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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/01/23 Gaming Technologies, Inc. 10-K 12/31/22 69:4.6M GlobalOne Filings Inc/FA |
Document/Exhibit Description Pages Size
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
| i ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended i i December 31, 2022 / |
| i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission file number: i 333-249998
(Exact name of registrant as specified in its charter)
| i Delaware | i 35-2675083 | |
|
State or Other Jurisdiction of Incorporation or Organization |
I.R.S. Employer Identification No. | |
| i 89135 | ||
| Address of Principal Executive Offices | Zip Code |
Registrant’s telephone number, including area code: + 1 ( i 833) i 388-GMGT (-4648)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | – | – |
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒ i i No /
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒ i No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ i Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ i Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| i Non-accelerated filer ☒ | Smaller reporting company i ☒ |
| Emerging growth company i ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐Yes ☒ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes ☒ i No
The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price, $0.60, the closing price of the Company’s common stock on June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, was $ i 8,535,917. As of that date, 14,226,528 shares of the registrant’s common stock were held by non-affiliates. For purposes of this information, the outstanding shares of common stock that were and that may be deemed to have been beneficially owned by directors and executive officers of the registrant and beneficial owners of 10% or more of the registrant’s common stock outstanding on that date were deemed to be shares of common stock held by affiliates at that date. However, such assumption shall not be deemed an admission that any such person is or was an affiliate.
As of May 1, 2023, shares of the registrant’s common stock, par value $0.001 per share, were outstanding.
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this Report, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Report, which may cause our or our industry’s actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Report on Form-10-K. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this Report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Report on Form-10-K to conform our statements to actual results or changed expectations.
INDUSTRY AND MARKET DATA
This Form 10-K contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this Form 10-K from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in Item 1A (“Risk Factors”). We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
| ii |
Unless the context requires otherwise, references in this report to “Gaming Technologies,” the “Company,” “we,” “us,” and “our” refer to Gaming Technologies, Inc., a Delaware corporation, and its subsidiaries. All brand names or trademarks appearing in this report are the property of their respective holders.
Business Overview
We are a gaming company specializing in building and scaling online gambling brands. We integrate best-in-class third-party casino games and sports betting to our online brands.
The Company operates Vale, a licensed online Casino and Sportsbook in Mexico, through its website vale.net, which is provided in conjunction with a local license holder, The Fabulous Vegas Games S.A. de C.V.
Gaming Technologies, Inc., was incorporated under the laws of the State of Delaware on July 23, 2019, under the name Dito, Inc. We entered into a share-for-share exchange transaction consummated on March 18, 2020, in which all of the existing shareholders of Dito UK Limited, an English corporation, exchanged their ordinary shares in Dito UK Limited for shares of our common stock, and Dito UK Limited became our wholly owned subsidiary (the “Share Exchange”).
Dito UK Limited acquired its initial assets from Gametech UK Limited, an English corporation (“Gametech UK”) in 2018. On May 11, 2017, Gametech UK entered insolvency proceedings and administrators were appointed for it. Approximately fifteen months later, on August 10, 2018, the administrators of Gametech UK entered into an asset sale agreement with Dito UK Limited (the “Sale Agreement”) pursuant to a court order issued by the Joint Administrators of Gametech UK (in administration) on May 29, 2018. Gametech UK’s last full year of operations was the year ended December 31, 2016, and it had nominal revenues in such year.
The Sale Agreement with Gametech UK included the sale of the intellectual property assets of Gametech UK, consisting of gaming software and a related platform. The software was acquired under the expectation that it would require significant modifications to be able to be utilized in the Company’s anticipated long term business model, which is to operate its own gaming platform for associated brands. Following the acquisition of Gametech UK’s intellectual property assets out of receivership, we have made significant improvements to this core software platform. The improvements we have made include the migration of the software from physical server dependencies to cloud based deployment (via Amazon Web Services (“AWS”)) and removing the dependency on third-party applications and replacing them with AWS native alternatives.
As of January 2023, we have not yet deployed our own platform for production use but continue to build it in the background for future use. Our existing brand (Vale) is powered by an external provider, Game Interaction Group BV.
On December 21, 2020, we changed our name to Gaming Technologies, Inc., and on January 7, 2021, Dito UK Limited changed its name to Gaming Technologies UK Limited (“Gaming Technologies UK”).
We commenced revenue-generating operations in February 2021. We do not have positive cash flows from operations and expect to continue to be dependent on periodic infusions of equity capital to fund our operating requirements.
For financial reporting purposes, the Share Exchange was accounted for as a combination of entities under common control, as Gaming Technologies, Inc. was formed by Gaming Technologies UK, with the objective of Gaming Technologies UK becoming a wholly-owned subsidiary of Gaming Technologies, Inc., and the resultant parent company being domiciled in the United States. As a result of the combination, the former stockholders of Gaming Technologies UK became the controlling shareholders of Dito, Inc., and the Gaming Technologies UK management and board members became the management and board members of Gaming Technologies, Inc.
| 1 |
Development of Our Business
Our activities are subject to significant risks and uncertainties, including the need for additional capital, as described below. We do not have positive cash flows from operations, and we expect to continue to be dependent on periodic infusions of equity capital to fund our operating requirements. We have financed our working capital requirements since inception primarily through the sale of its equity securities in private placement transactions, as well as from borrowings. In private placements to “accredited investors” (as defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)) or to non-U.S. persons under Regulation S under the Securities Act, between February 2020 and February 2021 we sold an aggregate of 2,691,800 shares of our common stock at a price of $2.50 per share. In March 2021, we sold 10,000 shares of our common stock for gross proceeds of $25,000 in a private placement. In August 2021, we sold 538,694 shares of common for gross proceeds of $1,750,752 in a private placement.
In November and December 2022, we sold 3,880,600 shares of common for gross proceeds of $970,150 in a private placement. Our activities are subject to significant risks and uncertainties, including the need for additional capital, as described below.
Fabulous Vegas Games and Game Interaction Group (for our brand, Vale)
On December 15, 2022 we entered into a Commercial Association Agreement for the use of a gambling permit owned by The Fabulous Vegas Games S.A. de C.V. (“Fabulous”).
The license permits us to operate our brand Vale as approved by General Directorate of Games and Raffles of the Ministry of Interior (SEGOB).
Vale integrates over 500 online premium casino games as well as sports betting, through an external software partner, Game Interaction Group BV. These games can be enjoyed via mobile or desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from a local dedicated bank account under our own control.
Under the terms of the agreement with Fabulous, we share 8% of Net Win generated from the platform, or a minimum of six thousand USD per month. In February 2021, vale.mx began operations. Net Win is defined as a calculation of the total income from gaming (revenues minus prizes, minus platform expenses, minus redeemed bonuses). In addition, we made a payment of $150,000 in cash and issued 600,000 shares of our common stock, having a fair market value of $150,000 on the date of grant, to Fabulous and are obligated to make 22 monthly payments of $9,000 to Fabulous beginning in April 2023.
Under the terms of the agreement with Game Interaction Group, we share a percentage of Gross Gaming Revenue, which is 12% for sportsbook, and 3% for casino games, skill games, poker & virtual games. There is a minimum monthly fee of €9,000 EUR.
Big Bola/vale.mx
On November 13, 2020, we entered into an Agreement for the Provision of Online Gaming Management and Consulting Services (as subsequently amended) with Comercial de Juegos de la Frontera, S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide to Big Bola consulting and management services related to their interactive online betting and gaming business in Mexico via the web site www.vale.mx, a regulated online casino and sports betting site. vale.mx operates under Big Bola’s existing license issued by the General Directorate of Games and Raffles of the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally authorized to offer legal betting and online casino services in Mexico. vale.mx has more than 500 online premium casino games available, which can be enjoyed both on mobile or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention for vale.mx. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from Big Bola’s account. While Big Bola bears liability to the players as provided by the permit, as between us and Big Bola we bear the costs of this obligation. Each party indemnifies the other against certain liabilities and claims. Under the terms of the amended agreement, we share 75% of gross gaming revenue generated from the platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s participation in the remaining gross gaming revenues. This venture began operations in February 2021.
| 2 |
In June 2022, the Company and Big Bola entered into a Side Letter Agreement (“SLA”) whereby Big Bola agreed to convert $134,669 in fees owed to it by the Company into 540,000 shares of the Company’s common stock. The Company recorded the fees as incurred and they are included in accounts payable at September 30, 2022. The Company was required to issue the shares by July 10, 2022. The shares were issued in October 2022. In addition, the Company agreed to make payments on $120,000 in guaranteed participation fees due to Big Bola as follows: $40,000 no later than July 14, 2022; $40,000 on later than August 14, 2022; and $40,000 no later than September 14, 2022. The guaranteed participation fees have been recorded by the Company as they were incurred and are included in accounts payable at September 30, 2022. The July, August, September, and October payments have not been made as of the date of this filing. In addition, Big Bola agreed that it will not collect from the Company the guaranteed participation fee of $40,000 per month for the months of June, July and August of 2022 and that the guaranteed participation fee for the months of September, October and November of 2022 will be reduced to $20,000 per month. Effective December 1, 2022, the parties reverted to the terms of the original agreement, as amended.
In December 2022, the Company canceled the Big Bola contract. As a result of the cancellation of the Big Bola contract, the Company incurred a charge of $400,000 to settle the remaining balance owed to Big Bola under the contract.
Canelo Sponsorship Agreement
On April 14, 2021, we entered into a Sponsorship Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the personality rights of champion professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign for the Company to sponsor a prize fight and certain other activities of Canelo, and for Canelo to promote the Company’s “VALE” brand and create certain promotional materials in connection therewith for the Company’s use in the United States, Latin America and certain countries in the Caribbean. Pursuant to the Canelo Agreement we paid Holiday a cash fee of $1,600,000 and will be responsible for paying certain other amounts as provided therein. The agreement, as amended, runs until August 2022.
Ortiz Gaming Partnership
On August 18, 2021, we entered into a software partnership with Ortiz Gaming to supply us with online Bingo gaming content. The deal initially cover Mexico and we plan to expand to other parts of Latin and South America.
Key Performance Indicators
Registered Players
A registered player is a customer who has registered on our app or website and met our Know Your Customer identification requirements. During the years ended December 31, 2022 and 2021 we registered 19,183 and 108,206 players, respectively, on vale.mx. On October 4, 2021, we announced we had reached 100,000 total registrations on vale.mx.
Monthly Unique Payers
Monthly Unique Payers (“MUPs”). MUPs is the average number of unique paid users (“unique payers”) that use our online platform on a monthly basis.
MUPs is a key indicator of the scale of our user base and awareness of our brand and/or the third-party brands we partner with. We believe that year-over-year MUPs will also generally be indicative of the long-term revenue growth potential of the online gaming brands we hold directly and/or those we establish around our B2B brand partners, although MUPs in individual periods may be less indicative of our longer-term expectations. We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand the online gambling brands we operate to appeal to a wider audience.
| 3 |
We define MUPs as the average number of unique payers per month who had a paid engagement (e.g., participated in a casino game) across one or more of our product offerings via our platform technology. For reported periods longer than one month, we average the MUPs for the months in the reported period.
A “unique paid user” or “unique payer” is any person who had one or more paid engagements via our B2C technology during the period (i.e., a user that participates in a paid engagement with one of our B2C product offerings counts as a single unique paid user or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique paid users include users who have participated in a paid engagement with promotional incentives, which are fungible with other funds deposited in their wallets on our technology. The number of these users included in MUPs has not been material to date and a substantial majority of such users are repeat users who have had paid engagements both prior to and after receiving incentives.
During the years ended December 31, 2022 and 2021, our MUPs were 519 and 3,251, respectively.
Average Revenue per MUP (“ARPMUP”). ARPMUP is the average online casino revenue per MUP, and this key metric represents our ability to drive usage and monetization of our online casino offering.
During the years ended December 31, 2022 and 2021, our ARPMUP was $198.99 and $51.64, respectively.
We define and calculate ARPMUP as the average monthly online casino revenue for a reporting period, divided by MUPs (i.e., the average number of unique payers) for the same period.
Handle
Handle is a casino or sports betting term referring to the total amount of money bet. We will report the handle or cash wagering which is the total amount of money bet excluding all bonuses.
During the years ended December 31, 2022 and 2021, our handle was $2,759,057 and $6,313,132, respectively.
Hold
Hold is essentially the amount of cash that our platform instances keep after paying out winning bets. The industry also refers to hold as win or revenue. During the years ended December 31, 2022 and 2021, our hold was $125,996 and $288,848, respectively.
Online games are characterized by an element of chance. Our revenue is impacted by variations in the hold percentage (the ratio of net win to total amount wagered) on bets placed on, or the actual outcome of, games or events on which users bet. Although our product offerings generally perform within a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet can have a sizeable impact on our short-term financial performance. Our hold is also affected by factors that are beyond our control, such as a user’s skill, experience and behavior, the mix of games played, the financial resources of users and the volume of bets placed. As a result of variability in these factors, actual hold rates on our products may differ from the theoretical win rates we have estimated and could result in the winnings of our gaming users exceeding those anticipated. We seek to mitigate these risks through data science and analytics and rules built into our technology, as well as active management of our amounts at risk at a point in time, but may not always be able to do so successfully, particularly over short periods, which can result in financial losses as well as revenue volatility.
During the years ended December 31, 2022 and 2021, our hold percentage was 4.57% and 4.58%, respectively.
| 4 |
Plan of Operation
Our next phase of growth is focused on scaling our customer and player base and geographies, and utilizing the existing technical capacity and investment in infrastructure which has taken place since 2019.
In line with the Company’s strategy of creating lean and flexible operations, we are outsourcing a number of departments including Customer Service to Game Interaction in Columbia. Furthermore, as we are now integrating the best-in-class games from games studios worldwide, we anticipate a reduced headcount in games development.
Intellectual Property
We have not filed for, nor do we own or license, any patents related to our intellectual property.
We own several internet domains including dito.com, gametech.com, gametech.co.uk, gametech.uk, gamingtechnologies.com, superstars.com, gmgt.com, gtafiliados.com, gtafiliados.mx, juegavale.co, juegavale.com, sevale.mx, vale.net, vale.casino and vale.mx.
Regulatory
We are an early stage software developer and our software platform provides third party gaming companies and gaming app developers with the tools to build high quality products. As a B2B developer of software, we believe we are not subject to the regulations that may affect other companies in the iGaming industry who interact directly with retail customers using the gaming software (i.e., companies using a B2C model). If our B2B partners wish to sell or produce games in a regulated market, they will need to have the necessary licenses and meet the regulations within their jurisdiction. We believe the responsibility of meeting local regulatory requirements (where applicable) rests with our B2B partners.
Nasdaq Listing Application; Reverse Stock Split and Authorized Share Increase (new)
Our common stock is currently quoted on the OTCQB market under the trading symbol “GMGT.” However, trading of our common stock has been extremely limited to date, and there is as yet no established trading market for our common stock. In 2021 we applied to list our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “GMGT.” The application was approved by Nasdaq but could not be completed by the company at the time due to declining market conditions. The company intends to re-apply to Nasdaq in 2023 and will be required to meet minimum market value of unrestricted publicly held shares, minimum share price and other listing criteria, of which there can be no assurance.
In connection with the listing application, our Board of Directors and our stockholders had approved resolutions (i) authorizing a reverse stock split of the outstanding shares of our common stock in the range from 1-for-2 to 1-for-8, and providing authority to our Board of Directors to determine whether to effect a reverse stock split and, if so to select the ratio of the reverse stock split in their discretion, and (ii) to increase in the number of our authorized shares of common stock from 45,000,000 to 400,000,000.
The Board of Directors anticipates determining whether to effect a reverse stock split on re-application and, if so, setting the ratio of that reverse stock split, and the Company will file a certificate of amendment to affect the reverse stock split.
The reverse stock split would be intended to allow us to meet the minimum share price requirement of the Nasdaq Capital Market. The share and per share information in this report has not been adjusted to reflect any reverse stock split.
In October 2022, the Company filed the authorization for the share increase with the Secretary of State of Delaware.
| 5 |
Employees
As an early-stage company, we currently have no employees other than our Chief Executive Officer, Jason Drummond. Mr. Drummond works full time on Company matters. We have retained approximately two individuals, including our Chief Financial Officer, on an independent contractor basis to provide management, accounting and other corporate services to us on a full-time basis.
Additional information
Our corporate website address is www.gametech.com. Our most current SEC filings are available free of charge on our website as well as at www.sec.gov.
The following important risk factors, and those risk factors described elsewhere in this report or in our other filings with the SEC, could cause our actual results to differ materially from those stated in forward-looking statements contained in this document or elsewhere. These risks are not presented in order of importance or probability of occurrence. Further, the risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks may have a material adverse effect on our business, reputation, financial condition, results of operations, income, revenue, profitability, cash flows, liquidity or stock price.
Risks Specific to the Company
Risk of Going Concern
Although our financial statements have been prepared on a going concern basis, we must raise additional capital before October 2023 to fund our operations in order to continue as a going concern.
Weinberg & Company, our independent registered public accounting firm for the fiscal year ended December 31, 2022, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2022, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.
We anticipate that our principal sources of liquidity will only be sufficient to fund our activities and debt service needs through May 2023. In order to have sufficient cash to fund our operations beyond May 2023, we will need to raise additional equity or debt capital in order to continue as a going concern and we cannot provide any assurance that we will be successful in doing so.
We have only recently begun to generate operating revenues. We expect to incur operating losses for the foreseeable future.
Gaming Technologies, Inc., was incorporated on July 23, 2019, and to date has been involved primarily in organizational activities. Gaming Technologies UK, our subsidiary was formed in November 2017. We commenced revenue-generating operations in February, 2021, and have generated only minimal revenue to date. Further, we have not yet fully developed our business plan or our management team. Accordingly, we have no way to evaluate the likelihood that our business well be successful. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the operations that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to our software and market acceptance by our intended clients. There is no operating history upon which to base any assumption as to the likelihood that we will prove successful and there is no assurance we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
We have a limited operating history which makes it difficult to accurately evaluate our business prospects.
We have a limited operating history upon which to base an evaluation of our business and prospects. Operating results for future periods are subject to numerous uncertainties and we cannot assure you that the Company will achieve or sustain profitability. The Company’s prospects must be considered in light of the risks encountered by companies in the early stage of development, particularly companies in new and rapidly evolving markets. Future operating results will depend upon many factors, including, but not limited to, our success in attracting necessary financing, establishing credit or operating facilities, the success of our products, our ability to develop new products, our ability to successfully market our products and attract repeat and new customers, our ability to control operational costs, and the Company’s ability in retaining motivated and qualified personnel, legal and regulatory developments in the jurisdictions in which we operate, as well as the general economic conditions which affect such businesses. We cannot assure you that the Company will successfully address any of these risks.
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We do not have adequate capital to fund our business and may need additional funding to continue operations. We may not be able to raise capital when needed, if at all, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business to fail.
We have limited capital available to us. Our entire original capital has been fully expended and if additional costs cannot be funded from borrowings or capital from other sources, then our financial condition, results of operations, and business performance would be materially adversely affected. We will require additional capital for the development of our business operations and commercialization of our planned products. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster than we expect. Accordingly, we will need to obtain additional funding in order to continue our operations. We may not be able to raise needed additional capital or financing due to market conditions or for regulatory or other reasons. There can be no guarantee that the necessary funds will be available on a timely basis, on favorable terms, or at all, or that such funds, if raised, would be sufficient. Even if additional funds are raised by issuing equity securities, dilution to the then existing shareholdings would result. We cannot assure that we will have adequate capital to conduct our business. If additional funding is not obtained, we may need to reduce, defer or cancel software development efforts, sales and marketing, and overhead expenditures to the extent necessary. The failure to fund our operating and capital requirements could have a material adverse effect on our business, financial condition and results of operations.
On May 18, 2022 an event of default occurred due to our failure to make interest payments on our 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,666,666.67 (the “Convertible Note”). As a result of the default, the Company was accessed a default penalty of $231,250. On November 8, 2022, the Convertible Note was amended to change the maturity date until February 15, 2023. In exchange, the Company agreed to increase the warrant coverage from 120% of the original face amount of the note to 210% of the original face value of the note and to issue. As a result, warrants to issued an additional 545,454 shares were issued to the lender and the interest rate on the Convertible Note increase to 18% annually. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Convertible Note Financing” below for additional information on the Convertible Note, security agreement and related agreements. On March 29, 2023, the due date of the note was extended to October 15, 2023. The Company agreed to issue 500,000 shares of its common stock to the note holder in exchange for the due date extension.
