UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q/A

 

Amendment No. 1

_________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

 

Commission File Number 000-50045

_________________

 

NEWGIOCO GROUP, INC.

(Exact name of registrant as specified in its charter)

_________________

Delaware   33-0823179
(State or Other Jurisdiction   (I.R.S. Employer
of Incorporation or Organization)   Identification No.)

 

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

(Address of Principal Executive Offices) (Zip Code)

 

+39-391-306-4134

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   NWGI   The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

As of November 14, 2019, the registrant had 10,723,298 shares of common stock, $0.0001 par value per share, outstanding.

 
 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION PAGE
     
  Cautionary Statement Regarding Forward Looking Statements 4
     
Item 1 Financial Statements  
  Consolidated Balance Sheets (unaudited) 5
  Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) 6
  Consolidated Statements of Changes in Stockholders' Equity (Deficiency) 7
  Consolidated Statements of Cash Flows (unaudited) 8
  Notes to the Consolidated Financial Statements (unaudited) 9
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation 42
Item 3 Quantitative and Qualitative Disclosures About Market Risk 49
Item 4 Controls and Procedures 49
     
PART II - OTHER INFORMATION 50
     
Item 1 Legal Proceedings  
Item 1A Risk Factors 50
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 51
Item 3 Defaults Upon Senior Securities 51
Item 4 Mine Safety Disclosures 51
Item 5 Other Information 51
Item 6 Exhibits 51
     
SIGNATURES 52

 

 

2


 

 
 

EXPLANATORY NOTE

 

Unless the context requires otherwise, references to “we,” “us,” “our,” and “Newgioco,” and the “Company” refer to Newgioco Group, Inc. and its subsidiaries.

 

The Company has prepared this Amendment No. 1 (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which was originally filed with the Securities and Exchange Commission on November 14, 2019 (the “Original 10-Q”) to reflect the restatement of certain of the Company’s previously issued Consolidated Balance Sheets at September 30, 2019, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholder’ Equity (Deficiency) and Consolidated Statements of Cash Flows for the quarters ended September 30, 2019 and 2018 and the notes related thereto and certain other related matters.

 

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-Q/A.

 

In addition, all share and earnings per share information have been retroactively adjusted to reflect an 1 for 8 reverse stock split effective December 12, 2019.

 

Background

 

On May 5, 2020, the Company filed a Current Report on Form 8-K under Item 4.02 with the Securities and Exchange Commission relating to previously issued financial statements as described below. As indicated in the Current Report on Form 8-K under Item 4.02, the Company determined that a restatement was necessary due to the effect of certain errors in its Consolidated Balance Sheets at December 31, 2018 and 2017, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholder’ Equity and Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017 (collectively the “Financial Statements”) and the notes related thereto.

 

These errors consisted primarily of the following: (i) the understatement of non-cash consolidated depreciation and amortization by $788,666; (ii) the understatement of unrealized foreign exchange losses of $178,976. In addition, the Company identified other miscellaneous immaterial adjustments amounting to $9,506. As a result, net loss for the year ended December 31, 2018 increased by $582,449 and the net income for the year ended December 31, 2017 increased by $85,198 and the cumulative adjustment to periods prior to January 1, 2017 decreased by $460,885.

 

The Company also analyzed the impact of the aforementioned adjustments and other accumulated misstatements on the financial statements for the interim and annual periods prior to the fiscal year ended December 31, 2018, and concluded that a cumulative opening retained earnings adjustment is appropriate as the correction of the errors in each prior period would not be material individually or in the aggregate to any such prior interim or annual period. However, the Company concluded that correcting the cumulative impact of the errors would be material to its results of operations for the year ended December 31, 2018 and the three subsequent quarters.

 

In addition, the Company adjusted the opening Consolidated Balance Sheets to reflect the changes describe above and made amendments to its Consolidated Balance Sheet at September 30, 2019, Consolidated Statement of Operations and Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholders Equity and Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2019 and the related notes thereto (collectively “the Interim financial Statements”) to take into account the following:

 

Accounting for leases in terms of ASC 842 – leases, which requires the Company to:

 

  - recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard was effective for interim periods beginning after December 15, 2018. The Company adopted the new standard on January 1, 2019 using the prospective transition method, and accordingly restated its Interim Financial Statements. In terms of the adjustment, the Company recorded an initial Right-of-use asset of $646,138 under non-current assets and a corresponding Operating Lease liability of $617,352 on January 1, 2019 and adjusted for subsequent addition to the right of use asset and Operating liability of $241,985 and the disposal of right-of-use assets of $22,707 and a reduction in the corresponding liability of $32,337 during the nine months ended September 30, 2019. The subsequent amortization of the Right-of-use asset and Operating lease liability resulted in a net adjustment to the Right-of-use asset of $699,250 and to the Operating lease liability of $668,763 and other accrued liabilities of $31,678, after taking into account foreign currency translation differences of $1,191.

 

3


 
 

 

 

  - The accounting for finance leases in terms of ASC 842- Leases, was also modified to correct certain immaterial differences in accounting for these leases. The net adjustment resulted in the recording of an asset of $39,108 and a finance lease liability of $39,845 and the subsequent adjustment to net loss from operation of a net $310.

 

  - Accounting for Imputed Deferred Taxation in terms of ASC 740, on the acquisition of Virtual Generation which was effective January 31, 2019. ASC 740 require the recognition of imputed deferred tax on the identifiable intangible assets acquired. This resulted in an adjustment to goodwill on acquisition of $1,401,608 and the initial recognition of a deferred tax liability of $1,401,608. The deferred tax liability was subsequently decreased by $62,294, the deferred tax liability is related to the amortization of the intangible asset acquired of $177,982.

 

  - Other adjustments, with a net impact of $145,470 to the Statement of Operations and Comprehensive Loss were made to correct errors that perpetuated from the December 31, 2018 balance sheet adjustments in the Interim Financial Statements for the nine months ended September 30, 2019. Included in other adjustments is a reclassification of selling expenses of $1,028,184 to general and administrative expenses to conform to current disclosure.

 

To assist in your review of this filing, this 10-Q/A sets forth the Original 10-Q in its entirety, as amended to reflect the changes described above. The Company believes that presenting all of the amended and restated information in this 10-Q/A allows investors to review all pertinent data in a single presentation. This 10-Q/A amends and restates the Financial Statements to reflect the restated numbers to correct the errors. In addition, in this 10-Q/A, corresponding changes were also made to the Part I, Item 2, under “Management’s Discussion and Analysis of Results of Operations and Financial Condition” to reflect the restated numbers; Part II, Item 1A to reflect the restated numbers in the applicable risk factor; Part II, Item 2 to correct the number of shares issuable upon exercise of debentures in the applicable risk factor and Part II, Item 2 Sale of Unregistered Securities to correct the number of unregistered shares of common stock that were issued during the quarter.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

 

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q/A and the other documents referred to and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Newgioco Group, Inc. cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Newgioco Group, Inc. or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth below, under Part II, “Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those identified under Part I, Item 1A in our Annual Report on Form 10-K/A of the year ended December 31, 2018 filed with the Securities and Exchange Commission on May 13, 2020.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q/A. We disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q/A or to reflect the occurrence of unanticipated events, except as required by law.

 

In this Quarterly Report on Form 10-Q/A, unless the context indicates otherwise, references to “Newgioco Group” “our Company,” “the Company,” “we,” “our,” and “us” refer to Newgioco Group, Inc. a Delaware corporation, and its wholly-owned subsidiaries.

 

4


 
 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

NEWGIOCO GROUP, INC.

Consolidated Balance Sheets

(Unaudited)

 

    September 30, 2019   December 31, 2018
    (As Restated)    
Current Assets        
Cash and cash equivalents   $ 4,910,994     $ 6,289,903  
Accounts receivable     104,731       10,082  
Gaming accounts receivable     1,446,058       1,021,052  
Prepaid expenses     197,953       124,712  
Related party receivable     849       49,914  
Other current assets     182,864       55,700  
Total Current Assets     6,843,449       7,551,363  
                 
Non-current Assets                
Restricted cash     1,404,978       1,560,539  
Property, plant and equipment     474,153       476,047  
Right-of-use assets     699,250       —   
Intangible assets     16,027,072       12,527,980  
Goodwill     1,663,435       262,552  
Other assets     10,907       —   
Investment in non-consolidated entities     375,000       275,000  
Total Non-current Assets     20,654,795       15,102,118  
Total Assets   $ 27,498,244     $ 22,653,481  
                 
Current Liabilities                
Line of credit - bank   $ 1,000,000     $ 750,000  
Accounts payable and accrued liabilities     4,112,253       4,603,608  
Gaming accounts balances     2,578,116       1,049,423  
Taxes payable     645,591       1,056,430  
Advances from stockholders     8,019       39,237  
Convertible Debt, net of discount of $1,755,287 and $4,587,228, respectively     6,376,410       3,942,523  
Notes payable, net of discount of $120,853     1,397,815       —   
Notes payable – related party, net of discount of $80,569 and 0, respectively     984,811       318,078  
Bank loan payable – current portion     119,195       120,920  
Operating lease liability     47,068       —   
Financial lease liability     3,002       —   
Total Current Liabilities     17,272,280       11,880,219  
                 
Non-current liabilities                
Deferred tax liability     1,339,314       —   
Notes payable, net of discount of $27,506     244,728       —   
Notes payable – related party, net of discount of $18,338     163,152       —   
Bank loan payable     124,670       225,131  
Operating lease liability     621,695       —   
Financial lease liability     36,843       —   
Other long-term liabilities     204,100       608,728  
Total Non-current liabilities     2,734,502       833,859  
Total Liabilities     20,006,782       12,714,078  
                 
Stockholders' Equity                
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued     —        —   
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 10,514,610 and 9,442,537 shares issued and outstanding as of September 30, 2019 and December 31, 2018*     1,052       944  
Additional paid-in capital*     27,502,860       23,962,920  
Accumulated other comprehensive income     (383,869 )     (57,431 )
Accumulated deficit     (19,628,581 )     (13,967,030 )
Total Stockholders' Equity     7,491,462       9,939,403  
Total Liabilities and Stockholders’ Equity   $ 27,498,244     $ 22,653,481  

 

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

 

See notes to the unaudited consolidated financial statements

5


 

 
 

 

NEWGIOCO GROUP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

  

For the Three Months Ended

September 30,

 

For the Nine months Ended

September 30,

   2019  2018  2019  2018
   (As Restated)  (As Restated)  (As Restated)  (As Restated)
Revenue  $6,755,845   $7,823,286   $25,127,494   $25,239,812 
                     
Costs and Expenses                    
Selling expenses   2,898,287    5,314,436    16,574,766    17,218,036 
General and administrative expenses   3,430,997    3,043,363    9,988,736    7,450,482 
Total Costs and Expenses   6,329,284    8,357,799    26,563,502    24,668,518 
                     
Income (Loss) from Operations   426,561    (534,513)   (1,436,008)   571,294 
                     
Other (Expenses) Income                    
Other income   32,864    —      40,589    —   
Interest expense, net of interest income   (1,093,259)   (329,618)   (3,614,614)   (1,592,127)
Imputed interest on related party advances   —      —      —      (761)
Gain on litigation settlement   —      —      —      516,120 
Loss on debt modification   —      —           (212,270)
Loss on settlement of liabilities   —      —      (35,943)   —   
Gain (Loss) on marketable securities   125,000    (2,500)   100,000    (157,500)
Total Other (Expenses) Income   (935,395)   (332,118)   (3,509,968)   (1,446,538)
                     
Loss Before Income Taxes   (508,834)   (866,631)   (4,945,976)   (875,244)
Income tax provision   (260,545)   (83,356)   (715,575)   (840,798)
Net Loss   (769,379)   (949,987)   5,661,551)   (1,716,042)
                     
Other Comprehensive Loss                    
Foreign currency translation adjustment   (265,231)   (329,588)   (326,438)   (168,810)
                     
Comprehensive Loss  $(1,034,610)  $(1,279,575)  $(5,987,989)  $(1,884,852)
                     
Loss per common share – basic and diluted*  $(0.01)  $(0.14)  $(0.60)  $(0.20)
Weighted average number of common shares outstanding – basic and diluted*   10,241,996    9,317,537    9,925,380    9,397,252 
                     

 

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

 

See notes to the unaudited consolidated financial statements

6


 
 

NEWGIOCO GROUP, INC.

