XBRL Rendering Preview
v3.20.1
Cover - shares
6 Months Ended
Jun. 30, 2020
Aug. 18, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2020  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --12-31  
Entity Registrant Name Newgioco Group, Inc.  
Entity Central Index Key 0001080319  
Entity Current Reporting Status No  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   16,665,099
v3.20.1
Consolidated Balance Sheets - USD ($)
Jun. 30, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 5,783,449 $ 5,182,598
Accounts receivable 95,198 152,879
Gaming accounts receivable 551,935 1,242,005
Prepaid expenses 214,754 221,547
Related party receivable 1,395 4,123
Other current assets 513,827 461,398
Total Current Assets 7,160,558 7,264,550
Non - Current Assets    
Restricted cash 1,550,291 1,549,917
Property, plant and equipment 501,281 520,725
Right of use assets 684,502 792,078
Intangible assets 15,505,524 15,857,027
Goodwill 1,663,207 1,663,385
Marketable securities 900,000 177,500
Total Non - current Assets 20,804,805 20,560,632
Total Assets 27,965,363 27,825,182
Current Liabilities    
Line of credit - bank 1,000,000 1,000,000
Accounts payable and accrued liabilities 7,161,828 6,800,765
Gaming accounts payable 2,131,020 1,735,650
Taxes payable 556,822 298,476
Advances from stockholders 14,914 2,551
Deferred purchase consideration, net of discount of $53,587 and $120,104 866,979 1,682,280
Deferred purchase consideration, Related Party, net of discount of $35,725 and $90,069 702,616 1,199,361
Debentures, net of discount of $0 and $627,627 3,331,207 3,361,337
Operating lease liability 99,298 200,866
Financial lease liability 6,246 12,476
Promissory notes payable - related party 300,000
Bank loan payable- current portion 103,855 124,079
Total Current Liabilities 16,274,785 16,417,841
Non-current Liabilities    
Deferred tax liability 1,269,234 1,315,954
Operating lease liability 549,120 548,747
Financial lease liability 25,521 25,025
Bank loan payable 126,203 96,786
Other long-term liabilities 617,979 619,544
Total Non- Current Liabilities 2,588,057 2,606,056
Total Liabilities 18,862,842 19,023,897
Stockholders' Equity    
Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,495,002 and 11,949,042 shares issued and outstanding as of June 30, 2020 and December 31, 2019 1,249 1,194
Additional paid-in capital 34,981,284 32,218,643
Accumulated other comprehensive income (270,231) (176,717)
Accumulated deficit (25,609,781) (23,241,835)
Total Stockholders Equity 9,102,521 8,801,285
Total Liabilities and Stockholders Equity $ 27,965,363 $ 27,825,182
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
Jun. 30, 2020
Dec. 31, 2019
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 12,495,002 11,949,042
Common Stock - outstanding 12,495,002 11,949,042
Deferred Purchase Consideration[Member]    
Debt Discount $ 53,587 $ 120,104
Deferred Purchase Consideration Related Party[Member]    
Debt Discount 35,725 90,069
Debentures[Member]    
Debt Discount $ 0 $ 627,627
v3.20.1
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue $ 4,810,269 $ 9,105,353 $ 14,980,443 $ 18,371,648
Costs and Expenses        
Selling expenses 3,957,366 6,268,772 10,172,527 13,676,478
General and administrative expenses 2,883,427 3,360,284 5,704,388 6,557,739
Total Costs and Expenses 6,840,793 9,629,056 15,876,915 20,234,217
Loss from Operations (2,030,524) (523,703) (896,472) (1,862,569)
Other (Expenses) Income        
Other income 13,862 7,725 25,660 7,725
Interest expense, net of interest income (33,099) (277,639) (173,073) (425,275)
Amortization of debt discount (286,845) (739,604) (737,074) (2,096,080)
Loss on extinguishment of convertible debt (719,390) (719,390)
Loss on conversion of debt (35,943) (35,943)
Gain (Loss) on marketable securities 592,500 722,500 (25,000)
Total Other (Expenses) Income (432,972) (1,045,461) (881,377) (2,574,573)
Loss Before Income Taxes (2,463,496) (1,569,164) (1,777,849) (4,437,142)
Income tax provision (62,059) (209,056) (590,097) (455,030)
Net Loss (2,525,555) (1,778,220) (2,367,946) (4,892,172)
Other Comprehensive Income (Loss)        
Foreign currency translation adjustment 18,516 69,023 (93,514) (61,207)
Comprehensive Loss $ (2,507,039) $ (1,709,197) $ (2,461,460) $ (4,953,379)
Loss per common share- basic and diluted* $ (0.20) $ (0.17) $ (0.19) $ (0.50)
Weighted average number of common shares outstanding- basic and diluted* 12,434,338 9,870,357 12,320,653 9,764,450
v3.20.1
Consolidated Statements of Changes in Stockholders Equity - USD ($)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income
Accumulated Deficit
Total
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 to settle deferred purchase consideration,shares 65,298        
Common stock issued to settle deferred purchase consideration $ 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
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
Fair value of warrants issued on convertible debt extensions        
Ending Balance, Shares at Jun. 30, 2019 9,918,517        
Ending Balance, Amount at Jun. 30, 2019 $ 992 25,462,926 (118,638) (18,859,202) 6,486,078
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
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
Beginning Balance, Shares at Mar. 31, 2019 9,795,396        
Beginning Balance, Amount at Mar. 31, 2019 $ 980 25,079,491 (187,661) (17,080,982) 7,811,828
Common stock issued with debentures, shares 32,785        
Common stock issued with debentures $ 3 104,908     104,911
