XBRL Rendering Preview
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 14, 2019
Document And Entity Information    
Entity Registrant Name Newgioco Group, Inc.  
Entity Central Index Key 0001080319  
Document Type 10-Q/A  
Document Period End Date Mar. 31, 2019  
Amendment Flag true  
Current Fiscal Year End Date --12-31  
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 Common Stock, Shares Outstanding   77,980,255
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
Amendment Restatement  
v3.20.1
Condolidated Balance Sheets - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Current Assets    
Cash and cash equivalents $ 5,179,403 $ 6,289,903
Accounts receivable 197,221 10,082
Gaming accounts receivable 1,066,470 1,021,052
Prepaid expenses 124,177 124,712
Related party receivable 27,866 49,914
Other current assets 152,090 55,700
Total Current Assets 6,747,227 7,551,363
Non-current Assets    
Restricted cash 1,549,431 1,560,539
Property, plant and equipment 540,737 476,047
Right-of-use assets 723,607  
Intangible assets 16,376,337 12,527,980
Goodwill 1,663,660 262,552
Investment in non-consolidated entities 250,000 275,000
Total Noncurrent Assets 21,103,772 15,102,118
Total Assets 27,850,999 22,653,481
Current Liabilities    
Line of credit - bank 825,000 750,000
Accounts payable and accrued liabilities 5,197,922 4,603,608
Gaming accounts balances 1,110,260 1,049,423
Taxes payable 1,059,477 1,056,430
Advances from stockholders 44,683 39,237
Convertible Debt, net of discount of $3,300,943 and $4,587,228, respectively 4,473,994 3,942,523
Notes payable 2,255,457
Notes payable - related party 1,820,910 318,078
Bank loan payable - current portion 119,863 120,920
Operating lease liability 135,811  
Financial lease liability 8,418  
Other current liabilities 196,694
Total Current Liabilities 17,248,489 11,880,219
Non-current liabilities    
Deferred tax liability 1,386,035
Bank loan payable 190,197 225,131
Operating lease liability 561,289
Financial lease liability 33,170
Other long term liabilities 619,991 608,728
Total Non-current liabilities 2,790,682 833,859
Total Liabilities 20,039,171 12,714,078
Stockholders' Equity    
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, none issued
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 9,795,396 and 9,442,537 shares issued and outstanding as of March 31, 2019 and December 31, 2018* 980 944
Additional paid-in capital 25,079,491 23,962,920
Accumulated other comprehensive income (187,661) (57,431)
Accumulated deficit (17,080,982) (13,967,030)
Total Stockholders' Equity 7,811,828 9,939,403
Total Liabilities and Stockholders Equity $ 27,850,999 $ 22,653,481
v3.20.1
Condolidated Balance Sheets (Parenthetical) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Debt Discount $ 3,300,942 $ 4,587,228
STOCKHOLDERS' EQUITY    
Preferred Stock - par value $ 0.0001 $ 0.0001
Preferred stock - authorized 20,000,000 20,000,000
Preferred stock - issued
Preferred stock - outstanding
Common Stock - par value $ 0.0001 $ 0.0001
Common Stock - authorized 80,000,000 80,000,000
Common Stock - issued 9,795,396 9,442,537
Common Stock - outstanding 9,795,396 9,442,537
v3.20.1
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenue $ 9,266,294 $ 8,593,867
Costs and Expenses    
Selling expenses 7,407,706 6,077,357
General and administrative expenses 3,197,454 2,205,314
Total Costs and Expenses 10,605,160 8,282,671
(Loss) income from Operations (1,338,866) 311,196
Other (Expenses) Income    
Interest expense, net of interest income (1,504,112) (212,239)
Changes in fair value of derivative liabilities 254,289
Imputed interest on related party advances (1,514)
Gain on litigation settlement 516,120
Loss on marketable securities (25,000)
Total Other (Expenses) Income (1,529,112) 556,656
(Loss) Income Before Income Taxes (2,867,978) 867,852
Income tax provision (245,974) (245,036)
Net (Loss) Income (3,113,952) 622,816
Other Comprehensive Loss    
Foreign currency translation adjustment (130,230) 97,473
Comprehensive (Loss) Income $ (3,244,182) $ 720,289
(Loss) Income per common share- basic * $ (0.33) $ 0.07
(Loss) Income per common share-diluted * $ (0.33) $ 0.07
Weighted average number of common shares outstanding- basic* 9,549,358 9,273,323