Consolidated Statements of Changes in Stockholders' Equity

Three and nine months ended September 30, 2019 and September 30, 2018

(Unaudited)

 

   Common Stock*  Additional  Accumulated Other     Total
   Shares  Amount  Paid-In Capital*  Comprehensive loss  Accumulated Deficit  Stockholders’ Equity
Balance at December 31, 2018   9,442,537   $944   $23,962,920   $(57,431)  $(13,967,030)  $9,939,403 
                               
Common stock issued on conversion of debentures   287,561    29    919,795    —      —      919,824 
Common stock issued for the purchase of subsidiaries   65,298    7    196,776    —      —      196,783 
Foreign currency translation adjustment   —      —      —      (130,230)   —      (130,230)
Net loss   —      —      —      —      (3,113,952)   (3,113,952)
Balance at March 31, 2019   9,795,396   980   25,079,491   (187,661)  (17,080,982)  7,811,828 
Common stock issued on conversion of debentures   32,785    3    104,908    —      —      104,911 
Common stock issued for the purchase of subsidiaries   90,336    9    278,527    —      —      278,536 
Foreign currency translation adjustment   —      —      —      69,023    —      69,023 
Net loss   —      —      —      —      (1,778,220)   (1,778,220)
Balance at June 30, 2019   9,918,517    992    25,462,926    (118,638)   (18,859,202)   6,486,078 
Common stock issued on conversion of debentures   207,222    21    663,088    —      —      663,109 
Common stock issued for the purchase of subsidiaries   104,151    10    276,930    —      —      276,940 
Common stock issued to settle liabilities   284,720    29    1,010,956    —      —      1,010,985 
Stock based compensation   —      —      88,960    —      —      88,960 
Foreign currency translation adjustment   —      —      —      (265,231)   —      (265,231)
Net loss   —      —      —      —      (769,379)   (769,379)
Balance at September 30, 2019   10,514,610   $1,052   $27,502,860   $(383,869)  $(19,628,581)  $7,491,462 

 

 

   Common Stock*  Additional  Accumulated Other     Total
   Shares  Amount  Paid-In Capital*  Comprehensive Income  Accumulated Deficit  Stockholders’ Equity
Balance at December 31, 2017   9,267,948   $927   $14,548,951   $126,612   $(10,338,273)  $4,338,217 
Imputed interest on stockholder advances   —      —      1,251    —      —      1,251 
Common stock issued with debentures   13,875    1    55,499    —      —      55,500 
Beneficial conversion feature of convertible debentures   —      —      91,017    —      —      91,017 
ASU 2017-11 adjustment to common stock issued debentures   —      —      (10,853)   —      —      (10,853)
ASU2017-11 adjustment to beneficial conversion feature of debentures   —      —      (6,780)   —      —      (6,780)
ASU 2017-11 Elimination of derivative liability movement   —      —      —      —      (254,289)   (254,289)
Foreign currency translation adjustment   —      —      —      97,473    —      97,473 
Net income   —      —      —      —      622,816    622,816 
Balance at March 31, 2018   9,281,823   928   14,679,085   224,085   (9,969,746)  4,934,352 
Common stock issued with debentures   215,028    22    1,770,775    —      —      1,770,197 
Common stock retired on acquisition of Multigioco   (255,000)   (26)   (2,260,948)   —      —      (2,260,974)
Common stock issued net of stock retired on acquisition of Ulisse   175,550    18    5,587,656    —      —      5,587,674 
ASU 2017-11 adjustments to common stock issued with debentures   —      —      (1,232,358)   —      —      (1,232,358)
ASU 2017-11 adjustments to the beneficial conversion feature of convertible debentures   —      —      2,501,332    —      —      2,501,332 
Fair value of warrants issued   —      —      2,951,429    —      —      2,951,429 
Foreign currency translation adjustment   —      —      —      63,305    —      63,305 
Net loss   —      —      —      —      (1,134,582)   (1,134,582)
Balance at June 30, 2018   9,417,401    942    23,996,371    287,390    (11,104,328)   13,180,375 
Imputed interest on stockholder advances   —      —      584    —      —      584 
Foreign currency translation adjustment   —      —      —      (329,588)   —      (329,588)
Net loss   —      —      —           (949,987)   (949,987)
Balance at September 30, 2018   9,417,401   $942   $23,996,955   $(42,198)  $(12,054,315)  $11,901,384 

 

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

See notes to the unaudited consolidated financial statements

7


 
 

NEWGIOCO GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

  

For the nine months Ended

September 30,

   2019  2018
   (As Restated)  (As Restated)
Cash Flows from Operating Activities      
Net loss  $(5,661,551)  $(1,716,042)
           
Adjustments to reconcile net loss to net cash (used in) provided by operating activities          
Depreciation and amortization   687,407    656,985 
Amortization of deferred costs   2,974,439    58,188 
Stock based compensation charge   88,960    —   
Non-cash interest   598,656    1,193,434 
Loss on debt conversions   45,066    —   
Loss on debt modification   —      217,140 
Unrealized (gain) loss on trading securities   (100,000)   157,500 
Imputed interest on advances from stockholders   —      1,514 
Movement in deferred taxation   (62,294)   —   
Recovery of assets   —      (516,120)
Bad debt expense   —      6,354 
Changes in Operating Assets and Liabilities          
Prepaid expenses   (69,957)   (180,651)
Accounts payable and accrued liabilities   643,411    1,776,597 
Accounts receivable   (50,218)   98,823 
Gaming accounts receivable   (487,330)   (108,033)
Gaming accounts liabilities   1,626,021    (242,907)
Taxes payable   (372,275)   (547,618)
Other current assets   (101,594)   (94,764)
Other assets   (11,239)   —   
Long term liability   (387,523)   72,480 
Net Cash (Used in) Provided by Operating Activities   (640,021)   832,880 
           
Cash Flows from Investing Activities          
Acquisition of property, plant, and equipment, and intangible assets   (129,864)   (4,690,524)
Acquisition of Virtual Generation, net of cash of $47,268   (216,983)   —   
Net Cash Used in Investing Activities   (346,847)   (4,690,524)
           
Cash Flows from Financing Activities          
Proceeds from bank credit line   250,000    500,000 
Repayment of bank credit line   —      (177,060)
Repayment of bank loan   (88,567)   (93,532)
Proceeds from debentures and convertible notes, net of repayment   —      6,883,906 
Repayment of deferred purchase consideration – non related parties   (107,950)   (190,509)
Repayment of deferred purchase consideration – related parties   (241,850)   —   
Advance of financial leases   6,589    —   
Loan to related party   (11,975)   —   
Purchase of treasury stock   —      (2,261,307)
Loans advanced by stockholders   14,227    —   
Repayment of loans advanced by stockholders   —      (406,142)
Net Cash (Used in) Provided by Financing Activities   (179,526)   4,255,356 
           
Effect of change in exchange rate   (368,076)   (78,454)
           
Net (decrease) increase in cash   (1,534,470)   319,258 
Cash, cash equivalents and restricted cash – beginning of the period   7,850,442    7,057,763 
Cash, cash equivalents and restricted cash – end of the period  $6,315,972   $7,377,021 
           
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows          
Cash and cash equivalents  $4,910,994   $5,808,689 
Restricted cash included in non-current assets   1,404,978    1,568,332 
   $6,315,972   $7,377,021 

 

Supplemental disclosure of cash flow information      
Cash paid during the period for:      
Interest  $40,448   $20,321 
Income tax  $1,188,707   $1,593,645 
           
Supplemental cash flow disclosure for non-cash activities          
Common shares issued for the acquisition of subsidiaries  $549,248   $5,588,008 
Common shares issued on conversion of debentures  $768,020   $582,486 
Common shares issued to related parties for repayment of debt  $728,884   $—   
Discount due to warrants issued with convertible debt  $—     $2,307,569 
Discount due to brokers warrants issued with convertible debt  $—     $643,860 
Discount due to beneficial conversion feature  $—     $2,585,569 
Reclassification of derivative liabilities to equity and cumulative effect of adoption of ASU2017-11  $—     $222,915 

 

See notes to the unaudited consolidated financial statements

8


 

 
 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

1. Nature of Business

 

Established in the state of Delaware in 1998, Newgioco Group, Inc. (“Newgioco Group” or the “Company”) is an international commercial-stage, vertically integrated company engaged in various aspects of the leisure gaming industry. We own and operate an innovative state-of-the-art betting platform (“Platform”) and are a licensed leisure lottery and gaming operator offering online and offline leisure gaming services, including a variety of lottery and casino gaming products, as well as sports betting products through a distribution network of retail betting locations situated throughout Italy and internationally through various agents in eleven other countries located in Africa and South America.

 

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

 

The Company operates in one line of business that provides certified betting Platform software (“Platform”) services to and the operating of leisure betting establishments situated throughout Italy and in 11 other countries and is comprised of 3 geographically organized groups: an Operational Group; Technology Group; and a Corporate Group, organized as follows:

 

  a. the Operational Group is based in Europe and maintains administrative and customer service offices headquartered in Rome, Italy with satellite offices for operations administration, and risk management and trading in Naples and Teramo, Italy and Valetta, Malta;

 

  b. the Technology Group is based in Innsbruck, Austria and manages software development, training and administration; and

 

  c. the Corporate Group is based in North America which includes a head office situated in Toronto, Canada with a satellite office in Boca Raton, Florida through which our CEO and CFO carry-out our corporate duties, handle day-to-day reporting and other operations such as U.S. development and planning, and through which various independent contractors and vendors are engaged.

 

2. Accounting Policies and Estimates

 

Basis of Presentation

 

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

 

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

 

9


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Basis of Consolidation

 

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

 

Company Country of Incorporation

Percentage owned

%

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

 

Currency Translation

 

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

 

Use of Estimates

 

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

 

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 our 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 we believe that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. If we determine that a loss is possible, and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.

 

 

10


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Loss Contingencies (continued)

 

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

 

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

 

Derivative Financial Instruments

 

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

 

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

 

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

 

Business Combinations

 

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

 

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

 

 

 

11


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Fair Value Measurements

 

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

 

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

 

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

 

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

 

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

 

Cash and Cash Equivalents

 

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

 

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

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded bad debt expense $0 and $0 for the three months ended September 30, 2019 and 2018, respectively, and $0 and $0 for the nine months ended September 30, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

Gaming Accounts Payable

 

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

 

12


 
 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Long-Lived Assets

 

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

 

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

 

Property, Plant and Equipment

 

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

 

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

 

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

 

Intangible Assets

 

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

 

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

 

The range of the estimated useful lives is as follows:

 

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

 

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

 

13


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Goodwill

 

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

 

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

 

The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during the three and nine months ended September 30, 2019 or September 30, 2018. $1,401,608 of goodwill was recorded as part of an acquisition during the nine months ended September 30, 2019.

 

Income Taxes

 

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

 

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

 

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

 

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

 

Revenue Recognition

 

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

 

 

14


 

 
 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Revenue Recognition (continued)

 

The Company recognizes revenue when control of its products and services is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products and services. Revenues from sports-betting, casino, cash and skill games, slots, bingo and horse race wagers represent the gross pay-ins (also referred to as turnover) from customers less gaming taxes and payouts to customers. Revenues are recorded when the game is closed which is representative of the point in time at which the Company has satisfied its performance obligation. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.

 

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

 

Stock-Based Compensation

 

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

 

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

 

Comprehensive Income (Loss)

 

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

 

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

 

Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity and include warrants granted and convertible debt.

 

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.

