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Form S-1 Newgioco Group, Inc.

October 21, 2020 4:03 PM EDT

As filed with the Securities and Exchange Commission on October 21, 2020
Registration No. 333-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

NEWGIOCO GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7372   33-0823179
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer Identification No.)

 

Newgioco Group, Inc.

130 Adelaide Street West, Suite 701

Toronto, Ontario, Canada M5H 2K4

+39-391-306-4134

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Michele Ciavarella, B.Sc.

Chief Executive Officer

Newgioco Group, Inc.

130 Adelaide Street West, Suite 701

Toronto, Ontario Canada M5H 2K4

+39-391-306-4134

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

with copies to

 

Leslie Marlow, Esq.

Hank Gracin, Esq.

Patrick J. Egan, Esq.

Gracin & Marlow, LLP

The Chrysler Building

405 Lexington Avenue, 26th Floor

New York, New York 10174

(212) 907-6457

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 


 
 

 

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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 7(a)(2)(B) of the Securities Act.

 

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CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered

 

 

 

Amount to be Registered

Proposed Maximum

Offering

Price per

Security(1)(2)

Proposed Maximum Aggregate Offering Price Amount of registration fee(3)
         
Shares of Common Stock issuable upon exercise of Common Stock Purchase Warrants (2) 183,504 $1.66 $304,617 $33.24
Total 183,504 $1.66 $304,617 $33.24

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, as amended, based upon the closing price of the Registrant’s common stock on the Nasdaq Capital Market on October 20, 2020.
   
(2) Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.

 

(3) Calculated by multiplying the proposed maximum aggregate offering price of securities by securities to be registered by 0.00010910.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION DATED OCTOBER 21, 2020

 

183,504 Shares of Common Stock

 

This prospectus relates to the resale of up to 183,504 shares (the “Shares”) of our common stock, par value $0.0001 (the “Common Stock”) by our securityholders (the “selling stockholders”), all of which are issuable upon exercise of warrants (the “Warrants”) issued to the selling stockholders. Please refer to the section of this prospectus entitled “Selling Stockholders” for additional information regarding the Selling Stockholders.

 

We are not selling any Shares in this offering. We, therefore, will not receive any proceeds from the sale of the Shares by the Selling Stockholders. We will, however, receive proceeds upon exercise of the Warrants, if exercised on a cash basis.

 

We have paid and will pay the expenses incurred in registering the Shares, including legal and accounting fees. See “Plan of Distribution.”

 

The Selling Stockholders may sell the Shares described in this prospectus in a number of different ways and at varying prices. The prices at which the Selling Stockholders may sell the Shares in this offering will be determined by the prevailing market price for the shares of our common stock or in negotiated transactions. See “Plan of Distribution” for more information about how the Selling Stockholders may sell the Shares being registered pursuant to this prospectus. The Selling Stockholders may be deemed “underwriters” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended. The Selling Stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the Shares.

 

Our common stock issued is traded on the Nasdaq Capital Market under the symbol “NWGI”. On October 20, 2020, the last reported sales prices of our common stock on the Nasdaq Capital Market was $1.66.

 

Investing in our securities involves various risks. See “Risk Factors” beginning on page 8 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _________, 2020

 

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Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS v
INDUSTRY AND MARKET DATA vi
PROSPECTUS SUMMARY 1
THE OFFERING 7
RISK FACTORS 7
USE OF PROCEEDS 27
DIVIDEND POLICY 27
DETERMINATION OF OFFERING PRICE 27
THE PRIVATE PLACEMENT 27
SELLING STOCKHOLDERS 28
PLAN OF DISTRIBUTION 29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
BUSINESS 48
MANAGEMENT 60
CORPORATE GOVERNANCE 60
EXECUTIVE COMPENSATION 65
BOARD OF DIRECTORS COMPENSATION 69
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 73
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 73
PRINCIPAL STOCKHOLDERS  
DESCRIPTION OF CAPITAL STOCK 76
LEGAL MATTERS 81
EXPERTS 81
WHERE YOU CAN FIND MORE INFORMATION 81
NEWGIOCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 82

 

 

The registration statement containing this prospectus, including the exhibits to the registration statement, provides additional information about us and the common stock offered under this prospectus. The registration statement, including the exhibits and the documents incorporated herein by reference, can be read on the Securities and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading “Where You Can Find More Information.”

 

Information contained in, and that can be accessed through, our web site www.newgiocogroup.com shall not be deemed to be part of this prospectus or incorporated herein by reference and should not be relied upon by any prospective investors for the purposes of determining whether to purchase the Shares offered hereunder.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains, in addition to historical information, certain 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”), that includes information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

 

In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus or incorporated herein by reference.

 

You should read this prospectus and the documents we have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.

 

Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2019 under the headings “Risk Factors” and “Business,” as updated in our Quarterly Report(s) on Form 10-Q.

 

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

 

New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus particularly our forward-looking statements, by these cautionary statements.

 

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INDUSTRY AND MARKET DATA

 

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors”. We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.

 

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PROSPECTUS SUMMARY

 

The following summary highlights certain of the information contained elsewhere in this prospectus. Because this is only a summary, however, it does not contain all of the information you should consider before investing in our securities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information included elsewhere in this prospectus. Before you make an investment decision, you should read this entire prospectus carefully, including the risks of investing in our securities discussed under the section of this prospectus entitled “Risk Factors.” You should also carefully read our financial statements, and the exhibits to the registration statement of which this prospectus is a part. Unless otherwise indicated, all share amounts and per share amounts in this prospectus have been presented on a pro forma basis to reflect the reverse stock split of our outstanding shares of common stock at a ratio of 1-for-8 that we effected on December 12, 2019.

 

Company Overview

 

We are an international, vertically integrated commercial-stage company engaged in two principal aspects of the leisure gaming industry as (1) a business-to-consumer (“B2C”) licensed retail gaming operator (known as an “Operator”) offering our products through two sales distribution channels (i) retail land-based or on-site physical venues and (ii) online through PC, tablet and mobile distribution, and (2) as a business-to-business (“B2B”) betting technology provider (known as a “Provider”) offering our proprietary betting technology either (1) directly to licensed operators or (2) through value-added re-sellers or systems integrators in the leisure betting industry.

 

As an Operator in the regulated Italian leisure betting market, we operate on a single-tier distribution strategy by collecting wagers on leisure betting products including a variety of lottery, casino gaming and sports bets through two 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 load their online gaming account through PC’s situated at each venue, and (ii) land-based 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.). We currently provide our gaming services through our subsidiaries, Multigioco Srl (“Multigioco”), and Ulisse GmbH (“Ulisse”). These operations are carried out under both land-based and online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”), and our Austrian Bookmaker license, that permit us to distribute leisure betting products such as sports betting, lotto tickets, virtual sports betting, online poker and casino gaming products through both physical, land-based retail locations as well as online through our licensed principal website www.newgioco.it or commercial webskins linked to our principal website and through mobile devices.

 

In Italy, our gaming products and services are offered to customers at the following three venues:

 

  Agency or Negozio Sportivo (translated as Sporting Store): An agency is an arcade location that is a gaming only venue meeting strict regulatory standards and must have at least 70% of its square-footage dedicated specifically to gaming space. Each agency must have a cash cage for the primary purpose of gaming and gaming related transactions serving an indefinite number of anonymous walk-in customers.
  Corner or Punto Sportivo (translated as Sporting Point): A corner is distinguished from an agency insofar as the principal business situated at the location is an activity that is primarily different from gaming (such as a coffee shop or bakery) with a terminal connected to the ADM network. The primary purpose of such facility is not gaming, but rather, there is only a small ‘corner’ for extra cash flow in exchange for a fee and/or commission. Specifically, a maximum of 30% of floor space of a corner location can be dedicated to gaming where gaming transactions are collected and processed by a counter clerk.
  Web-shop (“web cafe” or “websites”) or Punti Virtuali di Recarica (“PVR”) (translated as Virtual Reload Points): A web-shop is a physical location where computers are connected to the internet and directed to our website where customers may also make cash deposits that are credited electronically to their online gaming accounts (i.e., virtual account reloading). Customers can re-load their online gaming account at any web-shop that is under contract to promote our websites and play remotely through a PC, tablet or mobile device.

 

We currently service approximately 79,000 active online user accounts and an indeterminate number of walk-in customers at a combination of the three types of venues: 1,200 web-cafés (or “web-shops”), 7 corners and 117 agency locations.

 

As a global gaming technology Provider, we own and operate a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built in player gaming account management and a built-in sports book. As a Provider, we employ a multi-tier distribution strategy on both a direct to customer channel and on a Software-as-a-Service (“SaaS”) basis.

 

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The Platform is certified by the ADM and the Malta Gaming Authority (“MGA”) in Malta and is owned by our subsidiary Odissea Betriebsinformatik Beratung GmbH (“Odissea”). The software architecture was developed and built on the latest Microsoft.Net Core framework, supporting both online customer gaming accounts as well as land-based bet processing capability with multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) backed by a real-time customer relationship management (“CRM”) and business intelligence (“BI”) program for streamlined cross-platform marketing as well as a synchronized financial accounting processes. Data is communicated directly to on-the-ground sales and marketing agents that manage and maintain both our online and land-based retail distribution.

 

The Platform allows our independent B2B and white-label end users to (i) rapidly and effectively model their gaming businesses and client gaming accounts, (ii) monitor and analyze performance on an ongoing basis, (iii) share dashboards, and (iv) generate management reports all within a fully integrated solution. In addition, our clients can use the built-in artificial intelligence and adaptive business intelligence modules to evaluate actual performance and leverage insights from analytics to make informed, timely decisions to drive future business. The unique ’shop-client’ architecture of the Platform to our knowledge, is the first of its kind in the leisure betting industry. Elys was built around the specific needs of leisure betting operators and proven through our existing Multigioco distribution throughout Italy.

 

On January 30, 2019, we expanded our operations with our acquisition of Virtual Generation Limited (“VG” or “Virtual Generation”), which owns and has developed a virtual gaming software platform (“VGS”). 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 sports generation including applications in Latin American and African markets as well as unique tribal games tailored for the U.S. tribal gaming market. VG’s operations have grown in the highly competitive virtual sports market to approximately 18.5 million bet tickets sold in 2019. VG now operates in the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.

 

Organizational Structure

 

Our operations are carried out through three geographically organized groups: (i) an operational group which is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration and risk management trading in Naples and Teramo, Italy and San Gwann, Malta; (ii) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and (iii) a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and satellite offices in Fort Lauderdale and Boca Raton, Florida through which we carry out corporate activities, handle day-to-day reporting duties, U.S. development planning and through which various independent contractors and vendors are engaged.

 

Our revenue streams primarily consists of transactional revenue and service revenue. Through our subsidiaries Multigioco acquired on August 15, 2014 and Ulisse acquired July 1, 2016, we generate transactional revenue through collection of bets from sports wagering and gaming from online betting and land-based betting shops located throughout Italy, and through our subsidiary, Odissea acquired July 1, 2016, we generate service revenue generated from providing our Platform services to third party operators on a B2B basis. In addition, our revenue during the year ended December 31, 2019 included revenue generated by VG acquired January 30, 2019, for 11 months of the year ended December 31, 2019, consisting of royalties invoiced for the sale of virtual games through authorized agents. We generated revenue of $35,583,131 for the year ended December 31, 2019 and $34,575,097 for the year ended December 31, 2018, substantially all of which was generated from revenue from operations or services provided in Italy. For the years ended December 31, 2019 and 2018, net gaming revenues represented 98.9% and 99.2%, respectively of our revenue and Platform and service revenue represented 1.1% and 0.8%, respectively of revenue. We generated revenue of $14,980,443 for the six months ended June 30, 2020 and $18,371,648 for the six months ended June 30, 2019, substantially all of which was generated from revenue from operations or services provided in Italy. For the six months ended June 30, 2020 and 2019, net gaming revenues represented 99.8% and 991%, respectively of our revenue and Platform and service revenue represented 0.2% and 0.9%, respectively of revenue. We also formed a non-operating subsidiary Newgioco Group, Inc in Canada on January 17, 2017 for potential future operations in Canada, Elys Technology Group, Limited in Malta on April 4, 2019 for future opportunities, on November 26, 2019 we formed Newgioco Colombia SAS to develop our operations through South and Central America, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware for development of our U.S. sports betting operations.

 

Our Strengths

 

We believe we have established ourselves as one of the leaders in the Italian leisure betting market. Below are our strengths that we believe should enable us to capture a meaningful share of the United States and global leisure betting market:

 

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Highly Differentiated Technology Platform. Built from the ground-up, the Platform is designed to be a highly flexible and robust sportsbook engine able to cope with the demands of today’s betting operators and players. The Platform is designed as an industry specific ‘shop-client’ architecture and can offer any type of sport (or non-sport) event and any type of betting market (i.e., soccer, football, basketball, hockey, baseball, tennis, etc.) in both pre-match and in-game modes across both fixed-odds (player versus bookie) and pool (player versus player) styles and manage the risk for each individual transaction through all channels (i.e., online or land-based). Our proprietary Platform is designed to address the independent operator’s ability to compete against larger and more established franchise operators effectively and inexpensively as it is designed to allow management of bet risk of each transaction at each location from which a bet is placed.

 

 

Market Momentum. We believe that our unique ‘shop-client’ designed Platform is gaining momentum in the Italian leisure betting market with our fully integrated shop-client based Platform architecture with integrated gaming account, artificial intelligence and business intelligence modules. We currently service approximately 79,000 active online user accounts and an indeterminate number of walk-in customers through the three distribution methods: 1,200 web-cafés (or “web-shops”), 7 corners, and 117 agency locations.

 

 

Scalable Platform at Minimal Cost. Our Platform is highly scalable. Expansion of the Platform under our existing infrastructure requires little to no additional overhead and should create in-house efficiencies for our corporate operations and for our agents and operator clients. Many of the inherent functions and features of our ADM Platform certification in Italy have received prior approval and adhere to multi-jurisdictional standards which in our view will enable us to receive certification in new markets and expand into new markets in a timely manner.

 

 

Growing Industry. Online gambling is growing in popularity. Gamblers worldwide increasingly prefer Internet and mobile channels for their betting activities due to the ease of access offered and safety provided. Extensive usage of digital processes and growing bettor demand is driving the market for online betting platforms. Recent liberalization and state-by-state legislation in the United States has resulted in new opportunities in the United States sports betting market. We anticipate that the United States market will begin to have a strong and steady uptake in active wagers. We further anticipate the first select states (i.e., Nevada, Delaware, New Jersey, Mississippi, West Virginia, Pennsylvania, Rhode Island, Montana, New Mexico and others) to provide the regulatory framework and foundation for other states and locations to build upon.

 

  Highly Experienced Senior Management Team. We are led by a dedicated and highly experienced senior management team with significant industry experience and proven ability to develop novel solutions. Each of the members of our senior management have more than 20 years of relevant industry experience.

 

Our Strategy

 

Our goal is to expand our market presence by entering new foreign markets while at the same time further penetrating the Italian and additional European markets. We expect new markets to be a large source of our future growth, in particular, the United States market is one where we intend to offer the use of our Platform to existing commercial and tribal casinos, retail betting operators and franchise enterprises.

 

Development of U.S. and Other Foreign Markets

 

 

The U.S. Sports Betting Market. Until 2018, the Interstate Wire Act of 1961, combined with the Professional and Amateur Sports Protection Act of 1992 (“PASPA” or the “Bradley Act”), prohibited sports betting in the U.S. in all but four grandfathered states (Montana, Oregon, Nevada, and Delaware). In May 2018, the U.S. Supreme Court overturned PASPA in a 6-3 decision that found the law conflicted with the Tenth Amendment leaving individual states to decide whether to allow its residents to bet on sports. Many states are expected to move quickly to establish sports betting as a means to increase their respective capital resources. While several states have recently passed legislation to allow online gambling, we believe that the U.S. sports betting market will take 5 – 10 years to fully develop. We believe that the United States represents a large addressable market opportunity for us with our Elys betting Platform in addition to developing new opportunities in Canada, South America, Africa as well as several European countries.

 

  Mergers and Acquisition in the Global Gaming Industry. In an effort to scale and grow the business, we intend to evaluate potential acquisitions that can be easily integrated into our business. Our recent acquisition of VG has allowed us to expand our product offerings in additional countries. The global gaming industry is still very much fragmented. There has been a significant number of noteworthy consolidations such as: (1) The Stars Group/SkyBet (July 2018) and CrownBet/William Hill Australia (April 2018); (2) Paddy Power/Betfair (February 2016) and with Stars Group (April 2020); (3) GVC/BWIN Ladbrokes/Coral (March 2018), DraftKings/SBTech (April 2020); and (4) in lottery concentration (IGT/GTECH (April 2015); as well as others such as Pollard/Innova (July 2017); NYX Gaming Group/Scientific Games (January 2018) which we believe provides us with an opportunity to capitalize on the acquisition of smaller operators forced to compete against newly formed larger players.

 

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Further Penetration in the Italian Market

 

 

Acquisitions of Smaller Operators. Government legislated consolidation of the regulated Italian lottery and gaming market have driven smaller regional operators in Italy to our licensed brand “New Gioco” TM in both the online and land-based sales channels. The Italian regulated gaming market is one of the largest in the European Union (“EU”) and is extremely fragmented. Recent new regulations in Italy have made it more difficult for smaller regional operators throughout Italy to operate and we believe that our innovative and cost-effective Platform is an attractive alternative for such smaller regional operators throughout Italy that will not be able to maintain the new standards set out by the Italian regulator on their own.

 

  Organic Growth. The Italian online gaming market continues to drive substantial growth in our core operations. From January 1, 2019 through December 31, 2019, we increased the number of webshop locations we operate in Italy from approximately 1,000 to approximately 1,200 and believe that there is ample room for continued growth in the Italian market.

 

Development in U.S. Market

 

We believe that the U.S. sports betting and online gaming market presents a large opportunity to deploy our Platform on a 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 Gaming Laboratories International (“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 certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase is expected to begin by October 2020 for the verification of mobile and website functionality. 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 such as regulatory and policy requirements and 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 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 in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting events or games that are not classed as mainstream sports bets.

 

In October 2019, we entered into a multi-year agreement with Grand Central, LLC, a retail sports bar operator in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process.

 

On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.

 

On June 11, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example, checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP). The procedures for Stage 2 certification, involves a more detailed and formal compliance audit and independent testing of the ISMS against the requirements specified in ISO-27001, and is expected to be completed in approximately 4 months.

 

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In September 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as President of the Company.

 

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 registration statement.

 

Corporate Information

 

Newgioco Group, Inc. is a Delaware corporation incorporated on August 26, 1998.

 

Our principal headquarters are located at 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4, and the offices of our wholly-owned subsidiaries are located in U.S.A., Canada, Italy, Malta and Austria. Our subsidiaries include: Multigioco Srl (acquired on August 15, 2014), as well as Ulisse GmbH and Odissea Betriebsinformatik Beratung GmbH (both acquired on July 1, 2016), Virtual Generation Limited (acquired on January 30, 2019), Newgioco Group, Inc. (Canada) formed on January 17, 2017, Elys Technology Group Limited, a company organized under the laws of Republic of Malta on April 4, 2019, Newgioco Colombia SAS, a company organized under the laws of Colombia formed on November 26, 2019, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware. Our telephone number is +39-391-306-4134. Our corporate website address is www.newgiocogroup.com. The information contained on our website is not incorporated by reference into this registration statement, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statement or in deciding whether to purchase or sell our securities.

 

We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “New Gioco”, “Aleabet”, “OriginalBet”, “LovingBet” and “Elys.” Solely for convenience, the trademarks, service marks and trade names in this registration statement are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statement are the property of their respective owners.

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Summary Risks

 

Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware of before you decide to buy our securities. These risks include, but are not limited to, the following which you should carefully consider and which are discussed more fully in “Risk Factors” beginning on page 9 of this prospectus.

 

  Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
  The COVID-19 pandemic has negatively impacted our business and we do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole.

 

  We have discovered material weaknesses and other deficiencies in our internal control and accounting procedure.

 

  If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted.

 

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

 

  In order to expand our land-based operations in Italy, we will need to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our revenues and profits.

 

  We derive a significant portion of our revenue and service fees from gaming sales through our website and websites of our betting Platform clients. A decline in the popularity of our website or those of our Platform clients will negatively impact our business and risk our future growth.

 

  Because our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified.

 

  Our current expansion strategy, which includes expansion through VG in the various countries in which it operates and in the United States through the use of our Platform certifications, may be difficult to implement because the licensing and certification requirements to operate in the United States are currently indeterminable.

 

  We depend upon our officers and other key employees. Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business.

 

  Our current operations are international in scope and we are planning further geographic expansion, creating a variety of potential operational challenges.

 

  Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.

 

 

Our management will have broad discretion over the use of the net proceeds from this offering and may not use the proceeds effectively.

 

 

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THE OFFERING

 

Issuer: Newgioco Group, Inc. a Delaware corporation
   
Securities offered This prospectus covers the resale of up to 183,504 shares of our common stock issuable upon exercise of the Warrants.
   
Total Common stock outstanding before this offering 16,700,139 shares of common stock
   
Use of proceeds We will not receive any proceeds from the sale of the Shares covered by this prospectus. We will receive proceeds from the exercise of the warrants if exercised for cash. See “Use of Proceeds”.
   
Risk Factors

Investing in our securities involves a high degree of risk. For a discussion of factors to consider before deciding to invest in our securities, you should carefully review and consider the “Risk Factors” section of this prospectus beginning on page 11 of this prospectus.

 

 

RISK FACTORS

 

Investing in our securities involves a high degree of risk. You should carefully consider the following risks, together with all of the other information contained in this prospectus, including our financial statements and related notes, before making a decision to invest in our securities. Any of the following risks could have a material adverse effect on our business, operating results, and financial condition and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment.

 

Risks Related to Our Business

 

Our business has been negatively impacted by the COVID-19 Pandemic.

 

In December 2019, a novel strain of coronavirus SARS-CoV-2, the virus which causes COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple countries, including the United States. The impact of the COVID-19 coronavirus outbreak caused the temporary closures of our retail locations throughout Italy, suspension of professional sports competitions throughout the world negatively impacting our ability to offer sports gaming products and could have a negative impact on our business.

 

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and the related adverse public health developments, have adversely affected work forces, economies and financial markets globally. The outbreak caused the temporary closures of our physical locations where we provide our gaming services throughout Italy, of which some locations began to re-open on May 4, 2020 and the remainder reopened June 9, 2020, and the suspension of professional sports competitions throughout the world negatively impacting our ability to offer sports gaming products and resulted in a decrease in our revenue for the second quarter of 2020. The recent quarantines, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers have had an adverse impact our sales and operating results. We have been unable to meet the extended deadlines for filing with the SEC our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 due to the travel restrictions imposed by the governments in Italy, the USA and other European countries as a result of the pandemic that prevented our officers and management as well as professional staff of our independent public accounting firm from travelling to our office locations located in Italy to compile and review information necessary to complete our filing within the extended time period allowed by the SEC. In addition, the pandemic could result in an economic downturn that could impact the demand for our products. We expect this global pandemic will continue to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict.

 

In response to the spread of COVID-19 as well as public health directives and orders, we have implemented work-from-home policies to support the community efforts to reduce the transmission of COVID-19 and protect employees, complying with guidance from national and local government and health authorities. We implemented a number of measures to ensure employee safety and business continuity. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. The effects of the governmental orders and our work-from-home policies have negatively impact productivity, disrupt our business and delay our progress in implementing our business plan, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

 

In addition, the outbreak of the COVID-19 coronavirus could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or other workplace, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

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The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 outbreak may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in Italy, the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in Italy, the United States and other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harm our business.

 

Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.

 

We have a limited operating history with respect to our gaming operations upon which you can evaluate our prospects and our potential value. We began our gaming operations in 2014, when we completed the acquisition of Multigioco, a corporation organized under the laws of the Republic of Italy, which is now our wholly owned subsidiary and was granted its ADM Comunitaria GAD (Online Gaming) license on July 4, 2012. As a result of the acquisition of Multigioco, our principal business became a licensed leisure gaming operator offering web-based and land-based sports betting, lottery and gaming products for our customers. The subsidiary that owns our Platform, Odissea, was acquired by us along with our Austrian bookmaker subsidiary, Ulisse in June 2016. In January 2019, we acquired VG, a company that owns and has developed a virtual gaming software platform. Therefore, it is difficult to evaluate our business. If we cannot successfully manage our business, we may not be able to generate future profits and may not be able to support our operations.

 

The likelihood of our success and performance must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the highly competitive environment in which we operate.

 

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, 2019, we had a net loss of $9.3 million and for the period ended June 30, 2020 we had a net loss of $2.4 million. As of December 31, 2019, and June 30, 2020 we had accumulated deficits of $25.6 million, and $23.2 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 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. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease. If we are unable to maintain our profitability, the value of our business and common stock may decrease. Although we cannot assure that we will be able to maintain a profitable level of operations to meet our obligations arising from normal business operations, in recent years we have generated sufficient revenue to maintain our existing operations and continue our moderate organic growth.

 

We have material weaknesses and other deficiencies in our internal control and accounting procedures.

 

Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. Our management assessed the effectiveness of our disclosure controls and procedures as of December 31, 2019 and concluded that we had a material weakness in our internal controls due to our limited resources and therefore our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure about our internal control over financial reporting. Due to limited staffing, we are not always able to detect minor errors or omissions in financial reporting. In addition, as of December 31, 2019 and 2018, our management concluded that we had a material weakness in internal control over financial reporting related to a limited segregation of duties due to our limited resources and the small number of employees. If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we continue to have material weaknesses and other deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to address the adequacy of our internal control and disclosure controls and procedures our business may be harmed. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our securities could drop significantly.

 

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On May 1, 2020, our Audit Committee, following discussions with management, determined that the audited financial statements for the year ended December 31, 2018 contained in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 8, 2019 should no longer be relied upon. The determination of the Audit Committee to restate the above-referenced financial statements was based upon certain errors to its financial statements that were identified by management during the course of preparing our financial statements for the fiscal year ended December 31, 2019. 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. We 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, we 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 and therefore, the Audit Committee also determined that the unaudited consolidated financial statements for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 contained in our Quarterly Reports on Form 10-Q previously filed with the SEC on May 15, 2019, August 16, 2019 and November 14, 2019 should no longer be relied upon.

 

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

 

If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted.

 

Our ability to generate revenue from gaming operations in Italy is dependent upon our ability to maintain our online and land-based licenses. We currently hold four gaming licenses upon which our business is dependent: a Bersani license, a Monti license, a GAD license and an Austrian bookmaker license. Each of the four licenses that we hold can be terminated by the regulator at any time if we fail to comply with their regulations. In addition, our GAD license that was issued to Multigioco in 2011 is up for renewal in 2021 and our Bersani land-based license that provides rights to seven corners is currently up for renewal at such time as the ADM should determine (which is expected to occur between 2020 and 2022) as is our Monti land-based license that provides rights to two agencies. Inasmuch as the renewal process for licenses is conducted through a call to tender auction process, even if we have fully complied in all respects with all requirements of the ADM, there is no guarantee that we will be the highest bidder at auction and therefore there is no guarantee that our licenses or location rights will be renewed. In addition, although our software is currently certified for use in Italy, any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify. If we are unable to renew our licenses or obtain recertification, our business would be materially adversely impacted.

 

Rights to online and land-based licenses are only available in Italy at limited times when licenses are being renewed. In addition, the maximum number of land-based location rights that any one operator may bid on at auction is 20% of the total market being auctioned. Due to such limitations on acquiring new location rights in Italy, our ability to expand the number of land-based locations that we operate will depend in large part upon our ability to acquire operators that hold land-based licenses and location rights. We expect a significant portion of our additional revenue to be derived from gaming revenue earned by operators that we have recently acquired or will acquire in the future. Although the operators which we have acquired and those that we acquire in the future may have active gaming licenses and location rights, we can provide no assurance that the existing license and location rights of any particular operator we have acquired or that we acquire in the future will be renewed or retained or that we will be able to acquire additional operators and increase our client base. If we are restricted from acquiring target operators or their client base, our operating results may will be adversely affected.

 

If we are unable to respond to changes in consumer preferences, attract new customers or sell new or additional products, our future revenue and business will be adversely affected.

 

Our retail leisure betting business, website and web-shops operate in an industry that is subject to:

 

  rapid technological change;
  the proliferation of new and changing online gaming sites;
  frequent new product introductions and updates; and
  changes in customer preferences and demands.

 

 

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If we fail to anticipate and effectively respond to any of the above changes, the demand for our products and services that we currently offer or that we may offer in the future may be reduced. Additionally, increasing incremental sales to our current customer base will require additional sales and marketing efforts, which may not be successful. Any failure to attract new customers or maintain and expand current customer relationships will have an adverse effect on our business and results of operations. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction and failure to attract and retain consumers of our products which could have a material adverse effect on our business, financial condition and operating results.

 

If we fail to acquire, integrate and develop operators and new technologies on favorable economic terms, our future growth and operating results could be adversely affected.

 

We anticipate that the future growth and success of our business will be dependent upon our successful acquisition of operators and development of new technologies, such as our recent acquisition of VG. We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to successfully integrate the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. The difficulties and risks associated with the integration of the operations of new operators into our existing business, include:

 

  the possibility that we will fail to implement our business plans for the integrated company, including as a result of new legislation or regulation in the gaming industry that affects the timing or costs associated with our operations or our acquisition plans;
  possible inconsistencies between our standards, controls, procedures, policies and compensation structures and those of operators that we acquire;
  the increased scope and complexity of our operations following the acquisition of multiple operators;
  the potential loss of key employees and the costs associated with our efforts to retain key employees;
  provisions in contracts that we and the acquired operators have with third parties that may limit our flexibility to take certain actions;
  risks and limitations on our ability to consolidate the corporate and administrative infrastructures of new operators with our existing infrastructures; and
  failure to discover liabilities of operators prior to our acquisitions of such operators; and the possibility of unanticipated delays, costs or inefficiencies associated with the integration of operations of new operators with our existing operations.

