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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Nov. 13, 2019
Document And Entity Information    
Entity Registrant Name Newgioco Group, Inc.  
Entity Central Index Key 0001080319  
Document Type 10-Q  
Document Period End Date Sep. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   85,786,382
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
Consolidated Balance Sheets - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Current Assets    
Cash and cash equivalents $ 4,910,994 $ 6,289,903
Accounts receivable 104,731 10,082
Gaming accounts receivable 1,446,058 1,021,052
Prepaid expenses 197,953 124,712
Related Party Receivable 849 49,914
Other current assets 182,864 55,700
Total Current Assets 6,843,449 7,551,363
Noncurrent Assets    
Restricted cash 1,404,978 1,560,539
Property, plant and equipment 324,227 354,799
Intangible assets 16,132,375 12,583,457
Goodwill 266,920 262,552
Other assets 10,907
Investment in non-consolidated entities 375,000 275,000
Total Noncurrent Assets 18,514,407 15,036,347
Total Assets 25,357,856 22,587,710
Current Liabilities    
Line of credit - bank 1,000,000 750,000
Accounts payable and accrued liabilities 4,080,575 4,603,608
Gaming accounts payable 2,578,116 1,489,444
Taxes payable 645,591 1,056,430
Advances from stockholders 8,019 39,237
Convertible Debenture, net of discount of $1,755,287 and $4,587,228, respectively 6,376,410 3,942,523
Notes payable, net of discount of $120,853 and $0 1,397,815
Notes payable- related party, net of discount of $80,569 and $0 984,811 318,078
Bank loan payable - current portion 119,195 120,920
Operating lease - liability  
Total Current Liabilities 17,190,532 12,320,240
Notes payable, net of discount of $54,216 244,728
Notes payable- related party 163,152
Bank loan payable 124,670 225,131
Other long term liabilities 204,100 168,707
Total non-current liabilities 736,650 393,838
Total Liabilities 17,927,182 12,714,078
Stockholders' Deficiency    
Preferred Stock, $0.0001 par value, 20,000,000 shares authorized, 0 shares issued and 0 shares outstanding as of June 30, 2018 and December 31, 2017
Common Stock, $0.0001 par value, 160,000,000 shares authorized; 84,116,877 and 75,540,298 shares issued and outstanding as of September 30, 2019 and December 31, 2018 8,412 7,555
Additional - paid in capital 27,213,399 23,956,309
Accumulated other comprehensive income (1,382,160) (1,081,338)
Accumulated deficit (18,408,977) (13,008,894)
Total Stockholders' Equity 7,430,674 9,873,632
Total Liabilities and Stockholders' Equity $ 25,357,856 $ 22,587,710
Consolidated Balance Sheets (Parenthetical) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
STOCKHOLDERS' EQUITY    
Preferred Stock - par value $ 0.0001 $ 0.0001
Preferred stock - authorized 20,000,000 20,000,000
Preferred stock - issued
Preferred stock - outstanding
Common Stock - par value $ 0.0001 $ 0.0001
Common Stock - authorized 160,000,000 80,000,000
Common Stock - issued 84,116,877 75,540,298
Common Stock - outstanding 84,116,877 75,540,298
Convertible debt [Member]    
Debt Discount $ 1,755,287 $ 4,587,228
Note Payable - Current [Member]    
Debt Discount 120,853  
Note Payable [Member]    
Debt Discount 27,506  
Note Payable Related Party - Current [Member]    
Debt Discount 80,569  
Note Payable Related Party [Member]    
Debt Discount $ 18,338  
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Revenue $ 6,755,845 $ 7,823,286 $ 25,127,494 $ 25,239,812
Costs and expenses        
Selling expenses 3,156,446 5,314,436 17,602,950 17,218,036
General and administrative expenses 3,259,195 2,897,835 8,919,962 7,013,563
Total Costs and Expenses 6,415,641 8,212,271 26,522,912 24,231,599
(Loss) Income from Operations 340,204 (388,985) (1,395,418) 1,008,213
Other (Expenses) Income        
Other income 32,864 40,589
Interest expense, net of interest income (1,092,887) (329,618) (3,613,543) (1,592,127)
Imputed interest on related party advances (753) (761)
Gain on litigation settlement 516,120
Loss on debt modification (212,270)
Gain on settlement of liabilities 282,101 246,158
Gain (Loss) on marketable securities 125,000 (2,500) 150,000 (157,000)
Total Other (Expenses) Income (652,922) (332,118) (3,226,796) (1,446,538)
(Loss) Income Before Income Taxes (312,718) (721,103) (4,622,214) (438,325)
Income taxes provision (283,905) (83,356) (777,869) (840,798)
Net Loss (596,623) (804,459) (5,400,083) (1,279,123)
Other Comprehensive Income (Loss)        
Foreign currency translation adjustment (212,009) (490,914) (300,822) (653,788)
Comprehensive Loss $ (808,633) $ (1,294,373) $ (5,700,905) $ (1,932,911)
Loss per common share- basic and diluted $ (0.01) $ (0.01) $ (0.07) $ (0.02)
Weighted average number of common shares outstanding - basic and diluted 81,935,964 74,540,298 79,403,039 75,178,017
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income /( Loss)
Accumulated Deficit
Total
Beginning Balance, Shares at Dec. 31, 2017 74,143,590        
Beginning Balance, Amount at Dec. 31, 2017 $ 7,415 $ 14,254,582 $ (250,327) $ (9,897,620) $ 4,114,050
Cumulative effect of early adoption of ASU 2017-11   287,881   (64,966) 222,915
Restated Beginning Balance, Shares at Dec. 31, 2017 74,143,590        
Restated Beginning Balance, Amount at Dec. 31, 2017 $ 7,415 14,542,463 (250,327) (9,962,586) 4,336,965
Imputed interest on stock advances   1,251     1,251
Common stock issued with debentures, shares 111,000        
Common stock issued with debentures $ 11 55,489     55,500
Beneficial conversion feature of convertible debenture   91,017     91,017
Foreign currency translation adjustment     (64,518)   (64,518)
Net income (loss)       768,677 768,677
Opening balance cumulative effect of early adoption of ASU2017-11   287,881   (64,966) 222,915
ASU 2017-11 adjustments to common stock issued debentures   (10,583)     (10,853)
ASU 2017-11 elimination of derivative liability movement       (254,289) (254,289)
ASU 2017-11 adjustments to the beneficial conversion feature of debentures   (6,780)     (6,780)
Ending Balance, Shares at Mar. 31, 2018 74,254,590        
Ending Balance, Amount at Mar. 31, 2018 $ 7,426 14,672,587 (314,845) (9,448,198) (4,916,970)
Common stock issued with debentures, shares 1,720,220        
Common stock issued with debentures $ 172 1,770,025     1,770,197
Common stock retired on acquisition of Multigioco, shares (2,040,000)        
Common stock retired on acquisition of Multigioco $ (204) (2,260,770)     (2,260,974)
Common stock issued net of stock retired on acquisition of Ulisse, shares 1,404,400        
Common stock issued net of stock retired on acquisition of Ulisse $ 140 5,587,534     5,587,674
