XBRL Rendering Preview
v3.20.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
Jun. 25, 2020
Jun. 28, 2019
Document And Entity Information      
Entity Registrant Name Newgioco Group, Inc.    
Entity Central Index Key 0001080319    
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Is Entity a Well-known Seasoned Issuer? No    
Is Entity a Voluntary Filer? No    
Is Entity's Reporting Status Current? Yes    
Entity Filer Category Non-accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Business false    
Entity Interactive Data Yes    
Entity Public Float     $ 15,697,029
Entity Common Stock, Shares Outstanding   12,332,996  
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2019    
v3.20.1
Consolidated Balance Sheets - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Current Assets    
Cash and cash equivalents $ 5,182,598 $ 6,289,903
Accounts receivable 152,879 10,082
Gaming accounts receivable 1,242,005 1,021,052
Prepaid expenses 221,547 124,712
Related Party Receivable 4,123 49,914
Other current assets 461,398 55,700
Total Current Assets 7,264,550 7,551,363
Non-Current Assets    
Restricted cash 1,549,917 1,560,539
Property, plant and equipment 520,725 476,047
Right of use assets 792,078
Intangible assets 15,857,027 12,527,980
Goodwill 1,663,385 262,552
Marketable securities 177,500 275,000
Total Non-Current Assets 20,560,632 15,102,118
Total Assets 27,825,182 22,653,481
Current Liabilities    
Line of credit - bank 1,000,000 750,000
Accounts payable and accrued liabilities 6,800,765 3,969,532
Gaming accounts payable 1,735,650 1,049,423
Taxes payable 298,476 1,056,430
Advances from stockholders 2,551 39,237
Deferred purchase consideration, net of discount of $120,104 1,682,280
Deferred purchase consideration, Related Party, net of discount of $80,069 1,199,361
Debentures, net of discount 3,361,337
Operating lease liability 200,866
Financial lease liability 12,476
Promissory notes payable-related party 431,631
Bank loan payable - current portion 124,079 120,920
Total Current Liabilities 16,417,841 7,417,173
Deferred tax liability 1,315,954  
Debentures, net of discount   4,463,046
Operating lease liability 548,747
Financial lease liability 25,025
Bank loan payable 96,786 225,131
Other long term liabilities 619,544 608,728
Total Non-Current Liabilities 2,606,056 5,296,905
Total Liabilities 19,023,897 12,714,078
Stockholders' Deficiency    
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued  
Common stock, $0.0001 par value, 80,000,000 shares authorized; 11,949,042 and 9,442,537 shares issued and outstanding as of December 31, 2019 and 2018* 1,194 944
Additional - paid in capital 32,218,643 23,962,920
Accumulated other comprehensive income (176,717) (57,431)
Accumulated deficit (23,241,835) (13,967,030)
Total Stockholders' Equity 8,801,285 9,939,403
Total Liabilities and Stockholders' Equity $ 27,825,182 $ 22,653,481
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
STOCKHOLDERS' EQUITY    
Preferred Stock - par value $ 0.0001 $ 0.0001
Preferred stock - authorized 5,000,000 20,000,000
Preferred stock - issued
Preferred stock - outstanding
Common Stock - par value $ 0.0001 $ 0.0001
Common Stock - authorized 80,000,000 160,000,000
Common Stock - issued 11,949,042 9,442,537
Common Stock - outstanding 11,949,042 9,442,537
Deferred Purchase Consideration[Member]    
Debt Discount $ 120,104  
Deferred Purchase Consideration Related Party[Member]    
Debt Discount $ 80,069  
v3.20.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]    
Revenue $ 35,583,131 $ 34,575,097
Costs and expenses    
Selling expenses 27,584,492 24,142,110
General and administrative expenses 10,994,554 10,588,162
Total Costs and Expenses 38,579,046 34,730,272
Loss Income from Operations (2,995,915) (155,175)
Other (Expenses) Income    
Interest expense, net (972,443) (619,709)
Amortization of debt discount (4,154,922) (1,995,128)
Virtual Generation bonus earnout (561,351)
Loss on share issuances (44,063)
Other income 149,565
Imputed interest on related party advances (761)
Gain on litigation settlement 516,120
Loss on issuance of convertible debt (196,403)
Loss on marketable securities (97,500) (75,000)
Total Other Expenses (5,680,714) (2,370,881)
Loss Before Income Taxes (8,676,629) (2,526,056)
Income taxes provision (598,176) (1,102,701)
Net Loss (9,274,805) (3,628,757)
Other Comprehensive Income (Loss)    
Foreign currency translation adjustment (119,286) (184,043)
Comprehensive Loss $ (9,394,091) $ (3,812,800)
Loss per common share- basic and diluted $ (0.91) $ (0.38)
Weighted average number of common shares outstanding - basic and diluted 10,226,432 9,485,993
v3.20.1
Consoliated Statement of changes in Stockholders Equity - USD ($)
Common Stock
Additional Paid-In Capital
Accumlulated Other Comprehensive Income
Accumulated Deficit
Total
Beginning Balance, Shares at Dec. 31, 2017 9,267,948        
Beginning Balance, Amount at Dec. 31, 2017 $ 927 $ 14,548,951 $ 126,612 $ (10,338,273) $ 4,338,217
Imputed interest on stock advances   1,514     1,514
Shares issued for warrants, shares 25,136        
Shares issued for warrants, amount $ 3 (3)    
Common stock issued with debentures, shares 228,903        
Common stock issued with debentures, amount $ 22 582,464     582,486
ASU 2017-11 adjustments to the beneficial conversion feature of debentures   2,551,856     2,551,856
Warrants issued with debt   2,951,429     2,951,429
Common stock issued for the purchase of subsidiaries,shares 175,550        
Common stock issued for the purchase of subsidiaries $ 18 5,587,657     5,587,675
Purchase of treasury stock, shares (225,000)        
Purchase of treasury stock, amount $ (26) (2,260,948)     (2,260,974)
Foreign currency translation adjustment     (184,043)   (184,043)
Net loss       (3,628,757) (3,628,757)
Ending Balance, Shares at Dec. 31, 2018 9,442,537        
Ending Balance, Amount at Dec. 31, 2018 $ 944 23,962,920 (57,431) (13,967,030) 9,939,403
Common stock issued with debentures, shares 1,866,467        
Common stock issued with debentures, amount $ 187 5,972,321     5,972,508
Common stock issued to settle deferred purchase consideration, shares 341,235        
Common stock issued to settle deferred purchase consideration, amount $ 34 1,027,279     1,027,313
Common stock issued to settle liabilities, shares 284,721        
Common stock issued to settle liabilities $ 28 1,009,953     1,009,981
Bonus shares issued to convetible debenture holders, shares 14,082        
Bonus shares issued to convetible debenture holders, amount $ 1 45,064     45,065
Stock based compensation   201,106     201,106
Foreign currency translation adjustment     (119,286)   (119,286)
Net loss       (9,274,805) (9,274,805)
Ending Balance, Shares at Dec. 31, 2019 11,949,042        
Ending Balance, Amount at Dec. 31, 2019 $ 1,194 $ 32,218,643 $ (176,717) $ (23,241,835) $ 8,801,285
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Cash Flows from Operating Activities    
Net loss $ (9,274,805) $ (3,628,757)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities    
Depreciation and amortization 946,185 697,266
Amortization of debt discount 4,154,922 1,995,128
Non-cash interest 745,762  
Virtual Generation bonus earnout 561,351
Loss on issuance of debt 196,403
Imputed interest on advances from stockholders 1,514
Unrealized loss on marketable securities 97,500 75,000
Impairment (recovery) of assets (518,354)
Stock based compensation expense 201,106
Bonus shares issued to debenture holders 45,065
Gain on settlement of liabilities (1,003)
Bad debt (recovery) expense 6,354
Deferred taxation movement (85,654)
Changes in Operating Assets and Liabilities    
Prepaid expenses (90,353) (37,021)
Accounts payable and accrued liabilities 2,973,916 3,062,419
Accounts receivable (95,147) 100,053
Gaming accounts receivable (240,559) 142,779
Gaming accounts payable 701,029 (225,433)
Taxes payable (438,235) (498,941)
Other current assets 368,894 43,157
Long term liabilities 22,294 76,048
Net Cash (Used in) Provided by Operating Activities (145,520) 1,401,302
Cash Flows from Investing Activities    
Acquisition of property, plant, and equipment, and intangible assets (252,198) (4,725,856)
Acquisition of Virtual Generation, net of cash of $47,268 (216,150)
Net Cash Used in Investing Activities (468,348) (4,725,856)
Cash Flows from Financing Activities    
Proceeds from bank credit line, net 250,000 750,000
Repayment of bank loan (118,336) (137,965)
Repayment of bank credit line (177,060)
Deferred purchase price payments (672,871)
Proceeds from debentures and convertible notes, net of repayment 6,883,906
Proceeds from finance leases 14,989
Repayment of finance leases (11,371)
Advance from related party 58,144
Payments to related party (49,914)
Purchase of treasury stock (2,261,307)
Advances from stockholders, net of repayment (508,572)
Net Cash (Used in) Provided by Financing Activities (479,445) 4,499,088
Effect of change in exchange rate (24,614) (381,855)
Net (decrease) increase in cash (1,117,927) 792,679
Cash and cash equivalents and restricted cash-beginning of the year   7,057,763
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows    
Cash and cash equivalents 5,182,598 6,289,903
Restricted cash included in non-current assets 1,549,917 1,560,539
Total Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows 6,732,515 7,850,442
Supplemental disclosure of cash flow information    
Cash paid during the year for: Interest 227,006 619,709
Cash paid during the year for: Income taxes 884,295 339,274
Supplemental cash flow disclosure for non-cash activities    
Conversion of convertible debt to common stock 5,972,508
Acquisition of Virtual Generation, deferred purchase consideration 3,828,133  
Deferred purchase consideration settled by the issuance of common stock 1,027,313
Settlement of liabilities by the issuance of common stock 1,009,981
Cashless exercise of warrants 20
Common shares issued for the acquisition of intangible assets 5,588,008
Common stock issued with debt 582,486
Discount due to warrants issued with debt 2,307,569
Discount due to beneficial conversion feature 2,551,856
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
v3.20.1
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement of Cash Flows [Abstract]    
Acquisition of Virtual Generation, cash $ 47,268
v3.20.1
Nature of Business
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business

