20-F 1 zk2329561.htm 20-F NeoGames S.A. - 1821349 - 2023
2020-08-31 2020-08-31 2020-08-31 false 0001821349 FY P3Y As of December 31, 2022 and 2021, 33,482,447 and 25,565,095 shares, no par value, authorized issued and fully paid, respectively. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 (Mark One)
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934

For the fiscal year ended December 31, 2022
 
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934

Date of event requiring this shell company report ___ 
     
 

For the transition period from     __________  to _________

 
Commission file number: 001-39721
 
NEOGAMES S.A.
(Exact name of Registrant as specified in its charter)
 
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
 
10 Habarzel Street
Tel Aviv, 6971014
Israel
(Address of principal executive offices)
 
Moti Malul
Chief Executive Officer
63-65, rue de Merl
L-2146 Luxembourg, Grand
Duchy of Luxembourg
Tel: +972-3-607-2571
Email: moti.malul@neogames.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Ordinary Shares, no par value
NGMS
The Nasdaq Stock Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
As of December 31, 2022, the Registrant had outstanding: 33,482,447 Ordinary Shares, no par value per share.
 
 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes   No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes  No
 
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
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.
 
 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 and post such files).
 
 Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer 
Accelerated Filer
Non-Accelerated Filer
   
Emerging growth company
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.
 
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
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.
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP
International Financial Reporting Standards as issued by the
International Accounting Standards Board
Other
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17   Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes   No
 
 
2

 


TABLE OF CONTENTS
 
Item Number
Title
Page
 
 
 
  4
 
4
  5
  5
 
5
     
PART ONE
 
 
 
 
9
9
9
42
61
61
76
84
91
92
93
101
103
 
 
 
PART TWO
 
 
 
 
103
103
103
104
104
104
104
105
105
105
105
106
106
 
 
 
PART THREE
 
 
 
 
106
106
107
 

3


DEFINITIONS
 
Unless where the context otherwise requires or otherwise indicated, terms “NeoGames” and the “Company” refer to NeoGames S.A. together with its consolidated subsidiaries, as a group, and the terms “we,” “us” and “our” refer to the Company, together with NeoPollard Interactive LLC (“NPI” or the “Joint Venture”), as a group.

References to “Aspire” mean Aspire Global Limited (formerly, Aspire Global Plc), and together with its subsidiaries, the “Aspire Group”;

References to “BtoBet” mean BtoBet Limited;

References to “Pariplay” mean GMS Entertainment Ltd.;

References to “Caesars” and “Caesars group” mean Caesars Entertainment, Inc. and its subsidiaries, including American Wagering, Inc.;

References to the Exchange Act are to the Securities Exchange Act of 1934, as amended;

References to Nasdaq are to the Nasdaq Global Market;

References to Ordinary Shares are to our Ordinary Shares, no par value per share;

References to the SEC are to the United States Securities and Exchange Commission;

References to the Securities Act are to the Securities Act of 1933, as amended;

References to “B2B” mean business-to-business;

References to “B2C” mean business-to-consumer;

References to “B2G” mean business-to-government;

References to “Gross Gaming Revenue” or “GGR” mean gross sales less winnings paid to players;

References to “iLottery Penetration” mean, with respect to the gross sales generated by either a lottery or by all lotteries within a given market, the percentage of such gross sales that was generated by iLottery offerings;

References to “Net Gaming Revenue” or “NGR” mean (i) in North America, gross sales less winnings paid to players and any promotion dollar incentives granted to players, and (ii) in Europe, gross sales less winnings paid to players, any gambling tax or duty paid on such sales and any promotion incentives granted to players; and

References to dollar,” “USD” and $ are to U.S. dollars, “NIS” or “shekels” are to New Israeli Shekels, “pound sterling,” “pence” or “£” are to the legal currency of the United Kingdom, “€,” “EUR” or “euro” are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the treaty establishing the European Community, as amended, and “C$” is to Canadian dollars.
 
PRESENTATION OF FINANCIAL INFORMATION

We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of the Company’s financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). We present our consolidated financial statements in U.S. dollars. NPI’s financial statements included in this Annual Report were prepared in accordance with U.S. GAAP. We have made rounding adjustments to some of the figures included in this Annual Report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
4


Throughout this Annual Report, we provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in Item 5. “Operating and Financial Review and Prospects - Key Performance Indicators.”

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this Annual Report concerning our industry, our markets and our competitive position, is based on information from our own internal estimates and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties such as the American Gaming Association, Eilers & Krejcik Gaming, Vixio (formerly “GamblingCompliance”), H2 Gambling Capital (“H2GC”) and La Fleur’s TLF Publications, in addition to reports from state lottery commissions.

Industry publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. See “ - Cautionary Statement Regarding Forward-Looking Statements.”

USE OF TRADEMARKS
 
We have proprietary rights to trademarks used in this Annual Report which are important to our business, many of which are registered under applicable intellectual property laws.

Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Annual Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This Annual Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Annual Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements contained in this Annual Report other than statements of historical fact, including, without limitation, statements regarding our future operating results and financial position, our business strategy and plans, market growth, integration plans and any future benefits and synergies related to the acquisition of Aspire, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements use these words or expressions. These forward-looking statements are contained principally in the sections titled Item 3.D. “Key Information - Risk Factors,” Item 4. “Information on the Company,” and Item 5. “Operating and Financial Review and Prospects.” These statements relate to events that involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in Item 3.D. “Key Information - Risk Factors.”
5


Many important factors could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this Annual Report relate only to events or information as of the date on which the statements are made in this Annual Report. You should not put undue reliance on any forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors described in this annual report, including factors beyond our ability to control or predict. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Annual Report and the documents that we reference in this Annual Report and have filed as exhibits hereto completely and with the understanding that our actual future results or performance may be materially different from what we expect.

SUMMARY RISK FACTORS
  
Our business is subject to numerous risks and uncertainties, including those described in the section titled Item 3.D. “Key Information - Risk Factors,” in this Annual Report on Form 20-F. You should carefully consider these risks and uncertainties when investing in our Ordinary Shares. The principal risks and uncertainties affecting our business include the following:
 

We have a concentrated customer base, and our failure to retain certain existing contracts with our customers could have a significant adverse effect on our business.
 

Our inability to successfully integrate Aspire, or complete or integrate other future acquisitions, could limit our future growth or otherwise be disruptive to our ongoing business.
 

A reduction in discretionary consumer spending could have a material adverse impact on our business.
 

The growth of our business largely depends on our continued ability to procure new contracts.
 

We incur significant costs related to the procurement of new iLottery and iGaming contracts, which we may be unable to recover in a timely manner, or at all.
 

Intense competition exists in the iLottery and iGaming industries, and we expect competition to continue to intensify.
 

We are dependent on Pollard with respect to our joint operation of the Michigan iLottery for the Michigan State Lottery.
 

Conducting a business through a jointly-owned entity such as NPI entails risks that are commonly associated with joint ventures.
 

Our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
 

We operate in industries that are affected by technological improvements and evolving player preferences.
 

We have incurred operating losses in the past, may incur operating losses in the future and may not be able to maintain sustainable profit margins.
 

Our Founding Shareholders have significant influence over the nominations and elections of members of our board of directors and other matters submitted for shareholder approval.
 

Our limited operating history in the iLottery and iGaming industries makes it difficult to evaluate our current business and future prospects.
 

We are subject to substantial penalties for failure to perform.
 
6


We rely on information technology and other systems and platforms, and any failures, errors, defects or disruptions in our systems or platforms could diminish our brand and reputation, subject us to liability, disrupt our business, affect our ability to scale our technical infrastructure and adversely affect our business.
 

We rely on third-party service providers for key functions in our operations.
 

If we fail to protect or enforce our intellectual property rights, our business could be materially affected.
 

We rely on third-party intellectual property. We cannot guarantee that such intellectual property will continue to be available.
 

The gaming industry is historically litigious with respect to intellectual property and there can be no assurance that our platforms will not infringe on the rights of others.
 

We are exposed to costs associated with changes in levies and taxes.
 

We are subject to taxation in multiple jurisdictions, which is complex and often requires making subjective determinations subject to scrutiny by, and disagreements with, tax regulators.
 

Our operations in Kyiv, Ukraine have been negatively impacted as a result of Russia’s invasion of Ukraine, and our business, financial condition and results of operations may be materially adversely affected if the impacts resulting from the conflict in Ukraine are exacerbated.
 

Our platform contains third-party open source software components, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could negatively affect our business.
 

We are highly dependent on our key personnel. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
 

Generally, the competition for skilled technical and other personnel in Israel, Ukraine, Malta, Bulgaria and North Macedonia is intense, and as a result we may fail to continue to attract, recruit, develop and retain qualified employees, which could materially and adversely impact our business, financial condition and results of operations.
 

We may not be able to service our debt under our financing agreements in connection with the Acquisition of Aspire, or we may otherwise be in breach of those arrangements.
 

We may require additional capital to support our growth plans, and such capital may not be available on terms acceptable to us, if at all, and may result in shareholder dilution. This could impair our growth and materially and adversely affect our business.
 

Our management team has limited experience managing a public company.
 

We may become subject to litigation, from which we could incur significant monetary and reputational harm, irrespective of the merit of such claim or outcome of such litigation.
 

Our results of operations may be adversely affected by fluctuations in currency values.
 

Expansion into new markets may be important to the growth of our business in the future, and if we do not manage the business and economic risks of this expansion effectively, it could materially and adversely affect our business and results of operations.
 

Our insurance may not provide adequate levels of coverage against claims.
 

If we fail to detect fraud or theft, including by our employees and our customers and their players, our reputation may suffer which could harm our brand and negatively impact our business, financial condition and results of operations and subject us to investigations and litigation.
 

We are subject to risks related to corporate social responsibility, responsible lottery and gaming, reputation and ethical conduct.
 

The illegal gaming market could negatively affect our business.
 

Termination of our relationship with Caesars, or failure to realize the anticipated benefits of such relationship could have an adverse effect on our business, prospects, financial condition and results of operations.
 

The gaming and lottery industries are heavily regulated, and changes to the regulatory framework in the jurisdictions in which we operate could harm our existing operations.
 
7


Failure by us or by our major shareholders to comply with regulations may result in the revocation or suspension of our or our customers’ licenses to operate.
 

We may fail to identify and support players who are suffering from gambling problems.
 

Our efforts to block or limit access to our gaming platforms in certain countries, whether entirely or within certain states thereof, may prove inadequate.
 

We may incur substantial costs in order to meet the varied and complex regulatory requirements to which we are subject in the different jurisdictions in which we operate.
 

Negative publicity concerning our Company, our brands or the gambling industry in general could result in increased regulations and reputational harm.
 

We are subject to laws and regulations related to data privacy, data protection and information security and consumer protection across different markets where we conduct our business, including in the United States and the European Union (“EU”), and we are also required to comply with certain industry standards including the Payment Card Industry Data Security Standard. Our actual or perceived failure to comply with such obligations could harm our business.
 

We are subject to anti-money laundering laws and regulations in the United States, the European Union and the United Kingdom as well as other jurisdictions in which we operate.
 

We are subject to economic and trade sanctions laws and regulations.
 

We are subject to global anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.
 

Our revenue may be impacted, to a significant extent, by macroeconomic conditions, as well as by COVID-19 and similar health epidemics and contagious disease outbreaks.
 

Conditions in the jurisdictions where we operate could materially and adversely affect our business, including, for example, in connection with the ongoing war in Ukraine.
 
8


PART ONE
 
ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.

ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.          KEY INFORMATION
 
3.A.          [Reserved.]

3.B.          Capitalization and Indebtedness
 
Not applicable.
 
3.C.          Reasons For the Offer and Use of Proceeds
 
Not applicable.
 
3.D.          Risk Factors

You should carefully consider the risks and uncertainties described below and the other information contained in this Annual Report before making an investment decision. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition, results of operations, or strategic objectives could be materially and adversely affected by any of these risks and uncertainties. The trading price and value of our Ordinary Shares could decline due to any of these risks and uncertainties, and you may lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks and uncertainties faced by us described below and elsewhere in this Annual Report.
 
Risks Relating to Our Business and Industry

We have a concentrated customer base, and our failure to retain certain existing contracts with our customers could have a significant adverse effect on our business.

Our financial condition is heavily dependent on our ability to maintain our existing turnkey contracts, our large games contracts and our brand partner operators. We cannot guarantee that our existing contracts will be renewed, or that we will be able to win a procurement process for a new contract or successfully attract new operators. Even if we are successful in renewing such agreements, there is no assurance that such renewals will be on the same terms, and it is possible that renewals of existing agreements will be on less preferable terms. This has occurred in the past when certain customers required certain concessions upon the renewal of existing iLottery and iGaming agreements. As is typical with many government contracts, most of our iLottery customers can terminate our contracts for convenience.

 Loss of any of our large customer or operator contracts in any of our business segments would result in a substantial decline in our revenues, which also could hinder our ability to pursue growth initiatives, both in the form of new or enhanced products and services and in expansion into new markets. The loss of any of our large customers or operators in any of our business segments could damage our reputation, which could materially damage our financial condition.

Our inability to successfully integrate Aspire, or complete or integrate other future acquisitions, could limit our future growth or otherwise be disruptive to our ongoing business.

Since our inception, we have consummated one acquisition in support of our strategic goals – the acquisition of Aspire in June 2022 -- and therefore our experience in the integration of new acquisitions is limited. From time to time, we may pursue additional acquisitions in support of our strategic goals. Our ability to succeed in implementing our strategy will depend to some degree upon the ability of our management to identify, complete and successfully integrate commercially viable acquisitions. There can be no assurance that additional acquisition opportunities will be available on acceptable terms or at all or that we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. Any acquisitions we complete could be viewed negatively by our partners or customers, which could have an adverse impact on our business. In addition, such acquisition transactions may disrupt our ongoing business and distract management from other responsibilities. In connection with any such acquisitions, we could face significant challenges in managing and integrating our expanded or combined operations, including acquired assets, operations, and personnel. If we are unsuccessful at integrating employees or technologies acquired in such acquisitions, including the acquisition of Aspire, our financial condition and results of operations, including revenue growth, could be adversely affected. Any acquisition and subsequent integration will require significant time and resources. We may not be able to successfully evaluate and use the acquired technology or employees, or otherwise manage the acquisition and integration processes successfully. With respect to Aspire, the process for realizing anticipated benefits in combining iLottery and iGaming businesses will be potentially more demanding and time consuming for the Company and its management than anticipated. In addition, material disturbances in our business may occur throughout the integration process with Aspire or future acquisitions, and we may lose key and other employees, each of which could adversely affect our business and financial condition. As a result, some or all of the anticipated positive effects of the acquisition of Aspire and any future business combination may not be achieved. In addition, we will be required to pay cash, incur debt and/or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition. Our use of cash to pay for acquisitions would limit other potential uses of our cash, including investments in our sales and marketing and product development efforts. The issuance or sale of equity or convertible debt securities to finance any such acquisitions would result in dilution to our shareholders. If we incur debt, it would result in increased fixed obligations and could also impose covenants or other restrictions that could impede our ability to manage our operations. For information regarding the acquisition of Aspire, see Item 4.A. “History and Development of the Company - Selected Recent Developments”.
9


A reduction in discretionary consumer spending could have a material adverse impact on our business.

Lottery and gaming represent discretionary expenditures, which are subject to volatility during times of economic, social and political change. Changes in discretionary spending or player preferences are driven by changes outside of our control, such as, but not limited to, the following economic or socio-political factors:


recessions or other economic slowdowns;
 ​

perceptions by potential players of weak or weakening economic conditions;

tax increases, including on lottery and gaming winnings;

significant declines in stock markets;
 ​

decreased liquidity in certain financial markets;
 ​

general tightening of credit;
 ​

civil unrest, terrorist activities or other forms of socio-political turbulence; and
 ​

pandemics, epidemics and the spread of contagious diseases.
 
We generate the majority of our revenues from customer contracts based on a revenue sharing model, with our portion calculated as a percentage of GGR or NGR. Widespread reductions in disposable income could lead to a reduction in the number of lottery and gaming players and the amounts such players are willing and able to wager. Given the nature of our revenue sharing arrangements, fewer players and lower spending per player could have a significant adverse effect on our business.

Because our customers’ offerings are typically available only to players within their geographic borders, our revenue is highly concentrated in a limited number of locations. A significant portion of our revenue is generated from customers in the United States, from customers in Mali, Angola and Mozambique in Africa, as well as from customers in the UK, Germany and Nordic countries, and any adverse impact resulting from any of the foregoing economic factors would be magnified to the extent that it disproportionately impacts players in these locations, or other jurisdictions from which we derive revenues.
10


As our revenue sharing arrangements result in an intertwined relationship between our and our customers’ financial condition, we also face significant risks during times of uncertain and unfavorable economic and socio-political conditions affecting our customers. Unfavorable economic and socio-political factors and conditions could result in financial (including budgetary and liquidity) concerns for our customers, which may reduce the likelihood that we will be able to renew our existing contracts on substantially similar commercial terms or win new contracts with terms as favorable to us as the terms of our existing contracts.

The growth of our business largely depends on our continued ability to procure new contracts.

While a significant portion of the growth in the revenue from our iLottery offerings over the past few years has come from increasing NGR generated by the MSL, the addition of new iLottery contracts has contributed substantially to the growth of our iLottery business. In particular, NPI began recognizing revenues from new turnkey contracts supporting the VAL in 2015 and, later, the NHL the NCEL and the AGLC in 2018, 2019 and 2020, respectively, and the latter two contracts accounted collectively for 54.2% of the Company’s share in NPI’s revenues for the year ended December 31, 2022 and 58% of the Company’s share in NPI’s revenues for the year ended December 31, 2021. In addition, the future growth of our revenue from our iGaming offerings depends to a large extent on our ability to partner with operators. Our largest operator contributed 13.9% of our iGaming revenue for the period ended December 31, 2022.

We may not continue to procure new iLottery customer contracts or new iGaming contracts with operators at the same rate as in the past, or at all. There can be no assurance that additional U.S. states will seek to implement iLottery offerings or that U.S. states seeking to implement iLottery offerings will do so through a process in which we, whether through NPI or independently therefrom, can compete to be the turnkey solution provider. In particular, certain of our competitors currently serve as central lottery system providers for certain U.S. states, and if these states decide to implement iLottery offerings, they may choose to do so by expanding their existing relationships with our competitors without launching a public procurement process or by including iLottery in a broader lottery system procurement process in which we may not be able to successfully compete. Even if additional U.S. states seek to implement iLottery offerings through a public procurement process, there can be no assurance that we, whether through NPI or independently therefrom, will procure any new contracts. Our failure to win new contracts could materially limit the growth of our business.

The iGaming industry is currently experiencing a consolidation, with large operators acquiring local brands or merging with other operators. This may result in some of our current B2B iGaming customers being acquired by larger operators who have their own technology or who use technology from other vendors, including player account management and content aggregation platforms, sport betting solutions or other iGaming products that we currently provide to them, which may impact our ability to continue to generate revenues from these operators.

In addition, as a part of our B2B iGaming licenses in various jurisdictions around the world, we conduct extensive due diligence on our potential customers. This due diligence in some cases results in us not approving the operators as customers, or in operators choosing to go to a supplier that does not conduct such extensive due diligence. In addition, there is a risk that we might approve a customer after such due diligence, but the regulator might find that our due diligence is not sufficient, asking for further clarification or instructing us to decline the customer.  For details regarding our due diligence, see Item 4.B. “Business Overview - Regulation.”

We incur significant costs related to the procurement of new iLottery and iGaming contracts, which we may be unable to recover in a timely manner, or at all.

The tender process to obtain a new iLottery contract is highly competitive and typically requires a significant upfront capital investment. In iGaming, sales cycles in the U.S. are lengthy and often require participation in RFIs and requests for proposals. The efforts and resources required to participate and win a request for proposal, commence operations of an iLottery program or U.S. iGaming operator and procure revenues from such program or operator are relatively long and may take several months or years to complete. This investment, which includes our management’s time, may never be recovered in the event that we fail in our bid. A typical request for proposals or a tender requires us to spend substantial time and effort assisting potential customers in evaluating our products and services, including providing demonstrations and benchmarking against other available offerings by our competitors. This process can be costly and time consuming, and we often do not know if any given sales efforts will be successful until the later stages of those efforts. After being awarded a contract, it can take years to set up the iLottery system or up to a year to set up the operator’s system, and for such contract to become profitable. The long procurement cycle in both iLottery and iGaming creates a significant time gap between the time we participate in a tender and dedicate the necessary resources, and the time we can recognize revenue or income from that program or operator, if at all. This time gap creates pressure on our cash flow, as it requires significant funding up front, and in the interim period, and may not result in any income, or result in income that will only be achieved quarters after the resources have been dedicated. If we are unable to forecast market demand and conditions, we may not be able to expand our sales efforts at appropriate times and our revenues and related results of operations could be materially adversely affected.
11


Intense competition exists in the iLottery and iGaming industries, and we expect competition to continue to intensify.

We face significant competition in the evolving iLottery and iGaming industries.

We compete in the iLottery and iGaming markets with respect to our offering of technology solutions, games and related operational services on the basis of the content, features, quality, functionality, accuracy, reliability, innovation and price of such offerings. If we do not consistently deliver innovative, high-quality and reliable products and services, our ability to remain viable within the iLottery and iGaming industries may suffer, especially as the level of competition increases.

We provide through Aspire a unique solution for iGaming, offering a competitive B2B solution with a wide variety of services, unique proprietary tools and a proprietary Sportsbook platform, which enables our partners to focus on marketing and player acquisitions. However, our competitors may be able to provide similar or superior offerings, thereby preventing us from contracting with additional operators, which would negatively impact our business results.

In addition, pursuant to the January 2023 Agreements, Pollard may become a potential competitor for future iLottery contracts, since pursuant to such agreements, Pollard may pursue future iLottery opportunities in the North American market independently from us.

In addition to competitors we face in a given industry, our offerings also face competition from other related industries. While we believe that our offerings are unique and provide a differentiated experience from offerings in other related industries, the introduction of such offerings may allow new competitors to establish a foothold in regions where are we currently active, thereby drawing customers away from us. For example, on January 22, 2021, iGaming and online sports betting was launched in Michigan, which may draw customers away from the MSL. The MSL accounted for approximately 13.2% of our revenues in the year ended December 31, 2022 and 45.3% of our revenues in the year ended December 31, 2021.

Some of our competitors and potential competitors have substantially greater financial and other resources (including human resources) or experience than we do. Some of our competitors also have existing relationships and insight as the legacy retail lottery provider of certain U.S. states or other pre-existing relationships that we do not have in the iGaming industry and may realize synergies that we cannot. Competitors may devote more resources towards developing and testing products and services, undertake more extensive marketing campaigns, offer more favorable pricing terms, pursue aggressive growth initiatives or otherwise develop more commercially successful products or services. In addition, certain of our competitors may enter into contracts with less favorable terms to prevent us from procuring new contracts or renewing our existing contracts. Such potential competitive disadvantages may make it difficult for us to retain existing contracts or secure new contracts without being willing to accept less favorable terms.

In addition to risks directly tied to our relative lack of resources, experience and longevity, we face risks that:


we may fail to anticipate and adapt to quick changes in customer expectations, preferences and behavior patterns at the same rate as our competitors;
 

customers who currently utilize platforms offered by our competitors may be satisfied with such solutions or may determine that it is too costly and/or time consuming to adopt our platforms and solutions. For example, certain lotteries or operators may face significant switching costs if their platforms have been integrated with those of a competitor, potentially reducing the likelihood of us being the successful tenderer;
 

lotteries or operators that we currently view as potential customers may decide to develop internally products and services which compete with our products and services; and
 
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new competitors, including large global corporations or large software vendors operating in adjacent industries, may enter our market.
 
