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Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2016
Apr. 07, 2017
Jun. 30, 2016
Document And Entity Information      
Entity Registrant Name NEWGIOCO GROUP, INC.    
Entity Central Index Key 0001080319    
Document Type 10-K    
Document Period End Date Dec. 31, 2016    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Is Entity a Well-known Seasoned Issuer? No    
Is Entity a Voluntary Filer? No    
Is Entity's Reporting Status Current? Yes    
Entity Filer Category Smaller Reporting Company    
Entity Public Float     $ 4,613,780
Entity Common Stock, Shares Outstanding   37,989,373  
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2016    
Consolidated Balance Sheets - USD ($)
Dec. 31, 2016
Dec. 31, 2015
Current Assets    
Cash and cash equivalents $ 2,230,422 $ 157,363
Accounts receivable 16,919
Gaming account receivable, net of allowance for doubtful accounts of $388,134 and $349,374 226,030 178,151
Prepaid expenses 91,577 310,407
Investment in corporate bonds
Other current assets 228,749 36,725
Total Current Assets 2,793,697 682,646
Noncurrent Assets    
Restricted Cash 475,916 232,013
Property, plant and equipment 203,660 88,705
Intangible assets 3,690,978 2,376,540
Goodwill 260,318 260,318
Investment in non-consolidated entities 6,508 6,729
Total Noncurrent Assets 4,637,380 2,964,305
Total Assets 7,431,077 3,646,951
Current Liabilities    
Line of credit - Bank 726 312,483
Accounts payable and accrued liabilities 999,363 571,501
Gaming account balances 621,228 274,942
Taxes payable 525,361 165,166
Advances from stockholders 557,549 191,675
Liability in connection with acquisition 125,375 327,536
Debenture, net of discount 616,517 107,589
Derivative liability 211,262 28,375
Promissory notes payable - other 111,285 108,135
Promissory notes payable- related party 318,078 186,233
Bank loan payable - current portion 102,140
Other current liabilities 7,376 1,450
Total Current Liabilities 4,196,260 2,275,085
Bank loan payable 426,610
Other long term liabilities 315,579 67,532
Total Liabilities 4,938,449 2,342,617
Stockholders' Deficiency    
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 37,009,295 and 24,126,088 shares issued and outstanding 3,701 2,413
Additional - paid in capital 14,169,062 10,472,501
Accumulated other comprehensive income (416,631) 124,265
Accumulated deficit (11,263,504) (9,294,845)
Total Stockholders' Equity 2,492,628 1,304,334
Total Liabilities and Stockholders' Equity $ 7,431,077 $ 3,646,951
Consolidated Balance Sheets (Parenthetical) - USD ($)
Dec. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 388,134 $ 349,374
STOCKHOLDERS' EQUITY    
Capital stock - par value $ 0.0001 $ 0.0001
Capital stock - authorized 80,000,000 80,000,000
Capital stock - issued 37,009,295 24,126,088
Capital stock - outstanding 37,009,295 24,126,088
Consolidated Statements of Comprehensive Loss - USD ($)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]    
Revenue $ 8,897,963 $ 4,872,902
Costs and expenses    
Selling expenses 5,846,019 3,663,165
General and administrative expenses 4,512,812 2,837,800
Total Costs and Expenses 10,358,831 6,500,965
Loss from operations (1,460,868) (1,628,063)
Other Expenses (Income)    
Interest expense, net of interest income 727,328 205,355
Changes in fair value of derivative liabilities (426,369) 22,808
Imputed interest on related party advances 8,807 5,309
Allowance for deposit on acquisition 94,952
Impairment on investment 0 30,185
Total Other Expenses 309,766 358,609
Loss before income taxes (1,770,634) (1,986,672)
Income taxes 198,025 35,991
Net loss (1,968,659) (2,022,663)
Other Comprehensive Income    
Foreign currency translation adjustment (540,896) 84,385
Comprehensive loss $ (2,509,555) $ (1,938,278)
Basic and fully diluted loss per common share $ (0.09) $ (0.08)
Weighted average number of common shares outstanding basic and diluted 28,156,667 23,412,131
Consolidated Statements of Changes in Stockholders Equity (Deficiency) - USD ($)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Total
Beginning Balance, Shares at Dec. 31, 2014 23,264,800        
Beginning Balance, Amount at Dec. 31, 2014 $ 2,327 $ 9,525,357 $ 39,880 $ (7,272,182) $ 2,295,382
Shares issued for repayment of debt, shares 332,350        
Shares issued for repayment of debt $ 33 345,611     345,644
Shares issued for services, shares 311,500        
Stock issued for services $ 31 321,969     322,000
Shares issued for warrants exercised, shares 62,438        
Shares issued for warrants exercised $ 6 64,344     64,350
Share based compensation, value        
Shares issued for cash, shares 155,000        
Shares issued for cash $ 16 154,985     155,000
Imputed interest on stock advances   5,272     5,272
Beneficial conversion value of debt   54,964     54,964
Foreign currency translation adjustment     84,385   84,385
Net Loss       2,022,663 2,022,663
Ending Balance, Shares at Dec. 31, 2015 24,126,088        
Ending Balance, Amount at Dec. 31, 2015 $ 2,413 10,472,501 124,265 (9,294,845) 1,304,334
Shares issued for repayment of debt, shares 2,226,622        
Shares issued for repayment of debt $ 223 464,191     464,414
Shares issued for services, shares 90,000        
Stock issued for services $ 9 61,291     297,319
Shares issued for warrants exercised, shares 14,885        
Shares issued for warrants exercised $ 1 14,437     14,438
Share based compensation, shares 4,500,000        
Share based compensation, value $ 450 674,550     675,000
Common stock issued for the purchase of subsidiaries,shares 6,051,700        
Common stock issued for the purchase of subsidiaries, amount $ 605 2,359,558     2,360,163
Imputed interest on stock advances   8,503     8,503
Beneficial conversion value of debt   114,031     114,031
Foreign currency translation adjustment     (540,896)   (540,896)
Net Loss       (1,968,659) (1,968,659)
Ending Balance, Shares at Dec. 31, 2016 37,009,295        
Ending Balance, Amount at Dec. 31, 2016 $ 3,701 $ 14,169,062 $ (418,841) $ 11,263,540 $ 2,492,628
Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Cash Flows from Operating Activities    
Net loss $ (1,968,659) $ (2,022,663)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 522,199 429,210
Amortization of deferred costs 263,046 31,738
Non-cash interest 569,558 113,456
Imputed interest 8,807 5,309
Changes in fair value of derivative liabilities (426,369) 22,808
Non-cash commission and legal fees related to debenture 5,000
Impairment of assets 125,137
Stock issued for services 297,319 362,749
Stock compensation 675,000
Bad debt 69,268 354,678
Changes in operating assets and liabilities    
Prepaid expenses (164,518) (20,025)
Accounts payable and accrued liabilities 168,321 249,724
Accounts receivable 348,324
Gaming accounts receivable (125,496) (196,648)
Gaming account liabilities 371,843 (42,409)
Taxes payable 111,497 96,950
Other current assets (202,420) (20,433)
Other current liabilities 6,251 (6,415)
Long term liability 27,787 4,944
Customer Deposits 234,122
Net cash provided by (used in) operating activities 785,880 (506,890)
Cash Flows from Investing Activities    
Acquisition of property, plant and equipment (145,918) (27,922)
Acquisition of intangible assets (88,800)
Cash acquired on acquisition 803,482 14,382
Cash paid for acquisition (200,313) (189,350)
Proceeds from matured corporate bond 355,200
Increase in restricted cash (263,223) (235,535)
Deposit on acquisitions (61,652)
Net cash provided by (used in) investing activities 194,028 (233,677)
Cash Flows from Financing Activities    
Proceeds (repayment) of bank credit line, net (315,526) 140,201
Proceeds (repayment) of bank loan 553,350 (51,324)
Proceeds from debenture and convertible notes issued, net of commission 750,000 222,020
Proceeds from promissory notes, net of repayment 75,403 336,233
Repayment of promissory notes   (328,661)
Repayment of convertible notes and debenture (135,100) (265,000)
Proceeds from issuance of common stock   155,000
Advances from stockholders, net of repayment 294,292 281,054
Net cash provided by financing activities 1,222,419 489,523
Effect of change in exchange rate (128,268) (13,868)
Net increase (decrease) in cash 2,073,059 (264,913)
Cash - beginning of year 157,363 422,276
Cash - end of year 2,230,422 157,363
Supplemental disclosure of cash flow information:    
Cash paid during the year for: Interest 158,586 74,367
Cash paid during the year for: Income Taxes 23,358 15,765
Supplemental cash flow disclosure for non-cash activities:    
Common shares issued to related parties for repayment of debt 428,414 323,128
Common shares issued for repayment of debt 2,360,163 22,516
Common shares issued for cashless exercise of warrants $ 14,438 $ 64,350
Basis of Presentation and Nature of Business
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Nature of Business

1. Basis of Presentation and Nature of Business

 

Nature of Business

 

Newgioco Group, Inc. ("Newgioco Group" or "the Company") was incorporated in the state of Delaware on August 26, 1998 as Pender International Inc. On September 30, 2005 the Company changed its name to Empire Global Corp., and on July 20, 2016 the Company changed its name to Newgioco Group, Inc. The Company maintains its principal executive offices headquartered in Toronto, Canada.