 

1.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 for updating, servicing and operations 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 and its subsidiaries are as follows:

 

Name  Acquisition date  Domicile  Functional Currency
          
Newgioco Group, Inc.  Parent Company  USA  US Dollar
Multigioco Srl (“Multigioco”)  August 15, 2014  Italy  Euro
Rifa Srl (“Rifa”)  January 1, 2015  Italy  Euro
Ulisse GmbH (“Ulisse”)  July 1, 2016  Austria  Euro
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)  July 1, 2016  Austria  Euro
Virtual Generation Limited (“VG”)  January 31, 2019  Malta  Euro
Naos Holdings limited (“Naos”)  January 31, 2019  Malta  Euro
Newgioco Group Inc. (“NG Canada”)  January 17, 2017  Canada  Canadian Dollar
Elys Technology Group Limited (“Elys”)  April 4, 2019  Malta  Euro
Newgioco Colombia SAS  November 22, 2019  Colombia  Colombian Peso

 

The Company operates in two lines of business: (i) provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and; (ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy. 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 satellite offices for operations administration in Naples and Teramo, Italy and San Gwann, 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 satellite offices in the USA in Fort Lauderdale and Boca Raton, Florida, 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.
v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2.Accounting Policies and Estimates

 

a)Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

 

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

 

b)Principles of consolidation

 

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

 

Certain items in the prior periods were reclassified to conform to the current period presentation.

 

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

 

c)Foreign operations

 

The Company translated the assets and liabilities of its foreign subsidiaries into US Dollars at the exchange rate in effect at year end and the results of operations and cash flows at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’ equity, while transaction gains (losses) are included in net income (loss).

 

All revenues were generated in Euro during the years presented.

 

Gains and losses from foreign currency transactions are recognized in current operations.

 

d)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.

 

e)Use of Estimates

 

The preparation of consolidated 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, leasing arrangements, convertible debentures, contingencies 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 records adjustments when necessary.

 

f)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 regular 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 makes 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 continues to insure against most of these types of claims.

  

 

g)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 accounts receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair value because of the short-term maturity of these financial instruments.

 

h)Derivative Financial Instruments

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

The conversion feature of our convertible debt was assessed in terms of ASC480 and the Company determined that the beneficial conversion feature was classified as equity and did not give rise to a derivative liability.

 

i)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 December 31, 2019 and 2018, respectively.

 

The Company primarily places cash balances in the USA 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.

 

j)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 a bad debt expense of $163,942 and $0 for the years ended December 31, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

 

k)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 of winnings 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.

