JACKPOT DIGITAL INC.
Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in Canadian Dollars)
Index | Page | ||
Independent Auditors' Report to the Shareholders | 2 | - | 5 |
Consolidated Financial Statements | |||
Consolidated Balance Sheets | 6 | ||
Consolidated Statements of Comprehensive Loss | 7 | ||
Consolidated Statements of Changes in Shareholders' Deficiency | 8 | ||
Consolidated Statements of Cash Flows | 9 | ||
Notes to Consolidated Financial Statements | 10 | - | 50 |
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF JACKPOT DIGITAL INC.
Opinion
We have audited the consolidated financial statements of Jackpot Digital Inc. (the "Company"), which comprise:
- the consolidated balance sheets as at December 31, 2023 and 2022;
- the consolidated statements of comprehensive loss for the years then ended;
- the consolidated statements of changes in shareholders' deficiency for the years then ended;
- the consolidated statements of cash flows for the years then ended; and
- the notes to the consolidated financial statements, including material accounting policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2023 and 2022, and its consolidated financial performance and consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company incurred a net loss of $3,278,196 during the year ended December 31, 2023 and, as of that date, has a deficit of $75,435,915 and a working capital deficiency of $7,256,469. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
SMYTHE LLP | smythecpa.com
2
VANCOUVER
1700-475 Howe St Vancouver, BC V6C 2B3
- 604 687 1231
- 604 688 4675
LANGLEY
600-19933 88 Ave Langley, BC V2Y 4K5
- 604 282 3600
- 604 357 1376
NANAIMO
201-1825 Bowen Rd Nanaimo, BC V9S 1H1
- 250 755 2111
- 250 984 0886
Except for the matter described in the Material Uncertainty Related to Going Concern section, we have determined that there are no other key audit matters to communicate in our auditors' report.
Other Information
Management is responsible for the other information. The other information comprises the information included in Management's Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management's Discussion and Analysis prior to the date of this auditors' report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditors' Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
SMYTHE LLP | smythecpa.com
3
VANCOUVER
1700-475 Howe St Vancouver, BC V6C 2B3
- 604 687 1231
- 604 688 4675
LANGLEY
600-19933 88 Ave Langley, BC V2Y 4K5
- 604 282 3600
- 604 357 1376
NANAIMO
201-1825 Bowen Rd Nanaimo, BC V9S 1H1
- 250 755 2111
- 250 984 0886
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
SMYTHE LLP | smythecpa.com
4
VANCOUVER
1700-475 Howe St Vancouver, BC V6C 2B3
- 604 687 1231
- 604 688 4675
LANGLEY
600-19933 88 Ave Langley, BC V2Y 4K5
- 604 282 3600
- 604 357 1376
NANAIMO
201-1825 Bowen Rd Nanaimo, BC V9S 1H1
- 250 755 2111
- 250 984 0886
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors' report is Sukhjit Gill
Chartered Professional Accountants
Vancouver, British Columbia
April 29, 2024
SMYTHE LLP | smythecpa.com
5
VANCOUVER
1700-475 Howe St Vancouver, BC V6C 2B3
- 604 687 1231
- 604 688 4675
LANGLEY
600-19933 88 Ave Langley, BC V2Y 4K5
- 604 282 3600
- 604 357 1376
NANAIMO
201-1825 Bowen Rd Nanaimo, BC V9S 1H1
- 250 755 2111
- 250 984 0886
JACKPOT DIGITAL INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
As at December 31 | 2023 | 2022 | |||
Assets (note 15) | |||||
Current | |||||
Cash and cash equivalents (note 5) | $ | 99,948 | $ | 101,289 | |
Accounts receivable (note 5) | 355,659 | 326,339 | |||
Due from related parties (notes 5 and 11) | 124,859 | 120,139 | |||
Prepaid expenses and deposits | 152,901 | 51,792 | |||
733,367 | 599,559 | ||||
Gaming Systems (note 8) | 3,855,873 | 2,483,000 | |||
Investment in 37 Capital Inc. ("37 Capital") (note 12) | 6,703 | 9,111 | |||
