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Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2017
Mar. 28, 2018
Jun. 30, 2017
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, 2017    
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     $ 10,612,870
Entity Common Stock, Shares Outstanding   74,254,746  
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2017    
Consolidated Balance Sheets - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Current Assets    
Cash and cash equivalents $ 6,469,858 $ 2,230,422
Accounts receivable 116,489 16,919
Gaming accounts receivable 1,163,831 535,408
Prepaid expenses 87,692 91,577
Other current assets 12,543 8,705
Total Current Assets 7,850,413 2,883,031
Noncurrent Assets    
Restricted cash 587,905 475,916
Property, plant and equipment 280,111 203,660
Intangible assets 3,245,748 3,690,978
Goodwill 260,318 260,318
Investment in non-consolidated entities 1 6,508
Total Noncurrent Assets 4,374,083 4,637,380
Total Assets 12,224,496 7,520,411
Current Liabilities    
Line of credit - bank 177,060 726
Accounts payable and accrued liabilities 1,606,560 1,006,739
Gaming accounts balances 1,274,856 710,562
Taxes payable 1,555,371 525,361
Advances from stockholders 547,809 557,549
Liability in connection with acquisition 142,245 125,375
Debentures, net of discount 1,148,107 616,517
Derivative liability 222,915 211,262
Promissory notes payable - other 100,749 111,285
Promissory notes payable- related party 318,078 318,078
Bank loan payable - current portion 121,208 102,140
Total Current Liabilities 7,214,958 4,285,594
Bank loan payable 362,808 426,610
Other long term liabilities 532,680 315,579
Total Liabilities 8,110,446 5,027,783
Stockholders' Deficiency    
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 74,143,590 and 74,018,590 shares issued and outstanding at December 31, 2017 and December 31, 2016 respectively 7,415 7,402
Additional - paid in capital 14,254,582 14,165,361
Accumulated other comprehensive income (250,327) (416,631)
Accumulated deficit (9,897,620) (11,263,504)
Total Stockholders' Equity 4,114,050 2,492,628
Total Liabilities and Stockholders' Equity $ 12,224,496 $ 7,520,411
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2017
Dec. 31, 2016
STOCKHOLDERS' EQUITY    
Capital stock - par value $ 0.0001 $ 0.0001
Capital stock - authorized 80,000,000 80,000,000
Capital stock - issued 74,143,590 74,018,590
Capital stock - outstanding 74,143,590 74,018,590
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]    
Revenue $ 22,865,146 $ 8,897,963
Costs and expenses    
Selling expenses 14,672,099 5,846,019
General and administrative expenses 5,597,881 4,512,812
Total Costs and Expenses 20,269,980 10,358,831
Income (Loss) from Operations 2,595,166 (1,460,868)
Other Expenses (Income)    
Interest expense, net of interest income 482,367 727,328
Changes in fair value of derivative liabilities (257,231) (426,369)
Imputed interest on related party advances 24,365 8,807
Impairment on investment 6,855
Total Other Expenses 256,356 309,766
Income (Loss) before income taxes 2,338,810 (1,770,634)
Income taxes provision 972,924 198,025
Net Income (Loss) 1,365,886 (1,968,659)
Other Comprehensive Income (Loss)    
Foreign currency translation adjustment 166,304 (540,896)
Comprehensive Income (Loss) $ 1,532,190 $ (2,509,555)
Net Income (Loss) per common share - basic $ 0 $ (0)
Net Income (Loss) per common share - diluted $ 0.02 $ (0.04)
Weighted average number of common shares outstanding basic 74,032,631 56,313,334
Weighted average number of common shares outstanding diluted 75,344,948 56,313,334
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, 2015 48,247,350        
Beginning Balance, Amount at Dec. 31, 2015 $ 2,826 $ 10,470,888 $ 124,265 $ (9,294,845) $ 1,304,334
Shares issued for repayment of debt, shares 4,452,798        
Shares issued for repayment of debt $ 446 463,968     464,414
Shares issued for services, shares 179,982        
Stock issued for services $ 18 61,282     61,300
Shares issued for warrants exercised, shares 29,768        
Shares issued for warrants exercised $ 2 14,436     14,438
Share based compensation, shares 8,999,100        
Share based compensation, value $ 900 674,100     675,000
Common stock issued for the purchase of subsidiaries,shares 12,102,190        
Common stock issued for the purchase of subsidiaries, amount $ 1,210 2,358,953     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 income (loss)       (1,968,659) (1,968,659)
Ending Balance, Shares at Dec. 31, 2016 74,011,188        
Ending Balance, Amount at Dec. 31, 2016 $ 7,402 14,165,361 (416,631) 11,263,540 2,492,628
Shares issued for services, shares 125,000        
Stock issued for services $ 13 23,237     23,250
Share based compensation, value        
Imputed interest on stock advances   26,753     26,753
Beneficial conversion value of debt   39,231     39,231
Foreign currency translation adjustment     166,304   166,304
Net income (loss)       1,365,884 1,365,884
Ending Balance, Shares at Dec. 31, 2017 74,143,590        
Ending Balance, Amount at Dec. 31, 2017 $ 7,415 $ 14,254,582 $ (250,327) $ (9,897,620) $ 4,114,050
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Cash Flows from Operating Activities    
Net loss $ 1,365,886 $ (1,968,659)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 601,266 522,199
Amortization of deferred costs 100,329 263,046
Non-cash interest 205,216 569,558
Imputed interest on advances from stockholders 24,365 8,807
Changes in fair value of derivative liabilities (257,231) (426,369)
Impairment of assets 6,855
Stock issued for services 23,250 297,319
Stock compensation 675,000
Bad debt expense 135,953 69,268
Changes in operating assets and liabilities    
Prepaid expenses (85,301) (164,518)
Accounts payable and accrued liabilities 482,904 168,321
Accounts receivable (91,603) 348,324
Gaming accounts receivable (654,287) (444,619)
Gaming account liabilities 435,771 470,709
Taxes payable 903,187 111,497
Other current assets (2,304) 17,837
Other current liabilities 6,251
Customer Deposits 138,359 234,122
Long term liability 26,059 27,787
Net Cash Provided by Operating Activities 3,358,674 785,880
Cash Flows from Investing Activities    
Acquisition of property, plant and equipment (180,722) (145,918)
Cash acquired on acquisition 803,482
Cash paid for acquisition (200,313)
Increase in restricted cash (45,142) (263,223)
Net Cash Provided by (Used in) Investing Activities (225,864) 194,028
Cash Flows from Financing Activities    
Proceeds of bank credit line, net of repayment 165,925 (315,526)
Proceeds from (repayment of) bank loan (109,104) 553,350
Proceeds from promissory notes, net of repayment 75,403
Proceeds from debenture and convertible notes, net of repayment 591,202 614,900
Advances from stockholders, net of repayment (77,398) 294,292
Net Cash Provided by Financing Activities 570,625 1,222,419
Effect of change in exchange rate 536,001 (129,268)
Net increase (decrease) in cash 4,239,436 2,073,059
Cash - beginning of year 2,230,422 157,363
Cash - end of year 6,469,858 2,230,422
Supplemental disclosure of cash flow information:    
Cash paid during the year for: Interest 277,271 158,586
Cash paid during the year for: Income taxes 60,598 23,358
Supplemental cash flow disclosure for non-cash activities:    
Common shares issued to related parties for repayment of debt 428,414
Common shares issued for the acquisition of assets 2,360,163
Common shares issued for cashless exercise of warrants $ 14,438
Nature of Business
12 Months Ended
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business