Foreign currency translation adjustment     (98,355)   (98,355)
Net income (loss)       (6,487,928) (6,487,928)
Ending Balance as previously stated, Shares at Jun. 30, 2018 75,339,210        
Ending Balance as previously stated, Amount at Jun. 30, 2018 $ 7,534 19,499,128 (413,200) (15,616,871) 3,476,591
Opening balance cumulative effect of early adoption of ASU2017-11   287,881   (64,966) 222,915
ASU 2017-11 adjustments to common stock issued debentures   (1,243,211)     (1,243,211)
ASU 2017-11 elimination of derivative liability movement       5,244,587 5,244,587
ASU 2017-11 adjustments to the beneficial conversion feature of debentures   2,494,552     24,945,552
Fair value of warrants issued   2,951,429     2,951,429
Ending Balance, Shares at Jun. 30, 2018 75,339,210        
Ending Balance, Amount at Jun. 30, 2018 $ 7,534 23,989,779 (413,200) (10,437,250) 13,146,863
Imputed interest on stock advances   584     584
Foreign currency translation adjustment     (490,914)   (490,914)
Net income (loss)       (804,459) (804,459)
Ending Balance, Shares at Sep. 30, 2018 75,339,210        
Ending Balance, Amount at Sep. 30, 2018 $ 7,534 23,990,363 (904,114) (11,241,709) (11,852,074)
Beginning Balance, Shares at Dec. 31, 2018 75,540,298        
Beginning Balance, Amount at Dec. 31, 2018 $ 7,555 23,956,309 (1,081,338) (13,008,894) 9,873,632
Common stock issued with debentures, shares 2,300,487        
Common stock issued with debentures $ 230 919,594     919,824
Common stock issued for the purchase of subsidiaries,shares 522,380        
Common stock issued for the purchase of subsidiaries $ 52 196,731     196,783
Foreign currency translation adjustment     (56,180)   (56,180)
Net income (loss)       (3,105,216) (3,105,216)
Ending Balance, Shares at Mar. 31, 2019 78,363,165        
Ending Balance, Amount at Mar. 31, 2019 $ 7,837 25,072,634 (1,137,518) (16,114,110) 7,828,843
Beginning Balance, Shares at Dec. 31, 2018 75,540,298        
Beginning Balance, Amount at Dec. 31, 2018 $ 7,555 23,956,309 (1,081,338) (13,008,894) 9,873,632
Ending Balance, Shares at Sep. 30, 2019 84,116,877        
Ending Balance, Amount at Sep. 30, 2019 $ 8,412 27,213,399 (1,382,160) (18,408,977) 7,430,674
Beginning Balance, Shares at Mar. 31, 2019 78,363,165        
Beginning Balance, Amount at Mar. 31, 2019 $ 7,837 25,072,634 (1,137,518) (16,114,110) 7,828,843
Common stock issued with debentures, shares 262,276        
Common stock issued with debentures $ 26 104,885     104,911
Common stock issued for the purchase of subsidiaries,shares 722,690        
Common stock issued for the purchase of subsidiaries $ 72 278,464     278,536
Foreign currency translation adjustment     (32,633)   (32,633)
Net income (loss)       (1,698,244) (1,698,244)
Ending Balance, Shares at Jun. 30, 2019 79,348,133        
Ending Balance, Amount at Jun. 30, 2019 $ 7,935 25,455,983 (1,170,151) (17,812,354) 6,481,413
Common stock issued with debentures, shares 1,657,772        
Common stock issued with debentures $ 166 662,943     663,109
Common stock issued for the purchase of subsidiaries,shares 833,210        
Common stock issued for the purchase of subsidiaries $ 83 276,857     276,940
Common stock issued to settle liabilities, shares 2,277,762        
Common stock issued to settle liabilities $ 228 728,656     728,884
Stock based compensation   88,960     88,960
Foreign currency translation adjustment     (212,009)   (212,009)
Net income (loss)       (596,623) (596,632)
Ending Balance, Shares at Sep. 30, 2019 84,116,877        
Ending Balance, Amount at Sep. 30, 2019 $ 8,412 $ 27,213,399 $ (1,382,160) $ (18,408,977) $ 7,430,674
Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash Flows from Operating Activities    
Net loss $ (5,400,083) $ (1,279,123)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 485,351 500,391
Amortization of deferred costs 2,974,439 58,188
Stock based compensation charge 88,960
Non-cash interest 598,656 1,193,434
Loss on debt modification 217,140
Gain on settlement of liabilities (190,610)
Gain on debt conversion (46,426)
Imputed interest on advances from stockholders 1,514
Unrealized loss on trading securities (100,000) 157,000
Recovery of assets (516,120)
Bad debt expense 6,354
Changes in operating assets and liabilities    
Prepaid expenses (69,957) (180,651)
Accounts payable and accrued liabilities 643,411 1,776,266
Accounts receivable (50,218) 98,823
Gaming accounts receivable (487,330) (108,033)
Gaming account liabilities 1,626,021 (242,907)
Taxes payable (372,275) (547,618)
Other current assets (101,594) (94,764)
Other assets (11,239)  
Long term liability (387,523) 72,480
Net Cash (Used in) Provided by Operating Activities (800,417) 1,112,874
Cash Flows from Investing Activities    
Acquisition of property, plant, and equipment, and intangible assets (114,821) (4,487,456)
Decrease (increase) in restricted cash 133,197 (980,427)
Cash received in acquisition of Virtual Generation 46,435
Net Cash Provided by (Used in) Investing Activities 64,811 (5,467,883)
Cash Flows from Financing Activities    
Proceeds from bank credit line 250,000 500,000
Repayment of bank credit line (177,060)
Repayment of bank loan (88,567) (93,532)
Proceeds from convertible debentures and promissory notes, net of repayment 6,883,906
Repayment of promissory notes, related party (213,317)  
Repayment of promissory notes (399,901)  
Loan to related party (11,975) (190,509)
Purchase of treasury stock (2,261,307)
Advances from stockholders, net of repayment 14,227 (406,142)
Net Cash (Used in) Provided by Financing Activities (449,533) 4,255,356
Effect of change in exchange rate (193,770) (561,516)
Net increase (decrease) in cash (1,378,909) (661,169)
Cash - beginning of year 6,289,903 6,469,858
Cash - end of year 4,910,994 5,808,689
Supplemental disclosure of cash flow information:    
Cash paid during the year for: Interest 40,448 20,321
Cash paid during the year for: Income taxes 1,188,707 1,593,645
Supplemental cash flow disclosure for non-cash activities:    
Common shares issued for the acquisition of intangible assets 5,588,088
Common shares issued with debt 582,486
Discount due to warrants issued with debt 2,307,569
Discount due to beneficial conversion feature 2,585,569
Discount due to broker warrants issued with debt 643,860
Reclassification of derivative liabilities to equity and cumulative effect of adoption of ASU 2017-11 222,915
Common shares issued with conversion of debentures 768,020
Common shares issued with purchase of Virtual Generation 549,248
Common shares issued to settle liabilities $ 728,884
Nature of Business
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business

