ELYS GAME TECHNOLOGY, CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

You should read the following discussion and analysis of our financial condition
and plan of operations together with our financial statements and the related
notes appearing elsewhere in this Annual Report. In addition to historical
information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those discussed below. Factors that could cause or contribute to
such differences include, but are not limited to, those identified below, and
those discussed in the section titled "Risk Factors" included elsewhere in this
Annual Report. All amounts in this Annual Report are in U.S. dollars, unless
otherwise noted.



Overview



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



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We currently provide our 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 decided to focus its attention on
developing the U.S. market for future growth and allowed the Austria Bookmaker
license that is regulated by the Austrian Federal Finance Ministry ("BMF") to be
revoked by not renewing required monetary deposits.



We also provide Gaming services in the U.S. market via our recently acquired
subsidiary US Bookmaking in certain regulated states where we offer 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 Bar and Grill 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 are a global gaming technology company which owns and operates
a betting software designed with a unique "distributed model" architecture
colloquially named Elys Game Board (the "Platform") through our Odissea
subsidiary. The Platform is a fully integrated "omni-channel" framework that
combines centralized technology for updating, servicing and operations with
multi-channel functionality to accept all forms of customer payment through the
two distribution channels described above. The omni-channel software design is
fully integrated with a built in player gaming account management system,
built-in sports book and a virtual sports platform through our 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.



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 December 31, 2021, transaction revenue generated through
our subsidiaries Multigioco and Ulisse 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 Ulisse, and in the U.S., through US Bookmaking and Gameboard.
Since the majority of CTD locations were not expected to re-open after the
COVID-19 related lockdowns in Italy subsided, management simplified our Italian
footprint by focusing our investment towards the Multigioco operations and
discontinued Ulisse presence in Italy during the second quarter of 2021.



We believe that our Platform is considered one of the newest betting software
platforms in the world and our plan is to expand our Platform offering to new
jurisdictions around the world on a B2B basis, including expansion through
Europe, South America, South Africa and the developing market in the United
States. During the year ended December 31, 2021 and 2020, 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 Management's Discussion and Analysis includes a discussion of our
operations for the year ended December 31, 2021 and 2020, which reflects the
operations of US Bookmaking for the five and a half months of the year ended
December 31, 2021.



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Recent Developments
On November 19, 2021, we entered into an Open Market Sale AgreementSM (the "Sale
Agreement") with Jefferies LLC (the "Sales Agent") pursuant to which we may
offer and sell our shares of common stock (the "Common Stock"), from time to
time, through the Sales Agent (the "Offering"). The Common Stock is being
offered and sold pursuant to the Company's Registration Statement on Form S-3
(File No. 333-256815), which was declared effective on June 14, 2021 (the
"Registration Statement"). We will pay the Sales Agent a commission for its
services in acting as agent in the sale of shares of Common Stock. The Sales
Agent will be entitled to compensation in an amount equal to three percent of
the gross sales price of all of the shares of Common Stock sold through it under
the Sale Agreement. In addition, we will reimburse the Sales Agent for certain
expenses, including the fees and disbursements of the Sales Agent's legal
counsel, in an amount not to exceed $200,000 in addition to certain ongoing
disbursements of its legal counsel, unless the Company and the Sales Agent
otherwise agree. The Sale Agreement will terminate upon the earlier of (1) the
sale of all the shares of Common Stock subject to the Sale Agreement or
(2) termination of the Sale Agreement by the Sales Agent or us, as permitted
therein. We intend to use the net proceeds from the Offering, if any, for
general corporate purposes, which may include, among other things, working
capital.



On March 28, 2022, we activated the Open Market Sale Agreement we entered into
with Jeffries LLC on November 19, 2021 and sold a total of 147,710 shares of
common stock for net proceeds of $331,520 after commission of $10,253.



Results of Operations


Results of operations for the years ended December 31, 2021 and December 31, 2020.

The comparisons below include an analysis of our operations for the years ended
December 31, 2021 and 2020, which includes operating results from US Bookmaking following its acquisition on July 31, 2021.


