on the weighted-average
number of common shares outstanding during each period. Diluted income (loss) per share is based on basic shares as determined above,
plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” options and warrants using the
treasury stock method and the inclusion of all convertible securities, including convertible debentures, assuming these securities were
converted at the beginning of the period or at the time of issuance, if later, adding back any direct incremental expenses related to
the convertible securities, including interest expense, debt discount amortization. The computation of diluted net income (loss) per share
does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.
The computation of the diluted income per share for
the three months ended March 31, 2020, after the add back of interest income of $79,300 and amortization of debt discount of $396,010
was anti-dilutive.
For the three months ended March 31, 2021 and 2020,
the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the result
of the computation was anti-dilutive:
The Company has evaluated subsequent events through
the date the financial statements were issued and did not identify any other subsequent events that would have required adjustment or
disclosure in the financial statements.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for
interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three
months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31,
2021. The balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements at that
date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information,
please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”).
All amounts referred to in the Notes to the unaudited
condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
For the purposes
of its listing in Canada, the Company is an “SEC Issuer” as defined under National Instrument 52-107 “Accounting
Principles and Audit Standards” and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion
Policy to National Instrument 51-102“ Continuous Disclosure Obligations”(“NI 51-102CP”) which permits the
Company to prepare its financial statements in accordance with U.S. GAAP.
The unaudited condensed consolidated financial statements
include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company accounts
and transactions have been eliminated in the unaudited condensed consolidated financial statements.
The Company translated the assets and liabilities
of its foreign subsidiaries into U.S. Dollars at the exchange rate in effect at quarter end and the results of operations and cash flows
at the average rate throughout the quarter. The translation adjustments are recorded directly as a separate component of stockholders’
equity, while transaction gains (losses) are included in net income (loss).
All revenues were generated in Euro and Colombian
Peso during the periods presented.
Gains and losses from foreign currency transactions
are recognized in current operations.
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 preparation of unaudited condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions
include valuing equity securities issued in share-based payment arrangements, determining the fair value of assets acquired, allocation
of purchase price, impairment of long-lived assets, the collectability of receivables, leasing arrangements, convertible debentures, contingencies
and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables
and advances, could be affected by external conditions, including those unique to the Company’s industry and general economic conditions.
It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ
from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions
and record adjustments when necessary.
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.
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.
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 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 March 31,
2021 and December 31, 2020, respectively.
The Company primarily places cash balances in the
USA with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation
up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of
CDN $100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi
(FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association
of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.
Gaming accounts receivable represent gaming deposits
made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through
one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank
accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its
gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection
experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral
to support customer receivables. The Company recorded no bad debt expense for the three months ended March 31, 2021 and 2020.
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.
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.
Plant and equipment is stated at acquisition cost
less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic
benefits embodied in an item of plant and equipment. All other expenditures are recognized as expenses in the statement of operations
as incurred.
Depreciation is charged on a straight-line basis over
the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The
range of the estimated useful lives is as follows:
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:
Description
Useful Life
(in years)
Betting Platform Software
15
Ulisse Bookmaker License
Indefinite
Multigioco and Rifa ADM Licenses
1.5 - 7
Location contracts
5 - 7
Customer relationships
10 - 15
Trademarks/Tradenames
14
Websites
5
The Ulisse Bookmaker License
has no expiration date and is therefore not amortized but is tested for impairment on an annual basis in terms of ASC 350 using
estimated fair value.
The Company allocates the fair value of purchase consideration
to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant
perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company annually assesses
whether the carrying value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such
excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying
amount of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment
charge will be recognized in an amount equal to that excess.
As of March 31, 2021, there were no qualitative indications
that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic has had, and is expected to continue
to have a significant impact on our land-based business, the impact is expected to be mitigated because web-based turnover generated by
the Company has increased.
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 plant and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred
on financial leases are expensed using the effective interest rate method. Leases which imply that the Company will not acquire the asset
at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current
right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and
the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating
lease agreement.
The Company uses the asset and liability method of
accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized
for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting
from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the
weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will
not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company has no material uncertain tax positions for any of the reporting periods presented.
In Italy, tax years beginning 2015 forward, are open
and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection
of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is
not currently under examination and it has not been notified of a pending examination.
The Company recognizes revenue when control of its
products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from
its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and
horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers.
Revenues are recorded when the game is closed which is representative of the point in time at which the Company has satisfied its performance
obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded
when the ticket for scratch off tickets and lottery tickets are sold.
Revenues from the Betting Platform include license
fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made
and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of each licensee’s
level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned.
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) 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.
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.
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.
The Company has two operating segments from which
it derives revenue. These segments are:
(i)
the operating of web based as well as land-based leisure betting establishments situated throughout Italy and only web based distribution in Austria; and
(ii)
provider of certified betting Platform software services to leisure betting establishments in Italy and other countries.
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