Common stock issued for the purchase of subsidiaries, shares 90,336        
Common stock issued for the purchase of subsidiaries $ 9 278,527     278,536
Fair value of warrants issued on convertible debt extensions        
Foreign currency translation adjustment     69,023   69,023
Net income (loss)       (1,778,220) (1,778,220)
Ending Balance, Shares at Jun. 30, 2019 9,918,517        
Ending Balance, Amount at Jun. 30, 2019 $ 992 25,462,926 (118,638) (18,859,202) 6,486,078
Beginning Balance, Shares at Dec. 31, 2019 11,949,042        
Beginning Balance, Amount at Dec. 31, 2019 $ 1,194 32,218,643 (176,717) (23,241,835) 8,801,285
Common stock issued with debentures, shares 123,399        
Common stock issued with debentures $ 12 395,241     395,253
Common stock issued to settle deferred purchase consideration,shares 204,437        
Common stock issued to settle deferred purchase consideration $ 21 842,411     842,432
Stock based compensation expense   118,818     118,818
Foreign currency translation adjustment     (112,030)   (112,030)
Net income (loss)       157,609 157,609
Ending Balance, Shares at Mar. 31, 2020 12,276,878        
Ending Balance, Amount at Mar. 31, 2020 $ 1,227 33,575,113 (288,747) (23,084,226) 10,203,367
Beginning Balance, Shares at Dec. 31, 2019 11,949,042        
Beginning Balance, Amount at Dec. 31, 2019 $ 1,194 32,218,643 (176,717) (23,241,835) 8,801,285
Fair value of warrants issued on convertible debt extensions         719,390
Ending Balance, Shares at Jun. 30, 2020 12,495,002        
Ending Balance, Amount at Jun. 30, 2020 $ 1,249 34,981,284 (270,231) (25,609,781) 9,102,521
Beginning Balance, Shares at Mar. 31, 2020 12,276,878        
Beginning Balance, Amount at Mar. 31, 2020 $ 1,227 33,575,113 (288,747) (23,084,226) 10,203,367
Common stock issued with debentures, shares 103,586        
Common stock issued with debentures $ 11 333,074     333,085
Common stock issued to settle deferred purchase consideration,shares 114,538        
Common stock issued to settle deferred purchase consideration $ 11 273,736     273,747
Stock based compensation expense   79,971     79,971
Fair value of warrants issued on convertible debt extensions   719,390     719,390
Foreign currency translation adjustment     18,516   18,516
Net income (loss)       (2,525,555) (2,525,555)
Ending Balance, Shares at Jun. 30, 2020 12,495,002        
Ending Balance, Amount at Jun. 30, 2020 $ 1,249 $ 34,981,284 $ (270,231) $ (25,609,781) $ 9,102,521
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash Flows from Operating Activities    
Net Income (Loss) $ (2,367,946) $ (4,892,172)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities    
Depreciation and amortization 459,434 445,990
Amortization of deferred costs 737,074 2,096,080
Non-cash interest 152,188 409,114
Stock option compensation expense 198,789
Loss on extinguishment of convertible debt 719,390
Loss on debt conversions 35,943
Unrealized (gain) loss on marketable securities (722,500) 25,000
Movement in deferred taxation (46,720) (38,934)
Changes in Operating Assets and Liabilities    
Prepaid expenses 6,435 (7,732)
Accounts payable and accrued liabilities 2,141,717 (444,743)
Accounts receivable (1,205) (57,679)
Gaming accounts receivable 334,186 357,886
Gaming accounts liabilities (956,208) 1,167,454
Taxes payable 253,275 (53,941)
Due from related parties 12,956
Other current assets (51,340) (57,163)
Long term liability (1,948) 9,296
Net Cash Provided by (Used in) Operating Activities 867,577 (1,005,601)
Cash Flows from Investing Activities    
Acquisition of property, plant, and equipment and intangible assets (87,994) (54,283)
Acquisition of Virtual Generation, net of cash of $47,268 (216,150)
Net Cash Used in Investing Activities (87,994) (270,433)
Cash Flows from Financing Activities    
Proceeds from bank credit line 250,000
Repayment of bank loan (19,925) (59,007)
Redemption debentures (8,996)  
Proceeds from Government relief loan 29,302
Proceeds from promissory notes, related party 300,000
Repayment of deferred purchase consideration (209,005) (173,862)
Repayment of deferred purchase consideration - related parties (92,444) (107,986)
Repayment of financial leases (6,682) (5,449)
Loan to related party (11,992)
Repayment of loans advanced to stockholders 6,605
Net Cash Used in Financing Activities (7,750) (101,691)
Effect of change in exchange rate (170,608) 195,864
Net increase (decrease) in cash 601,225 (1,181,861)
Cash, cash equivalents and restricted cash - beginning of the period 6,732,515 7,850,442
Cash, cash equivalents and restricted cash - end of the period 7,333,740 6,668,581
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows    
Cash and cash equivalents 5,783,449 5,179,403
Restricted cash included in non-current assets 1,550,291 1,439,784
Supplemental disclosure of cash flow information    
Cash paid during the period for: Interest 23,613 13,955
Cash paid during the period for: Income tax 378,471 473,679
Supplemental cash flow disclosure for non-cash activities    
Common shares issued for the acquisition of subsidiaries 1,116,179 272,307
Common shares issued on conversion of debentures $ 728,338 $ 104,911
v3.20.1
Consolidated Statements of Cash Flows (Parenthetical)
6 Months Ended
Jun. 30, 2019
USD ($)
Statement of Cash Flows [Abstract]  
Acquisition of Virtual Generation, cash $ 47,268
v3.20.1
Nature of Business
6 Months Ended
Jun. 30, 2020
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 entities included in these unaudited condensed consolidated financial statements are as follows:

 

Name  Acquisition or Formation Date  Domicile  Functional Currency
          
Newgioco Group, Inc.  Parent Company  USA  US Dollar
Multigioco Srl (“Multigioco”)  August 15, 2014  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
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
Elys Gameboard Technologies, LLC  May 28, 2020  USA  US Dollar

 

The Company distributed all of the earnings of Naos Holdings Limited and dissolved the Company effective December 31, 2019.

 

The operations of the Company’s previous subsidiary, Rifa Srl, was absorbed into the operations of Multigioco Srl with effect from January 30, 2020, the remaining legal entity was dissolved with effect from January 20, 2020.

 

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
Accounting Policies and Estimates
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Accounting Policies and Estimates

2. Accounting Policies and Estimates

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The balance sheet at December 31, 2019 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, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

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

  

Impact of COVID-19

 

 As a result of the global outbreak of the COVID-19 virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictions and closures of public gatherings and travel which included betting shops, arcades and bingo halls across Italy until April 3, 2020. Accordingly, the Company temporarily closed approximately 150 betting shop locations throughout Italy as a result of the decree until May 4, 2020, when the Company began reopening physical webshop locations. Subsequently, on March 10, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and have either postponed or cancelled most professional sports events which has had an effect on the Company’s overall sports betting handle and revenues and may negatively impact the Company’s operating results. On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy reopened. The closing of physical betting shop locations did not affect our online and mobile business operations which mitigated some of the impact.

 

We anticipate that COVID-19 will continue to negatively impact our operating results in future periods, however, the duration and scope of the COVID-19 outbreak worldwide, including the impact to the state and local economies is not readily determinable at this time.

  

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.

 

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

 

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.

 

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.

 

Use of Estimates

 

The preparation of unaudited condensed 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 record adjustments when necessary.

 

Loss Contingencies

 

The Company may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed 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.

 

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 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.

 

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.

 

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 June 30, 2020 and December 31, 2019, 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.

 

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 no bad debt expense for the three months ended June 30, 2020 and 2019.

   

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.

 

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.

 

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

 

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.

 

 

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 their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company performs a qualitative assessment to determine whether events or circumstances have occurred which indicate that the carrying amount of goodwill exceeds its fair value. If there are indications that impairment may be appropriate the Company will perform a quantitative analysis to determine if impairment is necessary.

 

As of June 30, 2020, there were no qualitative indications that impairment of intangible assets or goodwill may be appropriate. Although the COVID-19 pandemic is expected to have an impact on the Company’s business, the impact is expected to be temporary and the Company has a mitigating factor in that the web-based turnover generated by the Company has increased, mitigating a portion of the effect of the COVID-19 pandemic on the Company's land-based turnover.

 

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.

 

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

 

Stock-Based Compensation

 

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

 

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

 

Comprehensive Income (Loss)

 

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

 

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 options and warrants granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.

 

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

 

Related Parties

 

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

 

Recent Accounting Pronouncements

 

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.

 

Since adopted on January 1, 2020, there has not been any 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.

  

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.

 

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 subsidiaries
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisition of subsidiaries

3. Acquisition of subsidiaries

 

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.

 

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

 

   Amount
Purchase consideration, net of discount of $382,778  $4,193,374 
      
Fair value of assets acquired     
Cash   47,268 
Current assets   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
6 Months Ended
Jun. 30, 2020
Cash and Cash Equivalents [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 the Company’s operating line of credit with Intesa Sanpaolo Bank 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
6 Months Ended
Jun. 30, 2020
Property, Plant and Equipment [Abstract]  
Plant and equipment

5. Plant and equipment

 

   June 30, 2020 

December 31,

2019

   Cost  Accumulated depreciation 

Net book

value

 

Net book

value

             
Leasehold improvements  $57,548   $(19,574)   37,974   $32,405 
Computer and office equipment   894,936    (599,940)   294,996    312,824 
Fixtures and fittings   150,708    (89,308)   61,400    57,598 
Vehicles   97,990    (32,626)   65,364    72,526 
Computer software   132,365    (90,823)   41,542    45,372 
   $1,333,547   $(832,271)   501,276   $520,725 

 

The aggregate depreciation charge to operations was $120,578 and $124,264 for the six months ended June 30, 2020 and 2019,respectively. The depreciation policies followed by the Company are described in Note 2.

v3.20.1
Leases
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Leases

6. Leases

 

6. Leases

 

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

  
  

June 30,

2020

 

December 31,

2019

Non-current assets          
Right of use assets - operating leases, net of amortization  $684,502   $792,078 
Right of use assets - finance leases, net of depreciation – included in plant and equipment  $44,038   $37,091 

 

Lease costs consists of the following:

   Six Months Ended June 30,
   2020  2019
Finance lease cost:  $6,831   $15,817 
Amortization of right-of-use assets  6,216    15,118 
Interest expense on lease liabilities   614    699 
           