Our business plan is speculative.
Our business is speculative and subject to numerous risks and uncertainties. The development of products, including current products, may not succeed in a commercial setting or result in revenue due to functional failures, lack of acceptance or demand from the marketplace, technological inefficiencies, competition or for other reasons. There is no assurance that we will generate significant revenues, and even if we do there can be no assurances that we will generate a profit.
We may not be successful in raising additional capital necessary to meet expected increases in working capital needs. If we raise additional funding through sales of equity or equity-based securities, your shares will be diluted. If we need additional funding for operations and we are unable to raise it, we may be forced to liquidate assets and/or curtail or cease operations or seek bankruptcy protection or be subject to an involuntary bankruptcy petition.
Since inception through December 31, 2022, the Company has generated insignificant revenues and has incurred losses and has an accumulated deficit of $27,239,427 as of December 31, 2022. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations. Our ability to raise additional funds through equity or debt financings or other sources may depend on the commercial success of our software and financial, economic and market conditions and other factors, some of which are beyond our control. No assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Further equity financings may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on our future financing and operating activities. If we require additional capital and are unsuccessful in raising that capital, we may not be able to continue our business operations and advance our growth initiatives, which could adversely impact our business, financial condition and results of operations.
Our auditors have indicated that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. We urge you to review the additional information about our liquidity and capital resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this document below. If our business ceases to continue as a going concern due to lack of available capital or otherwise, it could have a material adverse effect on our results of operations, financial position, and liquidity.
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We have material weaknesses and other deficiencies in our internal control and accounting procedures.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) requires annual management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, 2022 and 2021 and concluded that we had a material weakness in our internal controls due to our limited resources and therefore our disclosure controls and procedures may not be effective in providing material information required to be included in any future periodic SEC filings on a timely basis and to ensure that information required to be disclosed in any future periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure about our internal control over financial reporting. More specifically, our internal control over financial reporting was not effective due to material weaknesses related to a segregation of duties due to our limited resources and limited staff.
In addition, as of December 31, 2022 and 2021, our management concluded that we had a material weakness in internal control over financial reporting. If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we continue to have material weaknesses and other deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to address the adequacy of our internal control and disclosure controls and procedures our business may be harmed. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our securities could drop significantly.
Failure to develop our internal controls over financial reporting could have an adverse impact on us.
We need to develop and implement internal control systems and procedures. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
If we were to lose the services of our key personnel, we may not be able to execute our business strategy.
Our success is substantially dependent on the performance of Jason Drummond, who has significant experience in the technology and financial sectors and would be difficult to replace. The loss of Mr. Drummond would have a material adverse impact on us. Until we add additional officers and directors with the technical knowledge and financial expertise to move our business plan forward, we will be substantially dependent upon Mr. Drummond for the direction, management and daily supervision of our operations. The inability to retain Mr. Drummond at this crucial juncture in our Company’s development, and our ability to replace Mr. Drummond in a timely manner would have a material adverse effect on our business and, accordingly, would negatively impact our financial condition and operating results.
If we are unable to hire, retain or motivate qualified personnel, consultants, independent contractors, and advisors, we may not be able to grow effectively.
Our performance will be dependent on the talents and efforts of highly skilled individuals, including Mr. Drummond. The loss of Mr. Drummond, or one or more members of our management team or other key employees or consultants, as and when they are hired, could materially harm our business, financial condition, results of operations and prospects. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization. We face competition for personnel and consultants from other companies, universities, public and private research institutions, government entities and other organizations. If we do not succeed in attracting excellent personnel or in retaining or motivating them, we may be unable to grow effectively. We cannot assure that any skilled individuals will agree to become an employee, consultant, or independent contractor of the Company. Our inability to retain their services could negatively impact our business and our ability to execute our business strategy.
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Our products may not achieve broad market acceptance if we cannot compete successfully, limiting our ability to generate revenue and grow profits.
Our ability to generate significant revenue and profits depends on the acceptance of our products by customers. The market acceptance of any product depends on a number of factors, including but not limited to awareness of a product’s availability and benefits, features, safety and security, perceptions by the industry, the price of the product, competing products, and the effectiveness of marketing and distribution efforts. To remain competitive, we must continue to innovate, further enhancing and improving the responsiveness, functionality, accessibility, and other features of our software platform. The success of our business depends on our ability to anticipate and respond to technological changes and customer preferences in a timely and cost-effective manner. Any factors preventing or limiting the market acceptance of our products could have a material adverse effect on our business, results of operations and financial condition.
If we fail to attract new customers and maintain our active customers, our growth may be impaired.
Our future profitability and growth depends upon our ability to establish an active customer base in a cost-effective manner. We must attract and maintain clients in order to maintain and build profitability. Although we will spend resources on marketing and related expenses, there are no assurances that these efforts will be cost effective in building our B2B business model. Failure to maintain a level of active clients could have an adverse effect on our business and operations.
We operate in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than us.
We face intense and increasing competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction of new and enhanced services by our competitors. Some of its existing and potential competitors, including GAN, Ltd, Evolution Gaming Group AB, and DraftKings, Inc., are better established, benefit from greater name recognition and have significantly greater financial, technical, sales, and marketing resources than us. In addition, some competitors, particularly those with a more diversified revenue base, may have greater flexibility than us to compete aggressively based on price and other contract terms. New competitors may emerge through acquisitions or through development of disruptive technologies. Strong and evolving competition could lead to a loss of our market share or make it more difficult to grow our business profitably.
If we are unable to adapt to changing technologies and user preferences it may have a negative impact on player numbers and affect our business operations and financial performance.
In an industry that is characterized by the development of new products, technologies and end-user practices, we must invest significant resources in software development to be innovative and to enhance our technology, products and services. If we fail to adapt to changing market needs and developing opportunities, it may have an impact on our ability to attract and retain clients which could adversely impact the business operations and financial performance. As technology evolves our platform may not support new devices. Users may shift from using an iOS or Android device and require access to our products via a desktop computer or other devices. Our products may not be well-suited for use on other devices. This may have a negative impact on client numbers if our platform is not enhanced to reflect new or changing client preferences.
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If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be materially adversely affected.
We cannot be certain that the steps we may take in the future to protect, register and enforce our intellectual property rights, if any, will be adequate or that third parties will not infringe or misappropriate our proprietary rights, if any. We face the risk that the use and exploitation of our intellectual property rights, including rights relating to its proprietary software, may infringe the intellectual property rights of a third party. We also face the risk that our intellectual property rights may be infringed by a third party, and there can be no assurance that we will successfully prevent or restrict any such infringing activity. The costs incurred in bringing or defending any infringement actions may be substantial, regardless of the merits of the claim, and an unsuccessful outcome may result in royalties or damages being payable and/or our being required to cease using any infringing intellectual property or embodiments of any such intellectual property (such as software).
If any of our intellectual property is held to be infringing, there can be no assurance that we will be able to develop alternative non-infringing intellectual property. There can be no assurance that third parties will not independently develop or have not so developed similar or equivalent software to our proprietary software, or will not otherwise gain access to our source code, software or technology or obtain (on favorable terms or at all) alternative non-infringing intellectual property. There can be no assurance that our intellectual property is valid, or enforceable and such intellectual property may be subject to challenge or circumvention by third parties. We have not registered any of our intellectual property rights, no assurance can be provided that any such rights are registrable, and no assurance can be given that any applications for registration made by us will be successful, as applied for or at all.
We face the risk that third parties will claim that we infringe on their intellectual property rights, which could result in costly license fees or expensive litigation.
Other companies, individuals or third parties may claim that we are making use of or exploiting software or database design components that infringe their intellectual property rights. The costs incurred in defending any infringement actions may be substantial, regardless of the merits of the claim, and an unsuccessful outcome for us may result in royalties or damages being payable and/or our being required to cease using any infringing intellectual property or embodiments of any such intellectual property (such as software). It may also affect our relationships with current or future customers, delay or stop new sales, and divert the attention of management and other human resources. If any of our technology is held to be in breach, there can be no assurance that we will be able to develop alternative non-infringing intellectual property in a timely manner.
Customer complaints regarding our products and services could hurt our business.
From time to time, we may receive complaints from customers regarding the quality of products sold by us. We may in the future receive correspondence from customers requesting reimbursement or refunds. Certain dissatisfied customers may threaten legal action against us if no reimbursement is made. We may become subject to product liability lawsuits from customers alleging harm because of a purported defect in our products or services, claiming substantial damages and demanding payments from us. We are in the chain of title when we supply or distribute products, and therefore are subject to the risk of being held legally responsible for them. These claims may not be covered by our insurance policies. Any resulting litigation could be costly for us, divert management attention, and could result in increased costs of doing business, or otherwise have a material adverse effect on our business, results of operations, and financial condition. Any negative publicity generated as a result of customer frustration with our products or services, or with our websites, could damage our reputation and diminish the value of our brand name, which could have a material adverse effect on our business, results of operations and financial condition.
We may suffer losses if our reputation is harmed.
Our ability to attract and retain customers and employees may be materially adversely affected to the extent our reputation is damaged. Issues that may give rise to reputational risk include, but are not limited to, failure of our products to perform effectively, failure to deal appropriately with legal and regulatory requirements in any jurisdiction (including as may result in the issuance of a warning notice or sanction by a regulator or the commission of an offence (whether civil, criminal, regulatory or other) by us or any of our officers, directors, intellectual property theft or intellectual property infringement, factually incorrect reporting, staff difficulties, fraud, technological delays or malfunctions, the inability to respond to a disaster, privacy issues, record-keeping, sales and trading practices, money-laundering, bribery and corruption, the credit, liquidity and market risks inherent in our business and the activities of our affiliates.
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We may be subject to hacker intrusion, distributed denial of service attacks, malicious viruses, and other cyber-crime attacks.
Our business may be adversely affected by distributed denial of service (“DDoS”) attacks, and other forms of cyber-crime, such as attempts by computer hackers to gain access to our systems and databases that may lead to exposure of sensitive data or cause its sites to fail and/or disrupt customers’ experience of its products and services. A successful attack may also attempt to extort money from the business by interfering with its ability to connect with its customers. The interference often occurs without warning resulting in a negative experience that its customers will associate with us. If our efforts to combat these DDoS attacks and other forms of cyber-crime are unsuccessful, our reputation may be harmed, and our customers’ ability to access the platform may be impaired. We are also susceptible to a wide range of known, unknown and evolving malicious viruses. While we believe that our servers and production environment are adequately protected, no assurance can be given that our servers and production environment will not be impacted by malicious viruses. Any hacker intrusion, DDoS, installation of a malicious virus or cyber-crime attack could result in a decline in user traffic and associated revenues, which would have a material adverse effect on the business operations and financial performance.
Dependence on Key Suppliers and Third Parties
We are dependent on outside suppliers for certain key services including storage, data back-up and integration with electronic wallets. While no one supplier or service provider is irreplaceable, should any of our key suppliers fail to supply these services and we fail to secure such services from an alternative supplier, our reputation and financial position could be materially and adversely affected. It may also be that any alternative suppliers will only make available their services at a significantly higher price than the Company is presently paying, thereby reducing the Company’s ability to generate profit. In addition, we engage several providers of third- party hosting, gaming, and payment processing services. In the event that there is any interruption to the products or services provided by such third parties, or if there are problems in supplying the products or if one or more ceased to be provided or only provided on onerous terms to us, this could have an adverse effect on the business operation and performance.
Our financial results may be adversely affected by currency fluctuations.
We will generate revenues in a variety of currencies, including the Euro, Sterling, and the US Dollar. As a result, some of our financial assets may be denominated in these currencies and fluctuations in these currencies could adversely affect its financial results. We do not currently engage in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on its results of operations. If we were to determine that it was in our best interests to enter into any currency hedging transactions in the future, there can be no assurance that we will be able to do so or that such transactions, if entered into, will materially reduce the effect of fluctuations in foreign currency exchange rates on its results of operations. Currency hedging may also generate complex accounting issues. In addition, if, for any reason, exchange or price controls or other restrictions on the conversion of one currency into another currency were imposed, our business could be adversely affected. Although exposure to currency fluctuations to date have not had a material adverse effect on our business, there can be no assurance such fluctuations in the future will not have a material adverse effect on revenues from international sales and, consequently, our business, operating results and financial condition.
The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.
Our executive officers and director and several stockholders together beneficially own approximately 57.1% of outstanding common stock. As a result, these stockholders, if they act together or in a block, could have significant influence over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions, even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
We do not have any independent directors, nor an audit committee, a compensation committee or a corporate governance committee.
At present, we do not have any independent directors, and our board of directors does not have an audit committee, a compensation committee or a nominating/corporate governance committee. Our sole director is Jason Drummond, who is our Chief Executive Officer. Because we have no independent directors and only a single director, we do not have any checks and balances on Mr. Drummond, which may make it difficult for us to develop internal controls, to cure material weaknesses in internal controls and to raise money in the financial markets.
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Jason Drummond, our Chief Executive Officer and sole director, resides outside of the US, it may be difficult for an investor to enforce any right based on US federal securities laws against Mr. Drummond, or to enforce a judgment rendered by a US court against Mr. Drummond.
Our Chief Executive Officer and director, Jason Drummond, is a non-resident of the US. Therefore, it may be difficult to effect service of process on Mr. Drummond in the US, and it may be difficult to enforce any judgment rendered against Mr. Drummond. Accordingly, it may be difficult or impossible for an investor to bring an action against Mr. Drummond, in the case that an investor believes that such investor’s rights have been infringed under the US securities laws, or otherwise. Even if an investor is successful in bringing an action of this kind, the laws may render that investor as unable to enforce a judgment against the assets of Mr. Drummond. As a result, our shareholders may have more difficulties in protecting their interests through actions against Mr. Drummond, compared to shareholders of a corporation whose officers and directors reside within the US. Mr. Drummond’s principal assets are located in the United Kingdom.
Jason Drummond, as our Chief Executive Officer and sole director, may determine and award director fees and management compensation in his sole discretion.
There is currently no formal compensation agreement with our CEO Jason Drummond, who is also our sole director. Until we have a compensation arrangement in place with Mr. Drummond and additional directors are added to our board of directors (our “Board”), Mr. Drummond has the power to set his own compensation as management and distribute director fees in his sole discretion. There can be no assurance that we will enter into a formal compensation agreement with Mr. Drummond on favorable terms to the Company or any agreement at all and that additional members will be added to our Board. Any management compensation and/or director fees he awards himself could have an adverse effect on our cash reserves or net profit, if any.
Risks Related to the Industry
Economic conditions and current economic weakness.
Any economic downturn, either globally or locally in any area in which we operate or where our customers reside, in particular the UK and US and Mexico, may have an adverse effect on demand for our software platform once it is released. A more prolonged economic downturn may lead to an overall decline in the volume of our sales, restricting our ability to realize a profit. If economic conditions remain uncertain, we might see lower levels of growth than anticipated, which might have an adverse impact on our operations and business results.
The laws and regulations concerning data privacy and data security are continually evolving; failure to comply with these laws and regulations could harm our business.
We collect and store significant amounts of information about customers who use our technologies, including both personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this customer information. For example, the EU has traditionally taken a broader view than the US and certain other jurisdictions as to what is considered personal information, and has imposed greater obligations under data privacy regulations.
Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future. The US government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about consumer behavior on the Internet and on mobile devices, and the EU has proposed reforms to its existing data protection legal framework. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our customers that is necessary for compliance with these various types of regulations.
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If we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If regulators, the media or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, and negatively impact our financial condition and damage our business.
In the area of information security and data protection, many jurisdictions have passed laws requiring notification when there is a security breach for personal data or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. Our security measures and standards may not be sufficient to protect personal information and we cannot guarantee that our security measures will prevent security breaches. A security breach that compromises personal information could harm our reputation and result in a loss of customer confidence in our products and ultimately in a loss of customers, which could adversely affect our business and impact our financial condition. This could also subject us to liability under applicable security breach-related laws and regulations and could result in additional compliance costs, costs related to regulatory inquiries and investigations, and an inability to conduct our business.
Tax status and changes to regulations could affect our business.
We cannot guarantee that any tax audit or tax dispute to which we may be subject in the future will result in a favorable outcome. There is a risk that any such audit or dispute could result in additional taxes payable by us as well as negative publicity and reputational damage. In any such case, substantial additional tax liabilities and ancillary charges could be imposed on us which could increase our effective tax rate. Our effective tax rate may also be affected by changes in, or the interpretation of tax laws, including those tax laws relating to the utilization of capital allowances, net operating losses and tax loss or credit carryforwards, as well as management’s assessment of certain matters, such as the ability to realize deferred tax assets. The Company’s effective tax rate in any given financial year reflects a variety of factors that may not be present in the succeeding financial year or years. An increase in our effective tax rate in future periods could have a material adverse effect on our financial condition and results of operations.
Systems failures, disruptive events or delays could materially harm the Company’s business.
Our operations are highly dependent on the internet and mobile networks. The efficient and uninterrupted operation of the Internet and mobile networks, on which we rely, and our ability to provide customers with reliable, real-time access to our services, is fundamental to the success of our business. Any damage, malfunction, failure or interruption of, or to the Internet or mobile networks could result in a lack of confidence in our services and a possible loss of customers to our competitors, or could expose us to higher risk or losses, with a consequential material adverse effect on our operations and results. If our connection to mobile networks or the Internet is interrupted or not available, we may not be able to provide customers with our products and services.
Our systems and networks may also fail because of other events, such as:
| · | fire, flood, or natural disasters; | |
| · | power or telecommunications failure; | |
| · | computer hacking activities; and | |
| · | acts of war or terrorism. |
To date there have been no significant malfunctioning of the internet or mobile networks, however, any such event could result in a lack of confidence in our services, and result in a loss of existing customers in addition to exposing us to potential liabilities. Any one of these challenges could result in a material adverse effect on our operations and financial results.
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Our current operations are international in scope and expansion can create a variety of potential operational challenges.
With business operations in the UK and the US and with intentions to grow, our offices, personnel and operations may be further dispersed around the world. In connection with such expansion, we may face a number of challenges, including costs associated with developing software and providing support in additional languages, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycles and difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries and a geographically and culturally diverse workforce and customer base. Failure to overcome any of these challenges could negatively affect our business and results of operations.
The outbreak of the COVID-19 pandemic may impact our plans and activities.
The global outbreak of COVID-19 has led to severe disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis. Although we have not experienced any significant disruption to its business to date, these conditions could significantly negatively impact our business in the future. The extent to which the COVID-19 outbreak ultimately impacts our business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and how quickly and to what extent normal economic and operating conditions can resume.
Even after the COVID-19 outbreak has subsided, we may be at risk of experiencing a significant impact to our business as a result of the global economic impact, including any economic downturn or recession that has occurred or may occur in the future. Currently, capital markets have been disrupted by the crisis, as a result of which the availability, amount and type of financing available to us in the near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors. We intend to continue to monitor the situation and may adjust our current business plans as more information and guidance become available.
Public Company Risks
We are an “emerging growth company” and “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our shares of common stock held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non- emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such an extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares of common stock held by non-affiliates exceeds $250 million as of the end of the second fiscal quarter of that year, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our shares of common stock held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter of that year.
We incur increased costs as a result of being a public company in the US and our management devotes substantial time to public company compliance programs.
As a public company in the US, we incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. Sarbanes-Oxley, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations impose various requirements on US public companies. The Company needs to ensure its financial and management control systems are able to meet the requirements of a public company. Areas such as financial planning and analysis, tax, corporate governance, accounting policies and procedures, internal controls, internal audit, disclosure controls and procedures and financial reporting and accounting systems need to be compliant with reporting obligations. Our management and administrative staff devote a substantial amount of time to compliance with these requirements. We may need to hire qualified personnel to address these issues. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention away from product development and other commercial activities. If for any reason our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We intend to obtain directors’ and officers’ liability insurance coverage, which will increase our insurance cost significantly. In the future, it may be more expensive for us to obtain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our Board of Directors, particularly to serve on our audit committee and compensation committee.