 

15


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Recent Accounting Pronouncements Not Yet Adopted

 

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

 

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

 

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

 

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

 

Comparatives

 

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

 

 

16


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results

 

The company identified the following errors in the financial results for the periods ended September 30, 2019 and 2018.

 

Three and nine months ended September 30, 2019

 

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

 

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

 

The Company recorded a right-of-use asset of $646,138 and an operating lease liability of $617,352 and an accrued liability of $28,786 as of January 1, 2019. An additional $241,985 of operating leases were entered into and a further $22,707 of operating leases were terminated before maturity during the nine months ended September 30, 2019. The amortization of the right-of-use asset amounted to $153,088, the amortization of the operating lease liability was $136,269 and the accrued liability increased by $2,892.

 

The Company adjusted its accounting for financial leases by recording an office equipment asset of $34,638 and a finance lease liability of $34,524 as of January 1, 2019. During the nine months ended September 30, 2019, an additional $15,043 of additional office equipment under financial leases was recorded. The Company recorded a depreciation charge of $8,764 related to these assets, an interest charge of $1,071 and amortization of financial leases of $9,411.

 

The Company modified its accounting for the acquisition of Virtual Generation by accounting for the imputed deferred tax liability on the value of the Platform acquired, resulting in an adjustment of $1,401,608 to deferred tax liability and recording of a goodwill asset on acquisition of $1,401,608. The Virtual Generation platform, valued at $4,004,954, was amortized for the nine months ended September 30, 2019, resulting in an amortization expense of $177,982 and a reduction in the deferred tax liability of $62,294.

 

The company had previously recorded certain gains on share based transactions with related parties amounting to $282,101. These gains were reclassified as equity.

 

Other adjustments relating to the recording of consolidated amortization expenses were incorrectly calculated, the net adjustment amounted to $112,634. In addition certain foreign exchange movements of $23,998 were incorrectly recorded in comprehensive loss. Included in other adjustments is a reclassification of selling expenses of $1,028,184 to general and administrative expenses to conform to current disclosure.

 

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

 

Three and nine months ended September 30, 2018

 

The error corrected in the financial statements for the year ended December 31, 2018, resulted in an adjustment to depreciation and amortization expense of $352,943, an adjustment to foreign exchange movements of $83,645, and an immaterial $331 adjustment to general and administrative expenses.

 

 

 

 

 

 

17


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated balance sheet as of September 30, 2019 is as follows:

 

   As Previously Reported  Prior year adjustment  Lease adjustments  Acquisition of Virtual Generation  Other Adjustments  As Restated
Current Assets                  
Cash and cash equivalents  $4,910,994   $—     $—     $—     $—     $4,910,994 
Accounts receivable   104,731    —      —      —      —      104,731 
Gaming accounts receivable   1,446,058    —      —      —      —      1,446,058 
Prepaid expenses   197,953    —      —      —      —      197,953 
Related party receivable   849    —      —      —      —      849 
Other current assets   182,864    —      —      —      —      182,864 
Total Current Assets   6,843,449    —      —      —      —      6,843,449 
                               
Non-Current Assets                              
Restricted cash   1,404,978    —      —      —      —      1,404,978 
Property, plant and equipment   324,227    121,248    39,108    —      (10,430)   474,153 
Right-of-use assets   —      —      699,250    —      —      699,250 
Intangible assets   16,132,375    (55,477)        (177,982)   128,156    16,027,072 
Goodwill   266,920    —      —      1,401,608    (5,093)   1,663,435 
Other assets   10,907    —      —      —      —      10,907 
Investment in non-consolidated entities   375,000    —      —      —      —      375,000 
Total Non-Current Assets   18,514,407    65,771    738,358    1,223,626    112,633    20,654,795 
Total Assets  $25,357,856   $65,771   $738,358   $1,223,626   $112,633   $27,498,244 
                               
Current Liabilities                              
Line of credit - bank  $1,000,000   $—     $—     $—     $—     $1,000,000 
Accounts payable and accrued liabilities   4,080,575    —      31,678    —      —      4,112,253 
Gaming accounts balances   2,578,116    —      —      —      —      2,578,116 
Taxes payable   645,591    —      —      —      —      645,591 
Advances from stockholders   8,019    —      —      —      —      8,019 
Convertible Debt, net of discount of $1,755,287   6,376,410    —      —      —      —      6,376,410 
Notes payable, net of discount of $120,853   1,397,815    —      —      —      —      1,397,815 
Notes payable – related party, net of discount of $80,569   984,811    —      —      —      —      984,811 
Bank loan payable – current portion   119,195    —      —      —      —      119,195 
Operating lease liability   —      —      47,068    —      —      47,068 
Financial lease liability   —      —      3,002    —      —      3,002 
Total Current Liabilities   17,190,532    —      81,748    —      —      17,272,280 
                               
Non-current liabilities                              
Deferred tax liability   —      —      —      1,339,314    —      1,339,314 
Notes payable, net of discount of $27,506   244,728    —      —      —      —      244,728 
Notes payable – related party, net of discount of $18,338   163,152    —      —      —      —      163,152 
Bank loan payable   124,670    —      —      —      —      124,670 
Operating lease liability   —      —      621,695    —      —      621,695 
Financial lease liability   —      —      36,843    —      —      36,843 
Other long-term liabilities   204,100    —      —      —      —      204,100 
Total Non-Current Liabilities   736,650    —      658,538    1,339,314    —      2,734,502 
Total Liabilities   17,927,182    —      740,286    1,339,314    —      20,006,782 
                               
Stockholders' Equity                              
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued   —      —      —      —      —      —   
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 10,514,610 shares issued and outstanding as of September 30, 2019*   8,412    —      —      —      (7,360)   1,052 
Additional paid-in capital*   27,213,399    —      —      —      289,461    27,502,860 
Accumulated other comprehensive income   (1,382,160)   1,023,907    (1,618)   —      (23,998)   (383,869)
Accumulated deficit   (18,408,977)   (958,136)   (310)   (115,688)   (145,470)   (19,628,581)
Total Stockholders' Equity   7,430,674    65,771    (1,928)   (115.688)   112,633    7,491,462 
Total Liabilities and Stockholders’ Equity  $25,357,856   $65,771   $738,358   $1,223,626   $112,633   $27,498,244 

 

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

 

19


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated statement of operations and comprehensive loss for the three months ended September 30, 2019 is as follows:

 

    As Previously Reported  

Lease

adjustments

  Acquisition of Virtual Generation   Other Adjustments   As Restated
                     
Revenue   $ 6,755,845     $ -     $ -     $ -       6,755,845  
                                         
Costs and Expenses                                        
Selling expenses     3,156,446       -       -       (258,159 )     2,898,287  
General and administrative expenses     3,259,195       (235 )     66,743       105,294       3,430,997  
Total Costs and Expenses     6,415,641       (235 )     66,743       (152,865 )     6,329,284  
                                         
Income from Operations     340,204       235       (66,743 )     152,865       426,561  
                                         
Other (Expenses) Income                                        
Other income     32,864       -       -       -       32,864  
Interest expense, net of interest income     (1,092,887 )     (372 )     -       -       (1,093,259 )
Gain on settlement of liabilities     282,101       -       -       (282,101 )     -  
Gain on marketable securities     125,000       -       -       -       125,000  
Total Other (Expenses) Income     (652,922 )     (372       -       (282,101 )     (935,395 )
                                         
Loss Before Income Taxes     (312,718 )     (137 )     (66,743 )     (129,236 )     (508,834 )
                                         
Income tax provision     (283,905 )     -       23,360       -       (260,545 )
                                         
Net Loss     (596,623 )     (137 )     (43,383 )     (129,236 )     (769,379 )
                                         
Other Comprehensive Loss                                        
Foreign currency translation adjustment     (212,009 )     -       -       (53,222 )     (265,231 )
                                         
Comprehensive Loss   $ (808,632 )   $ (137 )   $ (43,383 )   $ (182,458 )   $ (1,034,610 )
                                         
Loss per common share – basic and diluted*   $ (0.01 )                           $ (0.01 )
Weighted average number of common shares outstanding – basic and diluted*     10,241,996                               10,241,996  

 

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

 

 

 

20


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2019 is as follows:

 

   As Previously Reported 

Lease

adjustments

  Acquisition of Virtual Generation  Other Adjustments  As Restated
                
Revenue  $25,127,494   $—     $—     $—     $25,127,494 
                          
Costs and Expenses                         
Selling expenses   17,602,950    —      —      (1,028,184)   16,574,766 
General and administrative expenses   8,919,962    (761)   177,982    891,553    9,988,736 
Total Costs and Expenses   26,522,912    (761)   177,982    (136,631)   26,563,502 
                          
Loss from Operations   (1,395,418)   761    (177,982)   136,631    (1,436,008)
                          
Other (Expenses) Income                         
Other income   40,589    —      —      —      40,589 
Interest expense, net of interest income   (3,613,543)   (1,071)   —      —      (3,614,614)
Gain on marketable securities   100,000    —      —      —      100,000 
Loss on settlement of liabilities   246,158    —      —      (282,101)   (35,943)
Total Other (Expenses) Income   (3,226,796)   (1,071)   —      (282,101)   (3,509,968)
                          
Loss Before Income Taxes   (4,622,214)   (310)   (177,982)   (145,470)   (4,945,976)
                          
Income tax provision   (777,869)   —      62,294    —      (715,575)
                          
Net Loss   (5,400,083)   (310)   (115,688)   (145,470)   (5,661,551)
                          
Other Comprehensive Loss                         
Foreign currency translation adjustment   (300,822)   (1,618)   —      (23,998)   (326,438)
                          
Comprehensive Loss  $(5,700,905)  $(1,928)  $(115,688)  $(169,468)  $(5,987,989)
                          
Loss per common share – basic and diluted*  $(0.57)                 $(0.60)
Weighted average number of common shares outstanding – basic and diluted*   9,925,380                   9,925,380 

 

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

 

 

21


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

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

 

   As Previously Reported  Depreciation and amortization adjustments  Foreign Exchange adjustments  Other Adjustments  As Restated
                
Revenue  $7,823,286   $—     $—     $—     $7,823,286 
                          
Costs and Expenses                         
Selling expenses   5,314,436    —      —      —      5,314,436 
General and administrative expenses   2,897,835    117,648    27,880    —      3,043,363 
Total Costs and Expenses   8,212,271    117,648    27,880    —      8,357,799 
                          
Loss from Operations   (388,985)   (117,648)   (27,880)   —      (534,513)
                          
Other (Expenses) Income                         
Interest expense, net of interest income   (329,618)   —      —      —      (329,618)
Loss on marketable securities   (2,500)   —      —      —      (2,500)
Total Other (Expenses) Income   (332,118)   —      —      —      (332,118)
                          
Loss Before Income Taxes   (721,103)   (117,648)   (27,880)   —      (866,631)
                          
Income tax provision   (83,356)   —      —      —      (83,356)
                          
Net Loss   (804,459)   (117,648)   (27,880)   —      (949,987)
                          
Other Comprehensive Loss                         
Foreign currency translation adjustment   (490,914)   133,446    27,880    —      (329,588)
                          
Comprehensive Loss  $(1,295,373)  $15,798   $—     $—     $(1,279,575)
                          
Loss per common share – basic and diluted*  $(0.14)                 $(0.14)
Weighted average number of common shares outstanding – basic and diluted*   9,317,537                   9,317,537 

 

22


 
 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2018 is as follows:

 

   As Previously Reported  Depreciation and amortization adjustments  Foreign Exchange adjustments  Other Adjustments  As Restated
                
Revenue  $25,239,812   $—     $—     $—     $25,239,812 
                          
Costs and Expenses                         
Selling expenses   17,218,036    —      —      —      17,218,036 
General and administrative expenses   7,013,563    352,943    83,645    331    7,450,482 
Total Costs and Expenses   24,231,599    352,943    83,645    331    24,668,518 
                          