Weighted average number of common shares outstanding-diluted* 9,549,358 9,512,007
v3.20.1
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) - 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   1,251     1,251
Common stock issued with debentures, shares 13,875        
Common stock issued with debentures $ 1 55,499     55,000
Beneficial conversion value of debt   91,017     91,017
Foreign currency translation adjustment     97,423   97,423
Net income (loss)       622,816 622,816
Ending Balance, Shares at Mar. 31, 2018 9,281,823        
Ending Balance, Amount at Mar. 31, 2018 $ 928 14,696,718 224,085 (9,715,457) 5,206,274
Beginning Balance, Shares at Dec. 31, 2018 9,442,537        
Beginning Balance, Amount at Dec. 31, 2018 $ 944 23,962,920 (57,431) (13,967,030) 9,939,403
Common stock issued with debentures, shares 287,561        
Common stock issued with debentures $ 29 919,795     919,824
Common stock issued for the purchase of subsidiaries,shares 65,298        
Common stock issued for the purchase of subsidiaries $ 7 199,776     196,783
Foreign currency translation adjustment     (130,230)   (130,230)
Net income (loss)       (3,113,952) (3,113,952)
Ending Balance, Shares at Mar. 31, 2019 9,795,396        
Ending Balance, Amount at Mar. 31, 2019 $ 980 $ 25,079,491 $ (187,661) $ (17,080,982) $ 7,811,828
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash Flows from Operating Activities    
Net (loss) income $ (3,113,952) $ 622,816
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities    
Depreciation and amortization 206,524 210,555
Amortization of deferred costs 1,356,476 13,558
Non-cash interest 237,527 87,150
Imputed interest on advances from stockholders 1,514
Changes in fair value of derivative liabilities (254,289)
Unrealized loss on trading securities 25,000
Movement in deferred taxation (15,573)
Recovery of assets (516,120)
Bad debt expense 6,354
Changes in Operating Assets and Liabilities    
Prepaid expenses 6,862 (119,504)
Accounts payable and accrued liabilities 308,103 (60,316)
Accounts receivable (139,630) 66,109
Gaming accounts receivable (65,651) 331,802
Gaming accounts liabilities 81,632 756,469
Taxes payable 23,981 146,571
Other current assets (65,417) (8,983)
Customer deposits 53,684
Other current liabilities 146,304
Long term liability 23,326 13,329
Net Cash (Used in) Provided by Operating Activities (984,488) 1,350,699
Cash Flows from Investing Activities    
Acquisition of property, plant, and equipment, and intangible assets (42,382) (250,547)
Acquisition of Virtual Generation, net of cash of $47,268 (216,150)
Net Cash Used in Investing Activities (258,532) (250,547)
Cash Flows from Financing Activities    
Proceeds from bank credit line 275,000 (181,413)
Repayment of bank credit line (200,000)
Repayment of bank loan (29,134) (30,526)
Proceeds from debentures and convertible notes, net of repayment 126,849
Conversion of debentures exercised 55,200
Repayment of financial leases (2,593)  
Loan to related party (43,713) (48,039)
Advances from stockholders, net of repayment 6,596 (559,131)
Net Cash Provided by (Used) in Financing Activities 61,356 (692,260)
Effect of change in exchange rate 60,056 327,490
Net (decrease) increase in cash (1,121,608) 735,382
Cash- beginning of the period 7,850,442 7,057,763
Cash- end of the period 6,728,834 7,793,145
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows    
Cash and cash equivalents 5,179,403 7,190,209
Restricted cash included in non-current assets 1,549,431 602,936
Cash- end of the period 6,728,834 7,793,145
Supplemental disclosure of cash flow information    
Cash paid during the period for: Interest 9,468 118,301
Cash paid during the period for: Income tax 270,273 340,092
Supplemental cash flow disclosure for non-cash activities    
Common shares issued with conversion of debentures* 2,300,487
Common shares issued with purchase of Virtual Generation* $ 522,380
v3.20.1
Consolidated Statements of Cash Flows (Parenthetical)
3 Months Ended
Mar. 31, 2019
USD ($)
Statement of Cash Flows [Abstract]  
Acquisition of Virtual Generation, cash $ 47,268
v3.20.1
Basis of Presentation and Nature of Business
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Nature of Business