We are required to make a formal assessment of the effectiveness of our internal control over financial reporting under Section 404 of Sarbanes-Oxley and will require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. This assessment will need to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal control over financial reporting. We will also need to continue to improve our control processes as appropriate, validate through testing that our controls are functioning as documented and implement a continuous reporting and improvement process for our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. Any material weakness could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the Securities and Exchange Commission (the “SEC”) following the date we are no longer an “emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal controls in the future.
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Although our common stock is approved for trading on the OTCQB market, an active, liquid trading market for our common stock may not develop or be sustained. If and when an active market develops the price of our common stock may be volatile.
Our common stock is traded on the OTCQB market. Currently there is a very limited trading in our stock and there is no assurance that an active market will develop. In the absence of an active trading market, investors may have difficulty buying and selling or obtaining market quotations, market visibility for shares of our common stock may be limited, and a lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common stock. The lack of an active market may also reduce the fair market value of our common stock. Trading in stocks quoted on the OTC markets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. The securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of shares of our common stock. Moreover, the OTCQB market is not a stock exchange and is not an established market, and trading of securities is often more sporadic than the trading of securities listed on a national stock exchange like Nasdaq.
Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.
Until our common stock is listed on a national securities exchange such as the Nasdaq Stock Market or the New York Stock Exchange, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system, or in the “pink sheets.” In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent.
An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
Future sales of shares of our common stock or the perception that these sales may occur, may depress our stock price.
The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our common stock could decline. Any issuance of additional common stock, or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares and make it more difficult for us to sell equity securities at any time in the future if at all.
We may issue additional shares of common stock and/or preferred stock without stockholder approval, which would dilute the current holders of our common stock. In addition, the exercise or conversion of securities that may be granted in the future would further dilute holders of our common stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common and preferred stock. We may issue shares of our common stock or preferred stock to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders’ ownership interest, which among other things would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our common stock.
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The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.
We are authorized to issue up to of 5,000,000 shares of “blank check” preferred stock, par value $0.001 per share; however no preferred shares have been designated or issued by the Company as of the date of this report. Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, our Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, would dilute the rights of our common stockholders and could be used to discourage, delay or prevent a change of control of our company, which could materially adversely affect the price of our common stock.
Our common stock may be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule 3a51-1 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
We do not anticipate paying dividends in the foreseeable future.
We do not currently pay dividends and do not anticipate paying any dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board of Directors, subject to compliance with applicable laws and covenants under any future credit facility, which may restrict or limit our ability to pay dividends. Payment of dividends will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant at that time. Unless and until we declare and pay dividends, any return on your investment will only occur if our share price appreciates.
There is no guarantee that our application to list our common stock on the Nasdaq Capital Market will be approved, and if our common stock are listed on the Nasdaq Capital Market, there can be no assurance that we will be able to comply with the Nasdaq Capital Market’s continued listing standards.
We have applied to list our common stock on the Nasdaq Capital Market under the symbols “ GMGT ”. There can be no assurance that the Nasdaq Capital Market will approve our application for the listing of our common stock. The approval process for the listing of our shares on the Nasdaq Capital Market, or any other exchange, involves factors beyond our control. Among other things, we will be required to meet the Nasdaq Capital Market’s threshold for stockholders’ equity, which will require us to raise additional capital, of which there can be no assurance. We will also be required to meet minimum market value of unrestricted publicly held shares, minimum share price and other listing criteria, of which there can be no assurance.
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If our common stock is approved for listing on the Nasdaq Capital Market, there is no guarantee that we will be able to maintain such listing for any period of time by perpetually satisfying the Nasdaq Capital Market’s continued listing requirements. Our failure to continue to meet these requirements may result in our securities being delisted from the Nasdaq Capital Market.
The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is delisted by the Nasdaq Capital Market, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB or the OTC Pink Market, where an investor may find it more difficult to sell our securities or obtain accurate quotations as to the market value of our securities. In the event our common stock are delisted from the Nasdaq Capital Market in the future, we may not be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.
Item 1B. Unresolved Staff Comments.
None.
The Company’s address in Las Vegas is Two Summerlin, Las Vegas Nevada 89135, USA, and our telephone number is +1 (833) 888-4648. The Company leases office facilities in Las Vegas, Nevada on a month-to-month lease at a cost of $510 per month.
The Company leases on a month to month basis a corporate apartment in Miami Beach, Florida located at 540 West Avenue, #512, Miami Beach, Florida 33139, USA.
The Company did not have any other leases with initial terms of 12 months or more as of December 31, 2022.
From time to time, we may become involved in litigation relating to claims arising out of its operations in the normal course of business. During the past ten years, none of our officers, directors, director nominees, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K except as set forth herein.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Since June 14, 2021, our common stock has been quoted on the OTCQB market under the trading symbol “GMGT.” At present, there is a very limited market for our common stock, and there is as yet no established trading market for our common stock. Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
The following table sets forth the high and low sale prices of one share of our common stock for each fiscal quarter since April 13, 2021, (when our common stock began trading on the OTC Pink market) as provided by OTC Markets Group, Inc.
| Fiscal Year 2022 | High | Low | ||||||
| First Quarter | $ | 3.12 | $ | 1.91 | ||||
| Second Quarter | $ | 2.55 | $ | 0.01 | ||||
| Third Quarter | $ | 0.75 | $ | 0.25 | ||||
| Fourth Quarter | $ | 0.26 | $ | 0.13 | ||||
| Fiscal Year 2021 | High | Low | ||||||
| Second Quarter (from April 13, 2021) | $ | 7.00 | $ | 4.70 | ||||
| Third Quarter | $ | 4.60 | $ | 2.25 | ||||
| Fourth Quarter | $ | 3.23 | $ | 2.09 | ||||
The last reported sale price of our common stock on the OTCQB on April 14, 2023, was $0.15. Past price performance is not indicative of future price performance.
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “GMGT”. No assurance can be given that our application will be accepted.
Holders
As of March 28, 2023, there were 89 holders of record of our common stock. The number of stockholders of record does not include certain beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
We have never paid a cash dividend on our common stock since inception. The payment of dividends may be made at the discretion of our Board of Directors, and will depend upon, but not limited to, our operations, capital requirements, and overall financial condition.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. We intend to follow a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and related notes appearing elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 1A (“Risk Factors”) and elsewhere in this Form 10-K.
Overview
The Company is a software company specializing in online gaming. It is headquartered in Las Vegas with offices in London and Mexico City.
The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital, as described below. The Company commenced revenue-generating operations in February 2021, does not have positive cash flows from operations, and is dependent on periodic infusions of equity capital to fund its operating requirements.
Background and Basis of Presentation
Gaming Technologies, Inc. was incorporated in the State of Delaware on July 23, 2019 under the name Dito, Inc. and on December 21, 2020 amended its name to Gaming Technologies, Inc. Effective as of March 18, 2020, Gaming Technologies, Inc. completed a Share Exchange Agreement (the “Exchange Agreement”) to acquire all of the outstanding ordinary shares of Gaming Technologies UK that provided for each outstanding ordinary share of Gaming Technologies UK to be effectively converted into 25 shares of common stock of Gaming Technologies, Inc., As a result, Gaming Technologies UK became our wholly-owned subsidiary in a recapitalization transaction, as described below. Gaming Technologies UK was originally formed on November 3, 2017, in the United Kingdom as Dito UK Limited for the purpose of software development.
For financial reporting purposes, the Exchange Agreement was accounted for as a combination of entities under common control (the “Combination”), as Gaming Technologies, Inc. was formed by Gaming Technologies UK, with the objective of Gaming Technologies UK becoming a wholly-owned subsidiary of Gaming Technologies, Inc., and the resultant parent company being domiciled in the United States. As a result of the Combination, the former stockholders of Gaming Technologies UK became the controlling shareholders of Dito, Inc., and the Gaming Technologies UK management and board members became the management and board members of Gaming Technologies, Inc.
As discussed above, our Board of Directors and our stockholders have approved a reverse split of our common stock in a range between 1-for-2 and 1-for-8. Such reverse split, if any, would be effected prior to the listing of our common stock on Nasdaq, if our listing application is approved. The share and per share information in this report has not been adjusted to reflect any reverse stock split.
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Going Concern
The Company’s consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has had no significant operating revenues to date, and has experienced recurring net losses from operations and negative operating cash flows. During the year ended December 31, 2022, the Company incurred a net loss of $4,299,860, utilized cash in operating activities of $1,167,255, and had a stockholders’ deficit of $4,467,332 as of December 31, 2022. The Company has financed its working capital requirements since inception through the sale of its equity securities and from borrowings.
At December 31, 2022, the Company had cash of $372,507. The Company estimates that a significant amount of capital will be necessary over a sustained period of time to advance the development of the Company's business to the point at which it can become commercially viable and self-sustaining. However, there can be no assurances that the Company will be successful in this regard.
As a result, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern within one year of the date that the accompanying consolidated financial statements are issued. In addition, the Company's independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
On May 18, 2022 an event of default occurred due to our failure to make interest payments on our 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,666,666.67 (the “Convertible Note”). As a result of the default, the Company was accessed a default penalty of $231,250. On November 8, 2022, the Convertible Note was amended to change the maturity date until February 15, 2023.
In exchange, the Company agreed to increase the warrant coverage from 120% of the original face amount of the note to 210% of the original face value of the note. As a result, warrants to issued an additional 545,454 shares were issued to the lender and the interest rate on the Convertible Note increased to 18% annually. On March 29, 2023, the due date of the note was extended to October 15, 2023. The Company agreed to issue 500,000 shares of its common stock to the note holder in exchange for the due date extension. See “—Convertible Note Financing” below for additional information on the Convertible Note and related agreements.
The development and expansion of the Company’s business in 2023 and thereafter will be dependent on many factors, including the capital resources available to the Company. No assurances can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company or adequate to fund the development and expansion of the Company’s business to a level that is commercially viable and self-sustaining. There is also significant uncertainty as to the affect that the coronavirus pandemic may have on the availability, amount and type of financing in the future.
If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its operations, obtain funds, if available, although there can be no certainty, through strategic alliances that may require the Company to relinquish rights to its technology, or to discontinue its operations entirely.
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Critical Accounting Policies and Estimates
The following discussion and analysis of financial condition and results of operations is based upon the Company’s consolidated financial statements for the years ended December 31, 2022 and 2021 presented elsewhere in this report, which have been prepared in conformity with accounting principles generally accepted in the US (“GAAP”). Certain accounting policies and estimates are particularly important to the understanding of the Company’s financial position and results of operations and require the application of significant judgment by management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the Company’s control. As a result, these issues are subject to an inherent degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on the Company’s historical operations, the future business plans and the projected financial results, the terms of existing contracts, trends in the industry, and information available from other outside sources. For a more complete description of the Company’s significant accounting policies, see Note 2 to the consolidated financial statements.
Software Development Costs
Due to the significant uncertainty with respect to the successful development of commercially viable products based on the Company’s development efforts, all software development costs incurred with respect to the Company’s mobile gaming platform are charged to operations as incurred.
Intellectual Property
Intellectual property, consisting of software, is recorded at cost. Amortization of intellectual property is provided using the straight-line method over an estimated useful life of three years.
The Company recognizes amortization of intellectual property in software development costs in the Company’s consolidated statement of operations.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers. ASC Topic 606 requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Revenue is recognized based on the following five step model:
| · | Identification of the contract with a customer | |
| · | Identification of the performance obligations in the contract | |
| · | Determination of the transaction price | |
| · | Allocation of the transaction price to the performance obligations in the contract | |
| · | Recognition of revenue when, or as, the Company satisfies a performance obligation |
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Stock-Based Compensation
The Company issues common stock and intends to issue stock options to officers, directors and consultants for services rendered. Options will vest and expire according to terms established at the issuance date of each grant. Stock grants, which are generally time vested, will be measured at the grant date fair value and charged to operations ratably over the vesting period.
The fair value of stock options granted as stock-based compensation will be determined utilizing the Black-Scholes option-pricing model, and can be affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock. Estimated volatility will be based on the historical volatility of the Company’s common stock over an appropriate calculation period, or, if not available, by reference to the volatility of a representative sample of comparable public companies. The risk-free interest rate will be based on the US Treasury yield curve in effect at the time of grant. The fair market value of the common stock will be determined by reference to the quoted market price of the Company’s common stock on the grant date, or, if not available, by reference to an appropriate alternative valuation methodology.
The Company will recognize the fair value of stock-based compensation awards in general and administrative costs or in software development costs, as appropriate, in the Company’s consolidated statements of operations. The Company will issue new shares of common stock to satisfy stock option exercises.
As of December 31, 2022, the Company did not have any outstanding stock options.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities measure credit losses for most financial assets, including accounts and notes receivables. ASU 2016-13 will replace the current “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. As small business filer, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. Management is currently in the process of assessing the impact of adopting ASU-2016-13 on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Management has not yet evaluated the effect that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures subsequent to its adoption.
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Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements and related disclosures.
Plan of Operation
We are a gaming company specializing in building and scaling online gambling brands. We integrate best-in-class third-party casino games and sports betting to our online brands.
The Company operates Vale, a licensed online Casino and Sportsbook in Mexico, through its website vale.net, which is provided in conjunction with a local license holder, The Fabulous Vegas Games S.A. de C.V.
On December 15, 2022 we entered into a Commercial Association Agreement for the use of a gambling permit owned by The Fabulous Vegas Games S.A. de C.V.
The license permits us to operate our brand Vale as approved by General Directorate of Games and Raffles of the Ministry of Interior (SEGOB).
Vale integrates over 500 online premium casino games as well as sports betting, through an external software partner, Game Interaction Group BV. These games can be enjoyed via mobile or desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from a local dedicated bank account under our own control.
Under the terms of the agreement with Fabulous Vegas Games, we share 8% of Net Win generated from the platform, or a minimum of six thousand USD per month. In February 2021, vale.mx began operations. Net Win is defined as a calculation of the total income from gaming (revenues minus prizes, minus platform expenses, minus redeemed bonuses).
Under the terms of the agreement with Game Interaction Group, we share a percentage of Gross Gaming Revenue, which is 12% for sportsbook, and 3% for casino games, skill games, poker & virtual games. There is a minimum monthly fee of €9,000 EUR.
On April 14, 2021, we entered into a Sponsorship Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the personality rights of champion professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign for the Corporation to sponsor a prize fight and certain other activities of Canelo, and for Canelo to promote the Corporation’s “VALE” brand and create certain promotional materials in connection therewith for the Corporation’s use in the United States, Latin America and certain countries in the Caribbean.
Convertible Note Financing
On November 18, 2021, we entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor for the sale of a secured convertible note and warrants. We received aggregate gross proceeds of $1,500,000 and issued (i) the Convertible Note in the principal amount of $1,666,666.67 (the “Convertible Note”) and (ii) warrants (the “Convertible Note Warrants”) to purchase an aggregate of 727,273 shares of our common stock.
The Convertible Note. The Convertible Note bears interest at a rate of 10% per year, payable monthly commencing after the third month following the issuance date, and matures 12 months from issuance. The principal and interest are convertible at any time, at the option of the holder, into shares of common stock at a conversion price equal to the lower of (i) $2.75 per share and (ii) the price of the common stock of the Company in a Qualified Offering (subject to adjustment as provided in the Convertible Note). A “Qualified Offering” is an equity or equity-linked financing for the account of the Company or any of its subsidiaries or debt financing that results in cumulative aggregate proceeds to the Company of at least $8,000,000. The principal and interest on the Convertible Note will be amortized on a straight-line basis commencing sixth months after the closing.
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The conversion price of the Convertible Note is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. With certain customary exceptions, if, at any time while the Convertible Note is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than the then conversion price of the Convertible Note (such lower price, the “Base Conversion Price,” then the conversion price of the Convertible Note will be reduced to equal the Base Conversion Price.
We have the right at any time to prepay in cash all or a portion of the Convertible Note at 115% (or 120% on or after the first three months from the closing) of the principal amount thereof plus any unpaid accrued interest to the date of repayment. In such event, the holder will have the right to convert the Convertible Note prior to the date of any such prepayment.
We will be required to offer to prepay in cash the aggregate principal amount of the Convertible Note at 115% (or 120% on or after the first three months from the closing) of the principal amount thereof plus any unpaid accrued interest to the date of repayment, on the sale of all or substantially all of the assets of the Company and its subsidiaries, upon a Change of Control (as defined in the Convertible Note), or on a Qualified Offering. In such event, the holder shall have the right to convert the Convertible Note prior to the date of any such prepayment.
Upon an Event of Default (as defined in the Convertible Note), interest will accrue at 1 1/2% per month and 125% of principal and interest through maturity shall be due and payable. At the holder’s option, the holder will be entitled to be paid in cash or common stock with the conversion price of the common stock equal to a 30% discount to the average of the three lowest closing prices of the common stock for the 10 prior trading days.
On May 18, 2022 an event of default occurred due to our failure to make interest payments on our 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,666,666.67 (the “Convertible Note”). As a result of the default, the Company was accessed a default penalty of $231,250. On November 8, 2022, the Convertible Note was amended to change the maturity date until February 15, 2023. In exchange, the Company agreed to increase the warrant coverage from 120% of the original face amount of the note to 210% of the original face value of the note. As a result, warrants to issued an additional 545,454 shares were issued to the lender and the interest rate on the Convertible Note increased to 18% annually. On March 29, 2023, the due date of the note was extended to October 15, 2023. The Company agreed to issue 500,000 shares of its common stock to the note holder in exchange for the due date extension.
The Convertible Note Warrants. The Convertible Note Warrants are exercisable at an exercise price equal to the lower of (x) $2.75 per share and (y) the price of the common stock of the Company in a Qualified Offering (as defined in the Purchase Agreement), subject to adjustment as described below, and the Convertible Note Warrants are exercisable for five years after the issuance date. The Convertible Note Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the Convertible Note Warrants. The exercise price of the Convertible Note Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Convertible Note Warrants is also subject to “full ratchet” price adjustment if the Company issues common stock or equivalents at a price per share lower than the then-current exercise price of the Convertible Note Warrant, as described above for the conversion price of the Convertible Note.
Ancillary Agreements. In connection with the Company’s obligations under the Convertible Notes, the Company and its subsidiary Gaming Technology Limited (the “Subsidiary”) each entered into a security agreement with the holder, pursuant to which the Company and the Subsidiary granted a security interest on all assets of the Company and the Subsidiary, including the stock of the Subsidiary, for the benefit of the holders, to secure, and the Subsidiary guaranteed, the Company’s obligations under the Convertible Note, the Convertible Note Warrant and the other transaction documents. In addition, the holder was granted customary piggyback registration rights for the shares of common stock issuable upon conversion of the Convertible Note and exercise of the Convertible Note Warrant and rights of participation.
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Right of Participation. At any time within the 18 month period following closing, upon any issuance by the Company or any of its subsidiaries of debt or common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof, other than in an underwritten public offering (a “Subsequent Financing”), the investor will have the right to participate up to its investment amount in the Convertible Note, but not more than 25% of the Subsequent Financing, on the same terms, conditions and price provided for in the Subsequent Financing.
Warrants for Waivers. In November 2021, we also issued warrants to purchase an aggregate of 179,566 shares of common stock to investors in our August 2021 private placement in exchange for their granting a waiver of their anti-dilution and most favored nation rights in respect of the Convertible Note transaction describe above. These warrants have substantially the same terms as the Convertible Note Warrants described above.
Key Performance Indicators
Registered Players
A registered player is a customer who has registered on our app or website and met the Know Your Customer customer identification requirements, which include identity and address verification (“KYC requirements”). During the years ended December 31, 2022 and 2021 we registered 19,183 and 108,206 players, respectively. On October 4, 2021, we announced we had reached 100,000 registrations.
Monthly Unique Payers
Monthly Unique Payers (“MUPs”). MUPs is the average number of unique paid users (“unique payers”) that use our online games on a monthly basis.
MUPs is a key indicator of the scale of our user base and awareness of our brand, and/or the third-party brands we partner with. We believe that year-over-year MUPs will also generally be indicative of the long-term revenue growth potential of the online gaming brands we hold directly and/or those we establish around our B2B brand partners, although MUPs in individual periods may be less indicative of our longer-term expectations. We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand the online gambling brands we operate to appeal to a wider audience.