 

l)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.’’

 

m)Property, Plant and Equipment

 

Plant and equipment is 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 plant and equipment. All other expenditures are recognized as expenses in the statement of operations 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)

     
Leasehold improvements   Life of the underlying lease
Computer and office equipment   3 to5
Furniture and fittings   7 to 10
Computer Software   3 to 5
Vehicles   4 to 5

 

n)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   Indefinite
Multigioco and Rifa ADM Licenses   1.5 - 7
Location contracts   5 - 7
Customer relationships   10 - 15
Trademarks/Tradenames   14
Websites   5

 

The Ulisse Bookmaker has no expiration date and is therefore not amortized.

 

 

o)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 goodwill exceeds its 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 goodwill exceeds its fair value. If the carrying amount of the goodwill exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess.

 

In terms of ASC 350, the Company skipped the requirement to perform a qualitative assessment and performed a quantitative assessment on its goodwill and other intangible assets as of December 31, 2019, concluding that no impairment was considered necessary.

 

p)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.

 

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.

  

 

q)Revenue Recognition

 

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 Betting Platform include software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software. 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.

 

r)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.

 

s)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.

 

t)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 dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.

 

On December 12, 2019, the Company effected an 1 for 8 reverse stock split, all references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the reverse stock split.

 

u)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.

  

 

v)Adoption of Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (“FSAB”) issued Accounting Standards Update (“ASU”), No. 2016-02, Leases (Topic 842) (ASC 842)

 

The amendments in this update establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, an update which provides another transition method, the prospective transition method, which allows entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new standard on January 1, 2019 using the prospective transition method.

 

The Company has identified all material leases and reviewed the leases to determine the impact of ASC 842 on its consolidated financial statements. The Company has elected to apply all of the practical expedients to all leases, which include not reassessing (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The adoption of the new standard resulted in; (i) the recording of a right-of-use asset of $646,138 and an operating lease liability of $617,352 on the consolidated balance sheet with effect from January 1, 2019 utilizing implicit borrowing rates where available and incremental borrowing rates where rates were not readily available. The right of use asset and operating lease liability are subsequently amortized. No cumulative effect adjustment to opening retained earnings was made as the amounts are immaterial.

 

w)Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected credit loss methodology that is referred to as the current expected credit loss (CECL) methodology. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated deficit and are effective for the Company beginning with fiscal year 2020, including interim periods. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. An entity with trade receivables will be required to use historical loss information, current conditions, and reasonable and supportable forecasts to determine expected lifetime credit losses. Pooling of assets with similar risk characteristics is also required.

 

The Company adopted ASU 2016-13 on January 1, 2020 on a modified retrospective basis, and is currently evaluating the impact of adoption of the amendments in these updates, which are not expected to have a material impact on the Company’s financial position, results of operations, and related disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), the Amendments in this update reduce the complexity in accounting for income taxes by removing certain exceptions to accounting for income taxes and deferred taxes and simplifying the accounting treatment of franchise taxes, a step up in the tax basis of goodwill as part of business combinations, the allocation of current and deferred tax to a legal entity not subject to tax in its own financial statements, reflecting changes in tax laws or rates in the annual effective rate in interim periods that include the enactment date and minor codification improvements.

 

This ASU is effective for fiscal years and interim periods beginning after December 15, 2020.

 

The effects of this ASU on the Company’s financial statements is not considered to be material.

 

The FASB issued several updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.

 

x)Reporting by segment

 

The Company has two operating segments from which it derives revenue. These segments are:

 

(i)provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and;
(ii)the operating of web based as well as land based leisure betting establishments situated throughout Italy.

 

y)Comparatives

 

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

v3.20.1
Acquisition of subsidiariess
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisition of subsidiaries

3.Acquisition of subsidiaries

 

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 416,400 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 208,200 shares) issued in consideration for the purchase price at a fixed price of $4.00 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 591,950 shares of common stock to the sellers on May 31, 2018 to settle the balance of the purchase price adjustment at a closing price of $9.44 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 255,000 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 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 was 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, which issuances commenced on March 1, 2019.

 

The €3,803,000 promissory note was originally recorded as a liability owing to related parties of €1,521,200 (Note 15) and to third parties of €2,281,800 (Note 12).

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the sellers of VG an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 the VG Sellers have qualified for the earnout payment. The earnout payment was considered remote at the time of entering into the transaction and was not recorded as a component of deferred purchase consideration, accordingly it has been expensed through the statement of operations for the year ended December 31, 2019.

 

Virtual Generation Limited (“VG”) Acquisition (continued)

 

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   $ 4,193,375  
         
Fair value of assets acquired        
Cash     47,268  
Current assets     178,181  
Property, Plant and Equipment     41,473  
Betting Platform     4,004,594  
      4,271,516  
Less: liabilities assumed     (78,141 )
Less: Imputed Deferred taxation on identifiable intangible acquired (Betting platform)     (1,401,608 )
         
Total identifiable assets less liabilities assumed     2,791,767  
Goodwill arising on acquisition     1,401,608  
Total purchase consideration   $ 4,193,375  

   

The Betting Platform value was determined by management, based on prior experience, and is being amortized over a period of 15 years, the expected useful life.

v3.20.1
Restricted Cash
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Restricted Cash

4.Restricted Cash

 

Restricted cash consists of the following:

 

·cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against a bank loan with Intesa Sanpaolo Bank for Multigioco as well as Wirecard Bank as a security deposit for Ulisse betting operations.

 

·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 10.
v3.20.1
Plant and Equipment
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Plant and Equipment

5.Plant and equipment



  

December 31,

2019

 

December 31,

2018

   Cost  Accumulated depreciation  Net book
value
  Net book
value
             
Leasehold improvements  $47,291   $(14,886)  $32,405   $8,038 
Computer and office equipment   835,793    (522,969)   312,824    258,448 
Fixtures and fittings   135,869    (78,271)   57,598    62,795 
Vehicles   98,115    (25,589)   72,526    88,262 
Computer software   125,831    (80,459)   45,372    58,504 
   $1,242,899   $(722,174)  $520,725   $476,047 

 

The aggregate depreciation charge to operations was $283,497 and $228,715 for the years ended December 31, 2019 and 2018, respectively. The depreciation policies followed by the Company are described in Note 2.

v3.20.1
Leases
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Leases

6.Leases

 

Adoption of ASC Topic 842, “Leases”

 

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective method applied to leases that were in place as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840. The Company’s portfolio of leases contains both finance and operating leases that relate to real estate agreements, vehicles and office equipment agreements.