 

The Company provides web-based and land-based gaming services through its wholly owned subsidiaries in Italy and Austria. The Company’s subsidiaries include: Multigioco Srl (“Multigioco”) which was acquired on August 15, 2014, Rifa Srl (“Rifa”) which was acquired on January 1, 2015, as well as Ulisse Gmbh (“Ulisse”) and Odissea Betriebsinformatik Beratung Gmbh (“Odissea”) which were both acquired on July 1, 2016.

 

Newgioco Group is now a vertically integrated company offering a complete suite of gaming services including a variety of online and offline lottery and casino gaming, as well as sports betting through a retail distribution of leisure betting locations situated throughout Italy, in addition to operating a proprietary Betting Operating System (“BOS”).

Going Concern
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern

2. Going concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business.

 

The Company had a working capital deficit of $1,402,563 as of December 31, 2016, and reported operating losses for the past two years. There are no assurances that management will be successful in achieving sufficient cash flows to fund the Company's working capital needs, or whether the Company will be able to refinance or renegotiate its obligations when they become due or raise additional capital through future debt or equity. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.

 

Management plans to mitigate its losses in future years by significantly reducing its operating expenses, seeking out new business opportunities and attempting to raise debt or equity financing. However, there is no assurance that the Company will be able to obtain additional financing, reduce its operating expenses or be successful in maintaining a viable business.

 

Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

 

a) Basis of consolidation

 

The consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company transactions are eliminated upon consolidation.

 

Certain amounts of prior periods were reclassified to conform with current period presentation.

 

b) Use of estimates

 

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

c) Goodwill

 

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Goodwill is not being amortized, but is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we proceed to a two-step process to test goodwill for impairment including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an income or market approach incorporating market participant considerations and management's assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter.

 

We perform the allocation based on our knowledge of the market in which we operate, and our overall knowledge of the gaming industry.

 

d) Business Combinations

 

We allocate the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

 

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

 

e) Long-Lived Assets

 

We evaluate the carrying value of our long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.

 

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

 

f) Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including convertible notes and stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

g) Earnings Per Share

 

FASB ASC 260, "Earnings Per Share" provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. These potentially dilutive securities were not included in the calculation of loss per share for the years ended December 31, 2016 and 2015, thus the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for all periods presented.

 

h) Currency translation

 

Since the Company's subsidiaries operate in Europe, the subsidiaries functional currency is the Euro. In the consolidated financial statements, revenue and expense accounts are translated at the average rates during the period, and assets and liabilities are translated at period-end rates and equity accounts are translated at historical rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity. Gains and losses from foreign currency transactions are recognized in current operations.

 

i) Revenue Recognition

 

Revenues from sports-betting, casino, cash and skill games; slots, bingo and horse race wagers represent the gross pay-ins (also referred to as Turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.

 

Revenues from Betting Operating System (“BOS”) include license fees, training, installation, and product support services. Revenue is recognized when the significant risks and rewards of ownership are transferred or when the obligation is fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees were recognized on an accrual basis as earned.

 

j) Cash and equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. Cash equivalents represent short-term investments consisting of investment-grade corporate and government obligations, carried at cost, which approximates market value. The Company has no cash equivalents as of December 31, 2016 and 2015.

 

The Company primarily places its cash with high-credit quality financial institutions, one of which is located in the United States and is insured by the Federal Deposit Insurance Corporation for up to $250,000 and another which is located in Italy and is insured by the Italian government.

 

k) Gaming accounts receivable & allowance for doubtful accounts

 

Gaming accounts receivable represents gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to our bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables.

 

l) Gaming account balances

 

Gaming account balances represent customer balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the customers. Customers can request payment from the Company at any time and the payment to customers can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.

 

m) Fair Value Measurements

 

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active market for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

The carrying value of the Company's short term investments, prepaid expenses, accounts receivables, other current assets, accounts payable and accrued liabilities, gaming account balance, and advances from shareholder approximate fair value because of the short-term maturity of these financial instruments.

 

The derivative liability in connection with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is the only financial liability measured at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance December 31, 2014   $ 15,397  
Issued during the year ended December 31, 2015     54,520  
Exercised during the year ended December 31, 2015     (64,350 )
Change in fair value recognized in operations     22,808  
Balance at December 31, 2015     28,375  
Issued during the year ended December 31, 2016     609,256  
Exercised during the year ended December 31, 2016      
Change in fair value recognized in operations     (426,369 )
Balance at December 31, 2016   $ 211,262  

 

 

n) Property, plant and equipment

 

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic benefits embodied in an item of property, plant and equipment. All other expenditures are recognized as expenses in the statement of income as incurred.

 

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows:

 

Trademarks / names     14 years  
Office equipment     5 years  
Office furniture     8 1/3 years  
Signs and displays     5 years  

 

o) Leases

 

Leases are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations, the Company records rent expense on the straight line method. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account and is included in accrued expenses and other current liabilities.

 

All lease agreements of the Company as lessees are accounted for as operating leases as of December 31, 2016 and 2015.

 

p) Income Taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes." Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

The Company has elected to include interest and penalties related to uncertain tax positions, if determined, as a component of income tax expense.

 

In Italy, tax years beginning 2011 forward are open and subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

 

q) Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities.

 

The Company adopted FASB ASC 220-10-45, "Reporting Comprehensive Income". ASC 220-10-45 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and unrealized gains (losses) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments.

 

r) Recent Accounting Pronouncements

 

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance provides that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance with the annual and the interim period beginning January 1, 2016, and applied the standard on a retrospective basis as of December 31, 2015. The adoption of this standard did not have a material impact on our financial position and did not impact our results of operations or cash flows.

 

There are no other recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

Acquisitions
12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Acquisitions

4. Acquisition of offline and land-based gaming assets

 

(a) Rifa Srl. And Newgioco Srl.

 

On January 1, 2015 the Company completed the acquisition of Rifa, an inactive legal entity incorporated in Italy. Rifa's assets include a "Monti license" and 1 Diritti Negozio Sportivo (“Agency”) Concession right that enables the Company to operate Agency locations. During the year ended December 31, 2014 Multigioco paid EUR 51,506 (approximately U.S. $62,300) towards the acquisition of Rifa, which was classified as deposit on acquisitions at December 31, 2014. The Company paid EUR 30,000 (approximately U.S. $36,300) towards the purchase price of Rifa and also advanced EUR 21,506 (approximately U.S. $26,000) for payments of debts of Rifa.

 

Also on January 1, 2015, Multigioco purchased offline gaming assets of Newgioco, which included a Bersani license along with 3 Diritti Punto Sportivo (“Corner”) rights to operate under Multigioco, and Rifa purchased 1 Agency right from Newgioco to operate under Rifa’s Monti license. Pursuant to the agreement Rifa assumed the lease on the Newgioco Agency premises. The purchase price paid to Newgioco also includes equipment and assets related to each of the Corner and Agency locations.

 

Newgioco is an Italian gaming company which is 50% owned by Laura Tabacco an Italian citizen and 50% owned by Beniamino Gianfelici, who along with his daughter owned 100% of Multigioco prior to its acquisition by Empire.

 

Rifa was a privately owned, inactive Italian gaming company which included a "Monti license" and 1 Diritti Negozio Sportivo (“Agency”) Concession Right. The Company acquired Rifa in order to develop its land-based gaming operations in Italy.

 

The Company agreed to pay Newgioco EUR 650,649 (approximately U.S. $787,158) which included EUR 450,000 (approximately U.S. $569,700) payable in 9 cash instalments of EUR 50,000 (approximately U.S. $63,308) each until paid in full and forgiveness of EUR 210,507 (approximately U.S. $256,251) in debt which was recorded as due from affiliates at December 31, 2014. As of December 31, 2015, the Company has paid EUR 144,000 (approximately U.S. $159,840) towards the cash purchase price. Additional payments of EUR 106,000 (approximately U.S. $116,923) and EUR 75,000 (approximately U.S. $82,729) were paid in February, 2016 and April 2016, respectively.

 

For accounting purposes, the purchase was accounted for using the acquisition method of accounting. The assets and liabilities of Rifa and Newgioco are included in the Consolidated Balance Sheet from the acquisition date and the results of the operation subsequent to the acquisition date are included in the Consolidated Statement of Comprehensive Loss for the year ended December 31, 2015.