 

1.Nature of Business

 

 

Nature of Business

 

Established in the state of Delaware in 1998, Newgioco Group, Inc. (“Newgioco Group” or the “Company”) is an international, vertically integrated commercial-stage company engaged in various aspects of the leisure gaming industry. The Company is a licensed gaming operator in the regulated Italian leisure betting market offering gaming services, including a variety of lottery, casino gaming and sports betting products through two distribution channels: an online channel and a land-based retail channel. Additionally, the Company is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology updating, servicing and operation with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming account management system and sports book.

 

The Company’s subsidiaries include: Multigioco Srl (“Multigioco”), acquired on August 15, 2014, Rifa Srl (“Rifa”), acquired on January 1, 2015, and Ulisse GmbH (“Ulisse”) and Odissea Betriebsinformatik Beratung GmbH (“Odissea”) which were both acquired on July 1, 2016, Virtual Generation Limited (“VG”) and Naos Holding Limited, acquired on January 30, 2019 and two non-operating subsidiaries Newgioco Group, Inc. based in Canada and Elys Technology Group Limited based in Malta.

 

The Company operates in one line of business that provides certified betting Platform software services to and the operating of leisure betting establishments situated throughout Italy and in 11 other countries. The Company’s operations are carried out through the following three geographically organized groups :

 

  a) an  operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with sub offices for operations administration in Naples and Teramo, Italy and Valetta, Malta;
  b) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and
  c) a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and sub offices in Fort Lauderdale and Boca Raton, Florida a through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.

 

 

Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

  2. Accounting Policies and Estimates

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. The balance sheet at December 31, 2018 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

All amounts referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.

 

 

Basis of Consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. The entities included in these unaudited condensed consolidated financial statements are as follows:

 

Company  Country of Incorporation 

Percentage owned

%

       
Newgioco Group, Inc.  United States – Delaware   Parent 
Newgioco Group, Inc (Canada)  Canada   100 
Ulisse GmbH  Austria   100 
Odissea Betriebsinformatik Beratung GMBH  Austria   100 
Multigioco Srl.  Italy   100 
Rifa Srl.  Italy   100 
Virtual Generation Limited  Malta   100 
Naos Holding Limited  Malta   100 
Elys Technology Group Limited  Malta   100 

 

Currency Translation

 

The Company's subsidiaries operate in Europe with a functional currency of Euro and in Canada with a functional currency of Canadian dollars. In the consolidated financial statements, revenue and expense accounts are translated at the average rates during the period, assets and liabilities are translated at period-end rates and equity accounts are translated at historical rates. 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.

 

Use of Estimates

 

The preparation of the unaudited financial statements in conformity with 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 the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

Loss Contingencies

 

The Company 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 the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial Statements.

 

The Company evaluates, on a monthly basis, developments in its 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 the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial position, results of operations, or cash flows.

 

To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition. The Company has insured and continue to insure against most of these types of claims.

 

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 debentures 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.

 

As a result of the adoption of ASU 2017-11 in the third quarter of 2018, the Company has no derivative financials instruments classified as a liability at September 30, 2019 and December 31, 2018.

 

Business Combinations

 

The Company allocates 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.

 

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 markets 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.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of September 30, 2019 and December 31, 2018.

 

The Company primarily places cash with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of CDN$100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.

 

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent 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 the Company’s 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 $0 and $0 for the three months ended September 30, 2019 and 2018, respectively, and $0 and $0 bad debt expense for the nine months ended September 30, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

Gaming Accounts Payable

 

Gaming accounts payable 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.

 

Long-Lived Assets

 

The Company evaluates the carrying value of its 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.

 

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:

 

Description   Useful Life
(in years)
     
Office equipment   5
Office furniture   8 1/3
Signs and displays   5

 

 

Intangible Assets

 

Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.

 

Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

 

The range of the estimated useful lives is as follows:

 

Description   Useful Life
(in years)
     
Betting Platform Software   15
Ulisse Bookmaker License  
Multigioco and Rifa ADM Licenses   1.5 - 7
VG Licenses  
Location contracts   5 - 7
Customer relationships   10 - 15
Trademarks/names   14
Websites   5
     

 

The Ulisse Bookmaker License and the VG Licenses have no expiration date and are therefore not amortized.

 

Goodwill

 

The Company allocates 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.

 

The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during the three and nine months ended September 30, 2019 or September 30, 2018. $4,593 of goodwill was recorded as part of an acquisition during the nine months ended September 30, 2019.

 

 

Income Taxes

 

The Company uses 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. The Company has 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 2015 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

 

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company adopted ASC Topic 606 on January 1, 2018 and has determined that the standard does not have a material impact on the nature and timing of revenues recognized.

 

The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. 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 which is representative of the point in time at which the Company has satisfied its performance obligation. 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 the Platform include license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been 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 are recognized on an accrual basis as earned.

 

Stock-Based Compensation

 

The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.

 

Stock-based compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

 

 

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 and foreign currency translation adjustments.

 

Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 reflects the potential dilution of securities that could share in the earnings of an entity and include warrants granted and convertible debentures.

 

Related Parties

 

Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this updated guidance is to improve the effectiveness and disclosures in the Notes to the financial statements. The ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; removes the policy for timing of transfers between levels; and removes the disclosure related to the valuation process for Level 3 fair value measurements. The ASU also modifies existing disclosure requirements which relate to the disclosure for investments in certain entities which calculate net asset value and clarifies the disclosure about uncertainty in the measurements as of the reporting date. For all entities, the effective date for this guidance is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The main objective of this guidance is to simplify the accounting for goodwill impairment by requiring that impairment charges be based upon the first step in the current two-step impairment test under ASC 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This guidance eliminates the requirement to calculate a goodwill impairment charge using Step 2. This guidance does not change the guidance on completing Step 1 of the goodwill impairment test. Under this guidance, an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The guidance in the ASU will be applied prospectively and is effective for the Company for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements.

  

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently not in compliance with ASU 2016-02 as it is continuing its evaluation of the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements and related disclosures.

 

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on current or future earnings or operations.

 

Comparatives

 

Certain items in prior periods were reclassified to conform to the current period presentation. These reclassifications had no impact on net loss or comprehensive loss.

 

Reclassification of prior period results
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Reclassification of prior period results

  3. Reclassification of prior period results

 

The Company adopted ASU 2017-11 (“ASU 2017-11”) – Accounting for certain convertible debentures and warrants with down round features, in the prior year.

 

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 Company determined that ASU 2017-11 is applicable to the Company and the down round feature of the convertible debentures and warrants issued during the period February 2018 to June 2018, no longer qualified as derivative liabilities.

 

The amendments in this update were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, however early adoption was permitted for all entities, including adoption in an interim period. The Company early adopted ASU 2017-11 in its September 30, 2018 quarterly report.

 

The adjustments were reflected as of January 1, 2018, the beginning of the fiscal year.

 

The adjustments made by the Company to its opening balance sheet as of January 1, 2018 were as follows:

 

    Convertible Debentures   Derivative Liability   Additional Paid-in Capital   Accumulated Deficit
Balance as of January 1, 2018   $ 1,148,107     $ 222,915     $ 14,254,582     $ (9,897,620 )
Reclassified derivative liabilities and cumulative effect of adoption     —         (222,915 )     287,881       (64,966 )
Balance as of January 1, 2018, restated   $ 1,148,107     $ —       $ 14,542,463     $ (9,962,586 )

 

During the three and nine months ended September 30, 2018, the Company issued convertible debenture units to investors amounting to $3,268,000 and CDN$7,162,000 (approximately $6,502,000). Each unit consisting of a convertible debenture, common shares of stock and a warrant, refer to Note 9 below.

 

Due to the modified retrospective adoption allowed under ASU 2017-11, the Company eliminated the derivative liability at the date of the issuance of the convertible debentures and warrants and credited additional paid in capital and debited convertible debentures discount with $5,536,301 on the grant date of the convertible debentures and warrants. The $5,536,301 was calculated using a Black-Scholes valuation model to measure and allocate the following components of the convertible debenture units; (a) the beneficial conversion feature of the convertible debentures; (b) the value of the warrants issued with the units; and the brokers warrants related to the issuance of the convertible debenture units, after applying the relative fair value method to the derived Black-Scholes valuations. The common shares of stock issued as part of the convertible debenture units were valued at the grant date at closing market prices at $582,486.