 

Practical Expedients and Elections

 

The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical lease classification, the Company’s assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that exist prior to adoption of the new standard. The Company also elected to combine lease and non-lease components on the office equipment leases and elected the short-term lease recognition exemption for all leases that qualify.

 

Discount Rate

 

To determine the present value of minimum future lease payments for leases at January 1, 2019, the Company was required to use the rate implicit in the lease unless the rate is not determinable then a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

 

Operating leases

 

Property and vehicle leases

 

The Company determined the rate implicit in the lease or an IBR where that rate was not determinable. The Company used country specific rates based on the country the assets are located in.

 

·Property leases

The Company determined that rates ranging from 2.12% to 4.5% were a appropriate discount rates to apply to its real-estate operating leases.

 

The Company entered into new real estate operating leases during the current period and determined an appropriate discount rate to apply to its operating leases was 2.12%.

 

·Vehicle leases

 

The Company determined that appropriate discount rates to apply to its vehicle operating leases ranged from 5.1% to 6.7%.

 

Finance leases

 

Computer and office equipment leases

 

The Company has financed several items of computer and office equipment through vendor financing. The discount rates for finance leases ranged from 2.5% to 4.2%.

  

Right of use assets

 

Upon adoption of ASC 842, effective January 1, 2019, the Company recorded a right of use asset for operating leases of $646,138.

 

Right of use assets are included in the consolidated balance sheet are as follows:

 

   December 31, 2019
    
Non-Current assets     
Right-of-use assets - operating leases, net of amortization  $792,078 
Right-of-use assets – finance leases, net of amortization (included in plant and equipment)  $37,091 

 

Lease costs consists of the following:

 

   Year ended December 31, 2019
    
Finance lease cost:  $13,292 
Amortization of right-of-use assets   11,890 
Interest expense on lease liabilities   1,402 
      
Operating lease cost   210,881 
      
Total lease cost  $224,173 

 

Other lease information:

 

   Year ended December 31, 2019
    
    
    
Cash paid for amounts included in the measurement of lease liabilities     
Operating cash flows from finance leases  $(1,252)
Operating cash flows from operating leases   (210,881)
Financing cash flows from finance leases   (11,371)
      
Right-of-use assets obtained in exchange for new finance leases   14,989 
Right-of-use assets disposed of under operating leases prior to lease maturity   (81,263)
Right-of -use assets obtained in exchange for new operating leases  $442,281 
      
Weighted average remaining lease term – finance leases   3.46 years 
Weighted average remaining lease term – operating leases   3.74 years 
      
Weighted average discount rate – finance leases   3.52%
Weighted average discount rate – operating leases   3.42%
      

 

 

Maturity of Leases

 

Finance lease liability

 

The amount of future minimum lease payments under finance leases are as follows:

 

   Amount
    
 2020   $13,611 
 2021    10,413 
 2022    8,431 
 2023    6,560 
 2024    802 
 Total undiscounted minimum future lease payments    39,967 
 Imputed interest    (2,466)
 Total finance lease liability   $37,501 
        
 Disclosed as:      
 Current portion   $12,476 
 Non-Current portion    25,025 
     $37,501 

 

Operating lease liability

 

The amount of future minimum lease payments under operating leases are as follows:

 

   Amount
    
2020  $222,497 
2021   214,693 
2022   180,470 
2023   150,570 
2024 and beyond   28,741 
Total undiscounted minimum future lease payments   796,971 
Imputed interest   (47,358)
      
Total operating lease liability  $749,613 
      
Disclosed as:     
Current portion  $200,866 
Non-Current portion   548,747 
   $749,613 

 

v3.20.1
Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

 

7.Intangible Assets

 

Intangible assets consist of the following:

 

  

December 31,

2019

 

December 31,

2018

   Cost  Accumulated depreciation  Net book
value
  Net book
value
             
Betting platform software  $5,689,965   $(637,320)  $5,052,645   $1,405,134 
Licenses   10,694,227    (764,732)   9,929,495    10,037,980 
Location contracts   1,000,000    (768,688)   231,312    374,169 
Customer relationships   870,927    (301,227)   569,700    630,161 
Trademarks   116,175    (42,300)   73,875    75,583 
Websites   40,000    (40,000)   —      4,953 
   $18,411,294   $(2,554,267)  $15,857,027   $12,527,980 

 

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 and the impairment is deemed to be permanent in nature.

 

The Company recorded $771,665 and $468,551 in amortization expense for finite-lived assets for the years ended December 31, 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 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 may be impaired.

v3.20.1
Goodwill
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill

8.Goodwill

 

    December 31, 2019   December 31, 2018
         
Opening balance   $ 262,552     $ 260,318  
Acquisition of Virtual Generation     1,401,608        
Impairment charge            
Foreign exchange movements     (775 )     2,234  
Closing balance   $ 1,663,385     $ 262,552  

 

Goodwill represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.

 

On January 30, 2019, the Company acquired Virtual Generation Limited, as disclosed in Note 3 above. The goodwill on acquisition arose as the Proceeds paid on acquisition exceeded the fair value of the identifiable assets less assumed liabilities and imputed deferred tax liabilities on identifiable intangible assets by $1,401,608.

 

The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill 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 and the impairment is deemed to be permanent in nature.

 

 

v3.20.1
Marketable Securities
12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities
9.Marketable Securities

 

Investments in marketable securities consists of 2,500,000 shares of Zoompass Holdings (“Zoompass”) and is accounted for at fair value, with changes recognized in earnings.

 

 

On December 31, 2019, the shares of Zoompass were last quoted at $0.071 per share on the OTC market, resulting in an unrealized loss recorded to earnings related to these securities of $97,500 and $75,000 for the years ended December 31, 2019, and 2018 respectively.

v3.20.1
Line of Credit-Bank
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Line of Credit-Bank
10.Line of Credit - Bank

 

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 4.

v3.20.1
Convertible Debentures
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Convertible Debentures

11.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 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February 25, 2020, and (iii) 20 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 20,938 shares of the Company’s common stock and 13,875 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 $3.20 per share and the warrants can be exercised at a price equal to $4.00 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 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20 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 4,218.75 shares of the Company’s common stock and 2,700 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 $3.20 per share and the warrants can be exercised at a price equal to $4.00 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 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 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 44,875 shares of the Company’s common stock and 28,720 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 $3.20 per share and the warrants can be exercised at a price equal to $4.00 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 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii) 20 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 4,093.75 shares of the Company’s common stock and 2,620 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 $3.20 per share and the warrants can be exercised at a price equal to $4.00 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”) maturing on May 31, 2020, (ii) 26 shares of our common stock and (ii) warrants to purchase up to 135.25 shares of the Company’s 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) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 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 $4.00 per share and expire on May 31, 2020.