 

The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of the acquisition. The Company conducted an internal assessment on the fair value of the tangible and intangible assets acquired.

 

The following represents the purchase price allocation:

 

            Useful life
             
Total property, plant and equipment           $ 62,693       4 – 10 years  
                         
Identifiable intangible assets                        
Bersani license:     36,519               1.5 years  
Monti license:     36,519               1.5 years  
Corner concession rights:     57,381               5 years  
Agency concession rights:     226,327               5 years  
Customer relationships:     346,931               15 years  
Total identifiable intangible assets             703,677          
Net Liabilities assumed             (18,895 )        
Total identifiable assets less net liabilities             747,475          
Goodwill             81,079          
Total purchase price           $ 828,554          

 

 

(b) Odissea Betriebsinformatik Beratung Gmbh (“Odissea”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement which closed on July 1, 2016, with the shareholders of Odissea organized under the laws of Austria (the “Odissea SPA”). Odissea operates a proprietary Betting Operating System. Pursuant to the agreement, the Company issued 4,386,100 shares of common stock in consideration for 100% of the issued and outstanding shares of Odissea. As a result of this acquisition, the sellers now hold approximately 11.85% of the issued and outstanding shares of common stock of the Company.

 

Pursuant to the Odissea SPA, upon completion of certification of the Betting Operating System by the ADM the sellers may exercise the option to resell to the Company 50% of the shares of common stock issued in consideration for the purchase price (or 2,193,050 shares) at a fixed price of U.S. $1.00 per share. The repurchase option expires on June 30, 2017, 12 months after the Closing Date.

 

The purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed. Intangible assets will be amortized over their remaining useful life as follows:

 

        Remaining Useful Life
Current assets   $ 210,505      
Property, Plant and Equipment     30,638      
Identifiable intangible assets:            
Betting Operating System     1,685,371     15 years
Less: liabilities assumed     (215,935 )    
Total identifiable assets less liabilities assumed   1,710,579      
Total purchase price     1,710,579      
Excess purchase price   $      
             

 

 

(c) Ulisse Gmbh (“Ulisse”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement which closed on July 1, 2016, with the shareholders of Ulisse organized under the laws of Austria (the “Ulisse SPA”). Ulisse operates an existing network of 107 land-based Agency locations in Italy. Pursuant to the agreement, the Company issued 1,665,600 shares of common stock in consideration for 100% of the issued and outstanding shares of Ulisse. As a result of this acquisition, the sellers now hold approximately 4.50% of the issued and outstanding shares of common stock of the Company.

 

Pursuant to the Ulisse SPA, upon completion of the ADM license tender auction and the Rights obtained by the Company are assigned to the Ulisse locations the sellers may exercise the option to resell to the Company 50% of the shares of common stock issued in consideration for the purchase price (or 832,800 shares) at a fixed price of U.S. $1.00 per share. The repurchase option expires on June 30, 2017, 12 months after the Closing Date.

 

On November 15, 2016, Ulisse obtained a bookmaker license from the Austrian gaming authority making Ulisse a licensed sports bookmaker. The Ulisse bookmaker license does not have an expiration date and renews on an annual basis.

 

The purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed. Intangible assets will be amortized over their remaining useful life as follows:

 

 

        Remaining Useful Life
Current assets   $ 984,647      
Property, Plant and Equipment     2,917      
Identifiable intangible assets:            
Customer relationships     83,996     10 years
Less: liabilities assumed     (421,976 )    
Total identifiable assets less liabilities assumed   649,584      
Total purchase price     649,584      
Excess purchase price   $      

 

The Company has estimated the fair value of assets acquired and liabilities assumed in connection with acquisitions and is currently undergoing a formal valuation and will adjust these estimates accordingly within the one year measurement period.

Deposits on Acquisitions
12 Months Ended
Dec. 31, 2016
Deposits On Acquisitions  
Deposits on Acquisitions

5. Deposits on Acquisitions

 

Deposits on acquisitions includes the following:

 

 

    December 31,   December 31,
    2016   2015
         
Acquisition of Rifa Srl.   $     $  
Acquisition of Streamlogue Holdings Ltd.           750,929  
            750,929  
Less allowance for doubtful account           (750,929 )
    $     $  

 

 

On September 1, 2014 the Company entered into a Share Purchase Agreement (SPA) to acquire Streamlogue Holdings Ltd. ("Streamlogue"), a Maltese licensed gaming company. The purpose of seeking the acquisition of Streamlogue is to expand our gaming products and services outside of the Italian operations of our subsidiary Multigioco. Under the terms of the SPA, the company agreed to pay EUR 600,000 (approximately U.S. $759,698) of outstanding debts of Streamlogue plus EUR 350,000 (approximately U.S. $443,157) in shares of the company payable on closing of the transaction.

 

The Company did not make any advances during the year ended December 31, 2016. The Company advanced $94,953 towards the acquisition of Streamlogue during the year ended December 31, 2015. The advances were credited to the purchase price for Streamlogue of EUR 950,000 (approximately U.S. $1,202,855).

 

Since Streamlogue has not produced any meaningful income, the Company determined that it may not be able to realize its deposit in Streamlogue if the transaction is unsuccessful. Therefore, the Company set up a 100% allowance on the advances made during the year ended December 31, 2015.

Intangible Assets
12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

6. Intangible Assets

 

Intangible assets consist of the following:

 

    December 31,
2016
  December 31,
2015
  Life
(years)
Betting Operating System   $ 1,685,371     $     15
Licenses     953,024       956,632     1.5 - 7
Location contracts     1,000,000       1,000,000     5 - 7
Customer relationships     870,927       786,931     10 - 15
Trademarks/names     110,000       110,000     14
Website     40,000       40,000     5
      4,659,322       2,893,563      
Accumulated amortization     (968,344)       (517,023 )    
Balance   $ 3,690,978)     $ 2,376,540      
                     

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value. The amortization expense was $458,087 and $408,111 for the year ended December 31, 2016 and December 31, 2015, respectively.

 

Licenses include the GAD online license as well as the Bersani and Monti land-based licenses issued by the Italian gaming regulator to Multigioco and Rifa, respectively. These licenses were obtained by the Company in the acquisitions of Multigioco and Rifa. See Note 4.

Restricted Cash
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Restricted Cash

7. Restricted Cash

 

Restricted Cash is cash held in a segregated bank account at Veneto Banca Societa Cooperativa Per Azioni (“SCpA”) (“Veneto Banca”) as collateral against our operating line of credit with the Veneto Banca as well as Wirecard Bank as a security deposit for Ulisse.

Long Term Debt
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Long Term Debt

8. Long Term Debt

 

Long term debt represents the Italian "Trattamento di Fine Rapporto" (TFR) which is a severance amount set up by Italian companies to be paid to employees on termination or retirement as well as shop deposits that are held by Ulisse.

 

Line of Credit-Bank
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Line of Credit-Bank

9. Line of Credit – Bank

 

The Company currently maintains an operating line of credit for a maximum amount of EUR 300,000 (approximately U.S. $317,250) for Multigioco and EUR 50,000 (approximately U.S. $52,875) for Rifa from Banca Veneto in Italy. The line of credit is secured by restricted cash on deposit at Banca Veneto and guaranteed by certain shareholders of the Company and bears a fixed rate of interest at 5% per annum on the outstanding balance with no minimum payment, maturity or due date.

Liability in connection with acquisition
12 Months Ended
Dec. 31, 2016
Payables and Accruals [Abstract]  
Liability in connection with acquisition

10. Liability in connection with acquisition

 

Liability in connection with acquisition represent non-interest bearing amount due by the Company’s subsidiaries toward the purchase price per purchase agreement between Newgioco Srl and the Company’s subsidiaries. The Company’s shareholder and director, Beniamino Gianfelici, owns 50% shares of Newgioco Srl During the year ended December 31, 2016, the company paid EUR 181,000 (approximately U.S. $200,313) to Newgioco Srl.

Investment in Non-consolidated Entities
12 Months Ended
Dec. 31, 2016
Investments, All Other Investments [Abstract]  
Investment in Non-consolidated Entities

11. Investment in Non-consolidated Entities

 

Investments in non-consolidated entities consists of the following:

 

    December 31,   December 31,
    2016   2015
         
2336414 Ontario Inc   $ 875,459     $ 875,459  
Banca Veneto     6,729       6,729  
                 
      882,188       882,188  
Less impairment     (875,459 )     (875,459 )
Total investment in non-consolidated entities   $ 6,729     $ 6,729  

 

On December 9, 2014, the Company invested CDN $1,000,000 (approximately U.S. $875,459) in a private placement of common shares of 2336414 Ontario Inc. ("2336414"). The Company subscribed for 666,664 Units representing 666,664 common shares or 2.3% of 2336414. Each Unit being comprised of one (1) common share in the capital of 2336414 and one-quarter (1/4) of one common share purchase warrant, which will require four quarter warrants to acquire one additional common share in the capital of 2336414, for CDN $2.25 within 18 months after the closing of the Offering, or such longer period of time as 2336414 may determine. The Company paid CDN $1,000,000 (approximately $875,459 USD) in cash, and obtained a promissory note from 2336414's subsidiary, Paymobile Inc. See Note 15 Promissory Notes Payable – Other for information regarding this promissory note.