Income from Operations   1,008,213    (352,943)   (83,645)   (331)   571,294 
                          
Interest expense, net of interest income   (1,592,127)   —      —      —      (1,592,127)
Imputed interest on related party advances   (761)   —      —      —      (761)
Gain on litigation settlement   516,120    —      —      —      516,120 
Loss on debt modification   (212,270)   —      —      —      (212,270)
Loss on marketable securities   (157,500)   —      —      —      (157,500)
Total Other (Expenses) Income   (1,446,538)   —      —      —      (1,446,538)
                          
Loss Before Income Taxes   (438,325)   (352,943)   (83,645)   (331)   (875,244)
                          
Income tax provision   (840,798)   —      —      —      (840,798)
                          
Net Loss   (1,279,123)   (352,943)   (83,645)   (331)   (1,716,042)
                          
Other Comprehensive Loss                         
Foreign currency translation adjustment   (653,788)   401,333    83,645    —      (168,810)
                          
Comprehensive Loss  $(1,932,911)  $48,390   $—     $(331)  $(1,884,852)
                          
Loss per common share – basic and diluted*  $(0.21)                 $(0.20)
Weighted average number of common shares outstanding – basic and diluted*   9,397,252                   9,397,252 

 

 

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

 

23


 
 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated statement of cash flows for the nine months ended September 30, 2019 is as follows:

 

   As Previously Reported 

Lease

adjustments

  Acquisition of Virtual Generation  Other Adjustments and reclassifications  As Restated
Cash Flows from Operating Activities               
Net loss  $(5,400,083)  $(310)  $(115,688)  $(145,470)  $(5,661,551)
                          
Adjustments to reconcile net loss to net cash generated by operating activities                         
Depreciation and amortization   485,351    8,764    177,982    15,310    687,407 
Amortization of deferred costs   2,974,439    —      —      —      2,974,439 
Stock based compensation charge   88,960    —      —      —      88,960 
Non-cash interest   598,656    —      —      —      598,656 
Gain on settlement of liabilities   (190,610)   —      —      190,610    —   
Loss on debt conversions   (46,426)   —      —      91,492    45,066 
Unrealized gain on trading securities   (100,000)   —      —      —      (100,000)
Deferred taxation movements   —      —      (62,294)   —      (62,294)
Changes in Operating Assets and Liabilities                         
Prepaid expenses   (69,957)   —      —      —      (69,957)
Accounts payable and accrued liabilities   643,411    —      —      —      643,411 
Accounts receivable   (50,218)   —      —           (50,218)
Gaming accounts receivable   (487,330)   —      —      —      (487,330)
Gaming accounts liabilities   1,626,021    —      —      —      1,626,021 
Taxes payable   (372,275)   —      —      —      (372,275)
Other current assets   (101,594)   —      —      —      (101,594)
Other assets   (11,239)   —      —      —      (11,239)
Long term liability   (387,523)   —      —      —      (387,523)
Net Cash used in operating Activities   (800,417)   8,454    —      151,942    (640,021)
                          
Cash Flows from Investing Activities                         
Acquisition of property, plant, and equipment, and intangible assets   (114,821)   (15,043)   —      —      (129,864)
Decrease in restricted cash   133,197    —      —      (133,197)   —   
Acquisition of Virtual Generation, net of cash of $47,268   46,435    —      (263,418)   —      (216,983)
Net Cash Used in Investing Activities   64,811    (15,043)   (263,418)   (133,197)   (346,847)
                          
Cash Flows from Financing Activities                         
Proceeds from bank credit line, net   250,000    —      —      —      250,000 
Repayment of bank loan   (88,567)   —      —      —      (88,567)
Repayment of deferred purchase consideration – non-related parties   (213,317)   —      105,367    —      (107,950)
Repayment of deferred purchase consideration – related parties   (399,901)   —      158,051    —      (241,850)
Movement in financial leases   —      6,589    —      —      6,589 
Advance to related party   (11,975)   —      —      —      (11,975)
Advances from stockholders   14,227    —      —      —      14,227 
Net Cash Used in Financing Activities   (449,533)   6,589    263,418    —      (179,526)
                          
Effect of change in exchange rate   (193,770)   —      —      (174,306)   (368,076)
                          
Net decrease in cash   (1,378,909)   —      —      (155,561)   (1,534,470)
Cash, cash equivalents and restricted cash – beginning of the period   6,289,903    —      —      1,560,539    7,850,442 
Cash, cash equivalents and restricted cash – end of the period  $4,910,994   $—     $—     $1,404,978   $6,315,972 
                          
Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows                         
                          
Cash and cash equivalents  $4,910,994   $—     $—     $—     $4,910,994 
Restricted cash   —      —      —      1,404,978    1,404,978 
   $4,910,994   $—     $—     $1,404,978   $6,315,972 

 

24


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

3. Restatement of prior period results (continued)

 

The reconciliation of the consolidated statement of cash flows for the nine months ended September 30, 2018 is as follows:

 

   As Previously Reported 

Depreciation
and

amortization

adjustments

 

Foreign

Exchange adjustments

  Other Adjustments and reclassifications  As Restated
Cash Flows from Operating Activities               
Net Loss  $(1,279,123)  $(352,943)  $(83,645)  $(331)  $(1,716,042)
                          
Adjustments to reconcile net loss to net cash provided by operating activities                         
Depreciation and amortization   500,391    156,594    —      —      656,985 
Amortization of deferred costs   58,188    —      —      —      58,188 
Non-cash interest   1,193,434    —      —      —      1,193,434 
Loss on debt modification   217,140    —      —      —      217,140 
Imputed interest on advances from stockholders   1,514    —      —      —      1,514 
Unrealized loss on trading securities   157,500    —      —      —      157,500 
Recovery of assets   (516,120)   —      —      —      (516,120)
Bad debt expense   6,354    —      —      —      6,354 
Changes in Operating Assets and Liabilities                         
Prepaid expenses   (180,651)   —      —      —      (180,651)
Accounts payable and accrued liabilities   1,776,266    —      —      331    1,776,597 
Accounts receivable   98,823    —      —      —      98,823 
Gaming accounts receivable   (108,033)   —      —      —      (108,033)
Gaming accounts liabilities   (242,907)   —      —      —      (242,907)
Taxes payable   (547,618)   —      —      —      (547,618)
Other current assets   (94,764)   —      —      —      (94,764)
Long term liability   72,480    —      —      —      72,480 
Net Cash Provided by operating Activities   1,112,874    (196,349)   (83,645)   —      832,880 
                          
Cash Flows from Investing Activities                         
Acquisition of property, plant, and equipment, and intangible assets   (4,487,456)   (203,068)   —      —      (4,690,524)
Decrease in restricted cash   (980,427)   —      —      980,427    —   
Net Cash Used in Investing Activities   (5,467,883)   (203,068)   —      980,427    (4,690,524)
                          
Cash Flows from Financing Activities                         
Proceeds from bank credit line   500,000    —      —      —      500,000 
Repayment of bank credit line, net   (177,060)   —      —      —      (177,060)
Repayment of bank loan   (93,532)   —      —      —      (93,532)
Proceeds from debentures and convertible notes, net of repayment   6,883,906    —      —      —      6,883,906 
Loan to related party   (190,509)   —      —      —      (190,509)
Purchase of treasury stock   (2,261,307)   —      —      —      (2,261,307)
Repayment to stockholders, net of advances   (406,142)   —      —      —      (406,142)
Net Cash Provided by Financing Activities   4,255,356    —      —      —      4,255,356 
                          
Effect of change in exchange rate   (561,516)   399,417    83,645    —      (78,454)
                          
Net increase in cash   (661,169)   —      —      980,427    319,258 
Cash, cash equivalents and restricted cash – beginning of the period   6,469,858    —      —      587,905    7,057,763 
Cash, cash equivalents and restricted cash – end of the period  $5,808,689   $—     $—     $1,568,332   $7,377,021 
                          
Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows                         
                          
Cash and cash equivalents  $5,808,689   $—     $—     $—     $5,808,689 
Restricted cash   —      —      —      1,568,332    1,568,332 
   $5,808,689   $—     $—     $1,568,332   $7,377,021 

 

25


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

4. Reclassification of prior period results

 

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

 

When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.

 

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

 

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

 

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

 

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

 

    Convertible Debentures   Derivative Liability   Additional Paid-in Capital  

Accumulated

Deficit

Balance as of January 1, 2018   $ 1,148,107     $ 222,915     $ 14,254,582     $ (9,897,620 )
Reclassified derivative liabilities and cumulative effect of adoption           (222,915 )     287,881       (64,966 )
Balance as of January 1, 2018, restated   $ 1,148,107     $     $ 14,542,463     $ (9,962,586 )

 

During the three and nine months ended September 30, 2018, the Company issued Convertible debenture units to investors amounting to $3,268,000 and CDN$7,162,000 (approximately $6,502,000). Each unit consisting of a convertible debenture, common shares of stock and a warrant, refer to Note 13 below.

 

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

 

 

26


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

4. Reclassification of prior period results (continued)

 

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

 

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

 

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

 

Ulisse GmbH (“Ulisse”) Acquisition

 

On June 30, 2016, the Company entered into a Share Exchange Agreement (“Ulisse SPA”), which closed on July 1, 2016, with the shareholders of Ulisse organized under the laws of Austria. Ulisse operates a network of approximately 170 land-based agency locations. Pursuant to the agreement, the Company issued 416,400 shares of common stock in consideration for 100% of the issued and outstanding shares of Ulisse.

 

Pursuant to the Ulisse SPA, the purchase price was subject to an adjustment equal to two times earnings before income taxes calculated on a pro rata basis from the closing date upon completion of the ADM license tender auction. The sellers were also permitted to exercise the option to resell to the Company 50% of the shares of common stock (or 208,200 shares) issued in consideration for the purchase price at a fixed price of USD $4.00 per share (the “Ulisse Put Option”).

 

On May 31, 2018, the Company and Ulisse mutually agreed to exercise the Ulisse Put Option in lieu of completion of the ADM license tender auction. The Company repurchased and retired the shares issued in June 2016 with a purchase price adjustment to 10 million Euros (approximately USD $11.7 million). The purchase price adjustment was paid half in cash of 5 million Euros (approximately USD $5.85 million) and the Company issued 591,950 shares to the sellers on May 31, 2018 to settle the balance of the purchase price adjustment in shares of common stock at the closing price of $9.44 per share on May 31, 2018.

 

Multigioco Acquisition

 

On May 31, 2018, the Company and Multigioco mutually agreed to exercise the option to repurchase the shares issued to the shareholders of Multigioco at the closing of the acquisition of Multigioco on August 15, 2014 (“Multigioco Put Option”). The Company repurchased and retired the balance of 255,000 shares issued to the Multigioco sellers in exchange for EUR 510,000 (approximately USD $595,000).

 

Virtual Generation Limited (“VG”) Acquisition

 

On January 30, 2019, the Company entered into a Share Exchange Agreement (“VG SPA”), with the shareholders of Virtual Generation (“VG”) organized under the laws of Republic of Malta. VG owns and has developed a virtual gaming software platform, together with all the ordinary shares of Naos Holding Limited, a company organized under the laws of Republic of Malta (“Naos”) that owns 3,999 of the 4,000 issued and outstanding ordinary shares of VG. Pursuant to the agreement, the Company issued 65,298 shares of common stock in consideration for 100% of the issued and outstanding shares of VG.

 

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

 

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

 

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

 

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

 

 

 

27


 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

5. Acquisition of betting software technology; offline and land-based gaming assets (continued)

 

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

 

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

 

Intangible assets will be amortized over their remaining useful life over a period of 15 years.

 

The €3,803,000 promissory note was recorded as a liability owing to related parties of €1,521,000 (Note 11) and to third parties of €2,281,800 (Note 14).