Deposit (note 13) | - | 38,000 | |||
Equipment (note 7) | 134,992 | 281,410 | |||
Intangible Assets (note 9) | 348,038 | 156,437 | |||
Right-of Use Assets (note 16) | 873,266 | 276,133 | |||
Total Assets | $ | 5,952,239 | $ | 3,843,650 | |
Liabilities | |||||
Current | |||||
Accounts payable and accrued liabilities | $ | 2,670,740 | $ | 1,532,582 | |
Deferred royalty liability (note 6) | 175,042 | 70,201 | |||
Lease liability (note 16) | 290,803 | 297,962 | |||
Interest payable (note 15) | 4,536,620 | 3,837,751 | |||
Deferred revenue (note 17) | 46,291 | 305,100 | |||
Loans payable (note 15) | - | 7,277 | |||
Convertible debentures (note 15) | 270,340 | 2,279,631 | |||
Non-convertible secured debentures (note 15) | - | 2,905,887 | |||
7,989,836 | 11,236,391 | ||||
Deferred Royalty Liability (note 6) | 177,202 | 259,133 | |||
Lease Liability (note 16) | 608,504 | - | |||
Deferred Revenue (note 17) | 491,504 | 503,321 | |||
Non-Convertible Secured Debentures (note 15) | 2,199,384 | - | |||
Convertible Debentures (note 15) | 4,837,181 | - | |||
Total Liabilities | 16,303,611 | 11,998,845 | |||
Shareholders' Deficiency | |||||
Capital Stock (note 10) | 62,156,050 | 62,041,953 | |||
Reserves (notes 10 and 15) | 2,060,919 | 2,775,009 | |||
Convertible Debentures - Equity Portion (note 15) | 867,574 | 12,536 | |||
Deficit | (75,435,915) | (72,984,693) | |||
Total Shareholders' Deficiency | (10,351,372) | (8,155,195) | |||
Total Liabilities and Shareholders' Deficiency | $ | 5,952,239 | $ | 3,843,650 | |
On behalf of the Board: | |||||
"Jake H. Kalpakian" (signed) | "Neil Spellman" (signed) | ||||
..................................................................... | ………………………………………….… | ||||
Jake H. Kalpakian, Director | Neil Spellman, Director |
See notes to consolidated financial statements. | 6 |
JACKPOT DIGITAL INC.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
Years Ended December 31 | 2023 | 2022 | ||
Revenues (note 22) | ||||
Electronic gaming tables | $ | 1,565,188 | $ | 1,401,220 |
Table sales | 496,919 | 30,000 | ||
2,062,107 | 1,431,220 | |||
Cost of sales (note 22) | 364,812 | 364,297 | ||
Gross Profit | 1,697,295 | 1,066,923 | ||
Expenses | ||||
Salaries and benefits (notes 10(d), 11 and 14) | 1,607,204 | 1,491,374 | ||
Interest and finance expense (notes 6, 15 and 16) | 1,382,051 | 1,090,548 | ||
Consulting fees (note 10(d)) | 481,219 | 560,199 | ||
Rent, office and miscellaneous (notes 11 and 19) | 96,733 | 107,640 | ||
Management fees (note 11) | 396,000 | 396,000 | ||
Travel, meals and entertainment | 271,624 | 231,615 | ||
Advertising and promotion | 550,335 | 520,254 | ||
Legal, accounting and audit | 112,212 | 173,289 | ||
Regulatory and transfer agent fees | 235,246 | 164,581 | ||
Foreign exchange loss (gain) | (203,301) | 405,979 | ||
Amortization (notes 7, 8, 9 and 16) | 911,456 | 906,718 | ||
5,840,779 | 6,048,197 | |||
Transaction expense (note 6) | - | - | ||
Gain on debt settlement (notes 12 and 15) | (614,087) | - | ||
Gain on debenture conversion | (12,536) | - | ||
Impairment loss on gaming systems (note 8) | 50,842 | 50,297 | ||
Interest and other income | (1,733) | (963) | ||
Impairment loss of investment in 37 | ||||
Capital Inc. (note 12) | - | 81,078 | ||
Share of net loss of 37 Capital Inc. (note 12) | 2,408 | 11,366 | ||
Impairment loss on Huudl Investment (note 13) | 38,000 | - | ||
(537,106) | 141,778 | |||
Loss and Comprehensive Loss Before Income Tax | ||||
Recovery | $ | (3,606,378) | $ | (5,123,052) |
Deferred income tax recovery (note 18) | 328,182 | - | ||
Net Loss and Comprehensive Loss for the Year | (3,278,196) | (5,123,052) | ||
Basic and Diluted Loss Per Share | $ | (0.02) | $ | (0.05) |
Weighted Average Number of Common Shares | ||||
Outstanding | 132,262,150 | 108,254,779 |
See notes to consolidated financial statements. | 7 |
JACKPOT DIGITAL INC.