1. 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 changed its name to Newgioco Group, Inc. The Company maintains its principal executive offices headquartered in Toronto, Canada with wholly owned subsidiaries in Italy and Austria.

 

Our 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 which owns and operates an innovative, certified Betting Platform Software (“BPS”) and offering a complete suite of online and offline leisure gaming services including a variety of lottery and casino gaming, as well as sports betting through a distribution network of retail betting locations situated throughout Italy.

Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. 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 leisure betting and gaming industry.

 

d) Loss Contingencies

 

We may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.

 

We evaluate, on a monthly basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our business, consolidated financial position, results of operations, or cash flows.

 

 

e) 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.

 

f) 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.

 

g) 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.

 

h) 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 year ended December 31, 2016 because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for year ended December 31, 2016.

 

i) 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.

 

j) 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 Platform Software (“BPS”) 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.

 

k) 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 had no cash equivalents as of December 31, 2017 and December 31, 2016.

 

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.

 

l) Gaming accounts receivable

 

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. The company recorded bad debt expense of $135,953 and $69,269 for the years ended December 31, 2017 and December 31, 2016, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

m) 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.

 

n) 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 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
Issued during the year ended December 31, 2017   268,884
Change in fair value recognized in operations   (257,231)
Balance at December 31, 2017   $ 222,915

 

 

o) 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

 

p) 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, 2017 and 2016.

 

q) 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 2012 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for 5 years and 10 years for inspection of serious infractions. The Company is not currently under examination and it has not been notified of a pending examination.

 

r) 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.

 

s) Investment in Non-consolidated Entities

 

Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

 

The Company's investment in 2336414 Ontario Inc. and Intesa Sanpaolo Bank were accounted for using the cost method of accounting. The Company monitors its investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment charge is required based on qualitative and quantitative information.

 

t) Recent Accounting Pronouncements

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 740): Recognition and Measurement of Financial Assets and Financial Liabilities. The provisions of this update are effective for annual and interim reporting periods beginning after December 15, 2017. ASU 2016-01 enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The Company is currently assessing the impact of ASU 2016.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This update requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosure about the amount, timing and uncertainty of cash flows arising from leases. The provisions of this update are effective for annual and interim periods beginning after December 15, 2018. The Company is currently assessing the impact that the adoption of ASU 2016-02 will have on the consolidated balance sheet and the consolidated results of operations.

 

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently assessing the impact of ASU 2016.

 

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.

Acquisition of offline and land-based gaming assets
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Acquisition of offline and land-based gaming assets

3. Acquisition of offline and land-based gaming assets

 

Odissea Betriebsinformatik Beratung Gmbh (“Odissea”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement (“Odissea SPA”), which closed on July 1, 2016, with the shareholders of Odissea organized under the laws of Austria. Odissea operates a proprietary Betting Operating System. Pursuant to the agreement, the Company issued 8,772,200 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 11.83% 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, which was obtained on June 30, 2017, 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 4,386,100 shares) at a fixed price of U.S. $0.50 per share (the “Odissea Put Option”). As of the date of this report, the Odissea Put Option has been extended indefinitely by mutual consent.

 

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   $      

 

Ulisse Gmbh (“Ulisse”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement (“Ulisse SPA”), which closed on July 1, 2016, with the shareholders of Ulisse organized under the laws of Austria. Ulisse operates an existing network of approximately 170 land-based Agency locations. Pursuant to the agreement, the Company issued 3,331,200 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 4.49% of the issued and outstanding shares of common stock of the Company.

 

Pursuant to the Ulisse SPA, subject to a purchase price adjustment to equal two times earnings before income taxes calculated on a pro rata basis from the Closing Date 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 1,665,600) at a fixed price of U.S. $0.50 per share (the “Ulisse Put Option”). As of the date of this report, the Ulisse Put Option has been extended indefinitely by mutual consent.

 

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 upon completion of the third-party valuation will adjust these estimates accordingly.

Intangible Assets
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

4. Intangible Assets

 

Intangible assets consist of the following:

 

 

December 31,

2017

 

December 31,

2016

  Life (years)
Betting Platform Software $ 1,685,371   $ 1,685,371   15
Licenses 967,328   953,024   1.5 - 7
Location contracts 1,000,000   1,000,000   5 - 7
Customer relationships 870,927   870,927   10 - 15
Trademarks/names 110,000   110,000   14
Websites 40,000   40,000   5
  4,673,626   4,659,322    
Accumulated amortization (1,427,878)   (968,344)    
Balance $3,245,748   $ 3,690,978    

 

 

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 $445,233 and $458,087 for the years ended December 31, 2017 and December 31, 2016, respectively.

 

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

Restricted Cash
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Restricted Cash

5. Restricted Cash

 

Restricted Cash is cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A.(“Intesa Sanpaolo Bank”) as collateral against our operating line of credit with Intesa Sanpaolo Bank as well as Wirecard Bank as a security deposit for Ulisse betting operations

Long Term Debt
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Long Term Debt

6. 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.

 

Severance liability related to employees in Italy was $131,904 and $91,865 at December 31, 2017 and 2016, respectively.

 

Customer deposit balance related to Ulisse operations was $400,775 and $223,714 at December 31, 2017 and 2016, respectively.

Line of Credit-Bank
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Line of Credit-Bank

7. Line of Credit – Bank

 

The Company currently maintains an operating line of credit for a maximum amount of EUR 300,000 (approximately U.S. $338,880) for Multigioco and EUR 50,000 (approximately U.S. $56,480) for Rifa from Intesa Sanpaolo Bank in Italy. The line of credit is secured by restricted cash on deposit at Intesa Sanpaolo Bank 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, 2017
Payables and Accruals [Abstract]  
Liability in connection with acquisition

8. 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 as per a purchase agreement between Newgioco Srl and the Company’s subsidiaries. The Company’s shareholder and VP of Regulatory Affairs, Beniamino Gianfelici, owns 50% shares of Newgioco Srl.