 

2336414 is an Ontario corporation and the parent company of Paymobile Inc. a carrier-class, PCI compliant transaction platform, delivering Visa prepaid card programs for social disbursements, corporate payroll replacement and cheque replacement. The Company is in discussions to obtain a supplemental multi-currency payment processing system for our various clients and partners which may offer us unique, competitive, loyalty benefits in our markets.

 

Since Paymobile has not produced any meaningful income, the Company has determined that it may not be able to realize its investment in 2336414 and has therefore decided to set up a 100% impairment on the investment made as of December 31, 2014. If the investment in 2336414 is unsuccessful, the Company may lose some or all of its investment in 2336414 Ontario Inc.

 

On December 31, 2016 and 2015, the Company held $6,729 in shares of Banca Veneto SCpA. Banca Veneto is a private mutual enterprise organized under Italian banking laws. The Company recorded impairment of $0 and $30,185 on the investment during the year ended December 31, 2016 and 2015, respectively.

 

We carry the value of the shares of Banca Veneto SCpA and 2336414 Ontario Inc. at cost less impairment. The Company accounts for investment in non-consolidated entities using the cost method of accounting if the Company has an ownership interest below 20% and does not have the ability to exercise significant influence over an investee. The shares of Banca Veneto and 2336414 Ontario Inc. do not have an active market.

Related party transactions and balances
12 Months Ended
Dec. 31, 2016
Related Party Transactions [Abstract]  
Related party transactions and balances

12. Related party transactions and balances

 

Advances from stockholders represent non-interest bearing loans that are due on demand. Interest was imputed at 5% per annum. Balances of Advances from stockholders are as follows:

 

    December 31,
2016
  December 31,
2015
Gold Street Capital Corp.   $ 1     $ 138,228  
Doriana Gianfelici     51,819       53,447  
Other stockholders     505,729        
Total advances from stockholders   $ 557,549     $ 191,675  

 

During the year ended December 31, 2015, Gold Street Capital Corp. ("Gold Street"), the major stockholder of Newgioco Group, advanced $271,214 to the Company, net of repayment of $65,404. On September 30, 2015, the Company issued 144,300 shares to Gold Street Capital Corp to pay $150,072 of the debt at the market price of $1.04 per share.

 

During the year ended December 31, 2016, Gold Street advanced $290,242 net of repayment of $55,700. During the year ended December 31, 2016, the Company issued shares to Gold Street to repay the debt at the market prices as follows:

 

Date  Number of shares issued  Price per share  Total amount, USD
31-Mar-16   145,500   $0.95   $138,225 
15-Nov-16   1,785,040   $0.15   $267,756 
31-Dec-16   56,082   $0.40   $22,433 
    1,986,622        $428,414 

 

 

Doriana Gianfelici advanced EUR 250 (approximately U.S. $264) and EUR 8,801 (approximately U.S. $9,770) to the Company during the years ended December 31, 2016 and 2015, respectively.

 

The amounts due to Gold Street Capital and Doriana Gianfelici at December 31, 2016 and 2015 are non-interest bearing and due on demand.

 

Advances from other stockholders include balances of approximately U.S. $505,729 due to former stockholders of Ulisse and Odissea, of which approximately U.S. $500,469 is the dividend accrued due to former stockholders of Ulisse. Following the July 1, 2016 acquisition, in the six months ended December 31, 2016, Luca Pasquini advanced approximately U.S. $2,780 to the Company.

 

In addition, on November 15, 2016, the Company issued an aggregate of 4,500,000 shares of common stock as a performance based restricted stock award contingent on the closing of the July 1, 2016 acquisitions. The Company granted 1,500,000 shares each to Beniamino Gianfelici, a director of the Company, Alessandro Marcelli, a director of the Company, and Gold Street Capital, a related party. The restricted stock award was granted in lieu of a formalized equity incentive plan. See Note 13.

 

Related-Party Debt

 

On February 13, 2015 the Company issued a Promissory Note for $150,000 to Braydon Capital Corp. a Company owned by Claudio Ciavarella, the brother of our CEO, with an interest at a rate of 2% per month due in full on the Maturity Date of May 15, 2015 which was extended by mutual consent. On September 30, 2015 the Company issued 166,400 shares at the market price of $1.04 per share to Braydon Capital Corp. to repay the debt, including principal and accrued interest of $173,016, in full.

 

On December 15, 2015 the Company issued a Promissory Note for $186,233 to Braydon Capital Corp. that bears interest at a rate of 1% per month due in full on the Maturity Date of December 15, 2016. Also, on December 15, 2015, the Company entered into a Securities Purchase Agreement with Braydon Capital Corp. for the purchase of 155,000 common shares for $155,000 at the fair market value of $1.00 per share.

 

Promissory notes payable to related parties of $318,078 comprise of amounts due to Braydon Capital Corp., a company owned by Claudio Ciavarella, the brother of our CEO. On January 13, 2016, the Company issued a Promissory Note for $90,750 to Braydon Capital Corp. that bears interest at a rate of 1% per month and is due in full on the maturity date of January 13, 2017. On April 29, 2016, the Note was amended to add $41,095 in funds issued to the Company from Braydon Capital Corp. for a total of $131,845.

 

Also, the Company inherited a loan in connection with the acquisition of Odissea on July 1, 2016 of approximately U.S. $56,753 from Alessandro Pasquini, cousin of our director Luca Pasquini. As of December 31, 2016, the loan was repaid. See Note 4.

 

On January 1, 2015 the Company acquired land-based gaming assets from Newgioco Srl for a purchase price of EUR 650,649 (approximately U.S. $787,158) which included a forgiveness of EUR 210,507 (approximately U.S. $256,251) in debt due for the administrative services. Pursuant to the agreement with Newgioco Srl, the Company made payments of EUR 181,000 (approximately U.S. $200,313) and EUR 150,443 (approximately U.S. $166,992) to Newgioco Srl during the years ended December 31, 2016 and 2015, respectively. The Company’s shareholder and director, Beniamino Gianfelici, owns 50% shares of Newgioco Srl.

 

The Company agreed to pay management fees to Gold Street Capital Corp. of $120,000 per year for the year ended December 31, 2016. Also, the Company paid management fees of approximately U.S.$26,008 to Luca Pasquini, a director and Chief Technology Officer.

Stockholders Equity
12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
Stockholders Equity

13. Stockholders’ Equity

 

On September 15, 2015, the Company entered into a non-exclusive one year advisory agreement with Merriman Capital Inc. pursuant to which Merriman agreed to act as a capital markets advisor and placement agent to the Company. As consideration for these services, Merriman was paid a one-time retainer fee of 150,000 shares of the Company’s common stock with a fair market value of $140,985. In addition to the retainer fee, Merriman will receive performance-based compensation for services related to (1) completion of financing, and (2) if the Company qualifies for and completes an up-listing to any of the national markets designated as the NYSE, NYSE/AMEX, or NASDAQ. This amount is being amortized over one year term of this agreement. The unamortized balance of $0 and $99,666 is included in prepaid expenses on the accompanied balance sheet for the years ended December 31, 2016 and 2015, respectively.

 

On September 30, 2015, the Company issued 21,650 shares at the market price of $1.04 per share to pay $22,500 to CorCapital Inc. in full.

 

On November 25, 2015, the Company entered into a non-exclusive financial advisory and placement agent agreement with National Securities Corp.. As consideration for these services, National was paid a one-time retainer fee of 50,000 shares of the Company’s common stock with a fair market value of $55,995. The unamortized balance of $0 and $50,323 is included in prepaid expenses on the accompanied balance sheet for the years ended December 31, 2016 and 2015, respectively.

 

On December 24, 2015, the Company entered into a non-exclusive placement agent and investment banking agreement with JH Darbie & Co., Inc.. As consideration for these services, JH Darbie was paid a one-time retainer fee of 100,000 shares of the Company’s common stock with a fair market value of $115,990. The unamortized balance of $0 and $113,775 is included in prepaid expenses on the accompanied balance sheet for the years ended December 31, 2016 and 2015, respectively.

 

On December 15, 2015, the Company entered into a Securities Purchase Agreement with Braydon Capital Corp. for the purchase of 155,000 common shares for $155,000 at the fair market value of $1.00 per share.