 

As a result of these difficulties and risks, we may not be able to successfully grow our business.

 

If we are unsuccessful in establishing or maintaining relationships with third parties, our business may be adversely impacted.

 

In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, and technology and content providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be more effective in providing incentives to third parties to favor their products or services or to prevent or reduce the use of our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our solutions by potential customers.

 

If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer.

 

We cannot assure you that any acquisition we complete will result in short-term or long-term benefits to us. Our business strategy includes expanding our products and services and we may seek acquisitions of synergistic companies to do so. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuance of equity securities; the potential incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diverting our management's attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired companies.

 

We may misjudge the value or worth of an acquired product, company or business. In addition, our future success will depend in part on our ability to integrate and manage the associated acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require a substantial capital investment by us. We may not have the necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our preferred or common stock, which could dilute each current shareholder’s ownership interest in our company. Our operating results and financial condition will be adversely affected if we fail to implement our business strategy or if we invest resources in a strategy that ultimately proves unsuccessful.

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If we do not have sufficient capital resources to complete acquisitions and manage our operations, our ability to implement our business plan could be adversely affected.

 

We intend to continue to make investments to support our business and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. We intend embarking on an aggressive roll out of our operation in the US markets over the next twenty-four months and anticipate that we will need cash of approximately $10 million to $15 million to execute this successfully and to fund our increasing working capital requirements. Although we believe that our existing cash resources together with the revenue from operations will be sufficient to fund existing operations over the next twelve months from the date hereof, if revenue should decrease, we will not be able to fully implement our US roll out unless we raise additional capital. Accordingly, we will need capital to implement our business plan, and may seek to finance operator acquisitions and development projects through bank, debt or equity financings. Disruptions to financial markets or other challenging economic conditions may adversely impact our ability to complete any such financings or the terms of any such financings may be unacceptable or unfavorable to us. To the extent that we issue equity securities in connection with any proposed acquisitions, our current stockholders will experience dilution of their holdings. To the extent we incur debt, we may be subject to restrictive covenants that impact our ability to conduct our business. We can provide no assurance that we will be able to obtain financing necessary to implement our business plan or that any such financing will be on terms acceptable to us.

 

We derive a significant portion of our revenue from gaming sales through our website and websites of our betting Platform clients. A decline in the popularity of our website or those of our Platform clients will negatively impact our business and risk our future growth.

 

We currently derive and expect to continue to derive substantially all of our primary source of revenue and service fees from the sales of gaming products and services sold through our website or websites operated by clients of our betting Platform. As such, the growth and market demand for our products and services are dependent upon, among other things, our ability to attract and retain new users and having existing users increase their activity on these websites. If we are unable to maintain or grow our revenue from sales through our website and our client’s websites, our future growth and revenues may be adversely affected.

 

Because our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified.

 

Due to the fact that our gaming operations are concentrated within Italy, we are subject to greater risks than a gaming company that is more geographically and internationally diversified. As such, our business may be significantly affected by risks common to the Italian leisure betting market. For example, the changing government regulations on gaming licenses as well as general economic conditions in Italy and the impact of any events that disrupt our ability to offer our products and services can adversely affect our business. We cannot control the government process that awards gaming licenses to operators. Reductions in the number of licenses and frequency of issuing licenses by any government regulator can impact our ability to operate our business.

 

Our current expansion strategy, which includes expansion through VG in the various countries in which it operates and in the United States through the use of our Platform certifications, may be difficult to implement because the licensing and certification requirements to operate in the United States and other countries are currently indeterminable.

 

Our current expansion strategy includes soliciting existing licensed operators in the United States offering sports betting in states that allow sports betting to use our Platform. 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 certification standards, which is the latest level of GLI certification for event wagering systems, and we believe that our Platform currently meets the majority of GLI-33 certification standards; however, since the individual states in the United States that allow sports betting have not yet determined what certifications will be required for our Platform to be used in such states, it is impossible for us to know with certainty whether our Platform will meet the certification requirements to operate in the United States. We also intend to expand our operations through VG in the various countries in which it operates; however, to date we have not had operations in most of those countries and there can be no assurance that our expansion in those countries will be successful.

 

We depend upon our officers and other key employees. Our inability to retain such officers and key employees or recruit additional qualified personnel may have a material adverse effect on our business.

 

Our future operations and successes depend in large part upon the continued service of our officers and other key employees. Changes in our management could have an adverse effect on our business. We are dependent upon the active participation of several key management personnel, including Michele Ciavarella, our Chief Executive Officer (CEO), Matteo Monteverdi, our President, Alessandro Marcelli, our Vice President of Operations, and Luca Pasquini, our Vice President of Technology, all of whom provide our strategic direction. Any failure to retain our key management could negatively affect our ability to recruit and retain personnel. We do not carry key person life insurance on any of our senior management or other key personnel. In addition, our Chief Executive Officer is a Canadian citizen with a principal residence in Canada, and our Vice President Operations and Vice President Technology are Italian citizens with their principal residences in Italy. If they become unable or ineligible to legally travel to and work in the United States, their ability to perform some of their duties for our company could be materially adversely affected.  

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We must hire highly skilled technical personnel as employees and/or as independent contractors in order to develop our products. As of the date of this registration statement, we have 58 employees and 15 independent contractors. The competition for highly skilled technical, managerial and other personnel is intense and we may not be able to retain or recruit such personnel. Our recruiting and retention success is substantially dependent on our ability to offer competitive salaries and benefits to our employees. We must compete with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and contractors. To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits offered to employees in order to attract and retain such personnel. The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results. If we fail to attract and retain the technical and managerial personnel we need to be successful, our business, operating results and financial condition could be materially adversely affected.

 

If we are not able to maintain and enhance our brand, our business, operating results and financial condition may be adversely affected.

 

We believe that maintaining and enhancing our reputation for our advanced, cost effective sports betting and gaming technology software is critical to our relationships with our existing customers and operators and to our ability to attract new customers and operators. We also believe that the importance of brand recognition and software creativity will increase as competition in our market increases. We devote significant resources to developing and maintaining our brand and innovative betting technology leadership, with a focus on identifying and interpreting emerging trends in the market, shaping and guiding industry dialogue, and expanding the adoption of online sports betting and gaming software solutions. Our brand promotion activities may not ultimately be successful or yield increased revenue. In addition, independent industry analysts provide reviews of our platform, as well as products and services offered by our competitors, and perception of our betting platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand and business may be adversely affected.

 

The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers and operators or fail to attract potential new customers and operators, all of which would adversely affect our business, results of operations and financial condition.

 

We currently depend on and may continue to be dependent on third parties to provide certain components and products we distribute through our online gaming platform, and any increased costs associated with third party developers or any delay or interruption in production may negatively affect both our ability to provide access to the Platform and our ability to continue our operations.

 

We currently depend on third parties to provide some products through our Platform. The costs associated with relying on third parties may increase our operating and development costs and negatively affect our ability to operate because we cannot control the developer's personnel, schedule or resources. We may experience delays in finalizing Platform updates. In addition, our reliance upon third party developers exposes us to risks, including reduced control over quality assurance and costs of development. If any of the foregoing occurs, we could lose our current and prospective customers. In addition, we may be required to rely on certain technology that we license from third-parties, including software that we integrate and use with software that we may develop internally. We cannot provide any assurances that these third-party technology licenses will be available to us on commercially reasonable terms, if at all. The inability to establish any of these technology licenses, or the loss of such licenses if established, could result in delays in completing any Platform updates or changes until equivalent technology can be identified, licensed and integrated. Any such delays could materially adversely affect our business, operating results and financial condition.

 

Specifically, our agreements with Microgame and SNAI to develop and operate some components of our gaming products and process certain land-based retail transactions is important to our operations. If we fail to comply with any of the terms or conditions of any such agreement, Microgame or SNAI may terminate our agreement or if such agreement expires and we are unable to find a suitable replacement, our business, operating results and financial condition would be materially adversely affected.

 

We depend on payments from third-party service providers, including government regulated gaming agencies. If we are unable to collect such payments or these payments decrease or do not increase as our costs increase, our financial condition and operating results may be adversely affected.

 

We depend, in part, on private entities and regulated third-party sources of payment for the gross gaming revenue earned by our operators. The amount our operators receive for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including future changes to the payment systems, the cost containment and utilization decisions of third-party service providers and the global economy. We have no assurance that future changes to betting odds from data providers for sporting events, table rake from poker providers and tax rates on game offerings, cost containment measures implemented by private third-party service providers, or other factors affecting payments for gaming services or our ability to collect such payments will not adversely affect our, financial condition and operating results.

 

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If we have a security incident or breach involving unauthorized access to customer data, our Platform may be perceived as lacking sufficient security, customers may reduce their use of, or stop using our Platform and we may incur significant liabilities

 

Our Platform involves the storage and transmission of our customer’s confidential and proprietary information, which may include the personal data and information on their customers, players, suppliers and agents. As a result, unauthorized access or use of customer data could expose us to regulatory actions, litigation, investigations, remediation costs, damage to our reputation and brand, disclosure obligations, loss of customer and partner confidence in the security of our solutions and resulting fees, costs, expenses, loss of revenues, and other potential liabilities. While we have security measures in place designed to protect the integrity of customer information and prevent data loss, misappropriation, and other security breaches, if these measures are inadequate or are compromised as a result of third-party action, including intentional misconduct by computer hackers, theft, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liabilities. Cybersecurity challenges, including threats to our IT infrastructure or those of our customers or third-party providers, are often targeted at companies such as ours, and may take a variety of forms ranging from malware, phishing, ransomware, man-in-the-middle attacks, session hijacking, denial-of-service, password attacks, viruses, worms and other malicious software programs or cybersecurity attacks to “mega breaches” targeted against hosted software and cloud based IT services. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. Because cybersecurity attacks and techniques change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate their business with us or switch their business to a competitor, result in reputational damage, cause us to pay remediation costs or issue service credits or refunds to customers for improper bets or false claims of improper bets, or result in lawsuits, regulatory fines or other action or liabilities, which could adversely affect our business and results of operations.

 

Many states in the United States as well as foreign governments have enacted laws requiring companies to provide notice of data security breaches involving certain types of personal data, and significant fines on companies involved in such incidents may be imposed. In addition, some of our regulators and certifying agents contractually require notification of data security breaches. Security compromises experienced by us or by our competitors may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new clients, cause existing clients to switch to a competing betting software provider, or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.

 

Privacy concerns and domestic or foreign privacy laws or regulations may result in significant costs and compliance challenges, reduce demand for our solutions, and adversely affect our business.

 

Our clients can use our Platform to collect, use and store certain personal data regarding their agents, employees, players/customers and suppliers. National and local governments, agencies, and authorities in the countries in which we and our clients operate have adopted or may adopt laws and regulations regarding the collection, use, storage, processing and disclosure of personal data obtained from consumers and individuals, which could impact our ability to offer our solutions in certain jurisdictions or our customers’ ability to deploy our solutions globally. Privacy-related laws are particularly stringent in Europe. If we or our third-party sub-processors fail to adequately comply with privacy-related laws, regulations and standards, it may limit the use and adoption of our solutions, reduce overall demand for our solutions, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Moreover, if we or our third-party sub-processors fail to adhere to adequate data protection practices around the usage of our clients’ personal data, it may damage our reputation and brand.

 

In 2016 the EU adopted a new regulation governing data privacy called the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR establishes requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to four percent of worldwide annual handle or 20 million euro, whichever is higher. Customers, particularly in the EU, are seeking assurances from their suppliers, including us, that the processing of personal data of EU nationals is in accordance with the GDPR, and if we are unable to provide adequate assurances to such customers, demand for our solutions and our business could be adversely affected. In addition, we must continue to seek assurances from our third-party sub-processors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. Compliance with privacy laws and regulations, particularly the GDPR, that are applicable to our business and the businesses of our clients is costly and time-consuming. Such laws and regulations may adversely affect our clients’ ability and willingness to process, handle, store, use and transmit personal data of their employees, players/customers and suppliers, which in turn could limit the use, effectiveness and adoption of our solutions and reduce overall demand. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness or use of our betting Platform. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws, including challenges to onward transfer mechanisms such as Privacy Shield and model contractual clauses, regulations, standards and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, as well as limitations on data collection, use, disclosure and transfer for us and our clients.

 

In addition, the other bases on which we and our clients rely for the transfer of data, such as certain contractual clauses, continue to be subjected to regulatory and judicial scrutiny. If we or our clients are unable to transfer data between and among countries and regions in which we operate, it could decrease demand for our betting software solutions, require us to restrict our business operations, and impair our ability to maintain and grow our client base, expand geographically and increase our revenues.

 

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If we are unable to maintain successful relationships with retail agents, partners, our business, operating results, and financial condition could be adversely affected.

 

We have historically relied on retail agents, affiliates and partners, such as referral partners, resellers, and integration partners (collectively “partners”), to attract new clients and sell additional services to our existing clients and players. Our agreements with our partners are generally non-exclusive and some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships, and they may not regard us as to be of significant importance for their businesses. Our partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our Platform. We may also terminate our relationships with partners who choose to work with our competitors or for other reasons. Moreover, we may have difficulty attracting effective partners to sell our Platform to other clients and players, particularly given our smaller size relative to larger franchise and well-established betting operators. If we are not able to maintain and grow our partner relationships, our business could be adversely affected.

 

Our partners also may impair our ability to enter into other desirable strategic relationships. If our partners do not effectively market and sell our betting products and Platform solution, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our clients and players, our ability to sell our Platform and our business may be adversely affected. Similarly, the loss of a substantial number of our partners, and our possible inability to replace them, the failure to recruit additional partners, any reduction or delay in their sales of our betting Platform, or any conflicts between partner sales and our direct sales and marketing activities could materially and adversely affect our business and results of operations.

 

If we fail or are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage, proprietary technology and our brand.

 

Our success is dependent, in part, upon protecting our proprietary technology which supports our betting Platform and other operations. We rely on a combination of proprietary programming and source codes, copyright, trademarks, service marks, trade secret laws and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. We do not have any patent applications pending anywhere we operate and may not be able to obtain patent protection for the technology covered in any future patent applications should we enter such applications. In addition, any patents, if any, that are issued to us in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our solutions and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our technology may be unenforceable under the laws of jurisdictions outside the United States. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our solutions and proprietary information may increase.

 

Although we enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, we do not currently enter into confidentiality and invention assignment agreements with all of our employees and consultants and as a result, our business may be harmed. No assurance can be given that the agreements we enter into will be effective in controlling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our solutions.

 

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or harm our business and reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we would be able to license that technology on commercially reasonable terms or at all from them. Any inability to license third party technology in the future would have a material adverse effect on our business or operating results and would adversely affect our ability to compete.

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We have experienced rapid growth and organizational change in recent periods and if we fail to manage our growth effectively, we may be unable to execute our business plan.

 

We increased our number of full-time and part-time employees from 15 as of August 15, 2014 to 58 as of July 15, 2020 as we have expanded our operations, completed additional business acquisitions and experienced growth in number of customers and operators. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our headcount and operations both domestically and internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significant additional investment in our infrastructure. We will be required to continually improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively, which could negatively affect our results of operations and overall business. In addition, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross margins or operating expenses in any particular quarter. Moreover, if we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our software solutions may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.

 

We may not be able to successfully scale our technology and manage the growth of our business if we are unable to improve our internal systems, processes and controls.

 

We need to continue to improve our internal systems, processes and controls to effectively manage our operations and growth. We may not be able to successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our operating results. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud. We have licensed technology from third parties to help us improve our internal systems, processes and controls. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. We may experience difficulties in managing improvements to our systems, processes and controls or in connection with third-party software, which could impair our ability to provide our solutions or professional services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our solutions or increase our technical support costs.

 

Our estimates of market opportunity and forecasts of market growth included in this registration statement may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

 

Market opportunity estimates and growth forecasts, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not all geographic or regional metrics covered by our market opportunity estimates will necessarily implement regulated or online gaming at all, and in some cases many potential customers and operators may choose to continue using their existing betting platform provider, or choose a solution offered by our competitors. It is impossible to build every product feature that every customer wants, and our competitors may develop and offer features that our solutions do not offer. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of customers covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted in this registration statement, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry. Furthermore, we have historically focused our selling and marketing efforts in regulated markets in Europe, specifically Italy. In order for us to successfully address the broader market opportunity, we will need to successfully market and sell our betting Platform to larger enterprise customers and also further expand our international presence. If any of these risks materialize, it could adversely affect our results of operations.

 

Our research and development efforts are costly and subject to international risks and may not contribute significantly to revenues for several years, if at all.

 

In order to remain competitive, we must continue to invest in research and development. During the years ended December 31, 2019 and 2018, we spent approximately $410,000 and $415,000 for research and development. We have made and expect to continue to make significant investments in development and related opportunities, such as our acquisition of VG, and these investments could adversely affect our operating results if not offset by increases in revenues. However, we may not receive significant revenue from these investments for several years, if at all.

 

Further, our competitors may expend a greater amount of funds on their research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially and adversely affect our business and results of operations.

 

 

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If we fail to manage our technical operations infrastructure, our customers may experience service outages and delays, which may adversely affect our business.

 

We derive significant revenue from the use of our websites and Platform. In the past, we have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our Platform. As we transition to larger infrastructure and pursue geographic expansion, we may experience interruptions, delays and outages in service and availability, and we expect our gross gaming margin to decline modestly in the near term reflecting the costs of this transition.

 

We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, vendor issues, human or software errors, viruses, security attacks, fraud, general Internet availability issues, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation, business and results of operations.

We may not have exclusive control over the distribution of cash from any operators that we may acquire in the future and may be unable to cause all or a portion of the cash of such operators to be distributed to us.

 

We anticipate having a complete or a majority ownership in the operators we may acquire in the future. We expect any future agreements we execute with such operators will provide for the distribution of available cash to us. However, it is possible that these agreements may impose limits on the ability of our acquired operators to make distributions of cash to us. If we are unable to cause sufficient cash to be distributed from one or more of the operators we may acquire in the future, our ability to pay our obligations as they become due may be harmed.

 

If we acquire an operator that has made submission and reporting errors prior to our acquisition, we may be liable for such errors that which may have a material adverse effect on our business.

 

Historical submissions and reporting errors in gaming accounts made by an operator we may acquire in the future, may require us to provide refunds to customers and may also subject us to civil penalties, which involve monetary damages. If operators we may acquire in the future overpaid their obligation, it is unlikely that we would be able to collect funds that were owed to the operator prior to our acquisition. There can be no assurance that a compliance audit will disclose any future liabilities for underpayments or overpayments that any of our operators may have incurred.

 

If any executive officers or key personnel of operators we may acquire are unable to assist with the transition of operations and customers, our business may be adversely affected.

 

In connection with any potential acquisition of operators, we believe that it is necessary and desirable to retain the services of executive officers and key personnel of such operators to assist with the transition and integration of operations and customers into our existing operations; however, no assurances can be given that such executive officers and key personnel will be willing and able to assist us with such transition and integration. In the event that such executive officers and key personnel are unable to assist us after the consummation of the future acquisition of an operator, we may need to hire additional personnel to assist with the transaction, which new personnel may not be readily available to us or on acceptable terms.

 

Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.

 

Our revenue is derived from operations outside the United States, which exposes us to complex foreign and U.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the United States Foreign Corrupt Practices Act (“FCPA”) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties, and the Securities and Exchange Commission (the “SEC”) and U.S. Department of Justice have increased their enforcement activities with respect to the FCPA. Violations or allegations of non-compliance with any such laws or regulations may adversely affect our business, performance, prospects, value, financial condition, and results of operations.

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War, terrorism, other acts of violence or natural or manmade disasters may affect the markets in which we operate, our customers, our delivery of software and customer service, and could have a material adverse impact on our business, results of operations, or financial condition.

 

Our business may be adversely affected by instability, disruption or destruction in a geographic region in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including famine, flood, fire, earthquake, storm or pandemic events and spread of disease. Such events may cause customers to suspend their decisions on using our products and services, make it impossible for our customers to visit our physical locations, cause restrictions, postponements and cancellations of sports events that attract large crowds and public gatherings, and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our personnel and to physical facilities and operations, which could materially adversely affect our financial results.

 

 

We expect to continue relying on our discretionary available cash and bank credit to fund our additional acquisitions or 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 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 additional financing and such financing may not be available on reasonable terms, if at all.

 

Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a de-listing of our common stock.

 

Our shares of common stock are currently listed on the Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the corporate governance requirements, filing annual and quarterly reports with the SEC on a timely basis, minimum bid price requirement or the minimum stockholder’s equity requirement, the Nasdaq Capital Market may take steps to de-list our common stock. Any such steps for de-listing would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase their common stock when they wish to do so. There can be no assurance can be given that we will be able to satisfy our continued listing requirements and maintain the listing of our common stock on the Nasdaq Capital Market.

 

Risks Related to Our Industry

 

Economic conditions, particularly in Italy and Europe, that have an adverse effect on the gaming industry may have an adverse effect on our results of operations.

 

Our business operations are currently concentrated in a single industry and geographic area (Italy) that is affected by international, national and local economic conditions. A downturn in the overall economy or economy in a specific region such as Italy or a reduction in demand for gaming in such area, may have an adverse effect on our financial condition or results of operations. We cannot predict the effect or duration of an economic slowdown in Italy or in the gaming industry, or the impact such slowdown may have on the demand for our leisure gaming products and services. If economic conditions deteriorate our consumers will have less disposable income to spend on wagers and our business may be adversely affected.

 

Intense competition in the leisure gaming industry may adversely affect our revenue and profitability.

 

We operate in a highly competitive environment and we compete for operators, customers and advertisers with numerous well-established leisure gaming operators, as well as numerous smaller and newer gaming website operators. Many of our principal competitors have substantially longer operating histories, greater financial, technical, marketing or other resources, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution and presence than we have. Our competitors may be able to offer products or functionality similar to ours at a more attractive price than we can by integrating or bundling such products with their other product offerings or may develop new technologies or services that are more attractive to other operators or our customers. Acquisitions and consolidation in our industry may provide our competitors with even more resources or may increase the likelihood of our competitors offering bundled or integrated products with which we cannot effectively compete. New innovative start-ups and existing large companies that are making significant investments in research and development could also launch new products and services that are competitive with ours and that could gain market acceptance quickly. In addition, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies or providing alternative approaches to provide similar results.

 

With the introduction of new technologies, the evolution of our Platform and new market entrants, we expect competition to intensify in the future. Increased competition generally could result in reduced sales, reduced margins, losses or the failure of our Platform to achieve or maintain more widespread market acceptance, any of which could harm our business.

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We expect that competition from internet gaming will continue to grow and intensify in the United States.

 

We intend to expand the use of our Platform in the United States; however, that will be dependent upon changes in legislation and we expect that we will face increased competition from other leisure betting operators as the potential for legalized internet gaming continues to grow. Several states in the United States are currently considering legislation that would legalize internet gaming at the state level. As a result of the Justice Department’s (“DOJ”) December 2011 opinion concerning the applicability of the Wire Act to internet gaming, certain states including Nevada, Delaware and New Jersey have enacted legislation to authorize various forms of intrastate internet gaming. In addition, the recently revised DOJ opinion on the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) and competition from internet lotteries and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert customers from our products and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic customers as a result of initiatives in some states to consider legislation to legalize intrastate internet wagering. There have also been proposals that would specifically legalize internet gaming under federal law. If we are unable to execute our U.S. strategy, anticipate, react to or penetrate the U.S. market in a timely manner, our competitive position could weaken, which could adversely affect our business and results of operations.

 

If we fail to comply with applicable laws and regulations, we could suffer penalties or be required to make significant changes to our operations. In addition, changes in laws and regulations with respect to the gaming industry, and the application or interpretation of existing laws and regulations applicable to our operations may have a material adverse effect on our business, financial condition and results of operations.

 

Our business is highly regulated, and we are subject to many laws and regulations at the federal, provincial and local government levels in the jurisdictions in which we operate. These laws and regulations require that our operators and our operations meet various licensing, certification and other requirements, including those relating to:

 

  ownership of our operators;
  our and our operators’ relationships with sponsors and other referral sources;
  approvals and other regulations affecting the acquisition of operators, capital expenditures or the addition of services;
  qualifications of management and support personnel;
  maintenance and protection of records;
  billing for services by gaming product providers, including appropriate treatment of overpayments and credit balances;
  privacy and security of individually identifiable personal information;
  online gaming and gaming in general;
  commercial advertising;
  subscription rates; and
  foreign investments.

 

Furthermore, the rules and regulations governing the gaming industry are evolving and subject to interpretation in the territories in which we operate and the territories in which we may operate in the future. Promulgation of new laws, changes in current laws, and changes in interpretations by courts and other government agencies of existing laws, may require us to modify or cease our operations. Compliance with changes in such laws and regulations may increase our operating expenses. In addition, our failure to comply with current or future laws and regulations may expose us to significant liabilities. Our inability or failure to comply with laws and regulations that govern the gaming industry in the territories in which we operate may result in the loss of our licenses which would have a material adverse effect on our business, financial conditions and results of operations.

 

Regulators at the federal and provincial level in Italy are monitoring and restricting the issuance and renewal of gaming licenses which could have an adverse effect on our growth.

 

Federal regulators in Italy are enforcing new restrictions to reduce the number of independent operators in the gaming industry, and a moratorium on new licenses for gaming operators in Italy has been implemented. The success of our business depends upon our ability to acquire operators in new regional locations throughout Italy. The restrictions on the licensing of new operators may make it more difficult for us to locate operators that we may be able to acquire. Our inability to acquire operators and expand our operations into new regional locations throughout Italy may have a material adverse effect on our business and financial condition.

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Our records and submissions to regulatory agencies may contain inaccurate or unsupportable submissions which may result in an under or overstatement of our revenues and subject us to various penalties and may adversely affect our operations.

 

A major component of the regulatory environment is the interpretation of winnings and tax calculation procedures established by the ADM. Inaccurate or unsupportable submissions, inaccurate records for gaming coin-in or handle (turnover), client data and erroneous winning claims could result in inaccurate revenues being reported. Such errors are subject to correction or retroactive adjustment in later periods and may be reflected in financial statements for periods subsequent to the period in which the revenue was recorded. We may also be required to refund a portion of the revenue that we have received which, depending on its magnitude, may damage our reputation and relationship with regulatory agencies and may have a material adverse effect on our results of operations or cash flows.

 

The ADM in Italy conducts weekly account audits and sweeps for taxes in addition to random onsite inspections for online connection to the ADM network as well as searches for nefarious programming or routers which can alter the reporting requirements of the ADM. It is possible that our acquired operators will receive letters from ADM auditors requesting payment of fines for alleged violations and errors and as such will incur expenses associated with responding to, and appealing such requests, as well as the costs of paying any shortfalls in addition to the possible fines and penalties. Demands for payments can also occur even if an operator is acquired by means of an asset transfer. Our inability to dispute demands or pay requests for underpayments may have a material adverse effect on our financial condition and results of operations.

 

We may become the subject of Italian federal and provincial investigations in the future and our business may be adversely affected.

 

Both Italian federal and provincial government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of gaming companies, as well as their executives and managers. These investigations relate to, among other things diversion practices if an agent or store owner were to disconnect (i.e., remove ethernet plug from internet) the betting terminal or PC from the ADM network.

 

In addition, we may employ executives and managers, some of which may have worked at other gaming companies that are or may become the subject of ADM investigations and private litigation. Such executives and managers may be included in governmental investigations or named as defendants in private litigation. A governmental investigation of us, our executives or our managers could divert our management’s attention, result in significant expenses, as well as negative publicity and adversely affect our business.

 

Our current operations are international in scope and we are planning further geographic expansion, creating a variety of potential operational challenges.

 

We currently have an office location in Canada, a satellite office in the United States and business operations and offices in Europe and intend to open additional offices in the United States and possibility other countries. If we expand in the future, our offices, personnel and operations may be further dispersed around the world. In connection with such expansion, we may face a number of challenges, including costs associated with developing software and providing support in additional languages, varying seasonality patterns, potential adverse movement of currency exchange rates, longer payment cycles and difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries and a geographically and culturally diverse workforce and customer base. Failure to overcome any of these challenges could negatively affect our business and results of operations.

 

We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations.

 

We conduct transactions, including intercompany transactions, in currencies other than the U.S. dollar. As we grow our international operations, we expect the amount of our revenues denominated in foreign currencies to increase. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar could affect our reported revenues and operating results due to transactional and translational re-measurements that are reflected in our results of operations. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.

 

We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

 

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Risks Related to Ownership of Our Securities

 

The price of our securities may fluctuate significantly.

 

An investment in our securities is risky and should be made only if an investor can withstand a significant loss and wide fluctuations in the market value of their investment. Some factors that may cause the market price of our securities to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this registration statement are:

 

  sale of our common stock by our stockholders, executives, and directors;
  volatility and limitations in trading volumes of our securities;
  our ability to obtain financings to implement our business plans, including the acquisitions of operators;
  the timing and success of introductions of new products by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors;
  our ability to attract new customers;
  The impact of COVID-19;
  changes in our capital structure or dividend policy, future issuances of securities and sales of large blocks of securities by our stockholders;
  our cash position;
  announcements and events surrounding financing efforts, including debt and equity securities;
  our inability to enter into new markets or develop new products;
  reputational issues;
  our inability to successfully manage our business or achieve profitability;
  announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or our competitors;
  changes in general economic, political and market conditions in any of the regions in which we conduct our business;
  changes in industry conditions or perceptions;
  analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
  departures and additions of key personnel;
  disputes and litigation related to intellectual properties, proprietary rights, and contractual obligations;
  changes in applicable laws, rules, regulations, or accounting practices and other dynamics;
  market conditions or trends in the gaming industry; and
  other events or factors, many of which may be out of our control.