We define MUPs as the average number of unique payers per month who had a paid engagement (e.g., participated in a casino game) across one or more of our product offerings via our platform technology. For reported periods longer than one month, we average the MUPs for the months in the reported period.
A “unique paid user” or “unique payer” is any person who had one or more paid engagements via our B2C technology during the period (i.e., a user that participates in a paid engagement with one of our B2C product offerings counts as a single unique paid user or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique paid users include users who have participated in a paid engagement with promotional incentives, which are fungible with other funds deposited in their wallets on our technology. The number of these users included in MUPs has not been material to date and a substantial majority of such users are repeat users who have had paid engagements both prior to and after receiving incentives.
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During the years ending December 31, 2022 and 2021, our MUPs were 519 and 3,251, respectively. The increase was due to the initiation of revenue generating activities in February 2021.
Average Revenue per MUP (“ARPMUP”). ARPMUP is the average online casino revenue per MUP, and this key metric represents our ability to drive usage and monetization of our online casino offering.
During the years ending December 31, 2022 and 2021, our ARPMUP was $198.99 and $51.64, respectively.
We define and calculate ARPMUP as the average monthly online casino revenue for a reporting period, divided by MUPs (i.e., the average number of unique payers) for the same period.
Handle
Handle is a casino or sports betting term referring to the total amount of money bet. We will report the handle or cash wagering which is the total amount of money bet excluding all bonuses.
During the years ended December 31, 2022 and 2021, our handle was $2,759,057 and $6,313,132, respectively.
Hold
Hold is essentially the amount of cash that our platform instances keep after paying out winning bets. The industry also refers to hold as win or revenue. During the years ended December 31, 2022 and 2021, our hold was $125,996 and $288,848, respectively.
Online games are characterized by an element of chance. Our revenue is impacted by variations in the hold percentage (the ratio of net win to total amount wagered) on bets placed on, or the actual outcome of, games or events on which users bet. Although our product offerings generally perform within a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet can have a sizeable impact on our short-term financial performance. Our hold is also affected by factors that are beyond our control, such as a user’s skill, experience and behavior, the mix of games played, the financial resources of users and the volume of bets placed. As a result of variability in these factors, actual hold rates on our products may differ from the theoretical win rates we have estimated and could result in the winnings of our gaming users exceeding those anticipated.
We seek to mitigate these risks through data science and analytics and rules built into our technology, as well as active management of our amounts at risk at a point in time, but may not always be able to do so successfully, particularly over short periods, which can result in financial losses as well as revenue volatility.
During the years ended December 31, 2022 and 2021, our hold percentage was 4.57% and 4.58%, respectively.
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Results of Operations for the Years Ended December 31, 2022 and 2021
In February 2021, our online casino, vale.mx, began operations. However, as of December 31, 2022 and 2021, the Company did not have any positive cash flows from operations and was dependent on its ability to raise equity capital to fund its operating requirements.
Revenues
The Company began generating revenue in February 2021. Revenues consist of the net gaming revenues from the Company’s vale.mx online casino based in Mexico. Total revenues were $102,816 and $167,875 for the years ended December 31, 2022 and 2021, respectively. The decrease of $65,059 for the year ended December 31, 2022 is due to a reduction in marketing and advertising spending in support of the online casino.
Cost of Revenues
The Company began generating costs of revenues in February 2021. Cost of revenues consist of the direct costs of operating vale.mx, our online casino based in Mexico. Total costs of revenues were $467,546 and $857,709 for the years ended December 31, 2022 and 2021, respectively. The decreases of $390,163 was due to a corresponding reduction in revenue.
Operating Expenses
The Company generally recognizes operating costs and expenses as they are incurred in two general categories, software development costs and expenses, and general and administrative costs and expenses. The Company’s operating costs and expenses also include non-cash components related to depreciation and amortization of property and equipment, and intellectual property, which are allocated, as appropriate, to software development costs and expenses and general and administrative costs and expenses.
Software development costs and expenses consist primarily of fees paid to consultants and amortization of intellectual property. Management expects software costs and expenses to increase in the future as the Company increases its efforts to develop technology for potential future products based on its technology and research.
General and administrative costs and expenses consist of fees for directors and officers, and their affiliates, as well as legal and other professional fees, depreciation and amortization of property and equipment, lease and rent expense, and other general corporate expenses. Management expects general and administrative costs and expenses to increase in future periods as the Company adds personnel and incurs additional costs related to its operation as a public company, including higher legal, accounting, insurance, compliance, compensation and other costs.
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Years Ended December 31, 2022 and 2021
The Company’s consolidated statements of operations for the years ended December 31, 2022 and 2021, as discussed herein, are presented below.
Years Ended | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 102,816 | $ | 167,875 | ||||
| Costs and expenses: | ||||||||
| Cost of revenues | 467,546 | 857,709 | ||||||
| Software development, including amortization of intellectual property of $6,817 and $38,202 in 2022 and 2021, respectively | (263,923 | ) | 185,789 | |||||
| General and administrative: | ||||||||
| Officers, directors, affiliates, and other related parties | 648,698 | 728,757 | ||||||
| Advertising and marketing | 108,659 | 5,693,017 | ||||||
| Impairment of intangible assets | 186,584 | – | ||||||
| Other (including stock compensation costs of $570,054 and $3,409,214 in 2022 and 2021, respectively) | 1,596,687 | 5,314,876 | ||||||
| Total costs and expenses | 2,744,251 | 12,780,148 | ||||||
| Loss from operations | (2,641,435 | ) | (12,612,273 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (1,657,575 | ) | (283,754 | ) | ||||
| Foreign currency loss | (850 | ) | (78 | ) | ||||
| Total other expense, net | (1,658,425 | ) | (283,832 | ) | ||||
| Net loss | $ | (4,299,860 | ) | $ | (12,896,105 | ) | ||
Revenues. In February 2021, our online casino, vale.mx, began operations. The Company recognized $102,816 and $167,875 in revenue during the years ending December 31, 2022 and 2021, respectively.
Cost of Revenues: The Company began generating costs of revenues in February 2021. Cost of revenues consist of the direct costs of operating and marketing vale.mx, our online casino based in Mexico. Total costs of revenues were $467,546 and $857,709 for the years ended December 31, 2022 and 2021, respectively. The decrease of $390,163 was due to a reduction in marketing and advertising spending in support of the online casino.
Software Development Costs and Expenses. For the year ended December 31, 2022, software development costs and expenses were $(263,923), which consisted of a research and development tax refund we received in the United Kingdom of $281,600 which was offset against software development costs, payments to contractors of $10,860, and amortization of intellectual property of $6,817.
For the year ended December 31, 2021, software development costs and expenses were $185,789, which consisted of development costs paid to contractors of $147,587 and amortization of intellectual property of $38,202.
Software development costs and expenses decreased by $449,712 or 242% in 2022 as compared to 2021, primarily as a result of the research and development tax credit of $281,600 received in 2022 and a decrease in payments to contractors of $136,727.
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General and Administrative Costs and Expenses. For the year ended December 31, 2022, general and administrative costs and expenses were $2,540,628, which consisted of director, consulting, and professional fees to officers, directors, affiliates, and other related parties of $648,698, marketing and advertising expense of $108,659, impairment of intangible assets of $186,584, stock compensation expense of $570,054, consulting fees of $369,981, legal and accounting fees to non-related parties of $333,768, and other operating costs of $322,884.
For the year ended December 31, 2021, general and administrative costs and expenses were $11,736,650, which consisted of director, consulting, and professional fees to officers, directors, affiliates, and other related parties of $728,757, marketing and advertising expense of $5,693,017, stock compensation expense of $3,409,214, consulting fees of $1,050,020, legal and accounting fees to non-related parties of $510,548, and other operating costs of $345,094.
General and administrative costs decreased by $9,616,022 or 82% in 2022 as compared to 2021, primarily as a result of decreases in marketing and advertising expense of $5,584,358 and consulting fees of $1,075,039, and a decrease in stock compensation expense of $2,839,160.
Interest Expense. For the year ended December 31, 2022, the Company had interest expense of $1,657,575, as compared to interest expense of $283,754 for the year ended December 31, 2021, primarily as a result of interest, penalties, and discount amortization related to convertible notes payable and notes payable.
Foreign Currency Gain (Loss). For the year ended December 31, 2022, the Company had a foreign currency loss of $850, as compared to a foreign currency loss of $78 for the year ended December 31, 2021, as a result of an decrease in the value of the GB Pound compared to the US Dollar.
Net Loss. For the year ended December 31, 2022, the Company incurred a net loss of $4,299,860, as compared to a net loss of $12,896,105 for the year ended December 31, 2021.
Liquidity and Capital Resources – December 31, 2022 and December 31, 2021
The Company’s consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As reflected in Item 6 (“Selected Financial Data”), the Company has had no operating revenues to date, and has experienced recurring net losses from operations and negative operating cash flows. The Company has financed its working capital requirements since inception through the sale of its equity securities and from borrowings.
As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated financial statements are being issued. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about the Company’s ability to continue as a going concern (see “—Going Concern”).
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
As of December 31, 2022, the Company had a working capital deficit of $4,737,492, as compared to working capital of $2,113,765 as of December 31, 2021, reflecting a decrease in working capital of $2,623,727 for the year ended December 31, 2022. The decrease in working capital during the year ended December 31, 2022 was primarily the result of increase in accounts payable and notes payable as the Company’s ability to raise capital was hampered in the second half of 2022 due to uncertainty in the capital markets.
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As of December 31, 2022, the Company had cash of $372,507, reflecting the remaining balance of cash from the net proceeds from the private placement of the Company’s common stock of $905,150 in November and December 2022. As of December 31, 2021, the Company had cash of $406,526, reflecting the remaining cash from the proceeds of a convertible note payable in the amount of $1,666,667 in November 2021.
Management believes that the cash on hand will be sufficient to fund the Company’s operations only until April 2023, after which we will need to raise additional funding. The Company has deferred payments and reduced costs in order to conserve cash until it is able to raise additional capital. No assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Our ability to raise additional funds through equity or debt financings or other sources may depend on the commercial success of our software and financial, economic and market conditions and other factors, some of which are beyond our control.
In February 2021, the Company began earning revenues, however they are not a level sufficient to support the Company’s operations. The Company estimates that its working capital requirements for the next twelve months to be approximately $4,800,000, or $400,000 per month.
The working capital budget will enable the Company to support the existing monthly operating costs of the Company of approximately $400,000 per month, consisting of monthly (and quarterly) accounting and US securities filing costs estimated at $20,000 per month and a sales and marketing budget of $250,000 per month to engage in a sales and marketing campaign to sell licenses of the Company’s software platform to third parties and attach customers to its online casino based in Mexico.
During the year ended December 31, 2022 the Company completed a series of private placements of its common stock, with proceeds totaling $905,150. In addition, the Company is planning additional capital raises over the remainder of the calendar year to fund operations as it ramps up revenues, however, there can be no assurances such raises will be successful The Company believes that its existing working capital will be sufficient to fund the Company’s operations for the next three months.
Since acquiring the software platform, the Company has successfully carried out development to port the software platform from its former physical server dependencies and reliance on third parties for hardware management and deployment to a cloud-based platform where deployment is automated through the use of infrastructure as code. To make the Company’s software platform work for business-to-business (B2B) licensees, the Company has modified the software to enable remote management by system administrators of prospective licensees. Previously, the platform was business to consumer (B2C) focused, with outsourced management and deployment. As a result of this software development, the Company expects to be able to monetize its software platform by selling licenses to third parties.
The Company’s ability to raise additional funds through equity or debt financings or other sources may depend on the stage of development of the software platform, the commercial success of the software, and financial, economic and market conditions and other factors, some of which are beyond the Company’s control. No assurance can be given that the Company will be successful in raising the required capital at reasonable cost and at the required times, or at all. Further equity financings may have a dilutive effect on shareholders and any debt financing, if available, may require restrictions to be placed on the Company’s future financing and operating activities. If the Company requires additional capital and is unsuccessful in raising that capital, the Company may not be able to continue the development of its software platform and continue to advance its growth initiatives, or ultimately to be able to continue its business operations, which could adversely impact the Company’s business, financial condition and results of operations.
Operating Activities
For the year ended December 31, 2022, operating activities utilized cash of $1,167,255, as compared to utilized cash of $8,036,300 for the year ended December 31, 2021, to fund the Company’s ongoing operating expenses.
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Investing Activities
For the year ended December 31, 2022, the Company’s investing activities consisted of a software license of $150,000 and property and equipment of $10,657.
For the year ended December 31, 2021, the Company’s investing activities consisted of the acquisition of intellectual property for $169,564 and property and equipment of $9,194.
Financing Activities
For the year ended December 31, 2022, the Company’s financing activities consisted of proceeds from the private placement of 3,960,600 shares of Common Stock of $905,150, proceeds from notes payable to investors of $370,000, offset by the repayment of $7,349 of a note payable with a bank.
For the year ended December 31, 2021, the Company’s financing activities consisted of proceeds from the private placement of 2,155,294 shares of Common Stock of $5,221,325, net proceeds from a convertible note payable to bank of $1,500,000, offset by the repayment of $5,445 of a note payable with a bank.
Principal Commitments
Off-Balance Sheet Arrangements
As of December 31, 2022, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Trends, Events and Uncertainties
Development of new software is, by its nature, unpredictable. Although the Company will undertake development efforts with commercially reasonable diligence, there can be no assurance that the Company’s efforts to raise funds in the future will be sufficient to enable the Company to develop its technology to the extent needed to create future revenues to sustain operations as contemplated herein.
There can be no assurances that the Company’s technology will be adopted or that the Company will ever achieve sustainable revenues sufficient to support its operations. Even if the Company is able to generate revenues, there can be no assurances that the Company will be able to achieve profitability or positive operating cash flows. There can be no assurances that the Company will be able to secure additional financing on acceptable terms or at all. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its software development programs, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights to certain of its potential products, or to curtail or discontinue its operations entirely.
Other than as discussed above and elsewhere in this Form 10-K, the Company is not currently aware of any trends, events or uncertainties that are likely to have a material effect on the Company’s financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on the Company’s financial condition.
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Impact of COVID-19 on the Company
The global outbreak of COVID-19 has led to severe disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis. Although the Company has not experienced any significant disruption to its business to date, these conditions could significantly negatively impact the Company’s business in the future.
The extent to which the COVID-19 outbreak ultimately impacts the Company’s business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may be at risk of experiencing a significant impact to its business as a result of the global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
Currently, capital markets have been disrupted by the crisis, as a result of which the availability, amount and type of financing available to the Company in the near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors.
The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become available.
Other than as discussed above and elsewhere in this Form 10-K, the Company is not currently aware of any trends, events or uncertainties that are likely to have a material effect on the Company’s financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on the Company’s financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company is not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. Controls and Procedures.
Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
Management Assessment of Disclosure Controls and Procedures
Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, 2022 and 2021 and concluded that we had a material weakness in our internal controls due to our limited resources and therefore our disclosure controls and procedures may not be effective in providing material information required to be included in any future periodic SEC filings on a timely basis and to ensure that information required to be disclosed in any future periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure about our internal control over financial reporting. More specifically, our internal control over financial reporting was not effective due to material weaknesses related to a segregation of duties due to our limited resources and limited staff.
In addition, as of December 31, 2022 and 2021, our management concluded that we had a material weakness in internal control over financial reporting. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
Description of Material Weaknesses and Management’s Remediation Initiatives
As of the date of this report, our remediation efforts continue related to each of the material weaknesses that we have identified in our internal control over financial reporting, and additional time and resources will be required in order to fully address these material weaknesses. We have not been able to complete all actions necessary and test the remediated controls in a manner that would enable us to conclude that such controls are effective. We are committed to implementing the necessary controls to remediate the material weaknesses described below as our resources permit. These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively. The following material weaknesses in our internal control over financial reporting were identified by management as of December 31, 2022:
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Ineffective Control Environment. The Company did not maintain an effective control environment, which is the foundation necessary for effective internal control over financial reporting. Specifically, the Company (i) did not maintain a functioning independent audit committee; (ii) did not have its Board of Directors review and approve significant transactions; (iii) had an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (iv) had an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company’s financial reporting requirements; (v) had inadequate segregation of duties consistent with control objectives; and (vi) lack of written documentation of the Company’s key internal control policies and procedures over financial reporting. The Company is required under Section 404 of the Sarbanes-Oxley Act to have written documentation of key internal controls over financial reporting. The Company did not formally document policies and controls to enable management and other personnel to understand and carry out their internal control responsibilities including the lack of closing checklists, budget-to-actual analyses, balance sheet variation analysis, and pro-forma financial statements. Additionally, the Company did not have an adequate process in place to complete its testing and assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner;
Ineffective controls over financial statement close and reporting process. The Company did not maintain effective controls over its financial statement close and reporting process. Specifically, the Company: (i) had insufficient preparation and review procedures for disclosures accompanying the Company’s financial statements; and (ii) did not provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved; and
Insufficient segregation of duties in our finance and accounting functions due to limited personnel. We do not have sufficient segregation of duties within accounting functions. During the year ended December 31, 2022, we had limited personnel that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact that these duties were often performed by the same person, this creates a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
Changes in Disclosure Controls and Procedures
None
None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
| 35 |
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers and Directors
All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified or they have resigned. The officers of our company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.
The following table sets forth the name, age and position of each of our executive officers, key employees and directors as of December 31, 2022.
|
Name |
Age |
Position(s) |
| Jason Drummond | 53 | Chief Executive Officer, Secretary and Director |
| Steven M. Plumb | 63 | Chief Financial Officer |
Jason Drummond - Chief Executive Officer, Secretary and Director. Mr. Jason Drummond has served as our CEO and director since our incorporation and served as our Chief Financial Officer until October 20, 2021. Mr. Drummond has founded and built several Internet and tech businesses over his career. In addition, Mr. Drummond has, as CEO, led the initial public offering of nine of his companies on various European stock exchanges:
Founder, CEO and then Chairman of Equals Group PLC (FAIRFX PLC) between November 2005 and November 2014. The Company was listed in the UK on the Alternative Investment Market (AIM) (Ticker symbol - LON: EQLS) in November 2014.
Founder, CEO and then Chairman of Virtual Internet plc, from July 1996 to February 2002. The company Listed on AIM in October 1998, and then up-listed to the Main Market of the London Stock Exchange (LSE) in April 2000 (Ticker symbol - LON: VET).
Founder, CEO and then Chairman of Coms plc, from September 2003 to September 2012. The company Listed on AIM in September 2006 (Ticker symbol - LON: COMS).
Founder, Director and Chairman of Media Corp (Gaming Corporation plc), from March 2000 to February 2012. The company Listed on AIM in April 2001 (Ticker symbol - LON: MDC).
Co-Founder and Director of Nettworx plc, from December 2005 to June 2009 (Ticker Symbol - LON: NTWX). The company listed on the AIM Market LSE in December 2005.
Co-Founder and Director of Active 24 ASA (Virtual Internet UK), from May 2003 to November 2004. The company listed on the Oslo Børse Stock Exchange in November 2004.
Co-Founder and shareholder in Betex Group plc, from May 2005 to May 2010. Listed on the AIM Market in December 2005.
Co-Founder and shareholder in Internet Incubator plc, from December 1999 to June 2001. The company was listed in the UK on AIM (Ticker symbol - LON: IIP) in October 2000.
Founder Investor and Advisor to Gaming Internet PLC, from January 2000 to July 2001 (Ticker symbol - LON: GIN), listed on AIM in January 2000.
| 36 |
Mr. Drummond currently serves as a board member to Eight Vodka Limited and Hoot Foods Limited and has previously served on the boards of directors of Expentory Ltd., Tactu Applico Limited, Teathers Financial PLC, GameTech UK Limited and Gatekeeper App Limited.