 

On March 8, 2016, the Company entered into a non-exclusive advisory agreement with Newbridge Securities Corp. (“Newbridge”). As consideration for these services, the Company agreed to pay Newbridge advisory fees of $15,000 and issue 50,000 restricted shares of common stock upon signing the agreement and 50,000 restricted shares of common stock upon the presentation of a Term Sheet. The Company paid a fee of $15,000, and on March 8, 2016 issued 50,000 shares of common stock which were valued at the market price of $0.97 per share and amortized over the service period of two months.

 

On March 14, 2016, the Company entered into a Mutual Release Agreement with Typenex Co-Investment, LLC to extinguish future “true-up” provisions contained within the Convertible Note dated June 18, 2015 and the Transfer Agent Reserve shares related to the Note. Pursuant to the agreement, the Company issued 14,885 shares of common stock to Typenex Co-Investment, LLC. Those shares were valued at market price on issuance date of $0.97 per share and recorded as an expense.

 

On June 6, 2016, the Company issued an aggregate of 40,000 shares of the Company’s common stock to two consultants for services provided to the Company

 

On November 15, 2016, the Company issued an aggregate of 4,500,000 shares of common stock as a performance based restricted stock award contingent on the closing of the July 1, 2016 acquisitions. The Company granted 1,500,000 shares each to Beniamino Gianfelici, a director of the Company, Alessandro Marcelli, a director of the Company, and Gold Street Capital, a related party. The restricted stock award was granted in lieu of a formalized equity incentive plan.

 

Also on November 15, 2016, the Company issued an aggregate of 2,025,100 shares of common stock dated at 100% of the market price of $0.15 per share as follows:

 

- 1,785,100 shares issued to Gold Street Capital Corp. for the payment of debt equal to $267,756;

- 200,000 issued to Julia Lesnykh for the payment of debt equal to $30,000;

- 40,000 issued to Andrei Sheptikita for the payment of debt equal to $6,000

 

On December 31, 2016, 56,000 shares of the Company's common stock were issued to Gold Street Capital Corp. at 100% of the market price of $0.41 per share for the payment of debt equal to $22,433.

 

See Note 12 for additional common share transactions in repayment of debt.

Debentures and Convertible Notes
12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Debentures and Convertible Notes

14. Debentures and Convertible Notes

 

Debentures and convertible notes outstanding include the following:

 

    December 31,
2016
  December 31,
2015
         
April 2, 2015 Debentures, net of discount of $0 and $2,687   $     $ 40,336  
April 27, 2015 Debentures, net of discount of $0 and $2,816           31,602  
July 9, 2015 Debentures net of discount of $0 and $14,090           40,910  
February 29, 2016 Convertible Note, net of discount of $85,898     514,102        
March 31, 2016 Convertible Note, net of discount of $34,187     115,812        
      629,914       112,848  
Less: unamortized debt issuance costs     (13,397 )     (5,259 )
    $ 616,517     $ 107,589  

 

April 2, 2015 Debentures

 

On April 2, 2015, the Company issued debentures to a group of accredited investors to purchase 5 unsecured Debenture Units for gross proceeds of $25,000 and 5 Debenture Units for gross proceeds of CDN $25,000 (approximately U.S. $18,400). Each Debenture Unit is comprised of (i) a $5,000 and CDN $5,000 debenture, respectively, bearing interest at a rate of 15% per annum, maturing one year from the date of issuance and (ii) 500 warrants to receive one common share per warrant prior to April 2, 2017, which may be exercised at the lower of (a) $1.25 and CDN $1.25, respectively, and (b) a 25% discount to the offering price of common shares of the Company in the next equity financing of the Company. On April 2, 2016, the maturity date, the Company paid the amounts due in full of $28,770 and CDN $28,770 (approximately U.S. $22,141)including principle and accrued interest. As of the date of this report the warrants issued for the April 2, 2015 debentures have expired.

 

April 27, 2015 Debentures

 

On April 27, 2015, the Company issued debentures to a group of accredited investors to purchase 4 unsecured Debenture Units for gross proceeds of $20,000 and 4 unsecured Debenture Units for gross proceeds of CDN$20,000 (approximately U.S. $15,224). Each Debenture Unit is comprised of (i) a $5,000 and CDN$5,000 debenture, respectively, bearing interest at a rate of 15% per annum, maturing one year from the date of issuance and (ii) 500 warrants to receive one common share per warrant prior to April 27, 2017, which may be exercised at the lower of (a) $1.25 and CDN$1.25, respectively, and (b) a 25% discount to the offering price of common shares of the Company in the next equity financing of the Company. On April 27, 2016, the maturity date, the Company paid the amounts due in full of $23,088 and CDN $23,088 (approximately U.S. $18,200) including principle and accrued interest.

 

June 18, 2015 Convertible Promissory Note

 

On June 18, 2015, the Company issued a convertible promissory note (the “Note”) bearing an interest rate of 10% per annum to purchase a gross amount of $330,000 which includes an Original Issue Discount (“OID”) of 10% to an accredited investor. On the Closing Date the Company received the initial cash purchase price of $115,000 which includes $10,000 OID and $5,000 for legal fees incurred by the Company as well as two Investor Notes of $100,000 each bearing interest of 8% per annum. On December 14, 2015, the cashless warrant was exercised and the Company issued 62,438 shares. The Note was pre-paid on December 15, 2015. The total amount of pre-payment was $155,233, including interest and penalties. On March 14, 2016, the Company entered into a Mutual Release Agreement with the investor to extinguish future “true-up” provisions contained within the Convertible Note and the Transfer Agent Reserve shares related to the Note. Pursuant to the agreement, the Company issued 14,885 shares of common stock to the investor.

 

July 9, 2015 Convertible Promissory Note

 

On July 9, 2015, the Company issued a convertible promissory note (the “Note”) bearing an interest of 10% per annum to purchase a gross amount of $220,000 which includes an Original Issue Discount (“OID”) of 10% to an accredited investor. The Note was convertible to shares of common stock of the Company at a price equal to the lower of $0.80 or 60% of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the date on which the Investor elects to convert all or part of the Note. On July 21, 2015, the closing date, the Company received an initial consideration of $55,000, which includes an OID of $5,000. This initial consideration is a debenture. The Note was pre-paid on January 14, 2016. The total amount of pre-payment was $90,750, including interest and penalties.

 

February 29, 2016 and March 31, 2016 Convertible Notes

 

On February 29, 2016, the Company closed a Securities Purchase Agreement with an unaffiliated private investor, to raise up to $750,000. The Company received gross proceeds from the initial private placement of $600,000. On April 4, 2016, the Company received the balance of gross proceeds of $150,000, less legal expenses of $15,000. The convertible notes bear an interest rate of 12% per annum and are due in one year. The Notes are convertible to shares of common stock of the Company at the price of $0.85 per share with certain price adjustment clauses. The convertible notes were guaranteed by Confidi Union Impresa, an unrelated party. As part of the purchase agreement, the Company also issued a warrant to purchase 163,044 shares of Company’s common stock at $1.15 per share.

 

Repayment of the February 29, 2016 Securities Purchase Agreement is the subject of legal proceedings described in Subsequent Events. See Note 20.

 

The Company has determined that the conversion feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt, on the accompanying balance sheet, and revalued to fair market value at each reporting period. See Note 14.

 

The Company paid commissions of $8,000, $4,000, $60,000, and $15,000 for the June 18, July 9, 2015, February 29, 2016, and March 31, 2016 Notes, respectively. The Company also paid commissions of 7,500 shares of common stock at a price of $0.80 per share or $6,000 and 4,000 shares of common stock at a price of $0.75 per share or $3,000 related to the June 18 and July 9, 2015 Notes, respectively. The commissions related to the notes were amortized over the life of the notes. The Company also issued warrants to purchase 62,220 shares of the Company to the placement agent in relation to the February 29, 2016 and March 31, 2016 Notes.

 

Warrants issued in relation to the debentures and promissory notes are discussed in Note 16.

Promissory Notes Payable
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Promissory Notes Payable

15. Promissory Notes Payable - Other

 

On December 9, 2014, the Company obtained a promissory note for CDN $500,000 (approximately U.S. $436,796) from Paymobile Inc., a subsidiary of 2336414 Ontario Inc. (“2336414”) of which the Company owns 666,664 common shares, that bears interest at a rate of 1% per month on the outstanding balance.

 

As of the date of this filing, the final payment of CDN $150,000 (approximately U.S. $111,285) was due on February 28, 2015 plus accrued interest. The Company and 2336414 have agreed to extend the due date indefinitely by mutual consent. Interest expense of $13,590 and $16,008 was recorded for the year ended December 31, 2016 and 2015, respectively.