 

6. Leases

 

Adoption of ASC Topic 842, “Leases”

 

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

 

Practical Expedients and Elections

 

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

 

Discount Rate

 

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

 

Operating leases

 

Property and vehicle leases

 

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

 

28


 

Property leases

 

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

 

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

 

Vehicle leases

 

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

 

Finance leases

 

Computer and office equipment leases

 

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

 

 

29


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

6. Leases (continued)

 

Right of use assets

 

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

 

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

 

    September 30, 2019
     
Non-Current assets        
Right-of-use assets - operating leases, net of amortization   $ 699,250  
Right-of-use assets – finance leases, net of amortization (included in plant and equipment)   $ 39,108  

 

Lease costs consists of the following:

 

  

Nine months ended

September 30, 2019

    
Finance lease cost:  $—   
Amortization of right-of-use assets   8,764 
Interest expense on lease liabilities   1,070 
    9,834 
Operating lease cost   154,797 
      
Total lease cost  $164,631 

 

Other lease information:

 

 

Nine months ended

September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases $ (1,070 )
Operating cash flows from operating leases   (154,797 )
Financing cash flows from finance leases   (8,341 )
       
Right-of-use assets obtained in exchange for new finance leases   15,043  
Right-of-use assets disposed of under operating leases prior to lease maturity   (32,337 )
       
Weighted average remaining lease term – finance leases   3.67 years  
Weighted average remaining lease term – operating leases   3.61 years  
       
Weighted average discount rate – finance leases   3.50 %
Weighted average discount rate – operating leases   3.53 %
       

 

 

30


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

6. Leases (continued)

 

Maturity of Leases

 

Finance lease liability

 

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

 

   Amount
2019  $3,631 
2020   13,223 
2021   10,116 
2022   8,439 
2023   6,762 
2024   784 
Total undiscounted minimum future lease payments   42,955 
Imputed interest   (3,110)
Total finance lease liability  $39,845 
      
Disclosed as:     
Current portion  $3,002 
Non-Current portion   36,843 
   $39,845 

 

Operating lease liability

 

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

 

  Amount
2019 $ 52,844  
2020   190,576  
2021   184,102  
2022   155,055  
2023   103,990  
2024 and beyond   29,098  
Total undiscounted minimum future lease payments   715,665  
Imputed interest   (46,902 )
       
Total operating lease liability $ 668,763  
       
Disclosed as:      
Current portion $ 47,068  
Non-Current portion   621,695  
  $ 668,763  

 

7. Investment in non-consolidated entities

 

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

 

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

 

 

31


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

8. Intangible Assets

 

Intangible assets consist of the following:

 

  September 30, 2019   December 31, 2018  
Betting Platform Software $ 1,685,371     $ 1,685,371  
Ulisse Bookmaker License   9,727,914       9,727,914  
Multigioco and Rifa ADM Licenses   962,903       961,756  
VG Licenses   4,004,594        
Location contracts   1,000,000       1,000,000  
Customer relationships   870,927       870,927  
Trademarks/names   110,000       110,000  
Websites   40,000       40,000  
    18,401,709       14,395,968  
Accumulated amortization   (2,374,637 )     (1,867,986 )
Balance $ 16,027,072     $ 12,527,982  

 

The Company evaluates intangible assets for impairment on an quarterly basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value. The Company recorded approximately $511,929 and $342,498 in amortization expense for the finite-lived assets for the nine months ended September 30, 2019 and September 30, 2018 respectively.

 

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

 

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

 

9. Restricted cash

 

Restricted cash is cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against a bank loan with Intesa Sanpaolo Bank as well as Wirecard Bank as a security deposit for Ulisse betting operations. In addition, the Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. See Note 10.

 

10. Line of Credit – Bank

 

The Company currently maintains an operating line of credit for a maximum amount of €300,000 (approximately $340,000) for Multigioco and €50,000 (approximately $57,000) for Rifa from Intesa Sanpaolo Bank in Italy. The line of credit is secured by restricted cash on deposit at Intesa Sanpaolo Bank and guaranteed by certain shareholders of the Company and bears a fixed rate of interest at 5% per annum on the outstanding balance with no minimum payment, maturity or due date.

 

In addition, the Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit, see Note 9.

 

11. Related Parties

 

Notes Payable – Related Party

 

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

 

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

 

In terms of the acquisition of Virtual Generation Limited on January 31, 2019, disclosed in Note 5 above, the Company issued a non-interest bearing promissory note in the principal amount of €3,803,000 owing to both related parties and non-related parties. The value of the promissory note payable to non-related parties was €2,281,800 and to related parties was €1,521,200.

 

35


NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

11. Related Parties (continued)

 

Notes Payable – Related Party (continued)

 

The promissory note is to be settled as follows:

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

 

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

 

The movement on notes payable consists of the following:

 

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

 

Advances from Stockholders

 

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

 

Advances from stockholders are as follows:

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

 

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

 

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

36


 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

12. Stockholders’ Equity

 

Effective December 12, 2019, the Company performed a 1 for 8 reverse stock split. All equity issuances and references to equity have been adjusted to take into account the reverse stock split.

 

The Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation Limited, as disclosed in Note 5 above:

 

·On January 30, 2019, 32,450 shares of common stock valued at $101,763;
·On March 1, 2019, 32,847 shares of common stock valued at $101,249;
·On April 1, 2019, 29,975 shares of common stock valued at $86,328;
·On May 1, 2019, 33,105 shares of common stock valued at $93,018;
·On June 1, 2019, 27,256 shares of common stock valued at $92,961;
·On July 1, 2019, 35,751 shares of common stock valued at $93,875;
·On August 1, 2019, 35,048 shares of common stock valued at $91,810;
·On September 1, 2019, 33,353 shares of common stock valued at $91,255.

 

For the nine months ended September 30, 2019, the Company issued a total of 513,485 shares of common stock, valued at $1,642,612, upon the conversion of convertible debentures into equity (Note 13).

 

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 284,720 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461 and other liabilities amounting to $553,525.

 

13. Convertible Debt

 

The Aggregate convertible debentures outstanding consists of the following:

 

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

 

 

37


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

14. Notes Payable

 

In Terms of the acquisition of Virtual Generation Limited on January 31, 2019, disclosed in Note 5 above, the Company issued a non-interest bearing promissory note of €3,803,000 owing to both related parties and non-related parties. The value of the promissory note payable related parties was €1,521,200 and to non-related parties was €2,281,800.

 

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

 

  (a) an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that is one month after the Closing Date; and
  (b) an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €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, commencing on March 1, 2019.

 

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

 

The movement on notes payable consists of the following:

 

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

 

15. Bank Loan Payable

 

In September 2016, the Company obtained a loan of €500,000 (approximately $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 the Euro Inter Bank Offered Rate, subject to quarterly review and is amortized over 57 months ending March 31, 2021. Monthly repayments of €9,760 began in January 2017.

 

The Company made payments of €58,560 (approximately $66,146) for the nine months ended September 30, 2019 which included principal of approximately $52,239 (approximately $59,007) and interest of €6,321 (approximately $7,140) for the nine months ended September 30, 2019.

 

 

 

38


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

 

16. Warrants

 

In connection with the private placement agreements entered into with accredited investors in the first and second quarter of 2018, for each $1,000 debenture unit the Company issued two-year warrants to purchase up to 135,28 shares of the Company’s common stock and for each CDN $1,000 debenture unit the Company issued two-year warrants to purchase up to 104.06 shares of the Company’s common stock at an exercise price of $4.00 per share.

 

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

 

    Number of shares   Exercise price per share   Weighted average exercise price
             
Outstanding January 1, 2018     76,566     $ 4.32     $ 4.32  
Granted     1,096,224       4.00       4.00  
Forfeited/cancelled     (27,000 )     5.04       (5.04 )
Exercised     (40,761 )     4.64       4.64  
Expired     (15,555 )     4.64       4.64  
Outstanding December 31, 2018     1,089,474     $ 4.00       4.00  
Granted                  
Forfeited/cancelled                  
Exercised                  
Outstanding September 30, 2019     1,089,474     $ 4.00     $ 4.00  

 

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

 

    Warrants outstanding   Warrants exercisable
  Exercise price       Number of shares      

Weighted

average

remaining years

      Weighted
average
exercise price
      Number of shares      

Weighted

average

exercise price

 
                                             
$ 4.00       1,089,474       0.90     $ 4.00       1,089,474     $ 4.00  

 

 

 

39


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

  17. Stock options

 

In September 2018, the Company’s 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, the Company 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 its Chief Financial Officer, options to purchase 39,375 shares of common stock were issued to its Chief Executive Officer and options to purchase 30,938 shares of common stock were issued to directors. During August 2019, the Company 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, its Chief Executive Officer, Alessandro Marcelli, its Vice President of Operations, Luca Pasquini, its Vice President of Technology, Gabriele Peroni, its Vice President Business Development, Franco Salvagni, its Vice President of Land-based Operations and Beniamino Gianfelici, its Vice President Regulatory Affairs As of September 30, 2019, there was an aggregate of 245,313 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 904,687 reserved for future grants.

 

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

 

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

 

   

Nine months ended

September 30,

2019

 
Exercise price   $ 2.72 to 2.96  
Risk free interest rate     1.50 to 2.04 %
Expected life of options     7 to 10 years  
Expected volatility of underlying stock     237.4 to 247.9 %
Expected dividend rate     0 %

 

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

 

    Number of shares   Exercise price per share   Weighted average exercise price
             
Granted     245,313       $2.72 to $2.96     $ 2.86  
Forfeited/cancelled     —         —         —    
Exercised     —         —         —    
Outstanding September 30, 2019     245,313       $2.72 to $2.96     $ 2.86  

 

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

 

   Options outstanding  Options exercisable
Exercise price  Number of shares 

Weighted

average

remaining years

 

Weighted

Average

exercise price

  Number of shares 

Weighted

average

exercise price

                
$2.72    25,000    6.75         —        
$2.80    150,000    9.92         3,125      
$2.96    70,313    9.77         18,281      
      245,313    9.55   $2.86    21,406   $2.96 

 

The weighted-average grant-date fair values of options granted during the nine months ended September 30, 2019 was $701,957 ($2.86 per share).

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

18. Revenues

 

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

 

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

 

19. Net Loss per Common Share

 

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

 

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

 

Description   Three and Nine Months ended September 30, 2019   Three and Nine Months ended September 30, 2018
         
Options     245,313       —    
Warrants     1,089,474       1,089,474  
Convertible debentures     2,541,156       2,856,764  
      3,875,943       3,946,238  

 

 

40


 

 
 

 

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

 

 

19. Income Taxes

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the nine months ended September 30, 2019 and September 30, 2018.

 

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

 

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

 

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

 

On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, commonly referred to as the Tax Reform Act, following its passage by the United States Congress. The Tax Act made significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from 35.0% to 21.0%, limitation of the deduction for net operating losses to 80.0% of current year taxable income and elimination of net operating loss carrybacks, one-time taxation of offshore earning at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions.

 

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

 

The Company has accumulated a net operating loss carry forwards (“NOL”) of approximately $4.0 million as of December 31, 2018 and continues to have losses from operations. As part of the Tax Act, NOL’s generated in 2018 and later are not subject to an expiration period and are available to offset 80% of taxable income in the year in which they are utilized. The federal and state NOL carryforwards generated prior to 2018 will begin to expire in 2026. For the nine months ended September 30, 2019 the Company recorded additional losses and the possibility of future cumulative losses still exists. Accordingly, the Company has continued to maintain a valuation allowance against its net deferred tax assets.

 

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

 

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

 

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

 

20. Subsequent Events

 

Subsequent to the period covered by this report, the principal amount of $100,000 and CDN $1,193,965 (approximately $898,340) of outstanding convertible debentures plus accrued interest was presented to the Company for conversion into approximately 368,992 shares of common stock.

 

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

 

41


 

 
 

 

Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations

 

This Quarterly Report on Form 10-Q/A contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2018 filed with the Securities and Exchange Commission on May 13, 2020 under the heading “Risk Factors” and the Risk Factors as described in Item 1A of this report on Form 10Q/A for the nine months ended September 30, 2019.

 

Overview

 

Except as expressly stated, the financial condition and results of operations discussed throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Newgioco Group, Inc. and its consolidated subsidiaries.