 

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our securities could decline for reasons unrelated to our business, financial condition and results of operations. Any of these factors may make it more difficult or impossible for investors to sell our securities or obtain a return on their investment. In the past, shareholders have instituted securities class action litigation against some companies following periods of market volatility. If we become involved in such securities litigation, we could, among other things, incur substantial costs and the attention of our management could be diverted from our business.

 

Future sales of shares of our common stock or the perception in the public markets that these sales may occur, may depress our stock price.

 

The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our common stock could decline. Any issuance of additional common stock, or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares. and make it more difficult for us to sell equity securities at any time in the future if at all.

 

We may issue additional shares of common stock and preferred stock without stockholder approval, which would dilute the current holders of our common stock. In addition, the exercise or conversion of currently outstanding securities would further dilute holders of our common stock.

 

Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common and preferred stock. We may issue shares of our common stock or preferred stock to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders’ ownership interest, which among other things would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our common stock or if our convertible debt holders convert their debt.

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The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.

 

Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, would dilute the rights of our common stockholders and could be used to discourage, delay or prevent a change of control of our company, which could materially adversely affect the price of our common stock.

 

If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline.

 

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We currently do not have any analyst coverage. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if we should have analyst coverage and one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.

 

Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.

 

Gilda Pia Ciavarella, the spouse of our Chief Executive Officer is the beneficial owner of 4,394,525 shares of our common stock and therefore our Chief Executive Officer is deemed to beneficially own approximately 26.3% of our outstanding shares of common stock on a fully diluted basis as of the date of the filing of this registration statement. As a result, Ms. Ciavarella, has the ability to effectively control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets and the ability to control the management and affairs of our company. In addition, other members of our senior management team beneficially own approximately 14.5% of our outstanding shares of common stock on a fully diluted basis as of the date of the filing of this registration statement. Accordingly, this concentration of ownership might harm the market price of our common stock by:

 

  delaying, deferring or preventing a change in corporate control;
  impeding a merger, consolidation, takeover or other business combination involving us; or
  discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

 

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

 

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control of our company. For example, our Board has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our company, or otherwise could materially adversely affect the market price of our common stock.

 

Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware. This provision may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, which could discourage potential takeover attempts, reduce the price that investors may be willing to pay for shares of our common stock in the future and result in our market price being lower than it would be without these provisions.

 

Our certificate of incorporation has an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against the Company.

 

Our certificate of incorporation provides that the Delaware Court of Chancery, to the fullest extent permitted by law, is the sole and exclusive forum for certain actions including claims in the right of our company brought by a stockholder that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity or as to which the Delaware corporate law confers jurisdiction upon the Court of Chancery of the State of Delaware.

 

A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law-based shareholder class actions, derivative suits and other intra-corporate disputes. Our management believes limiting state law-based claims to Delaware mitigate against the potential risk of another forum misapplying Delaware law is avoided. In addition, Delaware courts have a well-developed body of case law and we believe limiting the forum for the adjudication of any disputes will prevent costly and duplicative litigation and avoid the risk of inconsistent outcomes. Our Bylaws limit any stockholder’s ability to bring a claim in a forum it believes is favorable to shareholders in disputes with directors, officers or other employees.

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The exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Although our certificate contains the choice of forum provision described above, it is possible that a court could rule that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

 

This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or our directors, officers, employees or stockholders, which may discourage such lawsuits against the Company and our directors, officers, employees or stockholders. Alternatively, if a court were to find this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

 

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

 

We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.

 

We effected a reverse stock split on December 12, 2019, which may decrease the liquidity of the shares of our common stock.

 

The liquidity of the shares of our common stock may be affected adversely by our recently effected reverse stock split given the reduced number of shares that is now outstanding following the reverse stock split. In addition, the reverse stock split increased the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

 

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors.

 

An active trading market for our common stock may not be maintained, or we may fail to satisfy applicable Nasdaq Capital Market (“Nasdaq”) listing requirements.

 

Our common stock is currently traded on Nasdaq, but we can provide no assurance that we will be able to maintain an active trading market for our shares on Nasdaq or any other exchange in the future. The fact that a significant portion of our outstanding shares of common stock is closely held by a few individuals, results in it being more difficult for us to maintain an active trading market. If there is no active market for our common stock, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all, our stock price could decline, and we may be unable to maintain compliance with applicable Nasdaq listing requirements.

 

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Risks Related to Our Securities

 

The price of our common stock may fluctuate significantly.

 

An investment in our common stock is risky and should be made only if an investor can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:

 

  sales of large blocks of common stock by our major stockholders, executive officers or directors, or by other significant shareholders;
  variations in quarterly operating results;
  our ability to obtain financings to implement our business plans, including the acquisitions of operators;
  the timing and success of introductions of new products by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors;
  our ability to attract new customers;
  changes in our capital structure or dividend policy, including the issuance of new equity securities pursuant to a future offering, including issuances of preferred stock;
  our cash position or changes in interest rates;
  announcements and events surrounding financing efforts, including debt and equity securities;
  our inability to enter into new markets or develop new products;
  changes in investor perceptions of our company and the gaming industry generally;
  announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or our competitors;
  changes in general economic, political and market conditions in or any of the regions in which we conduct our business;
  market conditions or trends in the gaming industry;
  analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
  departures and additions of key personnel;
  disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;
  changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and
  general economic and other national and international conditions.

 

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition and results of operations. Any of these factors may make it more difficult or impossible for investors to sell our common stock or obtain a return on their investment. In the past, shareholders have instituted securities class action litigation against some companies following periods of market volatility. If we become involved in such securities litigation, we could, among other things, incur substantial costs and the attention of our management could be diverted from our business.

 

Shares of our common stock lack an active trading market, which makes it more difficult for an investor to sell our common stock.

 

There is no assurance that an active trading market in our common stock will develop, or if such a market develops, that it will be sustained. Currently our shares of common stock are listed on the Nasdaq Capital Market and thinly traded due to the limited number of shares available for trading. As a result, an investor may find it more difficult to dispose of our common stock or to obtain coverage for significant news events concerning us, and our common stock could become substantially less attractive for investment by financial institutions, as consideration in future capital raising transactions or for other purposes.

 

Future sales of shares of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

 

The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if our significant stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. As a result, our shareholders could suffer losses or be unable to liquidate their holdings. Any issuance of additional common stock or common stock equivalents by us would also result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares and make it more difficult for us to sell equity securities in the future at any time, if at all.

 

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We may issue additional shares of common stock without stockholder approval, which would dilute the current holders of our common stock.

 

Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common. We may issue shares of our common stock to complete a business combination or to raise capital. Such stock issuances could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders’ ownership interest, which, among other things, would have the effect of reducing their influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of stock options and warrants, whether currently outstanding or subsequently granted, exercise their options or warrants to purchase shares of our common stock.

 

The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.

 

Our certificate of incorporation gives our Board the right to create one or more new series of preferred stock. As a result, the Board may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be used to discourage, delay or prevent a change of control of our Company, which could materially adversely affect the price of our common stock.

 

If we fail to comply with the rules under Sarbanes-Oxley related to accounting controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

 

Section 404 of Sarbanes-Oxley requires annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

 

If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our stock price and trading volume may decline.

 

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our common stock after the closing of this offering, the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.

 

Our common stock may be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock. 

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Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

 

Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.

 

Our directors, executive officers and principal stockholders and their respective affiliates, beneficially own approximately 41.4% of our outstanding shares of common stock on a fully diluted basis. As a result, these stockholders acting together, have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

 

  delaying, deferring or preventing a change in corporate control;
  impeding a merger, consolidation, takeover or other business combination involving us; or
  discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

 

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

 

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control of our company or changes in our management. For example, our Board has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our Company, or otherwise could materially adversely affect the market price of our common stock.

 

Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware. This provision may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, which could discourage potential takeover attempts, reduce the price that investors may be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.

 

The exercise of warrants and options and conversion of outstanding notes will result in dilution.

 

To the extent that outstanding stock options or warrants or notes have been or may be exercised or converted or other shares issued, investors may experience dilution and may never be profitable for holders of the warrants to exercise the warrants.

 

Our outstanding warrants, including the warrants issued in our follow on public offering and the warrants issued to the Selling Stockholders, are speculative in nature.

 

Our outstanding warrants, including the warrants issued in our follow on public offering and the warrants issued to the Selling Stockholders, do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price, subject to certain adjustments. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common stock and pay the exercise price. Furthermore, each warrant will expire between two and five years from the original issuance date. In the event our common stock price does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.

 

Holders of the warrants will have no rights as a common stockholder until they acquire our common stock.

 

Until holders of our warrants acquire shares of our common stock upon exercise of the warrants, the holders will have no rights with respect to shares of our common stock issuable upon exercise of the warrants. Upon exercise of the warrants, the holder will be entitled to exercise the rights of a common stockholder as to the security exercised only as to matters for which the record date occurs after the exercise.

 

There is no established market for our outstanding warrants.

 

There is no established trading market for our outstanding warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of any warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the warrants will be limited.

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The exercise price of our warrants will not be adjusted for certain dilutive events.

 

The exercise price of the warrants sold issued to the Selling Stockholders and our other outstanding warrants are subject to adjustment for certain events, including, but not limited to, the payment of a stock dividend, stock splits, certain issuances of capital stock, options, convertible securities and other securities. However, the exercise prices will not be adjusted for dilutive issuances of securities and there may be transactions or occurrences that may adversely affect the market price of our common stock or the market value of such warrants without resulting in an adjustment of the exercise prices of such warrants.

 

Provisions of our outstanding warrants could discourage an acquisition of us by a third party.

 

In addition to the provisions of our certificate of incorporation and our bylaws, certain provisions of our outstanding warrants could make it more difficult or expensive for a third party to acquire us. The warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the warrants. These and other provisions of the warrants could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.

 

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

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USE OF PROCEEDS

 

This prospectus relates to Shares that may be offered and sold from time to time by the Selling Stockholders. We will not receive any proceeds upon the sale of Shares by the Selling Stockholders in this offering. However, we may receive gross proceeds upon an exercise of the Warrants issued to the Selling Stockholders for cash. See “Plan of Distribution” elsewhere in this prospectus for more information.

 

DIVIDEND POLICY

 

We have never declared nor paid any cash dividends on our common stock, and currently intend to retain all of our cash and any earnings for use in our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends on our common stock will be at the discretion of the Board of Directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

 

DETERMINATION OF OFFERING PRICE

 

The Selling Stockholders will determine at what price they may sell the offered Shares (if any), and such sales may be made at prevailing market prices, or at privately negotiated prices.

 

THE PRIVATE PLACEMENT

 

On May 31, 2018, we closed a private placement transaction (the “Private Placement”) pursuant to which we entered into subscription agreements (the “Agreements”) with 130 unaffiliated accredited investors. We offered Agreements in both US and Canadian dollar denomination pursuant to which we Unit sold units to US Investors at a per unit price of $1,000 comprised of (i) a 10% convertible debenture in the principal amount of $1,000 with an initial maturity date of May 31, 2020, (ii) 208 shares of our common stock and (iii) warrants to purchase 1082.25 shares of our common stock that expire two years after issuance. The Selling Stockholders were investors in the Private Placement and FGP Protective Opportunity Master Fund acquired notes in the aggregate principal amount of $500,000 convertible into 1,250,000 shares of common stock, 104,000 shares of common stock and a warrant to purchase 541,125 shares of common stock and Thomas Prasil Trust acquired notes in the aggregate principal amount of $100,000 convertible into 250,000 shares of common stock, 20,800 shares of common stock and a warrant to purchase 108,225 shares of common stock. In consideration for extending the maturity date to September 28, 2020 of its debenture with a remaining balance of $350,000, during the quarter ended June 30, 2020, FGP Protective Opportunity Master Fund was issued a warrant to purchase 109,375 shares of common stock at an exercise price of $3.75 expiring May 30, 2022, and a warrant to purchase 27,344 shares of common stock at an exercise price of $5.00 expiring May 30, 2023. In consideration for extending the maturity date to September 28, 2020 of its debenture with a remaining balance, including accrued interest of $120,000 during the quarter ended June 30, 2020, Thomas Prasil Trust was issued a warrant to purchase 37,500 shares of common stock at an exercise price of $3.75 expiring May 30, 2022, and a warrant to purchase 9,375 shares of common stock at an exercise price of $5.00 expiring May 30, 2023.

 

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SELLING STOCKHOLDERS

 

This prospectus covers the possible resale by the Selling Stockholders identified below, or its transferee(s), of a total of 183,504 shares of common stock underlying the Warrants. The Selling Stockholders may, from time to time, offer and sell pursuant to this prospectus any or all of the Shares that we have sold to them. The Selling Stockholders may sell some, all or none of their Shares. We do not know how long the Selling Stockholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Stockholders regarding the sale of any of the Shares.

 

The table is based on information supplied to us by the Selling Stockholders. The Selling Stockholders have indicated to us that neither they nor any of their affiliates has held any position or office or had any other material relationship with us in the past three years except as described in this paragraph.

 

The following table sets forth the number of shares of the common stock beneficially owned by the Selling Stockholders as of October 21, 2020. The percentage of beneficial ownership is based on 16,700.139 shares of our common stock outstanding as of October 21, 2020.

 

Selling Stockholder

 

Beneficial Ownership Prior to the Sale of all Shares Covered by this Prospectus

Percentage of Beneficial Ownership Prior to the Sale of all Shares Covered by this Prospectus Total Shares Offered By Selling Stockholder in the Offering Covered by this Prospectus

 

Beneficial Ownership After the Sale of all Shares Covered by this Prospectus

Percentage of Beneficial Ownership After the Sale of all Shares Covered by this Prospectus
           
FGP Protective Opportunity Master Fund 136,719 * 136,719 - *
           
Thomas Prasil Trust 46,785 * 46,785 - *

*less than 1%

(1)Consists of (i) a warrant to purchase 109,375 shares of common stock at an exercise price of $3.75, and (ii) a warrant to purchase 27,344 shares of common stock at an exercise price of $5.00. The address for FGP Protective Opportunity Master Fund SPC obo FGP Protective Opportunity Master Fund, SP is c/o JP Fund Administration (Cayman) Ltd., Governor’s Square, 23 Lime Tree Bay Avenue, PO Box 10176, Grand Cayman, KY1-1002 Cayman Islands and the principal is Gregory Pepin. Gregory Pepin has voting and dispositive power with respect to the securities.
(2)Consists of (i) a warrant to purchase 37,500 shares of common stock at an exercise price of $3.75, and (ii) a warrant to purchase 9,375 shares of common stock at an exercise price of $5.00. The address for Thomas Prasil Trust U/A/D 11-26-03 is 3935 E. San Miguel Avenue, Paradise Valley, Arizona 85253 and the trustee is Thomas Prasil. Thomas Prasil has voting and dispositive power with respect to the securities.

 

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PLAN OF DISTRIBUTION

 

We are registering the Shares previously issued to the Selling Stockholders. to permit the resale of these Shares by the Selling Stockholders from time to time after the effective date of this registration statement, of which this prospectus forms a part. The Selling Stockholders may be deemed “underwriters,” within the meaning of the Securities Act.

 

The Selling Stockholders, or their pledges, donees, transferees, or any of its successors in interest selling Shares received from the Selling Stockholders as a gift, partnership distribution or other non-sale related transfer after the date of this prospectus, may sell all or a portion of the Shares beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of Common Stock are sold through underwriters or broker-dealers, the Selling Stockholders will be responsible for underwriting discounts or commissions or agent's commissions. The Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. These sales may be effected in transactions, which may involve crosses or block transactions:

 

·on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
·in the over-the-counter market;
·in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
·through the writing of options, whether such options are listed on an options exchange or otherwise;
·ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
·purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·an exchange distribution in accordance with the rules of the applicable exchange;
·privately negotiated transactions;
·short sales;
·through the distribution of the common stock by any Selling Stockholders to their partners, members or stockholders;
·through one or more underwritten offerings on a firm commitment or best efforts basis;
·sales pursuant to Rule 144;
·broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
·a combination of any such methods of sale; and
·any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also transfer the Shares by gift. The Selling Stockholders may engage brokers and dealers, and any brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the Shares. These brokers, dealers or underwriters may act as principals, or as an agent of a Selling Stockholders. Broker-dealers may agree with the Selling Stockholders to sell a specified number of the Shares at a stipulated price per security. If the broker-dealer is unable to sell the Shares acting as agent for the Selling Stockholders, it may purchase as principal any unsold Shares at the stipulated price. Broker-dealers who acquire Shares as principals may thereafter resell the Shares from time to time in transactions in any stock exchange or automated interdealer quotation system on which the Shares are then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above.

 

The Selling Stockholders may also sell the Shares in accordance with Rule 144 under the Securities Act, rather than pursuant to this prospectus, regardless of whether the Shares are covered by this prospectus.

 

If the Selling Stockholders effects such transactions by selling Shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the Shares or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Shares in the course of hedging in positions they assume. The Selling Stockholders may also sell Shares short and deliver Shares covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders may also loan or pledge Shares to broker-dealers that in turn may sell such shares.

 

 

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The Selling Stockholders may pledge or grant a security interest in some or all of the Shares owned by them and, if they default in the performance of its secured obligations, the pledgees or secured parties may offer and sell the Shares from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of Selling Stockholders to include the pledgee, transferee or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer and donate the Shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

In addition, the Selling Stockholders may, from time to time, sell the Shares short, and, in those instances, this prospectus may be delivered in connection with the short sales and the Shares offered under this prospectus may be used to cover short sales.

 

The Selling Stockholders and any broker-dealer participating in the distribution of the Shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Shares is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the Shares against certain liabilities, including liabilities arising under the Securities Act.

 

Under the securities laws of some states, the Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

 

There can be no assurance that the Selling Stockholders will sell any or all of the Shares registered pursuant to the registration statement, of which this prospectus forms a part.

 

The Selling Stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the Selling Stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the Shares to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.

 

We will pay all expenses of the registration of the Shares estimated to be $35,000 in total. Once sold under the registration statement, of which this prospectus forms a part, the Shares will be freely tradable in the hands of persons other than our affiliates.

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus. All amounts in this report are in U.S. dollars, unless otherwise noted.

 

You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus. All amounts in this prospectus are in U.S. dollars, unless otherwise noted.

 

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.

 

We are a licensed gaming Operator in the regulated Italian leisure betting market holding an “online”, “retail” and “CED retail” bookmaker licenses through our Multigioco, Rifa and Ulisse subsidiaries, respectively. As an Operator, we 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 and restaurants, etc.) where patrons can load their online gaming account 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 and restaurants, etc.).

 

Additionally, we are a global gaming technology company which owns and operates a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”) through our Odissea subsidiary. The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built in player gaming account management system, built-in sports book 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 satellite offices in Fort Lauderdale and Boca Raton, Florida through which our CEO and CFO handle corporate duties, day-to-day reporting duties, U.S. development planning and through which various independent contractors and vendors are engaged.

 

We operate two business segments in the leisure gaming industry and our revenue is derived as follows:

 

  1.

Transaction Revenue - Betting establishments

Transaction revenue through our offering of leisure betting products to retail customers directly through our online distribution on websites or a betting shop establishment or through third party agents that operate white-label websites and/or land-based retail venues; and

  2.

Service Revenue - Betting platform software and services

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 platforms 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 year ended December 31, 2019 and for the six months ended June 30, 2020 we also generated service revenue from royalties through authorized agents by providing our virtual sports products through our VG subsidiary in the following 12 countries: 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.

 

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Recent Developments

 

Impact of COVID-19

 

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

 

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

 

Recent Financial Developments

 

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

 

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, New York, New Mexico, New Hampshire, North Carolina, Oregon, Michigan, Mississippi, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. In addition, additional states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Ohio and Maryland are considering active bills.

 

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. We have analyzed the technical specifications checklist supplied by Gaming Laboratories International (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 certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase intended to begin by October 2020 for the verification of mobile and website functionality. 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 such as regulatory and policy requirements and 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 GLI for the U.S. market.

 

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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 in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting events or games that are not classed as mainstream sports bets.

 

In October 2019, we entered into a multi-year agreement with Grand Central, LLC, a retail sports bar operator in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process.

 

In September 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as President of the Company.

 

On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.

 

On June 11, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP). The procedures for Stage 2 certification, involves a more detailed and formal compliance audit and independent testing of the ISMS against the requirements specified in ISO-27001, and is expected to be completed in approximately 4 months.

 

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 registration statement.

 

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 condensed 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.

 

Recently Issued Accounting Pronouncements

 

See Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in this interim report on Form 10-Q for information regarding recently issued accounting standards.

 

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Results of Operations for the three months ended June 30, 2020 and the three months ended June 30, 2019

 

Revenues

 

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

 

   Three Months Ended   
   June 30, 2020  June 30, 2019  Increase (decrease)  Percentage change
Turnover            
Turnover web-based  $89,855,358   $88,647,748   $1,207,610    1.4%
Turnover land-based   4,210,173    10,617,656    (6,407,483)   (60.3)%
Total Turnover   94,065,531    99,265,404    (5,199,873)   (5.2)%
                     
Winnings/Payouts                    
Winnings web-based   84,604,648    81,857,558    2,747,090    3.4%
Winnings land-based   3,599,916    7,199,276    (3,599,360)   (50.0)%
Total Winnings/payouts   88,204,564    89,056,834    (852,270)   (1.0)%
                     
Gross Gaming Revenues   5,860,967    10,208,570    (4,347,603)   (42.6)%
                     
Less: ADM Gaming Taxes   1,065,693    1,172,993    (107,300)   (9.1)%
Net Gaming Revenues   4,795,274    9,035,577    (4,240,303)   (46.9)%
                     
Add: Service Revenues   14,995    69,776    (54,781)   (78.5)%
Total Revenues  $4,810,269   $9,105,353   $(4,295,084)   (47.2)%

 

The Company generated total revenues of $4,810,268 and $9,105,353 for the three months ended June 30, 2020 and 2019, respectively, a decrease of $4,295,085 or 47.7%.

 

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

 

Web-based turnover increased by $1,207,610 or 1.4%. The slight increase over the prior period was impacted by the temporary shutdown of betting shops in Italy on March 8, 2020 due to COVID-19, which shops re-opened on June 19, 2020. The impact was significant for our Ulisse operation whose revenues are derived from physical betting shops, while our Multigioco operation has an online web based platform which does not rely on physical betting shops. The ratio of payouts on online turnover increased from 92.3% in the prior period to 94.2% in the current period. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period.

 

Land-based turnover decreased by $6,407,483 or 60.3%. The decrease over the prior period was impacted by the temporary shutdown of betting shops in Italy on March 8, 2020 due to COVID-19, which shops reopened on June 19, 2020. The impact was significant for both our Ulisse operation and our Multigioco operation, which impact was partially offset by increased internet based gaming operation in Multigioco. The ratio of payouts on land-based turnover increased from 67.8% in the prior period to 85.5% in the current period. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period.

 

ADM gaming taxes decreased by $107,300 or 9.1% over the prior period. The relative rate of our gaming taxes, which is based on Gross Gaming Revenues, of 18.2% for the three months ended June 30, 2020 is significantly higher compared to 11.5% for the three months ended June 30, 2019 and is primarily due to the mix of our Gross Gaming revenues shifting to Multigioco that incurs an average gaming tax of approximately 24% compared to Ulisse with a significantly lower tax rate due to its incorporation being situated outside of Italy. This effect was due to the temporary shutdown of all of Ulisse CED retail betting locations during the COVID related lockdown in Italy.

 

Betting platform software and services revenue decreased by $54,782 or 78.5%. Our platform services customer base is currently limited to services provided to internal group operations of Multigioco, Ulisse and VG, that were impacted by the COVID-19 pandemic. This revenue remains insignificant to total revenues during the years presented.

 

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Selling expenses

 

We incurred selling expenses of $3,957,366 and $6,268,772 the three months ended June 30, 2020 and 2019, respectively, a decrease of $2,311,406 or 36.9%. Selling expenses are primarily commissions that are paid to our sales agents and are calculated as a percentage of turnover and not impacted by our payouts to customers. Therefore, increases in turnover, will typically result in increases in selling expenses, regardless of the winnings paid to customers. During the three months ended June 2020 and 2019, our percentage of selling expenses to total turnover was 4.2% and 6.3%, respectively, this is primarily due to the shift in mix of our business to Multigioco which has a lower commission rate compared to Ulisse which was more severely impacted by the COVID-19 temporary shutdown of betting shops in Italy.

 

General and Administrative Expenses

 

General and administrative expenses were $2,883,427 and $3,360,284 during the three months ended June 30, 2020 and 2019, respectively, a decrease of $476,857 or 14.2%. The decrease in general and administrative expenses is primarily due to certain COVID-19 wage related subsidies received in both our Ulisse and Multigioco operations and the reduction in corporate overhead expenses, including payroll and sales and marketing expenditure during the period.

 

Loss from Operations

 

The loss from operations was $2,030,524 and $523,703 for the three months ended June 30, 2020 and 2019, respectively, an increase of $1,506,821 or 287.7%. The increase in operating loss is directly attributable to the reduction in revenue due to the impact of COVID 19, on our primarily land based operations, which was partially offset by our web based business, offset by a reduction in selling expenses and general and administrative expenses, as discussed above.

 

Interest Expense, Net of Interest Income

 

Interest expense was $33,099 and $277,639 for the three months ended June 30, 2020 and 2019, respectively, a decrease of $244,540 or 88.1%, The decrease is primarily related to the conversion of convertible debentures into equity, primarily in the prior year, with further conversions taking place during the current period.

 

Amortization of debt discount

 

Amortization of debt discount was $286,845 and $739,604 for the three months ended June 30, 2020 and 2019, respectively, a decrease of $452,759 or 61.2%. The decrease is primarily due to the conversion of convertible debentures into equity, primarily in the prior year, with further conversions taking place during the current period, resulting in the acceleration of the amortization of debt discount for those debentures that converted prior to maturity.

 

Loss on extinguishment of convertible debt

 

The loss on extinguishment of convertible debt was $719,390 and $0 for the three months ended June 30, 2020 and 2019, respectively, an increase of $719,390 or 100%. We issued additional warrants to certain debenture holders who agreed to extend the maturity date of their debentures by between 90 and 120 days to allow us to complete a fund raising exercise. These warrants were valued using a Black-Scholes valuation model.

 

Loss on convertible debt

 

The loss on convertible debt was $0 and $35,943 for the three months ended June 30, 2020 and 2019, respectively. The loss in the prior period was due to bonus shares issued to certain debenture holders to induce them to sell their convertible debentures to strategic investors.

 

Gain (loss) on Marketable Securities

 

The Gain on marketable securities was $592,500 and $0 for the three months ended June 30, 2020 and 2019, respectively, an increase of $592,500 or 100%. 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.

 

 

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Loss Before Income Taxes

 

Loss before income taxes was $2,463,496 and $1,569,164 for the three months ended June 30, 2020 and 2019, respectively, an increase of $894,332 or 57.0%. The increase is attributable to the impact that the COVID-19 pandemic had on revenues in our Italian operations which temporarily affected our land based operations, which was partially offset by an increase in turnover of our internet based operations. We incurred a cost on the value of certain warrants issued to convertible debenture holders who had agreed to extend the maturity date of their convertible debt. The lower revenue and additional warrant cost was offset by reduced selling expenses, lower general and administrative expenses as well as lower interest and amortization expense. We also realized a gain on a mark to market of our marketable securities, as discussed above

 

Income Tax Provision

 

The income tax provision was $62,059 and $209,056 for the three months ended June 30, 2020 and 2019, respectively, a decrease of $146,997 or 70.3%. The current year tax charge consists of a withholding tax charge on dividends declared by one of our subsidiaries to our holding company of €150,000 (approximately $162,000), imputed deferred tax credit and a credit to our income tax charge of $201,811 based on the losses realized at our main operating subsidiaries related to the COVID-19 related temporary reduction in revenues.

 

Net Loss

 

Net loss was $2,525,555 and $1,778,220 for the three months ended June 30, 2020 and 2019, respectively, an increase of $747,335 or 42.0% due to the increase in loss before income taxes and the reduction in income tax provision, 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, Malta 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 of $18,516 and $69,023 for the three months ended June 30, 2020 and 2019, respectively.

 

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Results of Operations for the six months ended June 30, 2020 and the six months ended June 30, 2019

 

This Management’s Discussion and Analysis includes a discussion of our operations for the six months ended June 30, 2020 and 2019. The operations of VG and Naos were only included for five of the six months ended June 30, 2019 due to the fact that the acquisition was consummated in January 2019.

 

 Revenues

 

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

 

   Six Months Ended   
   June 30, 2020  June 30, 2019  Increase (decrease)  Percentage change
Turnover            
Turnover web-based  $182,231,464   $175,223,649   $7,007,815    4.0%
Turnover land-based   27,812,258    61,017,220    (33,204,962)   (54.4)%
Total Turnover   210,043,722    236,240,869    (26,197,147)   (11.1)%
                     
Winnings/Payouts                    
Winnings web-based   170,700,270    164,120,495    6,579,775    4.0%
Winnings land-based   21,791,318    51,555,578    (29,764,260)   (57.7)%
Total Winnings/payouts   192,491,588    215,676,073    (23,184,485)   (10.7)%
                     
Gross Gaming Revenues   17,552,134    20,564,796    (3,012,662)   (14.6)%
                     
Less: ADM Gaming Taxes   2,596,488    2,366,739    229,749    9.7%
Net Gaming Revenues   14,955,646    18,198,057    (3,242,411)   (17.8)%
                     
Add: Service Revenues   24,797    173,591    (148,794)   (85.7)%
Total Revenues  $14,980,443   $18,371,648   $(3,391,205)   (18.5)%

 

The Company generated total revenues of $14,980,443 and $18,371,648 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $3,391,205 or 18.5%.