Revenues



The following table represents disaggregated revenues from our gaming operations
for the years ended December 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. Commission and service revenues represent
commissions on lotto ticket sales and revenue invoiced for our Platform service
and royalties invoiced for the sale of virtual products.



                                      46







                                              Years Ended
                                                                                   Increase/
                                 December 31, 2021      December 31, 2020         (decrease)       Percentage change
Turnover
Web-based                     $      826,789,619     $      505,369,803     $  321,419,816                63.6 %
Land-based                            15,071,218             68,888,592        (53,817,374 )             (78.1 )%
Total Turnover                       841,860,837            574,258,395        267,602,442                46.6 %

Winnings/Payouts
Winnings web-based                   771,852,252            473,794,175        298,058,077                62.9 %
Winnings land-based                   12,842,577             56,467,865        (43,625,288 )             (77.3 )%
Total Winnings/payouts               784,694,829            530,262,040        254,432,789                48.0 %

Gross Gaming Revenues                 57,166,008             43,996,355         13,169,653                29.9 %

Less:
Gaming Taxes                          12,657,930              6,874,752          5,783,178                84.1 %
Net Gaming Revenues                   44,508,078             37,121,603          7,386,475                19.9 %

Betting platform software
and services                           1,038,713                144,764            893,949               617.5 %

Total Revenues                $       45,546,791     $       37,266,367     $    8,280,424                22.2 %



The Company generated total revenues of $45,546,791 and $37,266,367 for the years ended December 31, 2021 and 2020, respectively, an increase of $8,280,424
or 22.2%.

The change in total revenue is mainly explained by the following items:

Web-based turnover increased by $321,419,816 or 63.6%. The increase was due to
the significant number of new online players while the physical betting shops
were closed for a significant portion of the current year, only re-opening on
June 14, 2021 due to the pandemic. The increase over the prior year was impacted
by the temporary shutdown of betting shops in Italy on March 8, 2020 due to
COVID-19. This trend has continued with more people relying on using web based
platforms to place wagers. The ratio of payouts on online turnover improved from
93.8% in the prior year to 93.4% in the current year. The payout ratio varies
based on the skill and luck of our customers and the outcome of sporting events
which are inherently unpredictable and can fluctuate significantly from period
to period.



                                       47







Land-based turnover decreased by $53,817,374 or 78.1%. The decrease over the
prior period was impacted by the shutdown of betting shops in Italy that started
on March 8, 2020 due to COVID-19 and the majority of which were effectively
terminated on June 14, 2021. The impact was significant for both our Ulisse
operation, which ceased operations in Italy in June 2021 and our Multigioco
land-based operation, which impact was offset by increased online based gaming
in both Multigioco and Ulisse during the period January to June 2021. The ratio
of payouts on land-based turnover deteriorated to 85.2% in the current year from
82.0% in the prior year. The payout ratio varies based on the skill and luck of
our customers and the outcome of sporting events which are inherently
unpredictable and can fluctuate significantly from period to period.



Disaggregated sportsbook hold decreased to 15.7% from 18.9% of handle for the
years ended December 31, 2021 and 2020, respectively, a decrease of 3.2
percentage points in sportsbook hold while our casino style game hold increased
to 4.2% from 3.8% for the years ended December 31, 2021 and 2020, respectively,
an increase of 0.4 percentage points. The blended hold decreased to 6.8% from
7.7% for the years ended December 31, 2021 and 2020, respectively, a decrease of
0.9 percentage points. The decrease in sports betting hold had an overall
negative impact on our overall gross gaming revenue. The shift towards growing
our online channel, with higher pay-out casino games and lower margin poker
rake, resulted in an overall decrease in blended conversion of turnover to
revenue.



Gaming taxes increased by $5,783,178 or 84.1% over the prior year. The relative
rate of our gaming taxes, which is based on Gross Gaming Revenues, of 22.2% for
the year ended December 31, 2021 is significantly higher than the 15.6% for the
year ended December 31, 2020, respectively, and is primarily due to the mix of
our Gross Gaming revenues shifting to Multigioco which has an average gaming tax
of approximately 24.4% compared to Ulisse with a significantly lower tax rate
due to its incorporation being situated outside of Italy. The increase in taxes
is due to the shift of Ulisse business to Multigioco with effect from June 2021.