1. Basis of Presentation and Nature of Business

 

Basis of Presentation

 

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

 

Nature of Business

 

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

 

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

 

Newgioco Group is a commercial stage and vertically integrated company operating in one line of business that provides certified Betting Platform Software (“BPS”) services to and the operating of leisure betting establishments situated throughout Italy and in 11 other countries. The Company is comprised of 3 geographically organized groups: an Operational Group; Technology Group; and a Corporate Group with approximately 70 employees organized as follows:

 

a)the Operational Group is based in Europe and maintains administrative and customer service offices headquartered in Rome, Italy with sub offices for operations administration, and risk management and trading in Naples and Teramo, Italy and Valetta, Malta;
b)the Technology Group is based in Innsbruck, Austria and manages software development, training and administration; and
c)the Corporate Group is based in North America which includes a head office situated in Toronto, Canada with a sub office in Scottsdale, Arizona through which our CEO, CFO and VP Corporate Development carry-out our corporate duties, handle day-to-day reporting and other operations such as U.S. development and planning, and through which various independent contractors and vendors are engaged.

 

v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

 

Basis of consolidation

 

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

 

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

 

Use of estimates

 

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

 

Goodwill

 

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

 

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


The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during the three months ended March 31, 2019 or March 31, 2018. For the three months ended March 31, 2019 approximately $5,000 in goodwill was recorded as part of an acquisition.

 

Long-Lived Assets

 

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

 

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

 

Derivative Financial Instruments

 

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

 

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

 

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

 

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 reflect the potential dilution of securities that could share in the earnings of an entity and include warrants granted and convertible debt. These potentially dilutive securities were included in the calculation of earnings per share for the three months ended March 31, 2018 but not for the three months ended March 31, 2019 because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for the three months ended March 31, 2019.

 

The following is a reconciliation of weighted average shares and a calculation of earnings per share:

 

  

Three Months Ended

March 31,

   2019  2018
Net (Loss) Income  $(3,113,951)  $622,817 
           
Weighted Average Basic Shares   9,549,358    9,273,323 
Effect of dilutive securities   —      238,684 
Weighted Average diluted Shares   9,549,358    9,512,007 
           
(Loss) Earnings per share          
Basic  $(0.32)  $0.07 
Diluted  $(0.32)  $0.071 

  

  

Currency translation

 

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

 

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 (“ASC Topic 606”) supersedes the existing revenue recognition guidance and is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted ASC Topic 606 on January 1, 2018 and has determined that the new standard does not have a material impact on the nature and timing of revenues recognized.

 

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 BPS include license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees were recognized on an accrual basis as earned.

 

Cash and equivalents

 

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

 

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

  

Gaming accounts receivable

 

Gaming accounts receivable represents gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to our bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded bad debt expense $nil and $6,354 for the three months ended March 31, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

Gaming account balances

 

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

 

Fair Value Measurements

 

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

 

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

 

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

 

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

 

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

 

On March 31, 2018, in connection with a settlement agreement with 2336414, the Company received 2,500,000 shares of common stock of Zoompass Holdings, Inc. The value of these shares are included in Investment in non-consolidated entities and is revalued every quarter with fluctuations in fair value recorded to earnings. The fair value of the investment is based on the closing price of the shares reported on the principal stock exchange on which they are traded. At March 31, 2019 the Company held 2,500,000 shares of Zoompass which traded at a closing price of $0.10, or value of $250,000. For the three months ended March 31, 2019, an unrealized loss of $25,000 related to the investment in Zoompass.

 

The following tables presents assets that are measured and recognized at fair value as of March 31, 2019 and March 31, 2018, on a recurring basis:

 

   March 31, 2019   
   Level 1  Level 2  Level 3 

Total Carrying

Value

Shares of Zoompass Holdings, Inc.  $250,000    —      —     $250,000 

 

   March 31, 2018   
   Level 1  Level 2  Level 3 

Total Carrying

Value

Shares of Zoompass Holdings, Inc.  $350,000    —      —     $350,000 

 

 

Property, plant and equipment

 

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

 

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

 

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

 

 

Income Taxes

 

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

 

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.

 

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

 

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

 

Comprehensive Income (Loss)

 

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

 

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

 

Investment in Non-Consolidated Entities

 

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

 

Net unrealized (losses) recorded to earnings related to these securities were $25,000 for the three months ended March 31, 2019.

 

Recent Accounting Pronouncements Not Yet Adopted

 

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

 

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

 

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

 

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

 

 

v3.20.1
Restatement of prior period results
3 Months Ended
Mar. 31, 2019
Accounting Changes and Error Corrections [Abstract]  
Restatement of prior period results

3. Restatement of prior period results

 

The company identified the following errors in the financial results for the periods ended March 31, 2019 and 2018.

 

Three months ended March 31, 2019

 

    The company restated its financial statements for the year ended December 31, 2018, to correct the recording of non-cash amortization of intangible assets and the depreciation of revalued plant and equipment which was incorrectly classified as other comprehensive income, the unrealized foreign currency loss on convertible debentures denominated in Canadian Dollars and other immaterial adjustments, resulting in a restatement of opening balances of plant and equipment of $121,243, intangible assets of $(55,475), other comprehensive income of $(1,023,907) and opening retained earnings of $(958,138).