Operating lease cost   117,954    95,371 
           
Total lease cost  $124,785   $111,191 

 

Other lease information:

   Six Months Ended June 30,
   2020  2019
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases  $(614)  $(699)
Operating cash flows from operating leases   (117,954)   (95,371)
Financing cash flows from finance leases   (6,682)   (5,449)
           
Right-of-use assets obtained in exchange for new finance leases   —      15,118 
Right-of-use assets disposed of under operating leases prior to lease maturity   —      (27,517)
Right-of -use assets obtained in exchange for new operating leases  $—     $95,622 
           
Weighted average remaining lease term – finance leases   3.07 years    3.88 years 
Weighted average remaining lease term – operating leases   3.30 years    3.83 years 
           
Weighted average discount rate – finance leases   3.57%   3.48%
Weighted average discount rate – operating leases   3.42%   3.66%

 

Maturity of Leases

 

Finance lease liability

 

The amount of future minimum lease payments under finance leases as of June 30, 2020 are as follows:

    Amount
  2020     $ 6,810  
  2021       10,421  
  2022       8,437  
  2023       6,709  
  2024       808  
  Total undiscounted minimum future lease payments       33,185  
  Imputed interest       (1,418 )
  Total finance lease liability     $ 31,767  
             
  Disclosed as:          
  Current portion     $ 6,246  
  Non-Current portion       25,521  
        $ 31,767  

 

 

The amount of future minimum lease payments under operating leases as of June 30, 2020 are as follows:

 

    Amount
2020   $ 102,914  
2021     217,014  
2022     180,592  
2023     150,672  
2024 and beyond     28,761  
Total undiscounted minimum future lease payments     679,953  
Imputed interest     (31,535 )
Total operating lease liability   $ 648,418  
         
Disclosed as:        
Current portion   $ 99,298  
Non-Current portion     549,120  
    $ 648,418  

 

 

 

v3.20.1
Intangible Assets
6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

7. Intangible Assets

 

Intangible assets consist of the following:

 

   June 30, 2020  December 31, 2019
   Cost  Accumulated amortization  Net book
value
  Net book
value
             
Betting platform software  $5,689,965   $(826,986)   4,862,979   $5,052,645 
Licenses   10,694,308    (820,912)   9,873,396    9,929,495 
Location contracts   1,000,000    (840,117)   159,883    231,312 
Customer relationships   870,927    (331,458)   539,469    569,700 
Trademarks   116,179    (46,382)   69,797    73,875 
Websites   40,000    (40,000)   —      —   
   $18,411,379   $(2,905,855)   15,505,524   $15,857,027 

 

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 $392,378 and $376,457 in amortization expense for finite-lived assets for the six months ended June 30, 2020 and 2019, 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.

v3.20.1
Goodwill
6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill

8. Goodwill

 

   June 30, 2020  December 31, 2019
       
Opening balance  $1,663,385   $262,552 
Acquisition of Virtual Generation   —      1,401,608 
Impairment charge   —      —   
Foreign exchange movements   (178)   (775)
Closing balance  $1,663,207   $1,663,385 
           

 

  

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
6 Months Ended
Jun. 30, 2020
Investments, All Other Investments [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.

 

The shares of Zoompass were last quoted on the OTC market at $0.36 per share on June 30, 2020, resulting in an unrealized gain recorded to earnings related to these securities of $722,500 and an unrealized loss of $25,000 for the six months ended June 30, 2020, respectively.

v3.20.1
Line of Credit - Bank
6 Months Ended
Jun. 30, 2020
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
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Convertible Debentures

11. Convertible Debentures

 

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

 

As of June 30, 2020 and December 31, 2019, the Company has outstanding, US Dollar convertible debentures in the aggregate principal amount of $1,683,000 and $2,083,000, respectively and Canadian Dollar denominated convertible debentures in the aggregate principal amount of CDN$1,457,000 (approximately $1,085,266) and CDN$1,794,600 (approximately $1,381,737), respectively. The aggregate principal amount of convertible debentures outstanding at June 30, 2020, includes debentures of $10,000 and CDN$65,000 (approximately $48,416) that have matured and have been extended up to August 29, 2020 and a further $600,000 and CDN$242,000 (approximately $180,257) that have matured and have been extended up to September 28, 2020; and a total of $1,073,000 and CDN$1,150,000 (approximately $856,593) due to certain accredited investors that have not been converted and are unsecured and bear interest at 10% and are in default as of June 30, 2020. We are currently in the process of repaying the outstanding balance periodically. The debenture holders could declare a default under the debentures and if the default were to remain uncured, they would have the right to institute legal proceedings.

 

During the six months ended June 30, 2020 and the year ended December 31, 2019, investors in Canadian Dollar convertible debentures converted an aggregate principal amount of CDN$305,600 and CDN$5,006,565, respectively including interest thereon of CDN$42,504 and CDN$770,705, respectively, and investors in US Dollar convertible debentures converted an aggregate principal amount of $400,000 and $1,185,000, respectively, including interest thereon of $70,492 and $133,959, respectively, into 226,793 and 1,866,528 shares of common stock, respectively.