 

The accounting treatment relating to the convertible debentures issued was in accordance with the guidance in ASC 480 and ASC 815.

 

The proceeds received from the convertible debentures were; (i) net of finders fees issued to certain brokers; (ii) in addition, the Company issued shares of common stock to the convertible debenture holders; as well as (iii) certain two year warrants exercisable for shares of common stock at an exercise price of $4.00 per share; (iv) in conjunction with the finders fees paid, the Company also issued warrants to certain brokers on the same terms and conditions as the warrants issued to the convertible debenture holders; and (v) the convertible debentures are convertible into shares of common stock at a conversion price of $3.20 per share.

 

The accounting treatment of the above is as follows:

 

(i)The convertible debentures were recorded at gross value;
(ii)The cash fee paid to the brokers was $427,314 and the fair value of the warrants issued to the brokers were valued at fair value as described in (iv) below and were recorded as a debt discount against the gross value of the convertible debentures;
(iii)The shares of common stock issued to the convertible debenture holders were valued at $582,486, the market price of the common stock on the date of issue and were recorded as debt discount against the gross value of the convertible debt;
(iv)The warrants issued to the convertible debenture holders and brokers were valued at $2,929,712 using a Black-Scholes valuation model, the value of the warrants was recorded as a discount against the gross value of the convertible debentures and initially recorded as a derivative liability on the basis of standard anti-dilution language being interpreted as a down round feature, the warrants do not provide for any down round features and subsequent to the initial recording the Company adopted ASU 2017-11in September 2018 and eliminated the derivative liability;
(v)The conversion feature of the convertible debentures was in-the-money at date of issuance, giving rise to a beneficial conversion feature valued at intrinsic value of $2,585,055.
(vi)The company originally recorded the conversion feature as a derivative liability on the basis that the standard anti-dilution clauses in the convertible debt agreements relating to stock splits and stock mergers amounted to a down-round feature, the convertible debentures do not provide for down round features and accordingly, the Company adopted ASU2017-11 in September 2018 and eliminated the derivative liability.

 

The total debt discount above amounted to $6,524,567 which is being amortized over the two year life of the debentures on a straight line basis.

 

As of December 31, 2019 and 2018, the Company has outstanding, US Dollar convertible debentures of $2,083,000 and $3,268,000, respectively and Canadian Dollar denominated Convertible debentures of CDN$1,794,600 and CDN$6,801,165, respectively.

 

During the year ended December 31, 2019, investors in Canadian Dollar convertible debentures converted the aggregate principal amount of CDN$5,367,400, including interest thereon of CDN$791,861 and investors in US Dollar convertible debentures converted the aggregate principal amount of $1,185,000, including interest thereon of $133,959, into 1,866,528 shares of common stock.

 

The Aggregate convertible debentures outstanding consists of the following:

    December 31, 2019   December 31, 2018
Principal Outstanding                
Opening balance   $ 8,529,751     $ 1,610,980  
Additions     —         7,080,308  
Conversion to equity     (5,240,736 )     —    
Foreign exchange movements     175,722       (161,537 )
      3,464,737       8,529,751  
Accrued Interest                
Opening balance     520,523       —    
Interest expense     719,931       520,523  
Conversion to equity     (731,731 )     —    
Foreign exchange movements     15,504        
      524,227       520,523  
Debenture Discount                
Opening balance     (4,587,228 )     (462,872 )
Additions     —         (6,119,484 )
Amortization     3,959,601       1,995,128  
      (627,627 )     (4,587,228 )
Convertible Debentures, net   $ 3,361,337     $ 4,463,046  

 

 

 

v3.20.1
Deferred Purchase Consideration
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Deferred Purchase Consideration

12.Deferred Purchase Consideration

 

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

 

The promissory notes payable to non-related parties are to be settled as follows:

 

  (a) an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that was 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 €49,800 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, which issuances commenced on March 1, 2019.

  

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the sellers of VG an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 the VG Sellers have qualified for the earnout payment. The earnout payment was considered remote at the time of entering into the transaction and was not recorded as a component of deferred purchase consideration, accordingly it has been expensed through the statement of operations for the year ended December 31, 2019. The amount due to the non-related party VG sellers amounts to €300,000 (Approximately $336,810).

 

The future payments on the promissory notes were 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 deferred purchase consideration consists of the following:

 

Description  December 31, 2019
Principal Outstanding     
Promissory note due to non-related parties  $2,745,811 
Additional earnout earned   336,810 
Settled by the issuance of common shares   (616,387)
Repayment in cash   (607,555)
Foreign exchange movements   (56,295)
    1,802,384 
Present value discount on future payments     
Present value discount   (242,089)
Amortization   117,192 
Foreign exchange movements   4,793 
    (120,104)
Deferred purchase consideration, net  $1,682,280 
      
Disclosed as follows:     
Current liability  $1,619,349 
Long term liability   62,931 
Deferred purchase consideration, net  $1,682,280 

 

v3.20.1
Bank Loan Payable
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Bank Loan Payable

13.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% 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 €117,120 (approximately $131,163) for the year ended December 31, 2019 which included principal of €110,518 (approximately $123,769) and interest of €6,602 approximately $7,394) for the year ended December 31, 2019.

 

v3.20.1
Other Long Term Liabilities
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Other Long Term Liabilities

 

14.Other Long-term Liabilities

 

Other long-term liabilities represent 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 as well as shop deposits that are held by Ulisse.

 

Balances of other long-term liabilities were as follows:

 

   December 31, 2019  December 31, 2018
Severance liability  $211,734   $168,706 
Customer deposit balance   407,810    440,021 
   $619,544   $608,727 

 

v3.20.1
Related party
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Relateded party

15.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% to 24% 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 142,956 shares of common stock.

 

The movement on notes payable, Related Party, consists of the following:

 

   December 31, 2019  December 31, 2018
       
Principal Outstanding          
Opening balance  $318,078   $318,078 
Settled by issuance of common shares   (318,078)   —   
    —      318,078 
Accrued Interest          
Opening balance   113,553    75,384 
Interest expense   25,830    38,169 
Conversion to equity   (139,383)   —   
    —      113,553 
Convertible Debentures, net  —     431,631 

 

Deferred Purchase consideration, Related Party

 

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

  

The related party promissory notes are due to Luca Pasquini, a director and officer of the Company and Gabriele Peroni, an officer of the Company.

