ELYS GAME TECHNOLOGY, CORP. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act, and Section 21E of the
Exchange Act. All statements other than statements of historical fact could be
deemed forward-looking statements. Statements that include words such as "may,"
"might," "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "pro forma" or the negative of these words or other words or
expressions of and similar meaning may identify forward-looking statements. For
example, forward-looking statements include any statements of the plans,
strategies and objectives of management for future operations, including the
execution of integration and restructuring plans and the anticipated timing of
filings; any statements concerning proposed new products, services or
developments; any statements regarding future economic conditions or
performance; statements of belief and any statement of assumptions underlying
any of the foregoing. Factors that might cause such differences include, but are
not limited to, those discussed in our Annual Report on Form 10-K for the year
ended December 31, 2021 filed with the Securities and Exchange Commission on
April 15, 2022 under the heading "Risk Factors" and the Risk Factors as
described in Item 1A of this Quarterly Report on Form 10-Q for the quarter
ended
March 31, 2022.



Overview



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



We currently 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 intention is to focus our
attention on expanding the U.S. market. We recently began operation is
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 March 31, 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.

                                       29









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 months ended March 31, 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 these countries to cross-sell our Platform services to
expand the global distribution of our betting solutions.



We operate two business segments in the leisure games industry and our revenues are 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



Revenues from SaaS-based services through the provision of our virtual sports platform and products to betting operators.

This MD&A includes an analysis of our business for the three months ended March 31, 2022 and 2021, which includes US Bookmaking operations for the three months ended March 31, 2022.


Recent Developments


Disclosure Regarding Russia invasion of Ukraine

Russia recently invaded Ukraine with Belarus accomplice to 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 sanction 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 are directly or indirectly dependent on assets from Russia, Ukraine or Belarus or countries that support Russia.



We provide online gaming services and platform services to several customers,
including our own internal usage of our developed software, we employ the latest
encryption techniques and firewall practices and constantly monitor the usage of
our software as is required for the regulated markets which we operate in, this,
however, may not be sufficient to prevent the heightened risk of cybersecurity
attacks emanating from Russia, Ukraine, Belarus, or any other country.



The impact of the invasion by Russia of Ukraine has increased volatility in
trading prices and commodities throughout the world, 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 leisure
gaming industry as a whole.



Inflation


Macroeconomic conditions could negatively affect consumer spending and therefore our operations, but 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 US Dollar and the Euro, Canadian dollar and Colombian Peso will have
an effect on our results of operations.



                                       30








Significant 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 Part I, Item I of this
Form 10-Q for further information.



Critical accounting policies that involved a significant estimate included the following:

Impairment of assets with indefinite life and Good will

We carried intangible assets in the amount of $15.2 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 March 31, 2022.


Fair value of contingent consideration

As of March 31, 2022, the Company carried contingent purchase consideration in
the amount of $13.3 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 March 31, 2022.



Recently issued accounting pronouncements

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










                                       31





Results of operations for the three months ended March 31, 2022 and the three months ended March 31, 2021


Revenues



The following table represents disaggregated revenues from our gaming operations
for the three months ended March 31, 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. Service Revenues is revenue invoiced for our Elys software service
and royalties invoiced for the sale of virtual products.



                                            Three months ended
                                       March 31,          March 31,           Increase
                                         2022               2021             (decrease)         Percentage change
Turnover
Turnover web-based                  $ 215,780,282      $ 231,332,159      $  (15,551,877 )               (6.7 )%
Turnover land-based                     1,785,107         11,825,830         (10,040,723 )              (84.9 )%
Total Turnover                        217,565,389        243,157,989         (25,592,600 )              (10.5 )%

Winnings/Payouts
Winnings web-based                    200,853,821        215,598,415         (14,744,594 )               (6.8 )%
Winnings land-based                     1,400,413         10,164,937          (8,764,524 )              (86.2 )%
Total Winnings/payouts                202,254,234        225,763,352         (23,509,118 )              (10.4 )%