Moreover, current and future competitors may establish cooperative relationships among themselves or with others, including our current or future strategic partners. By doing so, these competitors may increase their ability to meet the needs of our existing and prospective customers and their players. Furthermore, we are believe there is currently a market  trend whereby some operators, both in the iLottery and iGaming industries, elect to develop or maintain in-house products that they require, which could lead potential and existing customers to do so instead of purchasing our services. For example, Caesars decided recently to develop its own player account management platform, informing us that they may ask to replace our current NeoSphere PAM solution with their own in certain states over time. These developments could make it more difficult for us to renew our existing contracts or win new contracts, and even if we are successful at renewing contracts or attracting new ones, they may be at higher cost to us or for smaller margins. If we are unable to compete effectively, successfully and at reasonable cost against our existing and future competitors, our results of operations, cash flows and financial condition could be adversely impacted.

We are dependent on Pollard with respect to our joint operation of the Michigan iLottery for the Michigan State Lottery.

We act as a subcontractor to Pollard with respect to its agreement (the “MSL Agreement”) to provide development, implementation, operational support and maintenance (including technology platforms, games and added value services) to the Michigan State Lottery (the “MSL”). The MSL accounted for 13.2% of our total revenues in the year ended December 31, 2022 and 45.3% of our revenues in the year ended December 31, 2021.

If Pollard breaches or does not perform its obligations under the MSL Agreement to the satisfaction of the MSL or if there is otherwise a dispute between Pollard and the MSL, the MSL could seek to terminate the MSL Agreement prior to its expiration or seek to amend the terms of the MSL Agreement in a manner that would negatively impact the financial and other benefits we derive indirectly from the MSL Agreement. In addition, such an amendment to the MSL Agreement could cause Pollard to seek to amend the terms of our agreement with Pollard with respect to the MSL (the “Michigan JV Agreement”) in a way that is less favorable to us. If the MSL terminates the MSL Agreement or if any disputes arise between Pollard and the MSL, our business, financial conditions and results of operations could be materially adversely affected.

Conducting a business through a jointly-owned entity such as NPI entails risks that are commonly associated with joint ventures.

In 2014, following the procurement process for the predecessor to the MSL Agreement, we and Pollard established NPI to pursue other iLottery opportunities in the North American market. While the current MSL Agreement remains between Pollard and the MSL, NPI has since been awarded iLottery contracts with the Virginia Lottery (the “VAL”) in August 2015, the New Hampshire Lottery Commission (the “NHL”) in September 2018 (as a subcontractor to Intralot, Inc. (“Intralot”)), the North Carolina Education Lottery (the “NCEL”) in October 2019, the Alberta Gaming, Liquor and Cannabis Commission (the “AGLC”) in March 2020, the Atlantic Lottery Corporation (the “ALC”) in January 2022 and the Georgia Lottery Corporation (the “Georgia Lottery”) in October 2022.

Conducting a business through a jointly-owned entity such as NPI entails risks that are commonly associated with joint ventures, including the failure to maintain a good working relationship with other joint-owners, differing economic and business interests and goals and liability or reputational harm resulting from each other’s actions. Differences in views between us and Pollard, or a change in the ownership of Pollard, may also result in delayed decision-making or disputes at the shareholder and board level that could negatively impact the operations of NPI and its relationship with customers. In the event that our relationship with Pollard is terminated for any reason, there can be no assurance that any of NPI’s employees will remain with NPI or that we would have sufficient legal, administrative and customer relations capabilities and functions in our North American operations, which Pollard currently contributes to NPI, to proceed without Pollard.

On January 10, 2023, we and Pollard entered into an amendment to the Michigan JV Agreement (“Amended Michigan JV Agreement”) and, concurrently with the Amended Michigan JV Agreement, we entered into a Limited Liability Company Agreement with Pollard (the “LLC Agreement” and together with the “Amended Michigan JV Agreement” – the “January 2023 Agreements”), which provide that NPI will perform its obligations pursuant to existing contracts and consider additional opportunities in other jurisdictions. However, the January 2023 Agreements provide us and Pollard the option to pursue future iLottery opportunities in the North American market either in partnership, as part of the Joint Venture or independently. In addition, the January 2023 Agreements do not preclude either party from entering into a business relationship with any one or more of NPI’s suppliers for its own business purposes, provided that any such business relationship does not intentionally interfere with or otherwise divert the supplier’s services from NPI.
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Pursuant to the January 2023 Agreements, neither we nor Pollard will be obligated to cooperate with each other in pursuing iLottery opportunities in North America, and both we and Pollard may choose to pursue future iLottery opportunities without each other. However, the tender process to obtain new iLottery contracts is highly competitive and typically requires a significant upfront capital investment, and Pollard has been responsible for NPI's participation in such tenders. If we pursue future opportunities independently, we cannot assure you that we will be able to secure additional contracts in North America.  Further, if we decide to collaborate with new partners with whom we have no prior relationship or track record of successful cooperation, we may fail to achieve the same degree of success that we have achieved with Pollard. We may also be delayed in pursuing future opportunities if we are required to negotiate new agreements and business arrangements with these new partners, and the terms we negotiate with these new partners may be less favorable than those we currently have with Pollard.

Our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
 
  Our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions such as viruses, malicious software, break-ins, theft, computer hacking, or other security breaches. Hackers and data thieves are increasingly sophisticated and operate complex and large-scale attacks. Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy malicious software programs that attack our systems, such as spyware and ransomware, or otherwise exploit any security vulnerabilities which may also affect the availability of our service, data leakage, or other disruptions. Our systems and the data stored on those systems may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors, or other similar events that could negatively affect our systems and the data stored on those systems, and the data of our business partners. Further, third parties, such as hosted solution providers, that provide services to us could also be a source of security risks in the event of a failure of their own security systems and infrastructure.
 
The secure maintenance and transmission of player information is a critical element of our operations. Our information technology and other systems that maintain and transmit player information, or those of service providers, business partners or employee information may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees, or those of a third-party service provider or business partner. As a result, our players’ information may be lost, disclosed, accessed or taken without their consent. We have experienced in the past, and expect to continue to experience in the future, attempts to breach our systems and other similar incidents. To date these attempts have not had a material impact on our operations or financial results, but we cannot provide assurance that they will not have a material impact in the future.

We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect the availability and integrity of our systems, including transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions, or attempts at player fraud, and such incidents may lead to service disruption or unavailability and may also jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or such third parties otherwise maintain, including payment card systems, which may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods. Threats to information security are constantly evolving, including in diversity and sophistication. We and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers.

In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties. These risks may increase over time as the number of our employees and the complexity and number of technical systems and applications we use also increase. Breaches of our security measures or those of our third-party service providers or cybersecurity incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of player information, including players’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and other potential liabilities. In the past, we and our customers have experienced social engineering, phishing, malware and similar attacks and threats of denial-of-service attacks, none of which to date has been material to our business. For example, in August 2022, after a cyberattack against the NHL’s third-party hosting provider, the NHL as a precaution decided to go offline for two days while they investigated the matter. During such time, the NHL decided to make all its online services, including the iLottery services that we provide, unavailable to the public. Such attacks against us or our customers could in the future have a material adverse effect on our operations.
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Pursuant to a software license agreement with Pollard in respect of the offering to the MSL (the “Pollard Software License Agreement”), our iLottery software is installed on Pollard’s servers, through which it is made available to the MSL. Pollard is responsible for the security measures on its servers, and the Pollard Software License Agreement contains no representations or undertakings with regard to such security measures. A breach of Pollard’s server security could expose our software to the risks noted above. Moreover, our iLottery software is made available by NPI to the VAL, the NHL, the NCEL, the AGLC, and in the future to the ALC and the Georgia Lottery.

Furthermore, due to the political uncertainty involving Russia and Ukraine, there is also an increased likelihood that the tensions in this region could result in persistent cyber-attacks or cybersecurity incidents that could either directly or indirectly impact our operations. Any attempts by cyber attackers to disrupt our services or systems, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy and damage our reputation or brand. Insurance may not be sufficient to cover significant expenses and losses related to such cyber-attacks and cybersecurity incidents.

If any of these breaches of security should occur, our reputation and brand could be damaged, customers may terminate their contracts with us, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss, including as a result of manmade or natural disasters such as fires, floods, storms, hurricanes, droughts, extreme temperatures, or earthquakes; certain natural disasters may also become more frequent or intense as a result of climate change. Additionally, climate change may contribute to chronic changes in the physical environmental, such as changes in ambient temperature and precipitation patterns as well as sea-level, which may also have adverse impacts on our operations or infrastructure on which we rely. Separately, actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. The increased occurrence of any such events may result in changes to the cost and availability of insurance.

In addition, any party who is able to illicitly obtain a player’s password may be able access such player’s transaction data or personal data (including payment information), resulting in the perception that our systems are insecure. Any compromise or breach of our security measures, or those of our third-party service providers, could also expose us to liability under various laws and regulations across jurisdictions and increase the risk of litigation and governmental or regulatory investigation. Due to concerns about data security and integrity, a growing number of legislative and regulatory bodies have adopted breach notification and other requirements in the event that information subject to such laws is accessed by unauthorized persons and additional regulations regarding security of such data are possible. We may need to notify governmental authorities and affected individuals with respect to such incidents. For example, laws in the EU and UK and the U.S. may require businesses to provide notice to individuals whose personal information has been disclosed as a result of a data security breach.

We maintain liability insurance policies covering certain of our business units, but not all of them, regarding security and privacy damages. However, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
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We operate in industries that are affected by technological improvements and evolving player preferences.

The iLottery and iGaming industries continue to experience rapid development of technological advances and player preferences. In some instances, advancements in technology trigger a change in player preferences. For example, as digital graphics improve, players may demand games with higher definition and a superior user interface. Our success depends on our ability to accurately anticipate and quickly respond to evolving industry standards and player preferences. We cannot assure you that we will be able to respond to such changes with innovative, high-quality, reliable and popular products and services or make the required adjustments to our existing products and services on a timely basis. In addition, the introduction of new products or updated versions of existing products has inherent risks, including, but not limited to:


the timing with which we may realize the benefits of the commonly-required significant, upfront capital investments;


the accuracy of our estimates of player preferences, and the fit of the new products and features to such preferences;


the ability to adequately maintain our main technology systems, such as the NeoDraw platform and AspireCore;


the quality of our products and services, including the possibility of software defects, which could result in claims against us or the inability to sell our products and services;


the need to educate our sales, marketing and services personnel to work with the enhanced or new products and features, which may strain our resources and lengthen sales cycles;


market acceptance of new product releases; and


competitor product introductions or regulatory changes that render our products obsolete.

In light of the costs required to create and introduce new or enhanced products and services, if our new or enhanced products fail to achieve commercial success, we will struggle to remain commercially viable, especially in the face of heightened competition.

Moreover, because we use tools, including third-party tools, that utilize artificial intelligence and machine learning, and we do not have full visibility to how these tools use data, these tools could create or enhance biases, potentially adversely impacting how players experience our services. We rely on the Internet, in-house proprietary technology, third-party software, infrastructure and applications, and customized off-the-shelf technology solutions across our business, and our ability to effectively manage all areas of our business depends in part on the reliability and capacity of these systems, however we cannot control, and in some instances do not have full visibility to, how these systems adhere to security measures, including the identification and appropriate elimination of algorithmic bias. Any systemic or algorithmic biases in the IT systems we use could damage our reputation, or result in loss of revenue or liability for damages, or adversely affect our growth prospects and our future business.

We have incurred operating losses in the past, may incur operating losses in the future and may not be able to maintain sustainable profit margins.

 We expect to continue the development and expansion of our business, and we anticipate additional costs in connection with legal, accounting and other administrative expenses related to operating as a public company including costs related to the integration of Aspire and the larger corporate structure related thereto. If our revenue declines or fails to grow at a rate sufficient to offset increases in our operating expenses, we may generate losses. We cannot ensure that we will sustain profitability in the future.

Our Founding Shareholders have significant influence over the nominations and elections of members of our board of directors and other matters submitted for shareholder approval.

Our founding shareholders, Barak Matalon, Elyahu Azur, Pinhas Zahavi and Aharon Aran (collectively, the “Founding Shareholders”), have the exclusive right under our amended and restated articles of association to nominate up to 50% of our directors so long as they own in the aggregate at least 40.0% of our issued and outstanding share capital. As of April 18, 2023, the Founding Shareholders held approximately 59.1% significant influence over the outcomes of other matters submitted to shareholders for approval.

The Founding Shareholders entered into a voting agreement dated November 17, 2020 (the “Voting Agreement”) pursuant to which they vote as one group with regard to any matter relating to the nomination, election, appointment or removal of directors. On September 13, 2022, the Founding Shareholders amended the  Voting Agreement (the “Amended Voting Agreement”), whereby Mr. Zahavi assigned all his voting authority to Mr. Azur, with such assignment to cease to apply from the date on which Mr. Zahavi holds less than 5% of the Ordinary Shares outstanding. On April 19, 2023, Mr. Zahavi sold 3,281,557 of his shares to the other three Founding Shareholders. As a result, Mr. Zahavi owned 4.99% of the Company’s shares as of April 19, 2023,  and the Voting Agreement was terminated with respect to Mr. Zahavi. Except from the abovementioned voting agreements, in all other matters, the Founding Shareholders are entitled to vote their shares according to their own interests, and such interests may be different than the interests of our other shareholders and may delay, deter or prevent a change in control or other business combination that might otherwise be beneficial to our shareholders. See Item 7.B. “Related Party Transactions - Voting Agreement,” and Item 6.C. “Board Practices - Board Composition.”
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Our limited operating history in the iLottery and iGaming industries makes it difficult to evaluate our current business and future prospects.

The market for our iLottery offerings is relatively new and evolving, and we have a limited operating history under the majority of our customer agreements. In addition, we have recently acquired Aspire, and its integration and combination into our business entail challenges, including the realization of any synergies and benefits of such acquisition. As a result, our business and future prospects are difficult to evaluate and our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties.

We entered into our first iLottery agreement in 2014, and a majority of such customer agreements are in their initial terms. In 2018 and 2019, we began providing turnkey solutions to the NHL and NCEL, respectively. Furthermore, during 2020 we transitioned the VAL solution into a full iLottery program and launched a new turnkey solution with the province of Alberta, Canada. In 2021, we launched Instant games with the Austrian Lotteries (Österreichische Lotterien) as well as Lottomatica in Italy and Sisal Sans in Turkey. On June 28, 2022, we announced the entry into a multi-year turnkey project with Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais, which marks our entry into the Brazilian market with an end-to-end solution of iLottery and online sports betting, and represents our first cooperation with BtoBet, the sports betting solution we gained as part of the acquisition of Aspire. See Item 4.A. “History and Development of the Company – Selected Recent Developments” for additional information. Our limited operating history in a variety of markets in which we currently operate, or those that we may enter into in the future, makes it difficult to accurately assess our future prospects and increases the risk associated with your investment. Any future changes to our revenue model could materially and adversely affect our business.

Our historical revenue growth should not be considered indicative of our future performance, especially following our acquisition of Aspire in June 2022. In future periods, our revenue growth could slow and our revenues could decline for a number of reasons, including declining player demand, increasing competition, decreasing growth of the iLottery or iGaming markets or our failure to continue entering into new customer agreements. We will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks, uncertainties or future revenue growth are incorrect, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

We are subject to substantial penalties for failure to perform.

Our lottery contracts in the United States and in other jurisdictions and other service contracts often require performance bonds or letters of credit to secure our performance under such contracts and require us to pay substantial monetary liquidated damages in the event of non-performance by us. In addition, Aspire will be required to make a security deposit in connection with obtaining a license in Germany.

As of December 31, 2022, we had outstanding performance bonds and letters of credit in an aggregate amount of approximately $4.1 million. These instruments present a potential expense for us and divert financial resources from other uses. Claims on performance bonds, drawings on letters of credit, and payment of liquidated damages could individually or in the aggregate have a material adverse effect on our results of operations, business, financial condition or prospects.
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We rely on information technology and other systems and platforms, and any failures, errors, defects or disruptions in our systems or platforms could diminish our brand and reputation, subject us to liability, disrupt our business, affect our ability to scale our technical infrastructure and adversely affect our business.

Our technology infrastructure is critical to the performance of our platform and offerings and to customer and player satisfaction. We devote significant resources to network and data security to protect our systems and data. However, our systems and the systems of any third-party service providers on which we rely may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. We cannot assure you that the measures we take to prevent or hinder cyber-attacks and protect our systems, data and player information and to prevent outages, data or information loss, fraud and to prevent or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use of third parties for certain cybersecurity services, will provide absolute security. We have experienced, and we may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. Such disruptions have not had a material impact on us; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of which could materially adversely affect our business, financial condition, results of operations and prospects.

Additionally, our software may contain errors, bugs, flaws or corrupted data. If a particular product offering is unavailable when players attempt to access it or navigation through our platforms is slower than they expect, players may be less likely to return to our customers’ platforms as often, if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience of players, harm our reputation and cause players to stop utilizing our customers’ offerings.

Our current systems may be unable to support a significant increase in online traffic or increased player numbers, especially during peak times or events (such as for significant jackpot runs). If there is a system disruption, customers may be able to make a contractual claim for damages against us.

We may at any time be required to expend significant capital or other resources, including staff and management time, to reduce the risk of network or IT failure or disruption, including replacing or upgrading existing business continuity systems, procedures and security measures. If such protective measures are implemented unsuccessfully or inefficiently, the quality of our products and services may be materially and adversely affected.

We rely on third-party service providers for key functions in our operations.

We rely upon various third-party service providers to maintain continuous operation of our platform, servers, hosting services, payment processing and various other key functions of our business. Know-your-customer and geolocation programs and technologies supplied by third parties are an important aspect of certain of our products and services. These services are costly, and their failure or inadequacy could materially affect our operations.

Additionally, we rely on third-party service providers for payment processing services, including the processing of credit and debit cards. Our business could be materially disrupted if these third-party service providers become unwilling or unable to provide these services to us.

Certain of these services discussed above are only provided by a limited number of third-party providers and in the event that any of these providers cease to provide us with their services (due to the termination of their agreement, a dispute between us and any such providers or for any other reason), we may struggle to locate a suitable replacement on commercially reasonable terms, if at all, which could lead to harmful disruptions to our operations.

If we fail to protect or enforce our intellectual property rights, our business could be materially affected.

     We rely on a combination of trademark, copyright, trade secret, and domain-name-protection laws as well as contractual restrictions to protect our technology and intellectual property rights. While it is our policy to protect and defend our rights to our intellectual property, we cannot predict whether steps taken by us to protect our intellectual property will be adequate to prevent infringement, misappropriation, dilution or other violation of our intellectual property rights. Effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. Third parties may infringe our proprietary rights (knowingly or unknowingly) and challenge proprietary rights held by us, and any potential future trademark and patent applications may not be approved. We have been required and in the future may be required to expend significant time and expense to prevent infringement or to enforce our rights. We also cannot guarantee that others will not independently develop technology with the same or similar functions to any proprietary technology we rely on to conduct our business and differentiate ourselves from our competitors. Unauthorized parties may also attempt to copy or obtain and use our technology to develop offerings with the same functionality as our solutions, and policing unauthorized use of our technology and intellectual property rights is difficult and may not be effective. Any unauthorized use of our brand, technology or intellectual property could result in revenue loss as well as have an adverse impact on our reputation. We may be required to incur significant expenses in registering, monitoring and protecting our intellectual property rights. Any litigation could result in significant expense to us, including the diversion of management time and may not ultimately be resolved in our favor. Changes in the law or adverse court rulings may also negatively affect our ability to prevent others from using our technology.
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We attempt to protect our intellectual property, technology and confidential information by requiring certain of our employees and consultants to enter into confidentiality and assignment of inventions agreements and certain third parties to enter into nondisclosure agreements. These agreements may not effectively grant all necessary rights to any inventions or works that may have been developed or created by the employees or consultants party thereto. In addition, these agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology.

We currently hold rights to the neogames.com and pariplayltd.com internet domain names and various other related domain names. The regulation of domain names is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. In addition, third parties may already have registered, or may register in the future, domain names similar or identical to our registered and unregistered trademarks. As a result, we may not be able to acquire or maintain all domain names that use the names neogames, pariplayltd or are otherwise important for our business.

We also have certain registered and unregistered trademarks that are important to our business, such as the NEOGAMES trademark. If we fail to adequately protect or enforce our rights under this trademark, we may lose the ability to use this trademark or to prevent others from using it, which could adversely harm our reputation, business, results of operations and financial condition.

Our software, games and marketing materials are protected under copyright law, and some also benefit from trade secret protection. We have chosen not to register any copyrights under the Library of Congress. In order to bring a copyright infringement lawsuit in the United States, the copyright must be registered. Accordingly, the remedies and damages available to us for unauthorized use of our software, games and materials may be limited.

We rely on third-party intellectual property. We cannot guarantee that such intellectual property will continue to be available.

We rely on third-party technologies, trademarks and other intellectual property. There can be no assurance that these licenses, or support for such licensed products and technology, will continue to be available to us on commercially reasonable terms, if at all. In addition, the future success of our business may depend, in part, on our ability to obtain or expand licenses for lottery or gaming technologies we do not currently possess. In the event that we cannot retain, renew or expand existing licenses, we may be required to modify, limit or discontinue certain of our products or services, which could materially affect our business, financial condition and results of operations. In addition, the regulatory review process and licensing requirements of our government customers may preclude us from using technologies owned or developed by third parties if those parties are unwilling to subject themselves to regulatory review or do not meet regulatory requirements.

The gaming industry is historically litigious with respect to intellectual property and there can be no assurance that our platforms will not infringe on the rights of others.

    There is a risk that our operations, platforms and services may infringe, or be alleged to infringe, the intellectual property rights of third parties. We have incurred and in the future may incur substantial time and expense in defending against third-party infringement claims, regardless of their merit. Additionally, due to diversion of management time, expenses required to defend against any claim and the potential liability associated with any lawsuit, any litigation could significantly harm our business, financial condition and results of operations. If we were found to have infringed the intellectual property rights of a third party, we could be liable for license fees, royalty payments, lost profits or other damages, and may be subject to injunctive relief to prevent us from using such intellectual property rights in the future. Such liability (if significant) or injunctive relief could materially and adversely affect our business, prospects, financial condition and results of operations.
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We are exposed to costs associated with changes in levies and taxes.

  We must comply with tax laws in the jurisdictions in which we operate. Tax rules or their interpretation may change in the markets in which we operate and in any markets we may enter in the future. Any changes to the corporate tax rate application in different jurisdictions, withholding taxes, transfer pricing rules, levels of value added tax, industry specific taxes and other levies, royalties and imposts could materially and adversely affect our financial position, performance and prospects. For example, there is a risk that we will not be able to pass on to our customers any additional gaming levies or taxes that apply to us.  Another example is the recent United States Inflation Reduction Act which, among other changes, introduced a 15% corporate minimum tax on certain U.S. corporations and a 1% excise tax on certain stock redemptions by U.S. corporations, which the U.S. Treasury indicated may also apply to certain stock redemptions by a foreign corporation funded by certain U.S. affiliates. In addition, certain of our positions regarding the taxes that apply to us in the different jurisdictions in which we operate may not be accepted by the tax authorities in such jurisdictions, which could adversely affect our financial condition. On May 18, 2021, we obtained a pre-ruling from the Israeli Tax Authority regarding the transfer of certain intellectual property rights relating to the online lottery business of NeoGames S.A. to NGS. We cannot guarantee that the ruling will be acceptable with the Luxembourg tax authorities. See Item 10.E. “Taxation – Tax Ruling of the Israeli Tax Authority.