Consolidated Statements of Changes in Shareholders' Deficiency
(Expressed in Canadian Dollars)
Capital Stock | Reserves | Equity Portion of | ||||||||||||||
Warrants and | Convertible | Shareholders' | ||||||||||||||
Common Shares | Amount | Other | Options | Debentures | Deficit | Deficiency | ||||||||||
Balance, December 31, 2021 | 84,860,716 | $ | 58,980,489 | $ | 1,664,722 | $ | 1,089,399 | $ | 19,957 | $ | (68,173,900) | $ | (6,419,333) | |||
Net loss for the year | - | - | - | - | - | (5,123,052) | (5,123,052) | |||||||||
Private placements, net of issuance costs | 47,098,586 | 3,061,464 | 58,577 | - | - | - | 3,120,041 | |||||||||
Extinguishment of convertible debentures | ||||||||||||||||
conversion | - | - | - | - | (7,421) | 7,421 | - | |||||||||
Share-based payment | - | - | - | 267,149 | - | - | 267,149 | |||||||||
Expiry of warrants | - | - | (229,532) | - | - | 229,532 | - | |||||||||
Cancellation of options | - | - | - | (23,350) | - | 23,350 | - | |||||||||
Expiry of options | - | - | - | (51,956) | - | 51,956 | - | |||||||||
Balance, December 31, 2022 | 131,959,302 | $ | 62,041,953 | $ | 1,493,767 | $ | 1,281,242 | $ | 12,536 | $ | (72,984,693) | $ | (8,155,195) | |||
Net loss for the year | - | - | - | - | - | (3,278,196) | (3,278,196) | |||||||||
Convertible debenture issued | - | - | - | - | 867,574 | - | 867,574 | |||||||||
Convertible debenture conversion/shares for | ||||||||||||||||
debt | 1,333,425 | 100,007 | - | - | (12,536) | - | 87,471 | |||||||||
Broker warrants issued | - | - | 5,300 | - | - | - | 5,300 | |||||||||
Share-based payment | - | - | - | 115,674 | - | - | 115,674 | |||||||||
Exercise of warrants | 100,000 | 14,090 | (8,090) | - | - | - | 6,000 | |||||||||
Expiry of warrants | - | - | (493,141) | - | - | 493,141 | - | |||||||||
Expiry of options | - | - | - | (333,833) | - | 333,833 | - | |||||||||
Balance, December 31, 2023 | 133,392,727 | $ | 62,156,050 | $ | 997,836 | $ | 1,063,083 | $ | 867,574 | $ | (75,435,915) | $ | (10,351,372) |
See notes to consolidated financial statements. | 8 |
JACKPOT DIGITAL INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Years Ended December 31 | 2023 | 2022 | ||
Operating Activities | ||||
Loss and Comprehensive Loss Before Income Tax | ||||
Recovery | $ | (3,606,378) | $ | (5,123,052) |
Items not affecting cash | ||||
Amortization | 911,456 | 906,718 | ||
Interest expense and finance expense | 1,311,239 | 1,000,808 | ||
Unrealized foreign exchange loss | (105,253) | 497,043 | ||
Share-based payment | 115,674 | 267,149 | ||
Repairs and maintenance (note 8) | (68,778) | 14,489 | ||
(Gain)/Loss on sale of gaming systems | (378,813) | 17,012 | ||
Impairment loss on gaming systems | 50,842 | 50,297 | ||
Gain on settlement of debt | (614,087) | - | ||
Gain on debenture conversion | (12,536) | - | ||
Impairment loss on Huudl Investment | 38,000 | - | ||
Impairment loss on investment in 37 Capital Inc. | - | 81,078 | ||
Share of net loss of 37 Capital Inc. | 2,408 | 11,366 | ||
(2,356,226) | (2,277,092) | |||
Changes in non-cash working capital (note 21) | (116,449) | 376,710 | ||
Cash Used in Operating Activities | (2,472,675) | (1,900,382) | ||
Financing Activities | ||||
Funds from convertible debentures, net of issuance | ||||
cost | 4,493,223 | - | ||
Funds from loan payable | 330,000 | 330,000 | ||
Repayment of loan payable | (330,000) | (330,000) | ||
Exercise of warrants | 6,000 | - | ||
Private placement, net of issuance costs | - | 3,120,041 | ||
Payment of lease liability (note 16) | (312,468) | (301,544) | ||
Repayment of promissory note | - | (391,831) | ||
Repayment of convertible debentures | (404,850) | - | ||
Repayment of non-convertible debentures | (538,997) | (4,443) | ||
Repayment of deferred royalty liability | - | (97,583) | ||
Cash Provided by Financing Activities | 3,242,908 | 2,324,640 | ||
Investing Activities | ||||
Purchase of gaming systems | (219,016) | (199,680) | ||