Gross Gaming Revenues
Gross Gaming Revenues Web-based        14,926,461         15,733,744            (807,283 )               (5.1 )%
Gross Gaming Revenues Land-based          384,694          1,660,893       
  (1,276,199 )              (76.8 )%
                                       15,311,155         17,394,637          (2,083,482 )              (12.0 )%

Less: Gaming Taxes                     (3,730,830 )       (3,329,038 )          (401,792 )               12.1 %

Net Gaming Revenues                    11,580,325         14,065,599          (2,485,274 )              (17.7 )%

Add: Service Revenues                     655,661             91,729             563,932                614.8 %

Total Revenues                      $  12,235,986      $  14,157,328      $   (1,921,342 )              (13.6 )%



The change in turnover (round) is mainly explained by:



Web-based turnover decreased by $15,551,877 or 6.7%. The decrease is directly
attributable to the closure of the Ulisse CTD locations at the end of June 2021,
turnover from Ulisse was $0 for the three months ended March 31, 2022, a
decrease of $18,645,885. This decrease was partially recouped by an increase in
Multigioco web-based revenue of $3,054,867, an increase of 1.4%. Due to a
softening on COVID restrictions, the growth in web based turnover has slowed,
however we still experienced growth on a larger turnover base. We expect the
business mix to continue to trend towards online channels, and we still expect
quarterly growth as we gain market share. The percentage of payouts on web-based
turnover improved slightly to 93.1% from 93.2% for the three months ended March
31, 2022 and 2021 respectively.



Land-based turnover decreased by $10,040,723 or 84.9%. The decrease is directly
attributable to the closure of the Ulisse CTD locations at the end of June 2021.
Turnover from Ulisse was $11,825,828 for the three months ended March 31, 2021.
The Multigioco land based operations had no revenues for the three months ended
March 31, 2021, we have managed to recoup some of our land based turnover during
the three months ended March 31, 2022, generating turnover of $1,785,096 for the
three month period. We expect to see moderate growth in our land based turnover
for the remainder of the year as we expect the business mix to continue trending
towards online channels. The percentage of payouts on land-based turnover
improved to 78.5% from 86.0% for the three months ended March 31, 2022 and
2021
respectively.


The turnover mix impacts our Gross Gaming Revenue ("GGR"). Our turnover for the
three months ended March 31, 2022 is as follows; Sports betting turnover
represented 51.4% (March 31, 2021 - 58.2%); casino style games represented 46.7%
( March 31, 2021 - 39.7%); and other was 1.9% (March 31, 2021 - 2.1%). The shift
towards more casino style games during the three months ended March 31, 2022,
has a negative impact on our gross gaming revenues as the margin earned on our
sports book averaged 18.3% (March 31, 2021 - 16.9%) and for our casino style
games averaged 4.3% (March 31, 2021 - 4.0%), resulting in a blended GGR of 7.0%
(March 31, 2021 7.2%). 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 18.3% from 16.9%, the lower
sports betting turnover and GGR as a percentage of overall turnover and revenue
had a negative impact on our overall blended hold despite the improvement in the
casino style games hold to 4.3% (March 31, 2021 - 4.0%).





                                       32











Gaming taxes increased by $401,792 or 12.1% over the prior period. The relative
rate of our gaming taxes, which is based on Gross Gaming Revenues was 24.4% and
19.1% for the three months ended March 31, 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 $563,932 or 614.8%. This is primarily due to; (i)
revenues generated by USB operations of $294,366 and 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 $9,286,232 and $10,661,815 for the three months
ended March 31, 2022 and 2021 respectively, a decrease of $1,375,583 or 12.9%.
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 increase based on the unknown outcome of sports events that
we have no control over. The percentage of selling expenses to turnover improved
to 4.3% compared to 4.4% for the three months ended March 31, 2022 and 2021
respectively.