Related party transactions and balances
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
Related party transactions and balances

9. 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,

2017

 

December 31,

2016

Gold Street Capital Corp. $ 41,143   $ 1
Doriana Gianfelici 58,792   51,819
Other stockholders 447,874   505,729
Total advances from stockholders $ 547,809   $ 557,549

 

During the year ended December 31, 2017, Gold Street, the major stockholder of Newgioco Group, advanced $41,142 to the Company, net of repayment of $185,703. Also, the Company paid management fees to Gold Street Capital Corp. of $144,000 for the year ended December 31, 2017.

 

Changes in advances from Doriana Gianfelici were due to the fluctuation in foreign exchange rates.

 

During the year ended December 31, 2017, the Company paid management fees of $20,333 to Luca Pasquini.

 

Advances from other stockholders comprise of the dividend accrued to former stockholders of Ulisse for the six month period prior to the acquisition of Ulisse on July 1, 2016, net of the advance of EUR 104,730 (approximately U.S. $118,303) to Luca Pasquini in 2017.

 

The amounts due to the stockholders at December 31, 2017 are non-interest bearing and due on demand.

 

Related-Party Debt

 

Promissory notes payable to related parties of $318,077 represents amounts due to Braydon Capital Corp., a company owned by Claudio Ciavarella, the brother of our CEO. The amount due to Braydon Capital Corp. is comprised of the following:

 

-a Promissory Note for $186,233 issued on December 15, 2015 that bears interest at a rate of 1% per month due in full on the Maturity Date of December 15, 2016. The Company and Braydon Capital have agreed to extend the Maturity Date indefinitely by mutual consent.

 

-a Promissory Note for $90,750 issued on January 13, 2016 that bears interest at a rate of 1% per month due in full on the maturity date of January 13, 2017 that was subsequently amended to add $41,095 in additional funds received from Braydon Capital Corp. for a total of $131,845. The Company and Braydon Capital have agreed to extend the Maturity Date indefinitely by mutual consent.

 

Investment in Non-consolidated Entities
12 Months Ended
Dec. 31, 2017
Investments, All Other Investments [Abstract]  
Investment in Non-consolidated Entities

10. Investment in Non-consolidated Entities

 

Investments in non-consolidated entities consists of the following:

 

    December 31,   December 31,
    2017   2016
         
2336414 Ontario Inc   $ 875,459     $ 875,459  
Intesa Sanpaolo Bank     1       6,729  
      875,459       882,188  
               
Less impairment     (875,459 )     (875,459 )
Total investment in non-consolidated entities   $ 1     $ 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") representing 666,664 common shares or 2.3% of 2336414. 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 subscribed for 666,664 Units (CDN $1,000,000) (approximately U.S. $875,458), with 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.

 

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, 2017 and 2016, the Company held $1 and $6,729 in shares of Intesa Sanpaolo Bank S.p.A. Intesa Sanpaolo Bank is a private mutual enterprise organized under Italian banking laws. The Company recorded impairment of $6,855 and $0 on the investment during the year ended December 31, 2017 and 2016, respectively.

 

We carry the value of the shares of Intesa Sanpaolo Bank S.p.A 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 Intesa Sanpaolo Bank and 2336414 Ontario Inc. do not have an active market.

Stockholders Equity
12 Months Ended
Dec. 31, 2017
Equity [Abstract]  
Stockholders Equity

11. Stockholders’ Equity

 

On November 28, 2017, the Company effected a two-for-one forward stock split of its common stock in the form of a 100% stock dividend to shareholders of record as of December 20, 2017. All share and earnings per share information have been retroactively adjusted to reflect the stock split.

 

On June 15, 2017, the Company issued a total of 160,000 Restricted Stock Units to the independent Directors of the company, 40,000 units each. These Restricted stock units are vested at 25% per year after each completed year served on the Board of Directors.

 

On October 3, 2017, the Company issued 50,000 shares of common stock to World Wide Financial Marketing for the investor and public relations services equal to $12,750. These shares were valued at market price on issuance date of $0.26 per share and recorded as an expense.

 

On December 22, 2017, the Company issued 75,000 shares of common stock to World Wide Financial Marketing for the investor and public relations services equal to $10,500. These shares were valued at market price on issuance date of $0.14 per share and recorded as an expense.

 

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 100,000 restricted shares of common stock upon signing the agreement and 100,000 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 100,000 shares of common stock which were valued at the market price of $0.475 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 29,770 shares of common stock to Typenex Co-Investment, LLC. Those shares were valued at market price on issuance date of $0.48 per share and recorded as an expense.

 

On June 6, 2016, the Company issued an aggregate of 80,000 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 9,000,000 shares of common stock as a performance based restricted stock award contingent on the closing of the July 1, 2016 acquisitions. The Company granted 3,000,000 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 4,050,200 shares of common stock dated at 100% of the market price of $0.08 per share as follows:

 

-3,570,200 shares issued to Gold Street Capital Corp. for the payment of debt equal to $267,756;
-400,000 issued to Julia Lesnykh for the payment of debt equal to $30,000;
-80,000 issued to Andrei Sheptikita for the payment of debt equal to $6,000

 

On December 31, 2016, 112,000 shares of the Company's common stock were issued to Gold Street Capital Corp. at 100% of the market price of $0.21 per share for the payment of debt equal to $22,433.

 

See Note 9 for additional common share transactions in repayment of debt.

Debentures and Convertible Notes
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Debentures and Convertible Notes

12. Debentures and Convertible Notes

 

Debentures and convertible notes outstanding include the following:

 

 

December 31,

2017

 

December 31,

2016

February 29, 2016 Convertible Note, net of discount of $0 and $85,898 $ 600,000   $ 514,102
April 4, 2016 Convertible Note, net of discount of $0 and $34,187 150,000   115,812
January 24, 2017 Debenture, net of discount of $7,446 136,032    —
March 27, 2017 Convertible Debenture, net of discount of $50,994 68,571  
June 5, 2017 Convertible Debenture, net of discount of $72,541 47,024  
June 9, 2017 Convertible Debenture, net of discount of $36,940 22,842  
November 6, 2017 - December 11, 2017 Convertible Debentures, net of discounts of $55,063 148,198  
  1,172,667   629,914
Less: unamortized debt issuance costs (24,560)   (13,397)
  $ 1,148,107   $ 616,517

 

February 29, 2016 and April 4, 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. Also, the company paid $75,000 in commissions for these notes. As part of the purchase agreement, the Company also issued a warrant to purchase 326,088 shares of Company’s common stock at $0.575 per share. These notes bear an interest rate of 12% per annum and were due in one year. The company continued to accrue interest at 22% past the due date. The notes were guaranteed by Confidi Union Impresa, an unrelated party.