Purchase of intangible assets | (220,296) | (176,972) | ||
Purchase of equipment and prototypes | (522,942) | (231,296) | ||
Proceeds of sale of gaming systems | 192,228 | 30,000 | ||
Cash Used in Investing Activities | (770,026) | (577,948) | ||
Effect of Foreign Currency Translation on Cash | (1,548) | 2,122 | ||
Net Change in Cash and Cash Equivalents | (1,341) | (151,568) | ||
Cash and Cash Equivalents, Beginning of Year | 101,289 | 252,857 | ||
Cash and Cash Equivalents, End of Year | $ | 99,948 | $ | 101,289 |
Supplemental Cash Flow Information (note 21)
See notes to consolidated financial statements. | 9 |
JACKPOT DIGITAL INC.
Notes to Consolidated Financial Statements Years Ended December 31, 2023 and 2022
(Expressed in Canadian Dollars, unless otherwise stated)
-
NATURE OF OPERATIONS
The principal business of Jackpot Digital Inc. (the "Company" or "Jackpot") is the developing, marketing, and leasing of electronic table games to casino operators. The Company's common shares trade on the TSX Venture Exchange ("TSX-V") under the symbol "JJ" and on the OTCQB under the trading symbol "JPOTF". A certain number of the Company's warrants trade on the TSX- V under the symbols "JJ.WT.B" and "JJ.WT.C". The Company's common shares are also listed for trading on the Frankfurt Exchange under the symbol "LVH3".
The Company's office is located at Suite 575 - 510 Burrard Street, Vancouver, British Columbia, Canada, V6C 3A8, and the Company's warehouse is located at 4664 Lougheed Highway, Unit W030, Burnaby, British Columbia, Canada, V5C 5T5. The Company's registered office is located at Suite 3200 - 650 West Georgia Street, Vancouver, British Columbia, Canada, V6B 4P7.
Yo Eleven Gaming Inc. ("Yo Eleven") was incorporated under the Business Corporations Act (British Columbia). Effective November 4, 2021, pursuant to a Plan of Arrangement under the British Columbia Corporations Act, the Company transferred certain online gaming software to Yo Eleven in exchange for 16,966,931 Yo Eleven common shares which were then distributed to the Company's registered and beneficial shareholders as of November 1, 2021 on the basis of 1 Yo Eleven common share for every 5 Jackpot common shares held by Jackpot shareholders (the "Spinout"). As of the completion of the Spinout, Yo Eleven is no longer a subsidiary of Jackpot.
As the shareholders of the Company continued to hold their respective interests in Yo Eleven, there was no resulting change of control in Yo Eleven. - GOING CONCERN
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several adverse conditions may cast significant doubt on the validity of this assumption. The Company has incurred significant operating losses over the past several years (2023 - $3,278,196; (2022 - $5,123,052), as at December 31, 2023 has a deficit of $75,435,915 (2022 - $72,984,693) and a working capital deficiency of $7,256,469 (2022 - $10,636,832). Although the Company recognized revenue of $2,062,107 during the year ended December 31, 2022 (2022 - $1,431,220), it has not recognized net income and there are no assurances that sufficient funding will be available to the Company to continue operations for an extended period of time.
The application of the going concern concept is dependent upon the Company's ability to generate future profitable operations and receive continued financial support from its shareholders. Management is actively engaged in the review and due diligence on new projects and is seeking to raise the necessary capital to meet its funding requirements. There can be no assurance that management's plan will be successful.
If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values of assets and liabilities, the reported expenses, and the balance sheet classifications used. Such adjustments could be material.
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Jackpot Digital Inc. published this content on 30 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 April 2024 14:29:14 UTC.