We are subject to taxation in multiple jurisdictions, which is complex and often requires making subjective determinations subject to scrutiny by, and disagreements with, tax regulators.
 
We are subject to different forms of taxation in each of the countries and regions we or our subsidiaries are formed and/or conduct our business, including, but not limited to, income tax, withholding tax, gaming taxes, property tax, VAT, social security and other payroll-related taxes. Tax law and administration is complex, subject to change and varying interpretations and often requires us to make subjective determinations. In addition, we take positions in the course of our business with respect to various tax matters, including in connection with our operations. Tax authorities worldwide are increasingly rigorous in their scrutiny of corporate tax structures and may not agree with the determinations that are made, or the positions taken, by us with respect to the application of tax law. Such disagreements could result in lengthy legal disputes, an increased overall tax rate applicable to us and, ultimately, in the payment of substantial amounts of tax, interest and penalties, which could have a material adverse effect on our business, results of operations and financial condition.
 
For example, in August 2021 we received a request from the Israeli Tax Authority to provide certain information and documents related to our Israeli subsidiary Neogames Systems Ltd. with respect to the years 2016-2019, and in February 2023, we were also requested to provide certain input and output VAT related documentation related to our Israeli subsidiary. We have not received additional requests or other notifications from the Israeli Tax Authority, pertaining to these matters, with any findings or that would clarify the reasons for such audit. Such audits and similar proceedings may result in assessments, fines, settlements, or increased overall tax rates. While we believe we comply with applicable tax laws, and given the absence of further communications from the Israeli Tax Authority as aforementioned, we cannot anticipate the results of such audit or other similar proceedings, and we have not set aside any reserves to provide for any outcomes related to the tax audits. The ultimate outcome of the Israeli tax audit, and any other audits that may commence by any other tax authority, and of any related litigation or other proceedings, could have a material adverse effect on our consolidated financial statements.

Another example is the pre-ruling issued on May 18, 2021 by the Israeli Tax Authority regarding the transfer of certain intellectual property rights relating to the online lottery business of NeoGames S.A. to NGS. We cannot guarantee that the ruling will be acceptable to the Luxembourg tax authorities, or that the Israeli Tax Authority will not commence audit of other periods. Furthermore, the pre-ruling sets forth certain terms regarding the Company’s day to day practices. Failure by the Company to adhere to such terms may result in the loss of the beneficial tax rates set forth by the pre-ruling. See Item 10.E. “Taxation – Tax Ruling of the Israeli Tax Authority.

Our operations in Kyiv, Ukraine have been negatively impacted as a result of Russia’s invasion of Ukraine, and our business, financial condition and results of operations may be materially adversely affected if the impacts resulting from the conflict in Ukraine are exacerbated.

Our Ukrainian operations have been negatively affected by the ongoing Russian invasion of Ukraine which began in February 2022. We have invested significant resources in Ukraine over the last several years and we operate a development hub in Kyiv. As of December 31, 2022, we had approximately 383 employees and self-employed contractors serving our Ukrainian operations and 0.1% of our total Company assets in Ukraine. Since the invasion, we have strategically transitioned to Israel the responsibilities for the release of new features, and the monitoring of stability and health of the production environment and opened a new satellite office in Poland for those of our employees that have fled Ukraine subsequent to Russia’s invasion. Operations in the Poland office are in their initial stages. As of April 18, 2023, approximately 26 of our 383 Ukraine-based employees are working remotely either in the Poland office or other locations outside of Ukraine. As a result of these disruptions, we have experienced some decline in our delivery rates during fiscal 2022. However, the ultimate extent, length and impact of the ongoing military conflict are highly unpredictable. If the effects of the invasion are exacerbated in the future, this could materially impact our ability to meet our long term development delivery commitments, our cost structure and future planned development of capabilities in Ukraine and the surrounding region. It is unclear what impact the hostilities in Ukraine will have on our assets.
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We have developed contingency plans to relocate work and/or personnel to other geographies and add new locations, as appropriate. Our business continuity plans are designed to address known contingency scenarios to ensure that we have adequate processes and practices in place to protect the safety of our people and to handle potential impacts to our operations. However, our crisis management procedures, business continuity plans and disaster recovery capabilities may not be effective at preventing or mitigating the effects of exacerbated prolonged civil unrest or military conflict to our people, our facilities, our operations, and infrastructure, such as utilities and network services, and the disruption of any or all of them could materially adversely affect our business, financial conditions and results of operations, and cause volatility in the price of our shares. We are continuing to monitor the situation in Ukraine and assess options in relation to our ongoing operations and our ability to continue to do business in the region.

Our platform contains third-party open source software components, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could negatively affect our business.

Our platform contains software modules licensed to us by third-party authors under “open source” licenses and we expect to use open source software in the future. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. To the extent that our platform depends upon the successful operation of open source software, any undetected errors, malicious code or defects in this open source software could prevent the deployment or impair the functionality of our platform, delay new introduction of new solutions, result in a failure of our platform and injure our reputation. For example, undetected errors or defects in open source software could render it vulnerable to breaches or security attacks, and, subsequently, make our systems more vulnerable to data breaches. In addition, the public availability of such software may make it easier for others to compromise our platform.

Some open source licenses require that source code for modifications or derivative works we created based on such open source software be made publicly available as open source software. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with less investment of development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software.

In addition, the terms of many open source licenses have not been interpreted by United States or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our platform. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. We cannot assure you that our processes for controlling our use of open source software in our platform will be effective, nor that the open-source software in our platform is updated and not at “end-of-life” or “end-of-support”, when the open-source community no longer releases updates or fixes for the software. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability, or be required to seek costly licenses from third parties, to continue providing our offerings on terms that are not economically feasible, to re-engineer our platform, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, financial condition and results of operations.

We are highly dependent on our key personnel. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

We rely on the expertise, industry experience, know-how, customer relationships and leadership of our senior management, and the departure, death or disability of any one of our executive officers or other extended or permanent loss of any of their services, or any negative market or industry perception with respect to any of them or their loss, could have a material adverse effect on our business.
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We depend on our technical and operational employees for the design and development of our innovative products and services. The competition for these types of personnel is intense and we compete with other potential employers, including certain of our strategic partners, for the services of our employees. As a result, we may not succeed in retaining the key employees that we need in order to maintain and grow our business.

If we do not succeed in attracting, hiring, and integrating qualified personnel, or retaining and motivating existing personnel, we may be unable to grow effectively and our business could be adversely affected. We deploy our employees to certain of our customers’ worksites to assist in the development of their IT systems and platforms. The loss of employees who have been involved in the development of intellectual property and know-how and the development and maintenance of key strategic relationships with customers may result in the subsequent loss of key customers. If key employees were to leave, we may be unable to deliver our existing services or develop new products until such employees have been replaced. As our employees have very specific skillsets and are highly qualified, we may face difficulties in replacing them with new employees, and even if we succeed in recruiting new employees, we may incur substantial costs in the recruiting, training and integration of such new employees. See “Our operations in Kyiv, Ukraine have been negatively impacted as a result of Russia’s invasion of Ukraine, and our business, financial condition and results of operations may be materially adversely affected if the impacts resulting from the conflict in Ukraine are exacerbated” above regarding the situation in Ukraine.

Generally, the competition for skilled technical and other personnel in Israel, Ukraine, Malta, Bulgaria and North Macedonia is intense, and as a result we may fail to continue to attract, recruit, develop and retain qualified employees, which could materially and adversely impact our business, financial condition and results of operations.

We compete in a market marked by rapidly changing technologies and an evolving competitive landscape. In order for us to successfully compete and grow, we must attract, recruit, retain and develop personnel with requisite qualifications to provide expertise across the entire spectrum of our intellectual capital and business needs. In addition, even though we are not responsible for attracting and hiring talent for NPI, our revenues from NPI are impacted by such decisions.

Our principal research and development centers are located in Israel, the Ukraine, Bulgaria and North Macedonia, and significant elements of our general and administrative activities are conducted at our headquarters in Israel. Historically as well as recently, there has been intense competition for qualified human resources in the high-tech industry in such countries as well as in the United States. Despite recent workforce reduction initiatives by high-tech companies in Israel and the U.S. since the third quarter of 2022 due, among other things, to inflation and rising interest rates in Israel and the U.S., there remains considerable competition for such employees, especially in the core technical sphere, in the countries where we have our principal research and developments centers. This intense competition has resulted in increasing wages in all countries where we have our principal research and developments centers, which may make it more difficult for us to attract and retain qualified personnel, as many of the companies against which we compete for personnel have greater financial resources than we do. These competitors may also actively seek to hire our existing personnel away from us, even if such employees have entered into a non-compete agreement. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work. For example, Israeli labor courts require employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s confidential information or other intellectual property, taking into account, among other things, the employee’s tenure, position, and the degree to which the non-compete undertaking limits the employee’s freedom of occupation. We may not be able to make such a demonstration. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged confidential information.

  In addition, in making employment decisions, particularly in the internet and high-technology industries, job candidates often consider the value of the equity they are eligible to receive in connection with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive awards have significantly appreciated or significantly reduced in value. Many of our employees may receive significant proceeds from sales of our equity in the public markets, which may reduce their motivation to continue to work for us and could lead to employee attrition. If we fail to attract new personnel, or fail to retain and motivate our current personnel, our business, financial condition, results of operations and growth prospects could be harmed.
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We may not be able to service our debt under our financing agreements in connection with the Acquisition of Aspire, or we may otherwise be in breach of those arrangements.

In order to finance, among other things, part of the aggregate consideration payable by the Company pursuant to the acquisition of Aspire, the Company, NeoGames Connect S.à r.l. and NeoGames Connect Limited have entered into the Senior Facilities Agreement with the Lenders (each as defined below). Pursuant to the terms of the Senior Facilities Agreement, the Lenders (as defined below) has made available, in connection with the acquisition of Aspire, the Senior Facilities (as defined below). For more information regarding the financing for the acquisition of Aspire, see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources - Financing for the Acquisition of Aspire” below.

Following the consummation of the acquisition of Aspire, we have outstanding indebtedness with debt service requirements. Our ability to meet our debt service obligations will depend on our future operating and financial performance, which in turn depends on our ability to successfully implement our business strategy as well as general economic, financial, competitive, regulatory and other factors that are beyond our control. In addition, our ability to meet our debt service obligations depends also on the interest rates and their volatility. For example, the interest rate payable by the Company under the Senior Facilities Agreement is linked to the EURIBOR, which increased in 2022 and may continue to increase in the future. If we do not generate sufficient cash to service our debt under the Senior Facilities Agreement or if we fail to meet other obligations under the Senior Facilities Agreement, we may be in default, which may entitle the Lenders to certain rights and remedies against us, and such rights and remedies may have a material adverse effect on our business and financial results.

The Senior Facilities Agreement contains customary affirmative and negative covenants which may restrict our ability to operate our business (including a financial maintenance covenant). Our failure to comply with these covenants, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our financial condition and results of operations.

In the event of a default under the Senior Facilities Agreement, that is not cured or waived, the Lenders could take certain actions, including terminating their commitments, declaring all amounts that we have borrowed under the Senior Facilities Agreement, to be due and payable, together with accrued and unpaid interest (and other fees) and/or enforce the security in favor of the Lenders that was granted in connection with the Senior Facilities Agreement. If the debt under the Senior Facilities Agreement or any other material financing arrangement that we have entered into or will subsequently enter into were to be accelerated, our assets may be insufficient to repay the indebtedness in full. Any such actions could force us into bankruptcy or liquidation, and we might not be able to repay our obligations in such an event.

For a summary of the costs we have incurred in connection with financing the acquisition of Aspire, see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources.

We may require additional capital to support our growth plans, and such capital may not be available on terms acceptable to us, if at all, and may result in shareholder dilution. This could impair our growth and materially and adversely affect our business.

Our business generally requires significant upfront capital expenditures for software customization and implementation and systems and equipment installation and configuration. In connection with a renewal of or bid for a lottery or gaming contract, a customer may seek to impose new service requirements, which may require additional capital expenditures in order to retain or win the contract, as applicable.

To the extent that we do not have sufficient liquidity levels to fund such capital expenditures, our ability to procure new contracts and renew existing contracts would depend on, among other things, our ability to obtain additional financing on commercially reasonable terms. Our ability to obtain additional capital, if and when required, will depend on, among other factors, our business plans, investor demand and the capital markets.

We have historically funded our operations with, among other things, borrowings under the WH Credit Facility. On October 20, 2020, we entered into a loan agreement with William Hill Finance Limited, an affiliate of William Hill, which set out amended terms and an amended repayment schedule with respect to our outstanding loans under the WH Credit Facility and prohibited us from making any additional draws under the WH Credit Facility. All borrowed amounts under such agreements (including interest thereon) have been repaid in full by us on or before June 30, 2022. See Item 7.B. “Related Party Transactions - Relationship with William Hill and Caesars - WH Credit Facility.” In addition, we financed the acquisition of Aspire through a EUR 200.8 million financing arrangement with Blackstone.
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Any debt financing would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. Moreover, we can provide no assurances that the funds we raise will be sufficient to finance any future capital requirements. In addition, the impact of inflation and rising interest rates could significantly impact the cost of capital. As a result, we may be unable to raise additional funds on terms favorable to us or at all. If we are unable to raise additional capital or generate sufficient cash flows, we may be unable to fund our future expenses. This may prevent us from increasing our market share, capitalizing on new business opportunities or remaining competitive in our industry, which could materially and adversely affect our business, prospects, financial condition and results of operations.

We completed our public listing on November 23, 2020 raising a total net amount of $43 million and our total cash balance as of December 31, 2022 was approximately $41.1 million.

Any financing through the sale of equity securities may dilute the value of our outstanding Ordinary Shares. Any debt financing may require us to comply with various financial covenants and may restrict our activities. We also can provide no assurance that the funds we raise will be sufficient to finance any future capital requirements. If we are unable to obtain additional capital when required on satisfactory terms, our ability to continue to grow our business could be adversely affected.

Furthermore, the Company maintains the majority of its cash and cash equivalents in accounts with major and highly rated multi-national or local financial institutions, and our deposits at certain of these institutions significantly exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies listed in the United States. Our management team may not successfully or efficiently manage the Company, which is subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities analysts and investors. We also intend to continue to invest resources to comply with evolving laws, regulations, and standards, and these obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, prospects, financial condition and results of operations.

We may become subject to litigation, from which we could incur significant monetary and reputational harm, irrespective of the merit of such claim or outcome of such litigation.

There is a risk that we may become subject to litigation and other claims and disputes in the ordinary course of business, including contractual disputes and indemnity claims, misleading and deceptive conduct claims, employment-related claims, and intellectual property disputes and claims, including those based on allegations of infringement, misappropriations or other violations of intellectual property rights. We may incur significant expense defending or settling such litigation.

Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal, or in payments of substantial monetary damages or fines, the posting of bonds requiring significant collateral, letters of credit or similar instruments, or we may decide to settle lawsuits on similarly unfavorable terms. These proceedings could also result in reputational harm, criminal sanctions, consent decrees or orders preventing us from offering certain products or requiring a change in our business practices in costly ways or requiring development of non-infringing or otherwise altered products or technologies. Litigation and other claims and regulatory proceedings against us could result in unexpected disciplinary actions, expenses and liabilities, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Similar to many online casinos, Aspire has been the target of civil claims brought against it by Austrian players. These civil claims allege the provision of unlicensed gambling in Austria. Similar to the claims in Austria, we are also handling civil claims in Germany.
24


Our results of operations may be adversely affected by fluctuations in currency values.

The Company’s consolidated financial results are affected by foreign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions denominated in currencies other than U.S. dollars and from the translation of foreign operations primarily derived through Aspire.

Approximately 27% of the Company’s revenues in the year ended December 31, 2022 were denominated in U.S. dollars, 35% in euros and 38% in other currencies.  Any devaluation of the U.S. dollar compared to the New Israeli Shekel may result in increases in employee liabilities and other expenses, which may adversely affect the Company’s profit and financial performance. Exchange rate fluctuations have in the past adversely affected the Company’s operating results and cash flows and may adversely affect the Company’s results of operations and cash flows and the value of its assets outside the United States in the future. A devaluation of local currency in a jurisdiction in which the Company is paid in such currency may require the Company’s customers located in such jurisdiction to adjust the amounts paid in local currency for the Company’s products and services, which they may be unable or unwilling to make. Other than the FX Hedging Transaction entered into in connection with the acquisition of Aspire, NeoGames Systems Ltd. (“NGS”) entered into certain forward contracts to hedge its NIS cash flow exposure associated with expenses nominated in NIS during 2022. For more information regarding the financing for the acquisition of Aspire, see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources - Financing for the Acquisition of Aspire.

For information regarding the acquisition of Aspire, see Item 7.B. “Related Party Transactions - Relationship with Aspire.”

Expansion into new markets may be important to the growth of our business in the future, and if we do not manage the business and economic risks of this expansion effectively, it could materially and adversely affect our business and results of operations.

We expect to continue to expand our operations to additional U.S. states and to expand our international operations. For example, on June 28, 2022, we announced the entry into a multi-year turnkey project with Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais. Any new markets or countries which we attempt to access may not be receptive. For example, we may not be able to expand further in some markets if we are not able to satisfy certain government requirements. In addition, our operations in new jurisdictions subject us to risks customarily associated with such operations, including the complexity of local laws, regulations and markets, the uncertainty of enforcement of remedies in foreign jurisdictions, the impact of local labor laws and disputes, the economic, tax and regulatory policies of local governments and the ability to attract and retain key personnel in new jurisdictions. Foreign jurisdictions could impose tariffs, quotas, trade barriers, and other similar restrictions on our international sales. In addition, our ability to expand successfully involves other risks, including difficulties in integrating operations, risks associated with entering jurisdictions in which we may have little experience and the day-to-day management of a growing and increasingly geographically diverse company.

Our investments in new jurisdictions often entail entering into joint ventures or other business relationships with locally-based entities, especially in jurisdictions in which governments prefer or are required to use locally-based entities. Our reliance on partnerships with locally-based entities can involve additional risks arising from our lack of sole decision-making authority, our reliance on a partner’s financial condition, inconsistency between our business interests or goals and those of our partners and disputes between us and our partners.

We may not realize the operating efficiencies, competitive advantages or financial results that we anticipate from our investments in new jurisdictions and our failure to effectively manage the risks associated with our operations in new jurisdictions could have a material adverse effect on our financial position, performance and prospects.

As a significant amount of our net profits and cash flows are generated outside Luxembourg, the repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates for us. In addition, heightened attention has been given at national and supranational levels, including through the G20 / OECD Base Erosion and Profit Shifting project (BEPS), as well as in other public forums and the media, with regard to matters of cross-border taxation, and in particular, to taxation of the digital economy. On December 20, 2021, the OECD published the Pillar Two model rules for domestic implementation of a 15% global minimum tax. The European Commission published a draft directive on December 22, 2021 aiming at implementing these rules, which was adopted by the Council of the European Union on December 15, 2022. The OECD released the commentary relating to the model rules on March 14, 2022 and addressed co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This was followed by the development of an implementation framework focused on administrative, compliance and co-ordination issues relating to Pillar Two. It is expected that the global minimum tax will be implemented at national level by December 31, 2023. The Pillar Two rules, once implemented, are expected to apply to us, along with detailed transfer pricing reporting and exchange of tax information rules known as “Country by Country Reporting”, insofar as our annual revenues exceed EUR 750 million.
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Malta transposed the EU Anti-Tax Avoidance Directive into domestic law, including changes with respect to exit tax, General Anti-Abuse Rules and Controlled Foreign Corporation rules. Due to pressure from the European Union, many offshore jurisdictions have introduced “substance” requirements including with regard to intangible property companies. The likelihood of scrutiny of tax practices by tax authorities in relevant jurisdictions and the aggressiveness of tax authorities remains high.

In this context, we expect to be subject to increased reporting requirements regarding our international tax structure.

Any changes in the rules regarding cross-border taxation or the revised interpretation of existing tax rules could increase our tax liability and have a material adverse effect on our business, results of operations, financial condition and prospects.

Our insurance may not provide adequate levels of coverage against claims.

We maintain insurance that we believe is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. Such losses could adversely affect our business prospects, results of operations, cash flows and financial condition.

If we fail to detect fraud or theft, including by our employees and our customers and their players, our reputation may suffer which could harm our brand and negatively impact our business, financial condition and results of operations and subject us to investigations and litigation.

We may incur losses, whether directly or indirectly through our revenue share with our customers, from various types of financial fraud, including use of stolen or fraudulent credit card data, claims of unauthorized payments by our customers’ players and attempted payments by such players with insufficient funds. Bad actors use increasingly sophisticated methods to engage in illegal activities involving personal data, such as unauthorized use of another person’s identity, account information or payment information and unauthorized acquisition or use of credit or debit card details, bank account information and mobile phone numbers and accounts.

Acts of fraud may involve various tactics, including collusion. Successful exploitation of our systems could have negative effects on our product offerings, services and player experience and could harm our reputation. Failure to discover such acts or schemes in a timely manner could result in harm to our operations.

In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and prospects. In the event of the occurrence of any such issues with our existing platform or product offerings, substantial engineering and marketing resources and management attention, may be diverted from other projects to correct these issues, which may delay other projects and the achievement of our strategic objectives.

In addition, any misappropriation of, or access to, players’ personal data or other proprietary information or other breach of our information security could result in legal claims or legal proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal data or for misusing personal data, which could disrupt our operations, force us to modify our business practices, damage our reputation and expose us to claims from our customers, their players, regulators, employees and other persons, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.

We cannot guarantee that any measures we have taken or may take in the future to detect and reduce the occurrence of fraudulent or other malicious activity on our platform will be effective or will scale efficiently with our business. Our failure to adequately detect or prevent fraudulent transactions could harm our reputation or brand, result in litigation or regulatory action and lead to expenses that could adversely affect our business, financial condition and results of operations.
26


We are subject to risks related to corporate social responsibility, responsible lottery and gaming, reputation and ethical conduct.

Many factors affect our reputation and the value of our brand, including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we operate, such as our social responsibility, corporate governance and responsible lottery practices. As with other companies, we have faced, and will likely continue to face, increased scrutiny related to environmental, social, governance (“ESG”), responsible lottery and gaming activities, and our reputation, operations and the value of our brands can be materially adversely harmed if we fail to act responsibly in a number of areas, such as diversity and inclusion, workplace conduct, responsible gaming, sustainable environmental practices, human rights, philanthropy and support for local communities.

While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) to improve the ESG profile of our company and/or products, such efforts may be costly and may not have the desired effect. Expectations around companies’ management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control. Any actions we currently take may subsequently be determined to be insufficient by various stakeholders, and we may be subject to investor or regulatory engagement on our ESG initiatives, even if they are currently voluntary.

Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us or our industry, which could negatively impact our share price as well as our access to and cost of capital. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and partners to do business with us, which could have a materially adverse effect on our business, results of operations and cash flows. We believe that our reputation is critical to our role as a leader in the iLottery and gaming industries and as a publicly traded company. Our management is heavily focused on the integrity of our directors, officers, senior management, employees, other personnel and third-party suppliers and partners. Illegal, unethical or fraudulent activities perpetrated by any of such individuals, suppliers or partners for personal gain could expose us to potential reputational damage and financial loss.