 

The Company repaid a total of $125,000 in the year ended December 31, 2017. These payments were applied to the interest accrued at the date of the payments with the remainder applied towards the accrued penalty.

 

Accounts payable and accrued liabilities included a penalty and accrued interest on this Note of $242,207 and $56,441 at December 31, 2017 and December 31, 2016, respectively. See also Note 19 Subsequent Events.

 

January 24, 2017 Debenture

 

On January 24, 2017, the Company received gross proceeds from the initial private placement of CDN $180,000 (approximately U.S. $138,816) with a group of accredited investors. The Company incurred a total of CDN $14,400 (approximately U.S. $11,105) in finder’s fees to facilitate this transaction for net proceeds of CDN $165,600 (approximately U.S. $127,711). 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 36,000 of the Company’s common stock at $0.50 per share up to January 24, 2019.

 

March 27, 2017 Convertible Debenture

 

On March 27, 2017, the Company received gross proceeds from the initial private placement of CDN $150,000 (approximately U.S. $115,680) with a group of accredited investors. The Company incurred a total of CDN $5,000 (approximately U.S. $3,856) in finder’s fees to facilitate this transaction for net proceeds of CDN $145,000 (approximately U.S. $111,824). 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 $0.75 per share at any time up to March 27, 2019. As part of the purchase agreement, the Company also issued a warrant to purchase 30,000 of the Company’s common stock at $0.50 per share up to March 27, 2019.

 

June 2017 Convertible Debentures

 

On June 5, 2017, the Company received gross proceeds from the initial private placement of CDN $150,000 (approximately U.S. $115,680) with a group of accredited investors. The Company incurred a total of CDN $7,500 (approximately U.S. $5,784) in finder’s fees to facilitate this transaction for net proceeds of CDN $142,500 (approximately U.S. $109,896). The Debenture is convertible to shares of common stock of the Company at a price of $0.75 per share at any time up to June 5, 2019. As part of the purchase agreement, the Company also issued a warrant to purchase 30,000 of the Company’s common stock at $0.50 from November 5, 2017 to June 5, 2019.

 

On June 9, 2017, The Company received additional gross proceeds of CDN $75,000 (approximately U.S. $57,840) in connection with the June 5, 2017 Securities Purchase Agreement. The Company incurred a total of CDN $3,750 (approximately U.S. $2,892) in finder’s fees to facilitate this transaction for net proceeds of CDN $71,250 (approximately U.S. $54,948). The debenture is convertible to shares of common stock of the Company at a price of $0.75 per share at any time up to June 5, 2019. As part of the purchase agreement, the Company also issued a warrant to purchase 15,000 of the Company’s common stock at $0.50 from November 9, 2017 to June 9, 2019.

 

November and December 2017 Convertible Debentures

 

Between November and December 2017 the Company has received additional gross proceeds of CDN $255,000 (approximately U.S. $196,656) in multiple tranches in connection with the June 5, 2017 Securities purchase Agreement. The Company incurred a total of CDN $12,750 (approximately U.S. $9,833) in finder’s fees to facilitate this transaction for net proceeds of CDN $242,250 (approximately U.S. $186,823). The debentures are convertible to shares of common stock of the Company at a price of $0.75 per share for a period of two years from the issue date. As part of the purchase agreement, the Company also issued a number of warrants to purchase an aggregate of 51,000 shares of the Company’s common stock at $0.50 which can be exercised from April and May 2018 until a day that is two years from the issue date. The issuance dates for these convertible debentures with corresponding gross proceeds in Canadian dollars are as follows:

 

November 6, 2017 $ 90,000
November 14, 2017 50,000
November 15, 2017 20,000
November 22, 2017 30,000
December 5, 2017 40,000
December 11, 2017 25,000
  $ 255,000

 

The commissions and finders' fees related to the notes and debentures were amortized over the life of the notes.

 

The Company has determined that the conversion feature embedded in the convertible notes and debentures 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 16.

 

Warrants issued in relation to the debentures and promissory notes are discussed in Note 15.

 

Promissory Notes Payable
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Promissory Notes Payable

13. 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. $115,680) 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 $13,844 and $13,590 was recorded for the year ended December 31, 2017 and 2016, respectively.

Bank Loan Payable
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Bank Loan Payable

14. Bank Loan Payable

 

On September 30, 2016, the Company obtained a loan of EUR 500,000 (approximately U.S. $564,800) from Intesa Sanpaolo Bank in Italy, which is secured by the Company's assets. The loan is amortized over 57 months ending September 30, 2021 with repayment started on January 31, 2017 in monthly installments of EUR 9,760 (approximately U.S. $11,025) with an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate ("EURIBOR"), subject to quarterly review.

 

The company repaid EUR 96,586 (approximately U.S. $109,104) during the year ended December 31, 2017.

Warrants
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Warrants

15. Warrants

 

On February 29, 2016, as per a Securities Purchase Agreement, the Company issued a warrant to purchase 260,870 shares of the Company’s common stock at $0.575 per share which may be exercised by the warrant holder between August 28, 2016 and February 28, 2019 (See Note 12). The warrant was issued in connection with the February 29, 2016 convertible Promissory Note. 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 125,218 shares of the Company’s common stock at $0.575 per share which may be exercised by the warrant holder until April 4, 2019 (See Note 12). The warrant was issued in connection with the April 4, 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.

 

On April 4, 2016, the Company issued a warrant to purchase 124,440 shares of the Company’s common stock at $0.575 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 April 4, 2016 convertible Promissory Notes (See Note 12). 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 January 24, 2017, the Company issued a warrant to purchase 36,000 of the Company’s common stock at $0.50 per share which may be exercised by the warrant holder from June 24, 2017 until January 24, 2019. The warrant was issued in connection with the January 24, 2017 Debenture (See Note 12). The fair value of the warrants of $13,973 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt issuance cost, which has been amortized as interest expense over the life of the debt.

 

On March 27, 2017, the Company issued a warrant to purchase 30,000 of the Company’s common stock at $0.50 per share which may be exercised by the warrant holder from August 27, 2017 until March 27, 2019. The warrant was issued in connection with the March 27, 2017 Convertible Debenture (See Note 12). The fair value of the warrant of $11,923 was calculated using the Black-Scholes model on the date of issuance and was recorded as debt discount, which has been amortized as interest expense over the life of the debt.