 

   

The Company had not accounted for ASC 842 – leases, which was effective for periods beginning January 1, 2019, in its interim financial statements for the periods ended March 31, 2019, June 30, 2019 and September 30, 2019.

 

The Company recorded a right-of-use asset of $646,138 and an operating lease liability of $617,352 and an accrued liability of $28,786 as of January 1, 2019. An additional $138,312 of operating leases were entered into during the three months ended March 31, 2019. The amortization of the right-of-use asset during the three months ended March 31, 2019 amounted to $46,987, the amortization of the operating lease liability of $45,256 and reduction of the accrued liability of $1,731.

 

The Company adjusted its accounting for financial leases by recording an office equipment asset of $34,638 and a finance lease liability of $34,524 as of January 1, 2019. During the three months ended March 31, 2019, an additional $10,319 of additional office equipment under financial leases was recorded. The Company recorded a depreciation charge of $2,614 related to these assets, an interest charge of $322 and amortization of financial leases of $2,480.

 

    The Company modified its accounting for the acquisition of Virtual Generation by accounting for the imputed deferred tax liability on the value of the Platform acquired, resulting in an adjustment of $1,401,608 to deferred tax liability and recording of a goodwill asset on acquisition of $1,401,608. The Virtual Generation platform valued at $4,004,954 was amortized for the three months ended March 31, 2019, resulting in an amortization expense of $44,495 and a reduction in the deferred tax liability of $15,573.

 

    Other immaterial adjustments relating to the recording of intercompany movements were incorrectly reflected in other comprehensive income, the net adjustment amounted to $20,197 and an adjustment of comprehensive loss of $73,485.

 

    Due to a 1 for 8 reverse stock split which took place on December 12, 2019, the outstanding shares and additional paid in capital was adjusted to take into account the effects of the reverse stock split.

 

Three months ended March 31, 2018

 

    The error corrected in the financial statements for the year ended December 31, 2018, resulted in an adjustment to depreciation and amortization expense of $117,648, an adjustment to foreign exchange movements of $27,882 and an immaterial $331 adjustment to general and administrative expenses.

 

 

The restatement recorded by the Company for the three months ended March 31, 2019 was as follows:

 

   Prior year adjustment  Lease adjustments  Acquisition of Virtual Generation adjustments  Other adjustments  Total Restated
                
Opening retained earnings  $958,136   $—     $—     $—     $958,136 
General and administrative expenses   —      (2,925)   —      (21,512)   (24,437)
Depreciation and amortization   —      2,614    44,495    1,315    48,424 
Interest expense   —      322    —      —      322 
Deferred taxation   —      —      (15,573)   —      (15,573)
Net increase in accumulated deficit   —      11    28,922    (20,197)   966,872 
                          
Net decrease in other Comprehensive loss   (1,023,907)   561    —      73,488    (949,858)
                          
Net increase in plant and equipment and intangibles   65,771    765,173    1,357,113    (2,901)   2,185,156 
                          
Total increase in current liabilities   —      (171,286)   —      (50,390)   (221,676)
                          
Net increase in non-current liabilities  $—     $(594,459)  $(1,386,035)  $—     $(1,980,494)

 

The restatement recorded by the Company for the three months ended March 31, 2018 was as follows:

 

   Plant and equipment and intangibles adjustments  Foreign currency adjustments  Other adjustments  Total Restated
             
General and administrative expenses  $—     $27,882   $331   $28,213 
Depreciation and amortization   117,648    —      —      117,648 
Net increase in accumulated deficit  $117,648   $27,882   $331   $145,861 

 

 

The reconciliation of the consolidated balance sheet as of March 31, 2019 is as follows:

 

   As Previously Reported  Prior year adjustment  Lease adjustments  Acquisition of Virtual Generation  Other Adjustments  As Restated
                   
Current Assets                              
Cash and cash equivalents  $5,179,403   $—     $—     $—     $—     $5,179,403 
Accounts receivable   197,221    —      —      —      —      197,221 
Gaming accounts receivable   1,066,470    —      —      —      —      1,066,470 
Prepaid expenses   124,177    —      —      —      —      124,177 
Related party receivable   27,866    —      —      —      —      27,866 
Other current assets   152,090    —      —      —      —      152,090 
Total Current Assets   6,747,227    —      —      —      —      6,747,227 
                               
Noncurrent Assets                              
Restricted cash   1,549,431    —      —      —      —      1,549,431 
Property, plant and equipment   383,528    121,248    41,566    —      (5,605)   540,737 
Right-of-use assets   —      —      723,607    —      —      723,607 
Intangible assets   16,468,511    (55,477)   —      (39,901)   3,204    16,376,337 
Goodwill   267,146    —      —      1,397,014    (500)   1,663,660 
Investment in non-consolidated entities   250,000    —      —      —      —      250,000 
Total Noncurrent Assets   18,918,616    65,771    765,173    1,357,113    (2,901)   21,103,772 
Total Assets  $25,665,843   $65,771   $765,173   $1,357,113   $(2,901)  $27,850,999 
                               