 

Bank Loan Payable
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Bank Loan Payable

16. Bank Loan Payable

 

On September 30, 2016, the Company obtained a loan of EUR 500,000 (approximately U.S. $561,000) from Banca Veneto in Italy, which is secured by the Company's assets. The loan is amortized over 57 months ending September 30, 2021 with repayment starting on January 31, 2017 in monthly installments of EUR 9,760 (approximately U.S. $10,950) with an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate ("EURIBOR"), subject to quarterly review.

Warrants
12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Warrants

17. Warrants

 

On April 2, 2015, as per a Securities Purchase Agreement, the Company issued warrants to purchase 4,800 shares of the Company’s common stock at $1.25 per share which may be exercised by the warrant holder between April 2, 2016 and April 2, 2017 (See Note 14). The fair value of the warrants of $4,291 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt issuance cost, which has been amortized over the life of the debt.

 

On April 27, 2015, as per a Securities Purchase Agreement, the Company issued warrants to purchase 3,900 shares of the Company’s common stock at $1.25 per share which may be exercised by the warrant holder between April 27, 2016 and April 27, 2017 (See Note 14). The fair value of the warrants of $4,264 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt issuance cost, which has been amortized over the life of the debt.

 

The Company has determined that the warrants issued in connection with the debentures on April 2, 2015 and April 27, 2015 should be treated as a liability since it has been determined not to be indexed to the Company's own stock.

 

On June 18, 2015, as per as a Securities Purchase Agreement, the Company issued a warrant to purchase 57,500 shares of the Company’s common stock at $1.00 per share which may be exercised until June 18, 2018 (See Note 14). The fair value of the warrants of $45,964 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt issuance cost, which has been amortized over the life of the debt.

 

On February 29, 2016, as per a Securities Purchase Agreement, the Company issued a warrant to purchase 130,435 shares of the Company’s common stock at $1.15 per share which may be exercised by the warrant holder between August 28, 2016 and February 28, 2019 (See Note 14). The warrant was issued in connection with the February 29, 2016 and March 31, 2016 convertible Promissory Notes. The fair value of the warrants of $106,583 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt discount, which has been amortized as interest expense over the life of the debt.

 

On April 4, 2016, the Company issued a warrant to purchase 62,220 shares of the Company’s common stock at $1.15 per share which may be exercised by the warrant holder until April 4, 2019. The warrant was issued to the placement agent in relation to securing the February 29, 2016 and March 31, 2016 convertible Promissory Notes (See Note 14). The fair value of the warrants of $53,236 was calculated using the Black-Scholes model on the date of issuance, and was recorded as a debt issuance cost, which has been amortized over the life of the debt.

 

On April 4, 2016, the Company issued a warrant to purchase 32,609 shares of the Company’s common stock at $1.15 per share which may be exercised by the warrant holder until April 4, 2019 (See Note 14). The warrant was issued in connection with the March 31, 2016 Convertible Promissory Note. The fair value of the warrants of $27,901 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt discount, which has been amortized as interest expense over the life of the debt.

 

The fair value of the warrants on the date of issuance as calculated using the Black-Scholes model was:

 

Debenture   Fair Value
         
April 2, 2015   $ 4,291  
April 27, 2015   $ 4,264  
June 18, 2015   $ 45,964  
February 29, 2016   $ 106,583  
April 4, 2016   $ 53,236  
April 4, 2016   $ 27,901  

 

The following assumptions were used to calculate the fair value:

 

        Common                    
Warrant   Exercise   Stock           Dividend   Interest   Forfeiture
Date   Price per/sh   Price per/sh   Volatility   Term   Yield   Rate   Risk
                             
April 2, 2015   $ 1.25     $ 0.90       392 %     2 yrs       0 %     0.91 %     0 %
April 27, 2015   $ 1.25     $ 1.10       392 %     2 yrs       0 %     0.91 %     0 %
June 18, 2015   $ 1.00     $ 0.80       392 %     3 yrs       0 %     0.91 %     0 %
February 29, 2016   $ 1.15     $ 0.90       200 %     3 yrs       0 %     0.91 %     0 %
April 4, 2016   $ 1.15     $ 0.95       195 %     3 yrs       0 %     0.91 %     0 %
April 4, 2016   $ 1.15     $ 0.95       195 %     3 yrs       0 %     0.91 %     0 %

 

 

A summary of warrant transactions during the year ended December 31, 2016 is as follows:

 

 

      Weighted Average  Weighted
   Warrant  Exercise Price  Average
   Shares  Per Common Share  Life
          
Outstanding at January 1, 2015   22,000   $1.34    1.85 
Issued   66,200   $1.25    1.29 
Exercised   57,500   $1.03    ---- 
Expired   —      —      —   
Outstanding at January 1, 2016   30,700   $1.32    1.02 
Issued   225,264   $1.15    3.00 
Exercised   —      —      —   
Expired   (22,000)   —      —   
Outstanding at December 31, 2016   233,964   $1.15    2.13 
Exercisable at December 31, 2016   233,964   $1.15    2.13 

 

The following assumptions were used to calculate the fair value of warrants at December 31, 2016:

 

Exercises price     $1.15 - $1.25  
Common stock price per share     $0.40  
Volatility     447.37 %
Weighted average life     2.13 years  
Dividend yield     0 %
Interest rate     0.91 %
Forfeiture risk     0 %

 

Revenues
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Revenues

18. Revenues

 

The following table sets forth the breakdown of net gaming revenues:

 

 

 

    Year Ended   Year Ended
    December 31,   December 31,
    2016   2015
Turnover        
Turnover web-based   $ 103,033,957     $ 72,671,853  
Turnover land-based     18,917,917       4,685,660  
Total Turnover   $ 121,951,874     $ 77,357,513  
                 
Winnings/Payouts                
Winnings web-based     96,728,850       67,722,378  
Winnings land-based     16,487,782       3,758,216  
Total Winnings/payouts     113,216,632       71,480,594  
                 
Gross Gaming Revenues   $ 8,735,242     $ 5,876,919  
                 
Less: ADM Gaming Taxes     1,592,926       1,169,322  
Net Gaming Revenues   $ 7,142,316     $ 4,707,597  
Add: Commission Revenues     1,105,389       165,305  
Add: Service Revenues     650,258 ,      —  
Total Revenues   $ 8,897,963     $ 4,872,902  

 

Turnover represents the total bets processed for the period.

Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

19. Income Taxes

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the years ended December, 2016 and 2015.

 

The Company's Italian subsidiaries are governed by the income tax laws of Italy. The corporate tax rate in Italy is 32.32% (IRES at 27.5% plus IRAP ordinary at 4.85%) on income reported in the statutory financial statements after appropriate tax adjustments.

 

The reconciliation of income tax expense at the U.S. statutory rate of 35% to the Company’s effective tax rate is as follows:

 

    December 31,
2016
  December 31,
2015
         
U.S. Statutory rate   $ (623,595 )   $ (695,335 )
Tax rate difference between Italy and U.S.     (49,618 )     2,844  
Change in Valuation Allowance     847,449       685,233  
Permanent difference     23,789       43,249  
Effective tax rate   $ 198,025     $ 35,991  

 

 

The Company has accumulated a net operating loss carry forward ("NOL") of approximately $11.3 million as of December 31, 2016, in the U.S. This NOL may be offset against future taxable income through the year 2036. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a 100% valuation allowance has been established to offset the asset.

 

Utilization of NOLs are subject to limitation due to any ownership change (as defined under Section 382 of the Internal Revenue Code of 1986) which resulted in a change in business direction. Unused limitations may be carried over to future years until the NOLs expire. Utilization of NOLs may also be limited in any one year by alternative minimum tax rules.

 

Under Italian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, in the limit of 80% of taxable annual income (this restriction does not apply to the operating loss incurred in the first three years of the Company's activity, which are therefore available for 100% offsetting).

 

The provisions for income taxes consist of currently payable Italian income tax. The provisions for income taxes are summarized as follows:

 

    December 31,
2016
  December 31,
2015
         
Current   $ 198,025     $ 35,991  
Deferred            
Total   $ 198,025     $ 35,991  
                 

 

 

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset are as follows:

 

    December 31,
2016
  December 31,
2015
         
Net loss carryforward - Foreign   $ 11,874     $ 6,906  
Net loss carryforward - US     3,949,432       3,097,131  
Less valuation allowance     (3,961,306 )     (3,104,037 )
Deferred tax assets   $     $  

 

Subsequent events
12 Months Ended
Dec. 31, 2016
Subsequent Events [Abstract]  
Subsequent events

20. Subsequent Events

 

Subsequent to this report, on January 20, 2017, Newgioco Group, Inc. was served with a complained filed on November 11, 2016 against the Company in connection with a Securities Purchase Agreement by and between the Company and Darling Capital, LLC dated February 29, 2016. The matter involves a $750,000 debt plus interest that we have been and remain ready and able to pay. However, the plaintiff has sought a premium on the amount owed which we dispute. The Company considers this lawsuit to not be material or affect the future of the Company in any manner. See Note 14.