 

On June 5, 2017, the Company issued a warrant to purchase 30,000 of the Company’s common stock at $0.50 per share which may be exercised by the holder from November 5, 2017 to June 5, 2019. The warrant was issued in connection with the June 5, 2017 Convertible Debenture (see Note 12). The fair value of the warrant of $14,826 was calculated using the Black-Scholes model on the date of issuance and was recorded as debt discount, which has been amortized as interest expense over the life of the debt.

 

On June 9, 2017, the Company issued a warrant to purchase 15,000 of the Company’s common stock at $0.50 per share which may be exercised from November 9, 2017 to June 9, 2019. The warrant was issued in connection with the June 9, 2017 Convertible Debenture (see Note 12). The fair value of the warrant of $7,489 was calculated using the Black-Scholes model on the date of issuance and was recorded as debt discount, which has been amortized as interest expense over the life of the debt.

 

Between November and December 2017, the Company issued a number of warrants to purchase an aggregate of 51,000 shares of the Company’s common stock at $0.50 per share which may be exercised from April and May 2018 until a date that is two years from the issue date. The warrants was issued in connection with the November and December Convertible Debentures (see Note 12). The fair value of the warrants of $8,136 was calculated using the Black-Scholes model on the date of issuance and was recorded as 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:

 

Warrant

Fair Value

At issuance

February 29, 2016 $ 106,583
April 4, 2016 $ 53,236
April 4, 2016 $ 27,901
January 24, 2017 $ 13,973
March 27, 2017 $ 11,923
June 5, 2017 $ 14,826
June 9, 2017 $ 7,489
November 6, 2017 $ 3,131
November 14, 2017 $ 1,640
November 15, 2017 $ 676
November 22, 2017 $ 948
December 5, 2017 $ 994
December 11, 2017 $ 747

 

 

The following assumptions were used to calculate the fair value at issuance:

 

Warrant Date Exercise Price/sh Common Stock Price/sh Volatility Term Dividend Yield Interest Rate Forfeiture Risk
February 29, 2016 $ 0.575 $ 0.45 200% 3 yrs 0% 0.91% 0%
April 4, 2016 $ 0.575 $ 0.475 195% 3 yrs 0% 0.91% 0%
April 4, 2016 $ 0.575 $ 0.475 195% 3 yrs 0% 0.91% 0%
January 24, 2017 $ 0.50 $ 0.39 404% 2 yrs 0% 0.91% 0%
March 27, 2017 $ 0.50 $ 0.40 390% 2 yrs 0% 0.91% 0%
June 5, 2017 $ 0.50 $ 0.495 445% 2 yrs 0% 0.91% 0%
June 9, 2017 $ 0.50 $ 0.495 445% 2 yrs 0% 0.91% 0%
November 6, 2017 $ 0.50 $ 0.35 410% 2 yrs 0% 0.91% 0%
November 14, 2017 $ 0.50 $ 0.33 413% 2 yrs 0% 0.91% 0%
November 15, 2017 $ 0.50 $ 0.34 409% 2 yrs 0% 0.91% 0%
November 22, 2017 $ 0.50 $ 0.318 414% 2 yrs 0% 0.91% 0%
December 5, 2017 $ 0.50 $ 0.25 422% 2 yrs 0% 0.91% 0%
December 11, 2017 $ 0.50 $ 0.30 433% 2 yrs 0% 0.91% 0%

 

A summary of warrant transactions during the year ended December 31, 2017 is as follows:

 

  Warrant Shares Weighted Average Exercise Price Per Common Share Weighted Average Life
Outstanding at December 31, 2016 467,928 $ 0.58 2.13
Issued 162,000 $ 0.50 2.00
Exercised
Expired (17,400)
Outstanding at December 31, 2017 612,528 $ 0.54 1.37
Exercisable at December 31, 2017 561,528 $ 0.56 1.21

 

The following assumptions were used to calculate the fair value of warrants at December 31, 2017:

 

Exercises price $0.50 - $0.575
Common stock price per share $0.26
Volatility 459%
Weighted average life 1.37 years
Dividend yield 0%
Interest rate 0.91%
Forfeiture risk 0%

 

Derivative Liability and Fair Value
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Derivative Liability and Fair Value

16. Derivative Liability and Fair Value

 

The Company has evaluated the application of ASC 815 Derivatives and Hedging and ASC 815-40-25 to the warrants to purchase common stock issued with the convertible notes and debentures. Based on the guidance in ASC 815 and ASC 815-40-25, the Company concluded these instruments were required to be accounted for as derivatives due to the down round protection feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.

 

The Convertible Debenture issued March 27, 2017 and accrued interest are convertible into common shares at a fixed price of $0.75 prior to March 27, 2019. The gross proceeds from the sale of the debenture were recorded net of $70,617 related to the conversion feature and $11,923 was allocated to the warrants issued.

 

The Convertible Debenture issued June 5, 2017, and accrued interest are convertible into common shares at a fixed price of $0.75 prior to June 5, 2019. The gross proceeds from the sale of the debenture were recorded net of $86,815 related to the conversion feature and $14,826 was allocated to the warrants issued.

 

The Convertible Debenture issued June 9, 2017, and accrued interest are convertible into common shares at a fixed price of $0.75 prior to June 9, 2019. The gross proceeds from the sale of the debenture were recorded net of $43,874 related to the conversion feature and $7,489 was allocated to the warrants issued.

 

The Convertible Debentures issued in November and December 2017, and accrued interest are convertible into common shares at a fixed price of $0.75 for a period of two years from the issue date. The gross proceeds from the sale of the debentures were recorded net of $50,461 related to the conversion feature and $8,136 was allocated to the warrants issued.

 

The Company accounted for the convertible debentures in accordance with ASC 815 “Derivatives and Hedging.” Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period.

 

Revenues
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Revenues

17. Revenues

 

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

 

    Year Ended   Year Ended
    December 31,   December 31,
    2017   2016
Turnover        
Turnover web-based   $ 106,785,302     $ 103,033,957  
Turnover land-based     111,734,469       18,917,917  
Total Turnover   $ 218,519,771     $ 121,951,874  
                 
Winnings/Payouts                
Winnings web-based     100,860,085       96,728,850  
Winnings land-based     94,201,786       16,487,782  
Total Winnings/payouts     195,061,871       113,216,632  
                 
Gross Gaming Revenues   $ 23,457,900     $ 8,735,242  
                 
Less: ADM Gaming Taxes     1,761,935       1,592,926  
                 
Net Gaming Revenues   $ 21,695,965     $ 7,142,316  
Add: Commission Revenues     281,285       1,105,389  
Add: Service Revenues     887,896       650,258  
Total Revenues   $ 22,865,146     $ 8,897,963  

 

 

Turnover represents the total bets processed for the period.

Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

18. 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 31, 2017 and December 31, 2016.