 

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

 

Web-based turnover increased by $7,007,815 or 4.0%. The increase was due to the significant number of web shops opened in the second half of 2019 that remained open during the first quarter of 2020, as well as the addition of virtual game products, although we have experienced a decrease in the growth of our web-based revenue in the second quarter due to the impact of COVID-19, we still saw an increase of 1.4% in web-based turnover in the second quarter. The increase over the prior period was impacted by the temporary shutdown of betting shops in Italy on March 8, 2020 due to COVID-19, which shops re-opened on June 19, 2020. The impact was significant for our Ulisse operation whose turnover is derived from physical betting shops, while our Multigioco operation has an online web based platform which does not rely on physical betting shops. The ratio of payouts on online turnover remained consistent at 93.7% over both periods presented. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period.

 

Land-based turnover decreased by $33,204,962 or 54.4%. The decrease over the prior period was impacted by the temporary shutdown of betting shops in Italy on March 8, 2020 due to COVID-19, which shops reopened on June 19, 2020. The impact was significant for both our Ulisse operation and our Multigioco operation, which impact was partially offset by increased internet based gaming operation in Multigioco. The ratio of payouts on land-based turnover decreased from 84.5% in the prior period to 78.4% in the current period. The payout ratio varies based on the skill and luck of our customers and the outcome of sporting events which are inherently unpredictable and can fluctuate significantly from period to period.

 

37


 
 

ADM gaming taxes increased by $229,749 or 9.7% over the prior period. The relative rate of our gaming taxes, which is based on Gross Gaming Revenues, of 14.8% during the six months ended June 30, 2020 is significantly higher compared to 11.5% for the six months ended June 30, 2019 and is primarily due to the mix of our Gross Gaming revenues shifting to Multigioco which has an average gaming tax of approximately 24% compared to Ulisse with a significantly lower tax rate due to its incorporation being situated outside of Italy. This effect was due to the temporary shutdown of all of Ulisse CED retail betting locations during the COVID related lockdown in Italy.

 

Betting platform software and services revenue decreased by $148,794 or 85.7%. Our platform services customer base is currently limited to services provided to internal group operations of Multigioco, Ulisse and VG, that were impacted by the COVID-19 pandemic. This revenue remains insignificant to total revenues during the periods presented.

 

Selling expenses

 

We incurred selling expenses of $10,172,527 and $13,676,478 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $3,503,951 or 25.6%. Selling expenses are primarily commissions that are paid to our sales agents and are calculated as a percentage of turnover and not impacted by our payouts to customers. Therefore, increases in turnover, will typically result in increases in selling expenses, regardless of the winnings paid to customers. During the six months ended June 2020 and 2019, our percentage of selling expenses to total turnover was 4.8% and 5.8%, respectively, this is primarily due to the shift in mix of our business to Multigioco which has a lower commission rate compared to Ulisse which was more severely impacted by the COVID-19 temporary shutdown of betting shops in Italy.

 

General and Administrative Expenses

 

General and administrative expenses were $5,704,388 and $6,557,739 during the six months ended June 30, 2020 and 2019, respectively, a decrease of $853,351 or 13.0%. The decrease in general and administrative expenses is primarily due to certain COVID-19 wage related subsidies received in both our Ulisse and Multigioco operations and the reduction in corporate overhead expenses, including payroll and sales and marketing expenditure during the period.

 

Loss from Operations

 

The loss from operations was $896,472 and $1,862,569 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $966,097 or 51.9%. The decrease in operating loss is directly attributable to the improvement in revenues during the first quarter of the current period, offset by losses incurred in the second quarter directly related to the temporary impact of COVID-19 on our turnover and related profitability, which was partially offset by a reduction in selling expenses and general and administrative expenses, as discussed above.

 

Interest Expense, Net of Interest Income

 

Interest expense was $173,073 and $425,275 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $252,202 or 59.3%, The decrease is primarily related to the conversion of convertible debentures into equity, primarily in the prior year, with further conversions taking place during the current period.

 

Amortization of debt discount

 

Amortization of debt discount was $737,074 and $2,096,080 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $1,359,006 or 64.8%. The decrease is primarily due to the conversion of convertible debentures into equity, primarily in the prior year, with further conversions taking place during the current period, resulting in the acceleration of the amortization of debt discount for those debentures that converted prior to maturity.

 

Loss on extinguishment of convertible debt

 

The loss on extinguishment of convertible debt was $719,390 and $0 for the six months ended June 30, 2020 and 2019, respectively, an increase of $719,390 or 100%. We issued additional warrants to certain debenture holders who agreed to extend the maturity date of their debentures by between 90 and 120 days to allow us to complete a fund raising exercise. These warrants were valued using a Black-Scholes valuation model.

 

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Loss on convertible debt

 

The loss on convertible debt was $0 and $35,943 for the six months ended June 30, 2020 and 2019, respectively. The loss in the prior period was due to bonus shares issued to certain debenture holders to induce them to sell their convertible debentures to strategic investors.

 

Gain (loss) on Marketable Securities

 

The Gain on marketable securities was $722,500 and a loss of $(25,000) for the six months ended June 30, 2020 and 2019, respectively, an increase of $747,500. 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 was $1,778,849 and $4,437,142 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $2,658,293 or 59.9%. The decrease is attributable to the increase in turnover and revenue during the first quarter partially offset by the impact that the COVID-19 pandemic had on revenues in our Italian operations which temporarily affected our land based operations in the second quartet. We incurred a cost on the value of certain warrants issued to convertible debenture holders who had agreed to extend the maturity date of their convertible debt. The lower revenue and additional warrant cost was offset by reduced selling expenses, lower general and administrative expenses as well as lower interest and amortization expense. We also realized a gain on a mark to market of our marketable securities, as discussed above.

 

Income Tax Provision

 

The income tax provision was $590,097 and $455,030 for the six months ended June 30, 2020 and 2019, respectively, an increase of $135,067 or 29.7%. The current year tax charge consists of a withholding tax charge on dividends declared by one of our subsidiaries to our holding company of €150,000 (Approximately $162,000), imputed deferred tax credit of $47,720 and an income tax charge of $475,705 based on the profitability at our main operating subsidiaries in the first quarter, offset by COVID-19 related temporary reduction in profitability in the second quarter.

 

Net Loss

 

Net loss was $2,367,946 and $4,892,172 for the six months ended June 30, 2020 and 2019, respectively, a decrease of $2,525,226 or 51.6%, due to the increase in loss before income taxes and the increase in income tax provision, 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, Malta 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 of $(93,514) and $(61,207) for the six months ended June 30, 2020 and 2019, respectively.

 

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Results of operations for the years ended December 31, 2019 and December 31, 2018.

 

The comparisons below include a discussion of our operations for the year ended December 31, 2019, which includes the acquisition of VG and Naos on January 31, 2019.

 

Revenues

 

The following table represents disaggregated revenues from our gaming operations for the years ended December 31, 2019 and 2018. Net Gaming Revenues represents turnover (also referred to as “handle”), the total bets processed for the period, less customer winnings paid out, commissions paid to agents, and taxes due to government authorities. Commission and service revenues represent commissions on lotto ticket sales and revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

 

   Years Ended      
   December 31, 2019  December 31, 2018 

Increase/

(decrease)

  Percentage change
Turnover            
Web-based  $328,385,837   $235,891,170   $92,494,667    39.2%
Land-based   125,747,337    177,334,592    (51,587,255)   (29.1)%
Total Turnover   454,133,174    413,225,762    40,907,412    9.9%
                     
Winnings/Payouts                    
Web-based   309,214,993    223,064,978    86,150,015    38.6%
Land-based   105,011,619    152,446,130    (47,434,511)   (31.1)%
Total Winnings/payouts   414,226,612    375,511,108    38,715,504    10.3%
                     
Gross Gaming Revenues   39,906,562    37,714,654    2,191,908    5.8%
                     
Less: ADM Gaming Taxes   4,697,085    3,417,150    1,279,935    37.5%
Net Gaming Revenues   35,209,477    34,297,504    911,973    2.7%
Betting platform software and services   373,654    277,593    96,061    34.6%
                     
Total Revenues  $35,583,131   $34,575,097    1,008,034    2.9%

 

 

The Company generated total revenues of $35,583,131 and $34,575,097 for the years ended December 31, 2019 and 2018, respectively, an increase of $1,008,034 or 2.9%.

 

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

 

Web-based turnover increased by $92,494,667 or 39.2%. The increase in web-based turnover is primarily due to a significant increase in the number of web-shops opened in 2019 as well as the addition of virtual games products to the online channel. The payout ratio on web-based turnover improved to 94.2% from 94.6% in the prior year, resulting in more profitability on the turnover generated of approximately $1.3 million. The payout ratio varies based on the skill and luck of our customers and can fluctuate significantly from period to period and year to year.

 

Land-based turnover decreased by $51,587,255 or 29.1%. The decrease in land-based turnover is primarily due to conversion of land-based customers to web-based customers and the closure of approximately 20 underperforming land-based locations in Italy. The payout ratio on land-based turnover decreased to 83.5% from 86.0%, resulting in more profitability on the turnover generated of $3.1 million. 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 $2,191,908 or 5.8%. Although we had an overall increase in total turnover of 9.9%, the volume of web-based turnover as a percentage of total turnover increased from 57.1% in 2018 to 72.3% in 2019. Web-based turnover has a higher payout ratio in the current year of 94.2% compared to land-based turnover which has a payout ratio of 83.5% in the current year, this resulted in web-based revenue growing by 5.8% over the prior year compared to total revenue growing by 9.9%

 

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ADM gaming taxes increased by $1,279,935 or 37.5% 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.

 

Betting platform software and services revenue, while increasing by 34.6%, remains insignificant to total revenues during the years presented.

 

Selling expenses

 

We incurred selling expenses of $27,584,492 and $24,142,110 for the years ended December 31, 2019 and 2018, respectively, an increase of $3,442,382 or 14.3%. 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 year ended December 31, 2019, our percentage of selling expenses to gross gaming revenues was approximately 69.1% compared to 64.0% for the year ended December 31, 2018, primarily due to an aggressive strategy in the Italian gaming market to gain market share resulting in revised commission agreements with agents.

 

General and Administrative Expenses

 

General and administrative expenses were $10,994,554 and $10,588,162 for the years ended December 31, 2019 and 2018, respectively, an increase of $406,392 or 3.8%. The increase in general and administrative expenditure is in line with expectations and includes the grant of stock options during the year ended December 31, 2019 resulting in an expense of $201,106 and $0 for the years ended December 31, 2019 and 2018, respectively.

 

Loss from Operations

 

The loss from operations was $2,995,915 and $155,175 for the years ended December 31, 2019 and 2018, respectively, an increase of $2,840,740. The increase in loss from operations is due to the increase in selling expenses of $3,442,382 offset by an increase in revenue of $1,008,034 as discussed above.

 

Interest Expense, Net of Interest Income

 

Interest expense was $972,443 and $619,709 for the years ended December 31, 2019 and 2018, respectively, an increase of $352,734 or 56.9%. The increase is attributable to the interest on the convertible debentures which were issued during 2018, a significant amount of these debentures were only in existence for a portion of prior year.

 

Amortization of debt discount

 

Amortization of debt discount was $4,154,922 and $1,995,128 for the years ended December 31, 2019 and 2018, respectively, an increase of $2,159,794 or 108.3%. The increase is attributable to the debt discount arising on the issuances of convertible debentures in 2018, a significant amount of these convertible debentures were only in existence for a portion of prior year, in addition convertible debentures amounting to $5,240,206 and interest thereon of $732,136 was converted to equity during the current year, of which approximately $3,725,000 was converted in December 2019, resulting in the acceleration of the debt discount amortization.

 

Virtual Generation bonus earnout

 

The Virtual Generation bonus earnout was $561,351 and $0 for the years ended December 31, 2019 and 2018, respectively. In terms of the Securities Purchase Agreement entered into with the Virtual Generation sellers in January 2019, the sellers were entitled to an additional payment of €500,000 on achievement of a growth on gross tickets sold of 5%. This contingent bonus earnout was not included in the original purchase consideration as we considered that the possibility of achieving the 5% growth in gross tickets was remote. On December 31, 2019, we issued an aggregate of 132,735 shares of common stock as full payment of the earnout.

 

Loss on share issuances

 

Loss on share issuances was $44,063 and $0 for the years ended December 31, 2019 and 2018, respectively, an increase of $44,063 or 100%. The loss on share issuances was primarily related to shares issued to certain convertible debenture holders to induce them to transfer their convertible debentures to another holder.

 

Other income

 

Other income was $149,565 and $0 for years ended December 31, 2019 and 2018, respectively. Other income represent several individually insignificant amounts received during the year.

 

 

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Imputed interest on related party advances

 

Imputed interest on related party advances was $0 and $761 for the years ended December 31, 2019 and 2018, respectively. This amount is immaterial.

 

Gain on litigation settlement

 

Gain on litigation settlement was $516,120 for the year ended December 31, 2018 and no Gain on litigation settlement for the year ended December 31, 2019, respectively, a decrease of $516,120 or 100%. During the year ended December 31, 2018, we settled a legal dispute with an entity we had invested funds into resulting in the issue of the Zoompass marketable securities to us and the forgiveness of a debt we owed to this entity.

 

Loss on issuance of convertible debt

 

Loss on issuance of convertible debt was $0 and $196,403 for the years ended December 31, 2019 and 2018, respectively, a decrease of $196,403 or 100%. The loss in the prior year arose on the issuance of convertible debentures between January 1, 2018 and May 31, 2018.

 

Loss on Marketable Securities

 

The loss on marketable securities was $97,500 and $75,000 for the years ended December 13, 2019, and 2018, respectively. The loss on marketable securities is directly related to the stock price of our investment in Zoompass which is marked-to-market each period. The shares in Zoompass were acquired by the Company as settlement of the litigation matter mentioned above.

 

Loss Before Income Taxes

 

Loss before income taxes was $8,676,629 and $2,526,056 for the years ended December 31, 2019 and 2018, respectively, an increase of $6,150,573 or 243.5%. The increase is primarily attributable to the increase in loss from operations of $2,840,740; the increase in the amortization of debt discount of $2,159,794; the Virtual Generation bonus earnout of $561,351; and the gain on litigation settlement in the prior year of $516,120 as discussed above.

 

Income Tax Provision

 

The income tax provision was $598,176 and $1,102,701 for the years ended December 31, 2019 and 2018, respectively, a decrease of $504,525 or 45.8%. The decrease in the income tax provision is attributable to the reduction in earnings at our operating subsidiaries discussed under revenue and selling expenses above and the deferred tax movement of $85,654 on intangible assets.

 

Net Loss

 

Net loss was $9,274,805 and $3,628,757 for the years ended December 31, 2019 and 2018, respectively, an increase of $5,646,048 or 155.6%, due to the reasons 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 loss of $119,286 and $184,043 for the years ended December 31, 2019 and 2018, respectively.

 

Liquidity and Capital Resources

 

The closing of physical betting shop locations until June 19, 2020, when we began reopening physical webshop locations, had not affected our online and mobile business operations which mitigated some of the impact of the closure of the physical store locations. On March 8, 2020 the Italian government imposed further restrictions on travel throughout Italy as well as transborder crossings and have either postponed or cancelled most professional sports events which has had an effect on the Company’s overall sports betting handle and revenues and has negatively impact our operating results. On June 19, 2020 all land-based betting shops, including corner locations such as coffee shops throughout Italy reopened. We anticipate that COVID-19 will continue to negatively impact our operating results in future periods, however, the specific impact is not readily determinable at this time.

 

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Assets

 

At June 30, 2020, we had total assets of $27,965,363 compared to $27,825,182 at December 31, 2019. The increase is primarily related to the increase in the value of marketable securities and the reduction in intangible assets due to amortization over the period.

 

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

 

Liabilities

 

At June 30, 2020, we had $18,862,842 in total liabilities and compared to total liabilities of $19,023,897 at December 31, 2019. The decrease is attributable to the reduction in deferred purchase consideration primarily due to the settlement of outstanding deferred purchase consideration by the issue of shares and certain cash payments made in terms of our agreement with the selling vendors, offset by a promissory note received from a related party of $300,000.

 

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

 

The remaining convertible debenture holders in the aggregate principal amount of $610,000 and CDN$307,000 had extended the maturity date of their convertible debentures by between 90 and 120 days in exchange for additional warrants. These convertible debenture holders may elect repayment on maturity.

 

Working Capital

 

We had $5,783,449 in cash and cash equivalents at June 30, 2020 compared to $5,182,598 on December 31, 2019.

 

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

 

We had a working capital deficit of $9,114,227 at June 30, 2020, compared to a working capital deficit of $9,153,291 at December 31, 2019. The working capital decreased slightly over the six month period.

 

We currently 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.

 

Accumulated Deficit

 

As of June 30, 2020, we had accumulated deficit of $25,609,781 compared to accumulated deficit of $23,241,835 at December 31, 2019.

 

Cash Flows from Operating Activities

 

Net cash from operating activities resulted in net cash generated by operating activities of $867,577 for the six months ended June 30, 2020, compared to cash used in operating activities of $1,005,601 for the six months ended June 30, 2019. The increase in cash provided by operating activities of $1,873,178 is primarily related to the decrease in net loss of $2,524,226 offset by the movement in non-cash amortization of deferred costs of $1,359,006.

 

Cash flows from operating activities resulted in net cash used in operating activities of $145,520 for the year ended December 31, 2019, compared to net cash provided by operating activities of $1,401,302 for the year ended December 31, 2018. The $1,546,822 decrease in cash used in operating activities is primarily related to the increase in loss from operations of $5,731,702 offset by non-cash amortization of deferred costs of $4,097,721.

 

 

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Cash Flows from Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2020 was $87,994 compared to net cash used in investing activities of $270,433 for the six months ended June 30, 2019. In the prior period we paid net cash of $216,150 on the acquisition of Virtual Generation.

 

The net cash used in investing activities for the year ended December 31, 2019 was $468,348 compared to $4,725,856 for the year ended December 31, 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. During the current year we acquired Virtual Generation for an initial cash outlay, net of cash received of $47,268 and have subsequently paid the sellers an additional $672,871 in cash.

 

Cash Flows from Financing Activities

 

Net cash used in financing activities for the six months ended June 30, 2020 was $7,750 compared to $101,691 of net cash used in financing activities for the six months ended June 30, 2019. The net cash used in financing activities during the current period included the repayment of deferred purchase consideration, offset by the proceeds from a promissory note issued to a related party.

 

Net cash used in financing activities for the year ended December 31, 2019 was $479,445 compared to cash provided by financing activities of $4,499,088 for the year ended December 31, 2018. We raised funding through the issue of convertible debentures in the prior year of $6,883,906 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. In the current year we made payment of $672,871 to the Virtual Generation sellers offset by net proceeds of the bank line of credit of $250,000.

 

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 cash obligation to repay Virtual Generation Promissory notes of $1,565,659.

 

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.

 

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

 

Notes Payable, Related Party

 

We 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 142,956 shares of common stock.

 

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

 

 

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Deferred Purchase consideration, Related Party

 

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

 

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

 

The promissory notes are to be settled as follows:

 

  (a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the Closing Date; and
  (b) an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019, and as of July 1, 2020 there is no remaining stock issuance obligations under the deferred purchase consideration promissory note.

 

Pursuant to the terms of the Purchase Agreement we entered into with VG, we agreed to pay the VG Sellers an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 the VG Sellers have qualified for the earnout payment.

 

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

 

The movement on deferred purchase consideration consists of the following:

 

Description 

June 30,

2020

 

December 31,

2019

Principal Outstanding      
Promissory notes due to related parties  $1,279,430   $1,830,541 
Additional earnout earned   —      224,540 
Settled by the issuance of common shares   (446,471)   (410,925)
Repayment in cash   (92,444)   (328,734)
Foreign exchange movements   (2,174)   (35,992)
    738,341    1,279,430 
Present value discount on future payments          
Present value discount   (80,069)   (161,393)
Amortization   43,779    78,128 
Foreign exchange movements   565    3,195 
    (35,725)   (80,069)
Deferred purchase consideration, net  $702,616   $1,199,361 

 

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

 

The balances outstanding are as follows:

 

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

 

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

 

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

 

 

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Michele Ciavarella

 

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

 

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

 

On September 4, 2019, Mr. Ciavarella converted $500,000 of accrued salaries into 125,000 shares of common stock at. Conversion price of $4.00 per share.

 

Gold Street Capital

 

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

 

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

 

Luca Pasquini

 

On January 31, 2019, we acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2020, we had paid Mr. Pasquini cash of €145,600 (approximately $162,639) and issued 98,405 shares valued at €215,800 (approximately $241,313).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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

 

Gabriele Peroni

 

On January 31, 2019, we acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2020, we had paid Mr. Peroni cash of €187,200 (approximately $209,107) and issued 98,405 shares valued at €215,800 (approximately $241,313).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Peroni’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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

 

Alessandro Marcelli

 

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

 

Franco Salvagni

 

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

 

Beniamino Gianfelici

 

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

 

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Mark Korb

 

On July 5, 2019, we issued to Mr. Korb, the chief financial officer of us, seven year options to purchase 25,000 shares of common stock at an exercise price of $2.72 per share.

 

Paul Sallwasser

 

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

 

 

 

Steven Shallcross

 

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

 

 

 

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BUSINESS

 

Company Overview

 

We are an international, vertically integrated commercial-stage company engaged in two principal aspects of the leisure gaming industry as (1) a business-to-consumer (“B2C”) licensed retail gaming operator (known as an “Operator”) offering our products through two sales distribution channels in (i) retail land-based or on-site physical venues and (ii) online through PC, tablet and mobile distribution, and (2) as a business-to-business (“B2B”) betting technology provider (known as a “Provider”) offering our proprietary betting technology either (1) directly to licensed operators or (2) through value-added re-sellers or systems integrators in the leisure betting industry.

 

As an Operator in the regulated Italian leisure betting market, we operate on a single-tier distribution strategy by collecting wagers on leisure betting products including a variety of lottery, casino gaming and sports bets through two 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 load their online gaming account through PC’s situated at each venue, and (ii) land-based 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.). We currently provide our gaming services through our subsidiaries, Multigioco Srl (“Multigioco”), and Ulisse GmbH (“Ulisse”). These operations are carried out under both land-based and online retail gaming licenses regulated by the Agenzia delle Dogane e dei Monopoli (“ADM”), and our Austrian Bookmaker license, that permit us to distribute leisure betting products such as sports betting, lotto tickets, virtual sports betting, online poker and casino gaming products through both physical, land-based retail locations as well as online through our licensed principal website www.newgioco.it or commercial webskins linked to our principal website and through mobile devices.

 

In Italy, our gaming products and services are offered to customers at the following three venues:

 

  Agency or Negozio Sportivo (translated as Sporting Store): An agency is an arcade location that is a gaming only venue meeting strict regulatory standards and must have at least 70% of its square-footage dedicated specifically to gaming space. Each agency must have a cash cage for the primary purpose of gaming and gaming related transactions serving an indefinite number of anonymous walk-in customers.
  Corner or Punto Sportivo (translated as Sporting Point): A corner is distinguished from an agency insofar as the principal business situated at the location is an activity that is primarily different from gaming (such as a coffee shop or bakery) with a terminal connected to the ADM network. The primary purpose of such facility is not gaming, but rather, there is only a small ‘corner’ for extra cash flow in exchange for a fee and/or commission. Specifically, a maximum of 30% of floor space of a corner location can be dedicated to gaming where gaming transactions are collected and processed by a counter clerk.
  Web-shop (“web cafe” or “websites”) or Punti Virtuali di Recarica (“PVR”) (translated as Virtual Reload Points): A web-shop is a physical location where computers are connected to the internet and directed to our website where customers may also make cash deposits that are credited electronically to their online gaming accounts (i.e., virtual account reloading). Customers can re-load their online gaming account at any web-shop that is under contract to promote our websites and play remotely through a PC, tablet or mobile device.

 

We currently service approximately 79,000 active online user accounts and an indeterminate number of walk-in customers at a combination of the three types of venues: 1,200 web-cafés (or “web-shops”), 7 corners and 117 agency locations.

 

As a global gaming technology Provider, we own and operate a betting software designed with a unique “distributed model” architecture colloquially named Elys Game Board (the “Platform”). The Platform is a fully integrated “omni-channel” framework that combines centralized technology for updating, servicing and operations with multi-channel functionality to accept all forms of customer payment through the two distribution channels described above. The omni-channel software design is fully integrated with a built in player gaming account management and a built-in sports book. As a Provider, we employ a multi-tier distribution strategy on both a direct to customer channel and on a Software-as-a-Service (“SaaS”) basis.

 

The Platform is certified by the ADM and the Malta Gaming Authority (“MGA”) in Malta and is owned by our subsidiary Odissea Betriebsinformatik Beratung GmbH (“Odissea”). The software architecture was developed and built on the latest Microsoft.Net Core framework, supporting both online customer gaming accounts as well as land-based bet processing capability with multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) backed by a real-time customer relationship management (“CRM”) and business intelligence (“BI”) program for streamlined cross-platform marketing as well as a synchronized financial accounting processes. Data is communicated directly to on-the-ground sales and marketing agents that manage and maintain both our online and land-based retail distribution. The Platform allows our independent B2B and white-label end users to (i) rapidly and effectively model their gaming businesses and client gaming accounts, (ii) monitor and analyze performance on an ongoing basis, (iii) share dashboards, and (iv) generate management reports all within a fully integrated solution. In addition, our clients can use the built-in artificial intelligence and adaptive business intelligence modules to evaluate actual performance and leverage insights from analytics to make informed, timely decisions to drive future business. The unique ’shop-client’ architecture of the Platform to our knowledge, is the first of its kind in the leisure betting industry. Elys was built around the specific needs of leisure betting operators and proven through our existing Multigioco distribution throughout Italy.

 

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On January 30, 2019, we expanded our operations with our acquisition of Virtual Generation Limited (“VG” or “Virtual Generation”), which owns and has developed a virtual gaming software platform (“VGS”), and its holding company, Naos Holdings Limited (“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 sports generation including applications in Latin American and African markets as well as unique tribal games tailored for the U.S. tribal gaming market. VG’s operations have grown in the highly competitive virtual sports market to approximately 18.5 million bet tickets sold in 2019. VG now operates in the following 12 countries: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.

 

Organizational Structure

 

Our operations are carried out through three geographically organized groups: (i) an operational group which is based in Europe and maintains administrative offices headquartered in Rome, Italy with satellite offices for operations administration and risk management trading in Naples and Teramo, Italy and San Gwann, Malta; (ii) a technology group which is based in Innsbruck, Austria and manages software development, training and administration; and (iii) a corporate group which is based in North America and operates out of our principal executive offices in Toronto, Canada and satellite offices in Fort Lauderdale and Boca Raton, Florida through which we carry out corporate activities, handle day-to-day reporting duties, U.S. development planning and through which various independent contractors and vendors are engaged.

 

Our revenue streams primarily consists of transactional revenue and service revenue. Through our subsidiaries Multigioco acquired on August 15, 2014 and Ulisse acquired July 1, 2016, we generate transactional revenue through collection of bets from sports wagering and gaming from online betting and land-based betting shops located throughout Italy, and through our subsidiary, Odissea acquired July 1, 2016, we generate service revenue from providing our Platform services to third party operators on a B2B basis. In addition, our revenue during the year ended December 31, 2019 included revenue generated by VG acquired January 30, 2019, for 11 months of the year ended December 31, 2019, consisting of royalties invoiced for the sale of virtual games through authorized agents. We generated revenue of $35,583,131 for the year ended December 31, 2019 and $34,575,097 for the year ended December 31, 2018, respectively, and we generated revenue of $14,980,443 for the six months ended June 30, 2020 and $18,371,648 for the six months ended June 30, 2019, respectively. Substantially all of our revenue was generated from operations or services provided in Italy. For the years ended December 31, 2019 and 2018, net gaming revenues represented 98.9% and 99.2%, and net gaming revenues represented 99.8% and 99.1% for the six months ended June 30, 2020 and June 30, 2019, respectively of our revenue and Platform and service revenue represented 1.1% and 0.8%, and Platform and service revenue represented 0.2% and 0.9% for the three months ended June 30, 2020 and June 30, 2019, respectively of revenue. We also formed a non-operating subsidiary Newgioco Group, Inc in Canada on January 17, 2017 for potential future operations in Canada, Elys Technology Group, Limited in Malta on April 4, 2019 for future opportunities, on November 26, 2019 we formed Newgioco Colombia SAS to develop our operations through South and Central America, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware for development of our U.S. sports betting operations.

 

Our Strengths

 

We believe we have established ourselves as one of the leaders in the Italian leisure betting market. Below are our strengths that we believe should enable us to capture a meaningful share of the United States and global leisure betting market:

 

 

Highly Differentiated Technology Platform. Built from the ground-up, the Platform is designed to be a highly flexible and robust sportsbook engine able to cope with the demands of today’s betting operators and players. The Platform is designed as an industry specific ‘shop-client’ architecture and can offer any type of sport (or non-sport) event and any type of betting market (i.e., soccer, football, basketball, hockey, baseball, tennis, etc.) in both pre-match and in-game modes across both fixed-odds (player versus bookie) and pool (player versus player) styles and manage the risk for each individual transaction through all channels (i.e., online or land-based). Our proprietary Platform is designed to address the independent operator’s ability to compete against larger and more established franchise operators effectively and inexpensively as it is designed to allow management of bet risk of each transaction at each location from which a bet is placed.

 

 

Market Momentum. We believe that our unique ‘shop-client’ designed Platform is gaining momentum in the Italian leisure betting market with our fully integrated shop-client based Platform architecture with integrated gaming account, artificial intelligence and business intelligence modules. We currently service approximately 79,000 active online user accounts and an indeterminate number of walk-in customers through the three distribution methods: 1,200 web-cafés (or “web-shops”), 7 corners, and 117 agency locations.