Current Liabilities                              
Line of credit - bank  $825,000    —     $—     $—     $—     $825,000 
Accounts payable and accrued liabilities   5,170,864    —      27,058    —      —      5,197,922 
Gaming accounts balances   1,110,260    —      —      —      —      1,110,260 
Taxes payable   1,059,477    —      —      —      —      1,059,477 
Advances from stockholders   44,683    —      —      —      —      44,683 
Debentures, net of discount   4,473,994    —      —      —      —      4,473,994 
Promissory notes payable – other   2,255,457    —      —      —      —      2,255,457 
Promissory notes payable – related party   1,820,910    —      —      —      —      1,820,910 
Bank loan payable – current portion   119,863    —      —      —      —      119,863 
Operating lease liability   —      —      135,811    —           135,811 
Financial lease liability   —      —      8,418    —           8,418 
Other current liabilities   146,304    —      —      —      50,390    196,694 
Total Current Liabilities   17,026,812    —      171,287    —      50,390    17,248,489 
                               
Non-current liabilities                              
Deferred tax liability   —      —      —      1,386,035    —      1,386,035 
Bank loan payable   190,197    —      —      —      —      190,197 
Operating lease liability   —      —      561,289    —      —      561,289 
Financial lease liability   —      —      33,170    —      —      33,170 
Other long-term liabilities   619,991    —      —      —      —      619,991 
    810,188    —      594,459    1,386,035    —      2,790,682 
Total Liabilities   17,837,000    —      765,746    1,386,035    50,390    20,039,171 
                               
Stockholders' Equity                              
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, none issued   —      —      —      —      —      —   
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 9,795,396 shares issued and outstanding as of March 31, 2019*   7,837    —      —      —      (6,857)   980 
Additional paid-in capital*   25,072,634    —      —      —      6,857    25,079,491 
Accumulated other comprehensive income   (1,137,518)   1,023,907    (562)   —      (73,488)   (187,661)
Accumulated deficit   (16,114,110)   (958,136)   (11)   (28,922)   20,197    (17,080,982)
Total Stockholders' Equity   7,828,843    65,771    (573)   (28,922)   (53,291)   7,811,828 
Total Liabilities and Stockholders’ Equity  $25,665,843   $65,771   $765,173   $1,357,113   $(2,901)  $27,850,999 

 

* Adjusted for a 1 for 8 reverse stock split effective December 12, 2019.

 

 

The reconciliation of the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2019 is as follows:

 

   As Previously Reported 

Lease

adjustments

  Acquisition of Virtual Generation  Other Adjustments  As Restated
                
Revenue  $9,266,294   $—     $—     $—     $9,266,294 
                          
Costs and Expenses                         
Selling expenses   7,407,706    —      —      —      7,407,706 
General and administrative expenses   3,173,467    (311)   44,495    (20,197)   3,197,454 
Total Costs and Expenses   10,581,173    (311)   44,495    (20,197)   10,605,160 
                          
Loss from Operations   (1,314,879)   311    (44,495)   20,197    (1,338,866)
                          
Other (Expenses) Income                         
Interest expense, net of interest income   (1,503,790)   (322)   —      —      (1,504,112)
Other Expense   (25,000)   —      —      —      (25,000)
Total Other (Expenses) Income   (1,528,790)   (322)   —      —      (1,529,112)
                          
Loss Before Income Taxes   (2,843,669)   (11)   (44,495)   20,197    (2,867,978)
                          
Income tax provision   (261,547)   —      15,573    —      (245,974)
                          
Net Loss  $(3,105,216)  $(11)  $(28,922)  $20,197   $(3,113,952)
                          
Other Comprehensive Loss                         
Foreign currency translation adjustment   (56,180)   (562)   —      (73,488)   (130,230)
                          
Comprehensive Loss  $(3,161,396)  $(573)  $(28,922)  $(53,291)  $(3,244,182)
                          
Loss per common share – basic and diluted*  $(0.33)                 $(0.33)
Weighted average number of common shares outstanding – basic and diluted*   9,549,358                   9,549,358 

 

 

* Adjusted for a 1 for 8 reverse stock split effective December 12, 2019.