In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters. For example, the SEC has published proposed rules that would require companies to provide expanded climate-related disclosures, which may require us to incur significant additional costs to comply, including the implementation of significant additional internal controls processes and procedures regarding matters that have not been subject to such controls in the past, and impose increased oversight obligations on our management and board of directors. Additional regulations have been adopted, or proposed, in Europe, including a number which may increase the oversight obligations of companies with respect to their suppliers and/or business partners. These and other changes in stakeholder expectations will likely lead to increased costs as well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, many of our customers and business partners may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us.

The illegal gaming market could negatively affect our business.

A significant threat to the lottery and gaming industry arises from illegal activities. Such illegal activities may draw significant betting volumes away from the regulated industry. In particular, illegal gaming could take away a portion of the present players that are the focus of our business. The loss of such players could have a material adverse effect on our results of operations, business, financial condition or prospects. Further, public trust is critical to the long-term success of regulated gaming, including lottery. Illegal gaming activities could impact the reputation of our customers, which would have an adverse impact on their revenues and our revenues.

Termination of our relationship with Caesars, or failure to realize the anticipated benefits of such relationship could have an adverse effect on our business, prospects, financial condition and results of operations.

Pursuant to the CZR Term Sheet, we granted Caesars a sub-license to our NeoSphere platform to operate its U.S. iGaming business. In addition, we customize the NeoSphere platform to assist Caesars in meeting the regulatory requirements of the states in which it operates our systems.

Upon a change of control of the Company, Caesars will have the right to purchase a perpetual sub-license to the NeoSphere platform and any software updates and development that we provided to Caesars (the “IP Option”) for a price of £15 million. We have also agreed to provide Caesars with the IP Option following the completion of a four year period from the date of the CZR Term Sheet. For additional information on our relationship with Caesars, see Item 7.B. “Related Party Transactions - Relationship with William Hill and Caesars.” Revenues received from Caesars in exchange for the sub-license to use the NeoSphere platform and the related services accounted for 8.6%, 16% and 13.6% of the Company’s revenues in the years ended December 31, 2022, 2021 and 2020, respectively. In the event that Caesars terminates the CZR Term Sheet, we will cease to generate revenues from Caesars. Additionally, the termination of our strategic relationship with Caesars could be negatively perceived by the market and could harm our brand and reputation.
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Risks Relating to Regulation of Our Business

The gaming and lottery industries are heavily regulated, and changes to the regulatory framework in the jurisdictions in which we operate could harm our existing operations.

We and our customers are subject to extensive laws and regulations, which vary across the jurisdictions in which we and they operate. The regulatory environment, including lottery and gaming laws, in any particular jurisdiction may change in the future, which may limit some or all of our or our customers’ existing operations in such jurisdiction. These risks may include, for example, changes in taxation, an obligation to have a national license and the ability to carry out marketing. There can be no assurance that our and our customers’ existing operations, or the iLottery and iGaming industries as a whole, in such jurisdictions will continue to be permitted. Further, even if we are still permitted to operate in a given jurisdiction, regulations may be imposed that make continued operations cost-prohibitive.

While we do our best to follow all applicable laws and regulations, we may be seen by regulatory bodies as having breached local laws. Prosecutors as well as private individuals may bring about criminal and/or civil proceedings, against us or against our business affiliates. Such events can negatively affect our business as they are costly proceedings, and may adversely affect our licensing objectives and our reputation.

We may become subject to additional regulations in any new jurisdiction in which we decide to operate in the future. The complexity of the regulatory environment may create challenges for us with respect to our ability to comply with applicable regulations, renew contracts, pursue tender offers and otherwise develop our business.

We may not be able to capitalize on the expansion of internet use and other changes in the lottery and gaming industries as a consequence of lack of legislative approvals, changes in regulations or regulatory uncertainty. We aim to take advantage of the liberalization of internet and mobile gaming, both within the United States and internationally. These industries involve significant risks and uncertainty, including legal, business and financial risks. This dynamic environment can make it difficult to plan strategically and can provide opportunities for competitors to grow revenues at our expense. Our ability to successfully pursue interactive lottery and gaming strategies depends on the regulation of gambling through online channels. Regulations and laws relating to internet lottery and gaming are evolving and we cannot predict the timing, scope or terms of any such state, federal or foreign regulations, or the extent to which any such regulations will facilitate or hinder our interactive strategies. Any such changes to regulations or laws could have a material adverse effect on our business, results of operations, financial condition and prospects.

Failure by us or by our major shareholders to comply with regulations may result in the revocation or suspension of our or our customers’ licenses to operate.

Our and our customers’ respective licenses to operate are subject to suspension or revocation by applicable regulatory authorities as a result of noncompliance with applicable regulatory requirements. In the event of our noncompliance, such authorities may pursue enforcement proceedings against us or certain of our customers. We can provide no assurance as to whether such proceedings would be likely to result in a favorable outcome. Further, such proceedings, irrespective of their outcome, may cause us or our customers to incur substantial costs, require operational changes and result in reputational damage, among other negative impacts, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

On occasion, we are subject to regulatory and/or administrative investigations with respect to our services in various jurisdictions. Such investigations can affect our business, as well as our licenses and our reputation. Any violations of regulations uncovered in such investigations can carry with it financial penalties and/or additional licensing conditions. Such consequences negatively affect our business operations, by causing us to incur heavy costs and resulting in notification of other regulators in jurisdictions wherein we are licensed. Such penalties can also affect the procurement of future licenses, and negatively affect our reputation.
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On November 23, 2022, Aspire reached the conclusion of its license review by the United Kingdom Gambling Commission, which identified certain shortcomings in the system of controls it uses to monitor risks associated with its relationship with its partners. Aspire cooperated with the United Kingdom Gambling Commission throughout the investigation and took immediate corrective steps to address the identified failings. Aspire received a warning and agreed to pay a financial penalty in the amount of £237,600.

On January 23, 2019, the Belgian Gaming Commission (“BGC”) decided to revoke AG Software’s (as defined below) Class E software provider license, because AG Software had not implemented a technical requirement set by the BGC. As a result of this decision, AG Software can no longer offer its gambling software services in Belgium. No financial penalties were issued by the BGC. AG Software has filed an action for the annulment of the BGC’s decision. In February 2023, an auditor of the Council of State filed a report in AG Software’s favor, arguing that the BGC has no authority to impose a particular method of registration and identification, and age control of players. The BGC filed a brief contesting this view. AG Software is currently preparing a brief to submit in response, which will agree with the auditor’s conclusion, and refute the BGC’s last brief.

In addition, regulatory and gaming authorities may suspend, revoke or condition our existing licenses and permits, or refuse, delay or condition the grant of future licenses and permits, if our principal shareholders are subject to investigations or regulatory proceedings. For example, one of our major shareholders was recently required to divest his shares as a result of requirements by state gaming regulators.  Should our shareholders not comply with regulatory standards, or not timely cooperate with us with to regain compliance, regulators may refuse to grant us or extend our licenses that are necessary for us to offer our services.

Were a license to be lost in any jurisdiction, this would trigger a reporting requirement in other jurisdictions, which can affect our license in those other jurisdictions, and it may also negatively affect applications for licenses in new jurisdictions, or even prevent us from being licensed in such existing or new jurisdictions.

We may fail to identify and support players who are suffering from gambling problems.

Responsible gaming has been a topic of debate in Europe in recent years. Although we responded with updated guidelines, offer a variety of responsible gaming features on our platforms and have appointed an officer of responsible gaming to ensure that guidelines and routines are followed, there can be no assurance that we will be able to identify and support all players who are suffering from gambling problems. The failure to do so could damage our reputation and lead to increased regulatory scrutiny of our operations and marketing strategies and potential regulatory and civil enforcement.

Our efforts to block or limit access to our gaming platforms in certain countries, whether entirely or within certain states thereof, may prove inadequate.

The legal and technological solutions and marketing limitations that we apply in certain jurisdictions to block or limit the access to and the use of services by end users may prove inadequate. In certain countries as well as in certain states of some countries it is prohibited to provide gaming services, and in some cases it is prohibited for customers to participate in any gambling activity, although the gaming operator is located in another country or another state of the same country where it has been legally licensed through regulation. Although we avoid marketing to customers in countries and states where online gaming is prohibited by law (unless the industry regards EU law as superseding national regulation) and apply technical blocking of IP from “blacklisted” countries, our efforts may prove unsuccessful, in which case we could be subject to monetary penalties or other sanctions in the country or state whose laws were violated.

We may incur substantial costs in order to meet the varied and complex regulatory requirements to which we are subject in the different jurisdictions in which we operate.

The form and scope of regulatory requirements within the iLottery, iGaming and online sports betting industries vary by jurisdiction. This lack of uniformity can increase the costs and burden of compliance, as well as increase the difficulty associated with expansion into new jurisdictions.

Regulatory frameworks associated with the iLottery, iGaming and online sports betting industries exist across a wide spectrum, including within particular countries. We currently have iLottery operations in approximately 20 jurisdictions, including several U.S. states where we hold supplier licenses as part of the CZR License (as defined below), and plan to expand our operations into new jurisdictions. In iGaming, we are licensed in 17 jurisdictions, and are currently in the process of obtaining licenses in 5 additional jurisdictions. Expansion into new jurisdictions will subject us to a wider range of different, and potentially conflicting, regulatory requirements, which may cause it to incur increased costs and expend a greater degree of time in ensuring compliance. Our business and operations may be adversely affected by inaccurate predictions of the financial cost and administrative burden of compliance in connection with expansion into new jurisdictions. Further, the likelihood of noncompliance may be heightened in the event of expansion, which could result in payment of liquidated damages or termination of contracts in the event of material noncompliance.
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Negative publicity concerning our Company, our brands or the gambling industry in general could result in increased regulations and reputational harm.

The industries in which we operate are at times subject to negative publicity with regard to harmful gambling behavior, such as addiction, gambling by minors, risks related to digital gambling and alleged association with money laundering. Negative publicity regarding our Company or any of our brands, or publicity regarding problem gambling and other concerns with the lottery, gaming and other gambling industries in general, even if not directly connected to us, could adversely impact our business, results of operations, and financial condition. For example, if the perception develops that the lottery and/or gaming industries is failing to address such concerns adequately, the resulting political pressure may result in the industry becoming subject to increased regulation and restrictions on operations. Such an increase in regulation could adversely impact our results of operations, business, financial condition or prospects.

We are subject to laws and regulations related to data privacy, data protection and information security and consumer protection across different markets where we conduct our business, including in the United States and the European Union (“EU”), and we are also required to comply with certain industry standards including the Payment Card Industry Data Security Standard. Our actual or perceived failure to comply with such obligations could harm our business.

In the United States and other jurisdictions in which we operate, we are subject to various consumer protection laws and related regulations. If we are found to have breached any consumer protection laws or regulations in any such jurisdiction, we may be subject to enforcement actions that require us to change our business practices in a manner which may negatively impact our revenues, as well as expose us to litigation, fines, civil and/or criminal penalties and adverse publicity that could cause our customers to lose trust in us, negatively impacting our reputation and business in a manner that harms our financial position.

As part of our business and on behalf of our customers, we collect information about individuals, also referred to as personal data, and other potentially sensitive and/or regulated data. Laws and regulations in the United States and around the world restrict how personal data is collected, processed, stored, used and disclosed, as well as set standards for its security, implement notice requirements regarding privacy practices, and provide individuals with certain rights regarding the use, disclosure and sale of their protected personal data.

In the United States, both the federal and various state governments have adopted or are considering, laws, guidelines or rules for the collection, distribution, use and storage of information collected from or about consumers or their devices. For example, in the United States, there are a number of federal laws that impose limits on or requirements regarding the collection, distribution, use, security and storage of personal data of individuals. The Federal Trade Commission (FTC) Act grants the FTC authority to enforce against unfair or deceptive practices, which the FTC has interpreted to require companies’ practices with respect to personal data comply with the commitments posted in their privacy policies. The U.S. Federal Trade Commission and numerous state attorneys general also are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of personal data, and to the security measures applied to such data. With respect to the use of personal data for direct marketing purposes, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, establishes specific requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content, and obligates, among other things, the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender.

In addition, in the United States a number of state-level privacy laws have and will soon go into effect that introduce new data privacy rights for consumers and new operational requirements for companies. We are subject to the Virginia Consumer Data Protection Act (“VCDPA”), which took effect on January 1, 2023, and the Colorado Privacy Act (“CPA”), which will go into effect on July 1, 2023, both of which may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. In addition, we may soon also be subject to other similar, and in some cases more stringent, data privacy laws, such as the California Consumer Privacy Act (“CCPA”), as modified by the California Privacy Rights Act (“CPRA”), which took effect on January 1, 2020 (with modifications taking effect on January 1, 2023), Connecticut Data Privacy Act (“CTDPA”), which goes into effect on July 1, 2023, and the Utah Consumer Privacy Act (“UCPA”), which goes into effect on December 31, 2023, similarly impose new privacy rights and obligations on businesses. More generally, some observers have noted the VCDPA, CPA, CCPA, CTDPA, and UCPA could mark the beginning of a trend toward more stringent United States federal privacy legislation, which could increase our potential liability and adversely affect our business. If we become subject to other state-level laws, guidelines or rules such as the CCPA, CTDPA, CPA, or UCPA, we may be required again to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.
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In Europe, we are subject to the European Union General Data Protection Regulation 2016/679 and applicable national supplementing laws (collectively, the “GDPR”) and to the United Kingdom General Data Protection Regulation and Data Protection Act 2018 (collectively, the “UK GDPR”) (the EU GDPR and UK GDPR together referred to as the “GDPR”). The GDPR imposes comprehensive data privacy compliance obligations in relation to our collection, processing, sharing, disclosure, transfer and other use of data relating to an identifiable living individual or “personal data.” We act as both a controller (including a joint controller) and a processor of personal data and must comply with obligations specific to our role. Controller obligations are onerous and include adhering to a principle of accountability which requires us to demonstrate compliance through policies, procedures, training and audit; providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; facilitating rights for data subjects in regard to their personal data (including data access rights, the right to be “forgotten” and the right to data portability); complying with international data transfer requirements; implementing security measures; contracting obligations; and notifying data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches. We also act as a data processor on behalf of our customers and have data protection obligations as a processor as well as to our customers, including obligations in relation to contracting, security, and assisting customers

We are also subject to EU and UK rules with respect to cross-border transfers of personal data out of the EEA and UK, respectively, and recent legal developments and guidance have created complexity and uncertainty regarding transfers of personal data from the EEA and the UK to other countries, including to the United States. Most recently, on July 16, 2020, the Court of Justice of the EU (the “CJEU”) invalidated the EU-US Privacy Shield Framework (the “Privacy Shield”) under which personal data could be transferred from the EEA to U.S. entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on standard contractual clauses alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis, taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. The European Commission has published revised standard contractual clauses for data transfers from the EEA: the revised clauses must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. We will be required to implement the revised standard contractual clauses, in relation to relevant existing contracts and certain additional contracts and customer arrangements, within the relevant time frames. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR.

These recent developments require us to review and amend the legal mechanisms by which we make and/or receive personal data transfers to/in the U.S. and other countries outside of the EEA and UK, and create uncertainty and increase the risk around our international data transfer and operations. As the enforcement supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

We depend on a number of third parties in relation to the operation of our business, a number of which process personal data or other information on our behalf. We cannot guarantee the technical and organizational security measures or privacy standards of these third parties. Any violation of data or security laws by these third parties could have a material adverse effect on our business and result in the fines and penalties outlined below.
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We are subject to the supervision of local data protection authorities in those EU jurisdictions where we are established or otherwise subject to the GDPR. Fines for certain breaches of the GDPR are significant, such as an amount equal to the greater of €20 million or 4% of total global annual turnover. In the UK, we are subject to enforcement and fines for certain breaches can be up to £17.5 million, or 4% of global annual turnover. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing or use of our data, enforcement notices, and/or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.

We are also subject to evolving EU privacy laws on cookies, tracking technologies and e-marketing. In the EU, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. The current national laws that implement the ePrivacy Directive are highly likely to be replaced across the EU by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. While the text of the ePrivacy Regulation is still under development, a recent European court decision, regulators’ recent guidance and recent campaigns by a not-for-profit organization are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target users, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users.

Restrictions on the collection, use, sharing or disclosure of personal data or additional requirements and liability for security and data integrity could require us to modify our solutions and features, possibly in a material manner, could limit our ability to develop new products and features and could subject us to increased compliance obligations and regulatory scrutiny.

These laws and regulations constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. New privacy laws add additional complexity, requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact trading strategies and availability of previously useful data. Such new laws may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard (the “PCI DSS”) implemented by major card schemes, including Visa, Mastercard, American Express, Discover and JCB. These security standards apply in addition to our regulatory obligations, and applies to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions. Any failure to comply with the PCI DSS may violate payment card association operating rules, federal and state laws and regulations, and the terms of our contracts with payment processors and merchant banks. Such failure to comply may result in the loss of our ability to accept credit and debit card payments, subject us to fines, penalties and damages. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders, and credit and debit card transactions.

We are subject to anti-money laundering laws and regulations in the United States, the European Union and the United Kingdom as well as other jurisdictions in which we operate.

We are subject to reporting, recordkeeping and anti-money laundering provisions in the United States, the European Union and the United Kingdom, and are subject to similar requirements in other jurisdictions in which we operate. Recently, there has been increased regulatory scrutiny by the United States, the European Union, the United Kingdom and other regulators and law enforcement agencies on companies in the gaming industry and compliance with anti-money laundering laws and regulations. Anti-money laundering laws and regulations are evolving quickly and could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Any determination that we have violated such laws or regulations, or any accusations of money laundering or regulatory investigations into possible money laundering activities, could have an adverse effect on our business, financial condition and results of operations and cash flows, and changes in these laws or regulations could result in increased operating costs.
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We are subject to economic and trade sanctions laws and regulations.

We are subject to economic and trade sanctions laws and regulations in the various jurisdictions in which we operate, including those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities in the United Kingdom and in European Member States, specifically Malta, Romania, Greece, Ireland, Germany, and Denmark. Our global operations expose us to the risk of violating, or being accused of violating, economic and trade sanctions laws and regulations. Our failure to comply with these laws and regulations may expose us to reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can also be disruptive and cause us to incur significant legal and investigatory fees. Despite our compliance efforts and activities we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

We are subject to global anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.

We are subject to anti-corruption, anti-bribery and similar laws and regulations in the various jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA prohibits us and our officers, directors, employees, agents and business partners acting on our behalf, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or otherwise securing an improper advantage to obtain or retain business. The FCPA further requires companies listed on U.S. stock exchanges to make and keep books and records that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. We conduct business directly and indirectly (through third-party vendors) with U.S. and non-U.S. governments. We are also subject to governmental oversight around the world, which may bring our officers, directors, employees and business partners acting on our behalf, including agents, into contact with government officials, all of which creates compliance risks.

We have implemented and maintain policies and procedures designed to comply with applicable anti-corruption laws and regulations. However, we cannot provide assurance that our internal controls and compliance systems will always protect us from liability for acts committed by employees, agents or business partners of ours that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and other related laws. Any such improper actions or allegations of such acts could subject us to civil or criminal fines and penalties, disgorgement of profits, injunctions and debarment from government contracts, as well as related stockholder lawsuits and other remedial measures, all of which could adversely affect our reputation, business, financial condition and results of operations. Investigations of alleged violations can also be disruptive and cause us to incur significant legal and investigatory fees.

Our revenue may be impacted, to a significant extent, by macroeconomic conditions, as well as by COVID-19 and similar health epidemics and contagious disease outbreaks.

Our business is sensitive to macroeconomic conditions. Economic factors, such as heightened inflationary pressures, risks of a general recession, rising interest rates in key markets in which we operate, currency exchange rate volatility, changes in monetary and related policies, market volatility, consumer confidence, supply chain issues and unemployment rates, are among the most significant factors that impact consumer spending behavior. Weak economic conditions or a significant deterioration in either global or certain regional economic conditions, including those resulting from general macroeconomic factors, such as the recent precipitous rise in inflation and interest rates, health epidemics, such as the ongoing COVID-19 pandemic, man-made events, such as the ongoing conflict in Ukraine, may limit supply chains or increase their cost, reduce the amount of disposable income consumers have, which, in turn, reduces consumer spending, and would have an adverse effect on our business, financial condition, and results of operations.

The extent to which the COVID-19 pandemic affects our financial results and operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to associated responses including new or escalated government or regulatory measures in markets where we operate and the cancellation of sports events in connection with COVID-19. In addition, new pandemics, similar health epidemics and contagious disease outbreaks may emerge in the future that could have similar negative effects on macroeconomic conditions generally and as a result may materially and adversely affect our business, results of operations, cash flows or financial condition.
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Conditions in the jurisdictions where we operate could materially and adversely affect our business, including, for example, in connection with the ongoing war in Ukraine.

Our offices are located in Tel Aviv, Israel, and a number of our officers and directors are living in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations, including, without limitation, the judicial reform efforts currently led by the Israeli government, the final form of which is yet unknown. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel could adversely affect our operations and results of operations.

In addition, one of our offices is located in Kyiv, Ukraine, where we have approximately 400 employees and a significant part of the development team is located. Russia’s invasion of Ukraine and the related measures taken by the U.S., EU, UK and other jurisdictions, and NATO, including economic sanctions and export controls imposed as a result thereof, have created global security concerns and could have an impact on regional and global economies.

We cannot predict the impact of Russian activities in Ukraine and any heightened military conflict or geopolitical instability that may follow, including additional sanctions or counter-sanctions. While we continue to monitor the situation in Ukraine closely, any prolonged or expanded unrest, military activities or sanctions could have a material adverse effect on our operations.

Risks Relating to the Ownership of Our Ordinary Shares

The trading price of our Ordinary Shares is likely to be volatile, and you may lose all or part of your investment.

 The following factors, in addition to other risks described in this Annual Report, may have a significant effect on the market price of our Ordinary Shares:


variations in our operating results;

actual or anticipated changes in the estimates of our operating results;

changes in stock market analyst recommendations regarding our Ordinary Shares, other comparable companies or our industry generally;

macro-economic conditions in the countries in which we do business;

currency exchange fluctuations and the denominations in which we conduct business and hold our cash reserves;

market conditions in our industry;

actual or expected changes in our growth rates or our competitors’ growth rates;

changes in regulation applicable to our industry;

changes in the market valuation of similar companies;

the trading volume of our shares on Nasdaq;


sales of our Ordinary Shares by us or our shareholders, including our Founding Shareholders; and

the adoption or modification of regulations, policies, procedures or programs applicable to our business.
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our Ordinary Shares could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our Ordinary Shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our Ordinary Shares. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially adversely affect our business, operating results and financial condition.
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If a U.S. person is treated as owning at least 10% of our Ordinary Shares, such holder may be subject to adverse United States federal income tax consequences.

If a U.S. person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our Ordinary Shares, such person may be treated as a “U.S. shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes a U.S. subsidiary, certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A U.S. shareholder of a controlled foreign corporation may be required to report annually and include in its United States taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s United States federal income tax return for the year for which reporting was due from starting. We cannot provide any assurance that we will assist investors in determining whether we are or any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a U.S. shareholder with respect to any such controlled foreign corporation or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A U.S. investor should consult its advisers regarding the potential application of these rules to an investment in our Ordinary Shares.

Ownership in our Ordinary Shares is restricted by gambling laws, and persons found “unsuitable” by a competent authority may be required to dispose of their shares.

Gambling authorities or lottery authorities, as applicable, have the right to investigate any individual or entity having a relationship to, or involvement with, us or any of our subsidiaries or joint ventures, to determine whether such individual or entity is suitable as a business associate of ours. Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities of a gambling company to report the acquisition to the local regulatory authorities, and those authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only.

Gambling and/or lottery authorities have very broad discretion in determining whether an applicant should be deemed suitable. Subject to certain administrative proceeding requirements, these regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by those authorities.