Service revenues increased by $893,949 or 617.5%. This is predominantly due to
revenues generated by our Colombian operations and our newly acquired US
Bookmaking operations. Our Platform services customer base is currently limited
primarily to services provided to external US and international retail customers
and internal group operations of Multigioco, Ulisse and Virtual Generation. This
revenue remains insignificant to total revenues during the periods presented.



Selling expenses



We incurred selling expenses of $36,274,752 and $26,109,221 for the years ended
December 31, 2021 and 2020, respectively, an increase of $10,165,531 or 38.9%.
Selling expenses are commissions that are paid to our sales agents and are
directly tied to handle (turnover) as they are based on a percentage of handle
(turnover) and are not affected by the winnings that are paid. Therefore,
increases in handle, will typically result in increases in selling expenses but
may not result in increases in overall revenue if winnings/payouts, that are
subject to the unknown outcome of sports events over which we have no control,
are very high. Due to a concerted effort to manage the rates at which we agree
to pay commissions to selling agents, based on a 46.6% increase in turnover
during the year ended December 31, 2021, our percentage of selling expenses to
turnover was approximately 4.3%, compared to 4.5% for the year ended December
31, 2020.


General and administrative expenses



General and administrative expenses were $18,817,959 and $13,789,391 for the
years ended December 31, 2021 and 2020, respectively, an increase of $5,028,568
or 36.5%. The increase in general and administrative is due to the following:



i) Personnel costs have been $6,846,226 and $4,815,047 for years ended December

31, 2021 and 2020, respectively, an increase of $2,031,179 i.e. 42.2%. This

included the addition of staff costs in US Bookmaking from $373,831a

increase in payroll costs of approximately $1,657,348mainly due to;

(i) the increase in staff at the corporate level related to our

expansion into the US market, including leading special projects,

responsible for the general affairs and salary increases of our CEO in accordance

market-related wages; and (ii) an increase in the number of our

development staff in our European operations.

ii) The stock-based compensation expense was $1,845,019 and $518,506 for years

finished December 31, 2021 and 2020, respectively, an increase of $1,326,513

or 255.8%. The increase is mainly due to the issuance of 1,193,500

options during the current year and the associated amortization expense

with these options and the 648,000 options issued to our Chief

projects in the last quarter of 2020. (iii) The costs related to the platform were $2,799,473 and $2,060,132 for the years ended

December 31, 2021 and 2020, respectively, an increase of $739,341 i.e. 35.9%,

      this is primarily due to the increase in turnover of 46.6%, a portion of
      our platform fees is linked to turnover.
(iv)  Professional fees were $2,496,045 and $1,316,272 for the years ended
      December 31, 2021 and 2020, respectively, an increase of $1,179,773 or
      89.6%. the increase is primarily due to legal fees associated with
      absorbing the Ulisse business into Multigioco and fees associated with

license the Elys platform in the first WE state during current

      year, as well as licensing and administrative consultants associated with
      the launch into the US market.
 (v)  The remaining decrease of $248,238 consists of several individually
      immaterial expense items.




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Impairment of indefinite life assets and goodwill



Impairment of indefinite lived assets and goodwill was $17,350,628 and
$4,900,000 for the years ended December 31, 2021 and 2020, respectively. We
evaluated our long-lived assets for impairment in terms of ASC 350 and
determined that an impairment charge of the remaining value of our Ulisse
bookmakers license was appropriate of $4,827,914 as we have decided to
concentrate a significant amount of our efforts on developing the U.S. market.
In addition, we considered the fair value of purchased goodwill on the
acquisition of US Bookmaking in terms of ASC 360, and determined that, based on
management's revised future projections that an impairment charge of $12,522,714
was appropriate. In the prior year we impaired the Ulisse bookmakers license by
$4,900,000 in terms of an ASC 350 evaluation.