  

The Aggregate convertible debentures outstanding consists of the following:

 

  

June 30,

2020

  December 31, 2019
Principal Outstanding          
Opening balance  $3,464,737   $8,529,751 
Additions        —   
Repaid   (7,496)   —   
Conversion to equity   (625,619)   (5,240,736)
Foreign exchange movements   (63,356)   175,722 
    2,768,266    3,464,737 
Accrued Interest          
Opening balance   524,227    520,523 
Interest expense   150,960    719,004 
Repaid   (1,499)   —   
Conversion to equity   (102,104)   (731,731)
Foreign exchange movements   (8,643)   15,504 
    562,941    524,227 
Debenture Discount          
Opening balance   (627,627)   (4,587,228)
Amortization   627,627    3,959,601 
    —      (627,627)
Convertible Debentures, net  3,331,207   3,361,337 

 

v3.20.1
Deferred Purchase Consideration
6 Months Ended
Jun. 30, 2020
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 is 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. See Note 23 Subsequent Events.

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the VG Sellers 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 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.

 

The amount due to the non-related VG Sellers amounted to €300,000 (approximately $336,810) and was settled during January 2020 by the issuance of 79,641 shares of common stock at $4.23 per share.

  

The movement on deferred purchase consideration consists of the following:

 

Description 

June 30,

2020

 

December 31,

2019

Principal Outstanding          
Promissory note due to non-related parties  $1,802,384   $2,745,811 
Additional earnout earned   —      336,810 
Settled by the issuance of common shares   (669,707)   (616,387)
Repayment in cash   (209,005)   (607,555)
Foreign exchange movements   (3,106)   (56,295)
    920,566    1,802,384 
Present value discount on future payments          
Present value discount   (120,104)   (242,089)
Amortization   65,668    117,192 
Foreign exchange movements   849    4,793 
    (53,587)   (120,104)
Deferred purchase consideration, net  $866,979   $1,682,280 

 

v3.20.1
Bank Loan Payable
6 Months Ended
Jun. 30, 2020
Banking and Thrift [Abstract]  
Bank Loan Payable

13. Bank Loan Payable

 

In September 2016, the Company obtained a loan of €500,000 (approximately USD $580,000) from Intesa Sanpaolo Bank in Italy, which loan is secured by the Company's assets. The loan has an underlying interest rate of 4.5 points above Euro Inter Bank Offered Rate, subject to quarterly review and is amortized over 57 months ending March 31, 2021. Monthly repayments of €9,760 (approximately USD $11,000) began in January 2017.

 

The Company made payments in the aggregate principal amount of €18,076 (approximately USD $19,925) for the six months ended June 30, 2020.

 

The Company was granted a CDN$40,000 (approximately $29,351) COVID assistance loan on April 20, 2020, with a term of 68 months and a coupon of 0%.

v3.20.1
Other long term liabilities
6 Months Ended
Jun. 30, 2020
Payables and Accruals [Abstract]  
Other long term liabilities

14. Other long term liabilities

 

Other long term liabilities represents the Italian “Trattamento di Fine Rapporto” which is a severance amount set up by Italian companies to be paid to employees on termination or retirement as well as shop deposits that are held by Ulisse.

 

Balances of other long term liabilities were as follows:

 

  

June 30,

2020

 

December 31,

2019

Severance liability  $245,619   $211,734 
Customer deposit balance   372,360    407,810 
Total other long term liabilities  $617,979   $619,544 

 

v3.20.1
Related Parties
6 Months Ended
Jun. 30, 2020
Related Party Transactions [Abstract]  
Related Parties

15. Related Parties

 

Notes Payable, Related Party

 

The Company received an advance of $300,000 in terms of a Promissory Note (“PN”) entered into with Forte Fixtures and Millworks, Inc., a Company controlled by the brother of our CEO. The PN bears no interest and is repayable on demand.

 

 

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

  

June 30,

2020

 

December 31,

2019

Principal Outstanding          
Opening balance  $—     $318,078 
Additions   300,000    —   
Settled by issuance of common shares   —      (318,078)
    300,000    —   
Accrued Interest          
Opening balance   —      113,553 
Interest expense   —      25,830 
Conversion to equity   —      (139,383)
    —      —   
Promissory Notes Payable – Related Party  $300,000   $—   

 

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. See Note 23 Subsequent Events.

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the VG Sellers 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 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.

 

The amount due to the related party VG Sellers amounted to €200,000 (approximately $224,540) and was settled during January 2020 by the issuance of 53,094 shares of common stock at $4.23 per share.

 

 

The movement on deferred purchase consideration consists of the following:

 

Description 

June 30,

2020

 

December 31,

2019

Principal Outstanding          
Promissory notes due to related parties  $1,279,430   $1,830,541 
Additional earnout earned   —      224,540 
Settled by the issuance of common shares   (446,471)   (410,925)
Repayment in cash   (92,444)   (328,734)
Foreign exchange movements   (2,174)   (35,992)
    738,341    1,279,430 
Present value discount on future payments          
Present value discount   (80,069)   (161,393)
Amortization   43,779    78,128 
Foreign exchange movements   565    3,196 
    (35,725)   (80,069)
Deferred purchase consideration, net  $702,616   $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:

 

   June 30, 2020  December 31, 2019
Related Party payables          
Gold Street Capital Corp.  $(10,507)  $(2,551)
Luca Pasquini   (4,407)   —   
   $(14,914)  $(2,551)
Related Party Receivables          
Luca Pasquini  $1,395   $4,123 

 

Amounts due to Gold Street Capital Corp., the major stockholder of Newgioco Group, are for reimbursement of expenses.