Steven M. Plumb, CPA, - Chief Financial Officer, is an seasoned senior executive and financial manager experienced in operations, finance and marketing. He has Big 4 CPA experience, a background in IT, biotech, oil and gas, real estate, medical and utility companies. Mr. Plumb was the chief financial officer of Artella Solutions, Inc., a private medical device company, since December 2018 through May 2021. He has served as the chief financial officer of DirectView Holdings, Inc. (DIRV.PK) since January 2020. From May 2013 through February 2019, Mr. Plumb was the Chief Financial Officer of ProBility Media Corp. (PBYA.PK).
From 2011 to 2013, Mr. Plumb was the Chief Financial Officer of Bering Exploration, Inc., (BERX) an oil and gas exploration and production company. In April 2013, Mr. Plumb was appointed to the additional position of President of Bering. From 2012 to 2014, Mr. Plumb served as the chief financial officer of Complexa, Inc., a venture capital backed biotechnology company. From September 2009 to April 2012, Mr. Plumb served as the Chief Financial Officer of ADB International Group, Inc. (ADBI.PK) and from June 2010 to April 2012, he also served on the board of directors of ADBI. From September 2010 to June 2011, Mr. Plumb served as the Chief Financial Officer of Galaxy Media & Marketing Corp (Galaxy) and from January 2011 to June 2011 he also served as a member of the board of directors and chair of the board of directors of Galaxy. Since 2001, he has served as the owner and president of Clear Financial Solutions, Inc., a consulting firm that provides interim CFO services to small public companies. In this capacity he has prepared SEC filings, managed investor relations, raised capital, conducted mergers and acquisition activities, developed successful offering memorandum, registration statements and investor presentations. Mr. Plumb is a former auditor with PriceWaterhouseCoopers and KPMG. Mr. Plumb has a Bachelor of Business Administration degree from the University of Texas at Austin, Austin, Texas.
Involvement in Certain Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising out of its operations in the normal course of business. During the past ten years, none of our officers, directors, director nominees, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K except as set forth herein.
Corporate Governance
Director Independence
No members of our Board of Directors are independent using the definition of independence under Nasdaq Listing Rule 5605(a)(2) and the standards established by the SEC. We plan to increase the size the Board of Directors to satisfy Nasdaq’s requirement that the majority of the Board of Directors be independent.
Committees of our Board
Audit Committee. We did not during 2021, and do not currently, have an audit committee. If and when we satisfy the other initial listing standards for listing our common stock on Nasdaq or another national exchange, we intend to establish an audit committee of the Board of Directors.
Compensation Committee. We did not during 2021, and do not currently, have a compensation committee. If and when we satisfy the other initial listing standards for listing our common stock on Nasdaq or another national exchange, we intend to establish a compensation committee of the Board of Directors.
| 37 |
Nominating Committee. We did not during 2021, and do not currently, have a nominating committee. If and when we satisfy the other initial listing standards for listing our common stock on Nasdaq or another national exchange, we intend to establish a nominating committee of the Board of Directors.
Term of office
All directors hold office until the next annual meeting of the stockholders of the company and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of our Board of Directors.
Code of Ethics
The Board of Directors will adopt a Code of Business Conduct and Ethics that will be applicable to the Company and to all our directors and officers and persons performing similar functions, including our principal executive officer and principal financial officer. A copy of the Company’s Code of Business Conduct and Ethics will be posted on our website at www.gametech.com. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above.
Consulting and Finder Agreements
We have entered into consulting or finder agreements with several service providers including the below:
In November 2022, the Company entered into a finder’s fee agreement with a FINRA registered broker dealer to identify and introduce the Company to accredited investors. The Company agreed to pay the broker a cash fee equal to 10% of the total purchase price paid by investors introduced to the Company by the broker. One such investor was identified and made an investment in the November 2022 Private Placement of $550,000.
In December 2022, the Company entered into a finder’s fee agreement with a FINRA registered broker dealer to identify and introduce the Company to accredited investors. The Company agreed to pay the broker a cash fee equal to 6.67% of the total purchase price paid by investors introduced to the Company by the broker. One such investor was identified and made an investment of $300,000.
Family Relationships
There are no family relationships between any of our directors or executive officers.
| 38 |
Item 11. Executive Compensation.
Summary Compensation Table
Set forth below is information for the fiscal years indicated relating to the compensation of each person who served as our principal executive officer (and our sole officer) (the “Named Executive Officer”) during the past two fiscal years.
| Name and Principal Position(s) | Year | Salary | Bonus | Award(s) | Stock Compensation | All Other Compensation | Total Compensation | ||||||||||||||
| Jason Drummond | 2022 | $ | 342,486 | $ | – | $ | – | $ | – | $ | – | $ | 342,486 | ||||||||
| CEO, CFO(1), Secretary and Director | 2021 | $ | 330,144 | $ | 259,224 | $ | – | $ | – | $ | – | $ | 589,368 | ||||||||
| Steven M. Plumb, CPA | 2022 | $ | 257,345 | $ | – | $ | – | $ | – | $ | – | $ | 257,345 | ||||||||
| CFO(2) | 2021 | $ | 36,219 | $ | – | $ | – | $ | 90,300 | $ | – | $ | 126,519 | ||||||||
| (1) | Mr. Drummond served as CFO until October 20, 2021. |
| (2) | Mr. Plumb was appointed CFO on October 20, 2021. |
Compensation of Management
Currently, we have no formal employment or compensation arrangement with our Chief Executive Officer, Jason Drummond. Our Board of Directors determines the compensation given to our executive officers in their sole determination. Until such time as we enter into an employment or compensation arrangement with Mr. Drummond, all future compensation to be paid will be determined solely by Mr. Drummond as our sole director. Mr. Drummond’s current annual base salary is £240,000, which is the equivalent to $330,144 and $342,486 when valued using the exchange rates in effect on December 31, 2022 and 2021, respectively; any bonus will be at the discretion of the Company, subject to the achievement of certain targets as agreed to between Mr. Drummond and Company. During the year ended December 31, 2021, the Company paid base salary of $330,144 and a bonus of $259,224, totaling $589,368, to Mr. Drummond.
On October 20, 2021, the Company appointed Steven M. Plumb, CPA as its chief financial officer through a contract with Mr. Plumb’s entity, Clear Financial Solutions (“Clear”). Pursuant this agreement Clear was paid $12,000 per month for Mr. Plumb’s service during 2022. In addition, Mr. Plumb and Clear’s other staff provide services to the Company for other projects from time to time outside the scope of the agreement, in consideration for which Clear was paid $113,345 during 2022. The contract was extended on August 16, 2022, and unless canceled by either party by written notice 60 days prior to expiration, will automatically renew for successive twelve-month periods. The monthly fee paid to Clear was reduced to $8,000 per month, effective January 1, 2023. In 2021, Mr. Plumb was awarded a stock grant for 30,000 shares of the Company’s common stock, vesting six months from date of grant. The shares of common stock will be issued pursuant to a restricted stock award agreement under our 2021 Equity Incentive Plan.
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Director Compensation
During the years ended December 31, 2022 and 2021, no director of the Company received compensation from us, except as set forth above in the summary compensation table.
Outstanding Equity Awards at Fiscal Year-End
There are no outstanding equity awards held by the Company’s named executive officers or directors as of December 31, 2022.
2021 Equity Incentive Plan
In April 29, 2021, the Board of Directors unanimously adopted, and on May 21, 2021, holders of a majority of our common stock outstanding approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which awards covering up to 3,000,000 shares of our common stock (subject to annual increase on each January 1 of up to 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, as determined by our Board of Directors) will be available for issuance. The purpose of the 2021 Plan is (a) enable the Company and its affiliates to attract and retain the types of employees, directors and consultants who will contribute to the Company’s long range success; (b) provide incentives that align the interests of employees, consultants and directors with those of the stockholders of the Company; and (c) promote the success of the Company’s business, thus enhancing the value of the Company for the benefit of its stockholders. Awards that may be granted under the 2021 Plan include: (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) restricted awards, (e) performance share awards, (f) cash awards, and (g) other equity-based awards.
The 2021 Plan has a term of ten years and will be administered by our Board of Directors or, when one is established, our Compensation Committee, or in the Board of Directors’ sole discretion by the board or one or more members of the board appointed by the board to administer the 2021 Plan, in accordance with the terms of the 2021 Plan.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of March 28, 2021 by:
| · | each of our named executive officers; | |
| · | each of our directors; | |
| · | all of our current directors and executive officers as a group; and | |
| · | each stockholder known by us to own beneficially more than five percent of our common stock. |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of March 28, 2022, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 35,521,629 shares of common stock outstanding on March 28, 2023.
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Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is c/o Gaming Technologies, Inc., Two Summerlin, Las Vegas, NV 89135, USA.
| Name of Beneficial Owner | Number of Shares Beneficially Owned Prior to Offering | Percentage of Common Stock Beneficially Owned | ||||||
| Directors and Executive Officers | ||||||||
| Jason Drummond | 5,054,500 | 14.2% | ||||||
| Steven M. Plumb (1) | 30,000 | * | ||||||
| All current executive officers and directors as a group (1 person) | 5,054,500 | 14.6% | ||||||
| 5% or Greater Stockholders | ||||||||
| Epsilon Investments PTE (2) 111 North Bridge Road, #21-03 Peninsula Plaza, Singapore 179098 | 6,706,425 | 18.9% | ||||||
| Fairfax Capital BV (3) Herengracht 458 1017 CA Amsterdam, Netherlands | 2,437,950 | 6.9% | ||||||
| Basilan Investment SRL (4) Calle Tapia De Casariego 11A C/O Gonsalo Pozo Madrid, 20878, Spain | 2,000,000 | 5.6% | ||||||
| One44 Capital LLC (5) 1249 Broadway Ste. 103 Hewlett NY 11557 | 2,107,692 | 5.9% | ||||||
| Mark N. Tompkins App. 1, Via Guidino 23 Lugano-Paradiso 6900, Switzerland | 1,854,000 | 5.2% | ||||||
____________________
| * | Less than 1%. | |
| 1. | Represents restricted shares under 2021 Equity Incentive Plan, vesting six (6) months from date of issue, based on continuing service as an officer on each such vesting date. | |
| 2. | Sujatha Panicker, principal of the Epsilon Investments PTE, has the power to vote or dispose of the shares held of record by Epsilon Investments PTE and may be deemed to beneficially own those shares. | |
| 3. | Jason Smart, principal of Fairfax Capital BV, has the power to vote or dispose of the shares held of record by Fairfax Capital BV and may be deemed to beneficially own those shares. | |
| 4. | Gonzalo Del Pozo, principal of Basilan Investment SRL, has the power to vote or dispose of the shares held of record by Basilan Investment SRL and may be deemed to beneficially own those shares. | |
| 5. | Includes 307,692 shares of common stock underlying warrants. Ahron Fraiman and Daniel Rosenblatt, principals of One44 Capital LLC, have shared power to vote or dispose of the shares held by record by One44 Capital LLC and may be deemed to beneficially own those shares. |
| 41 |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Except as described below, and under “Executive Compensation” above, there have been no transactions since the beginning of the fiscal year of 2022, or any currently proposed transaction, in which the Company was to be a participant and the amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest). A related person is any executive officer, director, nominee for director or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons.
Consulting Agreement with John Cummins
On October 21, 2021, we entered into a consulting agreement with John Cummins to serve as a board advisor, pursuant to which he agreed to provide certain consulting services related to the Company’s development. The initial term of the agreement is for one year and may be renewed at the end of the term. Under the terms of the agreement, the Company issued (i) 50,000 shares of the Company’s common stock within seven days of the execution of the agreement, valued at $125,000, (ii) and 50,000 shares of the Company’s common stock upon the quotation of the Company’s stock on OTCQB. In addition, the Company will issue 100,000 shares of the Company common stock at each of the first three annual renewal periods, if the agreement is renewed.
Investments in Private Placements by Related Persons
From November 2020 to August 2021, we issued and sold in private placements to One44 Capital, LLC an aggregate of 2,107,692 shares of the Company’s common stock for an aggregate purchase price of approximately $5,499,999.
Item 14. Principal Accountant Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by the Company’s principal accountant and the predecessor for the audit and the reviews of the Company’s financial statements in 2022 and 2021 were $96,417 and $176,631, respectively.
Audit-Related Fees
The Company incurred no fees during the last two fiscal years for assurance and related services by the Company’s principal accountant that were reasonably related to the performance of the audit or review of the Company’s financial statements, and not reported under “Audit Fees” above.
Tax Fees
The Company incurred $0 in fees for professional services rendered by the Company’s principal accountant for tax compliance, tax advice or tax planning for the years ended December 31, 2022 and 2021, respectively.
All Other Fees
The Company incurred no other fees during the last two fiscal years for products and services rendered by the Company’s principal accountant.
Our pre-approval policies and procedures for our Board, acting in lieu of a separately designated, independent audit committee, described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.
The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was 0%.
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Item 15. Exhibits and Financial Statement Schedules.
Exhibits
Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
may apply standards of materiality that differ from those of a reasonable investor; and
were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
| 43 |
Not applicable.
| 44 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GAMING TECHNOLOGIES, INC.
Date: May 1, 2023
By: /s/ Jason Drummond
Name: Jason Drummond
Title: President, Chief Executive Officer, and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: May 1, 2023
By: /s/ Steven M. Plumb
Name: Steven M. Plumb
Title: Chief Financial Officer
| 45 |
GAMING TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2022 and 2021
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Gaming Technologies, Inc.
Las Vegas, Nevada
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Gaming Technologies, Inc. and subsidiary (the "Company") as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficiency) and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has experienced net losses and negative operating cash flows since inception and has a stockholders’ deficiency as of December 31, 2022. The Company has financed its working capital requirements since inception through the sale of its equity securities and from borrowings. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to the consolidated financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2019.
/s/ i Weinberg & Company, P.A.
| F-2 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | i 372,507 | $ | i 406,526 | ||||
| Deposits and other current assets | i 26,705 | i 109,791 | ||||||
| Total current assets | i 399,212 | i 516,317 | ||||||
| Property and equipment, net | i 11,416 | i 7,393 | ||||||
| License agreement, net | i 293,183 | i – | ||||||
| Intellectual property, net | i – | i 179,709 | ||||||
| Total assets | $ | i 703,811 | $ | i 703,419 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | i 2,156,017 | $ | i 1,555,759 | ||||
| Accrued interest | i 425,715 | i 19,635 | ||||||
| Due to related parties | i 119,547 | i 13,252 | ||||||
| Note payable, net | i 404,607 | i – | ||||||
| Secured convertible note payable, net | i 2,019,301 | i 1,028,586 | ||||||
| Current portion of note payable, bank | i 11,517 | i 12,850 | ||||||
| Total current liabilities | i 5,136,704 | i 2,630,082 | ||||||
| Note payable, bank | i 34,439 | i 46,059 | ||||||
| Total liabilities | i 5,171,143 | i 2,676,141 | ||||||
| Commitments and contingencies | i – | i – | ||||||
| Stockholders' equity (deficiency): | ||||||||
| Preferred stock, $par value; authorized - shares; issued - | i – | i – | ||||||
| Common stock, $ par value; authorized - shares; issued and outstanding – shares and shares on December 31, 2022 and 2021, respectively | i 45,702 | i 31,353 | ||||||
| Additional paid-in capital | i 22,738,769 | i 18,914,227 | ||||||
| Accumulated other comprehensive loss | ( i 12,376 | ) | ( i 56,004 | ) | ||||
| Accumulated deficit | ( i 27,239,427 | ) | ( i 20,862,298 | ) | ||||
| Total stockholders' equity (deficiency) | ( i 4,467,332 | ) | ( i 1,972,722 | ) | ||||
| Total liabilities and stockholders' equity (deficiency) | $ | i 703,811 | $ | i 703,419 | ||||
See accompanying notes to consolidated financial statements.
| F-3 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | i 102,816 | $ | i 167,875 | ||||
| Costs and expenses: | ||||||||
| Cost of revenues | i 467,546 | i 857,709 | ||||||
| Software development, including amortization of intellectual property of $ i 6,817 and $ i 38,202 in 2022 and 2021, respectively | ( i 263,923 | ) | i 185,789 | |||||
| General and administrative: | ||||||||
| Officers, directors, affiliates, and other related parties | i 648,698 | i 728,757 | ||||||
| Advertising and marketing | i 108,659 | i 5,693,017 | ||||||
| Impairment of intangible assets | i 186,584 | i – | ||||||
| Other (including stock compensation costs of $ and $ in 2022 and 2021, respectively) | i 1,596,687 | i 5,314,876 | ||||||
| Total costs and expenses | i 2,744,251 | i 12,780,148 | ||||||
| Loss from operations | ( i 2,641,435 | ) | ( i 12,612,273 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( i 1,657,575 | ) | ( i 283,754 | ) | ||||
| Foreign currency loss | ( i 850 | ) | ( i 78 | ) | ||||
| Total other expense, net | ( i 1,658,425 | ) | ( i 283,832 | ) | ||||
| Net loss | ( i 4,299,860 | ) | ( i 12,896,105 | ) | ||||
| Deemed Dividend | ( i 2,077,269 | ) | i – | |||||
| Net loss to common shareholders | ( i 6,377,129 | ) | ( i 12,896,105 | ) | ||||
| Foreign currency translation adjustment | i – | ( i 37,258 | ) | |||||
| Comprehensive loss | $ | ( i 6,377,129 | ) | $ | ( i 12,933,363 | ) | ||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See accompanying notes to consolidated financial statements.
| F-4 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 2022 and 2021
| Common Stock, Par Value $0.001 | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Stockholders' Equity | ||||||||||||||||||||
| Shares | Par Value | Capital | Income | Deficit | (Deficiency) | |||||||||||||||||||
| Balance, December 31, 2020 | i 28,367,525 | $ | i 28,367 | $ | i 9,551,507 | $ | ( i 18,746 | ) | $ | ( i 7,966,193 | ) | $ | i 1,594,935 | |||||||||||
| Common stock issued in connection with private placement, net | i 2,155,294 | i 2,156 | i 5,219,169 | – | – | i 5,221,325 | ||||||||||||||||||
| Common stock issued as compensation | i 829,134 | i 830 | i 2,214,581 | – | – | i 2,215,411 | ||||||||||||||||||
| Warrants issued as compensation | – | – | i 1,193,803 | – | – | i 1,193,803 | ||||||||||||||||||
| Discount related to convertible note payable and related warrant | – | – | i 735,167 | – | – | i 735,167 | ||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | ( i 37,258 | ) | – | ( i 37,258 | ) | ||||||||||||||||
| Net loss | – | – | – | – | ( i 12,896,105 | ) | ( i 12,896,105 | ) | ||||||||||||||||
| Balance, December 31, 2021 | i 31,351,953 | $ | i 31,353 | $ | i 18,914,227 | $ | ( i 56,004 | ) | $ | ( i 20,862,298 | ) | $ | ( i 1,972,722 | ) | ||||||||||
| Common stock issued in connection with private placement, net | i 3,960,600 | i 3,960 | i 901,190 | – | – | i 905,150 | ||||||||||||||||||
| Discount related to warrants issued upon modification of convertible note payable | – | – | i 136,418 | – | – | i 136,418 | ||||||||||||||||||
| Common stock issued for software license | i 600,000 | i 600 | i 149,400 | – | – | i 150,000 | ||||||||||||||||||
| Common stock issued as compensation | i 1,480,000 | i 1,480 | i 568,574 | – | – | i 570,054 | ||||||||||||||||||
| Stock dividend | i 8,309,077 | i 8,309 | i 2,068,960 | ( i 2,077,269 | ) | – | ||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | i 43,628 | – | i 43,628 | ||||||||||||||||||
| Net loss | – | – | – | – | ( i 4,299,860 | ) | ( i 4,299,860 | ) | ||||||||||||||||
| Balance, December 31, 2022 | i 45,701,630 | $ | i 45,702 | $ | i 22,738,769 | $ | ( i 12,376 | ) | $ | ( i 27,239,427 | ) | $ | ( i 4,467,332 | ) | ||||||||||
See accompanying notes to consolidated financial statements.