General and administrative expenses

General and administrative expenses were $5,009,384 and $4,145,210 for the three
months ended March 31, 2022 and 2021 respectively, an increase of $864,174 or
20.8%. The increase over the prior year is attributable to the following: (i) an
increase in personnel costs of $382,787, primarily due to the acquisition of
USB, (ii) an increase in stock option compensation expense of $297,754 primarily
due to the periodic amortization expense of options granted to senior management
during the past twelve months; (iii) an increase in professional fees of
$246,925 primarily due to legal fees incurred on the expansion in the U.S.
market, offset by a net reduction in miscellaneous general and administrative
expenses of $63,292.



Loss from Operations



The loss from operations was $2,059,626 and $649,697 for the three months ended
March 31, 2022 and 2021 respectively, an increase of $1,409,929 or 217.0%. The
increase in operating loss is directly attributable to the decrease in revenues
of $1,921,342 and the increase in general and administrative expenses of
$864,170 offset by a reduction in selling expenses of $1,375,583 as discussed
above.


Interest expense, net of interest income

Interest expense was $3,859 and $7,849 for the three months ended March 31, 2022
and 2021, respectively, a decrease of $3,990 or 50.8%. The decrease is primarily
related to the repayment and the conversion into equity of convertible
debentures during the prior year resulting in lower interest-bearing debt.

Amortization of debt discount

The amortization of the debt discount was $0 and $12,833 for the three months ended
March 31, 2022 and 2021, respectively, a decrease of $12,833 or 100.0%. The decrease is mainly attributable to the redemption of convertible debentures during the prior year, which were fully amortized.


Other income


Other income was $39,749 and $281,344 for the three months ended March 31, 2022
and 2021 respectively, a decrease of $241,595 or 85.9%, prior period included COVID-related revenue from EU government agencies amounting to $194,403.

Change in fair value of contingent consideration on purchase

Change in fair value of contingent purchase consideration was $450,013 and $0
for the three months ended March 31, 2022 and 2021 respectively, an increase of
$450,013. The change in fair value of contingent purchase consideration is the
accretion expense associated with the present value of contingent purchase
consideration due on the acquisition of USB.







                                       33






Other expense



Other expense was $1,070 and $26,930 for the three months ended March 31, 2022
and 2021, respectively, a decrease of $25,860 or 96.0% The prior period amount
related to an administrative penalty of $26,930.



Gain on Marketable Securities



The gain on marketable securities was $77,500 and $195,000 for the three months
ended March 31, 2022 and 2021 respectively, a decrease of $117,500 or 60.3%. 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 $2,397,323 and $220,965 for the three months ended
March 31, 2022 and 2021 respectively, an increase of $2,176,358 or 984.9%. 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 a charge of $156,893 and $388,614 for the three
months ended March 31, 2022 and 2021 respectively, a decrease of $231,721 or
59.6%. The decrease is attributable to lower overall revenues and an increase in
operating expenditure, resulting in lower taxable income.



Net Loss



Net loss was $2,554,216 and $609,579 for the three months ended March 31, 2022
and 2021 respectively, an increase of $1,944,637 or 319.0% 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 loss of $(151,775) and $(344,088) for
the three months ended March 31, 2022 and 2021 respectively, primarily due to
the strengthening of the US Dollar against the Euro during the current period
and the weakening against the Euro in the prior period.



Cash 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 finance our business primarily though debt and equity placements and
cash generated from operations. Recently, we have financed our business from the
sale of shares of our common stock pursuant to the terms of the Open Market
Sales AgreementSMthat we entered into with Jefferies LLC on November 19, 2021.
Between March 28, 2022 and March 31, 2022, we sold 56,472 shares of common stock
for gross proceeds of $131,564, less brokerage fees of $3,947 pursuant to the
Open Market Sales AgreementSM and from April 1, 2022 through April 15, 2022, we
sold an additional 111,544 shares of common stock for net proceeds of $247,824
after commission of $7,665.



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



Based on our forecasts, we believe that we have adequate resources to continue
operating for the next twelve months. We plan to continue our expansion plans in
both the U.S. and Italian markets at a rate of growth that we believe is
sustainable and achievable by us. If additional accretive opportunities arise
during the execution of our business plans, we might consider raising additional
cash through either debt or equity funding, if such debt or equity raise is
available at terms that are acceptable to us, if at all.