 

 

Scalable Platform at Minimal Cost. Our Platform is highly scalable. Expansion of the Platform under our existing infrastructure requires little to no additional overhead and should create in-house efficiencies for our corporate operations and for our agents and operator clients. Many of the inherent functions and features of our ADM Platform certification in Italy have received prior approval and adhere to multi-jurisdictional standards which in our view will enable us to receive certification in new markets and expand into new markets in a timely manner.

 

 

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Growing Industry. Online gambling is growing in popularity. Gamblers worldwide increasingly prefer Internet and mobile channels for their betting activities due to the ease of access offered and safety provided. Extensive usage of digital processes and growing bettor demand is driving the market for online betting platforms. Recent liberalization and state-by-state legislation in the United States has resulted in new opportunities in the United States sports betting market. We anticipate that the United States market will begin to have a strong and steady uptake in active wagers. We further anticipate the first select states (i.e., Nevada, Delaware, New Jersey, Mississippi, West Virginia, Pennsylvania, Rhode Island, Montana, New Mexico and others) to provide the regulatory framework and foundation for other states and locations to build upon.

 

  Highly Experienced Senior Management Team. We are led by a dedicated and highly experienced senior management team with significant industry experience and proven ability to develop novel solutions. Each of the members of our senior management have more than 20 years of relevant industry experience.

 

Our Strategy

 

Our goal is to expand our market presence by entering new foreign markets while at the same time further penetrating the Italian and additional European markets. We expect new markets to be a large source of our future growth, in particular, the United States market is one where we intend to offer the use of our Platform to existing commercial and tribal casinos, retail betting operators and franchise enterprises.

 

Development of U.S. and Other Foreign Markets

 

 

The U.S. Sports Betting Market. Until 2018, the Interstate Wire Act of 1961, combined with the Professional and Amateur Sports Protection Act of 1992 (“PASPA” or the “Bradley Act”), prohibited sports betting in the U.S. in all but four grandfathered states (Montana, Oregon, Nevada, Delaware). In May 2018, the U.S. Supreme Court overturned PASPA in a 6-3 decision that found the law conflicted with the Tenth Amendment leaving individual states to decide whether to allow its residents to bet on sports. Many states are expected to move quickly to establish sports betting as a means to increase their respective capital resources. While several states have recently passed legislation to allow online gambling, we believe that the U.S. sports betting market will take 5 – 10 years to fully develop. We believe that the United States represents a large addressable market opportunity for us with our Elys betting Platform in addition to developing new opportunities in Canada, South America, Africa as well as several European countries.

 

  Mergers and Acquisition in the Global Gaming Industry. In an effort to scale and grow the business, we intend to evaluate potential acquisitions that can be easily integrated into our business. Our recent acquisition of VG has allowed us to expand our product offerings in additional countries. The global gaming industry is still very much fragmented. There has been a significant number of noteworthy consolidations such as: (1) The Stars Group/SkyBet (July 2018) and CrownBet/William Hill Australia (April 2018); (2) Paddy Power/Betfair (February 2016) and with Stars Group (April 2020); (3) GVC/BWIN Ladbrokes/Coral (March 2018), DraftKings/SBTech (April 2020); and (4) in lottery concentration (IGT/GTECH (April 2015); as well as others such as Pollard/Innova (July 2017); NYX Gaming Group/Scientific Games (January 2018) which we believe provides us with an opportunity to capitalize on the acquisition of smaller operators forced to compete against newly formed larger players.

 

Further Penetration in the Italian Market

 

 

Acquisitions of Smaller Operators. Government legislated consolidation of the regulated Italian lottery and gaming market have driven smaller regional operators in Italy to our licensed brand “New Gioco” TM in both the online and land-based sales channels. The Italian regulated gaming market is one of the largest in the European Union (“EU”) and is extremely fragmented. Recent new regulations in Italy have made it more difficult for smaller regional operators throughout Italy to operate and we believe that our innovative and cost-effective Platform is an attractive alternative for such smaller regional operators throughout Italy that will not be able to maintain the new standards set out by the Italian regulator on their own.

 

  Organic Growth. The Italian online gaming market continues to drive substantial growth in our core operations. From January 1, 2019 through December 31, 2019, we increased the number of webshop locations we operate in Italy from approximately 1,000 to approximately 1,200 and believe that there is ample room for continued growth in the Italian market.

 

Development in U.S. Market

 

We believe that the U.S. sports betting and online gaming market presents a large opportunity to deploy our Platform on a 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 Gaming Laboratories International (“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 certification in two phases as follows: (1) the first phase began on July 15, 2020, is expected to last about six weeks for verification of retail functionality (such as POS and SSBT); and (2) the second phase intended to begin by October 2020 for the verification of mobile and website functionality. 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.

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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 such as regulatory and policy requirements and 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 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 in the U.S. on Indian Horse Relay Racing and on December 21, 2019 on traditional Indian Stick Game. Class 1 betting represents traditional indigenous sporting events or games that are not classed as mainstream sports bets.

 

In October 2019, we entered into a multi-year agreement with Grand Central, LLC, a retail sports bar operator in Washington, DC to provide sports betting products and services in their establishments upon the completion of their licensing process.

On May 28, 2020, the Company organized Elys Gameboard Technologies, LLC, a wholly owned subsidiary for the purpose of expanding the Company's sports betting operations throughout the US. The Company is in the process of seeking its first sports betting license in Washington, DC and anticipates launching its new US sports betting platform with its first US operator client by the end of 2020.

 

On June 11, 2020, our Odissea subsidiary passed Stage 1 of the ISO-27001 certification process for safety management which involves an informal review of the Information Security Management System (ISMS), for example, checking the existence and completeness of key documentation such as the organization's information security policy, Statement of Applicability (SoA) and Risk Treatment Plan (RTP). The procedures for Stage 2 certification, involves a more detailed and formal compliance audit and independent testing of the ISMS against the requirements specified in ISO-27001, and is expected to be completed in approximately 4 months.

 

In September 2020, we engaged Matteo Monteverdi, former senior executive of Sportradar and IGT as President of the Company.

 

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 registration statement.

 

Products and Services and Distribution Methods

 

Betting Platform

 

We believe that our Platform, engineered and launched by our software development team at Odissea, is a highly efficient, cutting edge betting Platform technology that supports the processing of online client gaming account protocols as well as land-based betting protocols with seamless multi-channel functionality accepting all forms of payment methods (i.e., cash, e-wallet, bank card and wire transfer, etc.) and integrated with a real-time CRM and Business Intelligence program for streamlined cross-platform marketing as well as a synchronized financial accounting process.

 

Payment channels for both deposit and withdrawals online are as set forth below:

 

· Player indirect – meaning that the customer makes a deposit indirectly to their gaming account through a licensed agent (such as a cash deposit to their gaming account at a web-shop counter (e-credit to player account)).

 

· Player direct – meaning that the customer makes a deposit directly to their own gaming account through one or more of the following methods:

 

  · Credit Card;
  · ATM/Debit card;
  · Bank Wire;
  · Postal Money Order; and
  · e-wallet or e-credit transfer.

 

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Payment channels for both play of wagers and settlement of winnings at the land-based or retail agency or corner counter is as follows:

 

· Player direct – meaning that the customer pays for the wager in cash and accepted debit or credit cards.

 

We currently employ a customizable client-focused and cost-effective “hands-on” method, rather than a “general approach” to our Platform design with the goal of empowering our player-facing agents and employees to enhance the players’ experience by allowing personalized dashboard design and customer care for all customer call-ins to our service agents. We believe that this strategy has been highly effective in the Italian retail betting market and has been instrumental in increasing our revenues, net earnings and player retention.

 

Gaming Product Offerings

 

Our online sales channel (websites and web-shops) offers a full suite of gaming products that can be played in both real-money or free-play modes which include:

 

  · Sports Betting: Considered the largest and most well-known industry segment offering both pre-match and live in-game betting events on a wide variety of sports.
  · Online Casino: includes the following:
  Traditional Online Casino Games: Automated (using random number generated (“RNG”)) casino games such as roulette, blackjack and baccarat and slot machines.
  Live Online Casino Games: Table games broadcast via live video stream with real dealers and croupiers that simulate the atmosphere of a physical casino.
  · Poker: Texas Hold’em and Omaha in both cash and tournament formats.
  · Bingo and Skilled and Interactive Games: Games that are programmed with a random number generator to ensure constant fairness for all parties. These games include card games such as tresette (3 Sevens), scopa (Sweep) and briscola (Trump).
  · Virtual Sports Betting: Various computer generated sport and racing events that are programmed with a RNG.
  · Horse Racing: Live track horse racing events.
         

 

Our land-based locations generally offer only sports betting, virtual sports betting, horse racing and physical slot machines.

 

Current Markets, Other Services and Facilities

 

In addition to complementing gaming offerings originally provided by our acquired operators with our Newgioco branding, we intend to add new products and services with the assistance of gaming specialists, software providers and market research professionals, such as we have done with our acquisition of VG. We believe that we can generate additional revenues by establishing more marketing centers and web-shops.

 

We currently service approximately 79,000 active online user accounts and estimate that our online user base will increase to over 100,000 in two years based on projections of both organic growth and acquisitions of existing operators. In addition, we also service an indeterminate number of walk-in customers at our physical locations throughout Italy. As we increase our customer base in Italy, our betting handle in our Italian operations reached approximately $454 million by the end of 2019. We also expect to begin to penetrate the U.S. market and expect to have approximately 3-5 SaaS operator customers with approximately 20,000 active end-users playing on our Platform in the U.S. in 2020. The increase in customers is expected to result in anticipated revenue growth of between 25-35% in 2020 and expected operating margins in the 10-15% range, as a result of an improvement in operating leverage.

 

Our client’s range in age from ages 18 through 79 and are a mix of 70% male and 30% female. In addition, we separate our revenue source by (a) sports betting, (b) casino and card game betting and (c) poker. Our in-house analysis indicates that sports betting and casino games are more popular than poker and other card games among our customer base. Furthermore, sports betting is our most profitable revenue stream yielding the highest percentage of our gross gaming revenue at 51% of revenues, which is representative of industry metrics when measured by completed sports seasons on a year over year basis. Our second largest source of revenue is currently casino followed by poker. We anticipate a shift in revenue in the future and that our largest source of our future revenue growth will be from SaaS, which is expected to have the highest gross margin followed by sportsbook, casino and poker.

 

Our internal analysis further indicates different gaming patterns among our male and female online users. Male players prefer sports-bets, while approximately 10% of them also explore casino and poker. Conversely, female players prefer casino and bingo while approximately 1% try our other games such as poker, sports-betting or lotteries.

 

Most of our users are currently located throughout Italy with the highest concentrations in larger centers such as Rome and Naples.

 

We expect that users from any operators that we acquire will continue to utilize our services and anticipate that any operators we acquire will have existing revenues from users who frequent their establishments and venues or use their websites. In addition to acquiring customers through the acquisition of operators, we intend to obtain additional licenses and pursue contracts and relationships with other operators that we believe will attract and secure new users as we increase our customer base globally.

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Our revenue streams are as follows:

 

Transactional revenue-Gaming revenues

 

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 we have satisfied its performance obligation. In addition, we receive 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.

 

Service revenue-Betting platform

 

Revenues from the Betting Platform include license fees, training, installation, and product support services. Revenue is recognized when transfer of control to the customer has been made and our 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.

 

Mobile Browser Application

 

Based upon customer demand for improved performance, speed, and ease-of-use for sports betting on mobile devices, we engaged a dedicated internal team of engineers to this distribution channel and have already launched and intend to continue to launch several new and innovative features.

 

In June 2019, we launched our second-generation mobile browser based betting platform on our Elys Platform. The new mobile platform is dedicated to improving the user experience with respect to sports betting with a unique modular design that allows quick go-to-market with plug-and-play features, we have the ability to tailor the mobile app to each market, including specific look and feel features, while end users quickly get to the desired bet ticket with just few clicks. The new modular architecture of our second-generation mobile platform includes features inherent in the leading-edge Material Design framework developed by GoogleTM in 2014. Material Design is a visual language that synthesizes the classic principles of good design with the innovation of technology and science allowing the flexibility to quickly create new layouts for a variety of both enterprise brands and chain store locations, private brands and applications to add other features such as loyalty rewards for restaurants and cruise lines, push marketing for customer acquisition and retention and importantly, the ability to offer both online and land-based betting distribution under a variety of gaming regulations.

 

Our Websites

 

The ADM requires that all gaming websites be owned only by the license holder (Multigioco). We own our branded url (uniform resource locator) www.newgioco.it in accordance with the ADM licensing requirements and either directly operate our websites (main page - newgioco.it) and all white-label websites or alternatively contract the websites to third party agents or promoters operating webskin urls under the licensed main page.

 

Our main licensed gaming website, www.newgioco.it, currently processes live and virtual sports bets and mobile betting transactions through our Platform, while online casino and poker are provided under a third-party service provider agreement with Microgame SpA, and lotto products are provided by Lottomatica SpA. Odissea provides and operates all aspects of our online gaming website including servers, routers, software development (for the Newgioco branded website operations), sportsbook trading, telephone betting, licensing, website hosting, payment solutions, security, and gaming related customer support needs.

 

Our main and white-label websites are tailored for the Italian gaming market. We maintain a web-based platform directly under the branded website www.newgioco.it which serves both players directly and web-shops (i.e., internet café’s). There are some variations in website style because we offer different services through distinctive marketing campaigns:

 

  www.newgioco.it is mainly devoted to marketing for shops, including marketing with respect to campaigns, branding, and proposals/marketing for prospective operators to become a “Newgioco shop” and is the landing page for all white-label websites. A landing page refers to a webpage that is generally owned by a promoter (which can also be referred to as a betting shop) which redirects their marketing (social network, friends or other forms of marketing) to this main webpage. Apart from a few advertisements, the landing page links patrons to sign-up or register directly on the newgioco.it main page except that a promotional code is tied to the link, such that the web promoter can funnel its marketing through a subnet. In the case of Italy, the entire subnet (a subnet is a logical grouping of connected network devices; nodes on a subnet tend to be located in close physical proximity to each other such as on a LAN) must be connected to the ADM network (and all games offered through the network) must be certified and approved by SOGEI (an entity authorized to conduct such certification and approval by the Italian Ministry of Finance).

 

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Our www.newgioco.it website offers wagering in many categories of sports events. We intend to capture a larger share of the Italian sports betting market by focusing on the Serie A, Serie B, and Serie C soccer matches as well as virtual sports betting, online poker, online casino and slots, skill games, and Italian horse racing through agent-based sales campaigns.

 

Our direct sales campaigns aimed at end users and agent based sales campaigns are offered through white-label pages or webskins that direct gaming transactions through our main website www.newgioco.it. We currently operate eleven such webskins as follows:

 

● www. originalbet.it ● www.timetobet.it
● www.lovingbet.it ● www.imperialbet.it
● www.clubgames.it ● www.gamesmart.it

● www.quibet.it

● www.782sport.it

● www.fullmatch.it

● www.mixbet.it

● www.betlive5k.it

 

  webskins or white-label pages are dedicated to the end-user, or player, and focus on regional campaigns and gaming offerings directed at local players, such as welcome bonuses, poker rake rebate for poker players, etc. A white-label page is a complete gaming website (similar to the main website of the licenser (in our case Multigioco)) but with the interface and logo of the promoter. The promoter earns fees based on a percentage of the handle (turnover) generated through their website.

 

In relation to the third-party websites, the promoter (“partner”, “shop”, “agent” or “promoter”) is responsible for marketing strategies, administration and costs. The promoter may utilize special promotions, draws and incentives to drive players to their website to increase gaming handle (turnover) or visits. Generally, these regional promoters operate in areas that are remote or distant from our central operations based in Rome. Therefore, some promotions may be tied to local events in the jurisdictions surrounding the “home base” of the promoter rather than originating from our main operations. The relationship with local shops and players from the promoter region remains with the promoter since there may be regional nuances that attract their clientele to our gaming offerings. Notwithstanding the foregoing, the gaming business is owned by the underlying licensor (i.e., Multigioco) and is included in our overall financial results as gaming handle (turnover).

 

The promoter does not have direct access to our client gaming accounts and is therefore not legally responsible or liable for maintaining gaming account balances. Instead, the licensor is legally responsible for compliance and client gaming account control such as anti-money laundering, know-your-client and minimum age restrictions, and is also required to ensure that all payouts due to players are credited to each players’ gaming account and are available to players within seven business days of the completion of the play.

 

In the Italian market, our websites are only published in Italian. We may include additional languages in the future if we determine that such services are commercially viable and if we agree to pay the related development fees.

 

Although we have a diverse portfolio of product and service offerings through our websites, we intend to focus on creating in-house cost savings and synergies by undertaking strategic acquisitions of competing webskin operators and to operate them under our Newgioco branding. We intend to replicate our successful operational model developed in the regulated Italian market through the U.S. and into other international markets.

 

Intellectual Property

 

We do not own any patents or have any patent applications pending in Italy or any other jurisdiction. As a result of our acquisitions of Multigioco, Rifa and the gaming assets of Newgioco Srl, we obtained the rights to the domestic distribution brand known throughout Italy as New Gioco, and in July 2015, we obtained a trademark on the brand and logo for New Gioco.

 

As a result of the acquisition of Odissea, we obtained the intellectual property and technical know-how relating to our Elys betting Platform.

 

We also have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “Aleabet”, “OriginalBet”, “LovingBet” and “Elys.”

 

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Research and Development

 

We are continually updating the Platform and the products that we offer. We incurred expenses in the amount of $410,000 and $415,000 for each of the years ended December 31, 2019 and 2018, respectively for research and development. We expect that expenses we incur for development and improving our betting software to be continuous recurring research and development expenses.

 

Industry Overview

 

Overview of the Italian Leisure Betting Industry

 

Leisure betting describes consumer entertainment products such as purchase of lottery tickets, scratch off tickets, sports betting and online casino, which customers play on a daily or regular basis.

 

Gambling has been culturally rooted since Roman times, and as such, Italian gaming laws are governed by a well-defined set of regulations which are considered to be some of the most advanced and robust regulations in the world. The ADM has created a barrier to entry into the gaming industry in Italy through its implementation of processes and regulations aimed at consolidating and reducing the number of licenses including, but not limited to, increased insurance requirements, increased minimum number of locations, creating favorable conditions for operators such as Newgioco.

 

Overview of the Global Leisure Gaming Market

 

The easing of government regulations on sports betting is expected to be a primary growth driver for the global online gambling market. We believe that the tax revenue in addition to increase in employment opportunities derived from online gambling will motivate governments around the globe to legalize online gambling. In May 2018, the U.S. Supreme Court ruled that the national ban on sports betting (PASPA) was unconstitutional, paving the way for states to enact laws authorizing sports gambling.

 

In addition to the repeal of PASPA, as of December 2019, four states, Delaware, Pennsylvania, Nevada and New Jersey, as well as the U.S. Virgin Islands, allowed online gaming, while other states have indicated their support for enacting laws authorizing land-based and/or online sports betting (including Mississippi, Oregon, Montana, Indiana, Iowa, New Hampshire, West Virginia, Rhode Island, New Mexico, Colorado, Washington and Illinois).

 

The global online gambling market is gaining popularity in Europe, the Middle East and Africa (EMEA) because online sports betting sites generate substantial revenues for governments. Their significant contribution to national revenues is encouraging several countries to legalize online gambling.

 

The global online gambling market is characterized by the presence of several vendors competing to gain market dominance. Some small vendors are operating only in specific product verticals such as casino and lottery, while other vendors are operating in multiple areas including poker and sports betting. The growth opportunity for these vendors is increasing due to the rise in the number of online gambling providers and improved access to the internet around the world, as well as the increase in the number of players.

 

Certain key vendors in the global online gambling market are:

 

● Bet 365 (Hillside Group); ● bet-at-home.com;
● The Stars Group (formerly Poker Stars); ● GVC Holdings;
● Paddy Power Betfair; (now merged with Stars Group); ● Ladbrokes Coral Group (now merged with GVC Holdings);
● DraftKings; ● GAN Limited
● 888 Holdings; ● IGT/GTECH Lottomatica SpA, and
● William Hill; ● Kindred (Unibet Group).

 

Other notable product vendors in the market also include Betsson, Gamenet/Intralot/Goldbet, Camelot Group, Genting UK, NetEnt, Playtech (acquired Snaitech), and Rank Group. See “Competition” below for additional information on major operators in Italy.

 

The sports betting segment is expected to grow with the increased popularity of global soccer sporting events such as the FIFA World Cup and ongoing global growth of cricket and rugby tournaments. In addition, online betting is popular in many sports events that take place around the globe including basketball, horse and greyhound racing, ice hockey, baseball, golf, tennis and American football. Sports betting is becoming more popular due to the expansion of wagering on these sports through online channels.

 

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Competition

 

Competition in the leisure gaming industry is moderate with operators competing for customers in various geographic markets. These include online operations of “land-based” casino operators, poker rooms, sports/race books, bingo, skills games, lottery, betting exchanges as well as internet or web only based operators. The global reach of the internet together with the abundant supply of games and operators means that users can easily switch gaming platforms and operators, thereby increasing competition. Government and other regulations make it more difficult for operators to expand their footprint in certain markets leading to the consolidation of operators in such markets, while the easing of regulations in some markets has permitted more operators to expand to new marketplaces.

 

We compete with several private and publicly listed companies that provide land-based and/or online gaming, many of which have greater sources of financing, greater name recognition and have been engaged in the industry longer than we have. In addition, current land-based casino competitors, many of which have longer operating histories, greater brand recognition and greater financial and other resources than us, may provide Internet gaming services in the future.

We face direct competition in Italy from established online gaming sites including:

 

GTECH (IGT/Lottomatica): focused on providing software and services in the Internet, lottery and sports betting market;
Snaitech: (recently acquired by Playtech) an Italian corporation that deals with the management of betting odds and horse racing contests;
Sisal: (wholly owned by CVC Capital Partners) one of the oldest Italian gaming companies offering Internet betting, lotteries, scratch to win, poker and casino, slots and arcade games;
GVC Holdings/BWIN: one of the largest online gaming companies in the world focused primarily on sports betting, as well as online casino and poker;
Ladbrokes/Gala Coral Group/Eurobet: a UK based betting and gambling company which was acquired by GVC Holdings in March 2018;
Bet365 (Hillside Media): a UK based online gambling company offering sports betting, poker, casino, games, and bingo, as well as video streams of sporting events;
PaddyPower/Betfair (Flutter Entertainment): is a London Stock Exchange listed company and a constituent of the FTSE 100 Index. The company is a bookmaking business created by the merger of Paddy Power and Betfair, and operates under various brands including Betfair, Paddy Power, Sportsbet, TVG and FanDuel;
The Stars Group (PokerStars): a Canadian online gaming company formerly known as Amaya Gaming Group produces and offers online gaming products and services including poker, casino and sportsbook through its online gaming division, Stars Interactive under the brands PokerStars, PokerStars Casino, BetStars and Full Tilt Poker and in May 2020, The Stars Group completed its merger with Flutter Entertainment;
888 Holdings: a multinational online gambling company which operates several international gambling websites including 888casino (one of the oldest online casino websites); 888poker and 888bingo; and
William Hill: a UK based bookmaker founded in 1934 is listed on the London Stock Exchange and a constituent of the FTSE 250 Index operates an online sportsbook and offers online casino games, ‘skill games’, online bingo and online poker. The company operates approximately 2,300 betting shops and employs over 16,000 people worldwide.

 

Government Regulations

 

We conduct business in a number of jurisdictions, of which Italy has historically contributed the most significant recurring gaming revenue, while our VG subsidiary operates as a vendor or supplier to the gaming industry in such other jurisdictions. We are subject to various government regulations in the jurisdictions in which we currently operate or intend to operate in as set forth below. Current and future laws and regulations may impede the growth of regulated online and land-based gaming and wagering. Any noncompliance with the various laws and regulations that our operations are subject to may harm our business and results of operations.

 

Italy

 

In Italy, the operation of land-based and online gaming activities requires a license awarded by the ADM. The ADM is responsible for, among other things:

 

  regulating games and enforcing relevant regulatory provisions;
  issuing licenses, and supervising compliance by licensees;
  monitoring the distribution of gaming services; and
  collecting gaming taxes.

 

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There are currently two main categories of licenses (land-based and online) issued or awarded by the ADM in three series:

 

  Series 1 first issued by legal decree in 1992, renewed in 2009 under the Abruzzo decree and are colloquially branded as “Monti” licenses, that expired in 2016 and are expected to be called for renewal tender between 2020 and 2022;
  Finance Act series which were awarded by tender in 2006 and are known as “Bersani” Licenses that expired in 2016 and are expected to be called for renewal tender between 2020 and 2022; and
  New series Gioco a Distanza (Games at a Distance) (“GAD”) issued by application process under the Comunitaria decree in 2010 expire in 2021 and are expected to be renewed through a license tender auction.

 

The Monti and Bersani licenses provide distribution authorization to operate both Negozio Sportivo (agency) and Punto Sportivo (corner) land-based establishments as well as GAD online (web-based) distribution. Land-based Monti licenses and Bersani licenses are subject to and expected to be consolidated under a new decree at renewal auction which is expected to be called for renewal tender between 2020 and 2022, to match up with the limited number of Comunitaria Series GAD licenses expiring in 2021.

 

We currently hold, through our subsidiaries four gaming licenses upon which our business is dependent: (i) a Bersani license, (ii) a Monti license, (iii) a GAD license and (iv) an Austrian bookmaker license. Our Italian Bersani, Monti and GAD licenses are issued by the ADM, while our Austrian bookmaker license is issued by the Austrian Gambling Authority (BMF). Each Italian license is typically valid for a term of nine years while the Austrian license has a lifetime duration and, in both cases, can be terminated if we fail to comply with required regulations in each country. The renewal process for the Bersani license and Monti license, is a call to tender auction process held at the same time for all licensees approximately once every nine years with the highest bidders being awarded not only licenses but rights to operate a certain number of land-based locations. In addition, the maximum number of land-based license rights that any one operator may bid on at auction is 20% of the total market being auctioned.

 

Each of the Bersani and Monti land-based licenses allow us to offer specific gaming products through physical retail locations that require one license right per each physical location. The rights granted under the Bersani and Monti licenses are not fixed to any specific physical location and can be moved at the discretion of the licensee to any physical address so long as the physical address has a police issued municipal license (as prescribed by article 86, paragraph 3, of the Italian Unified Text of Public Security Law (TULPS)) to sell gaming products and so long as the physical locations meet the ADM requirements, most of which are zoning requirements that require that the location is situated at a minimum distance from schools, churches and ATM’s and banks. Multigioco currently holds one land-based Bersani license with seven corner location rights that were issued to it in 2006, expired in 2016 and is up for renewal at such time as the ADM determines to hold an auction, which is expected to take place between 2020 and 2022 and one land-based Monti license with three agency location rights that were issued to it in 2010, expired in 2016 and is up for renewal at such time as the ADM determines to hold an auction, which is expected to take place between 2020 and 2022. Although both Monti and Bersani land-based licenses expired in 2016, until the ADM holds the auction for renewal of the licenses, we have been granted a Letter of Authority which permits us to continue our operations in Italy until the next government organized license renewal is held. Our failure to successfully acquire the requisite number of location rights we desire at the renewal auction in Italy may adversely impact our business. In such event, we will most likely either acquire rights in the secondary market from someone selling rights they acquired at auction at prices which are typically higher than the auction prices of the ADM or open additional web-shops, which will be less expensive but also have lower profit margins than the land-based operations. For a description of the risks associated with the licenses and their renewal, see “Risk Factors”, including “If we should lose our online or land-based licenses, or if the licenses are not renewed for any reason, including our failure to successfully bid for location rights at the renewal auction, our business would be materially adversely impacted” and “In order to expand our land-based operations in Italy, we will be required to acquire additional location rights under our licenses or acquire operators that have location rights under their licenses and our inability to acquire such additional rights or operators or restrictions from using any license associated with such acquired operators, will result in an adverse effect on our operating results”.

 

Multigioco was awarded a Comunitaria Series GAD license by the ADM in 2011. The licenses provide Multigioco the right to:

 

  offer gaming products that ADM authorizes for deployment in Italy through online channels which include websites and apps displayed on a PC, tablet or mobile phone;
  enter into licensing, joint venture and acquisition agreements with shops and private enterprises as concessionaires that provide various local services such as convenience stores, bars, cafes, and restaurants in Italy;
  establish web cafe`s as permitted by the regulations enforced by the ADM regional office within Italy; and
  take such steps such as know your client (“KYC”) and anti-money laundering controls (“AML”) that are deemed necessary to develop the business of regulated gaming in Italy.

 

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An online account allows a player to fund an account through a variety of electronic payment channels such as credit cards, ATM/debit cards and bank wires. The GAD license allows us the opportunity to open an unlimited number of web-shops and to close any of the web-shops that we open in our sole discretion. We currently operate approximately 1,200 web-shops throughout Italy. Our GAD license expires on June 15, 2021 and can be renewed provided that we have not violated any regulations. Although we believe that we will be able to renew this license through a tender notice process, no assurances can be given that the renewal will be timely, if at all.

 

Ulisse holds one Austrian bookmaker license that it was issued in June 2018 which has no termination date but may be terminated or cancelled by the regulator if Ulisse fails to comply with any regulations. We currently operate 114 CED retail locations in Italy under our Austrian bookmaker license.

 

In addition, our software Platform has been certified for use in Italy in accordance with the ADM requirements by Quinel M. Limited, an international technology auditor that conducted an audit of the Platform in June 2017. The purpose of the certification is to prove the effectiveness and accuracy of communications between the supplier interface and the user/operator interface. Any updates to the software or changes to key functions that we implement, require recertification, for which there can be no assurance that our software will qualify.