 

Amounts due to Luca Pasquini is for advances made to various subsidiaries for working capital purposes.

 

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. Conversion price of $4.00 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 June 30, 2020, the Company has paid Mr. Pasquini cash of €145,600 (approximately $162,639) and issued 98,405 shares valued at €215,800 (approximately $241,313)

 

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, of which Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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 June 30, 2020, the Company has paid Mr. Peroni cash of €187,200 (approximately $209,107) and issued 98,405 shares valued at €215,800 (approximately $241,313).

 

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, of which Mr. Peroni’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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.

 

Alessandro Marcelli

 

On August 29, 2019, the Company issued to Mr. Marcelli, 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.

 

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 5, 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
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Stockholders’ Equity

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 1, 2020, 22,030 shares of common stock valued at $93,077;
  · On January 1, 2020, 132,735 shares of common stock valued at $561,350;
  · On February 27, 2020, 23,890 shares of common stock valued at $91,541;
  · On March 1, 2020, 25,690 shares of common stock valued at $96,372;
  · On April 1, 2020, 61,040 shares of common stock valued at $90,745;
  · On May 1, 2020, 24,390 shares of common stock valued at $91,265;
  · On June 1, 2020, 29,300 shares of common stock valued at $92,321

 

 

For the six months ended June 30, 2020, the Company issued a total of 226,985 shares of common stock, valued at $728,338, upon the conversion of convertible debentures into equity and 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
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Warrants

17. Warrants

 

A summary of all of the Company’s warrant activity during the period January 1, 2019 to June 30, 2020 is as follows:

 

   Number of shares  Exercise price per share  Weighted average exercise price
 Outstanding January 1, 2019    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, 2019    1,089,474     $4.00   $4.00 
 Granted    374,373      3.75 to 5.00    3.99 
 Forfeited/cancelled    (1,089,474)     4.00    4.00 
 Exercised    —        —      —   
 Outstanding June 30, 2020    374,373     $3.75 to 5.00   $3.99 

 

The following tables summarize information about warrants outstanding as of June 30, 2020:

 

    Warrants outstanding   Warrants exercisable
  Exercise price       Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$ 3.75       301,644       1.92     $ 3.75       301,644     $ 3.75  
5.00       72,729       2.79       5.00       72,729       5.00  
          374,373       2.08     $ 3.99       374,373     $ 3,99  
v3.20.1
Stock Options
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [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 June 30, 2020, 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.

 

A summary of all of the Company’s option activity during the period January 1, 2019 to June 30, 2020 is as follows:

 

    Number of shares   Exercise price per share   Weighted average exercise price
Outstanding January 1, 2019         $     $  
Granted     315,938       2.72 to 2.96       2.84  
Forfeited/cancelled                  
Exercised                  
Expired                  
Outstanding December 31, 2019     315,938     $ 2.72 to 2.96       2.84  
Granted                  
Forfeited/cancelled                  
Exercised                  
Outstanding June 30, 2020     315,938     $ 2.72 to 2.96     $ 2.84  

 

The following tables summarize information about stock options outstanding as of June 30, 2020:

 

    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       6.01                        
$ 2.80       220,625       9.23               97,800          
$ 2.96       70,313       9.02               67,734          
          315,938       8.80     $ 2.84       165,534     $ 2.87  

 

As of June 30, 2020, there were unvested options to purchase 150,404 shares of common stock. Total expected unrecognized compensation cost related to such unvested options is 499,318 which is expected to be recognized over a period of 41 months.

 

The intrinsic value of the options at June 30, 2020 was $0.

v3.20.1
Revenues
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Revenues

19. Revenues

 

The following table represents disaggregated revenues from our gaming operations for the three and six months ended June 30, 2020 and 2019. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

 

   Three Months Ended  Six Months Ended
   June 30, 2020  June 30, 2019  June 30, 2020  June 30, 2019
Turnover            
Turnover web-based  $89,855,358   $88,647,748   $182,231,464   $175,223,649 
Turnover land-based   4,210,173    10,617,656    27,812,258    61,017,220 
Total Turnover   94,065,531    99,265,404    210,043,722    236,240,869 
                     
Winnings/Payouts                    
Winnings web-based   84,604,648    81,857,558    170,700,270    164,120,495 
Winnings land-based   3,599,916    7,199,276    21,791,318    51,555,578 
Total Winnings/payouts   88,204,564    89,056,834    192,491,588    215,676,073 
                     
Gross Gaming Revenues   5,860,967    10,208,570    17,552,134    20,564,796 
                     
Less: ADM Gaming Taxes   1,065,693    1,172,993    2,596,488    2,366,739 
Net Gaming Revenues   4,795,274    9,035,577    14,955,646    18,198,057 
                     
Betting platform and services   14,995    69,776    24,797    173,591 
Revenue   $4,810,269   $9,105,353   $14,980,443   $18,371,648 

 

 

 

v3.20.1
Loss on extinguishment of convertible debt
6 Months Ended
Jun. 30, 2020
Notes to Financial Statements  
Loss on extinguishment of convertible debt

20. Loss on extinguishment of convertible debt

 

The company entered into extension agreements with convertible debenture holders with convertible debentures in the aggregate principal amount of $10,000 and CDN$65,000 (approximately $48,416) that had matured on May 31, 2020 extending the maturity date to August 29, 2020 and a further aggregate principal amount of $600,000 and CDN$242,000 (approximately $180,257) that had matured on May 31, 2020, extending the maturity date to September 28, 2020. In terms of the agreements entered into with the convertible note holders, the Company agreed to issue the convertible note holders two year warrants exercisable for 301,644 shares of common stock at an exercise price of $3.75 per share and three year warrants exercisable for 72,729 shares of common stock at an exercise price of $5.00 per share. These warrants were valued using a Black-Scholes valuation model at $719,390.