 

 

The reconciliation of the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2018 is as follows:

 

   As Previously Reported  Depreciation and amortization adjustments  Foreign Exchange adjustments  Other Adjustments  As Restated
                
Revenue  $8,593,867   $—     $—     $—     $8,593,867 
                          
Costs and Expenses                         
Selling expenses   6,077,357    —      —      —      6,077,357 
General and administrative expenses   2,059,453    117,648    27,882    331    2,205,314 
Total Costs and Expenses   8,136,810    117,648    27,882    331    8,282,671 
                          
Income from Operations   457,057    (117,648)   (27,882)   (331)   311,196 
                          
Other (Expenses) Income                         
Interest expense, net of interest income   (212,239)   —      —      —      (212,239)
Changes in fair value of derivative liabilities   254,289    —      —      —      254,289 
Imputed interest on related party advances   (1,514)   —      —      —      (1,514)
Gain on litigation settlement   516,120    —      —      —      516,120 
Total Other Expenses (Income)   556,656    —      —      —      556,656 
                          
Income (Loss) Before Income Taxes   1,013,713    (117,648)   (27,882)   (331)   867,852 
                          
Income tax provision   (245,036)   —      —      —      (245,036)
                          
Net Income (Loss)  $768,677   $(117,648)  $(27,882)  $(331)  $622,816 
                          
Other Comprehensive Income (Loss)                         
Foreign currency translation adjustment   (64,518)   133,778    27,882    331    97,473 
                          
Comprehensive Income (Loss)  $704,158   $16,130   $—     $—     $720,289 
                          
Income (loss) per common share – basic*  $0.08                  $0.07 
Income (loss) per common share – diluted*  $0.08                  $0.07 
Weighted average number of common shares outstanding – basic*   9,273,323                   9,273,323 
Weighted average number of common shares outstanding – diluted*   9,512,007                   9,512,007 

 

* Adjusted for a 1 for 8 reverse stock split effective December 12, 2019.

 

The reconciliation of the consolidated statement of cash flows for the three months ended March 31, 2019 is as follows:

 

   As Previously Reported 

Lease

adjustments

  Acquisition of Virtual Generation  Other Adjustments and reclassifications  As Restated
                
Cash Flows from Operating Activities                         
Net loss  $(3,105,216)  $(11)  $(28,922)  $20,197   $(3,113,952)
                          
Adjustments to reconcile net loss to net cash generated by operating activities                         
Depreciation and amortization   158,100    2,614    44,495    1,315    206,524 
Amortization of deferred costs   1,290,202    —      —      66,274    1,356,476 
Non-cash interest   —      —      —      237,527    237,527 
Unrealized loss on trading securities   25,000    —      —      —      25,000 
Deferred taxation movements   —      —      (15,573)   —      (15,573)
Foreign translation loss   109,960    —           (109,960)   —   
Intercompany movements   152,066    —           (152,066)   —   
Changes in Operating Assets and Liabilities                         
Prepaid expenses   6,862    —      —      —      6,862 
Accounts payable and accrued liabilities   545,630    —      —      (237,527)   308,103 
Accounts receivable   (139,630)   —      —      —      (139,630)
Gaming accounts receivable   (65,651)   —      —      —      (65,651)
Gaming accounts liabilities   81,632    —      —      —      81,632 
Taxes payable   23,981    —      —      —      23,981 
Other current assets   (65,417)   —      —      —      (65,417)
Customer deposits   23,326    —      —      —      23,326 
Other current liabilities   146,304    —      —      —      146,304 
Net Cash used in operating Activities   (812,851)   2,603    —      (174,240)   (984,488)
                          
Cash Flows from Investing Activities                         
Acquisition of property, plant, and equipment, and intangible assets   (46,804)   —      4,594    (172)   (42,382)
Movements in restricted cash   1              (1)   —   
Acquisition of Virtual Generation, net of cash of $47,268   46,344    —      (262,494)   —      (216,250)
Net Cash Used in Investing Activities   (459)   —      (257,900)   (173)   (258,532)
                          
Cash Flows from Financing Activities                         
Proceeds from bank credit line, net   275,000    —      —      —      275,000 
Repayment of bank credit line   (200,000)   —      —      —      (200,000)
Repayment of bank loan   (29,134)   —      —      —      (29,134)
Conversion of debentures exercised   55,200                   55,200 
Repayment of deferred purchase consideration – non-related parties   (263,491)   —      263,491    —      —   
Repayment of deferred purchase consideration – related parties   (175,661)        175,661         —   
Movement in financial leases   —      (2,593)             (2,593)
Common stock issued for purchase of Virtual Generation   196,783         (196,783)        —   
Advance to related party   (43,713)   —      —      —      (43,713)
Repayment of loans advanced to stockholders   6,596    —      —      —      6,596 
Net Cash Provided by Financing Activities   (178,420)   (2,593)   242,369    —      61,356 
                          
Effect of change in exchange rate   (118,770)   (10)   15,531    163,305    60,056 
                          