 

United States

 

There is no federal United States legislation that explicitly addresses the legality of online gambling. However, there are several acts that impact online gambling.

 

The Federal Wire Act of 1961 makes the placing of sports bets over the telephone illegal. The Federal Wire Act of 1961 does not explicitly refer to online gambling, leaving its applicability to on online gambling open to interpretation.

 

The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits any person engaged in the business of betting or wagering from knowingly accepting payments related to unlawful bets or wagers transmitted over the Internet. While the UIGEA does not define online gambling as being illegal, the UIGEA instructs the U.S. Treasury Department and Federal Reserve to impose obligations upon financial institutions and other payment processors to establish procedures designed to block online gaming-related financial transactions. It also expressly requires Internet bets and wagers to comply with the law of the jurisdiction where the wagers are initiated and received (i.e., within state borders). As a result of the UIGEA we may not accept bets received by use of wire communications facilities, including telephones and computers, unless such bets originated and terminated in jurisdictions where such betting or wagering is legal.

 

In May 2018, the U.S. Supreme Court ruled that the Professional and Amateur Sports Protection Act (the “PASPA”) was unconstitutional as it violated 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; but 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 PASPA. The U.S. Supreme Court 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, New York, New Mexico, New Hampshire, North Carolina, Oregon, Michigan, Mississippi, Colorado and the District of Columbia have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. Additionally, states including Maine, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Ohio and Maryland are considering active bills.

 

United Kingdom and European Union

 

The United Kingdom and certain European Union countries such as Germany, France, Spain and Greece have enacted online gaming laws and regulations. To the extent that we operate in any of these jurisdictions, our operations will need to be in compliance with the laws and regulations of such jurisdiction.

 

Additional Government Regulations

 

We are subject to general business regulations and laws which cover among others, taxation, virtual currencies, identity theft, account management guidelines, privacy, disclosure rules, security and marketing.

 

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Employees

 

As of July 1, 2020, we employed one person directly and engaged three persons as independent contractors, while our subsidiaries Multigioco employed 33 full-time, and approximately 12 independent contractors and sales agents, Odissea employed 7 full-time employees, Ulisse employed 10 full-time employees, Elys Technology Group employed 6 employees and Virtual Generation employed 1 full time employee. None of our employees are covered by a collective bargaining agreement, and we consider our relations with our employees to be very good.

 

Corporate Information

 

Newgioco Group, Inc. is a Delaware corporation incorporated on August 26, 1998.

 

Our principal headquarters are located at 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4, and the offices of our wholly-owned subsidiaries are located in Canada, Italy, Malta and Austria. Our subsidiaries include: Multigioco Srl (acquired on August 15, 2014), as well as Ulisse GmbH and Odissea Betriebsinformatik Beratung GmbH (both acquired on July 1, 2016), Virtual Generation Limited (acquired on January 30, 2019), Newgioco Group, Inc. (Canada) formed on January 17, 2017, Elys Technology Group Limited, a company organized under the laws of Republic of Malta on April 4, 2019, Newgioco Colombia SAS, a company organized under the laws of Colombia formed on November 26, 2019, and on May 28, 2020 we formed Elys Gameboard Technologies, LLC in State of Delaware. Our telephone number is +39-391-306-4134. Our corporate website address is www.newgiocogroup.com. The information contained on our website is not incorporated by reference into this registration statement, and you should not consider any information contained on, or that can be accessed through, our website as part of this registration statement or in deciding whether to purchase or sell our securities.

 

We have proprietary rights to a number of trademarks, service marks and trade names used in this registration statement which are important to our business including “New Gioco”, “Aleabet”, “OriginalBet”, “LovingBet” and “Elys.” Solely for convenience, the trademarks, service marks and trade names in this registration statement are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this registration statement are the property of their respective owners.

 

Description of Property

 

The Company has two mailing addresses: 130 Adelaide St. West, Suite 701, Toronto, Ontario, M5H 2K4, Canada (its main office), and 671 Westburne Dr., Concord, Ontario, L4K 4Z1, Canada and also handles corporate matters at Suite 280, 1900 Glades Rd, Boca Raton, Florida 33431, USA. These offices are provided to the Company on a rent-free basis by unaffiliated third parties.

 

Our subsidiary Multigioco rents office space located at Via J.F. Kennedy, 6 Grottaferrata, Roma, for approximately $2,200 per month. The office is used primarily for administrative functions. There are no gaming operations carried out at this office.

 

Our subsidiaries Ulisse and Odissea rent office space at Salurnerstrasse 12 – 6020, Innsbruck, Austria and pay approximately $1,300 and approximately $1,480 per month, respectively. The offices are used primarily for administrative functions. There are no gaming operations carried out at this office.

 

Our subsidiary Virtual Generation shares an office space for 1 employee with 6 employees of Elys Technology Group for customer service provider at Level 2, Farrugia Building, 9, St., Michael Street, San Gwann, Malta. Ulisse pays the rent for this space on behalf of Virtual Generation and Elys Technology Group.

 

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MANAGEMENT AND BOARD OF DIRECTORS

 

Directors, Executive Officers and Corporate Governance

 

All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified or they have resigned. The officers of our company are appointed by our Board of Directors and hold office until their death, resignation or removal from office.

 

Our current directors and executive officers, their ages and their positions, as of the date of this registration statement, as follows:

 

Name Age Position
Michele Ciavarella 58 Chief Executive Officer and Chairman of the Board of Directors
Matteo Monteverdi 50 President
Alessandro Marcelli 46 Vice President of Operations
Luca Pasquini 54 Vice President of Technology and Director
Mark Korb 52 Chief Financial Officer
Franco Salvagni 44 Vice President Land-based Operations
Beniamino Gianfelici 74 Vice President Regulatory Affairs
Gabriele Peroni 56 Vice President Business Development
Paul Sallwasser 66 Director
Steven A. Shallcross 58 Director
Philippe Blanc 59 Director

 

Executive Officer and Director Biographies

 

Michele Ciavarella – Chief Executive Officer and Chairman of the Board

 

Michele Ciavarella has served as our Chief Executive Officer since June 2011 and has served as our Chairman of the Board of Directors since June 26, 2019. In addition, Mr. Ciavarella has served our company in various roles and executive capacities since 2004 including President, Chief Executive Officer and Director of Operations. From 2004 to 2011, Mr. Ciavarella was engaged in senior executive and director roles for a variety of private and publicly listed companies including Kerr Mines Ltd. (formerly known as Armistice Resources Corp.), Firestar Capital Management Corporation, Mitron Sports Enterprises, Process Grind Rubber and Dagmar Insurance Services. He also served as the Business Development Officer for Forte Fixtures and Millwork, Inc., a family owned business in the commercial retail fixture manufacturing industry from January 2007 until October 2013. From 1990 until 2004, Mr. Ciavarella served as a senior executive, financial planner, life insurance underwriter and financial advisor for Manulife Financial and Sun Life Financial. Mr. Ciavarella received his Bachelor of Science degree from Laurentian University in Sudbury, Ontario. Mr. Ciavarella has been focused on incubating and executing on business building strategies for the prior 25 years.

 

We believe that Mr. Ciavarella is qualified to serve as a member of our Board because of his practical experience in a broad range of competencies including executive, financial and operational application of lean business process management as well as extensive c-level and board level experience and his leadership skills and diversified industry experience combined with a track record of growing businesses, both organically and through acquisitions and joint ventures.

 

Matteo Monteverdi-President

 

Mr. Monteverdi has extensive industry leadership experience, having served as U.S. President of Sportradar from April 2018 to February 2020, and as IGT Senior Vice President of Global Digital Products from 2015 to 2018. Previously from 2012 to 2015 he was GTECH Senior Vice President of iGaming. He also served as President of Lottomatica Betting and Interactive from 2010 to 2012. Mr. Monteverdi holds an MBA from SDA Bocconi in Milan, Italy, a Law Degree from Università Degli Studi in Milan, Italy and a specialization in Marketing from Stanford Graduate Business School. Mr. Monteverdi has previously served as an independent strategic advisor to the Company since March 2020 and has developed a firm understanding of the unique technological capabilities of the Company’s Elys betting platform and has established a strong rapport with the Company’s current management team. 

 

Alessandro Marcelli – Vice President Operations

 

Alessandro Marcelli served as our President from 2014 to 2017 and since 2014 to present has also served as our Vice President Operations. Mr. Marcelli has more than 20 years of professional experience in the technology industry having a broad range of applicable cross-border experience including a key role as Project Manager of Software with NATO in 1996 working within the Turkish Army. He was employed with Vodafone Group plc from 1997 through 2010 as manager of the operational and maintenance center for central and south Italy operations.

 

Mr. Marcelli has extensive experience in communications, team building as well as management skills in fast changing environments. Since 2007, Mr. Marcelli has been the Managing Director of Multigioco and has been instrumental in its growth, expanding the Newgioco/Multigioco brand to approximately $450 million in gross annual gaming turnover during his tenure.

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Luca Pasquini – Vice President Technology and Director

 

Luca Pasquini has served as a member of our Board and our Vice President Technology since August 2016. Mr. Pasquini brings 30 years of information technology experience and has served as team leader, service manager and project manager in various software and technology development projects. Since 2013, Mr. Pasquini has served as co-founder and Chief Executive Officer of Odissea Betriebsinformatik Beratung GmbH where he was instrumental in the engineering and creation of a powerful, state-of-the art sports betting and gaming technology system. From 2011 to 2013, Mr. Pasquini served as IT Manager of GoldBet sportwetten GmbH where he provided executive oversight of technology adaptation and software development. Mr. Pasquini has also been instrumental in assembling a solid team of gaming specialist software engineers that have developed our innovative bookmaker platform and a full suite of gaming products. Mr. Pasquini is a graduate of technical engineering studies at Instituto Superiore Valdarno in San Giovanni Valdarno, Italy.

 

We believe that Mr. Pasquini is qualified to serve as a member of our Board because of his practical experience in a broad range of competencies including his information technology experience.

 

Mark Korb – Chief Financial Officer

 

Mark Korb has served as our Chief Financial Officer on a part-time basis since July 3, 2019. Mr. Korb has over 20-years’ experience with high-growth companies and experience taking startup operations to the next level. Since June 2019, First South Africa Management, a company for which Mr. Korb has served as the Chief Financial Officer since January 2010 has been providing consulting services to us, including the financial expertise required of public companies. First South Africa Management provides financial management and strategic management services to various companies.

 

Since August 2013, Mr. Korb has served as the Chief Financial Officer of Icagen, Inc., a drug discovery company with a focus on neurosciences and rare disease. From 2007 to 2009, Mr. Korb was the group chief financial officer and director of Foodcorp (Proprietary) Limited (“Foodcorp”), a multimillion dollar consumer goods company based in South Africa. In his role as Chief Financial Officer, Mr. Korb delivered operational and strategic leadership for the full group financial function during a period of change including mergers, acquisitions and organic growth. As a board director he cultivated relationships with shareholders, bond holders, financial institutions, rating agencies, and auditors. Mr. Korb was also responsible for leading the group IT strategy and implementation and supervised 16 direct reports including 10 divisional financial directors. From 2001 to 2007, Mr. Korb was the group Chief Financial Officer of First Lifestyle, initially a publicly traded company on the Johannesburg Stock Exchange in South Africa, which was then purchased by management which included Mr. Korb. He anchored the full group financial function with responsibility for mergers and acquisitions activity, successfully leading the process whereby the company was sold to Foodcorp. Upon completion of the merger, Mr. Korb was appointed as the group Chief Financial Officer of Foodcorp. Mr. Korb is also the Chief Financial Officer to several other companies including, Petroteq Energy Group Limited, a Canadian company engaged in the creation of technology for the environmentally-safe extraction of oil from oil sands and oil shale deposits.

 

Franco Salvagni – Vice President Land-based Operations

 

Franco Salvagni has served as our Vice President Land-based Operations since August 2016. Mr. Salvagni has 20 years of experience at the retail level in the Italian gaming business. Since 2013, Mr. Salvagni has served as Area Manager in charge of developing the land-based distribution of the betting shops of Ulisse GmbH in Italy.

 

Beniamino Gianfelici – Vice President Regulatory Affairs

 

Beniamino Gianfelici is the founder of Newgioco and has served as our Vice President of Regulatory Affairs since August 2015. He served as a member of our Board from August 2015 until May 2017. Mr. Gianfelici brings over 35 years of experience in gaming operations in Italy along with a wealth of business relationships in a broad range of industries and several key business centers throughout Italy. Prior to establishing Newgioco in 1996 and entering the gaming business, Mr. Gianfelici formed and managed a successful construction enterprise which designed, engineered and constructed a number of prominent buildings in Rome, Italy.

 

Gabriele Peroni – Vice President Business Development

 

Gabriele Peroni has served as our Vice President Business Development since August 2016. Mr. Peroni brings 20 years of experience in the online and land-based gaming business. From February 2011 to September 2013, Mr. Peroni was the Senior Sales Manager for GoldBet sportwetten GmbH in charge of business development throughout Italy. In addition, in June 2013, Mr. Peroni co-founded Odissea Betriebsinformatik Beratung GmbH and since September 2013 he has been instrumental to securing a number of significant business-to-business contracts for Odissea.

 

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Paul Sallwasser – Director

 

Paul Sallwasser was appointed to serve on our Board on June 13, 2019. Mr. Sallwasser is a certified public accountant, joined the audit staff of Ernst & Young LLP in 1976 and remained with Ernst & Young LLP for 38 years. Mr. Sallwasser served a broad range of clients primarily in the healthcare and biotechnology industries of which a significant number were SEC registrants. He became a partner of Ernst & Young in 1988 and from 2011 until he retired from Ernst & Young LLP in 2014, Mr. Sallwasser served in the national office as a member of the Quality and Regulatory Matters Group working with regulators and the Public Company Accounting Oversight Board (PCAOB). Mr. Sallwasser currently serves as the chief executive officer of a private equity fund that is focused on investing in healthcare companies in the South Florida area. Mr. Sallwasser has also served as member of the Board of Directors of Youngevity International, Inc. (“Youngevity”) since June 5, 2017. Youngevity (Nasdaq Capital Market: YGYI) was founded in 1996 and develops and distributes health and nutrition related products through its global independent direct selling network, also known as multi-level marketing, and sells coffee products to commercial customers.

 

We believe that Mr. Sallwasser is qualified to serve as a member of our Board due to his vast audit and accounting experience, which includes his status as an “audit committee financial expert,” as defined by the rules of the SEC.

 

Steven A. Shallcross – Director

 

Steven A. Shallcross was appointed to serve on our Board on June 13, 2019. Mr. Shallcross has also served as a member of the Board of Directors of Synthetic Biologics, Inc. (NYSE MKT: SYN) since December 6, 2018 and currently serves as Synthetic Biologics’ Chief Executive Officer, a position he was appointed to on December 6, 2018, and Synthetic Biologics’ Chief Financial Officer. Mr. Shallcross was appointed as Synthetic Biologics’ Interim Chief Executive Officer on December 5, 2017 and has served as its Chief Financial Officer, Treasurer and Secretary since joining Synthetic Biologics in June 2015. Synthetic Biologics is a clinical-stage company focused on developing therapeutics designed to preserve the microbiome to protect and restore the health of patients.

 

From May 2013 through May 2015, Mr. Shallcross served as Executive Vice President and Chief Financial Officer of Nuo Therapeutics, Inc. (formerly Cytomedix, Inc.). In January 2016, Nuo Therapeutics, Inc. filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware and on April 25, 2016, the Bankruptcy Court entered an order granting approval of Nuo’s plan of reorganization. From July 2012 to May 2013, Mr. Shallcross held the offices of Executive Vice President, Chief Financial Officer and Treasurer of Empire Petroleum Partners, LLC, a motor fuel distribution company. From July 2011 to March 2012, Mr. Shallcross was Acting Chief Financial Officer of Senseonics, a privately-held medical device company located in Germantown, MD. From January 2009 to March 2011, he served as Executive Vice President and Chief Financial Officer of Innocoll AG (formerly privately held Innocoll Holdings, Inc.), a global, commercial-stage biopharmaceutical company specializing in the development and commercialization of collagen-based products. He also served for four years as the Chief Financial Officer and Treasurer of Vanda Pharmaceuticals, Inc., leading the company through its successful IPO and follow-on offering and previously served as the Senior Vice President and Chief Financial Officer of Middlebrook Pharmaceuticals, Inc. (formerly Advancis Pharmaceutical Corporation). In addition, Mr. Shallcross also served as the Chief Financial Officer of Bering Truck Corporation. He holds an MBA from the University of Chicago’s Booth School of Business, a Bachelor of Science degree in Accounting from the University of Illinois, Chicago, and is a Certified Public Accountant in the State of Illinois.

 

We believe that Mr. Shallcross is qualified to serve as a member of our Board due to his significant strategic, operational, business and financial experience, an established track record at leading the financial development and strategy for several publicly traded companies and his familiarity with financial matters facing public reporting companies. Mr. Shallcross has a broad understanding of the financial markets, financial statements as well as generally accepted accounting principles.

 

Philippe Blanc - Director

 

Philippe Blanc was appointed to serve on our Board of Directors on October 1, 2020. Mr. Blanc has over 34 years of executive business experience in a variety of service, industries including transport, gaming, fintech and consultancy (IT/ERP for Healthcare sector) sectors. From May 2010 to December 2018, Mr. Blanc served as the Chief Financial Officer of Italy Region, a division of International Game Technology PLC (NYSE:IGT). In this context he assumed relevant corporate appointments, from May 2010 to December 2018, he also served as a member of the Board of Directors of Lottomatica Holding S.r.l. From November 2015 to November 2018, Mr. Blanc served as a member of the Board of Directors of LIS SPA, an IT and services company, and from July 2016 to Nov 2018 served as its Chairman. From March 2014 to April 2017, Mr. Blanc served as the Chief Executive Officer of Cartalis Spa, an e-money company. Previously, from May 2008 to April 2010, he served as Senior Vice Chairman -Long Distance Passengers of Egyptian National Railway (ENR) on behalf of FS Italian railways. Mr. Blanc currently serves as an independent strategic advisor.

 

We believe that Mr. Blanc is qualified to serve as a member of our Board due to his significant strategic, operational, business and financial experience, an established track record at leading financial development and strategy as a senior executive at his previous positions and his familiarity with financial matters. Mr. Blanc has a broad understanding of the gaming industry, financial markets, financial statements.

 

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Involvement in Certain Legal Proceedings

 

Except as disclosed herein, no bankruptcy petition has been filed by or against any business of which any director or executive officer was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

 

No current director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offences).

 

No current director has been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, with the exception of the specific temporary restrictions that were limited to Canada and were mutually agreed to between Mr. Ciavarella and the Ontario Securities Commission (“OSC”). As previously disclosed with the SEC, in May 2011, Mr. Ciavarella entered into a Settlement Agreement with the OSC relating to unauthorized trading that occurred in his accounts in November of 2004, pursuant to which the OSC acknowledged that Mr. Ciavarella was not involved in, and Mr. Ciavarella acknowledged a failure to monitor the trading in his accounts, and Mr. Ciavarella agreed to not to trade in securities or act as an officer or director of a Canadian public corporation for a period of five years that expired on May 17, 2016. In addition, pursuant to the Settlement Agreement, Mr. Ciavarella made a payment of CDN$100,000 to the OSC for the purpose of educating investors or promoting or otherwise enhancing knowledge and information of persons regarding the operation of the securities and financial markets.

 

No director has been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, that has not been reversed, suspended, or vacated.

 

Code of Business Conduct and Ethics

 

We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at www.newgiocogroup.com. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website and in a current report on Form 8-K to be filed with the SEC.

 

Our Board of Directors

 

Our Board currently consists of five members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board of Directors has determined that our three non-employee directors, Messrs. Cooper, Sallwasser and Shallcross, each meet the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the SEC, including the rules relating to the independence of the members of our audit committee and compensation committee. Our Board considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the Nasdaq Stock Market and the rules and regulations of the SEC. On October 1, 2020, Richard Cooper notified us that he will not stand for re-election to the Board of Directors upon the expiration of his term at the Company’s 2020 Annual Meeting of Stockholders. Mr. Cooper will continue to serve as a member of the Company’s Board of Directors until the 2020 Annual Meeting of Stockholders. Mr. Cooper did not advise the Company of any disagreement with the Company on any matter relating to its operations, policies or practices related to his decision not to stand for re-election.

 

Board Committees

 

Our Board of Directors designated the following three committees of the Board of Directors: the audit committee, the compensation committee and the nominating and corporate governance committee. Charters for each of the three committees is available on our website at www.newgiocogroup.com/index.php/corporate-governance.

 

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Board Members and Committee Composition  

Audit

Committee

 

Compensation

Committee

 

Nominating

and

Governance

Committee

Philippe Blanc   Member   -   -
Paul Sallwasser   Chairman   Member   Chairman
Steven A. Shallcross   Member   Chairman   Member

 

Audit Committee

 

Our audit committee is comprised of Messrs. Blanc, Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the audit committee. The primary purpose of the audit committee is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements. The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting firm. Specifically, the audit committee’s duties are to recommend to our Board of Directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles. The Board has determined that each member of the audit committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market. The Board of Directors believes that each of Messrs. Blanc, Sallwasser and Shallcross qualify as an “audit committee financial expert” (as defined in Item 407 of Regulation S-K).

 

Compensation Committee

 

Our compensation committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Shallcross is Chairman of the compensation committee. The compensation committee is responsible for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans. The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee, to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets in which our securities trade, as applicable. The Board has determined that each member of the compensation committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market.

 

Nominating and Governance Committee

 

Our nominating and governance committee is comprised of Messrs. Sallwasser and Shallcross. Mr. Sallwasser is Chairman of the nominating and governance committee. The nominating and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of the Board of Directors in advance of annual meetings and whenever individual directors indicate that their status may change; annually considering new members for nomination to the Board of Directors; causing the Board of Directors to annually review the independence of directors; and developing and monitoring our general approach to corporate governance issues as they may arise. The Board has determined that each member of the nominating and governance committee is “independent,” as that term is defined by the rules of the Nasdaq Stock Market.

 

Family Relationships

 

Alessandro Marcelli is the son-in-law of Beniamino Gianfelici and spouse of Doriana Gianfelici, the founders of Multigioco.

 

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EXECUTIVE COMPENSATION

 

Set forth below is information for the fiscal years ended December 31, 2019 and 2018 relating to the compensation of each person who served as our principal executive officer and our executive officers whose compensation exceeded $100,000 (the “Named Executive Officers”).

 

Name and principal position   Year Salary ($) Bonus ($)   Award (s) ($)   Stock Compensation ($)   All Other Compensation ($)   Total Compensation ($)
Michele Ciavarella   2019   278,750   139,375     83,527   -   501,652
Chief Executive Officer and Chairman of the Board   2018   260,053         500,000(1)   760,053
 
Alessandro Marcelli   2019   223,984   111,992     5,833     341,809
Vice President of Operations   2018   116,400           116,400
 
Luca Pasquini   2019   223,984   111,992     5,833     341,809
Vice President of Technology and Director   2018   116,400           116,400
                             
Beniamino Gianfelici   2019   223,984   111,992     5,833     341,809
Vice President Regulatory Affairs                            
                             
Gabriele Peroni   2019   223,984       5,833     341,809
Vice President Business Development                            
                             
Franco Salvagni   2019   223,984   111,992     5,833     341,809
Vice President Land-based Operations                            

 

  (1) Represented accrued and unpaid salary from previous periods. In September 2019, the Company issued 125,000 shares of common stock to Gold Street Capital as partial payment of Mr. Ciavarella’s accrued and unpaid salary.

 

 

 

 

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Outstanding Equity Awards at Fiscal Year-End December 31, 2019

 

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2019:

 

    OPTION AWARDS   STOCK AWARDS
    Number of securities underlying unexercised options Exercisable   Number of securities underlying unexercised options Unexercisable  

Equity incentive plan awards:

Number of securities underlying unearned options

  Option exercise price   Option expiry   Number of shares or units of stock that have not vested   Market value of shares or units of stock that have not vested  

Equity incentive plan awards:

Number of unearned shares, units or other rights that have not vested

 

Equity incentive plan awards:

Market or payout value of unearned shares, units or other rights that have not vested

Name   (#)   (#)   (#)   ($)   Date   (#)   ($)   (#)   ($)
                                     
Michele Ciavarella(1)     22,969       16,406             2.96     7/5/2029                        
      6,771       18,229             2.80     8/29/2029                        
Alessandro Marcelli (2)     6,771       18,229             2.80     8/29/2029                        
                                                                     
Luca Pasquini(2)     6,771       18,229             2.80     8/29/2029                        
                                                                     
Beniamino Gianfelici(2)     6,771       18,229             2.80     8/29/2029                        
                                                                     
Gabriele Peroni(2)     6,771       18,229             2.80     8/29/2029                        
                                                                     
Franco Salvagni(2)     6,771       18,229             2.80     8/29/2029                        
                                                                     
Mark Korb(3)           25,000             2.72     7/1/2026                        

 

(1) Mr. Ciavarella was awarded option to purchase 39,375 shares of common stock on July 5, 2019 of which 22,969 are vested. A further option to purchase 25,000 shares of common stock was awarded on August 29,2019 of which 6,771 are vested and the remaining option vest equally over the next eight months.
(2) Mr. Marcelli, Mr. Pasquini, Mr. Gianfelici and Mr. Salvagni were each awarded options to purchase 25,000 shares of common stock on August 29, 2019 of which each have 6,771 vested and the remaining options vest equally over the next eight months.
(3) Mr. Korb was awarded options to purchase 25,000 shares of common stock on July 1, 2019. These options vested on July 1, 2020.

 

There were no outstanding equity awards held by our named executive officers at December 31, 2018.

 

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Employment Agreements

 

During the year ended December 31, 2019 and subsequent thereto, we had no formal employment and other compensation-related agreements with our Named Executive Officers other than as listed below.

 

Michele Ciavarella, Chief Executive Officer

 

On December 31, 2018, effective as of September 13, 2018 (the “Effective Date”), we entered into an employment agreement (the “Ciavarella Agreement”) with Michele Ciavarella, pursuant to which Mr. Ciavarella agreed to continue to serve as our Chief Executive Officer. Michele Ciavarella has served as our Chief Executive Officer since June 2011. The Ciavarella Agreement terminates on September 30, 2023, unless earlier terminated pursuant to the terms of the Ciavarella Agreement (the “Initial Term”). Upon the expiration of the Initial Term, the term of Mr. Ciavarella’s employment shall automatically be extended for successive one-year periods (the “Successive Term”) unless either party provides the other party with written notice not less than 60 days prior to the end of any Successive Term. Pursuant to the terms of the Ciavarella Agreement, as amended on July 5, 2019, Mr. Ciavarella agreed to reduce his base salary from $395,000 per year, to an annual base salary of $240,000, which base salary may be increased by our Board of Directors, in its sole discretion. In addition, Mr. Ciavarella is eligible to receive a bonus equal up to 75% of his base salary (the “Targeted Bonus”) and receive awards pursuant to our equity incentive plan, as determined by the Board of Directors. Mr. Ciavarella is also eligible to participate in pension, medical, retirement and other benefit plans which are available to our senior officers and directors. In connection with the salary reduction effected on July 5, 2019, Mr. Ciavarella was granted incentive stock options under our 2018 Equity Incentive Plan to purchase 39,375 shares of our common stock, having an exercise price of $2.96 per share, vesting 9,844 shares upon grant and the balance vesting 3,281 shares monthly for nine months and expiring 10 years after grant.

 

We may terminate Mr. Ciavarella’s employment at any time without Cause or for Cause (as defined in the Ciavarella Agreement) and Mr. Ciavarella may terminate his employment at any time. In the event Mr. Ciavarella’s employment is terminated by us without Cause (as defined in the Ciavarella Agreement) or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella shall be entitled to receive the following: (i) an amount equal to one times the sum of (A) Mr. Ciavarella’s then base salary and (B) an amount equal to the highest annual incentive compensation paid to Mr. Ciavarella during the two most recently completed fiscal years (but not more than the bonus for the-then current fiscal year) payable over a period of twelve months; (ii) in lieu of any incentive compensation for the year in which such termination occurs, payment of an amount equal to (A) the Targeted Bonus (if any) which would have been payable to Mr. Ciavarella had Mr. Ciavarella remained in employment with us during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Ciavarella was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs; (iii) reimbursement of expenses properly incurred by Mr. Ciavarella; (iv) if Mr. Ciavarella elects to continue medical coverage under our group health plan, an amount equal to the monthly premiums for such coverage less the amount of employee contributions payable until the earlier of twelve months and the date Mr. Ciavarella becomes eligible to receive such coverage under a subsequent employer’s insurance plan; and (v) except as otherwise provided at the time of grant, all outstanding stock options and restricted stock units issued to Mr. Ciavarella vest in full; provided, however, such vested stock options and restricted stock units shall not be exercisable after the earlier of (A) 30 days after the termination of Mr. Ciavarella’s employment and (B) the expiration date of such awards; provided further that, in the event Mr. Ciavarella’s employment is terminated prior to the compensation committee (the “Committee”) determining the satisfaction of performance criteria applicable with respect to the issuance of any such award, such award will not vest unless and until such determination has been made by the Committee. In the event Mr. Ciavarella’s employment is terminated by us without Cause (as defined in the Ciavarella Agreement) or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement) and such termination occurs upon, or within two (2) years following, a Change in Control (as defined in the Ciavarella Agreement), Mr. Ciavarella shall be entitled to receive the payments described in the foregoing sentence multiplied by three (3) and such amount shall be payable over a period of twenty-four (24) months after termination.