| F-5 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( i 4,299,860 | ) | $ | ( i 12,896,105 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | i 11,691 | i 15,599 | ||||||
| Amortization and impairment of intellectual property | i 193,401 | i 38,202 | ||||||
| Amortization of operating lease right of use asset | i – | i 11,968 | ||||||
| Amortization of discount on notes payable | i 902,582 | i 106,244 | ||||||
| Accretion of premium on convertible note payable | i 259,158 | i 157,509 | ||||||
| Stock compensation | i 570,054 | i 3,409,214 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in - | ||||||||
| Deposits and other current assets | i 83,086 | ( i 71,874 | ) | |||||
| Increase (decrease) in - | ||||||||
| Accounts payable and accrued expenses | i 600,258 | i 1,206,610 | ||||||
| Accrued interest | i 406,080 | – | ||||||
| Due to related parties | i 106,295 | ( i 1,699 | ) | |||||
| Operating lease liability | i – | ( i 11,968 | ) | |||||
| Net cash used in operating activities | ( i 1,167,255 | ) | ( i 8,036,300 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash paid for software license | ( i 150,000 | ) | i – | |||||
| Purchase of intellectual property | i – | ( i 169,564 | ) | |||||
| Purchase of property and equipment | ( i 10,657 | ) | ( i 9,194 | ) | ||||
| Net cash used in investing activities | ( i 160,657 | ) | ( i 178,758 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from notes payable | i 370,000 | i – | ||||||
| Proceeds from private placement of common stock, net | i 905,150 | i 5,221,325 | ||||||
| Proceeds from convertible notes payable, net | i – | i 1,500,000 | ||||||
| Repayment of note payable to bank | ( i 7,349 | ) | ( i 5,445 | ) | ||||
| Repayment of notes payable to related parties | i – | i – | ||||||
| Net cash provided by financing activities | i 1,267,801 | i 6,715,880 | ||||||
| Effect of exchange rate on cash | i 26,092 | ( i 40,528 | ) | |||||
| Cash: | ||||||||
| Net decrease | ( i 34,019 | ) | ( i 1,539,706 | ) | ||||
| Balance at beginning of year | i 406,526 | i 1,946,232 | ||||||
| Balance at end of year | $ | i 372,507 | $ | i 406,526 | ||||
(Continued)
| F-6 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for - | ||||||||
| Interest | $ | i 831 | $ | i 943 | ||||
| Income taxes | $ | i – | $ | i – | ||||
| Non-cash investing and financing activities: | ||||||||
| Fair value of warrants recorded as debt discount | $ | i – | $ | i 735,167 | ||||
| Original issue discount on convertible note payable | $ | i – | $ | i 166,667 | ||||
| Original issue discount on notes payable | $ | i 41,989 | $ | i – | ||||
| Common stock issued for license agreement | $ | i 150,000 | $ | i – | ||||
| Discount related to convertible note payable amendment | $ | i 136,418 | $ | i – | ||||
| Stock dividend | $ | i 2,077,269 | $ | i – | ||||
See accompanying notes to consolidated financial statements.
| F-7 |
GAMING TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2022 and 2021
i
1. Organization and Basis of Presentation
Organization and Combination
Gaming Technologies, Inc. (formerly Dito, Inc.,) (“Gaming US”) was incorporated in the State of Delaware on July 23, 2019. Effective as of March 18, 2020, Gaming US completed a Share Exchange Agreement (the “Exchange Agreement”) to acquire all of the outstanding ordinary shares of Gaming Technologies Limited, formerly Gaming UK Limited, (“Gaming UK”) that provided for each outstanding ordinary share of Gaming UK to be effectively converted into 25 shares of common stock of Gaming US. As a result, Gaming UK became a wholly-owned subsidiary of Gaming US in a recapitalization transaction (collectively, the “Company”). On December 21, 2020, the Company changed its name from Dito, Inc. to Gaming Technologies Inc.
Gaming UK was originally formed as Smart Tower Limited on November 3, 2017 in the United Kingdom for the purpose of software development. On June 29, 2018, Smart Tower Limited changed its name to NENX Gaming Limited and then to Gaming UK Limited on July 29, 2019 and to Gaming Technologies Limited on January 7, 2021.
On March 18, 2021, the Company incorporated Vale Gaming, Inc. in the State of Delaware, a wholly owned subsidiary, that has had no operations.
Gaming US maintains its principal executive offices in Las Vegas, Nevada, United States. Gaming UK maintains its principal executive offices in London, England.
Unless the context indicates otherwise, Gaming Technologies, Inc. (“Gaming US”) and Gaming Technologies UK Limited (“Gaming UK”) are hereinafter referred to as the "Company".
The Company's activities are subject to significant risks and uncertainties, including the need for additional capital, as described below. The Company does not have positive cash flows from operations, and is dependent on periodic infusions of debt and equity capital to fund its operating requirements.
Business Operations
The Company is a gaming company specializing in building and scaling online gambling brands. We integrate best-in-class third-party casino games and sports betting to our online brands.
The Company operates Vale, a licensed online Casino and Sportsbook in Mexico, through its website vale.net, which is provided in conjunction with a local license holder, The Fabulous Vegas Games S.A. de C.V.
On November 13, 2020, we entered into an Agreement for the Provision of Online Gaming Management and Consulting Services (as subsequently amended) with Comercial de Juegos de la Frontera, S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide to Big Bola consulting and management services related to their interactive online betting and gaming business in Mexico via the web site www.vale.mx, a regulated online casino and sports betting site. vale.mx operates under Big Bola’s existing license issued by the General Directorate of Games and Raffles of the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally authorized to offer legal betting and online casino services in Mexico. vale.mx has more than 500 online premium casino games available, which can be enjoyed both on mobile or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention for vale.mx. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from Big Bola’s account. While Big Bola bears liability to the players as provided by the permit, as between us and Big Bola we bear the costs of this obligation. Each party indemnifies the other against certain liabilities and claims. Under the terms of the amended agreement, we share 75% of gross gaming revenue generated from the platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s participation in the remaining gross gaming revenues. This venture began operations in February 2021.
In June 2022, the Company and Big Bola entered into a Side Letter Agreement (“SLA”) whereby Big Bola agreed to convert $134,669 in fees owed to it by the Company into 540,000 shares of the Company’s common stock. The Company was required to issue the shares by July 10, 2022. The shares were issued in October 2022. In addition, the Company agreed to make payments on $120,000 in guaranteed participation fees due to Big Bola as follows: $40,000 no later than July 14, 2022; $40,000 on later than August 14, 2022; and $40,000 no later than September 14, 2022. The guaranteed participation fees have been recorded by the Company as they were incurred and are included in accounts payable at September 30, 2022. The July, August, September, and October payments have not been made as of the date of this filing. In addition, Big Bola agreed that it will not collect from the Company the guaranteed participation fee of $40,000 per month for the months of June, July and August of 2022 and that the guaranteed participation fee for the months of September, October and November of 2022 was reduced to $20,000 per month. Effective December 1, 2022, the parties reverted to the terms of the original agreement, as amended.
In December 2022, the Company canceled the Big Bola contract. As a result of the cancellation of the Big Bola contract, the Company incurred a charge of $400,000 to settle the remaining balance owed to Big Bola under the contract, which amount has been accrued and included in accounts payable and accrued expenses as of December 31, 2022.
On December 15, 2022, the Company entered into a contract with Operadora the Fabulous Vegas Games, S.A. (Fabulous) to provide a gaming platform for the Company’s vale.mx website.
Going Concern
The Company's consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has experienced recurring net losses from operations and negative operating cash flows since inception. During the year ended December 31, 2022, the Company incurred a net loss of $ i 4,299,860, utilized cash in operating activities of $ i 1,167,255, and had stockholders’ deficiency of $ i 4,467,332 as of December 31, 2022. The Company has financed its working capital requirements since inception through the sale of its equity securities and from borrowings.
At December 31, 2022, the Company had cash of $ i 372,507. The Company estimates that it has cash to sustain operations through April 2023, and after that a significant amount of capital will be necessary over a sustained period of time to advance the development of the Company's business to the point at which it can become commercially viable and self-sustaining. However, there can be no assurances that the Company will be successful in this regard.
As a result, management has concluded that there is substantial doubt about the Company's ability to continue as a going concern within one year of the date that the accompanying consolidated financial statements are issued. In addition, the Company's independent registered public accounting firm, in their report on the Company's consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its business plan, and to ultimately achieve sustainable operating revenues and profitability. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The development and expansion of the Company's business in 2023 and thereafter will be dependent on many factors, including the capital resources available to the Company. No assurances can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company or adequate to fund the development and expansion of the Company's business to a level that is commercially viable and self-sustaining. There is also significant uncertainty as to the affect that the coronavirus pandemic may have on the availability, amount and type of financing in the future.
If cash resources are insufficient to satisfy the Company's ongoing cash requirements, the Company would be required to scale back or discontinue its operations, obtain funds, if available, although there can be no certainty, through strategic alliances that may require the Company to relinquish rights to its technology, or to discontinue its operations entirely.
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2. Summary of Significant Accounting Policies
i
The accompanying consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and include the financial statements of Gaming US and its wholly-owned foreign subsidiary, Gaming UK. Intercompany balances and transactions have been eliminated in consolidation.
i
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates are expected to include those related to assumptions used in calculating accruals for potential liabilities, valuing equity instruments issued for financing and services, and the realization of deferred tax assets.
i
The Company maintains its cash balances with financial institutions with high credit ratings. The Company has not experienced any losses to date resulting from this practice.
As of December 31, 2022 and 2021, the Company's cash balances by currency consisted of the following:
i| Schedule of cash | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| GBP | £ | i 971 | £ | i 90,467 | ||||
| USD | $ | i 371,332 | $ | i 284,410 | ||||
Cash balances in British Pounds are maintained in the United Kingdom and cash balances in United States Dollars are maintained in the United States.
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The Company may periodically contract with consultants and vendors to provide services related to the Company's business development activities. Agreements for these services may be for a specific time period or for a specific project or task. The Company did not have any agreements at December 31, 2022 or 2021.
i
The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Alternatively, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
Gaming UK is subject to taxation in the United Kingdom. As a foreign corporation, Gaming UK is not consolidated with Gaming US in the Company's U.S. federal tax filings.
As the Company's net operating losses in the respective jurisdictions in which it operates have yet to be utilized, all previous tax years remain open to examination by the taxing authorities in which the Company currently operates. The Company had i i no / unrecognized tax benefits as of December 31, 2022 and 2021 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is "more-likely-than-not" to be sustained by the taxing authority as of the reporting date. If the tax position is not considered "more-likely-than-not" to be sustained, then no benefits of the position are recognized. As of December 31, 2022 and 2021, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
/ i
The Company recognizes revenue in accordance with ASC Topic 606, Revenue From Contracts With Customers. ASC Topic 606 requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Revenue is recognized based on the following five step model:
| · | Identification of the contract with a customer | |
| · | Identification of the performance obligations in the contract | |
| · | Determination of the transaction price | |
| · | Allocation of the transaction price to the performance obligations in the contract | |
| · | Recognition of revenue when, or as, the Company satisfies a performance obligation |
The Company operates an online betting platform allowing users to place wagers on casino games. Each wager placed by users create a single performance obligation for the Company to administer each event wagered. We report revenue on a net basis. Net gaming revenue is the aggregate of gaming wins and losses based on results of each event that customers wager bets on. Gross gaming revenue is split with our partners, whose share of gross gaming revenue is recorded as a reduction to net gaming revenue.
i
Cost of revenue consists primarily of variable costs related to our contract with Big Bola. These include mainly (i) payment processing fees and chargebacks, (ii) product taxes, (iii) technology costs, (iv) revenue share / market access arrangements, and (v) feed / provider services. The Company incurs payment processing fees on user deposits, withdrawals and deposit reversals from payment processors (“chargebacks”). Chargebacks have not been material to date. Cost of revenue also includes expenses related to the distribution of our services, amortization of intangible assets and compensation of revenue associated personnel.
i
The Company issues common stock and intends to issue stock options to officers, directors and consultants for services rendered. Options will vest and expire according to terms established at the issuance date of each grant. Stock grants, which are generally time vested, will be measured at the grant date fair value and charged to operations ratably over the vesting period.
The fair value of stock options granted as stock-based compensation will be determined utilizing the Black-Scholes option-pricing model, and can be affected by several variables, the most significant of which are the life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock. Estimated volatility will be based on the historical volatility of the Company's common stock over an appropriate calculation period, or, if not available, by reference to the volatility of a representative sample of comparable public companies. The risk-free interest rate will be based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common stock will be determined by reference to the quoted market price of the Company's common stock on the grant date, or, if not available, by reference to an appropriate alternative valuation methodology.
The Company will recognize the fair value of stock-based compensation awards in general and administrative costs or in software development costs, as appropriate, in the Company's consolidated statements of operations. The Company will issue new shares of common stock to satisfy stock option exercises.
i
Comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Components of comprehensive income or loss, including net income or loss, unrealized gains or losses on available-for-sale securities, unrealized gains or losses on other financial investments, unrealized gains or losses on pension and retirement benefit plans, and foreign currency translation adjustments, are reported in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss). The Company's comprehensive income (loss) for the years ended December 31, 2022 and 2021 consists of foreign currency translation adjustments.
i
The Company's computation of earnings (loss) per share ("EPS") includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible notes payable, convertible preferred stock, warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. At December 31, 2022 and 2021, the Company excluded warrants to acquire 2,085,595 and 1,540,141, respectively, shares of common stock from its calculation of loss per share as their effect would be antidilutive. Basic and diluted loss per common share is the same for all periods presented because the aforementioned warrants were antidilutive.
i
Fair Value of Financial Instruments
The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.
Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.
The Company will determine the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company will perform an analysis of the assets and liabilities at each reporting period end.
The carrying value of financial instruments (consisting of cash and accounts payable and accrued expenses) is considered to be representative of their respective fair values due to the short-term nature of those instruments.
The carrying value of our notes payable approximates their fair value because interest rates on these obligation are based upon prevailing interest rates.
i
Property and equipment is recorded at cost. Major improvements are capitalized, while maintenance and repairs that do not improve or extend the useful life of the respective assets are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Depreciation of property and equipment is provided using the straight-line method over an estimated useful life of three years.
The Company recognizes depreciation of property and equipment in general and administrative costs in the Company's consolidated statement of operations.
i
The Company accounts for leases in accordance with Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. ASU 2016-02 requires recognition in the statement of operations of a single lease cost that is calculated as a total cost of the lease allocated over the lease term, generally on a straight-line basis. ASU 2016-02 excludes short-term operating leases with a lease term of 12 months or less at the commencement date, and that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
i
Due to the significant uncertainty with respect to the successful development of commercially viable products based on Company's development efforts, all software development costs incurred with respect to the Company's mobile gaming platform are charged to operations as incurred.
The Company’s subsidiary in the United Kingdom is entitled to receive government assistance in the form of refundable and non-refundable research and development tax credits from taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are not dependent on its ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records refundable tax credits as a reduction of software development expenses when the Company can reasonably estimate the amounts and it is more likely than not, they will be received. During the year ended December 31, 2022, the Company recorded tax credits of $ i 275,782 as a reduction of software and development expense.
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Intellectual property consists of software and license agreements and is recorded at cost. Amortization of intellectual property is provided using the straight-line method over an estimated useful life of i three years.
The Company recognizes amortization of intellectual property in software development costs in the Company's consolidated statement of operations.
/ i
The Company reviews long-lived assets, consisting of property and equipment and intellectual property, for impairment at each fiscal year end or when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. The Company has not historically recorded any impairment to its long-lived assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. As of December 31, 2022 the Company determined that its Intellectual Property was impaired, and recorded an impairment charge of $ i 186,584 as of that date.
/ i
The accompanying consolidated financial statements are presented in United States dollars ("USD"). The functional currency of Gaming UK, the Company's foreign subsidiary, is the British Pound (“GBP”), the local currency in the United Kingdom. Accordingly, assets and liabilities of the foreign subsidiary are translated at the current exchange rate at the end of the period, and revenues and expenses are translated at average exchange rates during the years ended December 31, 2022 and 2021. The resulting translation adjustments are recorded as a component of shareholders' equity (deficiency). Gains and losses from foreign currency transactions are included in net income (loss).
Translation of amounts from the local currencies of the foreign subsidiary, Gaming UK, into USD has been made at the following exchange rates for the respective periods:
i| Foreign currency exchange rates table | ||||||||
| As of and for the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Period-end GBP to USD1.00 exchange rate | i 1.2098 | i 1.3498 | ||||||
| Period-average GBP to USD1.00 exchange rate | i 1.2327 | i 1.3756 | ||||||
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Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 significantly changes how entities measure credit losses for most financial assets, including accounts and notes receivables. ASU 2016-13 will replace the current "incurred loss" approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the provisions of ASU 2016-13 as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective. As small business filer, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. Management is currently in the process of assessing the impact of adopting ASU-2016-13 on the Company's financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. ASU 2020-06 will be effective January 1, 2024, and a cumulative-effect adjustment to the opening balance of retained earnings is required upon adoption. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s previously issued consolidated financial statement presentation or disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements and related disclosures.
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Property and equipment as of December 31, 2022 and 2021 is summarized as follows:
i| Schedule of property and equipment | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Computer and office equipment | $ | i 43,098 | $ | i 36,194 | ||||
| Less accumulated depreciation | ( i 31,682 | ) | ( i 28,801 | ) | ||||
| Computer and office equipment, net | $ | i 11,416 | $ | i 7,393 | ||||
All of the Company's property and equipment is located in the United Kingdom. Depreciation expense for the years ended December 31, 2022 and 2021 was $ i 11,691 and $ i 15,599, respectively. Depreciation expense is included in general and administrative costs in the Company's consolidated statement of operations.
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Intellectual property as of December 31, 2022 and 2021 is summarized as follows:
i| Schedule of intellectual property | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Finite lived assets - software | $ | i 225,962 | $ | i 213,181 | ||||
| Less accumulated amortization | ( i 225,962 | ) | ( i 197,887 | ) | ||||
| i – | i 15,294 | |||||||
| Indefinite lived assets - internet domain names | i – | i 164,415 | ||||||
| Intellectual property, net | $ | i – | $ | i 179,709 | ||||
Amortization expense for the years ended December 31, 2022 and 2021 was $ i 6,817 and $ i 38,202, respectively. Amortization expense is included in software development costs in the Company's consolidated statement of operations.
During the year ended December 31, 2022, the Company analyzed its intellectual property for impairment and determined that the internet domain names, with a carrying value of $ i 186,584, was impaired. As result the Company recorded an impairment charge of $ i 186,584 during the year ended December 31, 2022, which is included in costs and expenses.
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On December 15, 2022, we entered into a Commercial Association Agreement for the use of a gambling permit owned by The Fabulous Vegas Games S.A. de C.V. (Fabulous).
The license permits us to operate our brand Vale as approved by General Directorate of Games and Raffles of the Ministry of Interior (SEGOB). Vale integrates over 500 online premium casino games as well as sports betting, through an external software partner, Game Interaction Group BV. These games can be enjoyed via mobile or desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion, and retention. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from a local dedicated bank account under our own control.
Under the terms of the agreement with Fabulous Vegas Games, we share i 8% of Net Win generated from the platform, or a minimum of six thousand USD per month. In February 2021, vale.mx began operations. Net Win is defined as a calculation of the total income from gaming (revenues minus prizes, minus platform expenses, minus redeemed bonuses).
Under the terms of the agreement with Game Interaction Group, we share a percentage of Gross Gaming Revenue, which is i 12% for sportsbook, and i 3% for casino games, skill games, poker & virtual games. There is a minimum monthly fee of € i 9,000 EUR. Under the terms of the agreement, the Company paid $ i 150,000 upon signing the agreement and issued shares of its common stock to Fabulous. The common stock had a fair market value of $ i 150,000 on the date of grant. i The Company is also obligated to make 19 monthly payments of $20,000, beginning in April 2023. The Company capitalized a total of $ i 300,000 related to the payments made to Fabulous as a license agreement and recorded amortization expense of $ i 6,818 during the year ended December 31, 2022. The license agreement is being amortized over i 22 months, the period of time from the date of the agreement through the term of the monthly payments required under the agreement, The net book value of the license agreement was $ i 293,183 on December 31, 2022.