Net decrease in cash   (1,110,500)   —      —      (11,108)   (1,121,608)
Cash – beginning of the year   6,289,903    —      —      1,560,539    7,850,442 
Cash – end of the year  $5,179,403   $—     $—     $1,549,431   $6,728,834 
Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows                         
                          
Cash and cash equivalents   5,179,403    —      —      —      5,179,403 
Restricted cash   —                1,549,431    1,549,431 
    5,179,403              1,549,431    6,728,834 

 

 

The reconciliation of the consolidated statement of cash flows for the three months ended March 31, 2018 is as follows:

 

   As Previously Reported 

Depreciation
and

amortization

adjustments

 

Foreign

Exchange adjustments

  Other Adjustments and reclassifications  As Restated
                
Cash Flows from Operating Activities                         
Net income  $768,677   $(117,648)  $(27,882)  $(331)  $622,816 
                          
Adjustments to reconcile net income to net cash generated by operating activities                         
Depreciation and amortization   158,357    52,198    —      —      210,555 
Amortization of deferred costs   13,558    —      —      —      13,558 
Non-cash interest   87,150    —      —      —      87,150 
Imputed interest on advances from stockholders   1,514    —      —      —      1,514 
Change in fair value of derivative liabilities   (254,289)   —      —      —      (254,289)
Recovery of assets   (516,120)   —      —      —      (516,120)
Bad debt expense   6,354    —      —      —      6,354 
Changes in Operating Assets and Liabilities                         
Prepaid expenses   (119,504)   —      —      —      (119,504)
Accounts payable and accrued liabilities   (60,647)   —      —      331    (60,316)
Accounts receivable   66,109    —      —      —      66,109 
Gaming accounts receivable   331,802    —      —      —      331,802 
Gaming accounts liabilities   756,469    —      —      —      756,469 
Taxes payable   146,571    —      —      —      146,571 
Other current assets   (8,983)   —      —      —      (8,983)
Customer deposits   53,684    —      —      —      53,684 
Long term liability   13,329    —      —      —      13,329 
Net Cash Provided by operating Activities   1,444,031    (65,450)   (27,882)   —      1,350,699 
                          
Cash Flows from Investing Activities                         
Acquisition of property, plant, and equipment, and intangible assets   (182,858)   (67,689)   —      —      (250,547)
Increase in restricted cash   60    —      —      (60)   —   
Net Cash Used in Investing Activities   (182,796)   (67,689)   —      (60)   (250,547)
                          
Cash Flows from Financing Activities                         
Repayment of bank credit line, net   (181,413)   —      —      —      (181,413)
Repayment of bank loan   (30,526)   —      —      —      (30,526)
Proceeds from debentures and convertible notes, net of repayment   126,849    —      —      —      126,849 
Loan to related party   (48,039)                  (48,039)
Repayment to stockholders, net of advances   (559,131)   —      —      —      (559,131)
Net Cash Provided by Financing Activities   (692,260)   —      —      —      (692,260)
                          
Effect of change in exchange rate   151,378    133,139    27,882    15,091    327,490 
                          
Net decrease in cash   720,351    —      —      15,031    735,382 
Cash – beginning of the year   6,469,858    —      —      587,905    7,057,763 
Cash – end of the year  $7,190,209   $—     $—     $602,936   $7,793,145 
                          
Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows                         
                          
Cash and cash equivalents   7,190,209    —      —      —      7,190,209 
Restricted cash   —      —      —      602,936    602,936 
    7,190,209    —      —      602,936    7,793,145 

 

 

v3.20.1
Acquisition betting software technology; offline and land-based gaming assets
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisition of betting software technology; offline and land-based gaming assets

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

 

Ulisse GmbH (“Ulisse”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement (“Ulisse SPA”), which closed on July 1, 2016, with the shareholders of Ulisse organized under the laws of Austria. Ulisse operates a network of approximately 170 land-based agency locations. Pursuant to the agreement, the Company issued 3,331,200 shares of common stock in consideration for 100% of the issued and outstanding shares of Ulisse.

 

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

 

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

 

Multigioco Acquisition

 

On May 31, 2018, the Company and Multigioco mutually agreed to exercise the option to repurchase the shares issued to the shareholders of Multigioco at the closing of the acquisition of Multigioco on August 15, 2014 (“Multigioco Put Option”). The Company repurchased and retired the balance of 2,040,000 shares issued to the Multigioco sellers in exchange for EUR 510,000 (approximately USD $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. VG owns and has developed a virtual gaming software platform, together with all the ordinary shares of Naos Holding Limited, a company organized under the laws of Republic of Malta (“Naos”) that owns 3,999 of the 4,000 issued and outstanding ordinary shares of VG. Pursuant to the agreement, the Company issued 522,380 shares of common stock in consideration for 100% of the issued and outstanding shares of VG.