 

General Plan of Operation

 

We are a licensed gaming operator (known as an “Operator”) in the regulated Italian leisure betting market holding an “online”, “retail” and “CED retail” Austria Bookmaker license through our Multigioco, Rifa and Ulisse subsidiaries, respectively. As an Operator, we are authorized to collect gaming wagers and sports bets through two distribution channels: (i) online through websites on internet browsers, mobile applications and physical venues known as “web-shops” (internet cafes; kiosks, coffee-shops, convenience stores, restaurants and bars, etc.) where patrons can play on online through PC’s situated at each venue, and (ii) through physical land-based retail venues (off-track betting shops, SSBT (“self-serve betting terminal”) kiosks, coffee-shops, convenience stores, restaurants, taverns and bars, etc.).

 

Additionally, we are a global gaming technology company (known as a “Provider”), which owns and operates a unique “distributed” architecture betting software colloquially named Elys Game Board (the “Platform”) through our Odissea subsidiary. The Platform is a fully integrated “omni-channel” framework that combines centralized technology updating, servicing and operation with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel design is fully integrated with a built in player gaming account management, built-in sports book with what we believe is an industry-leading dynamic risk-management algorithm software and a virtual sports platform through our VG subsidiary. The Platform also provides seamless application programming interface integration of third-party supplied products such as online casino, poker, lottery and horse racing and has the capability to incorporate e-sports and daily fantasy sports providers.

 

Our corporate group is based in North America which includes a head office situated in Toronto, Canada with sub-offices in Fort Lauderdale and Boca Raton, Florida through which our CEO and CFO handle day-to-day reporting duties, U.S. development planning and through which various independent contractors and vendors are engaged.

 

Although we operate in one business segment, the leisure gaming industry, our revenue is derived from two sources:

 

  1. Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop or through third party agents that operate white-label websites and/or land-based retail venues; and
  2. SaaS based service revenue through providing our Platform and virtual sports products to betting operators.

 

Currently, transaction revenue generated through our subsidiaries Multigioco, Rifa and Ulisse, consist of wagering and gaming transaction income broken down to: (i) spread on sports bet wagers, and (ii) fixed rate commissions on casino, poker, lotto and horse racing wagers from online based betting web shops and websites as well as land-based retail betting shops located throughout Italy; while our service revenue generated by our Platform is primarily derived from bet and wager processing through our Multigioco, Rifa and Ulisse operations in Italy.

 

We believe that our Platform is considered one of the newest betting software in the world and our plan is to expand our Platform offering to new jurisdictions around the world on a B2B basis, including expansion through Europe, South America, South Africa and the developing market in the United States. During the first and second quarter of 2019, we also generated service revenue from royalties through authorized agents by providing our virtual sports products through our VG subsidiary in 12 countries including: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey. We intend to leverage our partnerships in these 12 countries to cross-sell our Platform services to expand the global distribution of our betting solutions.

 

42


 

 
 

 

This Management’s Discussion and Analysis includes a discussion of our operations for the three and nine months ended September 30, 2019, which reflects the operations of VG and Naos for the three months ended September 2019 and for eight months of the nine month period ended September 30, 2019. The operations of VG and Naos are not included in the discussion for the three months and nine months ended September 30, 2018 due to the fact that the acquisition was consummated in January 2019. Accordingly, the results of operations reported for the three months and nine months ended September 30, 2019 and 2018, in this Management’s Discussion and Analysis are not comparable.

 

Highlights and Recent Developments

 

Acquisition of VG

 

As part of our multi-year business growth strategy, we expanded our operations in Europe by our acquisition of all of the issued and outstanding ordinary shares of VG and Naos. The sellers included Mr. Luca Pasquini, our Vice President of Technology and a member of our Board of Directors, and Mr. Gabriele Peroni, our Vice President of Business Development, each of whom owned 800 ordinary shares of Naos (20% of the issued and outstanding shares of Naos).

 

VG is a Gaming Laboratories International (GLI) certified virtual sports and gaming software developer with a portfolio of products including greyhound and horse racing; league play football (i.e., soccer), keno; and American Roulette. In addition, VG’s platform allows for customization for country-specific virtual sports products including applications in Latin American and African markets as well as unique U.S. tribal games tailored for the U.S. tribal gaming market.

 

VG’s operations have grown rapidly in the highly competitive virtual sports market from approximately 67,000 tickets in 2014 to over 16 million bet tickets traded in 2018. VG now operates in 12 countries including: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.

 

Pursuant to the VG purchase agreement, on the closing date, in consideration for all the ordinary shares of VG and Naos we paid the sellers €4,000,000 (approximately $4,580,000 at a Euro – exchange rate of 1.143) as follows:

 

  i. a cash payment of €108,000 (approximately $124,000);

 

  ii. the issuance of shares of our common stock valued at €89,000 (approximately $102,000); and

 

  iii. the delivery of a non-interest bearing promissory note providing for the payment of (a) an aggregate of €2,392,000 (approximately $2,737,000) in cash in 23 equal and consecutive monthly installments of €104,000 (approximately $119,000) with the first such payment due and payable on the date that is one (1) month after the closing date; and (b) an aggregate of €1,411,000 (approximately $1,615,000) in shares of our common stock in seventeen (17) equal and consecutive monthly installments of €83,000 (approximately $95,000) as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

In addition, pursuant to the terms of the VG purchase agreement, we agreed to pay the sellers as an earn-out payment in shares of our common stock within one month from the end of the 2019 fiscal year equal to an aggregate amount of €500,000 (approximately $570,000), if the amounts of bets made by the users through the VGS platform related to our 2019 fiscal year are at least 5% higher than the amounts of bets made by the users through the VGS platform related to our 2018 fiscal year.

 

As of September 30, 2019, we made cash payments to the VG former shareholders under the promissory note that we issued to them equal to €544,800 (approximately $613,218) and we have issued 227,335 shares (or €670,000 (approximately $752,260) of common stock to the former shareholders of VG pursuant to the promissory note, and the remaining amounts due to the vendors in cash was €1,955,200 (approximately $2,132,505) and €830,000 (approximately $905,267) to be paid in a number of shares of our common stock as determined by the average of the closing prices of such shares on the last ten trading days immediately preceding the payment dates.

 

Expansion and New Markets

 

United States Operations Development

 

In May 2018, the U.S. Supreme Court (“SCOTUS”) ruled that the Professional and Amateur Sports Protection Act (the “PASPA”) was unconstitutional as it violates the Tenth Amendment prohibition against forcing states to implement federal laws. Enacted in 1992, PASPA generally prohibited states from authorizing, licensing or sponsoring betting on competitive games in which amateur or professional athletes participate. PASPA did not make sports betting a federal crime; rather, it allowed the attorney general for the Department of Justice, as well as professional and amateur sports organizations, to bring civil actions to enjoin violations of the act. The SCOTUS decision opens the door for all states to legalize and regulate sports gambling within their borders. States such as Nevada, New Jersey, Delaware, West Virginia, Rhode Island, Pennsylvania, Arkansas, Montana, Illinois, Indiana, Iowa, Tennessee, Mississippi, New Hampshire, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. Additional states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Michigan, Ohio and Maryland are considering active bills.

 

43


 
 

We believe that the U.S. sports betting and online gaming market presents a large opportunity to deploy our Platform on a Software as a Service (SaaS) basis to several potential independent commercial and tribal casino and gaming operators throughout the United States following a 2018 U.S. Supreme Court decision. We have analyzed the technical specifications checklist supplied by GLI to verify that coding in our software meets the functional specifications set forth in the GLI-33 standards (The Gaming Laboratories International technical standard for event wagering systems). We believe that our Platform currently meets the majority of the GLI-33 certification standards and we expect to be in a position to send our software to GLI for testing by the end of 2019. Upon obtaining GLI-33 certification and obtaining regulatory approvals to operate, we expect to be well-positioned to commence processing sports bets in the U.S. on a SaaS basis through our Platform.

 

As part of our multi-year business growth strategy, we made significant investments for expansion into new markets outside of Italy, including preparation of the platform for the GLI-33 certification, professional services, trade show marketing and brand promotion in the second half of 2018 and first half of 2019 to enter and then build a foundation aimed at accelerating our recently announced U.S. expansion plans. To support these principal objectives, we initiated an ambitious investment strategy that is fundamental to the successful execution of our long-term business plan. These fundamental investments have resulted in short-term, non-recurring expenses related to key elements including the expansion of CEO responsibilities into regulatory and policy development functions, as well as establishing a centralized US-based headquarters. In the third quarter of 2018, we also established a plan to relocate our CEO to the U.S., commenced the recruitment and evaluation of key officers, as well as allocating a software development team at Odissea for coding and submission of our Platform for GLI-33 certification to Gaming Laboratories International (“GLI”) for the U.S. market.

 

In March 2019, we entered into a five-year agreement with Fleetwood Gaming, Inc. for the exclusive rights to distribute our Platform at select non-tribal locations such as sports bars and taverns in the state of Montana. The multi-year agreement is expected to allow Fleetwood to install our Platform throughout Fleetwood's distribution network in Montana.

 

In April 2019, we entered into a five-year agreement with the Chippewa Cree Tribe in Box Elder, Montana to install our Platform at the Northern Winz Casino. In this regard, in September 2019, we transacted the first legal Class 1 real-money bet on Indian Horse Relay Racing in the U.S. Class 1 betting represents traditional Indian events or games that are not classed as mainstream sports bets.

 

In October 2019, we engaged experienced U.S. bookmaker Kevin Slicker to lead the development of our U.S. designed betting platform and products and also entered into multi-year agreements with Handle 19, Inc. and Grand Central, LLC, two retail sports bar operators in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process which has not been completed as of the date of this Quarterly Report on Form 10-Q.

 

The commencement of betting transactions in Montana and Washington, DC are subject to obtaining the required certification, licensing and approvals from the Gambling Control Division of the Montana Department of Justice and the District of Columbia Office of the Lottery and Charitable Games, respectively, which has not been determined as of the date of this Quarterly Report on Form 10-Q.

 

Inflation

 

We do not believe that general price inflation will have a material effect on our business in the near future.

 

Foreign Exchange

 

We operate in several foreign countries, including Austria, Italy, Malta and Canada and we incur operating expenses and have foreign currency denominated assets and liabilities associated with these operations. Transactions involving our corporate expenditures are generally denominated in U.S. dollars and Canadian dollars while the functional currency of our subsidiaries is in Euro. Convertible debentures have also been issued in both U.S. dollars and Canadian dollars. Changes and fluctuations in the foreign exchange rate between the Euro and the U.S. dollar and the Canadian dollar and the U.S. dollar will have an effect on our results of operations.

 

Critical Accounting Policies and Estimates

 

Preparation of our unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying Notes.

 

 

44


 
 

 

Results of Operations

 

Comparison of the three and nine months ended September 30, 2019 and 2018.

 

Revenues

 

The comparisons below include a discussion of our operations for the quarter ended September 30, 2019, which reflects the operations of VG and Naos for the three months of the quarter ended September 30, 2019 and for eight months of the nine month period ended September 30, 2019. The operations of VG and Naos are not included in the comparisons for the three months and nine months ended September 30, 2018 due to the fact that the acquisition was consummated in January 2019. Accordingly, the results of operations reported for the three months and nine months ended September 30, 2019 and 2018, are not comparable.