 

The promissory notes are to be settled as follows:

 

  (a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 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 €33,200 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.

 

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the sellers of VG an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 the VG Sellers have qualified for the earnout payment. The earnout payment was considered remote at the time of entering into the transaction and was not recorded as a component of deferred purchase consideration, accordingly it has been expensed through the statement of operations for the year ended December 31, 2019. The amount due to the related party VG sellers amounts to €200,000 (approximately $224,540).

 

The future payments on the promissory notes were 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 deferred purchase consideration consists of the following:

 

Description  December 31, 2019
Principal Outstanding     
Promissory notes due to related parties  $1,830,541 
Additional earnout earned   224,540 
Settled by the issuance of common shares   (410,925)
Repayment in cash   (328,734)
Foreign exchange movements   (35,992)
    1,279,430 
Present value discount on future payments     
Present value discount   (161,393)
Amortization   78,128 
Foreign exchange movements   3,195 
    (80,069)
Deferred purchase consideration, net  $1,199,361 
      
Disclosed as follows:     
Current liability  $1,157,407 
Long term liability   41,954 
Deferred purchase consideration, net  $1,199,361 

  

 

Related party (payables) receivables

 

Related party payables and receivables represent non-interest-bearing (payables) receivables that are due on demand.

 

The balances outstanding are as follows:

 

   December 31, 2019  December 31, 2018
Related Party payables          
Gold Street Capital Corp.  $(2,551)  $(39,237)
           
Related Party Receivables          
Luca Pasquini  $4,123   $—   

 

Amounts due to Gold Street Capital Corp., the major stockholder of Newgioco Group, are for reimbursement of expenses. The Company paid no management fees and $72,000 in management fees to Gold Street Capital Corp. during the years ended December 31, 2019 and 2018, respectively.

 

 

In January 2018, the Company advanced €100,000 (approximately $116,000) to an officer to cover fees related to an application for a gaming license in Malta, under the name Ulisse Services, Ltd. The advance has been repaid and the gaming license in Malta is still under consideration.

 

During the year ended December 31, 2018, the Company paid management fees of approximately €480,000 (approximately $549,000) to Ulisse Services, Ltd. to cover office and set-up expenses.

 

Michele Ciavarella

 

On July 5, 2019, the Company issued to Mr. Ciavarella, the Chief Executive Officer and chairman of the board and officer of the Company, ten year options to purchase 39,375 shares of common stock at an exercise price of $2.96 per share.

 

On August 29, 2019, the Company issued to Mr. Ciavarella ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

On September 4, 2019, Mr. Ciavarella converted $500,000 of accrued salaries into 125,000 shares of common stock at a conversion price of $4 per share.

 

Gold Street Capital

 

Gold Street Capital is wholly owned by Gilda Ciavarella, the spouse of Mr. Ciavarella.

 

On September 4, 2019, the Company issued 15,196 shares of common stock to Gold Street Capital in settlement of $48,508 of advances made to the Company for certain reimbursable expenses.

 

 

Luca Pasquini

 

On January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December 31, 2019, the Company has paid Mr. Pasquini cash of €125,600 (approximately $141,014) and issued 68,247 shares valued at €183,800 (approximately $205,463).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, which earnout is to be settled by the issue of shares of common stock of which Mr. Pasquini’s shares is €100,000 (approximately $112,270).

 

On August 29, 2019, the Company issued to Mr. Pasquini, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

Gabriele Peroni

 

On January 31, 2019, the Company acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of December 31, 2019, the Company has paid Mr. Peroni cash of €167,200 (approximately $187,720) and issued 68,247 shares valued at €183,800 (approximately $205,463).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, which earnout is to be settled by the issue of shares of common stock of which Mr. Peroni’s shares is €100,000 (Approximately $112,270).

 

On August 29, 2019, the Company issued to Mr. Peroni, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

Franco Salvagni

 

On August 29, 2019, the Company issued to Mr. Salvagni, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

Beniamino Gianfelici

 

On August 29, 2019, the Company issued to Mr. Gianfelici, an officer of the Company, ten year options to purchase 25,000 shares of common stock at an exercise price of $2.80 per share.

 

Mark Korb

 

On July 1, 2019, the Company issued to Mr. Korb, the chief financial officer of the Company, seven year options to purchase 25,000 shares of common stock at an exercise price of $2.72 per share.

 

Paul Sallwasser

 

On July 5, 2019, the Company issued to Mr. Sallwasser, a director of the Company, ten year options to purchase 20,625 shares of common stock at an exercise price of $2.96 per share.

 

Steven Shallcross

 

On July 5, 2019, the Company issued to Mr. Shallcross, a director of the Company, ten year options to purchase 10,313 shares of common stock at an exercise price of $2.96 per share.

v3.20.1
Stockholders Equity
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders Equity

Notes to the Consolidated Financial Statements

16.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, as disclosed in Note 3 above.

 

·On January 31, 2019, 32,450 shares of common stock valued at $101,763;
·On March 1, 2019, 32,848 shares of common stock valued at $101,249;
·On April 1, 2019, 29,975 shares of common stock valued at $86,328;
·On May 1, 2019, 33,105 shares of common stock valued at $93,018;
·On June 1, 2019, 37,256 shares of common stock valued at $92,961;
·On July 1, 2019, 35,751 shares of common stock valued at $93,875;
·On August 1, 2019, 35,048 shares of common stock valued at $91,810;
·On September 1, 2019, 33,353 shares of common stock valued at $91,255;
·On October 1, 2019, 26,285 shares of common stock valued at $90,526
·On November 1, 2019, 28,565 shares of common stock valued at $92,608
·On December 8, 2019, 26,610 shares of common stock valued at $91,922

 

For the year ended December 31, 2019, the Company issued a total of 1,866,528 shares of common stock, valued at $5,972,507, upon the conversion of convertible debentures into equity (Note 11).

 

On April 22, 2019, the Company issued 14,083 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 284,721 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461 and other liabilities amounting to $553,525.

 

 

v3.20.1
Warrants
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Warrants

17.Warrants

 

 

In connection with the convertible debenture agreements entered into with accredited investors in the first and second quarters of 2018, for each $1,000 debenture unit the Company issued two-year warrants to purchase up to 135.28 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 104.06 shares of the Company’s common stock at an exercise price of $4.00 per share.