As discussed below under contingent purchase consideration, management recently
reviewed the future revenue and profit projections of US Bookmaking based on the
forecasts provided by the vendors at the time of performing the business
valuation, factoring in the ability to source new customers. The customer
acquisition process has proven to take longer than expected with a resultant
downward revision of new customers acquired over the forecast period and the
resultant downward impact on forecasted revenue streams. We reviewed the
forecasts and made appropriate adjustments based on our current understanding of
the addressable market, the growth rates forecast by third party market
analysts, our expected share of revenue and the expectation of how many new
clients we would realistically be able to add over the forecast period.
Management is currently forecasting expected discounted cash flows over the
forecast period to be approximately 40% lower than originally estimated. This
has a significant impact on our current valuation of US Bookmaking, resulting in
a goodwill impairment charge of approximately $12,522,714.



Loss from Operations


The loss from operations was $26,896,548 and $7,532,245 for the years ended
December 31, 2021 and 2020, respectively, an increase of $19,364,303 or 257.1%.
The increase in loss from operations is primarily due to the following: (i) the
impairment of the Ulisse license of $4,827,914 and the impairment of the
Goodwill on the acquisition of US Bookmaking of $12,522,714; (ii) an increase of
$10,165,531 in selling expenses, which are based on turnover that had increased
by 46.6% and (iii) an increase in U.S. corporate related expenses as we
increased the size of our operation and personnel to enter into the U.S. market.



Interest expense, net of interest income

Interest expense was $20,985 and $328,663 for the years ended December 31, 2021
and 2020, respectively, a decrease of $307,678 or 93.6%. The decrease is
primarily related to the conversion of convertible debentures into equity,
primarily in the prior year period. Interest during the current year represents
minor interest on the remaining debenture and other bank loans and related
party
payables.


Amortization of debt discount

Amortization of debt discount was $12,833 and $818,182 for the years ended
December 31, 20210 and 2020, respectively, a decrease of $805,349 or 98.4%. The
decrease is primarily due to the conversion of convertible debentures into
equity, primarily in the prior period, resulting in accelerated amortization and
the maturity of the convertible notes in May 2020.



Change in fair value of contingent consideration on purchase



Change in fair value of contingent purchase consideration was $11,857,558 and $0
for the years ended December 31, 2021 and 2020, respectively, a decrease of
$11,857,558. The change in fair value of contingent purchase consideration
includes the reevaluation of the fair value of contingent purchase consideration
on the acquisition of US Bookmaking.



                                       49











Contingent purchase consideration on the acquisition of US bookmaking is due to
the vendors for the years ended December 31, 2022 to December 31, 2025. The
basis for determining contingent purchase consideration at each reporting period
is based on cumulative EBITDA for the period July 15, 2021 to December 31, 2025,
with the first measurement period being December 31, 2022. The forecasts
provided by the vendors at the time of performing the business valuation was
based on achieving a certain number of new customers on an annual basis. The
customer acquisition process has proven to take longer than expected with a
resultant impact on forecasted revenue streams over the contingent earnout
period. Management revised its estimated revenues during January 2022. These
forecasts were reviewed and adjusted to ensure they appeared reasonable based on
our current understanding of addressable market, the growth rates forecast by
third party market analysts, our expected share of revenue and the expectation
of how many new clients we would realistically be able to add in a fiscal
period. The most significant impact on the contingent purchase consideration is
expected to be in the 2022 fiscal year, where we currently forecast that no
contingent purchase consideration will be payable. This has a knock-on effect on
the future 2023 to 2024 fiscal periods as the calculation of contingent purchase
consideration is based on cumulative EBITDA.



Other income


Other income was $227,788 and $165,375 for years ended December 31, 2021 and 2020, respectively, an increase of $62,413 i.e. 37.7%. Other income comprised approximately $201,171 Covid relief funds received by Odissea during the current year.