 

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

 

   

Six months ended

June 30, 2020

Exercise price     $3.75 to $5.00  
Risk free interest rate     0.16% to 0.19%  
Expected life of options     2 to 3 years  
Expected volatility of underlying stock     139.5% to 183.5%  
Expected dividend rate     0 %

 

The Company considered the extension of the maturity date in terms of ASC 470 – Debt, and determined that, based on the guidance contained in ASC 470 that the extension of the maturity date and the value of the warrants issued to the convertible debt holders resulted in an extinguishment of the existing convertible debt and the creation of a new convertible debt.

 

In terms of ASC 470, the valuation of the warrants of $719,930 is expensed immediately upon the convertible debt extinguishment and any transaction related expenses, of which there were none, would be amortized over the term of the convertible debt.

v3.20.1
Net Income (Loss) per Common Share
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Net Income (Loss) per Common Share

21. Net Income (Loss) per Common Share

 

Basic income (loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income (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” options and 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, adding back any direct incremental expenses related to the convertible securities, including interest expense, debt discount amortization. The computation of diluted net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share.

 

The computation of the diluted income per share for the three and six months ended June 30, 2020 was anti-dilutive due to the losses realized.

 

For the three and six months ended June 30, 2020 and 2019, 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:

 

    Three and Six Months ended
Description   June 30, 2020   June 30, 2019
Options     315,938        
Warrants     374,373       1,089,133  
Convertible debentures     1,041,002       2,707,652  
      1,731,313       3,796,785  

 

 

 

 

v3.20.1
Segmental Reporting
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Segmental 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:

 

   June 30, 2020
   Betting establishments  Betting platform software and services  All other  Total
             
Purchase of non-current assets  $56,613   $31,804   $—     $88,417 
Assets                    
Current assets   5,631,846    990,614    538,098    7,160,558 
Non-current assets   12,530,024    6,403,878    1,870,903    20,804,805 
Liabilities                    
Current liabilities   (5,668,018)   (476,375)   (10,130,392)   (16,274,785)
Non-current liabilities   (1,265,500)   (1,293,206)   (29,351)   (2,588,057)
Intercompany balances   4,866,760    (740,080)   (4,126,680)   —   
Net asset position  $16,095,112   $4,884,831   $(11,877,422)  $9,102,521 

 

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

   June 30, 2020
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
Net Gaming Revenue  $14,955,646   $24,797   $—     $—     $14,980,443 
Intercompany Service revenue   —      1.209,799    —      (1,209,799)   —   
    14,955,646    1,234,596    —      (1,209,799)   14,980,443 
                          
Operating expenses                         
Intercompany service expense   1,209,799    —      —      (1,209,799)   —   
Selling expenses   10,165,294    7,233    —      —      10,172,527 
General and administrative expenses   2,151,956    1,841,608    1,710,824    —      5,704,388 
    13,527,049    1,848,841    1,710,824    (1,209,799)   15,876,915 
                          
Income (Loss) from operations   1,428,597    (614,245)   (1,710,824)   —      (896,472)
                          
Other (expense) income                         
Other income   25,660    —      —      —      25,660 
Interest expense, net   (1,574)   7    (171,506)   —      (173,073)
Amortization of debt discount   —      —      (737,074)   —      (737,074)

Loss on extinguishment of convertible debt

   —      —      (719,390)   —      (719,390)
Gain (Loss) on marketable securities   —           722,500    —      722,500 
Total other (expenses) income   24,086    7    (905,470)   —      (881,377)
                          
Loss before Income Taxes   1,452,683    (614,238)   (2,616,294)   —      (1,777,849)
Income tax provision   (469,950)   41,965    (162,112)   —      (590,097)
Net Income  $982,733   $(572,273)  $(2,778,406)   —     $(2,367,946)

 

  

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

 

   June 30, 2019
   Betting establishments  Betting platform software and services  All other  Total
             
Purchase of fixed assets  $45,954    8,329    —      54,283 
Assets                    
Current assets   5,906,570    295,887    83,060    6,285,517 
Non-current assets   12,700,578    6,853,400    1,253,195    20,807,173 
Liabilities                    
Current liabilities   (4,107,073)   (265,308)   (12,614,520)   (16,986,901)
Non-current liabilities   (1,380,772)   (1,407,484)   (831,455)   (3,619,711)
Intercompany balances   3,988,710    109,265    (4,097,975)   —   
Net asset position  $17,108,013    5,585,760    (16,207,695)   6,486,078 

 

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

 

   June 30, 2019
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
Net Gaming Revenue  $18,260,490   $111,158   $—     $—     $18,371,648 
Intercompany Service revenue   —      1,205,320    —      (1,205,320)   —   
    18,260,490    1,316,478    —      (1,205,320)   18,371,648 
                          
Operating expenses                         
Intercompany service expense   1,205,320    —      —      (1,205,320)   —   
Selling expenses   13,565,726    110,752    —      —      13,676,478 
General and administrative expenses   2,257,072    1,436,008    2,864,659    —      6,557,739 
    17,028,118    1,546,760    2,864,659    (1,205,320)   20,234,217 
                          