 

 

The Company eliminated the derivative liability of $12,494,727 reflected on the consolidated balance sheet as of September 30, 2018 and the net derivative liability movements through the consolidated statements of comprehensive loss of $5,498,876 and $5,244,587 for the three and nine months ended September 30, 2018 and the net derivative liability movement of $5,244,587 from the statement of cash flows for the nine months ended September 30, 2018.

 

The Company had originally calculated the mark-to-market derivative liability on the grant date of the warrants and brokers warrants and the convertible debentures as an additional charge of $23,513,240 and reflected this loss together with the loss realized on the modification of certain convertible debentures and warrants of $212,270 as a loss on debt issuance. The $23,513,240 related to the mark-to-market derivative liability movement at the grant date was reclassified as a mark-to-market movement in derivative liabilities for the three months and nine months ended September 30, 2018, with a net loss on debt modification of $212,270.

 

The reconciliation of the unaudited consolidated statement of comprehensive loss for the three months ended September 30, 2018 is as follows:

 

   As Previously reported  Effect of adoption of ASU 2017-11  As Reclassified
          
Revenue  $7,823,286   $—     $7,823,286 
                
Costs and Expenses               
Selling expenses   5,314,436    —      5,314,436 
General and administrative expenses   2,897,835    —      2,897,835 
Total Costs and Expenses   8,212,271    —      8,212,271 
                
Income from Operations   (388,985)   —      (388,985)
                
Other (Expenses) Income               
Interest expense, net of interest income   (329,618)   —      (329,618)
Changes in fair value of derivative liabilities   5,244,587    (5,244,587)   —   
Imputed interest on related party advances   —      —      —   
Gain on litigation settlement   —      —      —   
Loss on issuance of debt   —      —      —   
Loss on debt modification   —      —      —   
Loss on Marketable Securities   (2,500)   —      (2,500)
Total Other (Expenses) Income   4,912,469    (5,244,587)   (332,118)
                
Income (Loss) Before Income Taxes   4,523,484    (5,244,587)   (721,103)
Income tax provision   (83,356)   —      (83,356)
Net Income (Loss)   4,440,128    (5,244,587)   (804,459)
                
Other Comprehensive Loss               
Foreign currency translation adjustment   (490,915)   —      (490,915)
                
Comprehensive Income (Loss)  $3,949,213   $(5,244,587)  $(1,295,374)
                
Loss per common share – basic and diluted  $0.06   $(0.07)  $(0.01)
Weighted average number of common shares outstanding – basic and diluted   74,540,298    74,540,298    74,540,298 

 

Acquisition betting software technology; offline and land-based gaming assets
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisition of betting software technology; offline and land-based gaming assets

 

4.Acquisition of betting software technology; offline and land-based gaming assets

 

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 a 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.

 

Pursuant to the Ulisse SPA, the purchase price was subject to an adjustment equal to two times earnings before income taxes calculated on a pro rata basis from the closing date upon completion of the license tender auction held by the Italian gaming regulator, Agenzia delle Dogane e dei Monopoli (“ADM”). The sellers were also permitted to exercise the option to resell to the Company 50% of the shares of common stock (or 1,665,600 shares) issued in consideration for the purchase price at a fixed price of $0.50 per share (the “Ulisse Put Option”).

 

On May 31, 2018, the Company and Ulisse mutually agreed to exercise the Ulisse Put Option in lieu of completion of the ADM license tender auction. The Company repurchased and retired the shares issued in June 2016 with a purchase price adjustment to 10 million Euros (approximately $11.7 million). The purchase price adjustment was paid half in cash of €5 million (approximately $5.85 million) and the Company issued 4,735,600 shares to the sellers on May 31, 2018 to settle the balance of the purchase price adjustment in shares of common stock at the closing price of $1.18 per share on May 31, 2018

 

Multigioco Acquisition

 

On May 31, 2018, the Company and Multigioco mutually agreed to exercise the option to repurchase the shares issued to the shareholders of Multigioco at the closing of the acquisition of Multigioco on August 15, 2014 (“Multigioco Put Option”). The Company repurchased and retired the balance of 2,040,000 shares issued to the Multigioco sellers in exchange for €510,000 (approximately $595,000).

 

Virtual Generation Limited (“VG”) Acquisition

 

On January 30, 2019, the Company entered into a Share Exchange Agreement (“VG SPA”), with the shareholders of Virtual Generation (“VG”) organized under the laws of Republic of Malta (the “Sellers”) and acquired all of the issued and outstanding ordinary shares of VG., together with all the ordinary shares of Naos Holding Limited, a company organized under the laws of Republic of Malta (“Naos”) that owned 3,999 of the 4,000 issued and outstanding ordinary shares of VG. VG owns and has developed a virtual gaming software platform. Pursuant to the agreement, the Company issued 522,380 shares of common stock in consideration for 100% of the issued and outstanding shares of VG.

 

Pursuant to the Purchase Agreement, on the Closing Date, the Company agreed to pay the Sellers the previously agreed to consideration of €4,000,000 ($4,576,352) in consideration for all the ordinary shares of VG and Naos, on the Closing Date as follows:

 

  (i) a cash payment of €108,000;
  (ii) the issuance of shares of the Company’s common stock valued at €89,000; and
  (iii)

the delivery of a non-interest bearing promissory note of €3,803,000, providing for the payment of:

(a)     an aggregate of €2,392,000 in cash in 23 equal and consecutive monthly instalments of €104,000 with the first such payment due and payable on the date that is one month after the Closing Date; and

(b)    an aggregate of €1,411,000 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €83,000 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

     
       

  

In terms of the agreement, the purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed, as follows: 

   Amount
    
Purchase consideration, net of discount of $382,778  $4,193,374 
      
Fair value of assets acquired     
Cash  $47,268 
Current assets   221,287 
Property, Plant and Equipment   41,473 
 Intangible assets   4,000,000 
    4,310,028 
Less: liabilities assumed   (121,247)
Total identifiable assets less liabilities assumed   4,188,781 
Excess purchase price allocated to goodwill  $4,593 

 

Intangible assets will be amortized over their remaining useful life over a period of 1 to 3 years.

 

The €3,803,000 promissory note was recorded as a liability owing to related parties of €1,521,000 (Note 13) and to third parties of €2,281,800 (Note 9).

Restricted Cash
9 Months Ended
Sep. 30, 2019
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 the Company’s operating line of credit with Intesa Sanpaolo Bank as well as Wirecard Bank as a security deposit for Ulisse betting operations. In addition, the Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a 1,000,000 line of credit. See Note 8. 

Intangible Assets
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

 

6.Intangible Assets

 

Intangible assets consist of the following:

 

 

Description

  September 30, 2019   December 31, 2018
         
Betting Platform Software   $ 1,685,371     $ 1,685,371  
Ulisse Bookmaker License     9,724,244       9,724,244  
Multigioco and Rifa ADM Licenses     970,422       970,422  
Virtual Generation Licenses     4,000,000       —    
Location contracts     1,000,000       1,000,000  
Customer relationships     870,927       870,927  
Trademarks/names     110,000       110,000  
Websites     40,000       40,000  
      18,400,964       14,400,964  
Accumulated amortization     (2,268,589 )     (1,817,507 )
    $ 16,132,375     $ 12,583,457  

 

 

 

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 Company recorded $129,442 and $112,368 in amortization expense for the three months ended September 30, 2019 and 2018, respectively, and $386,125 and $337,120 for the nine months ended September 30, 2019 and 2018, respectively.