                                       34






The ongoing Covid-19 pandemic has impacted our Italian based operations, we have
seen a significant increase in Turnover (Handle) from our web-based operations
and a significant decline in turnover from our land-based operations 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 2022, we had total assets of $43,598,513 compared to $44,578,841 at
December 31, 2021, a decrease of $980,328 The decrease is primarily related to
the decrease in Gaming Receivables of $1,280,564 which is affected by the timing
of the weekly settlement of gaming receivables, and increase in prepaid expenses
of $544,484, primarily related to the software development costs incurred for
the US market, an increase in the right of use assets of $662,508, primarily due
to a new property lease for larger premises to accommodate the growth of our
Multigioco operation, a decrease in intangibles of $387,891 due to periodic
amortization and a decrease in cash balances of $714,503, primarily used for
working capital purposes and the acquisition of property and equipment.



Liabilities


At March 31 2022, we had $27,412,399 in total liabilities compared to total
liabilities of $26,837,324 at December 31, 2021, an increase of $575,075. The
increase is primarily attributable to an increase in Operating lease liability
of $670,995, due to the new property lease entered into for Multigioco, an
increase in taxes payable of $224,704 attributable to the first quarter
profitability in Multigioco, offset by, a decrease in gaming accounts payable of
$337,806 due to the timing of weekly settlements , an increase in Contingent
Purchase Consideration of $450,013 due to the amortization of accretion expense,
and a decrease in accounts payable of $333,321 primarily due to a reduction in
trade payables in our Multigioco operation.



Working Capital



We had $6,605,262 in cash and cash equivalents at March 31, 2022 compared to
$7,319,765 on December 31, 2021. The decrease is due to an increase in working
capital movement of $436,033, the purchase of property and equipment of
$105,129, a reduction in the dollar value of Euro cash balances by $267,703,
offset by cash provided by financing activities of $84,818, primarily from open
market sales of shares of common stock.



We had a working capital surplus of $619,667 at March 31,2022, compared to a
working capital surplus of $1,556,306 at December 31, 2021. The decrease in
working capital is primarily attributable to the decrease in cash balances of
$714,503 the decrease in gaming receivables of $1,215,364, offset by the
decrease in accounts payable of $1,096,743.



Accumulated Deficit


From March 31, 2022we had accumulated a deficit of $50,797,244 compared to the accumulated deficit of $48,243,028 to December 31, 2021.

Cash flow from operating activities



Net cash used in operating activities was $436,033 and net cash generated from
operating activities was $735,876 for the three months March 31, 2022 and 2021,
respectively. The decrease of $(1,171,907) was primarily related to; (i) the
increase in net loss of $(1,944,635); (ii) the increase in the movement of
non-cash items of $1,301,059, consisting primarily of the movement in the fair
value of contingent purchase consideration of $450,013 related to accretion
expense of the discounted contingent purchase consideration due on the
acquisition of USB, the increase in stock based compensation of $309,004 due to
the number of options granted over the past twelve months, the increase in share
based compensation due to our CEO electing to take his bonus and a portion of
his compensation in stock and an increase in depreciation and amortization
expense of $212,256, primarily related to the amortization of intangible assets
which arose on the acquisition of USB; and (iii) the movement in working capital
of $(528,325) primarily due to the increase in the movement of prepaid expenses
of $(555,947) primarily due to software development costs for the US market, a
reduction in the movement of gaming account liabilities of $(875,195), a
decrease in the movement of taxes payable of $(183,476) due primarily to the
lower profitability of the European operations, offset by an increase in the
movement of accounts receivable of $1,002,879 due to the timing of our weekly
settlements with our agents and customers.



Cash flow from investing activities

Net cash used in investing activities was $105,129 and $80,404 for three months March 31, 2022 and 2021, an increase of $24,725related to the acquisition of minor property, plant and equipment.