(Loss) income from operations   1,232,372    (230,282)   (2,864,659)   —      (1,862,569)
                          
Other (expense) income                         
Other income   7,725    —      —      —      7,725 
Interest expense, net   (7,527)   —      (417,748)   —      (425,725)
Amortization of debt discount   —      —      (2,096,080)   —      (2,096,080)
Loss on conversion of debt   —      —      (35,943)   —      (35,943)
Loss on marketable securities   —      —      (25,000)        (25,000)
Total other (expenses) income   198    —      (2,574,771)   —      (2,574,573)
                          
Income (Loss) before Income Taxes   1,232,570    (230,282)   (5,439,430)   —      (4,437,142)
Income tax provision   (485,607)   30,577    —      —      (455,030)
Net Loss  $746,963   $(199,705)  $(5,439,430)  $—     $(4,892,172)
                          

 

v3.20.1
Subsequent Events
6 Months Ended
Jun. 30, 2020
Subsequent Events [Abstract]  
Subsequent Events

23. Subsequent Events

 

Subsequent to the period covered by this report, on July 1, 2020 the Company issued 35,130 shares of common stock valued at $93,239 to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation, as disclosed in Note 12 and 15 above, and no longer has any remaining stock issuance obligations under the deferred purchase consideration promissory note.

 

The global coronavirus pandemic has created a significant disruption and uncertainty since March 2020. On March 11, 2020, the Company reported that approximately 150 betting shop locations throughout Italy were temporarily closed and that the closing of the physical locations did not affect the Company’s continuing online and mobile operations. The Company has also implemented a smart-work initiative to permit the safe separation of office staff during this period because government forced lockdowns made it impossible for the Company to access its administrative offices in Europe. Additionally, the cancellation of sports events around the world disrupted the Company’s ability to provide its sports betting products through our land-based establishments and online channels. These restrictions and other difficulties, in both not having sports betting events available to wager on and the backlog of tasks imposed on the Company’s employees upon the return to work, are affecting the Company’s ability to consistently deliver its products to market.

 

On July 7, 2020, the Company converted convertible debentures in the aggregate principal amount of CDN$12,000 including interest thereon of CDN$2,525 (approximately $9,106) into 3,342 shares of common stock at a conversion price of $3.20 per share.

 

On July 13, 2020, the Company repurchased convertible debentures in the aggregate principal amount of CDN$10,000 including interest thereon of CDN$2,121 (approximately $9,086) and $5,000 including interest thereon of $1,060.

 

On August 17, 2020, the Company closed its underwritten public offering of 4,166,666 units at a price of $2.40 per unit for gross proceeds of $9,999,998, before underwriting commission of $800,000 and other offering expenses. Each unit consists of one share of common stock and one five year warrant exercisable for one share of common stock at an exercise price of $2.50 per share.

 

The Company granted the underwriters a forty five day option to purchase up to 624,999 units at a price of $2.40 per unit, each unit consisting of one share of common stock and one five year warrant exercisable for one share of common stock at an exercise price of $2.50 per share. The underwriters were also issued a five year warrant exercisable for 208,333 shares of common stock at an exercise price of $3.00 per share.

 

As soon as practicable after the closing of the offering, on August 17, 2020, we intend to repay outstanding unsecured convertible debentures in the aggregate principal amount of $1,063,000, plus accrued interest thereon of approximately $236,130 and CDN$1,150,000 plus accrued interest thereon of CDN$236,827.

 

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

v3.20.1
Accounting Policies and Estimates (Policies)
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The balance sheet at December 31, 2019 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, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

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

Impact of COVID-19

Impact of COVID-19

 

As a result of the global outbreak of the COVID-19 virus, on March 8, 2020 the Italian government issued a decree which imposed certain restrictions and closures of public gatherings and travel which included betting shops, arcades and bingo halls across Italy until April 3, 2020. Accordingly, the Company temporarily closed approximately 150 betting shop locations throughout Italy as a result of the decree until May 4, 2020, when the Company began reopening physical webshop locations. Subsequently, on March 10, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and have either postponed or cancelled most professional sports events which has had an effect on the Company’s overall sports betting handle and revenues and may negatively impact the Company’s operating results. On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy reopened. The closing of physical betting shop locations did not affect our online and mobile business operations which mitigated some of the impact.

 

We anticipate that COVID-19 will continue to negatively impact our operating results in future periods, however, the duration and scope of the COVID-19 outbreak worldwide, including the impact to the state and local economies is not readily determinable at this time.

Principles of consolidation

Principles of consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, all of which are wholly-owned. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.

 

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

Foreign operations

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.

Business Combinations

Business Combinations

 

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

 

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

Use of Estimates

Use of Estimates

 

The preparation of unaudited condensed 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 record adjustments when necessary.

Loss Contingencies

Loss Contingencies

 

The Company may be subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using the Company’s website platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. The Company records a liability when it believes that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If the Company determines that a loss is possible, and a range of the loss can be reasonably estimated, it discloses the range of the possible loss in the Notes to the unaudited condensed 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.

Fair Value Measurements

Fair Value Measurements

 

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

 

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

 

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

 

Level 3: Unobservable inputs in which little or no market data exists, therefore 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.

Derivative Financial Instruments

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.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with maturities of three months or less at the time acquired to be cash equivalents. The Company had no cash equivalents as of June 30, 2020 and December 31, 2019, 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