 

Licenses obtained by the Company in the acquisitions of Multigioco and Rifa include a Gioco a Distanza (“GAD”) online license as well as a Bersani and Monti land-based licenses issued by the Italian gaming regulator (ADM) to Multigioco and Rifa, respectively, as well as an Austrian Bookmaker License through the acquisition of Ulisse.

 

The Company believes that the carrying amounts of its intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets could be impaired.

Investment in Non-consolidated Entities
9 Months Ended
Sep. 30, 2019
Investments, All Other Investments [Abstract]  
Investment in Non-consolidated Entities
7. Investment in Non-consolidated Entities

 

Investments in non-consolidated entities consists of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized into earnings in accordance with ASU 2016-1, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”

 

On September 30, 2019, the shares of Zoompass were last quoted at $0.15 per share on the OTC market, resulting in an unrealized gain recorded to earnings related to these securities of $125,000 and $100,000 for the three and nine months ended September 30, 2019, respectively.

Line of Credit-Bank
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Line of Credit-Bank
  8. Line of Credit - Bank

 

The Company currently maintains an operating line of credit for a maximum amount of €300 ,000 (approximately $327,000) for Multigioco and €50,000 (approximately $54,500) 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.

 

In addition, the Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit, see Note 5.

Convertible Debentures
9 Months Ended
Sep. 30, 2019
Notes to Financial Statements  
Convertible Debentures

9.Convertible Debentures

 

On February 26, 2018, the Company issued debenture units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 250 shares of the Company’s common stock at an exercise price equal to the lessor of $0.625 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February 25, 2020, and (iii) 160 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 167,500 shares of the Company’s common stock and 111,000 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private Placement debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $0.40 per share and the warrants can be exercised at a price equal to $0.50 per share.

 

In April 2018, the Company issued debenture units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 250 shares of the Company’s common stock at an exercise price equal to the lessor of $0.625 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 160 shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of CDN $135,000 ($105,200) debentures and received warrants to purchase up to 33,750 shares of the Company’s common stock and 21,600 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private Placement debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $0.40 per share and the warrants can be exercised at a price equal to $0.50 per share

 

On April 19, 2018, the Company re-issued debenture units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April 19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 250 shares of the Company’s common stock at an exercise price equal to the lessor of $0.625 or 125% of the proposed initial Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 160 shares of restricted common stock. The investors in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants to purchase up to 359,000 shares of the Company’s common stock and 229,760 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $0.40 per share and the warrants can be exercised at a price equal to $0.50 per share.

 

On May 11, 2018, the Company issued debenture units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 250 shares of the Company’s common stock at an exercise price equal to the lessor of $0.625 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii) 160 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 32,750 shares of the Company’s common stock and 20,960 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private Placement plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $0.40 per share and the warrants can be exercised at a price equal to $0.50 per share.

 

On May 31, 2018, the Company closed a private placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations. Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of $1,000 (the “U.S. Debentures”), (ii) 208 shares of our common stock and (ii) warrants to purchase up to 1082.25 warrants shares of our common stock (the “U.S. Warrants”). Each unit sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”), (ii) 160 shares of our common stock and (ii) warrants to purchase up to 832.50 shares of our common stock (the “Canadian Warrants” and together with the U.S. Warrants, the “May Warrants”).

 

The May 31, 2018 Warrants are exercisable at an exercise price of $0.50 per share and expire on May 31, 2020.

 

The warrants issued in terms of the convertible debenture agreements were valued using a Black Scholes valuation model and recorded as a discount to the convertible debentures amortized over the expected life of the convertible debentures.

 

As of September 30, 2019 and December 31, 2018, the Company has outstanding, US Dollar convertible debentures of $2,478,000 and $3,268,000, respectively and Canadian Dollar denominated Convertible debentures of CDN$6,191,165 and CDN$6,801,165, respectively.

 

During the nine months ended September 30, 2019, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN$610,000, including interest thereon of CDN$49,131and investors in US Dollar convertible debentures converted the aggregate principal amount of $790,000, including interest thereon of $74,472, into 3,520,537 shares of common stock.

   

The Aggregate convertible debentures outstanding consists of the following:

 

 

Description   September 30, 2019
     
Principal Outstanding    
Opening balance   $ 8,529,021  
Conversion to equity     (1,516,169 )
Foreign exchange movements     140,594  
      7,153,446  
Accrued Interest        
Opening balance     528,141  
Interest expense     572,826  
Conversion to equity     (126,443 )
Foreign exchange movements     3,727  
      978,251  
Debenture Discount        
Opening balance     (4,588,215 )
Amortization     2,832,928  
      (1,755,287 )
Convertible Debentures, net   $ 6,376,410  

Notes Payable
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Notes Payable

 

10.Notes Payable

 

In terms of the acquisition of Virtual Generation Limited on January 31, 2019, disclosed in Note 4 above, the Company issued a non-interest bearing promissory note of €3,803,000 owing to both related parties and non-related parties. The value of the promissory note payable related parties was €1,521,200 and to non-related parties was €2,281,800.

 

The promissory note payable to non-related parties is to be settled as follows:

(a)an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €104,000 with the first such payment due and payable on the date that is one month after the Closing Date; and
(b)an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €83,000 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

The future payments on the promissory note was discounted to present value using the Company’s average cost of funding of 10%. The discount is being amortized over the repayment period of the promissory note using the effective interest rate method.

 

The movement on notes payable consists of the following:

 

Description   September 30, 2019
Principal Outstanding    
Promissory note due to non-related parties   $ 2,745,811  
Settled by the issuance of common shares     (451,356 )
Repayment in cash     (399,865 )
Foreign exchange movements     (103,687 )
      1,790,903  
Present value discount on future payments        
Present value discount     (242,089 )
Amortization     84,906  
Foreign exchange movements     8,823  
      (148,360 )
Notes payable, net   $ 1,642,543  
         
Disclosed as follows:        
Current liability   $ 1,397,815  
Long term liability     244,728  
Notes payable, net   $ 1,642,543  

 

 

 

Bank Loan Payable
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Bank Loan Payable
11.Bank Loan Payable

 

In September 2016, the Company obtained a loan of €500,000 (approximately $545,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan has an underlying interest rate of 4.5 points above the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017

 

The Company made payments of €87,840 (approximately $98,700) for the nine months ended September 30, 2019 which included principal of approximately €78,802 (approximately $88,566) and interest of €9,038 approximately $10,150) for the nine months ended September 30, 2019.

Other Long Term Liabilities
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Other Long Term Liabilities
12.Other Long-term Liabilities

 

Other long term liabilities represents the Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement.

Related party
9 Months Ended
Sep. 30, 2019
Related Party Transactions [Abstract]  
Relateded party

  13. Related Parties

 

Notes Payable – Related Party

 

The Company had three promissory notes entered into in 2015 and 2016 with a related party with an aggregate principal amount outstanding of $318,078. The promissory notes bore interest at 12% per annum and were due on demand.