Any person found unsuitable by a competent authority may be precluded from holding direct, indirect, beneficial or record ownership of any voting security, nonvoting security or debt security of any public corporation which is registered with the relevant gambling or lottery authority beyond the time prescribed by such authority.

Our failure, or the failure of any of our major shareholders, directors, officers, key employees, products or technology, to obtain or retain a required license or approval in one jurisdiction could negatively impact our ability (or the ability of any of our major shareholders, directors, officers, key employees, products or technology) to obtain or retain required licenses and approvals in other jurisdictions.

In light of these regulations and the potential impact on our business, our articles of association allow for the restriction of stock ownership by persons or entities who fail to comply with informational or other regulatory requirements under applicable gambling laws, who are found unsuitable to hold our shares by competent authorities, whose stock ownership adversely affects our ability to obtain, maintain, renew or qualify for a license, contract, franchise or other regulatory approval from a gambling or lottery authority or a purported transferee of a stockholder who acquires shares made invalid pursuant to our articles of association. Due to related licensing requirements, one of our Founding Shareholders recently undertook to reduce his ownership stake in the Company. Should a shareholder fail to comply with regulatory requirements in this or a future case, and should the Company fail to pursue all lawful efforts to require such compliance, we may face disciplinary action in the applicable jurisdiction or our licenses in such jurisdiction may be in peril.
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The licensing procedures and background investigations of the authorities that regulate our businesses and the restriction in our articles of association may inhibit potential investors from becoming significant stockholders or inhibit existing stockholders from retaining or increasing their ownership.

We do not anticipate paying dividends in the foreseeable future.

We do not anticipate paying any cash dividends on our Ordinary Shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. 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. The amount of any future dividend payments we may make will depend on, among other factors, our strategy, future earnings, financial condition, cash flow, working capital requirements, capital expenditures and applicable provisions of our articles of association. Unless and until we declare and pay dividends, any return on your investment will only occur if the value of our Ordinary Shares appreciates.

Additionally, under Luxembourg law, at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our issued share capital. The allocation to the legal reserve becomes compulsory again when the legal reserve no longer represents 10% of our issued share capital. Our legal reserve is not available for distribution.

Future sales or the perception of future sales of our Ordinary Shares could adversely affect the price of our Ordinary Shares.

Subject to compliance with the Securities Act or exceptions therefrom, we, all of our directors and executive officers, and certain of our shareholders including the Founding Shareholders, may make Ordinary Shares available for sale into the public markets, which could cause the market price of our Ordinary Shares to decline and impair our ability to raise capital. Sales of a substantial number of shares or the perception that such sales may occur may also cause the market price of our Ordinary Shares to fall or make it more difficult for you to sell your Ordinary Shares at a time and price that you deem appropriate.

The coverage of our business or our Ordinary Shares by securities or industry analysts or the absence thereof could adversely affect the trading price and trading volume of our Ordinary Shares.

Our Ordinary Shares are listed on Nasdaq. However, we cannot assure you that an active trading market for our Ordinary Shares will be sustained. The trading market for our securities is influenced in part by the research and other reports that industry or securities analysts publish about us or our business or industry from time to time. We do not control these analysts or the content and opinions included in their reports. We may be slow to attract equity research coverage, and the analysts who publish information about our securities will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. If no or few analysts commence equity research coverage of us, the trading price and volume of our securities would likely be negatively impacted. If analysts do cover us and one or more of them downgrade our securities, or if they issue other unfavorable commentary about us or our industry or inaccurate research, our stock price would likely decline. Furthermore, if one or more of these analysts cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets. Any of the foregoing would likely cause our stock price and trading volume to decline. Accordingly, we cannot assure you of the likelihood that an active trading market will be sustained, the liquidity of any trading market, your ability to sell your Ordinary Shares when desired or the price that you may be able to obtain in any such sale.

We are an emerging growth company, as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Ordinary Shares less attractive to investors because we may rely on these reduced disclosure requirements.

We are an emerging growth company, as defined in the JOBS Act, and we could continue to be an emerging growth company for up to five years following the completion of our initial public offering.
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For as long as we continue to be an emerging growth company, we may also take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including presenting only limited selected financial data and not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. As a result, our shareholders may not have access to certain information that they may deem important. We cannot predict if investors will find our Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.

We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are not required to file their annual report on Form 20-F as promptly as U.S. domestic issuers. In addition, we are permitted to disclose limited compensation information for our executive officers on an individual basis. Further, we are not required to comply with Regulation FD, which restricts the selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. These exemptions and leniencies reduce the frequency and scope of information and protections afforded to shareholders of a company that is not a foreign private issuer.

Additionally, as a foreign private issuer whose shares are listed on Nasdaq, we have the option to follow certain home country corporate governance practices rather than those of Nasdaq, including with respect to Nasdaq’s rule with respect to a majority independent board. This will be the case even if we cease to be a “controlled company” within the meaning of the Nasdaq listing standards. Subject to the controlled company exemption, we may in the future elect to follow home country practices with regard to various corporate governance requirements for which exemptions are available to foreign private issuers, including certain requirements prescribed by Nasdaq with regard to, among other things, the composition of our board of directors and shareholder approval procedures for certain dilutive events and for the adoption of, and material changes to, equity incentive plans. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements. See Item 16G. “Corporate Governance.”

At this time, we do not follow any Luxembourg rules instead of Nasdaq corporate governance rules, except with respect to Nasdaq Marketplace Rule 5635 which sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. With respect to the circumstances described in Nasdaq Marketplace Rule 5635, we follow Luxembourg law which does not require approval of our shareholders with respect to the issuance of new shares within the limit and subject to the terms of the delegation granted to the board of directors in the form (and within the limits and conditions) of the authorized capital of the Company. 

Although we are a foreign private issuer and may elect to follow home country rules in lieu of certain Nasdaq listing rules, we are required, among other things, to have an audit committee that satisfies Nasdaq Listing Rule 5605(c)(2), including independence requirement of Nasdaq Listing Rule 5605(c)(2)(A)(ii). As previously disclosed, Ms. Lisbeth McNabb, who served as a member of the Board since May 2021, and also served as chair of the Audit Committee and as a member of the Compensation Committee and Nominating and Corporate Governance Committee, resigned from the Board effective April 21, 2023.  As a result, Nasdaq notified us that we are not in compliance with Nasdaq Listing Rule 5605(c)(2)(A) requiring three members on our audit committee. As such, we are relying on the cure period allowed for under Nasdaq Listing Rules to fill such vacancy with a qualified individual, and if we fail do so, we could become subject to delisting by Nasdaq.
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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2023. In the future, we would lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq rules. As a U.S.-listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.

We are a “controlled company” under Nasdaq rules, and we are able to rely on exemptions from certain corporate governance requirements that provide protection to shareholders of companies that are not controlled companies.

The Founding Shareholders held as of April 2023 approximately 59.1% of our issued Ordinary Shares. Accordingly, we are a “controlled company” under Nasdaq rules. As a controlled company, we are exempt from Nasdaq rules with respect to certain corporate governance requirements, such as the requirement that we have a majority of independent directors and we utilize this exemption. While we do not currently take advantage of other exemptions, if we elect to take advantage of any other exemptions in the future, our shareholders will not have the same protections afforded to shareholders of companies that are subject to all Nasdaq rules.

Our articles of association designate the federal district courts of the United States as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders.

Our articles of association provide that, unless we consent in writing to the selection of an alternative forum, the U.S. federal district courts shall be the sole and exclusive forum for any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions of our articles of association described above. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to United States Holders (as defined below) of our Ordinary Shares.

We would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the application of certain look-through rules, either: (i) 75% or more of our gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code (as defined below)), or (ii) 50% or more of the value of our gross assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For these purposes, cash and other assets readily convertible into cash or that do or could generate passive income are categorized as passive assets, and the value of goodwill and other unbooked intangible assets is generally taken into account. Passive income generally includes, among other things, rents, dividends, interest, royalties, gains from the disposition of passive assets and gains from commodities and securities transactions. For purposes of this test, we will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation of which we own, directly or indirectly, at least 25% (by value) of the stock.

Based on our market capitalization and the composition of our income, assets and operations, we believe we were not a PFIC for the year ending December 31, 2022 and do not expect to be a PFIC for United States federal income tax purposes for the current taxable year or in the foreseeable future. However, this is a factual determination that must be made annually after the close of each taxable year. Moreover, the aggregate value of our assets for purposes of the PFIC determination may be determined by reference to the trading value of our Ordinary Shares, which could fluctuate significantly. In addition, it is possible that the Internal Revenue Service may take a contrary position with respect to our determination in any particular year, and, therefore, there can be no assurance that we were not a PFIC for the year ending December 31, 2022 or will not be classified as a PFIC for the current taxable year or in the future. United States Holders should consult their tax advisers regarding the application of these rules. Certain adverse United States federal income tax consequences could apply to a United States Holder if we are treated as a PFIC for any taxable year during which such United States Holder holds our Ordinary Shares. See Item 10.E. “Taxation - Material United States Federal Income Tax Considerations for United States Holders - Passive Foreign Investment Company.”
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We continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq rules and other applicable rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations continue to increase our legal and financial compliance costs and continue to make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and could also make it more difficult for us to attract and retain qualified members of our board of directors.

We continue to evaluate these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of control over financial reporting. We are required to disclose material changes in internal control over financial reporting on an annual basis and are required to make annual assessment of our internal control over financial reporting pursuant to Section 404(a). While we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm pursuant to Section 404(b). To maintain compliance with Section 404 we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. 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 internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude that our internal control over financial reporting is effective as required by Section 404. If we identify one or more significant deficiencies, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. As a result, the market price of our Ordinary Shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

Notwithstanding Sections 3(a)(1)(A) and (C) of the 1940 Act, we are a research and development company and comply with the safe harbor requirements of Rule 3a-8 of the 1940 Act. We intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.
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Risks Relating to Our Incorporation in Luxembourg

The rights of our shareholders may differ from the rights they would have as shareholders of a United States corporation, which could adversely impact trading in our Ordinary Shares and our ability to conduct equity financings.

The Company’s corporate affairs are governed by the Company’s articles of association and the laws of Luxembourg, including the Luxembourg Company Law, as amended from time to time (loi du 10 août 1915 concernant les sociétés commerciales, telle qu’elle a été modifiée). The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. For example, under Delaware law, the board of directors of a Delaware corporation bears the ultimate responsibility for managing the business and affairs of a corporation. In discharging this function, directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and its shareholders. Luxembourg law imposes a duty on directors of a Luxembourg company to: (i) act in good faith with a view to the best interests of a company; and (ii) exercise the care, diligence, and skill that a reasonably prudent person would exercise in a similar position and under comparable circumstances. Additionally, under Delaware law, a shareholder may bring a derivative action on behalf of a company to enforce a company’s rights. Under Luxembourg law, the board of directors has sole authority to decide whether to initiate legal action to enforce a company’s rights (other than, in certain circumstances, an action against members of our board of directors, which may be initiated by the general meeting of the shareholders, or, subject to certain conditions, by minority shareholders holding together at least 10% of the voting rights in the company). Further, under Luxembourg law, there may be less publicly available information about us than is regularly published by or about U.S. issuers. In addition, Luxembourg laws governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg laws and regulations in respect of corporate governance matters might not be as protective of minority shareholders as are state corporation laws in the United States. Therefore, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors, officers or principal shareholders than they would as shareholders of a corporation incorporated in the United States. As a result of these differences, our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. issuer.

The Company is organized under the laws of Luxembourg and a substantial amount of its assets are not located in the United States. It may be difficult for you to obtain or enforce judgments or bring original actions against us or the members of our board of directors in the United States.

The Company is organized under the laws of the Grand Duchy of Luxembourg. Most of the members of our board of directors, our senior management and the experts named in this Annual Report reside outside the United States and a substantial portion of their assets are located outside the United States. As a result, it may not be possible for you to effect service of process within the United States upon these individuals or upon us or to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. securities laws against us in the United States. Awards of punitive damages in actions brought in the United States or elsewhere are generally not enforceable in Luxembourg and penalty clauses and similar clauses on damages or liquidated damages are allowed to the extent that they provide for a reasonable level of damages and the courts of Luxembourg have the right to reduce or increase the amount thereof if it is unreasonably high or low.
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As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. A valid judgment obtained from a court of competent jurisdiction in the United States may be entered and enforced through a court of competent jurisdiction in Luxembourg, subject to compliance with the enforcement procedures (exequatur). The enforceability in Luxembourg courts of judgments rendered by U.S. courts will be subject, prior to any enforcement in Luxembourg, to the procedure and the conditions set forth in the Luxembourg procedural code, which conditions may include that:


the judgment of the U.S. court is final and enforceable (exécutoire) in the United States;

the U.S. court had jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);

the U.S. court has applied to the dispute the substantive law that would have been applied by Luxembourg courts. Based on recent case law and legal doctrine, it is not certain that this condition would still be required for an exequatur to be granted by a Luxembourg court;

the judgment was granted following proceedings where the counterparty had the opportunity to appear and, if it appeared, to present a defense, and the decision of the foreign court must not have been obtained by fraud, but in compliance with the rights of the defendant;

the U.S. court has acted in accordance with its own procedural laws; and

the decisions and the considerations of the U.S. court must not be contrary to Luxembourg international public policy rules, must not have been given in proceedings of a tax or criminal nature and must not have been rendered subsequent to an evasion of Luxembourg law (fraude à la loi).
In addition, actions brought in a Luxembourg court against us, the members of our board of directors, our officers or the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. In particular, Luxembourg courts do generally not award punitive damages. It is possible that awards of damages made under civil liabilities provisions of the U.S. federal securities laws or other laws (for example, fines or punitive damages) would be classified by Luxembourg courts as being of a penal or punitive nature and would not be recognized by Luxembourg courts. Ordinarily an award of monetary damages would not be considered as a penalty, but if the monetary damages include punitive damages, such punitive damages may be considered as a penalty.

Derivative actions are generally not available to shareholders under Luxembourg law. However, minority shareholders holding securities entitled to 10% of the voting rights at the general meeting that resolved on the granting of discharge to the directors may bring an action against the directors on behalf of the company. Minority shareholders holding at least 10% of the voting rights of a company may also ask the directors questions in writing concerning acts of management of the company or one of its subsidiaries, and if the company fails to answer these questions within one month, these shareholders may apply to the Luxembourg courts to appoint one or more experts instructed to submit a report on these acts of management. This provision of Luxembourg law does not apply to claims under the U.S. federal securities laws. Furthermore, consideration would be given by a Luxembourg court in summary proceedings to acts that are alleged to constitute an abuse of majority rights against the minority shareholders.

Litigation in Luxembourg also is subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. Proceedings in Luxembourg would have to be conducted in the French or German language, and all documents submitted to the court would, in principle, have to be translated into French or German.

There exists no published case law in Luxembourg in relation to the recognition of limited recourse provisions by which a party agrees to limit its recourse against the other party to the assets available at any given point in time with such other party and there exists no published case law in Luxembourg in relation to the recognition of foreign law governed subordination provisions whereby a party agrees to subordinate its claims of another party. If a Luxembourg court had to analyze the enforceability of such provisions, it is likely that such a court would consider the position taken by Belgian and Luxembourg legal scholars according to which limited recourse provisions are enforceable against the parties thereto but not against third parties.

A contractual provision allowing the service of process against a party to a service agent could be overridden by Luxembourg statutory provisions allowing the valid serving of process against a party subject to and in accordance with the laws of the country where such party is domiciled.

For these reasons, it may be difficult for a U.S. investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us, the members of our board of directors, our executive officers and the experts named in this Annual Report. In addition, even if a judgment against us, the non-U.S. members of our board of directors, senior management or the experts named in this Annual Report based on the civil liability provisions of the U.S. federal securities laws is obtained, a U.S. investor may not be able to enforce it in U.S. or Luxembourg courts.
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Luxembourg and European insolvency and bankruptcy laws are substantially different than U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency and bankruptcy laws.

As a company organized under the laws of Luxembourg and with its registered office in Luxembourg, the Company is subject to Luxembourg insolvency and bankruptcy laws in the event any insolvency proceedings are initiated against us including, among other things, Council and European Parliament Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (recast). Should courts in another European country determine that the insolvency and bankruptcy laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency and bankruptcy laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency and bankruptcy laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency and bankruptcy laws.

ITEM 4.          INFORMATION ON THE COMPANY

4.A.          History and Development of the Company
 
We are a technology-driven provider of end-to-end iLottery and iGaming solutions and were initially organized under the laws of the Grand Duchy of Luxembourg (“Luxembourg”) as a private limited liability company (société à responsabilité limitée) on April 10, 2014 and converted into a public limited liability company (société anonyme) under the laws of Luxembourg on November 10, 2020 by completing the Initial Public Offering (the “IPO”) of our Ordinary Shares and their listing on Nasdaq Global Market. As part of the conversion we executed a 1:8.234 reverse share split. Our registered office is located at 63-65 rue de Merl, L-2146 Luxembourg and our telephone number at this address is +352-2040119020.

Our principal executive offices are located at 10 Habarzel Street, Tel Aviv, 6971014, Israel. Our telephone number at this address is +972-73-372-3107. Our website address is https:// neogames.com. The information contained on, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this Annual Report. We have included our website address as an inactive textual reference only. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, such as we, that file electronically, with the SEC at www.sec.gov. Under the rules of the SEC, we are currently eligible for treatment as a “foreign private issuer.” As a “foreign private issuer,” we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Exchange Act. Our agent for service of process in the United States is Puglisi & Associates and its address is 850 Library Avenue, Suite 204, Newark, DE 19711.

Selected Recent Developments

The Aspire Acquisition

On June 14, 2022, we completed a tender offer to acquire the shares of Aspire (the “Aspire Tender Offer”), and on August 11, 2022 we completed a squeeze out procedure for the remaining outstanding shares, after which we now own 100% of Aspire. The consideration paid by us for Aspire shares was SEK 111.00 per Aspire share with respect to 50% of Aspire shares, and 0.320 NeoGames ordinary shares (in the form of SDRs) for the remaining 50% of Aspire shares. The acquisition was funded through a combination of newly issued NeoGames ordinary shares and cash. We issued approximately 7.6 million ordinary shares (in the form of SDRs), and we also paid approximately $264 million (equivalent to SEK 2.64 billion) in cash. To partially fund the cash portion of the offer, we obtained fully committed debt financing from funds and accounts managed, advised or sub-advised by Blackstone Alternative Credit Advisors LP and/or its affiliates, consisting of a €187.7 million (approximately $198 million) term loan. The term loan, along with a €13.1 million (approximately $13.8 million) overfund facility, has a six-year maturity.

Since the completion of the acquisition we have been working to integrate Aspire into our business and to utilize efficiencies and realize synergies between the two companies. For example, following the acquisition we have been able to bring aggregation services, sports betting and managed services to our customers, and expanding lotteries to iGaming and sports betting. In addition, the acquisition allowed us to add complementary offerings to our product mix, consolidate functions and utilize economies of scale. Mr. Tsachi Maimon, the Chief Executive Officer of Aspire prior to its acquisition by the Company, has joined NeoGames as President and is heading a newly formed iGaming division.
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Relationship with Pollard Banknote

In January 2023, the Company entered into an agreement with Pollard Banknote Limited formalizing its joint venture relationship with them regarding NPI and separately amended the existing Michigan Joint Venture Agreement with Pollard Banknote Limited. We believe that these agreements help reinforce the Company’s long-term approach aimed at promoting the continued success of NPI and, accordingly, the continuation of the Company’s support of NPI customers’ iLottery programs. In addition, the agreements provide the Company and Pollard the option to pursue future iLottery opportunities in the North American market either in partnership, as part of their joint venture, or independently.

Pariplay launch in Alberta

In January 2022, Pariplay, one of our subsidiaries and a leading aggregator and game studio, went live in Alberta, capturing a significant share of the casino tab wallet market. This expansion has been possible due to our partnership in NPI.

Entry into the Brazilian Market

On June 28, 2022, we announced the entry into a multi-year turnkey project with Intralot do Brasil, the lottery operator for over a decade for Loteria Mineira, the official lottery in Brazil’s second largest state, Minas Gerais. The agreement with Intralot do Brasil marks NeoGames’ entry into the Brazilian market with an end-to-end solution of iLottery and online sports betting. The agreement is also our first cooperation with BtoBet, which is a sports betting solution acquired by us as part of the acquisition of Aspire.

Pariplay’s agreement with Resorts

On January 11, 2023, we announced that Pariplay has entered into an agreement with Resorts Digital Gaming, the online arm of the first casino in Atlantic City - Resorts Casino and Hotel. Resorts Digital’s customers will be able to access Pariplay’s proprietary content as well as very popular third-party licensed games.

This partnership with Resorts Digital Gaming increases Pariplay’s footprint across North America to being approved to operate in five of the six jurisdictions in the United States that have regulated online gaming, as well as additional Canadian provinces.

Agreement with Metropolitan Gaming

The Company announced on February 1, 2023 that Aspire has entered into a multi-year agreement with Metropolitan Gaming, a leading, land-based U.K. operator group, which operates one of London’s biggest casinos as well as seven other premium locations in the United Kingdom. Pursuant to the agreement, Aspire will provide Metropolitan Gaming with its comprehensive online solution, incorporating its platform (PAM), managed services and casino aggregation solution. 

Pariplay’s content agreement with DraftKings

On March 10, 2023, the Company announced that Pariplay entered into a content agreement with DraftKings, a major US-facing operator, in New Jersey. The Company’s in-house casino games studio content will be available to DraftKings customers in New Jersey. DraftKings will also have access to a large selection of top performing third-party games, including content exclusively available through Pariplay.

BtoBet’s preparedness for the North American market

BtoBet has developed it’s a North American facing self-service betting terminal (“SSBT”) and OTC (over the counter) betting solutions, such that we are now able offer a full range of betting solutions to land-based operators who wish to provide the same offerings on-land as they provide online.
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Principal Capital Expenditures

For a description of our principal capital expenditures and divestitures for the three years ended December 31, 2022 and for those currently in progress, see Item 5. “Operating and Financial Review and Prospects.”

4.B.          Business Overview

 Our Company

We are a technology-driven innovator and a global leader of iLottery and iGaming solutions and services for regulated lotteries and gaming operators, offering our customers a full-service suite of solutions, including proprietary technology platforms, two dedicated game studios with an extensive portfolio of engaging games – one in lottery and one in casino games, and a range of value-added services.

As a global B2G and B2B technology and service provider to state lotteries and other lottery operators, we offer our customers a full-service solution that includes all of the elements required for the offering of lottery games, including Instants and DBGs (both as defined below), via personal computers, smartphones and handheld devices (“iLottery”). These elements include technology platforms, a range of value-added services and a game studio with a large portfolio of games. The value-added services that we offer facilitate various aspects of the iLottery offering including regulation and compliance, payment processing, risk management, player relationship management and player value optimization. Our complete solution allows our customers to enjoy the benefits of marketing their brands and generating traffic to their iLottery sales channels.

With the strategic acquisition of Aspire Global Plc (“Aspire” and, together with its subsidiaries, the “Aspire Group”) in June 2022, NeoGames now offers an innovative sports betting platform from BtoBet, an advanced content aggregation solution from Pariplay, and a complete set of B2B gaming tech and managed services. The combined Company has a true global presence, servicing customers in more than a dozen U.S. states, over ten countries throughout Europe, as well as operations throughout high growth regions such as Latin America and Africa. Expanding our customer base has also reduced the concentration of our revenues.