 

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

 

   Three Months Ended  Increase/  Percentage
   September 30, 2019  September 30, 2018 

(decrease)

  change
Turnover            
Turnover web-based  $46,455,077   $52,062,617   $(5,607,540)   (10.8)%
Turnover land-based   69,454,078    35,807,178    33,646,900    94.0%
Total Turnover   115,909,155    87,869,795    28,039,360    31.9%
                     
Winnings/Payouts                    
Winnings web-based   46,114,283    47,299,439    (1,185,156)   (2.5)%
Winnings land-based   62,107,751    31,993,069    30,114,682    94.1%
Total Winnings/payouts   108,222,034    79,292,508    28,929,542    36.5%
                     
Gross Gaming Revenues   7,687,121    8,577,287    (890,166)   (10.4)%
                     
Less: ADM Gaming Taxes   1,097,725    803,407    294,318    36.6%
Net Gaming Revenues   6,589,396    7,773,880    (1,184,484)   (15.2)%
Add: Commission Revenues   75,199    5,964    69,235    1,160.9%
Add: Service Revenues   91,150    43,442    47,708    109.8%
Total Revenues  $6,755,845   $7,823,286   $(1,067,441)   (13.6)%

 

The Company generated total revenues of $6,755,845 and $7,823,286 the three months ended September 30, 2019 and 2018, respectively, a decrease of $1,067,441 or 13.6%.

 

The change in total sales channel revenues is primarily due to the following:

 

Web-based turnover decreased by $5,607,540 or 10.8%. This is primarily due to web-based betting on the soccer world cup which took place in the prior period. The Soccer world cup takes place every 4 years. The Soccer world cup was profitable to the business as the ratio of payouts to turnover was 90.9% as compared to 99.3% during the current period. The payout ratio varies based on the skill and luck of our customers and can fluctuate significantly from period to period.

 

The decrease in web-based turnover was offset by an increase in land-based turnover by $33,646,900 or 94.0%. We have focused our efforts on growing our land based business aggressively during the current year. The payout ratio has remained relatively consistent, from 89.3% in the prior period to 89.4% during the current period. The payout ratio varies based on the skill and luck of our customers and can fluctuate significantly from period to period.

 

Gross gaming revenues decreased by $890,166 or 10.4% over the prior period due to the reasons outlined above.

 

ADM gaming taxes increased by $294,318 or 36.6% over the prior period due to the increased gaming tax rates instituted by the Italian gaming regulator in 2019 along with the increase in overall betting handle which gaming tax is based on.

 

Commission revenues and service revenues remain insignificant to total revenues during the period.

 

45


 

 
 

 

Selling expenses

 

We incurred selling expenses of $2,898,287 and $5,314,436 for the three months ended September 30, 2019 and 2018, respectively, a decrease of $2,416,149 or 45.5%. Selling expenses are commissions that are paid to our sales agents and are directly tied to handle (turnover) as they are based on a percentage of handle (turnover) and are not affected by the winnings that are paid. Therefore, increases in handle, will typically result in increases in selling expenses but may not result in increases in overall revenue if winnings/payouts are very high. During the three months ended September 30, 2019 our percentage of selling expenses to gross gaming revenues was approximately 41.1% compared to 62.0% for the three months ended September 30, 2018, primarily due to revised commission agreements with agents.

 

General and Administrative Expenses

 

General and administrative expenses were $3,430,997 and $3,043,363 during the three months ended September 30, 2019 and 2018, respectively, an increase of $387,634 or 12.7%. The increase in expenditure is due to non-recurring expenses incurred with the growth of our betting operations in Italy, as well as the granting of stock options during the current period that resulted in an additional non-cash charge of $88,960 and a general increase in administrative expenses in our operating entities as we grow our land based operations significantly over the prior period.

 

Income (loss) from Operations

 

The income from operations of $426,561 and the loss from operations of $534,513 for the three months ended September 30, 2019 and 2018, respectively, an increase of $961,074 or 179.8%. The increase in operating profit is primarily due to the lower commission paid on gross turnover to agents offset by lower web-based turnover directly attributable to the Soccer World Cup which took place in the prior period, offset by the increase in general and administrative expenses.

 

Other income

 

Other income was $32,864 and $0 for three months ended September 30, 2019, this amount is immaterial.

 

Interest Expense, Net of Interest Income

 

Interest expense was $1,093,259 and $329,618 for the three months ended September 30, 2019 and 2018, respectively, increased by $763,641 or 231.7%. The increase is attributable to the amortization of debt discount on the convertible debt during the current period. The convertible debt was issued during the prior year.

 

Gain (loss) on Marketable Securities

 

The Gain on marketable securities of $125,000 and the loss on marketable securities of $2,500 for the three months ended September 30, 2019, and 2018, respectively. The gain on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each quarter. The shares in Zoompass were acquired by the Company as settlement of a litigation matter.

 

Loss Before Income Taxes

 

Loss before income taxes of $508,834 and $866,631 for the three months ended September 30, 2019 and 2018, respectively, a decrease of $357,797 or 41.3%. The decrease is attributable to the increase in income from operations of $961,074, the gain on settlement of liabilities and the mark to market gain on marketable securities, offset by the increase in interest expense of $763,641, as discussed above.

 

Income Tax Provision

 

The income tax provision of $260,545 and $83,356 for the three months ended September 30, 2019 and 2018, respectively, represented an increase of $177,189 or 212.6%. The increase in the income tax provision is attributable to the improvement in income earned in one of our subsidiaries in the three months ended September 30, 2019 compared to September 30, 2018, impacting on both the overall group profitability and the provision for income tax.

 

Net Loss

 

Net loss of $769,379 and $949,987 for the three months ended September 30, 2019 and 2018, respectively, a decrease of $180,608 or 19.0%, is discussed above.

 
 

 

 

Comprehensive Loss

 

Our reporting currency is the U.S. dollar while the functional currency of our subsidies is the Euro, the local currency in Italy and Austria and the functional currency of our Canadian subsidiary is the Canadian dollar. The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining other comprehensive income.

 

We recorded a foreign currency translation adjustment loss of $265,231 and $329,588 for the three months ended September 30, 2019 and 2018, respectively.

 

Comparison of the nine months ended September 30, 2019 and 2018.

 

Revenues

 

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

 

   Nine Months Ended  Increase/  Percentage
   September 30, 2019  September 30, 2018 

(decrease)

  change
Turnover            
Turnover web-based  $221,678,726   $153,154,375   $68,524,351    44.7%
Turnover land-based   130,471,298    125,314,730    5,156,568    4.1%
Total Turnover   352,150,024    278,469,105    73,680,919    26.5%
                     
Winnings/Payouts                    
Winnings web-based   210,234,778    144,605,117    65,629,661    45.4%
Winnings land-based   113,663,329    106,504,717    7,158,612    6.7%
Total Winnings/payouts   323,898,107    251,109,834    72,788,273    29.0%
                     
Gross Gaming Revenues   28,251,917    27,359,271    892,646    3.3%
                     
Less: ADM Gaming Taxes   3,464,464    2,369,256    1,095,208    46.2%
Net Gaming Revenues   24,787,453    24,990,015    (202,562)   (0.8)%
Add: Commission Revenues   137,631    123,117    14,514    11.8%
Add: Service Revenues   202,410    126,680   `75,730    59.8%
Total Revenues  $25,127,494   $25,239,812   $112,318    (0.4)%
                     

 

The Company generated total revenues of $25,127,494 and $25,239,812 the nine months ended September 30, 2019 and 2018, respectively, a decrease of $112,318 or 0.4%.

 

The change in total sales channel revenues is primarily due to the following:

 

Web-based turnover increased by $68,524,351 or 44.7% while land-based turnover increased by $5,156,568 or 4.1%.

 

Overall total turnover increased by $73,680,919 primarily due to an aggressive drive to expand our business during the current period, despite the Soccer World Cup which took place in the prior year, which had a positive impact on our revenue for that period.

 

The overall payout percentage was 92.0% and 90.2% for the nine months ended September 30, 2019 and 2018, respectively. The payout ratio varies based on the skill and luck of our customers and can fluctuate significantly from period to period.

 

Gross gaming revenues increased by $892,646 or 3.3% over the prior period due to the reasons outlined above. ADM gaming taxes increased by $1,095,208 or 46.2% over the prior period due to the increased gaming tax rates instituted by the Italian gaming regulator in 2019 along with the increase in overall betting handle which gaming tax is based on.

 

Commission revenues and service revenues remain insignificant to total revenues during the period.

 

 
 

 

Selling expenses

 

The Company incurred selling expenses of $16,574,766 and $17,218,036 for the nine months ended September 30, 2019 and 2018, respectively, a decrease of $643,270 or 3.7%. Selling expenses are commissions that are paid to our sales agents and are directly tied to handle (turnover) as they are based on a percentage of handle (turnover) and are not affected by the winnings that are paid. Therefore, increases in handle, will typically result in increases in selling expenses but may not result in increases in overall revenue if winnings/payouts are very high. During the nine months ended September 30, 2019 our percentage of selling expenses to gross gaming revenues was approximately 58.7% compared to 62.9% for the nine months ended September 30, 2018, a slight improvement over the prior period as a concerted effort is made to reduce this expense as can be seen in the three months ended September 30, 2019 results.

 

General and Administrative Expenses

 

General and administrative expenses of $9,988,736 and $7,450,482 during the nine months ended September 30, 2019 and 2018, respectively, an increase of $2,538,254 or 34.1%. The increase in expenditure is due to attendance at several trade shows during the first six months of the year, the granting of stock options during the current period, resulting in an additional non-cash charge of $88,960 and a general increase in administrative expenses in our operating entities as we grow our land based operations significantly over the prior period.

 

(Loss) Income from Operations

 

The Loss from operations of $1,436,008 and the income from operations of $571,294 for the nine months ended September 30, 2019 and 2018, respectively, an increase in loss of $2,007,302. The increase in operating loss is primarily due to the increase in the ADM taxes during the current period as discussed above and the increase in general and administrative expenses as discussed above.

 

Other income

 

Other income was $40,589 and $0 for nine months ended September 30, 2019, this amount is immaterial.

 

Interest Expense, Net of Interest Income

 

Interest expense of $3,614,614 and $1,592,127 for the nine months ended September 30, 2019 and 2018, respectively, increased by $2,022,487 or 127.0%. The increase is attributable to the amortization of debt discount on the Convertible debt during the current period. The convertible debt was issued during the prior year.

 

Gain on Litigation Settlement.

 

The gain on litigation settlement for the nine months ended September 30, 2018, related to the settlement of the Paymobile litigation matter. In connection with the settlement, the Company received 2,500,000 shares of Zoompass Holdings, Inc. and recorded a gain on litigation settlement of $516,120 in the first quarter of 2018.

 

Loss on debt modification

 

The loss on debt modification of $212,170 in the prior year was attributable to a change in the terms of convertible debentures issued to investors in the prior period.

 

Loss on settlement of liabilities

 

Loss on settlement of liabilities of $35,943 and $0 for the nine months ended September 30, 2019 and 2018, respectively, an increase of $35,943 or 100%. The loss on settlement of liabilities arose due to shares issued to certain investors as an incentive to dispose of their convertible debt to a third party.

 

Gain (loss) on Marketable Securities

 

The Gain on marketable securities was $100,000 and the loss on marketable securities was $157,500 for the nine months ended September 30, 2019 and 2018, respectively. The gain on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each quarter. The shares in Zoompass were acquired by the Company as settlement of a litigation matter.

 

 
 

 

 

Loss Before Income Taxes

 

Loss before income taxes of $4,945,976 and $875,244 for the nine months ended September 30, 2019 and 2018, respectively, an increase of $4,079,732. The increase is attributable to the increase in loss from operations, primarily due to the higher winning payout ratio, increase in gaming taxes and the increase in general and administrative expenses during the current period and the increase in interest expense, net of interest income, primarily due to the amortization of debt discount during the current period, as discussed above.

 

Income Tax Provision

 

The income tax provision of $715,575 and $840,798 for the nine months ended September 30, 2019 and 2018, respectively, a decrease of $125,223 or 14.9%. The decrease in the income tax provision is attributable to the lower nine month income earned in one of our subsidiaries for the period ended September 30, 2019 compared to September 30, 2018, impacting on both the overall group profitability and the provision for income tax.

 

Net Loss

 

Net loss of $5,661,551 and $1,716,042 for the nine months ended September 30, 2019 and 2018, respectively, an increase of $3,945,509 or 229.9%, is discussed above.