 

On September 4, 2019, in terms of an agreement entered into with the note holder, the promissory notes amounting to $318,078 together with interest thereon of $139,383, totaling $457,461 were exchanged for 1,143,652 shares of common stock.

 

In terms of the acquisition of Virtual Generation Limited on January 31, 2019, disclosed in Note 4 above, the Company issued a non-interest bearing promissory note in the principal amount of €3,803,000 owing to both related parties and non-related parties. The value of the promissory note payable to non-related parties was €2,281,800 and to related parties was €1,521,200.

 

The promissory note is to be settled as follows:

 

  (a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €104,000 with the first such payment due and payable on the date that is one month after the Closing Date; and
  (b) an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €83,000 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

 

 

The future payments on the promissory note was discounted to present value using the Company’s average cost of funding of 10%. The discount is being amortized over the repayment period of the promissory note using the effective interest rate method.

 

The movement on notes payable consists of the following:

 

Description   September 30, 2019
     
Principal Outstanding    
Opening balance   $ 318,078  
Promissory note due to non-related parties     1,830,541  
Settled by the issuance of common shares     (618,982 )
Repayment in cash     (213,353 )
Foreign exchange movements     (69,414 )
      1,246,870  
Accrued Interest        
Opening balance     113,553  
Interest expense     25,830  
Settled by the issuance of common shares     (139,383 )
      -  
Present value discount on future payments        
Present value discount     (161,393 )
Amortization     56,604  
Foreign exchange movements     5,882  
      (98,907 )
Notes payable – Related Party, net   $ 1,147,963  
         
Disclosed as follows:        
Current liability   $ 984,811  
Long term liability     163,152  
Notes payable – Related Party, net   $ 1,147,963  

 

Advances from Stockholders

 

Advances from stockholders represent non-interest-bearing loans that are due on demand.

 

Advances from stockholders are as follows:

 

    September 30, 2019   December 31, 2018
                 
Gold Street Capital Corp.   $ 8,019     $ 39,237  

 

 

 

Amounts due to Gold Street Capital Corp., the major stockholder of Newgioco Group, are for reimbursement of expenses. During the three and nine months ended September 30, 2018, the Company paid management fees of $36,000 and $72,000 to Gold Street Capital Corp and no management fees during the three and nine months ended September 30, 2019, respectively.

 

During the nine months ended September 30, 2018, the Company paid management fees of approximately $6,000 to our VP Technology and director Luca Pasquini.

Stockholders Equity
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stockholders Equity

  14. Stockholders’ Equity

 

The Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation Limited, as disclosed in Note 4 above.

 

  ·           On January 31, 2019, 259,600 shares of common stock valued at $101,763;
  ·           On March 1, 2019, 262,780 shares of common stock valued at $101,249;
  ·           On April 1, 2019, 239,800 shares of common stock valued at $86,328;
  ·           On May 1, 2019, 264,840 shares of common stock valued at $93,018;
  ·           On June 1, 2019, 218,050 shares of common stock valued at $92,961;
  ·           On July 1, 2019, 286,010 shares of common stock valued at $93,875;
  ·           On August 1, 2019, 280,380 shares of common stock valued at $91,810;
  ·           On September 1, 2019, 266,820 shares of common stock valued at $91,255.

 

For the nine months ended September 30, 2019, the Company issued a total of 3,520,537 shares of common stock, valued at $768,020, upon the conversion of convertible debentures into equity (Note 9).

 

On April 22, 2019, the Company issued 112,665 shares of common stock, valued at $45,066, to certain convertible debenture holders as an incentive for them to transfer their convertible debentures to another investor.

 

Between September 4, 2019 and September 17,2019, the Company issued 2,277,762 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461 and other liabilities amounting to $553,525.

 

Warrants
9 Months Ended
Sep. 30, 2019
Notes to Financial Statements  
Warrants

  15. Warrants

 

In connection with the private placement agreements entered into with accredited investors in the first and second quarter of 2018, for each $1,000 debenture unit the Company issued two-year warrants to purchase up to 1082.25 shares of the Company’s common stock and for each CDN $1,000 debenture unit the Company issued two-year warrants to purchase up to 832.50 shares of the Company’s common stock at an exercise price of $0.50 per share.

 

A summary of all of the Company’s warrant activity during the period January 1, 2018 to September 30, 2019 is as follows:

 

    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2018     612,528     $ 0.54     $ 0.54  
Granted     8,767,064       0.50       0.50  
Forfeited/cancelled     (216,000 )     0.63       (0.63 )
Exercised     (326,088 )     0.58       0.58  
Expired     (124,440 )     0.58       0.58  
Outstanding December 31, 2018     8,713,064     $ 0.50       0.50  
Granted                  
Forfeited/cancelled                  
Exercised                  
Outstanding September 30, 2019     8,713,064     $ 0.50     $ 0.50  

 

The following tables summarize information about warrants outstanding as of September 30, 2019:

 

    Warrants outstanding   Warrants exercisable
  Exercise price       Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$ 0.50       8,713,064       0.90     $ 0.50       8,713,064     $ 0.50  

 

Stock Options
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stock Options

  16. Stock options

 

In September 2018, the Company’s stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 9,200,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. No awards were granted under the 2018 Equity Incentive Plan as of December 31, 2018. During July 2019, the Company issued an aggregate of 762,500 options to purchase common stock, of which options to purchase 200,000 shares of common stock were issued to its Chief Financial Officer, options to purchase 315,000 shares of common stock were issued to its Chief Executive Officer and options to purchase 247,500 shares of common stock were issued to directors. During August 2019, the Company issued an aggregate of 1,200,000 options to purchase shares of common stock of which options to purchase 200,000 shares of common stock were issued to each of Michele Ciavarella, its Chief Executive Officer, Alessandro Marcelli, its Vice President of Operations, Luca Pasquini, its Vice President of Technology, Gabriele Peroni, its Vice President Business Development, Franco Salvagni, its Vice President of Land-based Operations and Beniamino Gianfelici, its Vice President Regulatory Affairs As of September 10, 2019, there was an aggregate of 1,962,500 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 7,237,500 reserved for future grants.

 

The options awarded during the three and nine months ended September 30, 2019 were valued using a Black-Scholes option pricing model.

 

The following assumptions were used in the Black-Scholes model:

 

   

Nine months ended

September 30,

2019

 
Exercise price   $ 0.34 to 0.37  
Risk free interest rate     1.50 to 2.04 %
Expected life of options     7 to 10 years  
Expected volatility of underlying stock     237.4 to 247.9 %
Expected dividend rate     0 %

 

A summary of all of the Company’s option activity during the period January 1, 2018 to September 30, 2019 is as follows:

 

   Number of shares  Exercise price per share  Weighted average exercise price
          
Granted   1,962,500    $0.34 to $0.37   $0.35 
Forfeited/cancelled   —      —      —   
Exercised   —      —      —   
Outstanding September 30, 2019   1,962,500    $0.34 to $0.37   $0.35 

 

The following tables summarize information about stock options outstanding as of September 30, 2019:

 

      Options outstanding     Options exercisable  
Exercise price     Number of shares    

Weighted

average

remaining years

   

Weighted

Average

exercise price

    Number of shares    

Weighted

average

exercise price

 
                                             
$ 0.34       200,000       6.75               -          
$ 0.35       1,175,000       9.92               25,000          
$ 0.37       562,500       9.77               146.250          
          1,962,500       9.55     $ 0.35       171,250     $ 0.37  

 

The weighted-average grant-date fair values of options granted during the nine months ended September 30, 2019 was $701,957 ($0.36 per share). As of September 30, 2019, there were unvested options to purchase 1,791,250 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $612,997 which is expected to be recognized over a period of 45 months.