 

Subsequent to this report, on January 24, 2017, the Company closed a Securities Purchase Agreement with a group of accredited investors to raise up to CDN $750,000 (approximately U.S. $569,952). The Company received gross proceeds from the initial private placement of CDN $180,000 (approximately U.S. $136,788). The Company incurred a total of CDN $14,400 (approximately U.S. $10,943) in finder’s fees to facilitate this transaction for net proceeds of CDN $165,600 (approximately U.S. $125,845). The debenture bears an interest rate of 10% per annum and is due in two years. As part of the purchase agreement, the Company also issued a warrant to purchase 18,0000 of the Company’s common stock at $1.00 per share up to January 24, 2019.

 

Subsequent to this report, on March 27, 2017, the Company closed a Securities Purchase Agreement with a group of accredited investors to raise up to CDN $6,750,000 (approximately U.S. $5,083,980). The Company received gross proceeds from the initial private placement of CDN $150,000 (approximately U.S. $113,000). The Company incurred a total of CDN $5,000 (approximately U.S. $3,765) in finder’s fees to facilitate this transaction for net proceeds of CDN $145,000 (approximately U.S. $109,235). The convertible debenture bears an interest rate of 10% per annum and is due in two years. The debenture is convertible to shares of common stock of the Company at a price of $1.50 per share at any time up to March 27, 2019. As part of the purchase agreement, the Company also issued a warrant to purchase 15,000 of the Company’s common stock at $1.00 per share up to March 27, 2019.

Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Basis of consolidation

a) Basis of consolidation

 

The consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly owned. All significant inter-company transactions are eliminated upon consolidation.

 

Certain amounts of prior periods were reclassified to conform with current period presentation.

Use of estimates

b) Use of estimates

 

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share based payment arrangements, determining the fair value of assets acquired, allocation of purchase price, impairment of long-lived assets, the collectability of receivables and the value of deferred taxes and related valuation allowances. Certain estimates, including evaluating the collectability of receivables and advances, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

Goodwill

c) Goodwill

 

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Goodwill is not being amortized, but is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we proceed to a two-step process to test goodwill for impairment including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an income or market approach incorporating market participant considerations and management's assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter.

 

We perform the allocation based on our knowledge of the market in which we operate, and our overall knowledge of the gaming industry.

Business Combinations

d) Business Combinations

 

We allocate the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

 

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Long-Lived Assets

e) Long-Lived Assets

 

We evaluate the carrying value of our long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.

 

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

 

Derivative Financial Instruments

f) Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including convertible notes and stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Earnings Per Share

g) Earnings Per Share

 

FASB ASC 260, "Earnings Per Share" provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. These potentially dilutive securities were not included in the calculation of loss per share for the years ended December 31, 2016 and 2015, thus the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for all periods presented.

Currency translation

h) Currency translation

 

Since the Company's subsidiaries operate in Europe, the subsidiaries functional currency is the Euro. In the consolidated financial statements, revenue and expense accounts are translated at the average rates during the period, and assets and liabilities are translated at period-end rates and equity accounts are translated at historical rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity. Gains and losses from foreign currency transactions are recognized in current operations.

 

Revenue Recognition

i) Revenue Recognition

 

Revenues from sports-betting, casino, cash and skill games; slots, bingo and horse race wagers represent the gross pay-ins (also referred to as Turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.

 

Revenues from Betting Operating System (“BOS”) include license fees, training, installation, and product support services. Revenue is recognized when the significant risks and rewards of ownership are transferred or when the obligation is fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees were recognized on an accrual basis as earned.

Cash and Cash Equivalents

j) Cash and equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. Cash equivalents represent short-term investments consisting of investment-grade corporate and government obligations, carried at cost, which approximates market value. The Company has no cash equivalents as of December 31, 2016 and 2015.

 

The Company primarily places its cash with high-credit quality financial institutions, one of which is located in the United States and is insured by the Federal Deposit Insurance Corporation for up to $250,000 and another which is located in Italy and is insured by the Italian government.

Gaming accounts receivable & allowance for doubtful accounts

k) Gaming accounts receivable & allowance for doubtful accounts

 

Gaming accounts receivable represents gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to our bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables.

Gaming balances

l) Gaming account balances

 

Gaming account balances represent customer balances, including winnings and deposits, that are held as credits in online gaming accounts and have not as of yet been used or withdrawn by the customers. Customers can request payment from the Company at any time and the payment to customers can be made through bank wire, credit card, or cash disbursement from one of our locations. Online gaming account credit balances are non-interest bearing.

Fair Value Measurements

m) Fair Value Measurements

 

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active market for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

The carrying value of the Company's short term investments, prepaid expenses, accounts receivables, other current assets, accounts payable and accrued liabilities, gaming account balance, and advances from shareholder approximate fair value because of the short-term maturity of these financial instruments.

 

The derivative liability in connection with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is the only financial liability measured at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance December 31, 2014   $ 15,397  
Issued during the year ended December 31, 2015     54,520  
Exercised during the year ended December 31, 2015     (64,350 )
Change in fair value recognized in operations     22,808  
Balance at December 31, 2015     28,375  
Issued during the year ended December 31, 2016     609,256  
Exercised during the year ended December 31, 2016      
Change in fair value recognized in operations     (426,369 )
Balance at December 31, 2016   $ 211,262  

 

 

Property, plant and equipment

n) Property, plant and equipment

 

Property, plant and equipment are stated at acquisition cost less accumulated depreciation and adjustments for impairment losses. Expenditures are capitalized only when they increase the future economic benefits embodied in an item of property, plant and equipment. All other expenditures are recognized as expenses in the statement of income as incurred.

 

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets. Amortization commences from the time an asset is put into operation. The range of the estimated useful lives is as follows:

 

Trademarks / names     14 years  
Office equipment     5 years  
Office furniture     8 1/3 years  
Signs and displays     5 years  

 

Leases

o) Leases

 

Leases are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations, the Company records rent expense on the straight line method. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account and is included in accrued expenses and other current liabilities.

 

All lease agreements of the Company as lessees are accounted for as operating leases as of December 31, 2016 and 2015.

 

Income Taxes

p) Income Taxes

 

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes." Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

The Company has elected to include interest and penalties related to uncertain tax positions, if determined, as a component of income tax expense.

 

In Italy, tax years beginning 2011 forward are open and subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

Comprehensive Income (Loss)

q) Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities.

 

The Company adopted FASB ASC 220-10-45, "Reporting Comprehensive Income". ASC 220-10-45 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and unrealized gains (losses) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments.

Recent Accounting Pronouncements

r) Recent Accounting Pronouncements

 

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance provides that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance with the annual and the interim period beginning January 1, 2016, and applied the standard on a retrospective basis as of December 31, 2015. The adoption of this standard did not have a material impact on our financial position and did not impact our results of operations or cash flows.

 

There are no other recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Level 3 Fair Value Measurements

 

Balance December 31, 2014   $ 15,397  
Issued during the year ended December 31, 2015     54,520  
Exercised during the year ended December 31, 2015     (64,350 )
Change in fair value recognized in operations     22,808  
Balance at December 31, 2015     28,375  
Issued during the year ended December 31, 2016     609,256  
Exercised during the year ended December 31, 2016      
Change in fair value recognized in operations     (426,369 )
Balance at December 31, 2016   $ 211,262  

Acquisitions (Tables)
12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Purchase Price - Acquisitions

(a) Rifa Srl. And Newgioco Srl.