 

The Company's Italian subsidiaries are governed by the income tax laws of Italy. The corporate tax rate in Italy is 28.82% (IRES at 24% plus IRAP ordinary at 4.82%) on income reported in the statutory financial statements after appropriate tax adjustments.

 

The Company's Austrian subsidiaries are governed by the income tax laws of Austria. The corporate tax rate in Austria is 25% on income reported in the statutory financial statements after appropriate tax adjustments.

 

The Company's Canadian subsidiary is governed by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada is 26.5% 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,
2017
  December 31,
2016
U.S. Statutory rate $818,584   $ (623,595)
Tax rate difference between Italy, Austria, Canada and U.S. (428,353)   (49,618)
Change in Valuation Allowance 558,187   847,449
Permanent difference 24,506   23,789
Effective tax rate $ 972,924   $ 198,025

 

The Company has accumulated a net operating loss carry forward ("NOL") of approximately $12 million as of December 31, 2017 in the U.S. This NOL may be offset against future taxable income through the year 2037. 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, up to 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.

 

Under Austrian 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, up to the limit of 75% of taxable annual income.

 

Under Canadian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely.

 

The provisions for income taxes consist of currently payable income tax in Italy and Austria. The provisions for income taxes are summarized as follows:

 

  December 31,
2017
  December 31,
2016
Current $ 972,924   $ 198,025
Deferred -              -           
Total $ 972,924   $ 198,025

 

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

 

  December 31,
2017
  December 31,
2016
Net loss carryforward - Foreign $2,732   $ 11,874
Net loss carryforward - US 4,540,465   3,949,432
  4,543,197   3,961,306
Less valuation allowance (4,543,197)   (3,961,306)
Deferred tax assets $ -   $ -

 

Subsequent events
12 Months Ended
Dec. 31, 2017
Subsequent Events [Abstract]  
Subsequent events

19. Subsequent Events

 

a.On February 26, 2018, the Company closed a Securities Purchase Agreement with a group of accredited investors to raise up to CDN $1,800,000 (approximately U.S. $1,419,334). The Company received gross proceeds from the initial private placement of CDN $670,000 (approximately U.S. $528,308). The Company incurred a total of CDN $33,500 (approximately U.S. $26,415) in finder’s fees to facilitate this transaction for net proceeds of CDN $636,500 (approximately U.S. $501,892) as well as 5% of the gross amount in broker warrants with terms identical to the debenture’s warrants. This convertible debenture bears an interest rate of 10% per annum and is due in two years. As part of the purchase agreement, the debenture is convertible at the lesser price of $0.50 or the proposed IPO price at any time up to February 26, 2020. The Company also issued a warrant to purchase 167,500 of the Company’s common stock at the lesser of $0.625 per share or 125% of the IPO price per warrant up to February 26, 2020 and issued 160 restricted shares of common stock per each debenture unit. As a result the Company issued 111,000 restricted common shares in connection with the gross proceeds received by the Company on closing.

 

b.The Company has paid the amount subject to legal proceedings to Darling Capital, LLC in full.

 

c.On January 15, 2018, the Company retained Echelon Wealth Partners Inc. (“Echelon”) to act as our financial advisor and to provide capital markets and strategic advice related to the proposed listing common shares on the Canadian Securities Exchange via an initial public offering and completing a concurrent or associated financing between CDN $3,000,000 (approximately U.S. $2,413,710) and CDN $5,000,000 (approximately U.S. $4,022,850). The Company incurred an initial fee of CDN $30,000 (approximately U.S. 24,137).
Nature of Business (Policies)
12 Months Ended
Dec. 31, 2017
Nature Of Business Policies  
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 changed its name to Newgioco Group, Inc. The Company maintains its principal executive offices headquartered in Toronto, Canada with wholly owned subsidiaries in Italy and Austria.

 

Our 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 which owns and operates an innovative, certified Betting Platform Software (“BPS”) and offering a complete suite of online and offline leisure gaming services including a variety of lottery and casino gaming, as well as sports betting through a distribution network of retail betting locations situated throughout Italy.

Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2017
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 leisure betting and gaming industry.

Loss Contingencies

d) Loss Contingencies

 

We may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.

 

We evaluate, on a monthly basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been i

Business Combinations

e) 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

f) 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

g) 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

h) 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 year ended December 31, 2016 because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for year ended December 31, 2016.

Currency translation

i) 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

j) 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 Platform Software (“BPS”) 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

k) 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 had no cash equivalents as of December 31, 2017 and December 31, 2016.

 

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

l) Gaming accounts receivable

 

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. The company recorded bad debt expense of $135,953 and $69,269 for the years ended December 31, 2017 and December 31, 2016, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

Gaming balances

m) 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

n) 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 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
Issued during the year ended December 31, 2017   268,884
Change in fair value recognized in operations   (257,231)
Balance at December 31, 2017   $ 222,915

 

 

Property, plant and equipment

o) 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

p) 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, 2017 and 2016.

Income Taxes

q) 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 2012 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for 5 years and 10 years for inspection of serious infractions. The Company is not currently under examination and it has not been notified of a pending examination.

Comprehensive Income (Loss)

r) 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.

Investment in Non-consolidated Entities

s) Investment in Non-consolidated Entities

 

Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

 

The Company's investment in 2336414 Ontario Inc. and Intesa Sanpaolo Bank were accounted for using the cost method of accounting. The Company monitors its investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment charge is required based on qualitative and quantitative information.

Recent Accounting Pronouncements

 

t) Recent Accounting Pronouncements

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 740): Recognition and Measurement of Financial Assets and Financial Liabilities. The provisions of this update are effective for annual and interim reporting periods beginning after December 15, 2017. ASU 2016-01 enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The Company is currently assessing the impact of ASU 2016.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This update requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosure about the amount, timing and uncertainty of cash flows arising from leases. The provisions of this update are effective for annual and interim periods beginning after December 15, 2018. The Company is currently assessing the impact that the adoption of ASU 2016-02 will have on the consolidated balance sheet and the consolidated results of operations.

 

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently assessing the impact of ASU 2016.