Revenues
9 Months Ended
Sep. 30, 2019
Revenues [Abstract]  
Revenues

 

  17. Revenues

 

The following table represents disaggregated revenues from our gaming operations for the three and nine months ended September 30, 2019 and 2018. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and Service Revenues is revenue invoiced for our ELYS software service and royalties invoiced for the sale of virtual products.

 

    Three Months Ended   Nine Months Ended
    September 30, 2019   September 30, 2018   September 30, 2019   September 30, 2018
Turnover                
Turnover web-based   $ 46,455,077     $ 52,062,617     $ 221,678,726     $ 153,154,375  
Turnover land-based     69,454,078       35,807,178       130,471,298       125,314,730  
Total Turnover     115,909,155       87,869,795       352,150,024       278,469,105  
                                 
Winnings/Payouts                                
Winnings web-based     46,114,283       47,299,439       210,234,778       144,605,117  
Winnings land-based     62,107,751       31,993,069       113,663,329       106,504,717  
Total Winnings/payouts     108,222,034       79,292,508       323,898,107       251,109,834  
                                 
Gross Gaming Revenues     7,687,121       8,577,287       28,251,917       27,359,271  
                                 
Less: ADM Gaming Taxes     1,097,725       803,407       3,464,464       2,369,256  
Net Gaming Revenues     6,589,396       7,773,880       24,787,453       24,990,015  
Add: Commission Revenues     75,199       5,964       137,631       123,117  
Add: Service Revenues     91,250       43,442       202,410       126,680  
Total Revenues   $ 6,755,845     $ 7,823,286     $ 25,127,494     $ 25,239,812  
                                 

 

Net Loss per Common Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Net Loss per Common Share
18.Net Loss per Common Share

 

Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares as determined above, plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” warrants using the treasury stock method and the inclusion of all convertible securities, including convertible debentures, assuming these securities were converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.

 

For the three months and nine months ended September 30, 2019 and 2018, the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the result of the computation was anti-dilutive:

 

Description  Three and Nine Months ended September 30, 2019  Three and Nine Months ended September 30, 2018
       
Options   1,962,500    —   
Warrants   8,713,064    8,713,064 
Convertible debentures   20,329,244    22,854,109 
    31,004,808    31,567,173 

 

 

 

 

 

Subsequent events
9 Months Ended
Sep. 30, 2019
Subsequent Events [Abstract]  
Subsequent events
19. Subsequent Events

 

Subsequent to the period covered by this report, the principal amount of $100,000 and CDN $1,193,965 (approximately $898,340) of outstanding convertible debentures plus accrued interest was presented to the Company for conversion into approximately 2,951,935 shares of common stock.

 

Other than disclosed above, the Company has evaluated subsequent events through the date the financial statements were issued and did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.

Nature of Business (Policies)
9 Months Ended
Sep. 30, 2019
Nature Of Business  
Nature of Business

Nature of Business

 

Established in the state of Delaware in 1998, Newgioco Group, Inc. (“Newgioco Group” or the “Company”) is an international, vertically integrated commercial-stage company engaged in various aspects of the leisure gaming industry. The Company is a licensed gaming operator in the regulated Italian leisure betting market offering gaming services, including a variety of lottery, casino gaming and sports betting products through two distribution channels: an online channel and a land-based retail channel. Additionally, the Company is a global gaming technology company (known as a “Provider”), which owns and operates a betting software designed with a unique “distributed model” (“shop-client”) software architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology updating, servicing and operation with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built-in player gaming account management system and sports book.

 

The Company’s subsidiaries include: Multigioco Srl (“Multigioco”), acquired on August 15, 2014, Rifa Srl (“Rifa”), acquired on January 1, 2015, and Ulisse GmbH (“Ulisse”) and Odissea Betriebsinformatik Beratung GmbH (“Odissea”) which were both acquired on July 1, 2016, Virtual Generation Limited (“VG”) and Naos Holding Limited, acquired on January 30, 2019 and two non-operating subsidiaries Newgioco Group, Inc. based in Canada and Elys Technology Group Limited based in Malta.

 

The Company operates in one line of business that provides certified betting Platform software services to and the operating of leisure betting establishments situated throughout Italy and in 11 other countries. The Company’s operations are carried out through the following three geographically organized groups :

 

  a) an  operational group is based in Europe and maintains administrative offices headquartered in Rome, Italy with sub offices for operations administration in Naples and Teramo, Italy and Valetta, Malta;
  b) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and
  c) a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and sub offices in Fort Lauderdale and Boca Raton, Florida a through which we carry-out corporate activities, handle day-to-day reporting and U.S. development planning, and through which various independent contractors and vendors are engaged.

 

Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. The balance sheet at December 31, 2018 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

All amounts referred to in the Notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.

Basis of Consolidation

Basis of Consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. The entities included in these unaudited condensed consolidated financial statements are as follows:

 

Company  Country of Incorporation 

Percentage owned

%

       
Newgioco Group, Inc.  United States – Delaware   Parent 
Newgioco Group, Inc (Canada)  Canada   100 
Ulisse GmbH  Austria   100 
Odissea Betriebsinformatik Beratung GMBH  Austria   100 
Multigioco Srl.  Italy   100 
Rifa Srl.  Italy   100 
Virtual Generation Limited  Malta   100 
Naos Holding Limited  Malta   100 
Elys Technology Group Limited  Malta   100 

 

Currency Translation

Currency Translation

 

The Company's subsidiaries operate in Europe with a functional currency of Euro and in Canada with a functional currency of Canadian dollars. In the consolidated financial statements, revenue and expense accounts are translated at the average rates during the period, assets and liabilities are translated at period-end rates and equity accounts are translated at historical rates. 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.

Use of Estimates

Use of Estimates

 

The preparation of the unaudited financial statements in conformity with 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 the Company’s industry and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from the Company’s estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

Loss Contingencies

Loss Contingencies

 

The Company 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 the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the Consolidated Financial Statements.

 

The Company evaluates, on a monthly basis, developments in its 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 the Company’s estimates and assumptions change or prove to have been incorrect, it could have a material impact on its business, consolidated financial position, results of operations, or cash flows.

 

To date, none of these types of litigation matters, most of which are typically covered by insurance, has had a material impact on the Company’s operations or financial condition. The Company has insured and continue to insure against most of these types of claims.

Derivative Financial Instruments

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 debentures 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.

 

As a result of the adoption of ASU 2017-11 in the third quarter of 2018, the Company has no derivative financials instruments classified as a liability at September 30, 2019 and December 31, 2018.

Business Combinations

Business Combinations

 

The Company allocates 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.

Fair Value Measurements

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 markets 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.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of September 30, 2019 and December 31, 2018.

 

The Company primarily places cash with high-credit quality financial institutions located in the United States which are insured by the Federal Deposit Insurance Corporation up to a limit of $250,000 per institution, in Canada which are insured by the Canadian Deposit Insurance Corporation up to a limit of CDN$100,000 per institution, in Italy which is insured by the Italian deposit guarantee fund Fondo Interbancario di Tutela dei Depositi (FITD) up to a limit of €100,000 per institution, and in Germany which is a member of the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken) up to a limit of €100,000 per institution.