 

The warrants were valued at fair value of $2,929,712 in terms of ASC 820 at the date of issuance, using a Black Sholes valuation model.

 

A summary of all of the Company’s warrant activity during the period January 1, 2018 to December 31, 2019 is as follows:

    Year ended December 31, 2018  
Exercise price/shares at issuance   $ 4.00 – 4.60    
Common stock share price   $ 2.08    
Risk free interest rate     0.91 %  
Expected life     1.37 years    
Expected volatility of underlying stock     459 %  
Expected dividend rate     0 %  

 

 

 

   Number of shares  Exercise price per share  Weighted average exercise price
 Outstanding January 1, 2018    76,566   $4.32   $4.32 
 Granted    1,096,224    4.00    4.00 
 Forfeited/cancelled    (27,000)   5.04    5.04 
 Exercised    (40,761)   4.64    4.64 
 Expired    (15,555)   4.64    4.64 
 Outstanding December 31, 2018    1,089,474   $4.00    4.00 
 Granted    —      —      —   
 Forfeited/cancelled    —      —      —   
 Exercised    —      —      —   
 Outstanding December 31, 2019    1,089,474   $4.00   $4.00 

 

 

The following tables summarize information about warrants outstanding as of December 31, 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  
$ 4.00       1,089,474       0.41     $ 4.00       1,089,474     $ 4.00  

 

v3.20.1
Stock Options
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stock Options

 

18.Stock options

 

In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 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, we issued an aggregate of 95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938 shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici, our Vice President Regulatory Affairs. On November 11,2019 we issued options to purchase 70,625 shares of common stock to various employees at an exercise price of $2.80 per share. As of December 12, 2019, there was an aggregate of 315,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 834,062 reserved for future grants.

 

There were no option awards during or prior to the year ended December 31, 2018.

 

The options awarded during the year ended December 31, 2019 were valued using a Black-Scholes option pricing model.

 

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

 

  

Year ended

December 31, 2019

Exercise price   2.72 to 2.96 
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 270.2 
Expected dividend rate   0%

 

A summary of all of the Company’s option activity during the period January 1, 2019 to December 31, 2019 is as follows:

 

   Number of shares  Exercise price per share  Weighted average exercise price
          
 Granted    315,938    $2.72 to $2.96   $2.84 
 Forfeited/cancelled    —      —      —   
 Exercised    —      —      —   
 Outstanding December 31, 2019    315,938    $2.72 to $2.96   $2.84 

 

 

The following tables summarize information about stock options outstanding as of December 31, 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  
                                             
$ 2.72       25,000       6.50               —            
$ 2.80       220,625       9.73               13,971          
$ 2.96       70,313       9.52               35,859          
          315,938       9.30     $ 2.83       49,830     $ 2.92  
                                             

 

The weighted-average grant-date fair values of options granted during the year ended December 31, 2019 was $899,704 ($2.85 per share), of which $201,106 was recorded as compensation cost for the year ended December 31, 2019. As of December 31, 2019, there were unvested options to purchase 237,982 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is $698,598 which is expected to be recognized over a period of 47 months.

 

The intrinsic value of the options at December 31, 2019 was $354,078.

v3.20.1
Revenues
12 Months Ended
Dec. 31, 2019
Revenues [Abstract]  
Revenues

19.Revenues

 

The following table represents disaggregated revenues from our gaming operations for the years ended December 31, 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.

 

   For the Year Ended December 31,
   2019  2018
Handle (Turnover)          
Handle web-based  $328,385,837   $235,891,170 
Handle land-based   125,747,337    177,334,592 
Total Handle (Turnover)  $454,133,174   $413,225,762 
           
Winnings/Payouts          
Winnings web-based   309,214,993    223,064,978 
Winnings land-based   105,011,619    152,446,130 
Total Winnings/Payouts   414,226,612    375,511,108 
           
Gross Gaming Revenues  $39,906,562   $37,714,654 
           
Less: ADM Gaming Taxes   4,697,085    3,417,150 
           
Net Gaming Revenues  $35,209,477   $34,297,504 
Betting platform software and services   373,654    277,593 
Revenues  $35,583,131   $34,575,097 

 

v3.20.1
Net Loss per Common Share
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Net Loss per Common Share

20.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 years ended December 31, 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  Year ended December 31, 2019  Year ended December 31, 2018
       
Options   315,938    —   
Warrants   1,089,474    1,089,474 
Convertible debentures   1,246,551    2,856,764 
    2,651,963    3,946,238 

 

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

21.Income Taxes

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the years ended December 31, 2019 and December 31, 2018.

 

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

 

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

 

The Company's Canadian subsidiary is governed by the income tax laws of Canada and the Province of Ontario. The combined Federal and Provincial corporate tax rate in Canada is 26.5% on income reported in the statutory financial statements after appropriate tax adjustments.

 

The Company continues to evaluate the accounting for uncertainty in tax positions at the end of each reporting period. The guidance requires companies to recognize in their financial statements the impact of a tax position if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. The position ascertained inherently requires judgment and estimates by management.

 

The reconciliation of income tax expense at the U.S. statutory rate of 21% and 35% during 2019 and 2018, respectfully, to the Company’s effective tax rate is as follows:

 

   

December 31,

2019

 

December 31,

2018

U.S. Statutory rate   $ 1,822,092     $ 530,472  
Items not allowed for tax purposes     (1,142,776 )     (716,534 )
Foreign tax rate differential     (66,163 )     394,401  
Additional foreign taxation     (15,190 )      
Prior year over provision     1,167        
Prior year net operating loss adjustment     (917,820 )      
Movement in valuation allowances     (279,486 )     (1,311,040 )
Income tax expense   $ (598,176 )   $ (1,102,701 )

 

 

The Company has accumulated a net operating loss carry forward (“NOL”) of approximately $16.7 million as of December 31, 2019 in the U.S. The U.S. NOL carry forward includes adjustments based on prior year assessments of $4.9 million due the assessment of tax losses carried forward. This NOL may be offset against future taxable income through the year 2038. The company also has net operating loss carry forwards in Italy, Austria and Malta of approximately €0.12 million ($0.14 million) and in Canada of approximately CDN$0.4 million ($0.32 million). The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the NOL. The Company periodically evaluates whether it is more likely than not that it will generate sufficient taxable income to realize the deferred income tax asset. At the present time, management cannot presently determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a 100% valuation allowance has been established to offset the asset.