 

Upon termination by us of Mr. Ciavarella’s employment for Cause (as defined in the Ciavarella Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination date and (ii) reimbursement of expenses properly incurred by Mr. Ciavarella payable on the termination date. In the event Mr. Ciavarella’s employment is terminated for death or Disability (as defined in the Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination date, (ii) reimbursement of expenses properly incurred by Mr. Ciavarella and (iii) one times Mr. Ciavarella’s then base salary payable within 45 days of the termination date. In the event Mr. Ciavarella terminates his employment for any reason other than Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella is entitled to receive the following: (i) accrued but unpaid base salary through the termination date and (ii) reimbursement of expenses properly incurred by Mr. Ciavarella payable on the termination date. To be eligible to receive any of the severance payments upon termination of Mr. Ciavarella’s employment by us without Cause (as defined in the Agreement) or by Mr. Ciavarella for Good Reason (as defined in the Ciavarella Agreement), Mr. Ciavarella must execute a release of claims in favor of us as set forth in the Ciavarella Agreement.

 

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Matteo Monteverdi, President

 

Effective September 21, 2020, we entered into a written employment agreement with Mr. Monteverdi to serve as our President (the “Employment Agreement”) for an initial four-year term, which provides for the following compensation terms:

 

  · an annual base salary of $395,000 subject to increase, but not decrease, at the discretion of the Board;

 

  · the opportunity to earn a Management by Objectives bonus (“MBO Bonus”) of 0 to 100% of annual base salary with a target bonus of 50% upon the achievement of 100% of a target objective that is mutually agreed on by both the Company and Mr. Monteverdi; and

 

  · Equity Incentive Options to purchase 648,000 shares of common stock that vest pro rata on each of September 1, 2021, September 1, 2022, September 1, 2023 and September 1, 2024.

 

Mr. Monteverdi is also eligible to participate in our 2018 Equity Incentive Plan and to participate in our employee benefit plans as in effect from time to time on the same basis as generally made available to our other senior executives or in the alternative may substitute the payment amount that would be paid for health benefits towards contributions to a 401k plan.

 

In addition, the Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of the Employment Agreement, his employment is terminated by us other than for “cause,” death or disability or by Mr. Monteverdi for “good reason” (each as defined in his agreement), he would be entitled to receive from us in equal installments over a period of six (6) months (1) an amount equal to one (1) times the sum of: (A) his base salary and (B) an amount equal to the highest annual MBO Bonus paid to him (if any) in respect of the two (2) most recent fiscal years of the Company but not more than his MBO Bonus for the-then current fiscal year (provided if such termination occurs within the first twelve (12) months of the Agreement, the amount shall his MBO Bonus for the-then current fiscal year); (2) in lieu of any MBO Bonus for the year in which such termination occurs, payment of an amount equal to (A) the MBO Bonus (if any) which would have been payable to Mr. Monteverdi had he remained in employment with us during the entire year in which such termination occurred, multiplied by (B) a fraction the numerator of which is the number of days Mr. Monteverdi was employed in the year in which such termination occurs and the denominator of which is the total number of days in the year in which such termination occurs. In addition, he will be entitled to continue to receive under the Employment Agreement an amount equal to the reimbursement of up to $2,000 a month in third-party medical and welfare benefits for Mr. Monteverdi and his dependents, until the earlier of: (A) a period of twelve (12) months after the termination date, or (B) the date Mr. Monteverdi becomes eligible to receive such coverage under a subsequent employer’s insurance plan.

 

Mr. Monteverdi’s receipt of the termination payments and benefits is contingent upon execution of a general release of any and all claims arising out of or related to his employment with the Company and the termination of his employment, and compliance with the restrictive covenants described in the following paragraph.

 

Pursuant to the Employment Agreement, Mr. Monteverdi has also agreed to customary restrictions with respect to the disclosure and use of our confidential information and has agreed that work product or inventions developed or conceived by him while employed with us relating to our business or our property. In addition, during the term of his employment and for the 12 month period following his termination of employment for any reason, Mr. Monteverdi has agreed not to (1) perform services on behalf of a competing business which was the same or similar to the types services he was authorized, conducted, offered or provided to us, (2) solicit or induce any of our employees or independent contractors to terminate their employment with us, (3) solicit any actual or prospective customers with whom he had material contact on behalf of a competing business or (4) solicit any actual or prospective vendors with whom he had material contact to support a competing business.

 

Mark Korb, Chief Financial Officer

 

On July 1, 2019, our Board of Directors appointed Mark Korb as our Chief Financial Officer (as well as principal financial officer and principal accounting officer) effective as of July 3, 2019. There is no family relationship between Mr. Korb and any of our other officers and directors. In connection with his appointment, we entered into an Independent Contractor Agreement, dated July 3, 2019 (the “Independent Contractor Agreement”) with Mr. Korb pursuant to which we agreed to pay Mr. Korb $10,000 a month for his services of approximately forty hours per month as our Chief Financial Officer. We also agreed in the Independent Contractor Agreement to issue to Mr. Korb incentive stock options under our 2018 Equity Incentive Plan to purchase 25,000 shares of our common stock, having an exercise price of $2.72 per share, vesting on the one-year anniversary of the grant and expiring ten years thereafter. The term of the Independent Contractor Agreement is one year, provided that it may be terminated by either party at any time for any reason upon 30 days prior written notice. Except as set forth herein, there are no understandings or arrangements between Mr. Korb and any other person pursuant to which Mr. Korb was appointed as our Chief Financial Officer.

 

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Former Chief Financial Officer

 

On November 30, 2018, we entered into a three year employment agreement (the “MacLean Agreement”) with Elizabeth J. MacLean, pursuant to which Ms. MacLean would serve as our Chief Financial Officer and Chief Compliance Officer effective as of December 1, 2018 (the “Effective Date”). On May 31, 2019 we notified Ms. MacLean that we were terminating the MacLean Agreement effective immediately. Pursuant to the terms of the MacLean Agreement, Ms. MacLean received a base salary of $235,000 and was eligible to receive a bonus (the “Bonus”) and receive awards pursuant to our equity incentive plan as determined by the Board of Directors. Upon termination by us of Ms. MacLean’s employment during the initial six months following the commencement date (December 1, 2018) with or without Cause (as defined in the MacLean Agreement), Ms. MacLean was entitled to receive the following: (i) accrued but unpaid base salary through the May 31, 2019 and (ii) reimbursement of expenses properly incurred by Ms. MacLean payable on the May 31, 2019 termination date.

 

Board of Directors Compensation

 

The following table sets forth information for the fiscal year ended December 31, 2019 regarding the compensation of our directors who at December 31, 2019 were not also our Named Executive Officers.

 

Name  

Fees Earned or

Paid in Cash

 

Option

Awards

 

Other

Compensation

  Total
                                 
Paul Sallwasser(1)   $       30,523           $ 30,523  
Steven Shallcross(2)   $ 15,000       15,261           $ 30,261  
Clive Kabatznik(3)   $ 30,000                 $ 30,000  
Richard Cooper(4)   $ 15,000                 $ 15,000  
Harold Wolkin(5)(7)   $ 46,666                 $ 46,666  
Russ McMeekin(6)(7)   $ 31,797                 $ 31,797  
William Rutsey(6)(7)   $ 39,016                 $ 39,016  

___________________

  (1) Mr. Sallwasser was appointed to the Board of Directors on June 13, 2019. Pursuant to his agreement Mr. Sallwasser receives compensation of $60,000 per annum. Mr. Sallwasser opted to take his compensation in stock options, on July 5, 2019, Mr. Sallwasser was awarded options to purchase 20,625 shares of common stock vesting over a twelve month period.
  (2) Mr. Shallcross was appointed to the Board of Directors on June 13, 2019. Pursuant to his agreement Mr. Shallcross receives compensation of $60,000 per annum. Mr. Shallcross opted to take fifty percent of his compensation in stock options, on July 5, 2019, Mr. Shallcross was awarded options to purchase 10,313 shares of common stock vesting over a twelve month period.
  (3) Mr. Kabatznik was appointed to the board on June 13, 2019. Pursuant to his agreement Mr. Kabatznik received compensation of $60,000 per annum. Mr. Kabatznik resigned as a director effective May 31, 2020.
  (4) Mr. Cooper was appointed to the Board of Directors on August 29, 2019. Pursuant to his agreement Mr. Cooper receives compensation of $60,000 per annum. Mr. Cooper resigned as a director effective October 1, 2020.
  (5) Mr. Wolkin was appointed as our independent, non-executive Chairman of the Board of Directors on August 28, 2018. Pursuant to his agreement, Mr. Wolkin received an annual retainer of $112,000 for serving as our Chairman of the Board of Directors. Mr. Wolkin resigned from the Board on May 31, 2019.
  (6) Mr. McMeekin and Mr. Rutsey each earned directors fees of $76,000 per annum.
  (7) Messrs. Wolkin, McMeekin and Rutsey resigned from our Board of Directors, effective June 1, 2019, and are not entitled to any future equity awards.

 

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Director Option Awards

 

    Option   Stock
    awards   awards
Name   (Amount)   (Amount)
         
Paul Sallwasser(a)     20,625        
Steven Shallcross(b)     10,313        

 

(a) Mr. Sallwasser was awarded options to purchase 20,625 shares of common stock vesting over a twelve month period, of which 8,594 are vested as of December 31, 2019.
  Mr. Shallcross was awarded options to purchase 10,313 shares of common stock vesting over a twelve month period, of which 4,297 are vested as of December 31, 2019.

 

Each director is reimbursed for travel and other out-of-pocket expenses incurred in attending Board of Director and committee meetings.

 

Fees and Equity Awards for Non-Employee Directors

 

On July 5, 2019, we adopted a new formal plan for compensating our director for service in their capacity as directors. Directors are entitled to annual compensation at $60,000 a year, payable at the election of each director in cash (accruing monthly and payable in quarterly installments) or in incentive stock options under our 2018 Equity Incentive Plan (for 2019, options to purchase 20,625 shares of common stock) or in a combination of both cash and incentive stock options. The incentive stock options issued in lieu of cash compensation to the non-executive directors have an exercise price equal to the fair market value of the common stock on the date of grant and vest monthly for twelve months and expire ten years thereafter. In this regard, Mr. Sallwasser elected to take all of the non-executive director compensation in the form of incentive stock options to purchase 20,625 shares of our common stock, Mr. Kabatznik and Mr. Cooper elected to take all the non-executive director compensation in $60,000 cash (accruing monthly and payable in quarterly installments), and Mr. Shallcross elected to take half of the non-executive director compensation in the form of incentive stock options to purchase 10,313 shares of our common stock and the balance in $30,000 cash (accruing monthly and payable in quarterly installments). On October 1, 2020, we granted Mr. Sallwasser, Mr. Shallcross and Mr. Blanc options under our 2018 Equity Incentive Plan to purchase up to 55,000, 35,000 and 55,000 shares, respectively, of our common stock in accordance with our director compensation plan. Mr. Sallwasser and Mr. Blanc elected to take all of their compensation in equity.

 

Directors are also entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. Our Board of Directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

 

Equity Compensation Plan Information

 

In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. No awards were granted under the 2018 Equity Incentive Plan as of December 31, 2018. During July 2019, we issued an aggregate of 95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938 shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici, our Vice President Regulatory Affairs. On November 11, 2019 we issued options to purchase 70,625 shares of common stock to various employees at an exercise price of $2.80 per share. As of December 31, 2019, there was an aggregate of 315,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 834,062 reserved for future grants.

 

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Equity Compensation Plan Information

 

Plan Category   Number of securities to be issued upon exercise of outstanding options   Weighted-average exercise price of outstanding options   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
      (a)       (b)       (c)  
Equity compensation plans approved by security holders                        
2018 Equity Incentive Plan     315,938       2.84       834,062  
                         
Equity compensation plans not approved by security holders                  
Total     315,938       2.84       834,062  

 

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SECURITY OWNERSHIP OF MANAGEMENT AND OTHER BENEFICIAL OWNERS

 

The tables below set forth, as of October 21, 2020, the beneficial ownership of our common stock (i) by any person or group known by us to beneficially own more than 5% of the outstanding common stock, (ii) by each director and named executive officer and (iii) by all directors and executive officers as a group. Unless otherwise indicated, we believe that the beneficial owners of the shares have sole voting and investment power over such shares. The address of all individuals for whom an address is not otherwise indicated is c/o Newgioco Group, Inc., 130 Adelaide Street, West, Suite 701, Toronto, Ontario M5H 2K4, Canada.

 

Name of Beneficial Owner Number of Shares Beneficially Owned** Percentage of Common Stock Beneficially Owned(1)
Directors and Executive Officers            
Michele Ciavarella (Chief Executive Officer and Chairman of the Board of Directors)(2)   4,578,490    

 

27.4

%
Matteo Monteverdi(3)   15,000     *  
Gabriele Peroni (Vice President Business Development)(4)   812,573     4.9 %
Luca Pasquini (Vice President of Technology and Director)(5)   813,795     4.9 %
Mark Korb (Chief Financial Officer)(6)   28,222     *  
Alessandro Marcelli (Vice President of Operations)(7)   385,924     2.3 %
Beniamino Gianfelici (Vice President Regulatory Affairs)(8)   384,757     2.3 %
Frank Salvagni (Vice President Land-based Operations)(9)   125,231     * %
Paul Sallwasser (Director)(10)   59,792     *  
Steven A. Shallcross (Director)(11)   16,146     *  
Philippe Blanc (Director)(12)   9,167     *  
All current executive officers and directors as a group (11 persons)   6,984,643     41.4 %
Other 5% or Greater Stockholders            
Gold Street Capital Corp.(13)   4,394,525     26.3 %

 

__________________

* less than 1%

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

 

  (1) Based on 16,700,139 shares of common stock outstanding on October 21, 2020.

 

  (2) Includes 4,394,525 common shares held by Gold Street Capital Corp., a corporation owned by Gilda Pia Ciavarella, the spouse of Michele Ciavarella, and options to purchase 204,375 shares of common stock of which 46,146 are vested and a further 8,819 vests within the next 60 days. Gilda Pia Ciavarella is the President of Gold Street Capital Corp. and in such capacity is deemed to have voting and dispositive power over the securities held by such entity. The principal address for Gold Street Capital Corp. is 122 Mary Street, Zephyr House, Georgetown, Grand Cayman.

 

  (3) Includes options to purchase 648,000 shares of common stock of which 0 are have vested and zero vest in the next 60 days.

 

  (4) Includes 802,760 shares of common stock and an option to purchase 61,000 shares of common stock of which 6,771 have vested and 3,042 vest in the next 60 days.

 

  (5) Includes 802,760 shares of common stock and an option to purchase 83,000 shares of common stock of which 25,000 are vested and 4,264 vest in the next 60 days.

 

  (6) Includes an option to purchase 83,000 shares of common stock all of which 25,000 are vested and 3,222 vest in the next 60 days.

 

  (7) Includes 375,000 shares of common stock and an option to purchase 81,000 shares of common stock of which 6,771 are vested and 4,153 vest in the next 60 days.

 

  (8) Includes 375,000 shares of common stock and an option to purchase 60,000 shares of common stock of which 6,771 are vested and 2,986 vest in the next 60 days.

 

  (9) Includes 115,418 shares of common stock and an option to purchase 61,000 shares of common stock of which 6,771 are vested and 3,042 vest in the next 60 days.

 

  (10) Includes 30,000 shares of common stock and an option to purchase 75,625 shares of common stock, of which 20,625 are vested and a further 9,167 vest in the next 60 days.

 

  (11) Includes an option to purchase 45,313 shares of common stock of which 10,313 are vested and a further 5,833 vest in the next 60 days.

 

  (12) Includes options to purchase 55,000 shares of common stock of which 0 are vested and a further 9,167 vest in the next 60 days.

 

  (13) Gilda Pia Ciavarella is the President of Gold Street Capital Corp. and in such capacity is deemed to have voting and dispositive power over the securities held by such entity. The principal address for Gold Street Capital Corp. is 122 Mary Street, Zephyr House, Georgetown, Grand Cayman.

 

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MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock has been traded on the Nasdaq Capital Market under the symbol “NWGI” since December 23, 2019. On October 20, 2020, the last reported sale price of our common stock on the Nasdaq Capital Market was $1.66 per share.

 

Stockholders

 

As of October 21, 2020, there were an estimated 106 holders of record of our common stock. A certain amount of the shares of common stock are held in street name and may, therefore, be held by additional beneficial owners.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

The following includes a summary of transactions during our fiscal years ended December 31, 2019 and 2018 and our current year to which we have been a party, in which the amount involved in the transaction exceeds the lesser of  $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this registration statement.

 

During the year ended December 31, 2019, our Chief Executive Officer used personal credit cards for reimbursable company expenses. For the year ended December 31, 2019, the reimbursable expenses amounted to $54,544 of which we repaid $40,294.

 

During the year ended December 31, 2018, Gold Street Capital Corp. (“Gold Street”), a major stockholder of ours, which is a company owned by the spouse of our Chief Executive Officer, advanced to us $207,000 net of repayment of approximately $292,000.

 

On September 4, 2019, we issued to Gold Street 15,196 shares of our common stock as payment in settlement of $48,508 of the reimbursable expenses owing to Gold Street. The balance owing to Gold Street was $2,551 and $39,237 as of December 31, 2019 and 2018, respectively.

 

In January 2018, we advanced €100,000 (approximately $116,000) to Luca Pasquini, our Vice President of Technology and a Director, to cover fees related to an application for a gaming license in Malta under the name Ulisse Services, Ltd. The amount advanced by the Company to Mr. Pasquini was repaid in full on May 31, 2018.

 

On May 31, 2018, we paid $58,792 to Doriana Gianfelici (“Ms. Gianfelici”), the spouse of Alessandro Marcelli, our Vice President of Operations, for reimbursement of out-of-pocket expenses in full. At December 31, 2019 there was no balances due to Ms. Gianfelici.

 

The balances outstanding are as follows:

 

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

 

In February 2018 we provided a loan of €39,048 (approximately $45,000) to Engage IT Services Srl to finance hardware purchased by third-party betting shops. In June 2018, we increased the loan by €45,675 (approximately $53,000). The loan bears interest at 4.47% and is due in February 2019. Total repayments in 2018 were approximately €43,000 and approximately €43,000, including interest, remains outstanding at December 31, 2018. Luca Pasquini, one of our officers and directors, holds a 34% stake in Engage IT Services Srl.

 

During the years ended December 31, 2019 and 2018, we paid management fees of approximately €120,000 and €480,000 (approximately $134,388 and $549,000, respectively) to Ulisse Services, Ltd. to cover call center services and office set-up expenses. We paid no management fees and $72,000 in management fees to Gold Street Capital Corp. during the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2018, we paid management fees of approximately $6,000 to Luca Pasquini.

 

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On January 30, 2019, we acquired 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% each of the issued and outstanding shares of Naos). On the closing date of the transaction we paid to each of Messrs. Pasquini and Peroni €21,600 (approximately $24,660) in cash, issued to each of them 6,490 shares of our common stock and issued to each of them a note in the principal amount of €478,400 (approximately $546,200). As of December 31, 2019, we made total cash payments to the former shareholders of VG under the VG Share Purchase Agreement equal to €728,000 (approximately $812,900), and we issued 341,235 shares amounting to €830,000 (approximately $905,300) of common stock pursuant to the promissory note. The remaining amounts under the promissory note due to the vendors in cash was €1,664,000 (approximately $1,868,200) and €581,000 (approximately $648,700) 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. As of December 31, 2019, Mr. Pasquini has been paid cash of €125,600 (approximately $141,014) and issued 68,247 shares of common stock valued at €183,800 (approximately $205,463). As of December 31, 2019, Mr. Peroni has been paid cash of €167, 200 (approximately $187,720) and issued 68,247 shares of common stock valued at €183,800 (approximately $205,463).

 

In addition, pursuant to the terms of the VG purchase agreement, we agreed to pay the sellers as an earnout payment in shares of our common stock within one month from the end of the 2019 fiscal year such number of shares as shall equal to an aggregate amount of €500,000 (approximately $561,000), 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. Based on 18,449,380 tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock equal at a price of $4.23 per share, which shares were issued effective January 2020.

 

During the year ended December 31, 2018, we and Ulisse mutually agreed to exercise the Ulisse Put Option in lieu of completion of the ADM license tender auction. On May 31, 2018, we repurchased and retired the shares issued in June 2016 with a purchase price adjustment to €10,000,000 (approximately $11,700,000). The purchase price adjustment was paid to the former shareholders of Ulisse half in cash of €5,000,000 (approximately $5,850,000) and we issued 591,950 shares to the sellers to settle the balance of the purchase price adjustment in shares of common stock at the closing price of $8.44 per share on May 31, 2018. The former shareholders of Ulisse included Luca Pasquini, our Vice President Technology and member of our Board of Directors; Gabriele Peroni, our Vice President Business Development and France Salvagni, our Vice President of Land-based Operations. “Ulisse Put Option” refers to the option granted to Ulisse shareholders to resell to us 50% of the shares of common stock 208,200 shares of common stock issued in consideration for the purchase price at a fixed price of $4.00 per share.

 

During the year ended December 31, 2018, we 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”). On June 22, 2018, we repurchased and retired the balance of 255,00 shares of common stock issued to the Multigioco sellers in consideration for the purchase price at a fixed price of $4.00 per share in exchange for €510,000 (approximately $595,000).

 

On January 1, 2015, we acquired land-based gaming assets from Newgioco Srl for a purchase price of approximately $787,000. Pursuant to the terms of the agreement with Newgioco Srl, we paid approximately $192,000 and $200,000 to Newgioco Srl during the years ended December 31, 2018 and 2017, respectively. Beniamino Gianfelici, our Vice President of Regulatory Affairs is the founder and 50% owner of Newgioco Srl. and is the father in law of Alessandro Marcelli, our Vice President Operations. In connection with the Multigioco Acquisition, on June 22, 2018, we paid the balance due to Newgioco Srl for the purchase of the land-based assets in full.

 

Mr. Harold Wolkin, through his company, Princeville Capital, purchased 200 Canadian units on May 31, 2018 in our private placement that was consummated in May 2018. Mr. Wolkin received a 10% debenture in the principal amount of CAD $200,000 (approximately $154,245 based upon the exchange rate on May 31, 2018, the entire principal amount of which together with accrued interest thereon remains outstanding, 4,000 shares of common stock and Canadian Warrants to purchase up to 20,813 shares of our common stock at an exercise price of $4.00 per share which expired on May 31, 2020. From July 23, 2018 until June 2, 2019, Mr. Wolkin served as Chairman of our Board of Directors and Chair of the Audit Committee. Mr. Wolkin resigned from our Board of Directors on June 2, 2019.

 

We issued promissory notes in the principal amounts of $186,233 and $131,845 during the years ended December 31, 2015 and 2016, respectively, to Braydon Capital Corp., a company owned by Claudio Ciavarella, the brother of Michele Ciavarella, our Chief Executive Officer. The promissory notes bear interest at a rate of 1% per month and were due in full on demand. As of December 31, 2018, an aggregate of approximately $432,000 in principal and accrued interest remained outstanding. On September 4, 2019, we issued to Braydon Capital Corp. 142,957 shares of our common stock as payment in full of the entire principal amount and accrued interest thereon of $457,461.

 

On September 4, 2019, we issued to Michele Ciavarella 125,000 shares of our common stock as payment of $500,000 of accrued salary owed to him.

 

Except as disclosed above or under Executive Compensation and Director Compensation, there have been no transactions or proposed transactions in which our company was or was to be a party where directors or executive officers, nominees for election as a director and members of the immediate family of such persons were involved.

 

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Promoters and Control Persons

 

Director Independence

 

Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, we have adopted the definition of “independent director” as set forth in Rule 5605 of the Nasdaq stock market. In summary, an “independent director” means a person other than our executive officers or employees or those of our subsidiaries or any other individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and includes any director who accepted any compensation from us in excess of $120,000 during any period of 12 consecutive months within the three past fiscal years. Also, ownership of Newgioco Group’s stock will not preclude a director from being independent.

 

In applying this definition, our board of directors has determined that each of Paul Sallwasser, Steven Shallcross and Philippe Blanc qualify as an “independent director” pursuant to Rule 5605 of the Nasdaq Stock Market.

 

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DESCRIPTION OF OUR SECURITIES

 

Overview

 

The following description of our common stock and preferred stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and Bylaws, each of which are filed as exhibits to the registration statement of which this prospectus is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable provisions of the Delaware General Corporation Law, for additional information.

 

Description of Common Stock

 

Authorized Shares of Common Stock. We currently have authorized 80,000,000 shares of common stock. As of December 31, 2019, we had 11,949,042 issued and outstanding shares of common stock. As of October 21, 2020, we had 16,700,139 issued and outstanding shares of common stock.

 

Voting Rights. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.

 

Dividend Rights. Holders of common stock are entitled, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the common stock, to receive any dividend declared by the Board of Directors.

 

Liquidation Rights. In the event of our voluntary or involuntary liquidation, the holders of common stock will be entitled to receive, after distribution in full of preferential amounts, if any, all the remaining assets available for distribution ratably in proportion to the number of shares of common stock held by them.

 

Other Rights and Preferences. The holders of our common stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

 

Fully Paid and Nonassessable. All of our issued and outstanding shares of common stock are fully paid and nonassessable.

 

Reverse Stock Split

 

As described in more detail below, on December 12, 2019, we effected a one-for-eight reverse stock split of our authorized, issued and outstanding shares of common stock (the “Reverse Stock Split”).

 

On November 22, 2019, our Board of Directors approved the Reverse Stock Split of our authorized, issued and outstanding shares of common stock at a ratio of one (1) share of common stock for every eight (8) shares of common stock. On December 9, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effectuate the Reverse Stock Split at the Effective Time (as defined below). The Reverse Stock Split was effective as of 12:01 a.m. (Eastern Time) on December 12, 2019 (the “Effective Time”) and our common stock began trading on a post-split basis when the market opened for trading on December 12, 2019.

 

As a result of the Reverse Stock Split, each eight (8) pre-split shares of common stock outstanding were automatically combined into one (1) new share of common stock without any action on the part of the holders, and the number of outstanding shares of common stock on December 12, 2019 was reduced from 86,178,070 shares to 10,772,259 shares (subject to rounding of fractional shares).

 

Shares of Common Stock to be issued to the former stockholders of VG pursuant to the terms of outstanding notes and potential earn-out shares.

 

We issued to the former stockholders of VG 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) commencing February 2019; 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. As of July 1, 2020, we have issued to such former stockholders of VG 519,415 shares of common stock, representing payment of €1,411,000 (approximately $1,573,928) under the note and we no longer have any remaining stock issuance obligations under the note.

 

In addition, pursuant to the terms of the Purchase Agreement that we entered into with VG, we agreed to pay the former stockholders of VG as an earn-out payment in shares of our common stock within one month from the end of the business year 2019 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. Based on 18,449,380 tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock equal at a price of $4.23 per share, which shares were issued effective January 2020.

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Preferred Stock

 

Our Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock. On September 18, 2018, we filed an Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”) with the Secretary of State of the State of Delaware. The Amended and Restated Certificate of Incorporation, among other things, specifies that the authority of the Board of Directors with respect to each series of preferred stock shall include, but not be limited to, determination of the following: (a) the number of shares constituting the series and the distinctive designation of the series; (b) the dividend rate (or the method of calculation of dividends) on the shares of the series, whether dividends will be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series; (c) whether the series shall have voting rights, in addition to the voting rights required by law, and if so, the terms of such voting rights; (d) whether the series shall have conversion rights, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) whether or not the shares of that series shall be redeemable or exchangeable, and, if so, the terms and conditions of such redemption or exchange, as the case may be, including the date or dates upon or after which they shall be redeemable or exchangeable, as the case may be, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) whether the series shall have a sinking fund for the redemption or purchase of shares of that series, and if so, the terms and amount of such sinking fund; (g) the rights of the shares of the series in the event of our voluntary or involuntary liquidation, dissolution or winding up, and the relative rights or priority, if any, of payment of shares of the series; and (h) any other relative rights, preferences, powers and limitations of that series.

 

Preferred stock could be issued quickly with terms calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of our common stock and may adversely affect the voting and other rights of the holders of common stock.

 

We currently have no shares of preferred stock issued. At present, we have no plans to issue any shares of preferred stock following this offering.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

One Million One Hundred Fifty Thousand (1,150,000) shares of common stock are reserved for issue under our 2018 Equity Incentive Plan (the “2018 Plan”). To date, options to purchase 974,938 shares of common stock have been granted under the 2018 Equity Incentive Plan. The 2018 Plan was adopted by the Board of Directors on August 2, 2018, and approved by stockholders on September 12, 2018. On October 7, 2020, the Board of Directors approved an increase of One Million Eight Hundred and Fifty Thousand (1,850,000) shares of common stock thereby Three Million (3,000,000) shares of common share are reserved for issue under our 2018 Plan. The 2018 Plan is administered by our Board of Directors and permits the discretionary award of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), restricted stock, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), other equity awards and/or cash awards to selected participants. The 2018 Plan will remain in effect until the earlier of (i) August 2, 2028 and (ii) the date upon which the 2018 Plan is terminated pursuant to its terms, and in any event subject to the maximum share limit of the 2018 Plan.

 

Warrants

 

As of October 21, 2020, there are outstanding warrants to purchase up to 10,727 shares of our common stock at an exercise price of $3.75 per share expiring on May 31, 2022 to those debenture holders that extended the maturity date of the debentures they hold in the principal amount of CDN$78,000 (approximately $56,656) and $12,000 that they hold to August 30, 2020, and 251,853 warrants at an exercise price of $3.75 per share expiring on May 31, 2022 and 72,729 warrants at an exercise price of $5.00 per share expiring on May 31, 2023 to those debenture holders that extended the maturity date of the debentures they hold in the principal amount of CDN$290,400 (approximately $210,931) and $720,000 until September 28, 2020. The warrants provide for adjustment to the exercise price and number of shares of common stock issuable upon exercise of the warrant in the case of any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise.