Gaming Accounts Receivable

Gaming Accounts Receivable

 

Gaming accounts receivable represent 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 the Company’s 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 $0 and $0 for the three months ended September 30, 2019 and 2018, respectively, and $0 and $0 bad debt expense for the nine months ended September 30, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

Gaming Accounts Payable

Gaming Accounts Payable

 

Gaming accounts payable 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.

Long-Lived Assets

Long-Lived Assets

 

The Company evaluates the carrying value of it’s 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.

Property, Plant and Equipment

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:

 

Description Useful Life (in years)
   
Office equipment 5
Office furniture 8 1/3
Signs and displays 5

 

 

 

Intangible Assets

Intangible Assets

Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.

 

Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

 

The range of the estimated useful lives is as follows:

 

Description Useful Life (in years)
   
Betting Platform Software 15
Ulisse Bookmaker License
Multigioco and Rifa ADM Licenses 1.5 - 7
VG Licenses
Location contracts 5 - 7
Customer relationships 10 - 15
Trademarks/names 14
Websites 5
   

 

The Ulisse Bookmaker License and the VG Licenses have no expiration date and are therefore not amortized.

Goodwill

Goodwill

 

The Company allocates 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.


The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during the three and nine months ended September 30, 2019 or September 30, 2018. $4,593 of goodwill was recorded as part of an acquisition during the nine months ended September 30, 2019.

Income Taxes

Income Taxes

 

The Company uses 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. The company has 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 2015 forward, are open and subject to examination, while in Austria companies are open and subject to inspection for five years and ten years for inspection of serious infractions. In the United States and Canada, tax years beginning 2015 forward, are subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

Revenue Recognition

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company adopted ASC Topic 606 on January 1, 2018 and has determined that the standard does not have a material impact on the nature and timing of revenues recognized.

 

The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. 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 which is representative of the point in time at which the Company has satisfied its performance obligation. 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 the Platform include license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been 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 are recognized on an accrual basis as earned.

Stock Based Compensation

Stock-Based Compensation

 

The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the Company records expense related to Restricted Stock Units (“RSU’s”) granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.

 

Stock-based compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

Comprehensive Income (Loss)

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 and; foreign currency translation adjustments.

Earnings Per Share

Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 reflects the potential dilution of securities that could share in the earnings of an entity and include warrants granted and convertible debentures.

 

Related Parties

Related Parties

 

Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Recent Accounting Pronouncements Not Yet Adopted

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this updated guidance is to improve the effectiveness and disclosures in the Notes to the financial statements. The ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; removes the policy for timing of transfers between levels; and removes the disclosure related to the valuation process for Level 3 fair value measurements. The ASU also modifies existing disclosure requirements which relate to the disclosure for investments in certain entities which calculate net asset value and clarifies the disclosure about uncertainty in the measurements as of the reporting date. For all entities, the effective date for this guidance is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The main objective of this guidance is to simplify the accounting for goodwill impairment by requiring that impairment charges be based upon the first step in the current two-step impairment test under ASC 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This guidance eliminates the requirement to calculate a goodwill impairment charge using Step 2. This guidance does not change the guidance on completing Step 1 of the goodwill impairment test. Under this guidance, an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The guidance in the ASU will be applied prospectively and is effective for the Company for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently not in compliance with ASU 2016-02 as it is continuing its evaluation of the impact of its pending adoption of ASU 2016-02 on our consolidated financial statements. The  adoption of this guidance is not expected to have a material impact on the Company’s financial statements and related disclosures.

   

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on current or future earnings or operations.

Comparatives

Comparatives

 

Certain items in prior periods were reclassified to conform to the current period presentation. These reclassifications had no impact on net loss or comprehensive loss.

Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Property, plant and equipment useful life

 

Description Useful Life (in years)
   
Office equipment 5
Office furniture 8 1/3
Signs and displays 5

Intangible assets useful life
Description Useful Life (in years)
   
Betting Platform Software 15
Ulisse Bookmaker License
Multigioco and Rifa ADM Licenses 1.5 - 7
VG Licenses
Location contracts 5 - 7
Customer relationships 10 - 15
Trademarks/names 14
Websites 5
   
Reclassification (Tables)
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Adoption ASU 2017-11
    Convertible Debentures   Derivative Liability   Additional Paid-in Capital   Accumulated Deficit
Balance as of January 1, 2018   $ 1,148,107     $ 222,915     $ 14,254,582     $ (9,897,620 )
Reclassified derivative liabilities and cumulative effect of adoption     —         (222,915 )     287,881       (64,966 )
Balance as of January 1, 2018, restated   $ 1,148,107     $ —       $ 14,542,463     $ (9,962,586 )

Reclassification of prior period results

 

   As Previously reported  Effect of adoption of ASU 2017-11  As Reclassified
          
Revenue  $7,823,286   $—     $7,823,286 
                
Costs and Expenses               
Selling expenses   5,314,436    —      5,314,436 
General and administrative expenses   2,897,835    —      2,897,835 
Total Costs and Expenses   8,212,271    —      8,212,271 
                
Income from Operations   (388,985)   —      (388,985)
                
Other (Expenses) Income               
Interest expense, net of interest income   (329,618)   —      (329,618)
Changes in fair value of derivative liabilities   5,244,587    (5,244,587)   —   
Imputed interest on related party advances   —      —      —   
Gain on litigation settlement   —      —      —   
Loss on issuance of debt   —      —      —   
Loss on debt modification   —      —      —   
Loss on Marketable Securities   (2,500)   —      (2,500)
Total Other (Expenses) Income   4,912,469    (5,244,587)   (332,118)
                
Income (Loss) Before Income Taxes   4,523,484    (5,244,587)   (721,103)
Income tax provision   (83,356)   —      (83,356)
Net Income (Loss)   4,440,128    (5,244,587)   (804,459)
                
Other Comprehensive Loss               
Foreign currency translation adjustment   (490,915)   —      (490,915)
                
Comprehensive Income (Loss)  $3,949,213   $(5,244,587)  $(1,295,374)
                
Loss per common share – basic and diluted  $0.06   $(0.07)  $(0.01)
Weighted average number of common shares outstanding – basic and diluted   74,540,298    74,540,298    74,540,298 

Acquisitions (Tables)
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Purchase Price - Acquisitions

 

   Amount
    
Purchase consideration, net of discount of $382,778  $4,193,374 
      
Fair value of assets acquired     
Cash  $47,268 
Current assets   221,287 
Property, Plant and Equipment   41,473 
 Intangible assets   4,000,000 
    4,310,028 
Less: liabilities assumed   (121,247)
Total identifiable assets less liabilities assumed   4,188,781 
Excess purchase price allocated to goodwill  $4,593 

Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles

 

 

Description

  September 30, 2019   December 31, 2018
         
Betting Platform Software   $ 1,685,371     $ 1,685,371  
Ulisse Bookmaker License     9,724,244       9,724,244  
Multigioco and Rifa ADM Licenses     970,422       970,422  
Virtual Generation Licenses     4,000,000       —    
Location contracts     1,000,000       1,000,000  
Customer relationships     870,927       870,927  
Trademarks/names     110,000       110,000  
Websites     40,000       40,000  
      18,400,964       14,400,964  
Accumulated amortization     (2,268,589 )     (1,817,507 )
    $ 16,132,375     $ 12,583,457  

Debentures and Convertible Notes (Tables)
9 Months Ended
Sep. 30, 2019
Debentures And Convertible Notes  
Debentures outstanding

 

Description   Septembe