 

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

 

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

 

Under Austrian tax law, the operating loss carryforwards available for offset against future profits can be used indefinitely. Operating loss carryforwards are only available for offset against national income tax, up to the limit of 75% of taxable annual income.

 

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

  

The provisions for income taxes consist of currently payable income tax in Italy, Malta and Austria and deferred tax movements on intangible assets.

 

The provisions for income taxes are summarized as follows: 

 

   December 31, 2019  December 31, 2018
 Current   $(683,830)  $(1,102,701)
 Deferred    85,654    —   
 Total   $(598,176)  $(1,102,701)

 

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

    December 31, 2019   December 31, 2018
Working capital movements   641,089      
Net loss carryforward - Foreign   119,251     124,407  
Net loss carryforward - US     3,505,182       3,861,629  
      4,265,522       3,986,036  
Less valuation allowance     (4,265,522 )     (3,986,036 )
Deferred tax assets   $     $  
                 
Intangible assets   (1,315,954 )    
    $ (1,315,954 )   $  

 

 

The Net loss carry forward for US entities includes an adjustment of $917,821 based on taxation assessments which differed to the amounts originally provided for.

 

The following tax years remain subject to examination:

 

USA: Three years from the date of tax return filing which is currently the 2017 to 2019 tax years
Italy and Austria: Five years from the date of filing which is currently the 2015 to 2019 tax years
Malta: Eight years from fiscal year end which is currently 2012 to 2019.

 

The Company is not currently under examination and it has not been notified of a pending examination.

 

There are no unrecognized tax benefits.

v3.20.1
Segment Reporting
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting

22.Segmental Reporting

 

The Company has two reportable operating segments. These segments are:

 

(i)Betting establishments

Provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and;

(ii)Betting platform software and services

The operating of web based as well as land based leisure betting establishments situated throughout Italy.

 

The operating assets and (liabilities) of the reportable segments are as follows:

 

    December 31, 2019
   

 

Betting establishments

  Betting platform software and services   All other   Total
                 
Purchase of Non-Current assets   $ 202,042     $ 5,456,358     $     $ 5,658,400  
Assets                                
Current assets     6,620,800       470,127       216,948       7,307,875  
Non-Current assets     12,761,177       6,615,905       1,183,550       20,560,632  
Liabilities                                
Current liabilities     (5,395,212 )     (615,564 )     (10,450,390 )     (16,461,166 )
Non-Current liabilities     (1,266,145 )     (1,339,911 )           (2,696,056 )
Intercompany balances     5,461,766       423,926       (5,885,692 )      
Net asset position   $ 18,182,386     $ 5,554,483     $ (14,935,584 )   $ 8,801,285  

 

 

The segment operating results of the reportable segments are disclosed as follows:

 

   Year ended December 31, 2019
    
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
                
Net Gaming Revenue  $35,209,477   $373,654   $—     $—     $35,583,131 
Intercompany Service revenue   452,776    2,839,211    —      (3,291,987)   —   
    35,662,253    3,212,865    —      (3,291,987)   35,583,131 
Operating expenses                         
Intercompany service expense   2,839,211    452,776    —      (3,291,987)   —   
Selling expenses   25,583,913    2,000,579    —      —      27,584,492 
General and administrative expenses   5,109,135    1,294,617    4,590,802    —      10,994,554 
    33,532,259    3,747,972    4,590,802    (3,291,987)   38,579,046 
                          
(Loss) income from operations   2,129,994    (535,107)   (4,590,802)   —      (2,995,915)
                          
Other (expense) income                         
Interest expense, net   (190,206)   3    (782,240)   —      (972,443)
Amortization of debt discount   —      —      (4,154,922)   —      (4,154,922)
Virtual Generation earnout   —      —      (561,351)   —      (561,351)
Loss on share issuances   —      —      (44,063)   —      (44,063)
Other income   114,818    —      34,747    —      149,565 
Loss on marketable securities   —      —      (97,500)   —      (97,500)
Total other (expenses) income   (75,388)   3    (5,605,329)   —      (5,680,714)
                          
Loss before Income Taxes   2,054,606    (535,104)   (10,196,131)   —      (8,676,629)
Income tax provision   (641,528)   (43,352)   —      —      (598,176)
Net Loss  $1,413,078   $(491,752)  $(10,196,131)  $—     $(9,274,802)

 

The operating assets and (liabilities) of the reportable segments are as follows:

 

    December 31, 2018
   

 

 

Betting establishments

  Betting platform software and services   All other   Total
                 
Purchase of fixed assets   $ 10,019,807     $ 167,322     $ 6,856     $ 10,193,985  
Assets                                
Current assets     7,026,752       62,395       462,216       7,551,363  
Non-Current assets     12,289,853       1,562,295       1,249,970       15,102,118  
Liabilities                                
Current liabilities     (4,393,736 )     (281,553 )     (2,741,884 )     (7,417,173 )
Non-Current liabilities     (833,859 )           (4,463,046 )     (5,296,905 )
Intercompany balances     2,177,319       223,409       (2,400,728 )      
Net asset position   $ 16,266,329     $ 1,566,546     $ (7,893,472 )   $ 9,939,403  

  

 

The segment operating results of the reportable segments are disclosed as follows:

 

 

   Year ended December 31, 2018
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
                
Net Gaming Revenue  $34,433,461   $141,636   $—     $—     $34,575,097 
Intercompany Service revenue   260,063    2,168,870    —      (2,428,933)   —   
    34,693,524    2,310,506    —      (2,428,933)   34,575,097 
Operating expenses                         
Intercompany service expense   2,168,870    260,063    —      (2,428,933)   —   
Selling expenses   24,142,110    —      —      —      24,142,110 
General and administrative expenses   4,968,280    2,360,357    3,259,525    —      10,588,162 
    31,279,260    2,620,420    3,259,525    (2,428,933)   34,730,272 
                          
(Loss) income from operations   3,414,264    (309,914)   (3,259,525)   —      (155,175)
                          
Other (expense) income                         
Interest expense, net   (25,910)   —      (593,799)   —      (619,709)
Amortization of debt discount   —      —      (1,995,128)   —      (1,995,128)
Gain on litigation settlement   —      —      516,120    —      516,120 
Imputed interest on related party advances   —      —      (761)   —      (761)
Loss on issuance of debt   —      —      (196,403)   —      (196,403)
Mark-to-market of marketable securities   —      —      (75,000)   —      (75,000)
Total other (expenses) income   (25,910)   —      (2,344,971)   —      (2,370,881)