 

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, 2017
Accounting Policies [Abstract]  
Property, plant and equipment useful life
Trademarks / names   14 years 
Office equipment   5 years 
Office furniture   8 1/3 years 
Signs and displays   5 years 
Level 3 Fair Value Measurements

 

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
Issued during the year ended December 31, 2017   268,884
Change in fair value recognized in operations   (257,231)
Balance at December 31, 2017   $ 222,915

Acquisitions (Tables)
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Purchase Price - Acquisitions

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   $      

 

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   $      

 

 

 

 

Intangible Assets (Tables)
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles

 

 

December 31,

2017

 

December 31,

2016

  Life (years)
Betting Platform Software $ 1,685,371   $ 1,685,371   15
Licenses 967,328   953,024   1.5 - 7
Location contracts 1,000,000   1,000,000   5 - 7
Customer relationships 870,927   870,927   10 - 15
Trademarks/names 110,000   110,000   14
Websites 40,000   40,000   5
  4,673,626   4,659,322    
Accumulated amortization (1,427,878)   (968,344)    
Balance $3,245,748   $ 3,690,978    

Related party transactions and balances (Tables)
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
Related party transactions and balances

 

 

December 31,

2017

 

December 31,

2016

Gold Street Capital Corp. $ 41,143   $ 1
Doriana Gianfelici 58,792   51,819
Other stockholders 447,874   505,729
Total advances from stockholders $ 547,809   $ 557,549

Investment in Non-consolidated Entities (Tables)
12 Months Ended
Dec. 31, 2017
Investments, All Other Investments [Abstract]  
Non-consolidated entities

 

    December 31,   December 31,
    2017   2016
         
2336414 Ontario Inc   $ 875,459     $ 875,459  
Intesa Sanpaolo Bank     1       6,729  
      875,459       882,188  
               
Less impairment     (875,459 )     (875,459 )
Total investment in non-consolidated entities   $ 1     $ 6,729  

Debentures and Convertible Notes (Tables)
12 Months Ended
Dec. 31, 2017
Debentures And Convertible Notes Tables  
Debentures outstanding

 

 

December 31,

2017

 

December 31,

2016

February 29, 2016 Convertible Note, net of discount of $0 and $85,898 $ 600,000   $ 514,102
April 4, 2016 Convertible Note, net of discount of $0 and $34,187 150,000   115,812
January 24, 2017 Debenture, net of discount of $7,446 136,032    —
March 27, 2017 Convertible Debenture, net of discount of $50,994 68,571  
June 5, 2017 Convertible Debenture, net of discount of $72,541 47,024  
June 9, 2017 Convertible Debenture, net of discount of $36,940 22,842  
November 6, 2017 - December 11, 2017 Convertible Debentures, net of discounts of $55,063 148,198  
  1,172,667   629,914
Less: unamortized debt issuance costs (24,560)   (13,397)
  $ 1,148,107   $ 616,517

Additional Debenture Proceeds

 

November 6, 2017 $ 90,000
November 14, 2017 50,000
November 15, 2017 20,000
November 22, 2017 30,000
December 5, 2017 40,000
December 11, 2017 25,000
  $ 255,000

Warrants (Tables)
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Debenture

 

Warrant

Fair Value

At issuance

February 29, 2016 $ 106,583
April 4, 2016 $ 53,236
April 4, 2016 $ 27,901
January 24, 2017 $ 13,973
March 27, 2017 $ 11,923
June 5, 2017 $ 14,826
June 9, 2017 $ 7,489
November 6, 2017 $ 3,131
November 14, 2017 $ 1,640
November 15, 2017 $ 676
November 22, 2017 $ 948
December 5, 2017 $ 994
December 11, 2017 $ 747

Weighted average assumptions

 

Warrant Date Exercise Price/sh Common Stock Price/sh Volatility Term Dividend Yield Interest Rate Forfeiture Risk
February 29, 2016 $ 0.575 $ 0.45 200% 3 yrs 0% 0.91% 0%
April 4, 2016 $ 0.575 $ 0.475 195% 3 yrs 0% 0.91% 0%
April 4, 2016 $ 0.575 $ 0.475 195% 3 yrs 0% 0.91% 0%
January 24, 2017 $ 0.50 $ 0.39 404% 2 yrs 0% 0.91% 0%
March 27, 2017 $ 0.50 $ 0.40 390% 2 yrs 0% 0.91% 0%
June 5, 2017 $ 0.50 $ 0.495 445% 2 yrs 0% 0.91% 0%
June 9, 2017 $ 0.50 $ 0.495 445% 2 yrs 0% 0.91% 0%
November 6, 2017 $ 0.50 $ 0.35 410% 2 yrs 0% 0.91% 0%
November 14, 2017 $ 0.50 $ 0.33 413% 2 yrs 0% 0.91% 0%
November 15, 2017 $ 0.50 $ 0.34 409% 2 yrs 0% 0.91% 0%
November 22, 2017 $ 0.50 $ 0.318 414% 2 yrs 0% 0.91% 0%
December 5, 2017 $ 0.50 $ 0.25 422% 2 yrs 0% 0.91% 0%
December 11, 2017 $ 0.50 $ 0.30 433% 2 yrs 0% 0.91% 0%

Warrants

 

  Warrant Shares Weighted Average Exercise Price Per Common Share Weighted Average Life
Outstanding at December 31, 2016 467,928 $ 0.58 2.13
Issued 162,000 $ 0.50 2.00
Exercised
Expired (17,400)
Outstanding at December 31, 2017 612,528 $ 0.54 1.37
Exercisable at December 31, 2017 561,528 $ 0.56 1.21

Black-scholes modle

 

Exercises price $0.50 - $0.575
Common stock price per share $0.26
Volatility 459%
Weighted average life 1.37 years
Dividend yield 0%
Interest rate 0.91%
Forfeiture risk 0%

Revenues (Tables)
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Revenue

 

    Year Ended   Year Ended
    December 31,   December 31,
    2017   2016
Turnover        
Turnover web-based   $ 106,785,302     $ 103,033,957  
Turnover land-based     111,734,469       18,917,917  
Total Turnover   $ 218,519,771     $ 121,951,874  
                 
Winnings/Payouts                
Winnings web-based     100,860,085       96,728,850  
Winnings land-based     94,201,786       16,487,782  
Total Winnings/payouts     195,061,871       113,216,632  
                 
Gross Gaming Revenues   $ 23,457,900     $ 8,735,242  
                 
Less: ADM Gaming Taxes     1,761,935       1,592,926  
                 
Net Gaming Revenues   $ 21,695,965     $ 7,142,316  
Add: Commission Revenues     281,285       1,105,389  
Add: Service Revenues     887,896       650,258  
Total Revenues   $ 22,865,146     $ 8,897,963  

Income Taxes (Tables)
12 Months Ended
Dec. 31, 2017
Income Taxes Tables  
Reconciliation of income tax expense

 

  December 31,
2017
  December 31,
2016
U.S. Statutory rate $818,584   $ (623,595)
Tax rate difference between Italy, Austria, Canada and U.S. (428,353)   (49,618)
Change in Valuation Allowance 558,187   847,449
Permanent difference 24,506   23,789
Effective tax rate $ 972,924   $ 198,025

Deferred tax assets

 