NeoGames was established as an independent company in 2014, following a spin-off from Aspire (formerly known as NeoPoint Technologies Limited), formerly a B2C and B2B, and currently a B2B service provider in the iGaming industry. Prior to the spin-off from Aspire, our management team was responsible for the iLottery business of Aspire, which derived the majority of its revenues from the sale of iLottery games to various lotteries in Europe. In 2014, we began to focus on the U.S. iLottery market, which opened in 2012 with the introduction of online lottery ticket sales in Illinois. In order to access this significant market opportunity, we partnered with Pollard Banknote Limited (“Pollard”), one of the leading vendors to the global lottery industry. In 2014, we signed our first turnkey solution contract in the United States with the MSL, as a sub-contractor to Pollard.

In July 2014 we formed NPI, a joint venture with Pollard, for the purpose of identifying, pursuing, winning and executing iLottery contracts in the North American lottery market. NPI combines the Company’s technology and iLottery business and operational experience with Pollard’s infrastructure, administrative capabilities and relationships with lotteries in North America. NPI is managed by an executive board of two members, consisting of two members appointed by NeoGames and two members appointed by Pollard. NPI has its own general manager and dedicated workforce and operates as a separate entity. However, it relies on NeoGames and Pollard for certain services, such as technology development, business operations and support services from NeoGames and corporate services, including legal, banking and certain human resources services, from Pollard.

Since its inception, NPI has secured iLottery contracts with the VAL, the NHL (as a sub-contractor to Intralot), the NCEL, the AGLC, the ALC and the Georgia Lottery. All of our iLottery business in North America is currently conducted through NPI, except in Michigan, where we support the Michigan iLottery as a subcontractor of Pollard pursuant to a Joint Venture Agreement dated January 14, 2014 between the MSL and Pollard (the “Michigan JV Agreement”). We continue to conduct all of our iLottery business outside of North America through NeoGames.

On January 10, 2023, we entered into a Limited Liability Company Agreement with Pollard (the “Limited Liability Company Agreement”) to formalize the terms and conditions governing the operation and management of NPI and provide that the purpose of NPI shall be to perform its obligations pursuant to existing contracts and consider additional iLottery opportunities as they may arise in the future. In addition, on January 10, 2023, we also amended the Michigan JV Agreement to provide that the joint venture is no longer limited to activities in the state of Michigan (the “Amended Michigan JV Agreement“). Pursuant to both the Limited Liability Company Agreement and the Amended Michigan JV Agreement, neither we nor Pollard are precluded from entering into a business relationship with any one or more of NPI’s suppliers for its own business purposes or exploring additional iLottery opportunities as they may arise in the future, provided that any such business relationship and additional opportunities do not intentionally interfere with or otherwise divert services of the supplier from NPI.
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On June 28, 2022, we announced that the entrance into a multi-year turnkey project with Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais. The agreement marks the Company’s entry into the Brazilian market with an end-to-end solution of iLottery and online sports betting. The agreement was the Company’s first cooperation with BtoBet, the sports betting solution it gained as part of the Aspire acquisition.

We are a 100% digital business that is using technology to transform the traditional retail-based lottery market. Lotteries are a crucial revenue source for our governmental customers as they provide much-needed contributions to state budgets to fund public projects and initiatives. The iLottery industry, and we as a company, benefit from long-term, multi-year contracts with our customers that generally start with an initial term of four to seven years with additional embedded extension option. Moreover, our software-as-a-service business model allows our platform to be highly scalable in a growing industry while benefitting from a visible revenue stream tied to our customers’ gaming revenues. There are also significant barriers to enter the iLottery industry due to complexities surrounding regulatory and government contracts and specialized technology requirements. Understanding these dynamics, we have developed a leading market position in the United States. We currently provide, through NPI, iLottery solutions to the largest number of U.S. iLottery customers, including the three highest per-capita grossing iLottery programs in the United States (the Michigan, Virginia and New Hampshire iLotteries), which are also the three highest in iLottery penetration.

Aspire Group is a leading B2B provider of iGaming solutions, offering companies everything they need to operate a successful iGaming brand, covering casino and sports. The B2B offering comprises a robust technical platform, proprietary casino games, a proprietary sportsbook, a game aggregator and managed services. The platform itself can be availed of exclusively or combined with a wide range of services. With more than 15 years of operational experience in managing casino networks and developing in-house proprietary technology, Aspire is able to provide an iGaming solution that ensures every aspect of our partners’ casinos: starting with a robust platform including game aggregation to regulation, compliance, payment processing, risk management, CRM, support and player value optimization. The B2B offering also includes a game-aggregation service for external operators through the subsidiary Pariplay and a complete sport betting solution through its subsidiary BtoBet.

In January 2018, Aspire expanded its offering to include sports, becoming the first provider of a full turnkey solution to sport operators – with active operations in more than five regulated markets. During October 2019, the Pariplay Group, a leading aggregator and game studio, was acquired and in October 2020 the acquisition of the leading B2B sportsbook provider BtoBet was completed. Both acquisitions add significantly to the Aspire value chain. In October 2021, Aspire announced that it has entered into an agreement with the US-based Group Esports Technologies, Inc. for the sale of Aspire’s B2C segment (including the Karamba brand), for an aggregate consideration of up to approximately EUR 65 million. In addition, Aspire entered into a four-year platform and managed services agreement with Esports Technologies, Inc. In December 2021, Aspire signed an agreement to acquire 25% of bingo supplier BNG Investment Group Ltd  for USD 1.75 million in cash with an option to acquire all of the shares in three or five years’ time. This provides Aspire with access to a real omni channel technology and a proprietary offering in one of the biggest verticals in the iGaming industry.

The revenue model for B2B partnerships is characterized by relatively low set-up fees, moderate mark-up on services from third-party suppliers and mainly a share of the adjusted net gaming revenues. BtoBet and Pariplay apply revenue sharing models. The main operational costs are for technical development, licenses, customer service and the marketing of B2C brands up until the B2C divestment. As the license holder, Aspire receives net gaming revenues (NGR) directly from the players and keeps a royalty share before splitting revenues with partners, as opposed to many other platform providers, which receive a royalty payment from the operator regardless of the operator’s results. Aspire Group operates in more than 30 regulated markets spanning America, Europe and Africa, including countries such as the US, Colombia, Mexico, UK, Ireland, Spain, Portugal, Netherlands and Denmark. Offices are located in Malta, Israel, Bulgaria, Ukraine, North Macedonia, India and Gibraltar.

Our revenues (which, as discussed in Item 5. “Financial Condition and Results of Operations - Components of Results of Operations - Revenues),” excludes our NPI Revenues Interest (as defined therein)) were $165.7 million for the year ended December 31, 2022, an increase of 228% compared to our revenues of $50.5 million for the year ended December 31, 2021, and were $49.2 million for the year ended December 31, 2020 representing an increase of 2.6% from the prior year.
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Our iLottery Solutions and Services

We offer iLottery solutions through two distinct business lines - turnkey solutions and games. Our turnkey solutions are tailored to each customer and can include a combination of any of our platforms, value-added services and game studio. Our games offering is related to our game studio, but consists solely of offering our portfolio of iLottery games to lotteries.

We also provide certain software development services to NPI and sub-license certain platforms to Caesars.

For more information on our contracts with Caesars, see Item 7.B. “Related Party Transactions.”

Our Technology Platforms

NeoSphere

The central technology platform we offer, NeoSphere, delivers comprehensive iLottery and iGaming capabilities through its player account management (“PAM”) module, and acts as the system of record for all transactions.

The NeoSphere platform provides and controls the functionality related to the management of players throughout their entire lifecycle. This includes registration (regardless of the digital channel used by the player), age and identification verification, geolocation sign-in, responsible gaming monitoring, product usage, issue resolution, player compliance, player retention, marketing and player services, as well as the functionality required for wallet transactions. The PAM module is where we collect, process and record every transaction associated with a player’s identification across the entire turnkey solution. The data collected through these online interactions gives us an insight into player preferences, and consequently informs the execution of player segmentation strategies to drive insightful iLottery and iGaming campaigns. Utilizing our responsible gaming and compliance features embedded throughout our solution, we also monitor gaming activity and provide controls and alerts customized for each player’s profile.

We believe the highly flexible and versatile PAM that we offer can power the management and operations of many forms of online gaming and is trusted by our customers for its performance and reliability. This PAM serves as the central platform for more than 35 iGaming customers in 30 regulated jurisdictions and powering more than 80 brands, including the AGLC where we serve a broad range of gaming verticals such as online lotto games, slots, instants and virtual and live dealer table games.

NeoDraw

  NeoDraw is one of only four central gaming systems certified by the U.S. Multi-State Lottery Association for the issuance, sale and operation of Draw based games (“DBGs”). The proprietary technology of NeoDraw has been developed specifically for the iLottery market and online players and is fully-integrated with the NeoSphere platform to facilitate the rapid implementation of DBGs as part of the complete turnkey solution.

NeoDraw is an example of specialized technology that iLotteries require. Providers of online casino games or sports betting typically cannot apply their technology used for online casino and sports betting to DBG offerings given the multifaceted nuances of lottery game mechanics and math.

The main advantages of NeoDraw include:


Greater flexibility for the lottery - NeoDraw can operate independently or in parallel with an existing retail central lottery system and is not constrained by limitations of traditional lottery systems.


Quicker time to market - NeoDraw is fully-integrated with NeoSphere. This reduces the complexity, resources and time required to integrate with a third-party system to launch traditional games.


Additional functionality -  NeoDraw enables us and our lottery customers to introduce new innovations related to online purchase flows, shopping cart functionality and in-game features that are in some cases not available with legacy central lottery systems.

Currently, all of our U.S. customers to whom we supply our turnkey solution have opted to employ NeoDraw to launch their iLottery offerings.
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NeoPlay

NeoPlay is the technology platform we offer that manages online Instants (“Instants”) in which players can instantly reveal a pre-determined result through which they can learn whether their ticket entitles them to a prize. It facilitates configurations, including prize tables, payouts, ticket series setups, ticket price points and many other variables, and supports channels, including mobile, desktop and applications.

NeoCube

NeoCube is our data warehouse solution that is the central point of data collection from all verticals, which allows the creation and analysis of financial and business reports. The data collected with NeoCube provides the foundation for our data analytics team and allows them to perform in-depth analysis for our own operations as well as for our customers, across all gaming verticals.

Our iLottery Services

With more than 17 years of experience in the iLottery industry (including our management team’s operation of the iLottery business of Aspire), we have gained substantial knowledge and direct experience in the full spectrum of marketing and business operations which is essential to enable the revenue growth of our customers. The insights that we continue to gain from our broad view of analytics, game performance, player support, payment solutions management and more allows us to act as a strategic partner to our customers in jointly developing their iLottery businesses.

We provide services to our customers across four key areas: marketing operations, player operations, technology operations and business operations.


Marketing operations – we provide targeted marketing services and data analytics to our North American customers through the entire player lifecycle, from digital acquisition and onboarding to game participation. Such operations include, but are not limited to:


-
implementation of promotional campaigns tailored to player segments;


-
maximization of the return generated from a player;


-
results-based analytics of player behavior;


-
player-level segmentation-based evaluation of the player’s activity status, game orientation, deposit characteristics, reaction to previous promotional campaigns and account balance status;


-
predictive analysis of the lifetime value of players acquired from different marketing and promotional campaigns; and


-
information regarding the decision on which player acquisition strategies and marketing campaigns to focus and which to abandon.


Player operations – leveraging years of experience managing players on behalf of our customers, we provide to our North American, European and other customers various services designed to offer the best possible services to iLottery and iGaming players. Such operations may include, but are not limited to, one or more of the following:


-
a customer service center based in the United States and Europe, which services our global customers;


-
CRM services for North American (through NPI), European and South American customers;


-
responsible gaming services to proactively detect and react to player gaming behaviors;


-
compliance services including anti-money-laundering (“AML”) and know-your-customer solutions to meet the customer’s local requirements; and


-
facilitating the flow of funds throughout the entire player lifecycle, from funding to cash-outs.

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Technology operations – these operations, which we provide to many of our customers, are meant to provide the full spectrum of monitoring and maintenance of the platforms we deploy for our customers and protect the integrity of our back-end iLottery software. Such operations include, but are not limited to:


-
the deployment of our technology platforms in the form of a SaaS offering, with/out IaaS;


-
ongoing rollout of advanced versions of our software, third-party OS updates and security patches;


-
handling of all reported production incidents;


-
verification of technological defects, and potential escalation to the development team; and


-
monitoring system and the network’s performance for degradation and potentially fraudulent activity.


Business operations – we facilitate payment processing services by third-party vendors and manage customer-facing personnel. Such operations may include, but are not limited to:


-
integrating third-party payment solutions into our platforms to allow for Know Your Customer (KYC) services, geolocation services and various payment services such as credit and debit card transactions and bank transfers;


-
serving as merchant of record on behalf of our customers;


-
recruiting, training and managing customer service and CRM representatives;


-
acquisition marketing services; and


-
developing and managing the project plan required to deploy each solution.

Our iLottery Game Studio

     We believe that we were the first to build a separate business unit exclusively for the development of iLottery games. We believe that we have one of the largest iLottery game portfolios in the global lottery industry, having produced more than 350 proprietary games.

We believe that our competitive advantage extends to our operation of a game studio focused exclusively on iLottery. Games offered by lotteries need to comply with strict regulations and guidelines. We believe that our focus solely on iLottery enables us to produce the best iLottery games that meet such regulations and guidelines, while providing an entertaining and diverse player experience. We believe this ability is derived from our vast experience and deep understanding of the boundaries established by such regulations and guidelines and our proven ability to “innovate inside the box.”

Our games are developed by the highly dedicated members of our studio with experience across art design and advanced multimedia animations, software development, engineering and mathematics. Prior to and during the production of a game, we consider a number of fundamental factors, including:


Entertainment value - the level of player interaction as part of the game, the complexity level of playing the game, the multimedia experience (design, animation and audio), and the duration of a game.


Mathematics - controlling the risk level of the game and optimizing the game experience to the risk profile of iLottery players (given the target payout ratio).

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iLottery Competitive Landscape

In order to protect the lottery’s stability and dependability as a source of funding for government budgets, governments have instituted practices and protocols that prospective vendors to the lotteries must follow in order to compete for lottery contracts, including the:


use of complex official public procurement processes, requiring substantial commitments from participating vendors, such as performance bonds;


inclusion of termination at will provisions in contracts; and


requirement for specialized technology specifically for lottery that complies with lottery rules.

Governments also have tended not to frequently change lottery vendors while lottery operations are ongoing, to avoid the risks inherent to such change. Currently, the number of companies that service the lottery industry is limited given the meaningful cost and required expertise.

The iLottery industry shares many characteristics with the traditional lottery industry, including an important role within government budgets, a high degree of regulation, limited competition and a long procurement process. These shared characteristics include:


long sale cycles and substantial upfront investment;


long-term relationships with limited turnover; and


growth alongside other forms of gambling.

iLottery has been able to grow alongside the traditional lottery, suggesting that typical iLottery players may have a distinct profile from that of typical traditional retail lottery players.

Launching a full iLottery program requires a considerable upfront investment in time and capital to develop what we refer to as “specialized technology” (the technology that is developed specifically for the lottery industry and requires considerable expertise), create a portfolio of tailored games and establish facilities to host the operations and data processing within the jurisdiction in which iLottery is offered.

Unlike in traditional retail lottery, where a single state may have multiple service providers for Instants and a separate service provider for DBGs, for iLottery a customer typically expects a single service provider to support the full suite of Instants and DBGs. These upfront investments are further amplified by a procurement process for government customers that involves significant restrictions and formalities, and a general requirement for an iLottery provider to deposit performance bonds to guaranty the program’s level of performance.

While competition in the lottery industry is limited as a result of various barriers explained above, the innovative nature of iLottery created an opportunity for a singularly-focused company to enter and compete with long-time incumbents of traditional lottery. Our experience suggests that brand awareness, compelling customer business results and credibility in solid delivery and services will remain vital for success within the iLottery industry. Just as it has with traditional lottery, we believe this will lead to stable contracts with limited turnover.

We believe that the iLottery industry is less exposed to new market entrants than other gambling markets, due to the considerable barriers to entry imposed by the government procurement process, regulations and the need for specialized technology, among other factors. There is, however, intense competition among the few existing iLottery providers with respect to new iLottery contracts. We compete both for contracts to supply our full turnkey solution and for contracts to supply our portfolio of games.

We compete primarily against International Game Technology PLC (“IGT”), Scientific Games Corp. (“SGMS”) and Intralot for turnkey solutions contracts. With the exception of Intralot, we compete against the same companies for game contracts, in addition to several other companies, such as Instant Win Gaming Ltd. Although these other companies, which do not offer turnkey solutions, may capture some content market share, they will need to host their games on platforms like ours. Other companies may in the future choose to enter the iLottery industry, but we believe the expertise and experience required to build and operate a successful iLottery technology platform will limit this expansion.

We have deployed our turnkey solution to more U.S. lotteries that engaged a full-service iLottery provider than any of our competitors.
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Our Competitive Strengths in iLottery

Technology design and flexibility

     We believe that our focus on iLottery solutions, building upon years of expertise and deep exposure to U.S. customers, has given us a superior understanding of iLottery customers and players that allows us to continue to outperform our competitors in iLottery solutions and games. 

The fully-integrated iLottery turnkey solution that we offer is designed to be flexible, responsive and readily adaptable to meet each customer’s needs, as well as support future growth and innovation over time. The open architecture we utilize in the development of our technology provides several benefits to our customers. With a single code base, our platforms can be continuously adapted and improved without any hindrance or restrictions from third-party suppliers. This means that all of our customers can run the same core software version and receive the same advancements and updates in a relatively short period of time, allowing us to evolve our platforms and games at a fast pace and large scale.

In-house game studio

We have produced more than 350 proprietary iLottery games, and we operate our own in-house game studio. Historically, our games have performed strongly relative to our competitors’ in terms of profitability and popularity. Our game studio allows us to offer our customers a complete solution, while certain of our competitors must use third party vendors in order to provide their customers with games. In addition, our extensive game portfolio allows us to extend our customer base to customers who do not need our full turnkey solution, but are looking to expand their online games offering for greater variety of entertaining content.

iLottery business operations experience

Our experience as a B2C and B2B gaming operator, initially within Aspire, followed by years of hands-on experience managing players on behalf of our U.S. customers as part of our player operations service, has helped inform how we manage and engage iLottery players. We have also gained substantial knowledge about the iLottery market and its participants in the past 17 years through our operations in Europe and the United States, and more recently South America. Our experience provides us a deep understanding of the characteristics of iLottery players, allowing us to customize our solutions to such players’ needs and interests.

We analyze our customers’ player game data daily to gain insights into game play mechanics and player preferences across multiple jurisdictions. Our focus is on the players and understanding their characteristics, perception of gambling, loyalty to the lottery brand and other attributes. We believe this understanding has contributed to the success of our game studio.
    
Time to market

We have deployed our turnkey solution to more U.S. lotteries that engaged a full-service iLottery provider than any of our competitors. The advanced nature of our technology, combined with our shared code practices, internal project management and deployment practices, allow us to launch faster than our competitors. For example, we launched our turnkey solution for each of the NHL and Intralot do Brasil within seven months of being awarded the contract, and within six months for the AGLC.

Brand awareness and credibility

Given the important role of lotteries in government budgets, winning the trust of customers is critical for lottery platform and service providers to be awarded new contracts, and reputation and brand are important to winning that trust. While only entering the U.S. market in 2014, we believe we have emerged as a well-known and respected name in the iLottery industry in the United States and globally because of our performance supporting our customers’ growth. The Michigan iLottery has served as a model to other U.S. states seeking to offer iLottery, and we believe that state lotteries are aware of our operating acumen and the role our technology has played in driving that success.

Cooperation with various market players

Our openness to pursue opportunities that bring together strengths from different vendors has brought us to successfully cooperate with other vendors in the iLottery industry. We believe this approach allows us access to contracts that would otherwise have not been available for public procurement. For example, with respect to the NHL, we serve as a sub-contractor to Intralot and, with respect to the AGLC, we are cooperating with IGT to offer access to their suite of casino games, an area in which they specialize, to the benefit of the offering. We expect to continue to see similar opportunities, including opportunities to provide our successful game portfolio in cooperation with other vendors to the benefit of the state lotteries.
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iLottery Revenues

Revenues by category of iLottery activity are as follows:

   
For the year ended December 31,
 
   
2022
   
2021
   
2020
 
   
U.S. dollars (in millions)
 
                   
Turnkey contracts:
                 
North America
   
21.8
     
22.9
     
26.8
 
Europe
   
7.9
     
7.0
     
5.4
 
Games:
                       
North America
                       
Europe
   
1.7
     
2.0
     
2.1
 
Total royalties
   
31.4
     
31.9
     
34.3
 
                         
Development and other services from Aspire
   
0.8
     
1.6
     
2.4
 
Development and other services from NPI
   
5.7
     
7.6
     
4.4
 
Development and other services from Michigan Joint Operation
   
1.4
     
1.4
     
1.4
 
Total Development and other services
   
7.9
     
10.6
     
8.2
 
                         
Access to IP rights
   
14.2
     
8.0
     
6.7
 
                         
Total
   
53.5
     
50.4
     
49.2
 

Our iLottery Growth Strategy

Our iLottery growth strategy is built upon the following pillars:


expanding the penetration of our existing customer contracts;


winning new turnkey contracts in the United States and additional jurisdictions such as Brazil, and possibly, Europe;


growing our game studio customer base;


expanding the scope of our existing customer contracts;


bringing our recently acquired portfolio of market proven solution in gaming aggregation and sport betting to our iLottery customers;


expanding our range of offerings and geographical presence; and


leveraging Aspire’s expertise in managed services into the iLottery industry.

Increase iLottery Penetration within Existing Markets

Based on our performance in Michigan and Virginia, our prior experience in certain European markets and more recently the launch in Brazil, we believe there remains considerable room for growth above the current level of iLottery Penetration both globally as well as in the United States. Leveraging our operational expertise and technology, we plan to work closely with our customers to strengthen the reach of our offering in each market.
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Increase Scope of Existing Customer Contracts

We have a modular product offering. Each of our agreements can include some or all of the products that we offer. We believe there is significant potential to offer additional products and feature enhancements, after a customer has engaged with us initially with respect to some of our products. For example, when we procured our contract with the VAL in 2015, we offered only online subscription for DBGs However, in March 2020, following a change in legislation, the VAL chose to expand our contract to include both Instants and DBG offerings. The offering under the expanded contract launched in July 2020 and has an initial term through 2026 plus the option to extend for five additional years. Additionally, our acquisition of Aspire has allowed, and we believe will continue to allow, us to bring to our existing and future iLottery customers our newly acquired portfolio of market proven solution in gaming aggregation and sport betting. For example, we were awarded, through NPI, the contract with the AGLC in October 2019, and in 2022 Pariplay, a leading content and aggregator provider, went live in Alberta, capturing a significant share of the casino tab wallet market. Furthermore, we are now in the process of integrating Pariplay into Sazka. A number of our contracts are in their early years and, as such, provide us ample time to expand the offerings we provide to our existing customers.

We have gained substantial knowledge about the iLottery and iGaming markets and their participants in the past decade through our operations in Europe and the United States, and our experience provides us with a deep understanding of the characteristics of iLottery and iGaming players, allowing us to customize our solutions to such players’ needs and interests.

Win New Contracts in the United States

    We are a market leader in iLottery in the United States. With 67% market share of U.S. iLottery gross wagers in 2022 according to Eilers & Krejcik Gaming’s U.S. iLottery Tracker, our customers drive, with our technology solutions, games and services, a majority of U.S. iLottery GGR.