                                       35








Cash flow from financing activities



Net cash provided by financing activities was $84,820 and $2,912,498 for the
three months March 31, 2022 and 2021, respectively, a decrease of $2,827,678.
The decrease is primarily due to the lack of proceeds from warrant exercises
during the three months ended March 31, 2022 compared to proceeds from warrants
exercised in the prior period of $3,909,981 which warrant exercises in the prior
period were offset by repayment of the bank credit line of $500,000, the
movement in deferred purchase consideration paid in the prior period. The
decrease was offset by proceeds derived from the open market sales of $127,618
in the current period.



Contractual Obligations


Current accounting standards require disclosure of material obligations and commitments to make future payments under contracts, such as debts, leases and purchase obligations.



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



                                                         Amount

  Remainder of 2022                                    $  6,407
  2023                                                    6,879
  2024                                                      798
  Total undiscounted minimum future lease payments     $ 14,084




Operating lease liability



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



                                                          Amount

  Remainder of 2022                                    $   274,766
  2023                                                     299,845
  2024                                                     227,145
  2025                                                     207,177
  2026 and thereafter                                      341,105
  Total undiscounted minimum future lease payments     $ 1,350,038



Off-balance sheet arrangements



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



 Related Party Transactions


Deferred Purchase Consideration, Related party

During the first and second quarter, 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:



                                              December 31, 2021

Principal Outstanding Promissory notes due to related parties $382,128 Cash reimbursement

                                    (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        $              -




                                      36






Payables and receivables from related parties represent non-interest-bearing receivables (debts) that are due on demand.

The outstanding balances are as follows:


                             March 31,     December 31,
                               2022            2021
Related Party payables
Luca Pasquini               $  (3,159 )   $        (502 )
Victor Salerno                (52,922 )         (51,878 )
                            $ (56,081 )   $     (51,380 )

Related Party Receivables
Luca Pasquini               $   1,378     $       1,413




Luca Pasquini



On January 31, 2019, we 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 June 30, 2021, we paid Mr.
Pasquini the full cash amount of €500,000 (approximately $604,380) and
issued 112,521 shares valued at €300,000 (approximately $334,791).



On January 22, 2021we issued Mr Pasquini 44,968 ordinary shares valued at $257,217in settlement of the indemnity due to him.

On 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 Pasquiniour Vice President of Technology, has resigned as a director and officer of the Company.


Michele Ciavarella


Mr. Ciavarella agreed to receive $140,000 of his compensation for the 2021 financial year in the form of an allocation of shares January 22, 2021we issued Mr. Ciavarella 24,476 ordinary shares valued at $140,000 on the date of issue.

On January 22, 2021we issued Mr. Ciavarella 175,396 ordinary shares valued at $1,003,265in settlement of the indemnity due to him.



On July 15, 2021, Michele Ciavarella, Executive Chairman of the Company, 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 take 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, 2022we promoted Carlo Reali as interim chief financial officer.



On March 29, 2022, we 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 $71,200 .



                                       37





Victor Salerno


On July 15, 2021 we have consummated the acquisition of USB and, pursuant to the purchase agreement, we have acquired 100% of USB, from its members (the “Sellers”). Mr. Salerno owned 68% of USB and received $4,080,000 of
$6,000,000 paid in cash at closing and 860,760 of the 1,265,823 common shares issued at 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 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 our
confidential information and has agreed that work product or inventions
developed or conceived by him while employed with us relating to our business is
our 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 us, (2) solicit or induce any of our employees
or independent contractors to terminate their employment with us, (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, 2021the Council has appointed Mr. SalernoPresident and Founder of our newly acquired subsidiary, USB, to serve on the Board of Directors.



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.



Paul Sallwasser



On September 13, 2021, we 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, 2021we delivered to Mr. Shallcross5,245 ordinary shares valued at $30,000in payment of attendance fees due to him.



On September 13, 2021, we 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 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, 2021we granted Mr. Mandel-Montello ten-year options exercisable for 13,600 common shares at an exercise price of $5.10acquired in equal parts over a period of twelve months from the September 13, 2021.








                                       38

© Edgar Online, source Previews


Source link

Comments are closed.