  December 31,
2017
  December 31,
2016
Current $ 972,924   $ 198,025
Deferred -              -           
Total $ 972,924   $ 198,025

Provisions for income taxes

 

  December 31,
2017
  December 31,
2016
Net loss carryforward - Foreign $2,732   $ 11,874
Net loss carryforward - US 4,540,465   3,949,432
  4,543,197   3,961,306
Less valuation allowance (4,543,197)   (3,961,306)
Deferred tax assets $ -   $ -

Summary of Significant Accounting Policies (Details) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Accounting Policies [Abstract]    
FDIC Insured Amount $ 250,000  
Bad Debt Expense $ 135,953 $ 69,269
Summary of Significant Accounting Policies (Details 1) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Change in the Level 3 financial instrument [Rollforward]    
Beginnng Balance $ 211,262 $ 28,375
Issued during the year 268,884 609,256
Exercised during the year  
Change in fair value recognized in operations (257,231) (426,369)
Ending Balance $ 222,915 $ 211,262
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
Acquisition- Purchase price (Details)
12 Months Ended
Dec. 31, 2016
USD ($)
Odissea [Member]  
Business Combination, Separately Recognized Transactions [Line Items]  
Current assets $ 210,505
Property, Plant and Equipment 30,638
Identifiable intangible assets: $ 1,685,371
Remaining useful life 15 years
Less: liabilities assumed $ (215,935)
Total identifiable assets less liabilities assumed 1,710,579
Total purchase price 1,710,579
Ulisse [Member]  
Business Combination, Separately Recognized Transactions [Line Items]  
Current assets 984,647
Property, Plant and Equipment 2,917
Identifiable intangible assets: $ 83,996
Remaining useful life 10 years
Less: liabilities assumed $ (421,976)
Total identifiable assets less liabilities assumed 649,584
Total purchase price $ 649,584
Acquisitions (Details Narrative)
6 Months Ended
Jun. 30, 2016
shares
Odissea [Member]  
Business Acquisition [Line Items]  
Share issued for acquisition 8,772,200
Ownership 11.83%
Agreement

Pursuant to the Odissea SPA, upon completion of certification of the Betting Operating System by the ADM, which was obtained on June 30, 2017, 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 4,386,100 shares) at a fixed price of U.S. $0.50 per share (the “Odissea Put Option”). As of the date of this report, the Odissea Put Option has been extended indefinitely by mutual consent.

Ulisse [Member]  
Business Acquisition [Line Items]  
Share issued for acquisition 3,331,200
Ownership 4.49%
Agreement

Pursuant to the Ulisse SPA, subject to a purchase price adjustment to equal two times earnings before income taxes calculated on a pro rata basis from the Closing Date 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 1,665,600) at a fixed price of U.S. $0.50 per share (the “Ulisse Put Option”). As of the date of this report, the Ulisse Put Option has been extended indefinitely by mutual consent..

Intangible Assets - Intangibles (Details) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Intangible assets, gross $ 4,673,626 $ 4,659,322
Accumulated amortization (1,427,878) (968,344)
Intangible assets 3,245,748 3,690,978
Betting Operating System [Member]    
Intangible assets, gross 1,685,371 1,685,371
Licenses [Member]    
Intangible assets, gross 967,328 953,024
Location contracts [Member]    
Intangible assets, gross 1,000,000 1,000,000
Customer relationships [Member]    
Intangible assets, gross 870,927 870,927
Trademarks/names [Member]    
Intangible assets, gross 110,000 110,000
Website [Member]    
Intangible assets, gross $ 40,000 $ 40,000
Intangible Assets - Useful life (Details)
12 Months Ended
Dec. 31, 2016
Betting Operating System [Member]  
Useful Life 15 years
Licenses [Member] | Minimum [Member]  
Useful Life 1 year 5 months
Licenses [Member] | Maximum [Member]  
Useful Life 7 years
Location contracts [Member] | Minimum [Member]  
Useful Life 5 years
Location contracts [Member] | Maximum [Member]  
Useful Life 7 years
Customer relationships [Member] | Minimum [Member]  
Useful Life 10 years
Customer relationships [Member] | Maximum [Member]  
Useful Life 15 years
Trademarks/names [Member]  
Useful Life 14 years
Website [Member]  
Useful Life 5 years
Intangible Assets (Details Narrative) - USD ($)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization Expense $ 445,233 $ 458,087
Long Term Debt (Details) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Italy [Member]    
Severance liability $ 131,904 $ 91,865
Ulisse [Member]    
Customer deposit $ 400,775 $ 223,714
Line of Credit-Bank (Details Narrative)
Dec. 31, 2017
USD ($)
Dec. 31, 2017
EUR (€)
Multgioco [Member]    
Line of credit $ 338,880 € 300,000
Interest rate 5.00% 5.00%
Rifa Srl[Member]    
Line of credit $ 56,480 € 50,000
Related party transactions and balances - Related party (Details) - USD ($)
Dec. 31, 2017
Dec. 31, 2016
Related Party Transaction [Line Items]    
Balance of advances from stockholders $ 547,809 $ 557,549
Gold Street Capital Corp. [Member]    
Related Party Transaction [Line Items]    
Balance of advances from stockholders 41,143 1
Doriana Gianfelici [Member]    
Related Party Transaction [Line Items]    
Balance of advances from stockholders 58,792 51,819
Other Stockholders [Member]    
Related Party Transaction [Line Items]    
Balance of advances from stockholders $ 447,874 $ 505,729
Related party transactions and balances (Details Narrative)
11 Months Ended 12 Months Ended
Jan. 13, 2017
USD ($)
Jan. 13, 2016
USD ($)
Dec. 15, 2015
USD ($)
Nov. 15, 2016
shares
Dec. 31, 2017
USD ($)
Dec. 31, 2017
EUR (€)
Dec. 31, 2016
USD ($)
Related Party Transaction [Line Items]              
Advance from related party         $ (77,398)   $ 294,292
Shares issued for debt, shares | shares       4,050,200      
Related Party [Member]              
Related Party Transaction [Line Items]              
Interest rate         5.00% 5.00%  
Gold Street Capital Corp. [Member]              
Related Party Transaction [Line Items]              
Advance from related party         $ 41,142    
Debt repaid         185,703    
Management fee paid         144,000    
Luca Pasquini [Member]              
Related Party Transaction [Line Items]              
Dividend Accrued         118,303 € 104,730  
Management fee paid         20,333    
Braydon Capital Corp. [Member]              
Related Party Transaction [Line Items]              
Interest rate   1.00% 1.00%        
Promissory note   $ 90,750 $ 186,233   318,078    
Advance from related party $ 41,095 $ 90,750     $ 131,845