 

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

  (i) a cash payment of One Hundred and Eight Thousand Euro (€108,000);

 

  (ii) the issuance of shares of the Company’s common stock valued at Eighty-Nine Thousand Euro (€89,000); and

 

  (iii) the delivery of a non-interest bearing promissory note (the “Promissory Note”) providing for the payment of (a) an aggregate of €2,392,000 in cash in 23 equal and consecutive monthly instalments of €104,000 with the first such payment due and payable on the date that is one (1) month after the Closing Date; and (b) an aggregate of €1,411,000 in shares of the Company’s common stock in seventeen (17) equal and consecutive monthly instalments of €83,000 as determined by the average of the closing prices of such shares on the last ten (10) trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

The value of the EUR 4,000,000 promissory note net of discount was EUR 3,665,255 ($4,193,374 U.S.). The note was allocated as 40% as related party and 60% non-related party. In the first quarter ending March 31, 2019, cash payments were $240,015 net of interest of $2,354. Shares were issued at an equivalent of $195,220 net of interest of $1,563. Transaction gain during the quarter was $150. As of March 31, 2019, the promissory note net of discount related to the purchase of VG had a balance of $3,758,289 ($1,502,832 related party; $2,255,457 non-related party).

 

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

 

    
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 assets acquired   (1,401,608)
Total identifiable assets less liabilities assumed   2,791,767 
Goodwill arising on acquisition   1,401,608 
Total purchase price  $4,193,375 

 

 

 

 

v3.20.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases

5. 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 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:

 

   March 31, 2019
    
Non-Current assets     
Right-of-use assets - operating leases, net of amortization  $723,607 
Right-of-use assets – finance leases, net of amortization (included in plant and equipment)  $41,566 

 

Lease costs consists of the following:

 

   Three months ended March 31, 2019
    
Finance lease cost:  $2,936 
Amortization of right-of-use assets   2,614 
Interest expense on lease liabilities   322 
      
Operating lease cost   51,406 
      
Total lease cost  $54,342 

 

Other lease information:

 

   Three months ended March 31, 2019
    
    
    
Cash paid for amounts included in the measurement of lease liabilities     
Operating cash flows from finance leases  $(322)
Operating cash flows from operating leases   (51,406)
Financing cash flows from finance leases   (2,801)
      
Right-of-use assets obtained in exchange for new finance leases   9,088 
Right-of-use assets disposed of under operating leases prior to lease maturity   —   
Right-of -use assets obtained in exchange for new operating leases  $138,312 
      
Weighted average remaining lease term – finance leases   3.97 years 
Weighted average remaining lease term – operating leases   3.85 years 
      
Weighted average discount rate – finance leases   3.48%
Weighted average discount rate – operating leases   3.47%
      

 

Maturity of Leases

 

Finance lease liability

 

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

 

    Amount
     
  2019     $ 9,413  
  2020       12,551  
  2021       9,355  
  2022       7,375  
  2023       5,650  
  2024       370  
  Total undiscounted minimum future lease payments       44,714  
  Imputed interest       (3,126 )
  Total finance lease liability     $ 41,588  
             
  Disclosed as:          
  Current portion     $ 8,418  
  Non-Current portion       33,170  
        $ 41,588  

 

Operating lease liability

 

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

 

    Amount
     
2019   $ 152,350  
2020     190,412  
2021     159,374  
2022     133,122  
2023     82,484  
2024 and beyond     28,716  
Total undiscounted minimum future lease payments     746,458  
Imputed interest     (49,358 )
         
Total operating lease liability   $ 697,100  
         
Disclosed as:        
Current portion   $ 135,811  
Non-Current portion     561,289  
    $ 697,100  

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

6. Intangible Assets

 

Intangible assets consist of the following:

 

   March 31, 2019  December 31, 2018
Betting Platform Software  $1,685,371   $1,685,371 
Ulisse Bookmaker License   9,727,914    9,727,914 
Multigioco and Rifa ADM Licenses   961,756    961,756 
VG Licenses   4,004,594    —   
Location contracts   1,000,000    1,000,000 
Customer relationships   870,927    870,927 
Trademarks/names   110,000    110,000 
Websites   40,000    40,000 
    18,400,964    14,395,968 
Accumulated amortization   (2,024,627)   (1,867,986)
Balance  $16,376,337   $12,527,982 

 

The Company evaluates intangible assets for impairment on an quarterly basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value. The Company recorded approximately $177,000 and $113,000 in amortization expense for the finite-lived assets the three months ended March 31, 2019 and March 31, 2018 respectively.

 

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

 

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