    We continuously seek to expand our operations in the U.S. by securing new contracts. While lottery is offered in 45 states and the District of Columbia, iLottery Instants or DBGs are currently offered in only ten states and the District of Columbia (excluding states that offer only subscription-based iLottery). As a result, 70% of the U.S. population in states that offer lotteries do not currently have access to iLotteries.
 
Grow our Game Studio Customer Base

We intend to further expand our revenue base by offering our popular iLottery games to new customers who use the platforms of other iLottery providers. We currently operate eight contracts in Europe pursuant to which we only provide games, and following our most recent NPI agreement, we plan to expand this offering and pursue opportunities in the Instants space independently in the United States and Canada.

Expanding our Range of Offerings and Geographical Presence

We are currently focused on expanding our North American business to become the dominant iLottery provider in the market. In doing so, we invest our resources and expertise into building top-tier iLottery technology and content. With a history of successful iLottery offerings developed for the North American market, we have expanded our offerings to Sazka, the lottery operator in the Czech Republic, Europe and Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais where we have “first mover advantage”, and we believe we have the ability to expand our offerings around the world. While we are currently focused on the North American market, we may decide to pursue additional opportunities around the world in the future. Additionally, following the acquisition of Aspire, we intend to use the distribution of Aspire customers to reach and expand the Instants presence in markets in jurisdictions in which Aspire operates.

Our iGaming Solutions and Services

Background on Aspire

Aspire is a leading B2B-provider of iGaming solutions, offering companies everything they need to operate a successful iGaming brand, covering casino and sports. Aspire’s iGaming business comprises a technical platform, proprietary casino games, a proprietary sportsbook, a game aggregator and managed services. Aspire also distributes third-party and proprietary games and sportsbook to external partners, through the acquisitions of game-aggregator and game studio Pariplay in 2019 and of BtoBet, a sportsbook provider, in 2020. Aspire operates in over 30 regulated markets spanning Europe, America and Africa, including countries such as the United States, United Kingdom, Denmark, Portugal, Spain, Poland, Ireland, Columbia and Mexico. Offices are located in Malta, Israel, Bulgaria, Ukraine, North Macedonia, India and Gibraltar. Aspire was founded in 2005 and was listed on Stockholm’s Nasdaq First North Premier Growth Market from 2017 until it was acquired by NeoGames.
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On December 1, 2021, Aspire announced it had finalized the divestment of its B2C segment to the US-based group Esports Technologies, Inc. The divestment followed Aspire’s review of the B2C segment that was announced in March 2021. The B2C segment represents Aspire’s proprietary brands led by Karamba. The proprietary brands operated on the Aspire platform, side by side with B2B brands. Following the completion of the transaction, the B2C brands became platform partners to Aspire. The divestment of the B2C segment meant that Aspire became a purely B2B company with a continued strong focus on profitable growth.
 
iGaming Division Overview
 
Aspire provides the full range of B2B-services with a proprietary technical platform, proprietary casino games, a proprietary sportsbook, a game aggregator and managed services. Aspire can offer its various products independently from each other and also as a ‘one stop shop’ solution for iGaming operators – with more than 80% of revenues coming from taxed, locally regulated or soon to become regulated markets. The B2B-offering is targeted at casino and sports operators as well as land-based operators and experts in marketing such as affiliates and media companies, with strong brand awareness and the ability to generate large volumes of online traffic. Aspire can manage every aspect from regulation and compliance to payment processing, risk management, CRM, support and player value optimization, allowing operators to focus on marketing their brand and generating traffic.

The iGaming business 

Our iGaming business comprises three segments: Core, Games (Pariplay), and Sports (BtoBet).


Core: Aspire Core allows operators to operate under their own local licenses or under Aspire’s licenses in numerous markets, with the license in Malta covering all .com markets. Joining Aspire provides operators with access to a large number of markets without having to apply, in most cases, for licenses of their own. Aspire’s platform partners have access to on-demand data analysis services in addition to a wide array of analytical tools that provide complete control of statistics and activity, such as data collection, daily report management, business intelligence, API gateway reports, back-office systems and real time data capabilities. The platform is continuously updated with new features relating to regulation and ongoing compliance. The in-house regulation and compliance team monitors all operations, conducts ongoing training and provides partners with regulatory updates and marketing guidelines for their jurisdictions. The platform itself can be used exclusively or combined with a wide range of managed services such as customer support, CRM tools and financial services.


Games (Pariplay): Founded in 2010, Aspire subsidiary Pariplay is a leading aggregator and content provider. Within the games  segment, Aspire offers both a wide variety of proprietary games produced from in-house studio as well as a wide array of third-party games from suppliers, all integrated into one API and single integration, accompanied by engagement and retention tools on the aggregation platform. See below “- Our Wizard Games Studio” and “- Our content Aggregator - Pariplay” for further details.


Sports (BtoBet): The acquisition of BtoBet, a leading sportsbook provider, in October 2020 was a major step in the creation of an offering that covers all the main elements of the B2B iGaming value chain. With the proprietary sportsbook, Aspire controls the IP in major elements of the value chain and can steer the complete roadmap. In addition, it also provides Aspire with great flexibility when it comes to adding new features and securing fast time to market.
 
      Our iGaming businesses serve European, American and African markets.
 
  On December 10, 2021, it was announced that Aspire had signed an agreement to acquire 25% of bingo supplier BNG Investment Group Ltd with an option to acquire all of the shares in three- or five-years’ time, providing Aspire with an access to a real omni channel technology and a proprietary offering in one of the biggest verticals in the iGaming industry.

Our Wizard Games Studio

With the acquisition of Aspire, we now have an additional games studio, Pariplay’s “Wizard Games”, which focuses on developing content for traditional Slots. Wizard Games focuses on regulated markets and we believe it is currently one of the leading games studios in regulated Canadian markets. Wizard Games has dedicated management with years of experience serving other leading games studios. The fact that Wizard Games is part of the NeoGames group, which provides managed services including direct communication with players, allows the studio to better understand player behavior, including their likes and dislikes. This shared knowledge allows Wizard Games to produce better games. Wizard Games currently produces approximately 25 games per year and is able to learn from the Company’s extensive database in order to improve the quality of the games it produces.

Our Wizard Games studio offers more than 100 games in more than 30 regulated markets.
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Our Content Aggregator - Pariplay

Operators seek to have unique offerings so as to differentiate themselves from other operators, which they do by constantly expanding their offerings with new and attractive content. Operators who wish to expand their offerings can either do so by directly integrating with each and every content provider, which entails large expenditures and technical challenges and may divert the operator’s attention from its players. Additionally, content providers are required in regulated markets to comply with dynamic regulation, which can often be challenging. Alternatively, operators can choose to integrate with a content aggregator.

Our content aggregation solution, Pariplay’s “Fusion”, allows operators to have access not only to our proprietary studio Wizard Games, but also to many other games studios, without the need to integrate them one by one. In addition to connecting operators to content providers, we have developed additional marketing layers on the aggregation level, making our free spins, tournaments and prize tools accessible to operators through our backend and enabling them to offer any promotional tool they want to any content provider.

Pariplay’s solution and the experience gained by operating in many regulated markets allows it to enter a new market and learn the market and the players preferences, and share such knowledge with the Company’s subsidiaries. We believe that Pariplay has large potential in unregulated markets that move to being regulated and, in already regulated markets, where such regulation is complex or onerous.

Our Sports Betting Solution

Sports betting is one of the largest verticals in online gaming and is typically the first regulated vertical once an unregulated market moves to being regulated. This means that sports betting is essential, especially for operators who wish to be active in regulated markets, since acquiring sports betting players may lead to such players participating in other games offered by the same operator, which increases player value for such operators.

In some markets, land-based operators seeking to be active in the online space also want to offer retail terminals (SSBTs), so as to provide their players an omni-channel experience.

Although BtoBet has a relatively short operating history, it is already active in many regulated markets and has positioned itself as a top supplier in Africa. In addition, BtoBet can already offer its SSBTs to operators who wish to make their offering available to retail customers. We believe that BtoBet is positioned to meet the growing demand for a good sport product in North America, both online and retail.

Portals and Mobile Apps

We provide portal development services to more than 20 of our iGaming customers as well as mobile apps to 5 of our iGaming partners.

iGaming Competitive Landscape

Many countries beginning to regulate iGaming and sport betting directly. Due to such move, operators and suppliers are required to move from a global license to a local license in each and every jurisdiction within which they wish to operate. This move filters out gaming companies that do not elect the regulated path. In addition, the requirements imposed on gaming companies that elect to pursue local licenses are higher than the requirements of a global license. We elected, in each of our four business segments, to pursue and obtain as many local licenses as possible in the jurisdictions in which we operate, and our competition has been characterized by such election.

Competition in iGaming in regulated markets is localized. For example, BtoBet’s competitors are Kambi, BetRadar, OpenBet and SportNco, while Pariplay’s Games studio competitors in are Netent, Red Tiger, Light & Wonder, IGT and Playtech and in the aggregation business Pariplay faces competition from Light & Wonder, Relax Gaming, Games Global and EveryMatrix. Aspire, as a provider of solutions that combine a platform games and sport, faces competition from platform providers that also offer similar services, including Playtech, EveryMatrix, GIG and GAN.  We also see companies that offer only a platform competing against us in some jurisdiction, but we question the long-term viability of that business model.
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Our Competitive Strengths in iGaming

  We believe we have the following competitive strengths:


Our operational experience – our experience running a successful B2C business and our track record of providing managed services to more than 30 operators have put us in a position where we have both the experience and confidence required to provide our services on a larger scale.


Scale of our PAM – our PAM serves some of the largest operators in the world, both in the iLottery as well as the iGaming businesses. Our strong track record allows us to attract large operators, which tend to engage with companies that already have experience handling big data in real time, as well as attract smaller operators.


Our geographical presence – our presence in many regulated markets provides us the ability to formulate appropriate work procedures that allow us to meet the different demands imposed by local regulators. Following the launch of our first product in any regulated market, we are able to prepare the infrastructure for the entry and launch of our other products services.


Owning the majority of the value chain – operators, whether land-based or operating online, prefer nowadays more than before to engage with a single supplier that can offer and provide them everything that they need for them to operate successfully. This provides them advantages both from integration and product perspectives as well as financially. Our iGaming services provide fast access to markets and allow operators to focus on marketing and operations instead of administrative or technical aspects.

iGaming Revenues

Revenues by category of iGaming activity are as follows:

   
For the year ended December 31, 2022
 
   
Core
   
Games
(Pariplay)
   
Sports
(BtoBet)
   
Eliminations
   
Total
 
   
U.S. dollars (in thousands)
 
                               
Revenues
   
80,475
     
18,265
     
13,360
     
-
     
112,100
 
Revenues (inter-segment)
   
-
     
5,876
     
369
     
(6,245
)
   
-
 
Total Revenues
   
80,475
     
24,141
     
13,729
     
(6,245
)
   
112,100
 

Our iGaming Growth Strategy

Our turnkey solutions growth strategy is comprised of:


Increasing volume of our existing operators - our iGaming division has more than 100 operators/customers. We aim to improve our offering to them by opening new markets, increasing content and improving their players’ data value. We have dedicated partner success managers that work closely with these operators, and these dedicated partner success managers seek to assist the operators grow their business with us.


Expanding to new markets – our iGaming division is present in more than 30 regulated markets, and we continuously seek to enter additional regulated markets, which offers our local and international operators the opportunity to start their business or expand it. Given that regulated markets usually limit the number of active operators, our operators may face less competition than in a non-regulated market.

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Adding marketing tools to our existing products – we believe that having a product live in a brand is not enough. In a saturated environment such as the iGaming industry, operators look for added value for their players. By providing additional, unique and, in some jurisdictions, proprietary marketing tools, we believe that our operators don’t have to wait long before they start seeing returns on their investment, which allows them to continually grow their business.


Expanding our proprietary product offering - operating in a regulated market requires operators to be fast and creative as well as seek to differentiate its offering from others, while maintaining a pricing model that makes their business more sustainable. Therefore, we continuously seek to increase our offerings to operators.

Our content aggregation growth strategy is comprised of:


integrating to as many operators as possible in the majority of regulated gaming markets, and specifically to the top three operators in each such market;


increasing the mix of our proprietary content; and


providing engagement features and functionality.

Our sports betting growth strategy is comprised of:


entering the North American market with our sports betting offering; and


expanding to additional markets in Latin America.

Benefits of Combining iLottery and iGaming

The combination of NeoGames and Aspire has resulted in a well-diversified iLottery, digital sports betting and casino B2B leader in the global gaming marketplace and provides customers full turnkey technology solutions with respect to their iLottery, digital sports betting and casino offerings. The combined Company has a true global presence, servicing customers in more than twenty U.S. states, over fifteen countries throughout Europe, as well as operations throughout high growth regions such as Latin America and Africa.

The fact that both companies share a common origin and a common technology foundation will, we believe, allow us to benefit from revenue synergies efficiently. These shared roots also mean that both companies share important cultural and management values which again will smooth the transitional period.
 
NeoGames believes the proposed combination of NeoGames and Aspire could result in the following benefits to the combined business:
 
Technology and Product Offering Enhancements Elevating the Go-To-Market Strategy
 
As lotteries around the world are seeking comprehensive turn-key solutions that include iLottery, online sports betting and iGaming products and services, we believe that the ability to provide a complete end-to-end solution is becoming an increasingly important consideration for lotteries around the world when selecting platform and content providers. The combination of iLottery, online sports betting and iGaming creates a comprehensive product offering that will enable us to compete and win contracts in markets where lotteries operate sports betting and iGaming, providing additional revenue opportunities. Furthermore, the combination enhances our ability to address all aspects of our customers’ needs in-house, reducing the requirement for third party solutions.

Provides Strategic Opportunities to Accelerate and Diversify Growth
 
NeoGames’ positioning in the U.S. as a leading iLottery platform provider, with technology platforms that are deployed and operational in over a dozen U.S. states across lotteries and gaming, could further facilitate and accelerate Aspire’s entry into the growing U.S. market. Further, Aspire’s online sports betting and iGaming operating capabilities with experience operating outside of the U.S. could assist NeoGames to establish a presence in the sports betting and iGaming verticals in emerging high growth regions, such as Latin America and Africa.
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For example, we marked our entry into the Brazilian market with the announcement in June 2022 of a multi-year turnkey project with Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais, offering an end-to-end solution of iLottery and online sports betting. The agreement is the Company’s first lottery integration with BtoBet, the sports betting solution gained as part of the Aspire acquisition.

Diversified Revenue Streams and Improved Growth Profile
 
Aspire’s complementary online sports betting and iGaming offering diversifies NeoGames’ revenue streams, both geographically and by product. NeoGames will be able to pursue sports and gaming initiatives globally for lottery customers and enter into the adjacent TAMs of online sports betting and online gaming. Together, NeoGames and Aspire operate across three continents globally. Combing the power of the global reach with a comprehensive product offering, which brings efficient product development and faster new market launches, NeoGames believes meaningful revenue synergies could be realized over the long term. NeoGames believes that the combined product offering will better position the Company to win contracts in markets that were previously inaccessible.
 
Additionally, reducing third party costs and fees, eliminating duplicative public company costs, aligning of research and development activities and a reduction in general and administrative costs could potentially create cost synergies over time.
 
Committed to Continued Profitable Growth
 
Both NeoGames and Aspire have operated separately as high growth and highly profitable entities for a number of years. The combination of the companies, which we believe will result in reduced reliance on third party vendors and improved margins, increased TAM and growth profile, is expected to lead to additional opportunities to accelerate growth and to further expand already strong margins.
 
Enhanced Management Expertise
 
The combined company will be led and supported by the market-leading capabilities of an experienced, joint management team. Having worked together successfully in the past, NeoGames’ and Aspire’s management teams represent a strong cultural fit as each focus on innovation and a customer-centric approach to their respective markets and products.

Seasonality

Our quarterly results of operations may vary as a result of seasonal fluctuations during periods such as holidays and weather conditions, during which users spend increased time on entertainment, including games and mobile applications, which increases our customers’ usage of our advertising network and other solutions and may impact our revenue. We may also experience fluctuations due to factors that may be outside of our control that drive usage up or down. While we believe that this seasonality has affected and will continue to affect our quarterly results, our rapid growth has largely masked seasonal trends to date. Further, as our revenue from quarter-to-quarter is dependent on various factors including external factors outside our control, it is difficult to isolate the impact of these seasonal trends on our business and there can be no assurance that these patterns will continue.

Sports betting is however subject to seasonal fluctuations that may impact our revenues and cash flows. Most major sports leagues and events do not operate year-round and our operations will be impacted by variations in the sports calendar over the course of a given year. In particular, certain sports leagues operate formats (playoffs, championships, cup finals, etc.) that naturally result in increased customer interest as the end of the season approaches for those sports. Similarly, certain sporting events only operate at specific times of the year (e.g. major tennis tournaments) and certain other events only operate on a multi-year cycle (Olympics, FIFA World Cup, UEFA Nations League, etc.). The majority of our sports betting revenues are generated during the major leagues seasons in the respective countries we serve, and we will continue to experience this effect on revenues from sports betting also in new markets that we enter.

Intellectual property

We currently own most of the intellectual property required for our operations and use the remainder of the intellectual property required for our operations through a perpetual, assignable license.

We have obtained rights to use intellectual property of third parties through licenses and service agreements with those third parties. Although we believe these licenses are sufficient for the current operation of the Company, such licenses typically limit our use of the third parties’ intellectual property to specific uses and for specific time periods. We believe that we have the personnel needed to manage and adapt our intellectual property as necessary to support our business operations.
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Most of our intellectual property is in the form of rights in software code and trade secrets that we use in the operation of our iLottery and iGaming offerings and related services, as well as registered and unregistered trademarks. We rely on a combination of copyright, trademark and trade secret laws in the United States, Europe and other jurisdictions, as well as license agreements and other contractual protections, to protect our proprietary technology. We also protect our intellectual property rights by implementing a policy that requires our employees and independent contractors involved in development of intellectual property to enter into agreements acknowledging that all intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights that they may claim or otherwise have in those works or property, to the extent allowable under applicable law. Our confidential information is protected by a combination of information security systems and non-disclosure agreements with third parties, including our employees and independent contractors.

Our agreements with business partners and lotteries to which we provide our iLottery and iGaming offerings and services contain provisions safeguarding our rights to our intellectual property.

Regulation

After having acquired Aspire in 2022, we have added casino games and sports betting services to our group’s operations. These areas come with additional challenges. iGaming in the United States and certain markets in Europe, the provision of PAM module, and operation of lotteries in the United States and internationally is subject to extensive regulation.

Although certain features of a lottery (such as the limited number of lotteries, the percentage of gross sales that must be paid back to players in prize money and the allocation of revenues generated from gross sales) are usually set by legislation, lottery regulatory authorities (and, occasionally, the lottery corporation itself) generally exercise significant discretion, including with respect to the determination of the types of games played, the price of each wager, the manner in which the lottery is marketed and the selection of suppliers of equipment, technology and services, and retailers of lottery products.

To ensure the integrity of contract awards and lottery operations, most U.S. jurisdictions require detailed background disclosure on a continuous basis from, and conduct background investigations of, vendors and their officers, directors, subsidiaries, affiliates and principal stockholders. Background investigations of the vendors’ employees who will be directly responsible for the operation of lottery systems are also occasionally conducted and most states reserve the right to require the removal of employees who they deem to be unsuitable or whose presence they believe may adversely affect the operational security or integrity of the lottery. Certain jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities that hold (either legally, beneficially or through voting rights) a specified percentage (typically five percent or more) of a vendor’s securities. Although most jurisdictions provide that “institutional investors” (as defined by a particular jurisdiction) can seek a waiver of these requirements, the granting of such a waiver may be conditioned on a regulatory investigation designed to ascertain that the applicant meets the definition of “institutional investor.”

The failure of our officers, directors and holders of our Ordinary Shares to submit to background checks and provide such disclosure could result in the imposition of penalties and could jeopardize the award of a contract to us or provide grounds for termination of an existing contract. Generally, any person or entity who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised by a competent authority that such person or entity is required to do so may be found unsuitable or denied a license, as applicable. If any director, officer, employee or significant shareholder is found unsuitable (including due to the failure to submit required documentation) by a competent regulator or authority, we may deem it necessary, or be required, to sever our relationship with such person or entity.

Furthermore, we may be subject to disciplinary action or our licenses may be in peril if, after we receive notice that a person or entity is unsuitable, we (i) pay that person or entity any dividend or interest upon our Ordinary Shares, (ii) allow that person or entity to exercise, directly or indirectly, any voting right conferred through Ordinary Shares held by that person or entity, (iii) pay remuneration in any form to that person or entity for services rendered or otherwise, or (iv) fail to pursue all lawful efforts to require such unsuitable person or entity to relinquish its Ordinary Shares.

Subject to all applicable law and regulation, our articles of association provide for the suspension of certain rights attached to our Ordinary Shares that are held by unsuitable shareholders and the disposal of any of our Ordinary Shares owned or controlled by an unsuitable person or its affiliates by transfer to one or more third-party transferees. If such unsuitable person fails to dispose of our Ordinary Shares within the required period of time, we may in good faith dispose (or procure the disposal) of such Ordinary Shares to a designated third party at the highest price reasonably attainable or, subject to applicable law and regulation and our articles of association, acquire such Ordinary Shares by way of a redemption. Due to related licensing requirements, one of our Founding Shareholders recently undertook to reduce his ownership stake in the Company. Should the shareholder fail to comply with regulatory requirements, and should the Company fail to pursue all lawful efforts to require such compliance, we may face disciplinary action in the applicable jurisdiction or our licenses in such jurisdiction may be in peril.
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The awarding of lottery contracts and ongoing operations of lotteries in international jurisdictions is also extensively regulated, although international regulations typically vary from those prevailing in the United States and tend to focus more on the vendor and its senior management, rather than on individual shareholders.

There are risks involved with the offering of our iGaming services under the umbrella of Aspire’s Maltese license, which allows for the offering of services on an offshore basis in various countries in which Aspire operates. This interpretation of the reach of the Maltese license in certain jurisdictions is occasionally at odds with the interpretation given to local laws by local regulators.

In addition, there has been recently an increase in civil litigation claims in Austria (and, to a lesser extent, Germany) against operators who service the area using their offshore licenses, and the continued provision of services in these jurisdictions is currently under review. Austrian players are bringing about civil claims against operators who offer online casino games under the auspice of their offshore licenses, claiming such companies are operating without a proper license. Despite the contradiction with EU law in this area, Austrian courts are often ruling in favor of such players. As such, we are utilizing measures to reduce the risk in this area.

The addition of casino games and sports betting to our repertoire is also subject to the ongoing regulatory framework changes in Germany. Federal sports betting licenses and casino licenses are subject to a new regime change. As such, Aspire has applied for a local license in Germany in order to comply with this new regime.

In the United Kingdom, licensees (such as Aspire) are required to hold white label partners responsible for complying with local laws and regulations. Such requirements extend to areas of AML, advertising regulations and responsible gambling regulations. In the UK, extensive regulation is set in place in order to protect players in these areas. Aspire is working to constantly improve its due diligence process on business partners and take various steps to assure their compliance with local regulations.

On November 23, 2022, Aspire reached the conclusion of its license review by the United Kingdom Gambling Commission, which identified certain shortcomings in the system of controls it uses to monitor risks associated with its relationship with its partners. Aspire cooperated with the United Kingdom Gambling Commission throughout the investigation and took immediate corrective steps to address the identified failings. Aspire has received a warning and has agreed to pay a financial penalty of £237,600.