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On June 9, 2020, Gaming UK received an unsecured loan of $ i 60,600 (equivalent to i 47,600£) from Metro Bank PLC under the Bounce Bank Loan Scheme managed by the British Business Bank on behalf of, and with the financial backing of, The Secretary of State for Business, Energy and Industrial Strategy of the Government of the United Kingdom. The Government of the United Kingdom has provided a full guarantee to Metro Bank PLC with respect to the repayment of this loan. The proceeds from the loan are required to be used for working capital purposes, for investment in a Company's business, and to support trading or commercial activity in the United Kingdom. The loan is for a term of i 72 months and has a fixed interest rate of i 2.5% per annum. Gaming UK is not required to make any payments of interest on the loan during the first 12 months of this loan, with such amount being paid by the Government of the United Kingdom under its business interruption payment program. Beginning in the 13th month after the drawdown of the loan, Gaming UK will be required to repay the loan by making 60 equal monthly payments of principal and interest aggregating $1,076 (equivalent to 845£) per month. During the years ended December 31, 2022 and 2021, the Company recorded interest expense of $ i 831 and $ i 1,090, respectively, with respect to this loan, which was paid by the Government of the United Kingdom under this program. As of December 31, 2022 and 2021, $ i 45,956 and $ i 58,909, respectively, was due under this note, of which, $ i 11,517 and $ i 12,850, respectively, was reflected as current portion due.
Maturities of long-term debt for each of the next five years and thereafter are as follows:
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7. Secured Convertible Note Payable
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On November 18, 2021, the Company entered into a securities purchase agreement with an accredited investor for the sale of the Company’s secured convertible note (the Secured Notes) and warrants. Pursuant to the terms of the purchase agreement, on November 18, 2021, the Company received aggregate gross proceeds of $ i 1,500,000 and issued (i) a i 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $ i 1,666,666.67 and (ii) warrants to purchase an aggregate of shares of the Company’s common stock. The Note bears interest at a rate of 10% per year, payable monthly commencing after the third month, and mature 12 months from issuance The principal and interest are convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lower of (i) $2.75 per share, and (ii) the price of the common stock of the Company in a Qualified Offering (subject to adjustment as provided in the Note). A “Qualified Offering” is an equity or equity-linked financing for the account of the Company or any of its subsidiaries or debt financing that results in cumulative aggregate proceeds to the Company of at least $8,000,000. The principal and interest on the Note will be amortized on the effective interest method commencing sixth months after the closing. In the event that the Secured Notes are repaid within three months of the date of the Secured Notes, the Company will repay 115% of the face value of the Secured Notes, plus accrued interest. In the event that the Secured Notes are repaid three months after the date of the Secured Notes, the Company will repay 120% of the face value of the Secured Notes, plus accrued interest. The exercise price of the warrants is the lesser of (i) $ i 2.75 per share and (ii) the price of the common stock of the Company in a Qualified Offering and the term of the warrants is five years. Upon an Event of Default (as defined therein) interest shall accrue at 1 1/2% per month and the 125% of principal and interest through maturity shall be due and payable. At the holder’s option the holder shall be entitled to be paid in cash or common stock with the conversion price of the common stock equal to a 30% discount to the average of the three lowest closing prices of the common stock for the 10 prior trading days.
In connection with the Company’s obligations under the Secured Notes, the Company and its subsidiary Gaming Technology Limited (the “Subsidiary”) each entered into a security agreement with the holder, pursuant to which the Company and the Subsidiary granted a security interest on all assets of the Company and the Subsidiary, including the stock of the Subsidiary, for the benefit of the holders, to secure, and the Subsidiary guaranteed, the Company’s obligations under the Note, the Warrant and the other transaction documents. In addition, the holder was granted customary piggyback registration rights for the shares of common stock issuable upon conversion of the Note and exercise of the Warrant and rights of participation.
At any time within the 18 months closing, upon any issuance by the Company or any of its subsidiaries of debt or common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof, other than in an underwritten public offering (a “Subsequent Financing”), the investor will have the right to participate up to its investment amount in the Note, but not more than 25% of the Subsequent Financing, on the same terms, conditions and price provided for in the Subsequent Financing.
Upon issuance of the Secured Note, the Company recorded an aggregate discount of $ i 901,834 from the original issue discount of $ i 166,667, and a discount related to the relative fair value of the warrants issued in conjunction with the Secured Note of $ i 735,167. During the period ended December 31, 2021 the Company amortized $ i 106,244 of the discount resulting in an unamortized discount of $ i 795,590 as of December 31, 2021. In addition, the Secured Note has not been repaid the Company accreted a premium of $ i 157,509 as of December 31, 2021, which has been added to the principal amount of the note resulting in a balance due of $ i 1,824,176 at December 31, 2021. The accreted amount of $157,509 has been reflected as additional interest expense during the year ended December 31, 2021.
On May 18, 2022 an event of default occurred due to our failure to make interest payments on our 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $ i 1,666,666.67 (the “Convertible Note”). As a result of the default, the Company was accessed a default penalty of $ i 231,250, the interest rate on the Convertible Note increased to i 18% annually, and the conversion priced changed to equal a 30% discount to the average of the three lowest closing prices of the common stock for the 10 prior trading days.
On November 8, 2022, the Company and the holder of the Company’s Secured Notes amended the Secured Notes as follows: (a) the maturity date of the Secured Notes is changed to February 15, 2023; (b) the Company shall provide the holder of the Secured Notes with additional Warrants with the same terms as the Warrants issued in the Securities Purchase Agreement and the Transaction Documents (with the term running from the date of amendment) in an amount such that the holder of the Secured Notes obtains an additional 10% warrant coverage per month based on the initial investment amount from November 1, 2022 to February 15, 2023. Thus, holder of the Secured Notes shall receive a total number of warrants equal to 210% of the original face amount of the Note, i.e., $1,666,666.67 converted at the lower of (i) $2.75 or (ii) the price of the common stock in a Qualified Offering to purchase shares of common stock of the Company, exercisable at the exercise price set forth in the Warrants; (c) the Company will take all corporate action necessary to expeditiously increase the authorized shares of the Company to 400,000,000; and, (d) the Company agrees that as soon as it has raised sufficient funds to make a payment on the outstanding balance of the Note, it will promptly do so. As a result of the amendment, the Company increased the number of shares covered by the warrant by shares, which resulted in the recognition of a discount in the amount of $ i 136,418, of which $ i 72,385 was amortized during 2022. On March 29, 2023, the due date of the note was extended to October 15, 2023. The Company agreed to issue shares of its common stock to the note holder in exchange for the due date extension.
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April 7, 2022, Loan
On April 7, 2022, the Company entered into an amendment to securities purchase agreements dated December 1, 2020, and February 3, 2021 (the “Purchase Agreements”) with an investor (the “Amendment”), and the Company issued to the investor a subordinated 10% Original Issue Discount Promissory Note in the principal amount of $ i 277,778 (the “Subordinated Note”) and received gross proceeds of $ i 250,000. Pursuant to the Amendment, the provisions in the Purchase Agreements for an adjustment due to price based dilution, which had expired by their terms, were extended, such that if, at any time until the earlier of (a) October 6, 2022, or (b) the day after the date on which the Company issues or sells shares of common stock or common stock equivalents, except for certain exempt issuances as described in the Purchase Agreements, at a price below $2.50 per share (as adjusted for stock splits), then the Company will deliver to the investor that number of restricted shares of common stock equal to the difference between the number of shares purchased by the investor pursuant to such Purchase Agreement and the number of shares of common stock the investor would have received for the investor’s original subscription amount (an aggregate of $2,000,000) at the dilutive issuance price.
The principal amount of the Subordinated Note is $277,778, and the Company received gross proceeds of $250,000 after giving effect to the original issue discount of 10%, resulting in a debt discount of $27,778 at the date of issuance. The Subordinated Note is unsecured, bears interest at a rate of 10% per year (the “Interest Rate”), and matures on the earlier of (i) 12 months from issuance or (ii) the closing of a Qualified Offering, subject to earlier pre-payment as provided in the Subordinated Note. “Qualified Offering” is an equity or equity-linked financing for the account of the Company or any of its subsidiaries or debt financing that results in cumulative aggregate proceeds to the Company of at least $8,000,000. During the period the Company amortized $20,396 of the debt discount, leaving an unamortized discount of $7,382 at December 31, 2022.
Subject to the Intercreditor Agreement described below, the Company will have the right at any time to prepay in cash all or a portion of the Subordinated Note of the principal amount thereof plus any unpaid accrued interest to the date of repayment. Upon an Event of Default (as defined therein) interest shall accrue at the Interest Rate plus 2% and the principal and interest through maturity shall be due and payable.
In connection with issuing the Subordinated Note, the Company, the Subordinated Note holder and the holder of the Company’s $1,666,667 10% Original Discount Senior Secured Convertible Note issued in November 2021 (the “Senior Note”) entered into a Intercreditor Agreement (the “Intercreditor Agreement”), pursuant to which the Subordinated Note holder agreed to fully subordinate its rights under the Subordinated Note to the Senior Note and related agreements, as described more fully in the Intercreditor Agreement.
Other Loans
On April 26, 2022, May 25, 2022, and July 8, 2022, the Company entered into an amendment to securities purchase agreements dated November 20, 2020 and February 3, 2021 (the “Purchase Agreements”) with an investor (the “First Amendment”), the Company and the investor entered into a loan agreement (the “Loan Agreement”) and the Company issued to the Investor subordinated promissory notes totaling principal amount of $ i 134,211 (the “Subordinated Note”) and received gross proceeds of $ i 120,000 after deduction of an origination fee to the investor.
Pursuant to the Amendment, the provisions in the Purchase Agreements for an adjustment due to price based dilution, which had expired by their terms, were extended, such that if, at any time until the earlier of (a) May 15, 2022, or (b) the day after the date on which the Company completes an underwritten public offing of shares of its common stock, except for certain exempt issuances as described in the Purchase Agreements, at a price below $2.50 per share (as adjusted for stock splits), then the Company will deliver to the investor that number of restricted shares of common stock equal to the difference between the number of shares purchased by the investor pursuant to such Purchase Agreement and the number of shares of common stock the investor would have received for the investor’s original subscription amount (an aggregate of $4,500,000) at the dilutive issuance price.
The Subordinated Notes are unsecured, bear interest at a rate of 10% per year (the “Interest Rate”), and matures on the earlier of the earlier of (a) October 26, 2022 or (b) a Capital Event (the “Final Maturity Date”). “Capital Event” means (a) any transaction in which the Company, or any subsidiary of the Company, or any joint venture directly or indirectly owned by the Company: (i) refinances or incurs any indebtedness exceeding $100,000 in the aggregate of all such transactions, (ii) sells, transfers or otherwise disposes (including pursuant to a sale-leaseback transaction) of any property or asset (including securities) other than in the ordinary course of business, (iii) forms a joint venture, or (iv) issues private or public equity, stock or other financial instrument for cash consideration exceeding $100,000 in the aggregate of all such transactions; (b) any casualty or other insured damage exceeding $100,000 to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Company, or any subsidiary of the Company, or any joint venture directly or indirectly owned by the Company; or (c) any other transaction entered into for the purposes of generating cash to recapitalize the Company’s balance sheet.
If a Change of Control (as defined in the Subordinated Note) of Company occurs, then on or prior to the fifth business day following the date of such Change of Control, the Company shall prepay the Subordinated Note and all other obligations (other than, indemnity obligations under the loan documents that are not then due and payable or for which any events or claims that would give rise thereto are not then pending) in full in cash together with (i) accrued interest thereon to the date of such prepayment, (ii) all other amounts owing to investor under the loan documents, (iii) an amount equal to the difference between (x) the aggregate amount of interest that would have been due to investor, for the period from and after the date of issuance of the Subordinated Note to and including the Final Maturity Date based upon the principal amount outstanding immediately prior to and the interest rate in effect as of the date of such prepayment, less (y) the amount of interest actually paid to investor prior to the date of such prepayment.
Upon an Event of Default (as defined therein) interest shall accrue at the rate of 18% per annum.
Under the Loan Agreement, the Company may borrow up to an additional $188,011 from the investor on the same terms as described above, subject to certain conditions. On March 24, 2023, the Company borrowed an additional $ i 111,111 under the terms of the note, with an original issue discount of $ i 11,111, for gross proceeds of $ i 100,000. In addition, the due date of the loans was extended to October 15, 2023.
In connection with issuing the Subordinated Note, the Company, the Subordinated Note holder and the holder of the Company’s $1,666,667 10% Original Discount Senior Secured Convertible Note issued in November 2021 (the “Senior Note”) entered into a Intercreditor Agreement (the “Intercreditor Agreement”), pursuant to which the Subordinated Note holder agreed to fully subordinate its rights under the Subordinated Note to the Senior Note and related agreements.
During the year ended December 31, 2022, the Company recorded a discount on the three loans of $ i 14,211, all of which was full amortized as of December 31, 2022.
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The Company leases office facilities in Las Vegas, Nevada on a month-to-month basis at a cost of $510 per month. Aggregate payments under this operating lease charged to general and administrative expenses in the statement of operations were $ i 6,120 and $ i 1,500 for the years ended December 31, 2022 and 2021, respectively.
In February 2022, the Company leased a residential condominium unit in Miami, Florida. The lease expired on i August 31, 2022 and has been extended on a month to month basis. The monthly rent on the unit is $ i 5,500 per month.
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10. Related Party Transactions
Salary and Fees to Directors, Consultants and Professionals
During the years ended December 31, 2022 and 2021, the Company incurred salary and fees to officers, directors, consultants and professionals in the amount of $ i 648,698 and $ i 728,757, respectively, as follows:
i| Schedule of Related Party Transactions | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Jason Drummond | $ | i 342,486 | $ | i 589,368 | ||||
| Julian Parge | i 48,867 | i 103,170 | ||||||
| Steven Plumb | i 257,345 | i 36,219 | ||||||
| Total | $ | i 648,698 | $ | i 728,757 | ||||
During the year ended December 31, 2022, the Company paid base salary of $ i 342,486 to Mr. Jason Drummond. During the year ended December 31, 2021, the Company paid base salary of $ i 330,144 and a bonus of $ i 259,224 to Mr. Jason Drummond (paid to him or to his affiliates).
As of December 31, 2022 and 2021, $ i 119,547 and $ i 13,252 was due to officers. The advances were unsecured, non-interest bearing with no formal terms of repayment.
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Preferred Stock
The Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.001 per share. No preferred shares have been designated by the Company as of December 31, 2022 and 2021.
Common Stock
On December 7, 2022, the Company amended its Certificate of Incorporation with the State of Delaware to increase the number of authorized common shares to .
Private Placements of Common Stock
On February 3, 2021, Gaming Technologies, Inc. (the “Company”) entered into a Securities Purchase Agreement with certain accredited investors (“Purchase Agreement”), pursuant to which the Company sold an aggregate of shares of its Common Stock for gross proceeds of $ i 4,016,500 in a private placement. The Company paid a finder’s fee to registered brokers in the amount of $ i 360,000 in connection with these transactions resulting in net proceeds to the Company of $ i 3,656,500. In connection with the Purchase Agreement, the Company issued to certain registered brokers warrants to purchase an aggregate of shares of common at an exercise price of $ i 2.50 per share, with an expiration date i 5 years from the date of issuance, pursuant to the terms of certain finder’s fee agreements previously entered into by the Company and such brokers.
Under the terms of the Purchase Agreement, each investor was granted customary piggyback registration rights in the event the Company proposes to register the offer and sale of any shares of its common stock, subject to the limitations set forth in the Purchase Agreement, such as a registration statement solely relating to an offering or sale to employees or directors of the Company pursuant to employee stock plan or in connection with any dividend or distribution. The Purchase Agreement also provides the investors the option and right to participate in future capital raising transactions at the same purchase price and on the same terms and conditions as other investors participating in such transactions, for an aggregate purchase price of up to $6,000,000.
If, at any time during the twelve months following sale of the Shares, the Company issues or sells shares of common stock or common stock equivalents, except for certain exempt issuances as described in the Purchase Agreement, at a price below $2.50 per share, then immediately upon such issuance or sale, the Company will deliver to the investors that number of restricted shares of common stock equal to the difference between the number of Shares purchased by the investor pursuant to this Purchase Agreement and the number of shares of common stock the investor would have received for the investor’s subscription amount at the dilutive issuance price.
In March 2021, the Company sold shares of its Common Stock for gross proceeds of $ i 25,000 in a private placement.
In August 2021, the Company sold shares of its Common Stock for gross proceeds of $ i 1,750,752 in a private placement. The Company paid a finder’s fee to registered brokers in the amount of $ i 210,927 in connection with these transactions resulting in net proceeds to the Company of $ i 1,539,825. In connection with the Purchase Agreement, the Company issued to certain registered brokers warrants to purchase an aggregate of i 40,175 shares of common at an exercise price of $ i 3.25 per share, with an expiration date i 5 years from the date of issuance, pursuant to the terms of certain finder’s fee agreements previously entered into by the Company and such brokers.
We agreed with purchasers in our August 2021 private placement that if, at any time during the 12 months following sale of the shares, we issue or sell shares of common stock or common stock equivalents, except for certain exempt issuances as described in the purchase agreement, at a price below $ per share, then immediately upon such issuance or sale, we will deliver to the investors a number of restricted shares of common stock equal to the difference between the number of shares purchased by the investor pursuant to its purchase agreement and the number of shares of common stock the investor would have received for the investor’s subscription amount at the dilutive issuance price. We also agreed with those investors to a “most favored nation” provision whereby until the earlier of 12 months after the sale of the shares, the day after the date on which the our common stock is listed on a U.S. national securities exchange, or the date on which the purchaser no longer holds any of the shares acquired by it in such placement, we will not consummate any unregistered private offering or an initial (but not any subsequent) public offering of our capital stock (or securities convertible into shares of capital stock) for cash consideration that provides the new investor any right, benefit, term or condition relating to the Shares that is more favorable in any material respect to the new investor (with certain enumerated exceptions), unless (i) we notify the purchaser of such more favorable right, benefit, term or condition within two business days prior to the new issuance, and (ii) purchaser has been provided with the opportunity to enter into an agreement providing the purchaser such more favorable right, benefit, term or condition with respect to the purchased hares then held by the purchaser. We included such shares in a resale registration statement filed on August 31, 2021, which became effective on November 12, 2021.
On November and December 2022, the Company and three existing investors modified the Securities Purchase Agreements, originally dated March 10, 2021, between the existing investors and the Company such that: (a) the purchase price per share was modified to equal $ per share; (b) the total number of shares to be issued is ; (c) most favored nation status, and rollover rights were granted. These shareholders were originally issued shares of the Company’s common stock. As a result of these changes, the Company issued an additional shares to the investors. and recorded the fair value of these shares of $ i i 2,077,269 / as a dividend.
Private placements in 2022
During 2022, the Company entered into a Securities Purchase Agreements with accredited investors whereby the Company issued shares of its common stock for gross proceeds of $ i 970,150. The Company entered into finder’s fee agreement with a broker which calls for the Company to pay commissions to the finders totaling of $ i 65,000 resulting in net proceeds to the Company of $ i 905,150. In addition, the Company entered into finder’s fee agreement with a broker which calls for the Company to pay a finder fee in the form of shares of the Company’s common stock. In the aggregate, the Company issued shares in these offerings.
Shares Issued for Services
On October 21, 2020, the Company entered into an agreement with a consultant to serve as a board advisor. The term of the agreement is for one year and may be renewed at the end of the term. Compensation consists of the following stock grants: shares of the Company’s common stock within seven days of the execution of the agreement, valued at $125,000, which was recorded during the year ended December 31, 2020; shares of the Company’s common stock upon the quotation of the Company’s stock on OTC Markets, valued at $ i 112,500 recognized during the year ended December 31, 2021; and 100,000 shares upon renewal during 2021, valued at $237,500,
On November 6, 2020, the Company entered into an agreement with a consultant to serve as a board advisor. The term of the agreement is for one year and may be renewed at the end of the term. Compensation consists of the following stock grants: shares of the Company’s common stock within seven days of the execution of the agreement which was valued at $ i 125,000 and recorded during the year ended December 31, 2020. In addition, 50,000 shares of the Company’s common stock were issued six months after the date of the agreement, which was May 6, 2021; 50,000 shares of the Company’s common stock upon the first renewal of the agreement and 50,000 shares of the Company’s common stock six months after the first renewal; and, 100,000 shares of the Company common stock at each of the following two renewal periods, if the agreement is renewed. The grant date fair value of $875,000 of these shares will be amortized over the service period. During the year ended December 31, 2022, and 2021, the Company amortized $250,000 and $250,000, representing the pro rata portion of the grant date fair value of the shares vesting during the period. The Company issued 100,000 shares to the consultant during 2022.