 

 

The following represents the purchase price allocation:

 

            Useful life
             
Total property, plant and equipment           $ 62,693       4 – 10 years  
                         
Identifiable intangible assets                        
Bersani license:     36,519               1.5 years  
Monti license:     36,519               1.5 years  
Corner concession rights:     57,381               5 years  
Agency concession rights:     226,327               5 years  
Customer relationships:     346,931               15 years  
Total identifiable intangible assets             703,677          
Net Liabilities assumed             (18,895 )        
Total identifiable assets less net liabilities             747,475          
Goodwill             81,079          
Total purchase price           $ 828,554          

 

 

(b) Odissea Betriebsinformatik Beratung Gmbh (“Odissea”) Acquisition

 

 

        Remaining Useful Life
Current assets   $ 210,505      
Property, Plant and Equipment     30,638      
Identifiable intangible assets:            
Betting Operating System     1,685,371     15 years
Less: liabilities assumed     (215,935 )    
Total identifiable assets less liabilities assumed   1,710,579      
Total purchase price     1,710,579      
Excess purchase price   $      
             

 

 

(c) Ulisse Gmbh (“Ulisse”) Acquisition

 

 

        Remaining Useful Life
Current assets   $ 984,647      
Property, Plant and Equipment     2,917      
Identifiable intangible assets:            
Customer relationships     83,996     10 years
Less: liabilities assumed     (421,976 )    
Total identifiable assets less liabilities assumed   649,584      
Total purchase price     649,584      
Excess purchase price   $      

 

Deposits on Acquisitions (Tables)
12 Months Ended
Dec. 31, 2016
Deposits On Acquisitions Tables  
Deposits on acquisitions
    December 31,   December 31,
    2016   2015
         
Acquisition of Rifa Srl.   $     $  
Acquisition of Streamlogue Holdings Ltd.           750,929  
            750,929  
Less allowance for doubtful account           (750,929 )
    $     $  
Intangible Assets (Tables)
12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles

 

    December 31,
2016
  December 31,
2015
  Life
(years)
Betting Operating System   $ 1,685,371     $     15
Licenses     953,024       956,632     1.5 - 7
Location contracts     1,000,000       1,000,000     5 - 7
Customer relationships     870,927       786,931     10 - 15
Trademarks/names     110,000       110,000     14
Website     40,000       40,000     5
      4,659,322       2,893,563      
Accumulated amortization     (968,344)       (517,023 )    
Balance   $ 3,690,978)     $ 2,376,540      
                     

Investment in Non-consolidated Entities (Tables)
12 Months Ended
Dec. 31, 2016
Investments, All Other Investments [Abstract]  
Non-consolidated entities
    December 31,   December 31,
    2016   2015
         
2336414 Ontario Inc   $ 875,459     $ 875,459  
Banca Veneto     6,729       6,729  
                 
      882,188       882,188  
Less impairment     (875,459 )     (875,459 )
Total investment in non-consolidated entities   $ 6,729     $ 6,729  
Related party transactions and balances (Tables)
12 Months Ended
Dec. 31, 2016
Related Party Transactions [Abstract]  
Related party transactions and balances

 

    December 31,
2016
  December 31,
2015
Gold Street Capital Corp.   $ 1     $ 138,228  
Doriana Gianfelici     51,819       53,447  
Other stockholders     505,729        
Total advances from stockholders   $ 557,549     $ 191,675  

Repayment of related party debt
Date  Number of shares issued  Price per share  Total amount, USD
31-Mar-16   145,500   $0.95   $138,225 
15-Nov-16   1,785,040   $0.15   $267,756 
31-Dec-16   56,082   $0.40   $22,433 
    1,986,622        $428,414 
Debentures and Convertible Notes (Tables)
12 Months Ended
Dec. 31, 2016
Debentures And Convertible Notes Tables  
Debentures outstanding

 

    December 31,
2016
  December 31,
2015
         
April 2, 2015 Debentures, net of discount of $0 and $2,687   $     $ 40,336  
April 27, 2015 Debentures, net of discount of $0 and $2,816           31,602  
July 9, 2015 Debentures net of discount of $0 and $14,090           40,910  
February 29, 2016 Convertible Note, net of discount of $85,898     514,102        
March 31, 2016 Convertible Note, net of discount of $34,187     115,812        
      629,914       112,848  
Less: unamortized debt issuance costs     (13,397 )     (5,259 )
    $ 616,517     $ 107,589  

Warrants (Tables)
12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Debenture
Debenture   Fair Value
         
April 2, 2015   $ 4,291  
April 27, 2015   $ 4,264  
June 18, 2015   $ 45,964  
February 29, 2016   $ 106,583  
April 4, 2016   $ 53,236  
April 4, 2016   $ 27,901  
Weighted average assumptions
        Common                    
Warrant   Exercise   Stock           Dividend   Interest   Forfeiture
Date   Price per/sh   Price per/sh   Volatility   Term   Yield   Rate   Risk
                             
April 2, 2015   $ 1.25     $ 0.90       392 %     2 yrs       0 %     0.91 %     0 %
April 27, 2015   $ 1.25     $ 1.10       392 %     2 yrs       0 %     0.91 %     0 %
June 18, 2015   $ 1.00     $ 0.80       392 %     3 yrs       0 %     0.91 %     0 %
February 29, 2016   $ 1.15     $ 0.90       200 %     3 yrs       0 %     0.91 %     0 %
April 4, 2016   $ 1.15     $ 0.95       195 %     3 yrs       0 %     0.91 %     0 %
April 4, 2016   $ 1.15     $ 0.95       195 %     3 yrs       0 %     0.91 %     0 %
Warrants

 

      Weighted Average  Weighted
   Warrant  Exercise Price  Average
   Shares  Per Common Share  Life
          
Outstanding at January 1, 2015   22,000   $1.34    1.85 
Issued   66,200   $1.25    1.29 
Exercised   57,500   $1.03    ---- 
Expired   —      —      —   
Outstanding at January 1, 2016   30,700   $1.32    1.02 
Issued   225,264   $1.15    3.00 
Exercised   —      —      —   
Expired   (22,000)   —      —   
Outstanding at December 31, 2016   233,964   $1.15    2.13 
Exercisable at December 31, 2016   233,964   $1.15    2.13 

Black-scholes modle

 

Exercises price     $1.15 - $1.25  
Common stock price per share     $0.40  
Volatility     447.37 %
Weighted average life     2.13 years  
Dividend yield     0 %
Interest rate     0.91 %
Forfeiture risk     0 %

Revenues (Tables)
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Revenue

 

    Year Ended   Year Ended
    December 31,   December 31,
    2016   2015
Turnover        
Turnover web-based   $ 103,033,957     $ 72,671,853  
Turnover land-based     18,917,917       4,685,660  
Total Turnover   $ 121,951,874     $ 77,357,513  
                 
Winnings/Payouts                
Winnings web-based     96,728,850       67,722,378  
Winnings land-based     16,487,782       3,758,216  
Total Winnings/payouts     113,216,632       71,480,594  
                 
Gross Gaming Revenues   $ 8,735,242     $ 5,876,919  
                 
Less: ADM Gaming Taxes     1,592,926       1,169,322  
Net Gaming Revenues   $ 7,142,316     $ 4,707,597  
Add: Commission Revenues     1,105,389       165,305  
Add: Service Revenues     650,258 ,      —  
Total Revenues   $ 8,897,963     $ 4,872,902  

Income Taxes (Tables)
12 Months Ended
Dec. 31, 2016
Income Taxes Tables  
Deferred tax assets
    December 31,
2016
  December 31,
2015
         
Net loss carryforward - Foreign   $ 11,874     $ 6,906  
Net loss carryforward - US     3,949,432       3,097,131  
Less valuation allowance     (3,961,306 )     (3,104,037 )
Deferred tax assets   $     $  
Provisions for income taxes

 

    December 31,
2016
  December 31,
2015
         
Current   $ 198,025     $ 35,991  
Deferred            
Total   $ 198,025     $ 35,991  
                 

Going Concern (Details)
Dec. 31, 2016
USD ($)
Going Concern Details  
Working capital deficit $ 1,402,563
Summary of Significant Accounting Policies (Details)
Dec. 31, 2016
USD ($)
Accounting Policies [Abstract]  
FDIC Insured Amount $ 250,000
Summary of Significant Accounting Policies (Details 1) - USD ($)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Change in the Level 3 financial instrument [Rollforward]    
Beginnng Balance $ 28,375 $ 15,397
Issued during the year 609,256 54,520
Exercised during the year (64,350)
Change in fair value recognized in operations (426,369) 22,808
Ending Balance $ 211,262 $ 28,375
Summary of Significant Accounting Policies (Details 2)
12 Months Ended
Dec. 31, 2016
Trademarks / names [Member]  
Useful Life 14 years
Office equipment [Member]  
Useful Life 5 years
Office furniture [Member]  
Useful Life 8 years 4 months
Signs and displays [Member]  
Useful Life 5 years
Acquisitions (Details Narrative 1)
12 Months Ended
Dec. 31, 2015
USD ($)
Dec. 31, 2015
EUR (€)
Dec. 31, 2015
EUR (€)
Rifa Srl[Member]      
Deposit on Acquisition $ 62,300 € 51,506  
Purchase price installment 36,300   € 30,000
Payments of debt $ 26,000   21,506
Newgioco Srl [Member]      
Ownership 100.00% [1] 100.00% [1]  
Deposit on Acquisition $ 159,840 € 144,000  
Purchase price installment 787,158   650,649
Payable amount $ 569,700   € 450,000
Number of installments 9 9  
Installment amount $ 63,308 € 50,000  
Forgiveness of debt 256,251 210,507  
Additional deposits 116,923 106,000  
Additional deposits $ 82,729 € 75,000  
[1] Newgioco is an Italian gaming company which is 50% owned by Laura Tabacco an Italian citizen and 50% owned by Beniamino Gianfelici, who along with his daughter owned 100% of Multigioco prior to its acquisition by Empire.