Social Responsibility and Responsible Gaming

We are committed to the integration of corporate social responsibility within our businesses, supporting the continued generation of sustainable value and enhancing our ability to deliver on its strategic objectives. We believe that our true value is reflected not simply by our balance sheet but through our intangible assets such as goodwill, our people and our reputation. As a leader in the iLottery and iGaming industries, we take our responsibilities to our customers and regulators seriously and are focused on cooperating with both on issues of responsible gambling. We provide our customers with robust solutions that facilitate responsible gaming for players, including embedded systems that assist in promoting a safe playing environment for all. By embracing policies and behaviors governing social responsibility, we create more valuable relationships with our stakeholders by demonstrating our focus on managing environmental and social risks in the business.

Our responsible gaming platform features include:


Advanced self-management module, which enables players to define their responsible gaming limits within a wide range of parameters;


Operator-controlled module, which enables lottery customers to define and enforce policies and limitations on their players; and


Application programming interface, which connects to government and other gaming databases to provide in-game alerts to remind players to play responsibly.

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Litigation
 
From time to time, we may be involved in various claims and legal proceedings related to claims arising out of our operations. Other than as described above in “—Regulation,” we are not currently a party to any material legal proceedings, including any such proceedings that are pending or threatened, of which we are aware.

Employees

As of December 31, 2022, the Company had 216 employees located in Israel, 8 employees located in the United States, 172 employees located in Malta, 99 employees located in Bulgaria, 158 employees located in North Macedonia, and additional 42 team members spread across other EU Member States. Additionally, as of December 31, 2022, the Company had 39 dedicated contractors located in India, and 383 dedicated contractors and employees hired by our Ukrainian subsidiaries, of which, prior to Russia’s invasion of Ukraine in February 2022, approximately 107 left Ukraine to neighboring countries.

Our goal is to attract and retain highly qualified and motivated personnel. We also engage contractors to support our efforts. None of our employees and service providers are subject to a collective bargaining agreement. We consider our employee relations to be good and we have never experienced a work stoppage.

We are committed to maintaining a working environment in which diversity and equality of opportunity are actively promoted and all unlawful discrimination is not tolerated. We are committed to ensuring employees are treated fairly and are not subjected to unfair or unlawful discrimination. We value diversity and to that end recognize the educational and business benefits of diversity amongst our employees, applicants and other people with whom we have dealings.

4.C.          Organizational Structure
 
The legal name of our company is NeoGames S.A., and we are organized under the laws of the Grand
Duchy of Luxembourg. For a broader perspective of our global reach, see below for an overview of our corporate structure.

NeoGames Corporate Structure


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4.D.          Property, Plants and Equipment
 
The Company has an office in Tel Aviv, Israel, where it leases approximately 27,200 square feet of office space. The lease for this facility was extended for five years commencing on April 15, 2022 and will automatically extend for an additional five years unless we terminate it upon prior notice. A large part of our development team is located in Kyiv, Ukraine. To serve our team in Ukraine, we lease office space in the area of approximately 1,966 square feet. The lease for this facility will expire on June 2, 2029. The Company also leases office space, mostly for short terms, in Ukraine, Malta, Bulgaria, India, Gibraltar and Macedonia. NPI serves our iLottery customers in North America through an office space of approximately 18,100 square feet in Lansing, Michigan, USA. This facility is leased by Pollard iLottery Inc., and because it is used solely for the benefit of the operations of NPI and the MSL, the Company participates in 50% of its monthly costs. The lease for this facility will expire on March 31, 2027.

Shortly prior to Russia’s invasion of Ukraine, the Company’s wholly-owned Ukrainian subsidiary, NeoGames Ukraine, entered into an agreement for the renovation and long-term leasing of facilities in Kyiv to serve as a development hub for the Company. Pursuant to such agreement, the Company has prepaid approximately $490,000, to facilitate the construction and renovation project. This project has been put on hold until the situation in the region has stabilized and it becomes possible to continue the renovation plans.

We believe that our current facilities are adequate to meet our needs for the near future and that suitable additional or alternative space will be available on commercially reasonable terms to accommodate our foreseeable future operations.
 
ITEM 4A.          UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5.             OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Annual Report. Actual results could differ materially from those contained in any forward-looking statements. Our financial statements have been prepared in accordance with IFRS. See Item 3.D. “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” The discussion of our operating and financial review and prospects for the year ended December 31, 2020 compared to the year ended December 31, 2021, can be found in Part I, Item 5. of our Annual Report on Form 20-F for the fiscal year ended December 31, 2021 filed with the SEC on April 14, 2022.

Our Company

We are a technology-driven innovator and a global leader of iLottery and iGaming solutions and services for regulated lotteries and gaming operators, offering our customers a full-service suite of solutions, including proprietary technology platforms, a sportsbook platform, two dedicated game studios with an extensive portfolio of engaging games – one in lottery and one in casino games, and a range of value-added services.

As a global B2G and B2B technology and service provider to state lotteries and other lottery operators, we offer our customers a full-service solution that includes all of the elements required for the offering of lottery games, including Instants and DBGs, via personal computers, smartphones and handheld devices. These elements include technology platforms, a range of value-added services and a game studio with a large portfolio of games. The value-added services that we offer facilitate various aspects of the iLottery offering including regulation and compliance, payment processing, risk management, player relationship management and player value optimization. Our complete solution allows our customers to enjoy the benefits of marketing their brands and generating traffic to their iLottery sales channels.

With the strategic acquisition of Aspire in June 2022, NeoGames now offers an innovative sports betting platform from BtoBet, an advanced content aggregation solution from Pariplay, and a complete set of B2B gaming tech and managed services.

NeoGames was established as an independent company in 2014, following a spin-off from Aspire, a B2C and B2B service provider in the iGaming industry. Prior to the spin-off from Aspire, our management team was responsible for the iLottery business of Aspire, which derived the majority of its revenues from the sale of iLottery games to various lotteries in Europe. In 2014, we began to focus on the U.S. iLottery market, which opened in 2012 with the introduction of online lottery ticket sales in Illinois. In order to access this significant market opportunity, we partnered with Pollard, one of the leading vendors to the global lottery industry. In 2014, we signed our first turnkey solution contract in the United States with the MSL, as a sub-contractor to Pollard.
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In July 2014 we formed NPI, a joint venture with Pollard, for the purpose of identifying, pursuing, winning and executing iLottery contracts in the North American lottery market. NPI combines the Company’s technology and iLottery business and operational experience with Pollard’s infrastructure, administrative capabilities and relationships with lotteries in North America. NPI is managed by an executive board of four members, consisting of two members appointed by NeoGames and two members appointed by Pollard. NPI has its own general manager and dedicated workforce and operates as a separate entity. However, it relies on NeoGames and Pollard for certain services, such as technology development, business operations and support services from NeoGames and corporate services, including legal, banking and certain human resources services, from Pollard.

Since its inception, NPI has secured iLottery contracts with the VAL, the NHL (as a sub-contractor to Intralot), the NCEL, the AGLC, the ALC and the Georgia Lottery. All of our iLottery business in North America is conducted through NPI, except in Michigan, where the contract is between the MSL and Pollard and we support the Michigan iLottery as a subcontractor of Pollard. We continue to conduct all of our business outside of North America through NeoGames.

Aspire Acquisition

On June 14, 2022 we completed our previously announced acquisition of Aspire for a total consideration amount of approximately $267.2 million in cash and 7,604,015 Swedish Depository Receipts of the Company (“SDRs”), each of which is convertible into one ordinary share of the Company. As of April 18, 2023, 48,672 SDRs have not yet been converted into Ordinary Shares and are expected to become fully converted by May 24, 2023, upon termination of the SDR program.

At the closing of the Aspire Tender Offer, we issued 7,604,015 SDRs, and paid approximately $267.2 million in cash to shareholders of Aspire.

At the closing of the Aspire Tender Offer, we entered into a senior facilities agreement with the Lenders (as defined below), consisting of a €187.7 million term loan, to partially fund the cash portion of the Aspire acquisition.  The term loan, along with a €13.1 million overfund facility, has a six-year maturity and bears interest at a rate of EURIBOR plus 6.25 percent per annum. See Note 15 to our consolidated financial statements included elsewhere in this Annual Report and Item 5.B. “Liquidity and Capital Resources – Financing for the Acquisition of Aspire”.

Our Customer Contracts

The core of our iLottery business model is our turnkey solution, which is our main iLottery revenue generator. Turnkey contracts generate long-term revenue streams that we believe we can increase over time, as in Michigan, to provide a strong return on investment.

We currently have, directly and through Pollard, Intralot and NPI, contracts to provide a turnkey solution to the MSL, the VAL, the NHL, the NCEL, the AGLC and Sazka and generate revenues from all these contracts. Our turnkey solution for the Michigan iLottery launched in August 2014, followed by our turnkey solution for Sazka, which launched in 2017. Our turnkey solutions for the NHL and NCEL were launched in September 2018 and October 2019, respectively, the VAL after a 2015 launch of an e-subscription program for DBG began operating a full iLottery program in July 2020 and our turnkey solution for the AGLC launched on September 30, 2020. The MSL Agreement was extended from December 2020 through July 2026. In 2022, we announced the entry into an agreement with the ALC for the provision of access to our game studio library of content through NPI, and a game content agreement with the Georgia Lottery. On June 28, 2022, we announced the entrance into a multi-year turnkey project with Intralot do Brasil, the lottery operator in Brazil’s second largest state of Minas Gerais. The agreement marks the Company’s entry into the Brazilian market with an end-to-end solution of iLottery and online sports betting. The agreement was the Company’s first cooperation with BtoBet, the sports betting solution it acquired as part of the Aspire acquisition.

In addition to our long-term turnkey contracts, NeoGames currently has eight games contracts with European customers, and we believe that we will secure additional games contracts in the future and that our revenues from games contracts will become a more significant part of our overall revenues, positively impacting our profitability.

For the years ended December 31, 2022, 2021 and 2020, we generated 8.6%, 15.8% and 13.6% of our revenues, respectively, from our contracts with William Hill, which were assumed by and assigned to Caesars on June 30, 2022.
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Our revenues from North America represented 26% and 79% of our revenues in the years ended December 31, 2022 and 2021, respectively.

For our iGaming business model, we are a leading B2B provider of iGaming solutions to a wide variety of partners, ranging from tier 1 operators to start-ups. A significant portion of our customers are marketing companies specializing in “smart” on-line marketing, mostly in European markets and aiming to expand to Latin America. We offer everything a company needs to operate a successful iGaming brand, including casino and sports betting. The revenues we generate from our iGaming partners are from four separate streams: a fixed set-up fee, a mark-up on supplier services, a share of adjusted net gaming revenues and royalty payments.

NeoPollard Interactive

We generated 3.4% and 15% of our revenues in the years ended December 31, 2022 and 2021, respectively, from services provided to NPI, such as development services. We account for the financial results of NPI in our financial statements in accordance with the equity method. Although NPI’s results of operations can materially impact our profit (loss), the results of operations of NPI are only reflected in one line item in our consolidated statements of comprehensive income (loss) (Company’s share in gains of NPI) and our revenue and operating expenses do not reflect the results of operations of NPI.

However, due to its materiality to our operational results, we have included the audited financial statements of NPI for the years ended December 31, 2022 and 2021 in this Annual Report. In order to provide more visibility into the results of operations of NPI, we have also included under Item 5.A. “Results of operations - Results of Operations of NPI”a discussion of the period to period comparison of NPI’s results of operations.

Factors Affecting our Financial Condition and Results of Operations

Our financial condition and results of operations have been, and will continue to be, affected by a number of important factors, including those discussed below and in Part 3.D. “Risk Factors” of the Annual Report.:

iLottery Penetration

The iLottery Penetration in each of the markets where we provide our turnkey solution varies and is dependent on a number of factors, including the range of iLottery products provided, the acceptable forms of payments and iLottery marketing budgets. The level of iLottery Penetration in any market where we operate has a direct impact on our or NPI’s revenues and any increase in iLottery Penetration is expected to increase such revenues.

Deregulation of lotteries in the United States

Lottery is a highly regulated industry. While lottery is offered in 45 states and the District of Columbia, iLottery Instants or DBGs are currently offered in only nine states and the District of Columbia (excluding states that offer only subscription-based iLottery). Expanding our business into additional U.S. states is an important part of our growth strategy and it is our belief that the growing credibility and brand awareness of certain iLottery platform and service providers, the demonstrated success of states with iLottery offerings and the increasing budgetary shortfalls in many U.S. states will accelerate the pace of deregulation and increase our growth potential.

The level of competition in the iLottery industry and the number of competitors

The iLottery industry is less exposed to new market entrants than other gambling markets due to the considerable barriers to entry imposed by government regulations and the need for unique and iLottery-tailored technology solutions. There is, however, intense competition among the few existing iLottery providers with respect to new iLottery contracts. We compete both for contracts to supply our turnkey solution and for contracts to supply our games.

The level of competition and number of competitors in our market is an important factor affecting our ability to win new contracts and to expand our business.
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Operating jurisdictions for iGaming business

Our iGaming business is concentrated on winning market share in regulated markets, which are currently limited in number. If more jurisdictions, mainly in the EU and across the U.S. decide to permit regulated gaming activities and operations through a licensing model, we believe that our experience and scale, as demonstrated by our social responsibility practices and existing relationships with gaming regulators, will allow us to present a compelling product suite coupled with experience and knowledge in operating in regulated gaming markets. That being said, regulated markets would normally be expected to generate lower operating margins due to taxation and product and other certification requirements, as well as greater platform customization required to meet regulatory requirements.

Intense competition in the B2B landscape in the U.S. iGaming market

We face significant competition in the evolving iGaming industry, especially in the U.S. market. Moreover, given that industry leaders control their own tech stack, the competition for the remaining contracts is very substantial. We compete on the basis of the content, features, quality, functionality, accuracy, reliability, innovation and price of our iGaming technology solutions, games and related operational services. We believe that we provide a unique solution for iGaming, offering a wide variety of B2B services, unique proprietary tools and a proprietary Sportsbook platform, which enables our partners to focus on marketing and player acquisitions. However, our competitors may be able to provide similar or superior solutions, and some of our competitors and potential competitors have substantially greater financial and other resources (including human resources) or experience than we do, which could limit our ability to contract with additional operators.

Reportable Segments

Since the Aspire acquisition was completed on June 14, 2022, we have managed our operations through four reportable segments: NeoGames, which represents all of our iLottery and related operations, and the following three reportable segments constituting our iGaming division with Aspire: Core, Games (Pariplay), and Sports (BtoBet).

   
For the year ended December 31, 2022
 
   
Lottery
   
Core
   
Games
   
Sports
   
Eliminations
   
Total
 
   
U.S. dollars (in thousands)
 
                                     
Revenues
   
53,598
     
80,475
     
18,265
     
13,360
     
-
     
165,698
 
Revenues (inter-segment)
   
988
     
-
     
5,876
     
369
     
(7,233
)
   
-
 
Total Revenues
   
54,586
     
80,475
     
24,141
     
13,729
     
(7,233
)
   
165,698
 
                                                 
The Company’ share in profit of Joint Venture and associate
   
21,585
     
525
     
-
     
-
     
-
     
22,110
 
Segment results
   
18,660
     
6,695
     
5,785
     
2,157
     
-
     
33,297
 

iLottery Segment

iLottery segment revenues increased 6.2% for the year ended December 31, 2022 compared to the year before, mainly due to higher revenues generated from our contract with William Hill, which was assigned to and assumed by Caesars on June 30, 2022, partially offset by lower revenues from services rendered to NPI. The segment profit increased to $18.7 million due to strong performance of the iLottery programs operated by NPI in the U.S., mainly during the second half of 2022.

Core Segment

Aspire Core segment revenues contributed $80.4 million for the period from the merger closing to December 31, 2022.

Aspire Core allows operators to operate either under their own local licenses or under Aspire’s licenses in numerous markets. Aspire’s platform partners have access to on-demand data analysis services in addition to a variety of analytical tools. The platform is frequently updated with new features relating to regulation and ongoing compliance. The in-house regulation and compliance team monitors operations, conducts ongoing training and provides partners with regulatory updates and marketing guidelines for their jurisdictions. The platform itself can be used exclusively or combined with a wide range of managed services, such as customer support, CRM tools and financial services.
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  Aspire has been working with its partners using a revenue sharing arrangements. In arrangements wherein Aspire is the principal in the transaction, revenue is recognized on a gross basis and the third-party revenue portion related to the sale is recognized within distribution expenses as royalties. Conversely, in arrangements wherein the Company acts as an agent between the customer and the vendor, revenue is recognized net of costs.

In most arrangements through December 31, 2022, the Company was the principal. To determine whether Aspire is an agent or principal, management considers whether Aspire obtains control of the services or products before they are transferred to the customer. In making this evaluation, several factors are considered, most notably whether we have primary responsibility for fulfillment to the customer, as well as pricing discretion.

After the sale of its B2C segment in 2021 and related value proposition, Aspire has been working with the majority of its partners to transition to them the respective B2C capabilities. Commencing on January 1, 2023, Aspire has changed the related legal terms of partner contracts, allowing a substantial degree of control of the services or products to its partners. Thus, commencing on January 1, 2023, Aspire has reported revenues from the majority of its arrangements on a net basis.

Games (Pariplay)

Games segment has two growing product lines, proprietary content (“Wizard”) and aggregation service (“Fusion”), primarily driven by expansion of Pariplay into the North American regulated gaming market and expansion of content and aggregation services with our primary existing partners. Total segment revenues for the period from June 15, 2022 to December 31, 2022 were $24.1 million, of which $5.8 million constitute sales to internal group segments.

Sports (BtoBet)

BtoBet is a sportsbook provider with a proprietary sportsbook. In addition, BtoBet provides Aspire with flexibility when it comes to adding new features and securing fast time to market. BtoBet segment revenues contributed $13.7 million for the period from the merger closing to December 31, 2022. 

Non-IFRS Information

This Annual Report includes EBIT, EBITDA and Adjusted EBITDA, which are financial measures not presented in accordance with IFRS that we use to supplement our results presented in accordance with IFRS. We define “EBIT” as net profit (loss), plus income taxes, and interest and finance-related expenses. We define “EBITDA” as EBIT, plus depreciation and amortization. We define Adjusted EBITDA as EBITDA, plus initial public offering expenses, share-based compensation, business combination related expenses and the Company’s share of NPI’s depreciation and amortization.

We believe EBIT, EBITDA and Adjusted EBITDA are useful in evaluating our operating performance, as they are similar to measures reported by other public companies in our industry and are regularly used by security analysts, institutional investors and others in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any IFRS financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

We include these non-IFRS financial measures because they are used by our management to evaluate our operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. EBIT, EBITDA and Adjusted EBITDA exclude certain expenses that are required in accordance with IFRS because they are non-cash or are not associated with the operational activity of the business.
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The following table reconciles our EBIT, EBITDA and Adjusted EBITDA to our net income (loss), the closest IFRS measure, for the periods indicated:

 
Year Ended December 31,
 
 
2022
   
2021
   
2020
 
 
(in thousands)
 
                 
Net (loss) income
 
$
(18,965
)
 
$
4,652
   
$
6,514
 
Income tax expenses
   
1,546
     
325
     
1,443
 
Interest and finance-related expenses
   
15,105
     
6,312
     
5,069
 
EBIT
   
(2,314
)
   
11,289
     
13,026
 
Depreciation and amortization
   
35,611
     
14,613
     
11,657
 
EBITDA
   
33,297
     
25,902
     
24,683
 
Initial public offering expenses
   
-
     
-
     
2,796
 
Business combination related expenses
   
17,984
     
3,841
     
-
 
Share-based compensation
   
2,994
     
3,448
     
969
 
Company share of NPI depreciation and amortization(1)
 
$
222
     
193
     
203
 
Adjusted EBITDA
 
$
54,497
   
$
33,384
   
$
28,651
 

(1)  Represents 50% of NPI’s depreciation and amortization for the years ended December 31, 2022, 2021 and 2020 of $445,000, $385,000 and $405,000, respectively. In accordance with IFRS, NeoGames’ share of NPI’s expense is not recorded in our consolidated statements of comprehensive income (loss), but is rather reflected in our consolidated financial statements in accordance with the equity method, as we share in 50% of the profit (loss) of NPI. See Note 1 to our consolidated financial statements included elsewhere in this Annual Report.

Components of Results of Operations

Revenues

We generate revenues from our B2B iGaming solutions offered through Aspire, iLottery turnkey solutions and games, contract with Caesars, joint operation of the Michigan iLottery for the MSL (the “Michigan Joint Operation”) and development services we provide to NPI.

The iGaming revenues we generate are from four separate streams: a fixed set-up fee, a mark-up on supplier services, a share of adjusted net gaming revenues and royalty payments


Fixed set-up fee – A fixed set-up fee is charged immediately following an agreement.


Mark-up on supplier services – A “cost plus” mark-up is charged for third-party services, such as fees to payment solution providers and game providers. We keep the mark-up at a moderate level while focusing on the royalty element.


Share of adjusted net gaming revenue – When a brand is launched on the platform, we and the partner split the net gaming revenues (NGR). We keep a royalty and pay the remaining share of NGR to the partner. To limit downside risk, in some cases a minimum platform fee is charged.


Royalties – Royalties from games and sport betting are calculated and invoiced as a percentage of the adjusted game win (player bets less player wins less adjustments), a fee for proprietary titles and another for aggregation of third-party games.

Our iLottery turnkey solution contracts and certain of our games contracts provide for a revenue share model that entitles us, either directly, or indirectly through Pollard, Intralot or NPI, to a predetermined share of either the NGR or the GGR generated by iLotteries using our platforms and/or games. Our share of NGR or GGR varies between customers and generally depends on the type and scope of value-added services provided to the customer. Our contract with Intralot Interactive S.A for providing games to the Croatian lottery is the only contract we have that is based on gross sales. The initial term of this contract expired and the contract has been renewed up to January 2022. This contract provides for a fee that is determined based on the GGR through our content on the Croatian lottery platform.

We post as revenues at least 50% of the revenues earned by the Michigan Joint Operation from the MSL, with an incremental 3 to 5% above our 50% share of royalties earned by the Michigan Joint Operation from certain games subsequently developed and provided by NeoGames as compensation for our development of such games. We record as revenues 100% of the revenues earned from our European customers.
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As with the revenues earned by the Michigan Joint Operation, we are entitled to at least 50% of the revenues earned by NPI from our customers, with an incremental 3 to 5% above our 50% share of royalties earned by NPI from certain games subsequently developed and provided by NeoGames as compensation for our development of such games (which we refer to collectively as our “NPI Revenues Interest”). However, while our revenues earned from the Michigan Joint Operation are reflected as revenues in our consolidated statement of operations, our NPI Revenues Interest is not recorded as revenues, but is rather reflected in our financial statements in accordance with the equity method. We share in 50% of the profit of NPI, subject to certain adjustments (including the incremental royalties mentioned above).

We generate revenues from Caesars in the form of a monthly fee charged to Caesars for its access to the sub-licensed NeoSphere platform.

We also record as revenue a monthly fee we receive from each of the Michigan Joint Operation and NPI for certain software development and support services, which is calculated on a margin over cost basis.

The table below presents the revenues (including through the Michigan Joint Operation), as well as NeoGames’ NPI Revenues Interest, for the years ended December 31, 2022, 2021 and 2020.

 
Year Ended December 31,
 
 
2022
   
2021
   
2020
 
 
(in thousands)
 
       
Royalties from turnkey contracts(1)
 
$
29,729
   
$
29,882
   
$
32,252
 
Royalties from games contracts
   
1,709
     
1,994
     
2,006
 
Access to IP rights
   
14,293
     
7,959
     
6,697
 
Development and other services - Aspire
   
767
     
1,617