In January 2021, the Company entered into two agreements with two consultants to provide investor relation services to the Company. The agreements are for a term of one year i 1 . The Company issued shares of its common stock in exchange for the services. The common stock was valued at $ i 500,000 at the time the agreements were executed.
In February 2021, the Company entered into an internet advertising campaign with a consultant. The contract is for a term of one year i 1 and calls for an initial non-refundable deposit of $ i 20,000 upon the execution of the agreement and a payment of shares of the Company’s common stock valued at $ i 833,335 on the date of issuance.
On October 20, 2021, Steven M. Plumb, CPA, was appointed as the Company’s chief financial officer through a contract (the “Clear Agreement”) with Mr. Plumb’s entity, Clear Financial Solutions (“Clear”), pursuant to which Clear is paid $ i 10,000 per month for Mr. Plumb’s service. In addition, Mr. Plumb and Clear’s other staff provide accounting and bookkeeping services to the Company, in consideration for which Clear is paid $2,000 per month, plus hourly fees for annual and quarterly report preparation. The contract expires on , and unless canceled by either party by written notice 60 days prior to expiration, will automatically renew for successive twelve-month periods. Moreover, Mr. Plumb was awarded a stock grant for shares of the Company’s common stock, vesting six months from date of grant. The fair market value of the stock grant on the date of grant was $ i 67,500
During October 2021, the Company issued restricted stock grants to various consultants for services performed for the Company totaling shares with a fair market value of $ i 214,575 on the date of grant.
During 2022, the Company issued shares of its common stock for services. The shares were valued at $ i 570,504 based on the fair value of the shares at the date of grant. Included in this amount were shares of it common stock valued at $ i 135,000 issued to Big Bola in settlement of accrued fees of $ i 135,000.
In October 2022, the Company issued shares of its common stock to Fabulous Las Vegas valued at $ i 150,000 as per the contract with Fabulous Las Vegas.
Warrants
A summary of warrant activity for the year ended December 31, 2022 is presented below:
i| Schedule of warrant activity | ||||||||||||||||
| Warrants | Weighted average exercise price | Weighted average remaining contractual life (years) | Aggregate intrinsic value | |||||||||||||
| Outstanding on December 31, 2020 | i 90,000 | $ | i 2.50 | $ | i – | |||||||||||
| Granted | i 1,450,141 | i 3.13 | i – | |||||||||||||
| Exercised | i – | i – | – | i – | ||||||||||||
| Outstanding on December 31, 2021 | i 1,540,141 | $ | i 2.63 | $ | i – | |||||||||||
| Granted | i 545,454 | i 2.63 | i – | |||||||||||||
| Exercised | i – | i – | – | i – | ||||||||||||
| Outstanding on December 31, 2022 | i 2,085,595 | $ | i 2.63 | $ | i – | |||||||||||
During the years ended December 31, 2022 and 2021, the Company issued and warrants to acquire common stock to various brokers and finders in connection with the sale of our common stock.
In November 2021, in connection with the issuance of the Secured Convertible Notes discussed in Note 7, the Company issued warrants to purchase an aggregate of shares of the Company’s common stock. The relative fair value of the warrants at the date of grant was determined to be $ i 735,167.
In November 2021, the Company issued warrants to purchase shares of the Company’s common stock to certain existing shareholders in exchange for granting a waiver to certain anti-dilution and most favored nation clauses in their stock purchase agreements. The warrants have a five-year term and an exercise price of $2.75 and had a fair value of $ at the date of grant, which was reflected as a financing cost during the year ended December 31, 2021.
In November 2022, the Company issued warrants to purchase shares of the Company’s common stock upon the extension of the due date of the Secured Convertible Notes. The relative fair value of the warrants on the date of grant was determined to be $ i 136,418 and was recorded as a valuation discount.
The fair value of the warrants issued in 2022 and 2021 was determined by a black scholes pricing model with the following assumptions:
i| Schedule of assumptions | ||||||||
| 2022 | 2021 | |||||||
| Expected volatility | % | % | ||||||
| Weighted-average volatility | % | % | ||||||
| Expected dividends | % | % | ||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | % | ||||||
The warrants issued in 2021 are exercisable at an exercise price equal to the lower of (x) $2.75 per share and (y) the price of the common stock of the Company in a Qualified Offering (as defined in the Note Agreement at Note 7), subject to adjustment as described below, and the Warrants are exercisable for five years after the issuance date. The Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is also subject to “full ratchet” price adjustment if the Company issues common stock or equivalents at a price per share lower than the then-current exercise price of the Warrant, as described above for the conversion price of the Note (see Note 7.)
The warrants issued in 2022 are exercisable at an exercise price equal to the lower of (x) $2.75 per share and (y) the price of the common stock of the Company in a Qualified Offering (as defined in the Note Agreement at Note 7), subject to adjustment as described below, and the Warrants are exercisable for five years after the issuance date. The Warrants are exercisable for cash at any time and are exercisable on a cashless basis at any time there is no effective registration statement registering the shares of common stock underlying the Warrants. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions of assets, including cash, stock or other property to the Company’s stockholders. The exercise price of the Warrants is also subject to “full ratchet” price adjustment if the Company issues common stock or equivalents at a price per share lower than the then-current exercise price of the Warrant, as described above for the conversion price of the Note (see Note 7.)
Stock-option plan
On May 21, 2021, the shareholders of the Company approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The purposes of the 2021 Plan are to (a) enable the Company to attract and retain the types of employees, consultants and directors who will contribute to the Company’s long-term success; (b) provide incentives that align the interests of employees, consultants, and directors with those of the shareholders of the Company; and (c) promote the success of the Company’s business. The persons eligible to receive awards are the employees, consultants, and directors of the Company and such other individuals designated by the 2021 Plan’s administrative committee (the Committee) who are reasonably expected to become employees, consultants, and directors after the receipt of Awards. Awards that may be granted under the Plan include: (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, (f) Cash Awards, and (g) Other Equity-Based Awards. 3,000,000 shares are available for issuance under the 2021 Plan. The shares available for issuance may be increased annually by the lesser of four percent (4%) of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such number of shares of common stock as determined by the Committee no later than the immediately preceding December 31.
As of December 31, 2022 and 2021, the Company did t have any outstanding stock options.
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets as of December 31, 2022 and 2021 are summarized below.
i| Schedule of deferred income taxes | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net operating loss carryforwards - Foreign | $ | i 19,039,000 | $ | i 18,580,000 | ||||
| Net operating loss carryforwards - U.S. | i 7,170,000 | i 2,316,000 | ||||||
| i 26,209,000 | i 20,896,000 | |||||||
| Valuation allowance | ( i 26,209,000 | ) | ( i 20,896,000 | ) | ||||
| Net deferred tax assets | $ | i – | $ | i – | ||||
In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2022 and 2021, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No U.S. federal tax provision has been provided for Gaming US for the years ended December 31, 2022 and 2021 due to the losses incurred during such periods.
The reconciliation below presents the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2022 and 2021.
i| Schedule of effective income tax | ||||||||
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| U. S. federal statutory tax rate | ( i 21.0)% | ( i 21.0)% | ||||||
| Difference between U.S. and U.K. tax rates | i 2.0% | i 2.0% | ||||||
| Change in valuation allowance | i 19.0% | i 19.0% | ||||||
| Effective tax rate | i 0.0% | i 0.0% | ||||||
The Company's United Kingdom subsidiary is subject to the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is 19% on income reported in its statutory financial statements, after appropriate tax adjustments, for the fiscal years commencing April 1, 2017, 2018, 2019, and 2020 and 18% for the fiscal year commencing April 1, 2020 and thereafter.
At December 31, 2022, the Company has available net operating loss carryforwards for U.S. federal and United Kingdom corporate income tax purposes of approximately $ i 7,170,000 and $ i 19,039,000, respectively. U.S. federal net operating losses, if not utilized earlier, expire through 2040. United Kingdom net operating losses may be carried over indefinitely.
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13. Commitments and Contingencies
Canelo Sponsorship Agreement
On April 14, 2021, we entered into a Sponsorship Agreement (the “Canelo Agreement”) with SA Holiday, Inc. (“Holiday”), owner of the personality rights of champion professional boxer Saul Alvarez Barragan, or “Canelo,” in connection with a promotional campaign for the Corporation to sponsor a prize fight and certain other activities of Canelo, and for Canelo to promote the Corporation’s “VALE” brand and create certain promotional materials in connection therewith for the Corporation’s use in the United States, Latin America and certain countries in the Caribbean. Pursuant to the Canelo Agreement we paid to Holiday a cash fee of US$ i 1,600,000 and certain other amounts as provided therein which amounts are included in advertising and marketing for the year ended December 31, 2021.
Pending Stock Split
On December 7, 2022, the Company filed a certificate of amendment to affect an authorized share increase with the Secretary of State of Delaware.
On January 14, 2022, the holders of a majority of the issued and outstanding voting shares of the Company, as of the record date of October 20, 2021, by written consent in lieu of a special meeting of stockholders, approved an amendment to the Company’s Certificate of Incorporation to (i) effect a reverse stock split of our common stock, by a ratio of not less than 1-for-2 and not more than 1-for-8, and providing authority to our Board of Directors to determine whether to effect a reverse stock split and, if so to select the ratio of the reverse stock split in their discretion, and (ii) to increase the number of our authorized shares of common stock from 45,000,000 to . These matters were authorized by the holders of 17,640,947 shares, or approximately 56% of the outstanding voting power, without including any consents that may be received by the Company after that date.
The Company anticipates filing a certificate of amendment to affect a reverse stock split, if any, prior to the anticipated listing of its common stock and warrants on the Nasdaq Capital Market and such actions being effective on, or just before, the date the common stock is listed to the Nasdaq Capital Market. The Company will need to take the necessary steps to meet Nasdaq listing requirements, which may include a reverse stock split, and there is no assurance that our common stock will be approved for listing on Nasdaq.
Contingencies
The Company may be subject to legal proceedings from time to time as part of its business activities. As of December 31, 2022 and 2021, the Company was not subject to any threatened or pending legal actions or claims.
Contractual Commitments
The Company has retained Julian Parge as a consultant to Gaming UK, at the request and under the sole discretion of Gaming UK, at the rate of $9,773 (equivalent to £8,333) per month up to a maximum of $117,280 (equivalent to £100,000) per annum.
In August 2021, the Company entered into an agreement with a production company to produce digital videos and promotional spots for its vale.mx brand. The Company is obligated to pay $ i 600,000 upon the initiation of the pre production phase of the work. The pre production phase was completed in December 2021 and the production company has agreed to defer payment until the Company has raised a minimum of $6,000,000 in capital through either a public offering or a private placement.
In September 2021, the Company entered into a contract with a service provider for brand awareness and social media campaigns. The service provider will be paid a monthly retainer $50,157 for the term of the agreement, which runs through February 2022. The Company has agreed to spend $1,750,000 during the term of the agreement for the placement of advertisements on various social media platforms, which will be spent in two phases. Phase 1 began upon execution of the agreement and Phase II was to begin upon the completion of a capital raise in excess of $5,000,000 from an underwritten public offering in the United States and the listing of the Company’s common stock on a U.S. national securities exchange. The Company has paid the service provider $500,000 towards the advertising obligation during the year ended December 31, 2021, which is included in advertising and marketing expenses. The parties have agreed to abandon Phase II and the contract was not renewed.
During the three months ended September 30, 2022, the Company cancelled contracts with a value of $420,000 related to activities that were expected to occur subsequent to an uplisting on the Nasdaq national securities exchange. Due to the delays in the capital raise necessary to complete the uplisting, the Company does not anticipate beginning these activities in the near future and, accordingly cancelled the contracts.
Big Bola
On November 13, 2020, we entered into an Agreement for the Provision of Online Gaming Management and Consulting Services (as subsequently amended) with Comercial de Juegos de la Frontera, S.A. de C.V., a Mexican company doing business as Big Bola, pursuant to which we provide to Big Bola consulting and management services related to their interactive online betting and gaming business in Mexico via the web site www.vale.mx, a regulated online casino and sports betting site. vale.mx operates under Big Bola’s existing license issued by the General Directorate of Games and Raffles of the Ministry of Interior (SEGOB). Big Bola is one of only 14 operators legally authorized to offer legal betting and online casino services in Mexico. vale.mx has more than 500 online premium casino games available, which can be enjoyed both on mobile or via desktop. Players can receive promotions and play live roulette and blackjack, or high-definition slots from leading software providers such as NetEnt, Microgaming, Pragmatic Play, Evolution and Matrix Studios. We are responsible for player acquisition, promotion and retention for vale.mx. We manage players’ accounts and are required to ensure that the balance in players’ accounts at all times satisfies the requirements under applicable law, and we pay out winnings to players from Big Bola’s account. While Big Bola bears liability to the players as provided by the permit, as between us and Big Bola we bear the costs of this obligation. Each party indemnifies the other against certain liabilities and claims. Under the terms of the amended agreement, we share 75% of gross gaming revenue generated from the platform, subject to certain minimum guaranteed monthly amounts of Big Bola’s participation in the remaining gross gaming revenues. This venture began operations in February 2021.
In June 2022, the Company and Big Bola entered into a Side Letter Agreement (“SLA”) whereby Big Bola agreed to convert $ i 134,669 in fees owed to it by the Company into shares of the Company’s common stock. The Company recorded the fees as incurred and they are included in accounts payable at September 30, 2022. The Company was required to issue the shares by July 10, 2022. The shares were issued in October 2022. In addition, the Company agreed to make payments on $ i 120,000 in guaranteed participation fees due to Big Bola as follows: $ i 40,000 no later than July 14, 2022; $ i 40,000 on later than August 14, 2022; and $ i 40,000 no later than September 14, 2022. The guaranteed participation fees have been recorded by the Company as they were incurred and are included in accounts payable at September 30, 2022. The July, August, September, and October payments have not been made as of the date of this filing. In addition, Big Bola agreed that it will not collect from the Company the guaranteed participation fee of $ i i i 40,000 / / per month for the months of June, July and August of 2022 and that the guaranteed participation fee for the months of September, October and November of 2022 was reduced to $ i i i 20,000 / / per month. Effective December 1, 2022, the parties reverted to the terms of the original agreement, as amended.
In December 2022, the Company canceled the Big Bola contract. As a result of the cancellation of the Big Bola contract, the Company incurred a charge of $ i 400,000 to settle the remaining balance owed to Big Bola under the contract, which amount has been accrued and included in accounts payable and accrued expenses as of December 31, 2022.
Impact of COVID-19 on the Company
The global outbreak of COVID-19 has led to severe disruptions in general economic activities, as businesses and governments have taken broad actions to mitigate this public health crisis. Although the Company has not experienced any significant disruption to its business to date, these conditions could significantly negatively impact the Company's business in the future.
The extent to which the COVID-19 outbreak ultimately impacts the Company's business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may be at risk of experiencing a significant impact to its business as a result of the global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
Currently, capital markets have been disrupted by the crisis, as a result of which the availability, amount and type of financing available to the Company in the near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors.
The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become available.
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On January 16, 2023, the Company purchased a vehicle for $20,644.
On March 24, 2023, the Company borrowed an additional $111,111 under an existing Loan Agreement, dated April 26, 2022. The total balance due to the lender increased from $134,211 to $245,322. The Company recorded an original issue discount in the amount of $11,111 in connection with the loan. The due date on the Loan Agreement was extended to October 15, 2023.
| F-29 |
| This ‘10-K’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 1/1/24 | ||||
| 12/15/23 | ||||
| 10/15/23 | ||||
| Filed on: | 5/1/23 | |||
| 4/14/23 | ||||
| 3/29/23 | ||||
| 3/28/23 | ||||
| 3/24/23 | ||||
| 2/15/23 | ||||
| 1/16/23 | ||||
| 1/1/23 | ||||
| For Period end: | 12/31/22 | NT 10-K | ||
| 12/15/22 | ||||
| 12/7/22 | ||||
| 12/1/22 | ||||
| 11/8/22 | ||||
| 11/1/22 | ||||
| 10/26/22 | ||||
| 10/6/22 | ||||
| 9/30/22 | 10-Q, NT 10-Q | |||
| 9/14/22 | ||||
| 8/31/22 | ||||
| 8/16/22 | NT 10-Q | |||
| 8/14/22 | ||||
| 7/14/22 | ||||
| 7/10/22 | ||||
| 7/8/22 | ||||
| 6/30/22 | 10-Q, NT 10-Q | |||
| 5/25/22 | ||||
| 5/18/22 | ||||
| 5/15/22 | ||||
| 4/26/22 | 8-K | |||
| 4/7/22 | 8-K | |||
| 3/28/22 | ||||
| 1/14/22 | 8-K | |||
| 12/31/21 | 10-K, NT 10-K | |||
| 11/19/21 | 8-K, 8-K/A | |||
| 11/18/21 | 8-K, 8-K/A | |||
| 11/12/21 | EFFECT | |||
| 10/26/21 | 8-K | |||
| 10/21/21 | ||||
| 10/20/21 | 8-K, S-1 | |||
| 10/4/21 | ||||
| 8/31/21 | S-1 | |||
| 8/18/21 | SC 13G/A | |||
| 8/16/21 | 10-Q | |||
| 6/14/21 | ||||
| 5/21/21 | 8-K | |||
| 5/6/21 | 8-K | |||
| 4/29/21 | 8-K | |||
| 4/15/21 | 10-K | |||
| 4/14/21 | ||||
| 4/13/21 | ||||
| 4/1/21 | 8-K, NT 10-K, SC 13G | |||
| 3/28/21 | ||||
| 3/18/21 | ||||
| 3/10/21 | ||||
| 2/3/21 | 8-K | |||
| 1/7/21 | 8-K | |||
| 1/1/21 | ||||
| 12/31/20 | 10-K, NT 10-K | |||
| 12/21/20 | 8-K | |||
| 12/15/20 | EFFECT | |||
| 12/9/20 | S-1/A | |||
| 12/1/20 | ||||
| 11/20/20 | ||||
| 11/13/20 | ||||
| 11/10/20 | S-1 | |||
| 11/6/20 | ||||
| 10/21/20 | ||||
| 6/9/20 | ||||
| 4/1/20 | ||||
| 3/18/20 | ||||
| 7/29/19 | ||||
| 7/23/19 | ||||
| 4/1/19 | ||||
| 8/10/18 | ||||
| 6/29/18 | ||||
| 5/29/18 | ||||
| 4/1/18 | ||||
| 11/3/17 | ||||
| 5/11/17 | ||||
| 4/1/17 | ||||
| 12/31/16 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/19/21 Gaming Technologies, Inc. 8-K/A:1,9 11/18/21 14:872K GlobalOne Filings Inc/FA 11/19/21 Gaming Technologies, Inc. 8-K:1,2,3,911/18/21 13:739K GlobalOne Filings Inc/FA 10/26/21 Gaming Technologies, Inc. 8-K:1,3,5,810/20/21 13:3.1M GlobalOne Filings Inc/FA 10/20/21 Gaming Technologies, Inc. S-1 48:3.4M GlobalOne Filings Inc/FA 8/16/21 Gaming Technologies, Inc. 10-Q 6/30/21 52:3.3M GlobalOne Filings Inc/FA 5/06/21 Gaming Technologies, Inc. 8-K:5,9 4/29/21 2:195K GlobalOne Filings Inc/FA 4/15/21 Gaming Technologies, Inc. 10-K 12/31/20 68:10M GlobalOne Filings Inc/FA 4/01/21 Gaming Technologies, Inc. 8-K:1,3,8,9 2/03/21 2:202K GlobalOne Filings Inc/FA 1/07/21 Gaming Technologies, Inc. 8-K:5,9 12/21/20 2:525K Newsfile Corp./FA 12/09/20 Gaming Technologies, Inc. S-1/A 5:1M Newsfile Corp./FA 11/10/20 Gaming Technologies, Inc. S-1 15:7.7M Newsfile Corp./FA |