Other expense



Other expense was $49,967 and $86,933 for the years ended December 31, 2021 and
2020, respectively, a decrease of $36,966 or 42.5%. Other expense represents
several individually insignificant amounts such as minor fines and penalties and
non-operational commitments not related to operations, expensed during the year.



Capital loss on extinguishment of convertible debt

The loss on extinguishment of convertible debt was $0 and $719,390 for the years
ended December 31, 2021 and 2020, respectively, a decrease of $719,390 or 100%.
In May 2020, we issued additional warrants to certain debenture holders who
agreed to extend the maturity date of their debentures by between 90 and 120
days to allow us to complete a fund raising exercise resulting in a non-cash
charge of $719,390. These warrants were valued using a Black-Scholes valuation
model that were recorded as a discount against the gross value of the
convertible debentures with the following assumptions: no dividend yield,
expected volatility of between 139.5% and 183.5%, risk free interest rate
between 0.16% and 0.19% and warrant life of approximately 2 - 3 years.



(Loss) gain on Marketable securities



The loss on marketable securities was $460,000 and the gain on marketable
securities was $290,000 for the years ended December 31, 2021, and 2020,
respectively, a decrease of $750,000 or 258.6%. The gain and loss on marketable
securities is directly related to the stock price of our investment in Zoompass
which is marked-to-market each period. The shares in Zoompass were acquired by
the Company as settlement of the litigation matter.



Loss Before Income Taxes


Loss before income taxes was $15,354,987 and $9,030,038 for the years ended
December 31, 2021 and 2020, respectively, an increase of $6,324,949 or 70.0%.
The increase is primarily attributable to the increase in the loss from
operations, including the impairment of indefinite lived assets and goodwill,
and the loss on marketable securities, as discussed above, offset by the change
in the fair value of contingent purchase consideration, a decrease in interest
expense and a decrease in the amortization of debt discount, as discussed above.



Income Tax Provision


The income tax provision was a credit of $290,476 and a charge of $906,644 for
the years ended December 31, 2021 and 2020, respectively, a decrease of
$1,197,120 or 132.0%. The decrease is attributable to deferred tax movements on
imputed goodwill charges and the reversal of a tax charge from prior years
related to commissions not recognized as an expense in the prior year.



Net Loss



Net loss was $15,064,511 and $9,936,682 for the years ended December 31, 2021
and 2020, respectively, an increase of $5,127,829 or 51.6%, due to the reasons
discussed above.



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Comprehensive Loss


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



We recorded a foreign exchange loss of $519,031 and a currency translation gain of $444,665 for the years ended December 31, 2021 and 2020, respectively.

Cash and capital resources

The closing of physical betting shop locations that occurred as a result of
orders imposed due to the COVID-19 outbreak did not affect our online and mobile
business operations, which mitigated some of the impact of the closure of the
physical locations. On March 8, 2020 the Italian government imposed further
restrictions on travel throughout Italy as well as transborder crossings and had
either postponed or cancelled most professional sports events. Although most
major sporting events and leagues have recently recommenced, the suspension of
professional sports competitions throughout the world negatively impacted our
ability to offer sports gaming products and COVID-19 could have a continued
material adverse impact on economic and market conditions and trigger a period
of continued global economic slowdown, especially in light of potential
subsequent waves or new strains of the virus.



Assets


On December 31, 2021, we had total assets of $44,578,841 compared to total
assets of $35,857,979 on December 31, 2020. The increase of $8,720,862 is
primarily related to the increase in Goodwill of $14,501,217 after impairment
charges of $12,522,714 on the acquisition of US Bookmaking, the impairment
charge was due to a revision on the timing of management's expected
profitability over the earnout period. An increase in intangible assets of
$5,299,979 due to the acquisition of US Bookmaking and included non-compete
agreements, tradenames and customer relationships. A reduction in cash balances
and restricted cash balances of $12,338,412 primarily due to the cash paid in
the acquisition of US Bookmaking of $5,973,839, the cash used in operation of
$7,553,511, predominantly from U.S. operations, which included the funding of
expenses related to the setup of U.S. operations, including consultants and
legal expenses related to licensing activities and the absorption of cash in
Ulisse as it wound down its operations and settled its outstanding liabilities,
including accounts payable, gaming payables and tax liabilities, offset by net
proceeds from financing activities of $2,857,084, which included proceeds from
warrants exercised of $3,962,482 and the repayment of the bank line of credit of
$500,000 and deferred purchase consideration of $410,383.