 

Comprehensive Loss

 

Our reporting currency is the U.S. dollar while the functional currency of our subsidies is the Euro, the local currency in Italy and Austria and the functional currency of our Canadian subsidiary is the Canadian dollar. The financial statements of our subsidiaries are translated into United States dollars in accordance with ASC 830, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining other comprehensive income.

 

We recorded a foreign currency translation adjustment loss of $326,438 and $168,810 for the nine months ended September 30, 2019 and 2018, respectively.

 

Liquidity and Capital Resources

 

Assets

 

At September 30, 2019, we had a total of $27,498,244 in assets compared to $22,653,481 in assets at December 31, 2018. The increase is primarily related to the increase in intangible assets related to the acquisition of the Virtual Generation licenses acquired on January 31, 2019 in terms of the Securities Purchase agreement entered into as disclosed in Note 4 to the financial statements, offset by a reduction in cash balances.

 

Liabilities

 

At September 30, 2019, we had $20,006,782 in total liabilities and compared to total liabilities of $12,714,078 at December 31, 2018. The increase is attributable to the promissory note payable to related and non-related parties incurred on the acquisition of Virtual Generation Limited during January 2019 as discussed in Note 5 to the financial statements and the increase in the value of convertible debentures due to the amortization of the debt discount during the current period.

 

Working Capital

 

We had $4,910,994 in cash and cash equivalents at September 30, 2019 compared to $6,289,903 on December 31, 2018.

 

We had a working capital deficit of $10,428,831 at September 30, 2019, compared to a working capital deficit of $4,328,856 at December 31, 2018. The increase in the working capital deficit is due to the acquisition of Virtual Generation as disclosed in Note 5 to the financial statements resulting in the acquisition of primarily long term assets in the form of licenses funded by primarily a short-term promissory note.

 

We currently maintain an operating line of credit for a maximum amount of €300,000 (approximately $340,000) for Multigioco and €50,000 (approximately $57,000) for Rifa from Intesa Sanpaolo Bank in Italy. The line of credit is secured by restricted cash on deposit at Intesa Sanpaolo Bank and guaranteed by certain of our shareholders and bears a fixed rate of interest at 5% per annum on the outstanding balance with no minimum payment, maturity or due date. In addition, we maintain 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% 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.

 

We currently believe that our existing cash resources together with the revenue from operations that we expect to generate will be sufficient to meet our anticipated needs over the next twelve months from the date hereof. Historically, we have financed our operations through revenue generated from providing online and offline gaming products, services, and Platform services in Italy and the sales of our securities and we expect to continue to seek to obtain required capital in a similar manner. Recently, we have spent, and expect to continue to spend, a substantial amount of funds in connection with our expansion strategy.

 
 

 

 

As of September 30, 2019, we had accumulated deficit of $19,628,581 compared to accumulated deficit of $13,967,030 at December 31, 2018.

 

Cash Flows from Operating Activities

 

Cash flows from operating activities resulted in net cash used in operating activities of $640,021 for the nine months ended September 30, 2019, compared to cash provided by operating activities of $832,880 for the nine months ended September 30, 2018. The $1,913,291 increase in cash used in operating activities is primarily related to the increase in loss from operations of $3,945,509 offset by the movement in non-cash amortization of deferred costs of $2,916,251.

 

Cash Flows from Investing Activities

 

The net cash provided by investing activities for the nine months ended September 30, 2019 was $346,847 compared to net cash used in investing activities of $4,690,524 for the nine months ended September 30, 2018 that was attributed directly to the asset purchases of Ulisse and Multigioco on May 31, 2018 pursuant to the Ulisse Put Option and the Multigioco Put Option.

 

Cash Flows from Financing Activities

 

Net cash used in financing activities for the nine months ended September 30, 2019 was $179,526 compared to $4,255,356 of net cash provided by financing activities for the nine months ended September 30, 2018. We raised funding through the issue of debentures in the prior year of $6,883,905 and repurchased common shares totaling $2,261,307 in the prior year. The common share repurchase was attributed to the asset purchases of Ulisse and Multigioco on May 31, 2018 pursuant to the Ulisse Put Option and the Multigioco Put Option.

 

Contractual Obligations

 

Current accounting standards require disclosure of material obligations and commitments to make future payments under contracts, such as debt, lease agreements, and purchase obligations. Contractual obligations consist of the following:

 

  A promissory note to acquire VG for €3,803,000 that is payable in monthly instalments until January 2022. The amount due under this promissory note as of September 30, 2019 was approximately $3,037,773 (approximately €2,785,200), before debt discount of $247,266.

 

  Convertible Debentures denominated in both US$ and CDN$ issued in the first and second quarter of 2018 that mature two years from the issue date. At September 30, 2019, we have outstanding a principal amount of $7,153,446 plus accrued interest of $978,252.

 

Off-Balance-Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that we expect to be material to investors. We do not have any non-consolidated, special-purpose entities.

 

Related Party Transactions

 

Promissory Notes

 

The Company has three promissory notes entered into in 2015 and 2016 with Braydon Capital Corp., a related party, with an aggregate principal amount outstanding of $318,078. The outstanding amount of the promissory notes of $457,461 due to Braydon Capital was paid in full by the issuance of 142,956 shares of common stock at a price of $3.20 per common share on September 4, 2019.

 

In connection with the acquisition of VG on January 31, 2019, disclosed in Note 4 to the financial statements, the Company issued a non-interest bearing promissory note of €3,803,000 owing to both related parties and non-related parties, the balance to be settled as follows:

 

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

 

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

 

The amount due under the VG promissory note is $3,037,773, before debt discount of $247,266 as at September 30, 2019.

 

Advances from Stockholders

 

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

 

The amount payable to stockholders as of September 30, 2019 was $8,019. This amount is due to Gold Street Capital Corp., the major stockholder of Newgioco Group, is for reimbursement of expenses. During the three and nine months ended September 30, 2018, the Company paid management fees of $36,000 and $72,000 to Gold Street Capital Corp and no management fees during the three and nine months ended September 30, 2019, respectively.

 

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Newgioco Group is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

Item 4. Controls and Procedures.

 

Management's Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is collected, recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

As required by SEC Rule 13a-15(b), our management, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019. Based on the foregoing evaluation, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), concluded that due to our limited resources our disclosure controls and procedures were not effective. Specifically, our internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees. Management has determined that this control deficiency constitutes a material weakness which can result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

 

Going forward, management anticipates that additional staff will be necessary to mitigate these weaknesses, as well as to implement other planned improvements. Additional staff should enable us to document and apply transactional and periodic controls procedures, permit a better review and approval process and improve quality of financial reporting. However, the potential addition of new staff is contingent on obtaining additional financing, and there is no assurance that we will be able to do so.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On August 1, 2019, an action was filed against the Company by Elizabeth J. MacLean, the Company’s former CFO, in Maricopa County Superior Court, Maricopa County, Arizona, Case No. C2019-008383. This action challenges the Company’s termination of Ms. MacLean’s employment in May 2019 as unlawful under her employment agreement, dated September 19, 2018, with the Company and seeks damages in the amount of $1,050,204. On October 10, 2019, a default judgment was filed in Maricopa County Superior Court. On November 4, 2019, the Company filed a motion to set aside the default judgment based on, among other things, the failure by plaintiff’s counsel to follow the notice provisions of Arizona law which led to the default judgment. The Company believes this action to be wholly without merit and that it has various meritorious defenses to this action, including that Ms. MacLean was terminated during the stated probationary period set forth in her employment agreement with the Company and that the Company had good cause to effect any such termination, whether within or without the probationary period. The Company does not expect this action will have a material adverse effect on its business or its current and expected future operations.

 

Item 1A. Risk Factors.

 

Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Form 10-Q/A, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item1A, “Risk Factors,” contained in our Annual Report on Form 10-K/A for the year ended December 31, 2018. Except as disclosed below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2018.

 

Risks Related to Our Financial Position

 

We have incurred substantial losses in the past and it may be difficult to achieve profitability.

 

We have a history of losses and are anticipated to incur additional losses in the development of our business. For the year ended December 31, 2018, we had a net loss of $3.6 million and for the nine month period ended September 30, 2019 we had a net loss of $5.7 million. As of December 31, 2018, and September 30, 2019 we had accumulated deficits of $14.0 million, and $19.6 million, respectively. Since we are currently in the early stages of our development and strategy, we intend to continue to invest in sales and marketing, product and solution development and operations, including by hiring additional personnel, upgrading our technology and infrastructure and expanding into new geographical markets. To the extent we are successful in increasing our customer base, we expect to also incur increased losses in the short term despite the fact that our Platform is easily scalable and because costs associated with entering new markets, acquiring clients, customers and operators are generally incurred up front, while service and transactional revenues are generally recognized at future dates if at all. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenues enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and unforeseen expenses, difficulties, complications and delays and other unknown events. Although we cannot assure that we will be able to maintain a profitable level of betting operations to meet normal business operating obligations, in recent years we have relied on issuance of debt and equity securities to grow our business such that we have generated sufficient revenue to maintain our existing level of operations and to continue moderate organic growth in the regulated Italian leisure betting market. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.

 

We expect to continue relying on our discretionary available cash and bank credit to fund our additional acquisitions or enter into new business opportunities that may not be available at reasonable terms, if at all.

 

We have recently initiated an ambitious investment strategy including taking steps to enter the U.S. market which has led to an increase in some recurring and a number of non-recurring expenses. Our ability to execute our growth plan is dependent upon our ability to generate profits from operations in the future, bank credit facilities and/or our ability to obtain the additional necessary bank financing required and to fund our ambitious investment strategy if such financing is available on reasonable terms, if at all.

 

The exercise or conversion of currently outstanding securities would dilute current holders of our common stock.

 

If all of the holders of our outstanding convertible debentures and warrants converted or exercised their securities, we would be obligated to issue 474,598 common shares.

 

50


 

 
 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the nine months ended September 30, 2019, we issued 259,785 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 5 to the financial statements. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made by the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

 

During the nine months ended September 30, 2019, we issued an aggregate of 513,485 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid.

 

On April 22, 2019, we issued an aggregate of 14,083 shares of common stock to certain convertible debenture holders as an incentive for them to transfer the convertible debentures to another investor. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made by the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

Subsequent to the period covered by this report, the principal amount of $100,000 and CDN $1,193,965 (approximately $898,340) of outstanding convertible debentures plus accrued interest was presented to the Company for conversion into approximately 368,992 shares of common stock. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid.

 

Item 6. Exhibits

 

 

Exhibit Number   Description
10.1   Independent Contractor Agreement with Mark Korb dated July 1, 2019 (incorporated by reference to the Company’s Current Report on Form 8-K dated July 3, 2019 (File number 000-50045))
10.2   Amendment to Employment Agreement dated July 5, 2015 with Michele Ciavarella (incorporated by reference to the Company’s Current Report on Form 8-K dated July 9, 2019 (File umber 000-50045))
10.3   Exchange Agreement, dated September 4, 2019 by and between Newgioco Group, Inc. and Michelle Ciavarella (incorporated by reference to the Company’s Current Report on Form 8-K dated September 5, 2019 (File number 000-50045))
10.4   Exchange Agreement, dated September 4, 2019 by and between Newgioco Group, Inc. and Gold Street Capital Corp. (incorporated by reference to the Company’s Current Report on Form 8-K dated September 5, 2019 (File umber 000-50045))
10.5   Exchange Agreement, dated September 4, 2019 by and between Newgioco Group, Inc. and Braydon Capital Corp. (incorporated by reference to the Company’s Current Report on Form 8-K dated September 5, 2019 (File umber 000-50045))
31.1   Certification of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Amendment No. 1 to the report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date: November 6, 2020 Newgioco Group, Inc.
 

 

 

 

 

By: /s/ Michele Ciavarella

 

Michele Ciavarella

Chief Executive Officer (Principal Executive Officer)

 

 

 

By: /s/ Mark Korb

 

Mark Korb

Chief Financial Officer (Principal Financial Officer)

 

 

 

 

 

 

 

 

 

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