Liabilities



On December 31, 2021, we had total liabilities of $26,837,324 compared to
$15,701,626 on December 31, 2020. The increase of $11,135,698 is primarily due
to the Contingent Purchase Consideration of $12,859,399 which was fair valued
during the current period based on management's revised estimate of the
profitability of US Bookmaking, an increase in the deferred tax liability of
$2,069,465, a decrease in accounts payable and accrued liabilities of $1,140,867
and a decrease of $474,463 in Gaming Payables, primarily due to the winding down
of Ulisse operations and the repayment of longer outstanding liabilities at
corporate level, a reduction in tax liabilities of $899,071 due to the lower
profitability of our European operations this year, in particular, the winding
down of Ulisse operations, and the repayment of the $500,000 bank line of
credit.



Working Capital


We have had $7,319,765 in cash and cash equivalents on December 31, 2021 compared to
$18,945,817 on December 31, 2020.

We had a working capital surplus of $1,556,306 from December 31, 2021 and a working capital surplus of $7,879,631 on December 31, 2020.




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We continue to embark on an aggressive roll out of our operation in the U.S.
market over the next twenty-four months and anticipate that we will need cash of
approximately $10 million to $15 million to execute this successfully and to
fund our increasing working capital requirements. We believe that we will need
to raise additional cash resources either from equity markets or from debt
funding during the near term as our existing cash resources together with the
revenue from operations will not be sufficient to fund existing operations over
the next twelve months from the date hereof. Historically, we have primarily
financed our operations through revenue generated from providing online and
land-based gaming products, services, and Platform services in Italy and the
sales of our securities and we expect to continue to seek to obtain required
capital in a similar manner. Recently, we have spent, and expect to continue to
spend, a substantial amount of funds in connection with our expansion strategy.



Accumulated Deficit


From December 31, 2021we had an accumulated deficit of $48,243,028 compared to a cumulative deficit of $33,178,517 on December 31, 2020.

Cash flow from operating activities

Cash flows from operating activities resulted in net cash used in operating
activities of $7,553,511 and $165,493 for the years ended December 31, 2021 and
2020, respectively. The $(7,388,018) increase in cash used in operating
activities is primarily related to; (i) the increase in net loss of $(5,127,829)
offset by (ii) a net movement in non-cash items of $1,148,714, including a
movement in impairment costs of long-lived assets and goodwill of $12,450,628,
an increase in the movement of stock option compensation expense of $1,326,513,
an increase in the movement in loss on marketable securities of $750,000, offset
by a change in the fair value of contingent purchase consideration of
$11,857,558, the decrease in the movement in the loss on extinguishment of debt
of $(719,390) and a decrease in the movement on the amortization of debt
discount of $805,349; and (iii) an increase in working capital movement of
$(3,408,903), primarily due to the decrease in movement of gaming accounts
payable of $(1,552,573) and the movement in taxes payable of $(1,445,398),
primarily related to the winding down of Ulisse operations, an increase in the
movement of the gaming accounts receivable balances of $880,226 due to the
increase in business activity at our Multigioco operation, an increase in the
movement of prepaid expenses of $534,099, predominantly due to prepaid licensed
software for US operations, offset by an increase in accounts payable of
$1,585,327, primarily related to an increase in payables balances at our
Multigioco operation and an increase in corporate payables due to the expansion
activities into the U.S. market taking place at the corporate level.



Cash flow from investing activities



The net cash used in investing activities for the year ended December 31, 2021
was $6,690,919 and $291,501 for the year ended December 31, 2020, the increase
over the prior year is primarily due to the acquisition of US Bookmaking
amounting to $5,973,839, net of cash balances acquired and the acquisition of
property and equipment and intangibles of $717,080, primarily to support the
U.S. expansion efforts.


Cash flow from financing activities



Net cash provided by financing activities for the for the year ended December
31, 2021 was $2,857,084 and net cash provided by financing activities for the
year ended December 31, 2020 was $12,711,416. The cash generated by financing
activities during the current year included warrant exercises of $3,962,482,
offset by the repayment of the bank line of credit of $500,000 and deferred
purchase price payments of $410,383. In the prior year, we raised net proceeds
of $8,966,122 in a public offering and further proceeds of $8,541,896 on
warrants exercised, a portion of the proceeds were used to repay debentures of
$2,778,349 and the bank line of credit of $500,000 as well as deferred purchase
price payments of $1,577,010.



Contractual Obligations


The contractual obligations consist of the following:

A cash and equity obligation to meet a possible conditional purchase

counterparty obligations when achieving financial goals by our

      recently acquired subsidiary, US Bookmaking.



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.



Inflation


We do not believe that general price inflation will have a material effect on the business of the Company in the near future.


                                       52







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 and Colombian Pesos. Changes and fluctuations in the
foreign exchange rate between the Euro and the U.S. dollar, the Canadian dollar
and the U.S. dollar and the Colombian Peso and the US Dollar, will have an
effect on our results of operations.



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
Consolidated Financial Statements included in Part II, Item 8 of this Form
10- K
for further information.


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

Impairment of indefinite life assets and goodwill

We carried intangible assets in the amount of $15.6 million and goodwill in the
amount of $16.2 million as more fully described in Notes 7 and 8 to the
consolidated financial statements. The intangible assets and goodwill are
allocated between reporting units. The Company tests its goodwill and intangible
assets with an indefinite useful life annually for impairment or more frequently
if indicators for impairment exist. Impairment for goodwill is determined by
comparing the fair value of the respective reporting unit to their carrying
amount. For impairment testing of indefinite-lived intangibles (Ulisse Bookmaker
License) the Company fully impaired the indefinite-lived intangibles due to the
Company's decision not to renew the cash deposits required to retain the
license. The Company determines the fair value of the reporting units using an
income-based approach which estimates the fair value using a discounted cash
flow model. Key assumptions in estimating fair values include projected revenue
growth and the weighted average cost of capital. 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.
Management is currently forecasting expected discounted cash flows over the
forecast period to be approximately 40% lower than originally estimated. This
has a significant impact on our current valuation of US Bookmaking, resulting in
a goodwill impairment charge of approximately $12,522,714.



Fair value of contingent consideration



As of December 31, 2021, the Company carried contingent purchase consideration
in the amount of $12.9 million as more fully described in Note 14 to the
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.



                                      53







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 addressable market, the growth
rates forecast by third party market analysts, our expected share of revenue and
the expectation of how many new clients we would realistically be able to add in
a fiscal period. The most significant impact on the contingent purchase
consideration is expected to be in the 2022 fiscal year, where we currently
forecast that no contingent purchase consideration will be payable. This has a
knock-on effect on the future 2023 to 2024 fiscal periods as the calculation of
contingent purchase consideration is based on cumulative EBITDA.



Business Combination


As of July 15, 2021, we acquired 100% of US Bookmaking for a consideration of $6
million in cash, the issuance of 1,265,823 shares of our common stock plus an
opportunity to the seller to receive up to an additional $41.8 million based
upon achievement of certain EBITDA milestones during the upcoming four years as
more fully described in Note 3 to the consolidated financial statements. We
determined the fair values of the tangible and intangible assets acquired and
the liabilities assumed using valuation techniques, and goodwill using an
income-based approach which estimates the fair value using a discounted cash
flow model. Key assumptions in estimating fair values include projected revenue
growth and the weighted average cost of capital (WACC).



We retained the services of a specialist valuation company to assist in
assessing the reasonableness of the assumptions used in valuing the business as
well as to perform a purchase price allocation. These assumptions were deemed
reasonable at the time of performing the valuation.



Recently issued accounting pronouncements

See Note 2 – Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for information on recently issued accounting standards.

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