 

In addition, we also have outstanding warrants to purchase up to 4,166,666 shares of our common stock at an exercise price of $2.50 per shares which we issued as part of the units that were sold in the public offering that we closed on August 17, 2020. Each warrant is exercisable immediately and will expire five years from the date of issuance (subject to the call option) and we have the option to “call” the exercise of any or all of the common warrants, from time to time after any 10-consecutive trading day period during which the daily VWAP of the common stock is not less than 250% of the exercise price for the common warrants in effect for such 10-consecutive trading day period and the average daily volume for such period exceeds 100,000 shares per trading day. The warrants also provide that in the event of a fundamental transaction, we are required to cause any successor entity to assume our obligations under the warrants. In addition, the holder of the warrant will be entitled to receive upon exercise of the warrant the kind and amount of securities, cash or property that the holder would have received had the holder exercised the warrant immediately prior to such fundamental transaction.

 

Debentures

 

As of the date of this registration statement, we had outstanding an aggregate principal amount of approximately CDN$307,000 plus accrued interest thereon of approximately CDN$73,130 and $170,000 plus accrued interest thereon of approximately $38,320 of the convertible debentures that were issued on May 31, 2018. Each convertible debenture bears interest at a rate of 10% per annum, are due two years after their date of issuance. At the option of the holder principal and accrued interest is convertible into shares of our common stock at a conversion price of $3.20 per share. In addition, we may accelerate the conversion if the shares of our common stock issuable on such conversion are free-trading and not subject to resale restrictions or statutory hold periods and the closing price of our common stock exceeds two hundred (200%) per cent of the conversion price for a period of twenty (20) trading days in a thirty (30) day period.

 

78


 
 

Anti-Takeover Provisions of Delaware Law, our Certificate of Incorporation and our Bylaws

 

We are incorporated in the State of Delaware. As a result, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

 

  the transaction was approved by the Board of Directors prior to the time that the stockholder became an interested stockholder;

 

  upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

  at or subsequent to the time the stockholder became an interested stockholder, the business combination was approved by the Board of Directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

 

In general, Section 203 defines a “business combination” to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of our company.

 

Our Certificate of Incorporation and our Bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our Board of Directors or management team, including the following:

 

(1) Potential Effects of Authorized but Unissued Stock

 

We have shares of common stock and preferred stock available for future issuance without stockholder approval. We may utilize these additional shares for a variety of corporate purposes, including securities public offerings and other financings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.

 

The existence of unissued and unreserved common stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. In addition, the Board of Directors has the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest extent permissible under the Delaware General Corporation Law and subject to any limitations set forth in our Certificate of Incorporation. The purpose of authorizing the Board of Directors to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.

 

(2) Limitations of Director Liability and Indemnification of Directors, Officers and Employees

 

Our Certificate of Incorporation limits the liability of directors to the fullest extent permitted by Delaware General Corporation Law. Our Certificate of Incorporation provides that directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any:

 

  breach of their duty of loyalty to us or our stockholders;

 

  act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

  unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

  transaction from which the directors derived an improper personal benefit.

 

79


 
 

Our Certificate of Incorporation also provides that we will indemnify our directors and officers to the extent permitted by law, and may indemnify employees and other agents. Our Certificate of Incorporation also provides that we may advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding.

 

We have also entered into separate indemnification agreements with certain of our directors and officers. These agreements, among other things, require us to indemnify the directors and officers for any and all expenses (including reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by such directors or officers or on his or her behalf in connection with any action or proceeding arising out of their services as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request provided that such person follows the procedures for determining entitlement to indemnification and advancement of expenses set forth in the indemnification agreement. We believe that these provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

 

The limitation of liability and indemnification provisions in our Certificate of Incorporation may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Board of Directors Vacancies

 

Our Bylaws authorize only our Board of Directors to fill vacant directorships, including newly created seats.

 

No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our Certificate of Incorporation does not provide for cumulative voting.

 

Choice of Forum

 

Our Certificate of Incorporation provides that unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, all Internal Corporate Claims (as defined therein) shall be brought solely and exclusively in the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware, or, if such other court does not have jurisdiction, the United States District Court for the District of Delaware).

 

A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class actions, derivative suits and other intra-corporate disputes.

 

This exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.

 

The Company’s management believes limiting state law based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying Delaware law is avoided. Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when compared to other forums.

 

While management believes limiting the forum for state law based claims is a benefit, shareholders could be inconvenienced by not being able to bring a state law based action in another forum they find favorable.

 

Transfer Agent

 

The transfer agent and registrar for our common stock is Signature Stock Transfer, Inc. Its address is 14673 Midway Road, Suite #220, Addison, Texas 75001 and its telephone number is (972) 612-4120.

 

The warrant agent and registrar for our warrants is Signature Stock Transfer, Inc. Its address is 14673 Midway Road, Suite 220, Addison, Texas 75001 and its telephone number is (972) 612-4120.

 

Listing

 

On December 23, 2019, our common stock began trading on the Nasdaq Capital Market under the symbol “NWGI.” Prior to that, our common stock traded on the OTCQB Venture Market. 

80


 
 

LEGAL MATTERS

 

The validity of the securities being offered by this prospectus will be passed upon for us by Gracin & Marlow, LLP, New York, New York.

 

EXPERTS

 

The financial statements of Newgioco Group, Inc. as of December 31, 2019 and for the year then ended included in this registration statement, of which this prospectus forms a part, have been so included in reliance on the report of BDO AG, an independent registered public accounting firm appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting.

 

The financial statements of Newgioco Group, Inc. as of December 31, 2018 and for the year then ended included in this registration statement, of which this prospectus forms a part, have been so included in reliance on the report of Pitagora Revisione S.r.l., an independent registered public accounting firm appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting

 

WHERE YOU CAN FIND MORE INFORMATION

 

This prospectus, which constitutes a part of the registration statement on Form S-1 that we have filed with the SEC under the Securities Act, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the securities offered by this prospectus, you should refer to the registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. We also maintain a website at www.newgiocogroup.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.

 

You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of our filings with the SEC, at no cost, by contacting us by telephone ((416) 593-5555) or writing us at: 130 Adelaide Street West, Suite 701, Toronto, Ontario M5H 2K4 Canada..

 

 

 

81


 
 

 

NEWGIOCO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

 

 

Page

Financial Statements for the Years Ended December 31, 2019 and 2018 (audited)  
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-2
Consolidated Statements of Operations and Comprehensive (income) loss for the Years Ended December 31, 2019 and 2018 F-3
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 F-5
Notes to Consolidated Financial Statements F-6

 

 

 

Page

Financial Statements for the Three Months Ended March 31, 2020 and 2019 (unaudited)  
Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 F-34
Consolidated Statements of Operations and Comprehensive (Income) Loss for the Three Months Ended March 31, 2020 and 2019 F-35
Consolidated Statements of Changes in Stockholders’ Equity for the Three Ended March 31, 2020 and 2019 F-36
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 F-37
Notes to Consolidated Financial Statements F-38

 

Proforma Financial Statements of Virtual Generation Limited and Naos Holdings Limited

 

The financial statements for Virtual Generation Limited (VG) and its holding company Naos Holdings Limited (Naos), which were both acquired on January 30, 2019, were previously filed on the Company’s registration statement on Form S-1 filed on September 13, 2019. In accordance with Rule 3-05(b)(4)(iii) of Regulation S-X, the pro forma financial statement of operations for VG and Naos will not be presented in this Amendment No. 1 to the Registration Statement on Form S-1 because neither VG nor Naos meet the test for major significance. The financial statements of VG and Naos were included in the Company’s audited financial statements for eleven of the twelve months ended December 31, 2019.

 

In January 2019, the one month period that VG and Naos were not included in the audited financial statements of the Company for the year ended December 31, 2019, VG generated a loss of approximately $(16,800) and Naos generated no income, which is not material.

 

82


 
 

 

Financial Statements for the Years Ended December 31, 2019 and 2018 (audited)

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Shareholders of

Newgioco Group, Inc.

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Newgioco Group, Inc. (the “Company”) as of December 31, 2019, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Zurich, Switzerland, July 2, 2020

 

BDO AG

 

 

/s/ Christoph Tschumi /s/ Timothy Ryan

Christoph Tschumi ppa. Timothy Ryan

 

We have served as the Company's auditor since 2019.

 

F-1


 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Shareholders of Newgioco Group Inc.

Toronto, Ontario

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Newgioco Group Inc. and subsidiaries (the “Company”) as of December 31, 2018, the related consolidated statements of comprehensive income, Stockholders’ Equity (Deficiency), and cash flows, for the year ended December 31, 2018, and the related notes (collectively referred to as the “financial statement”). In our opinion, the consolidated financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits of the financial statements provide a reasonable basis for our opinion.

 

Pitagora Revisione S.r.l.

 

 

/s/ Roberto Seymandi

Roberto Seymandi

Partner

 

Turin, Italy

May 14, 2020

 

F-1


 
 

NEWGIOCO GROUP, INC.

Consolidated Balance Sheets

 

   

December 31,

2019

 

December 31,

2018

Current Assets                
Cash and cash equivalents   $ 5,182,598     $ 6,289,903  
Accounts receivable     152,879       10,082  
Gaming accounts receivable     1,242,005       1,021,052  
Prepaid expenses     221,547       124,712  
Related party receivable     4,123       49,914  
Other current assets     461,398       55,700  
Total Current Assets     7,264,550       7,551,363  
                 
Non - Current Assets                
Restricted cash     1,549,917       1,560,539  
Property, plant and equipment     520,725       476,047  
Right of use assets     792,078        
Intangible assets     15,857,027       12,527,980  
Goodwill     1,663,385       262,552  
Marketable securities     177,500       275,000  
Total Non - Current Assets     20,560,632       15,102,118  
Total Assets   $ 27,825,182     $ 22,653,481  
                 
Current Liabilities                
Line of credit - bank   $ 1,000,000     $ 750,000  
Accounts payable and accrued liabilities     6,800,765       3,969,532  
Gaming accounts payable     1,735,650       1,049,423  
Taxes payable     298,476       1,056,430  
Advances from stockholders     2,551       39,237  
Deferred purchase consideration, net of discount of $120,104     1,682,280        
Deferred purchase consideration, Related Party, net of discount of $80,069     1,199,361        
Debentures, net of discount     3,361,337        
Operating lease liability     200,866        
Financial lease liability     12,476        
Promissory notes payable – related party           431,631  
Bank loan payable – current portion     124,079       120,920  
Total Current Liabilities     16,417,841       7,417,173  
                 
Non-Current Liabilities                
Deferred tax liability     1,315,954        
Debentures, net of discount           4,463,046  
Operating lease liability     548,747        
Financial lease liability     25,025        
Bank loan payable     96,786       225,131  
Other long-term liabilities     619,544       608,728  
Total Non – Current Liabilities     2,606,056       5,296,905  
Total Liabilities     19,023,897       12,714,078  
                 
Stockholders' 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; 11,949,042 and 9,442,537 shares issued and outstanding as of December 31, 2019 and 2018*     1,194       944  
Additional paid-in capital     32,218,643       23,962,920  
Accumulated other comprehensive income     (176,717 )     (57,431 )
Accumulated deficit     (23,241,835 )     (13,967,030 )
Total Stockholders' Equity     8,801,285       9,939,403  
Total Liabilities and Stockholders’ Equity   $ 27,825,182     $ 22,653,481  

 

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

 

See notes to consolidated financial statements

F-2


 
 

 

NEWGIOCO GROUP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

    For the years ended December 31,
    2019   2018
         
Revenue   $ 35,583,131     $ 34,575,097  
                 
Costs and Expenses                
Selling expenses     27,584,492       24,142,110  
General and administrative expenses     10,994,554       10,588,162  
Total Costs and Expenses     38,579,046       34,730,272  
                 
Loss from Operations     (2,995,915 )     (155,175 )
                 
                 
Other (Expenses) Income                
Interest expense, net     (972,443 )     (619,709 )
Amortization of debt discount     (4,154,922 )     (1,995,128 )
Virtual Generation bonus earnout     (561,351 )      
Loss on share issuances     (44,063 )      
Other income     149,565        
Imputed interest on related party advances           (761 )
Gain on litigation settlement           516,120  
Loss on issuance of convertible debt           (196,403 )
Loss on marketable securities     (97,500 )     (75,000 )
Total Other Expenses     (5,680,714 )     (2,370,881 )
                 
Loss Before Income Taxes     (8,676,629 )     (2,526,056 )
Income tax provision     (598,176 )     (1,102,701 )
Net Loss   $ (9,274,805 )   $ (3,628,757 )
                 
Other Comprehensive Loss                
Foreign currency translation adjustment     (119,286 )     (184,043 )
                 
Comprehensive Loss   $ (9,394,091 )   $ (3,812,800 )
                 
Loss per common share – basic and diluted*   $ (0.91 )   $ (0.38 )
Weighted average number of common shares outstanding – basic and diluted*     10,226,432       9,485,993  
                 

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

 

See notes to consolidated financial statements

F-3


 
 

 

NEWGIOCO GROUP, INC.

Consolidated Statements of Changes in Stockholders' Equity

 

    Common Stock   Additional   Accumulated
Other
       
    Shares*   Amount*   Paid-In Capital*   Comprehensive Income   Accumulated Deficit   Total
                         
                         
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                 1,514                   1,514  
Shares issued for warrants     25,136       3       (3 )                  
Common stock issued with debentures     228,903       22       582,464                   582,486  
ASU 2017-11 adjustments to the beneficial conversion feature of convertible debentures                 2,551,856                     2,551,856  
Warrants issued with debt                 2,951,429                   2,951,429  
Common stock issued for the purchase of subsidiaries     175,550       18       5,587,657                   5,587,675  
Purchase of treasury stock     (255,000 )     (26 )     (2,260,948 )                 (2,260,974 )
Foreign currency translation adjustment                       (184,043 )           (184,043 )
Net loss                             (3,628,757 )     (3,628,757 )
Balance at December 31, 2018     9,442,537     $ 944     $ 23,962,920     $ (57,431 )   $ (13,967,030 )   $ 9,939,403  
Shares issued on conversion of convertible debentures     1,866,467       187       5,972,321                   5,972,508  
Common stock issued to settle deferred purchase consideration     341,235       34       1,027,279                   1,027,313  
Common stock issued to settle liabilities     284,721       28       1,009,953                   1,009,981  
Bonus shares issued to convertible debenture holders     14,082       1       45,064                   45,065  
Stock based compensation expense                 201,106                       201,106  
Foreign currency translation adjustment                       (119,286 )           (119,286 )
Net loss                             (9,274,805 )     (9,274,805 )
                                                 
Balance at December 31, 2019     11,949,042     $ 1,194     $ 32,218,643     $ (176,717 )   $ (23,241,835 )   $ 8,801,285  

 

 

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

 

See notes to consolidated financial statements

 

F-4


 
 

NEWGIOCO GROUP, INC.

Consolidated Statements of Cash Flows

 

   

For the years ended

December 31,

    2019   2018
Cash Flows from Operating Activities                
Net loss   $ (9,274,805 )   $ (3,628,757 )
                 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities                
Depreciation and amortization     946,185       697,266  
Amortization of debt discount     4,154,922       1,995,128  
Non-cash interest     745,762        
Virtual Generation bonus earnout     561,351        
Loss on issuance of debt           196,403  
Imputed interest on advances from stockholders           1,514  
Unrealized loss on marketable securities     97,500       75,000  
Impairment (recovery) of assets           (518,354 )
Stock based compensation expense     201,106        
Bonus shares issued to debenture holders     45,065        
Gain on settlement of liabilities     (1,003 )      
Bad debt (recovery) expense           6,354  
Deferred taxation movement     (85,654 )        
                 
Changes in Operating Assets and Liabilities                
Prepaid expenses     (90,353 )     (37,021 )
Accounts payable and accrued liabilities     2,973,916       3,062,419  
Accounts receivable     (95,147 )     100,053  
Gaming accounts receivable     (240,559 )     142,779  
Gaming accounts payable     701,029       (225,433 )
Taxes payable     (438,235 )     (498,941 )
Other current assets     (368,894 )     (43,157 )
Long term liabilities     22,294       76,048  
Net Cash (Used in) Provided by Operating Activities     (145,520 )     1,401,302  
                 
Cash Flows from Investing Activities                
Acquisition of property, plant, and equipment, and intangible assets     (252,198 )     (4,725,856 )
Acquisition of Virtual Generation, net of cash of $47,268     (216,150 )      
Net Cash Used in Investing Activities     (468,348 )     (4,725,856 )
                 
Cash Flows from Financing Activities                
Proceeds from bank credit line, net     250,000       750,000  
Repayment of bank loan     (118,336 )     (137,965 )
Repayment of bank credit line           (177,060 )
Deferred purchase price payments     (672,871 )      
Proceeds from debentures and convertible notes, net of repayment           6,883,906  
Proceeds from finance leases     14,989        
Repayment of finance leases     (11,371 )      
Advance from related party     58,144        
Payments to related party           (49,914 )
Purchase of treasury stock           (2,261,307 )
Advances from stockholders, net of repayment           (508,572 )
Net Cash (Used in) Provided by Financing Activities     (479,445 )     4,499,088  
                 
Effect of change in exchange rate     (24,614 )     (381,855 )
                 
Net (decrease) increase in cash     (1,117,927 )     792,679  
Cash and cash equivalents and restricted cash– beginning of the year     7,850,442       7,057,763  
Cash and cash equivalents and restricted cash – end of the year   $ 6,732,515     $ 7,850,442  
                 
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows                
                 
Cash and cash equivalents   $ 5,182,598     $ 6,289,903  
Restricted cash included in non-current assets     1,549,917       1,560,539  
    $ 6,732,515     $ 7,850,442  
                 
Supplemental disclosure of cash flow information                
Cash paid during the period for:                
Interest   $ 227,006     $ 619,709  
Income tax   $ 884,295     $ 339,274  
Supplemental cash flow disclosure for non-cash activities                
Conversion of convertible debt to common stock   $ 5,972,508     $  
Deferred purchase consideration on acquisition of Virtual Generation   $ 3,828,133     $  
Deferred purchase consideration settled by the issuance of common stock   $ 1,027,313     $  
Settlement of liabilities by the issuance of common stock   $ 1,009,981     $  
Cashless exercise of warrants   $     $ 20  
Common shares issued for the acquisition of intangible assets   $     $ 5,588,008  
Common stock issued with debt   $     $ 582,486  
Discount due to warrants issued with debt   $     $ 2,307,569  
Discount due to beneficial conversion feature   $     $ 2,551,856  
Discount due to broker warrants issued with debt   $     $ 643,860  
Reclassification of derivative liabilities to equity and cumulative effect of adoption of ASU 2017-11   $     $ 222,915  

 

See notes to consolidated financial statements

 

F-5


 
 

 

NEWGIOCO GROUP, INC.

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

 

The Company and its subsidiaries are as follows:

 

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

 

The Company operates in two lines of business: (i) provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and; (ii) the operating of web-based as well as land-based leisure betting establishments situated throughout Italy. The Company’s operations are carried out through the following three geographically organized groups:

 

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

 

2. Accounting Policies and Estimates

 

  a) Basis of Presentation

 

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

 

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

 

  b) Principles of consolidation

 

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

 

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

 

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

F-6


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

  c) Foreign operations

 

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

 

All revenues were generated in Euro during the years presented.

 

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

 

  d) Business Combinations

 

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

 

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

 

  e) Use of Estimates

 

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

 

  f) Loss Contingencies

 

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

 

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

 

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

F-7


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  2. Accounting Policies and Estimates (continued)

 

  g) Fair Value Measurements

 

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

 

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

 

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

 

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

 

The carrying value of the Company's accounts receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair value because of the short-term maturity of these financial instruments.

 

  h) Derivative Financial Instruments

 

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

 

The Company determined that the conversion feature of the convertible debt did not qualify as a derivative liability and is not bifurcated from the host instrument but contains a beneficial conversion feature.

 

  i) Cash and Cash Equivalents

 

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

 

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

 

  j) Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded a bad debt expense of $163,942 and $0 for the years ended December 31, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

 

F-8


 
 

 

  2. Accounting Policies and Estimates (continued)

 

  k) Gaming Accounts Payable

 

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

 

  l) Long-Lived Assets

 

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

 

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

 

  m) Property, Plant and Equipment

 

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

 

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

 

Description  

Useful Life

(in years)

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

 

  n) Intangible Assets

 

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

 

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

 

The range of the estimated useful lives is as follows:

 

Description  

Useful Life

(in years)

     
Betting Platform Software   15
Ulisse Bookmaker License   Indefinite
Multigioco and Rifa ADM Licenses   1.5 - 7
Location contracts   5 - 7
Customer relationships   10 - 15
Trademarks/Tradenames   14
Websites   5

 

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

F-9


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  o) Goodwill

 

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

 

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

 

The Company annually assesses whether the carrying value of its goodwill exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of goodwill exceeds its fair value. If the carrying amount of the goodwill exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess.

 

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

 

  p) Income Taxes

 

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

 

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

 

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

 

  q) Revenue Recognition

 

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

 

Revenues from the Betting Platform include software licensing fees, training, installation, and product support services. The Company does not sell its proprietary software. Revenue is recognized when transfer of control to the customer has been made and the Company’s performance obligation has been fulfilled. License fees are calculated as a percentage of each licensee’s level of activity and are contingent upon the licensee’s usage. The license fees are recognized on an accrual basis as earned.

F-10


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  2. Accounting Policies and Estimates (continued)

 

  r) Stock-Based Compensation

 

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

 

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

 

  s) Comprehensive Income (Loss)

 

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

 

  t) Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflects the dilutive impact on the number of shares outstanding should they be exercised. Securities that have the potential to dilute shareholder's interests include unexercised stock options and warrants as well as unconverted debentures.

 

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

 

  u) Related Parties

 

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

 

  v) Adoption of Accounting Standards

 

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

 

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

F-11


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  2. Accounting Policies and Estimates (continued)

 

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

 

  w) Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

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

 

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

 

  x) Reporting by segment

 

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

 

  (i) provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and;

 

  (ii) the operating of web-based as well as land-based leisure betting establishments situated throughout Italy.

 

  y) Comparatives

 

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

F-12


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  3. Acquisition of subsidiaries

 

Ulisse GmbH (“Ulisse”) Acquisition

 

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

 

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

 

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

 

Multigioco Acquisition

 

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

 

Virtual Generation Limited (“VG”) Acquisition

 

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

 

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

 

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

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

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

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

 

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

 

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

F-13


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  3. Acquisition of subsidiaries (continued)

 

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

 

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

 

    Amount
Purchase consideration, net of discount of $382,778   $ 4,193,375  
         
Fair value of assets acquired        
Cash     47,268  
Current assets     178,181  
Property, Plant and Equipment     41,473  
Betting Platform     4,004,594  
      4,271,516  
Less: liabilities assumed     (78,141 )
Less: Imputed Deferred taxation on identifiable intangible acquired (Betting platform)     (1,401,608 )
         
Total identifiable assets less liabilities assumed     2,791,767  
Goodwill arising on acquisition     1,401,608  
Total purchase consideration   $ 4,193,375  

 

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

 

  4. Restricted Cash

 

Restricted cash consists of the following:

 

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

 

  · The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. See Note 10.

 

  5. Plant and equipment

 

   

December 31,

2019

 

December 31,

2018

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

 

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

F-14


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  6. Leases

 

Adoption of ASC Topic 842, “Leases”

 

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

 

Practical Expedients and Elections

 

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

 

Discount Rate

 

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

 

Operating leases

 

Property and vehicle leases

 

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

 

  · Property leases

 

The Company determined that rates ranging from 2.12% to 4.5% were 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%.

F-15


 
 

NEWGIOCO GROUP, INC.

Notes to the 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:

 

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

 

Lease costs consists of the following:

 

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

 

Other lease information:

 

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

F-16


 
 

NEWGIOCO GROUP, INC.

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

 

Operating lease liability

 

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

 

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

 

  7. Intangible Assets

 

Intangible assets consist of the following:

 

   

December 31,

2019

 

December 31,

2018

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

 

F-17


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  7. Intangible Assets (continued)

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

The Company recorded $771,665 and $468,551 in amortization expense for finite-lived assets for the years ended December 31, 2019 and 2018, respectively.

 

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

 

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

 

  8. Goodwill

 

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

 

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

 

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

 

The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

  9. Marketable Securities

 

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

 

 

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

 

  10. Line of Credit - Bank

 

The Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit, see Note 4.

F-18


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  11. Convertible Debentures

 

On February 26, 2018, the Company issued debenture units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February 25, 2020, and (iii) 20 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate principal amount of CDN $670,000 ($521,900) debentures and received warrants to purchase up to 20,938 shares of the Company’s common stock and 13,875 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private Placement debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants can be exercised at a price equal to $4.00 per share.

 

In April 2018, the Company issued debenture units to certain investors (the “April 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring in April 2020, and (iii) 20 shares of restricted common stock. The investors in the April 2018 Private Placement purchased an aggregate principal amount of CDN $135,000 ($105,200) debentures and received warrants to purchase up to 4,218.75 shares of the Company’s common stock and 2,700 shares of restricted common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 2018 Private Placement debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants can be exercised at a price equal to $4.00 per share.

 

On April 19, 2018, the Company re-issued debenture units that were first issued to certain investors between January 24, 2017 and January 31, 2018 in order to simplify the various debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April 19, 2018 Debentures”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on April 19, 2020, and (iii) 20 shares of restricted common stock. The investors in the April 19, 2018 Private Placement received an aggregate principal amount of CDN $1,436,000 ($1,118,600) debentures, warrants to purchase up to 44,875 shares of the Company’s common stock and 28,720 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the April 19, 2018 Debentures plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants can be exercised at a price equal to $4.00 per share.

 

On May 11, 2018, the Company issued debenture units to certain investors (the “May 11, 2018 Private Placement”). Each debenture unit was comprised of (i) a debenture in the principal amount of CDN $1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 31.25 shares of the Company’s common stock at an exercise price equal to the lesser of $5.00 or 125% of the proposed initial Canadian public offering price per warrant, expiring on May 11, 2020, and (iii) 20 shares of restricted common stock. The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount of CDN $131,000 ($102,000) debentures and received warrants to purchase up to 4,093.75 shares of the Company’s common stock and 2,620 restricted shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the May 11, 2018 Private Placement plus any accrued and unpaid interest may be converted into shares of the Company’s common stock at a price equal to $3.20 per share and the warrants can be exercised at a price equal to $4.00 per share.

 

On May 31, 2018, the Company closed a private placement offering of up to 7,500 units and entered into Subscription Agreements (the “Agreements”) with certain accredited investors (the “May 31, 2018 Private Placement”). The units were offered in both U.S. and Canadian dollar denominations. Each unit sold to U.S. investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of $1,000 (the “U.S. Debentures”) maturing on May 31, 2020, (ii) 26 shares of our common stock and (ii) warrants to purchase up to 135.25 shares of the Company’s common stock (the “U.S. Warrants”). Each unit sold to Canadian investors was sold at a per unit price of CND $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of CND $1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”), (ii) 20 shares of our common stock and (ii) warrants to purchase up to 104.06 shares of our common stock (the “Canadian Warrants” and together with the U.S. Warrants, the “May Warrants”).

 

The May 31, 2018 Warrants are exercisable at an exercise price of $4.00 per share and expire on May 31, 2020.

 

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

F-19


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  11. Convertible Debentures (continued)

 

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

 

The accounting treatment of the above is as follows:

 

  (i) The convertible debentures were recorded at gross value;

 

  (ii) The cash fee paid to the brokers was $427,314 and the fair value of the warrants issued to the brokers were valued at fair value as described in (iv) below and were recorded as a debt discount against the gross value of the convertible debentures;

 

  (iii) The shares of common stock issued to the convertible debenture holders were valued at $582,486, the market price of the common stock on the date of issue and were recorded as debt discount against the gross value of the convertible debt;

 

  (iv) The warrants issued to the convertible debenture holders and brokers were valued at $2,929,712 using a Black-Scholes valuation model, the value of the warrants was recorded as a discount against the gross value of the convertible debentures and initially recorded as a derivative liability on the basis of standard anti-dilution language being interpreted as a down round feature, the warrants do not provide for any down round features and subsequent to the initial recording the Company adopted ASU 2017-11 in September 2018 and eliminated the derivative liability;

 

  (v) The conversion feature of the convertible debentures was in-the-money at date of issuance, giving rise to a beneficial conversion feature valued at intrinsic value of $2,585,055.

 

  (vi) The company originally recorded the conversion feature as a derivative liability on the basis that the standard anti-dilution clauses in the convertible debt agreements relating to stock splits and stock mergers amounted to a down-round feature, the convertible debentures do not provide for down round features and accordingly, the Company adopted ASU2017-11 in September 2018 and eliminated the derivative liability.

 

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

 

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

 

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

 

The Aggregate convertible debentures outstanding consists of the following:

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

 

 

F-20


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  12. Deferred Purchase Consideration

 

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

 

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

 

  (a) an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that was one month after the Closing Date; and
  (b) an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced on March 1, 2019.

 

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

 

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

 

The movement on deferred purchase consideration consists of the following:

 

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

 

F-21


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  13. Bank Loan Payable

 

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

 

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

 

  14. Other Long-term Liabilities

 

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

 

Balances of other long-term liabilities were as follows:

 

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

 

  15. Related Parties

 

Notes Payable, Related Party

 

The Company had three promissory notes entered into in 2015 and 2016 with a related party with an aggregate principal amount outstanding of $318,078. The promissory notes bore interest at 12% to 24% per annum and were due on demand.

 

On September 4, 2019, in terms of an agreement entered into with the note holder, the promissory notes amounting to $318,078 together with interest thereon of $139,383, totaling $457,461 were exchanged for 142,956 shares of common stock.

 

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

 

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

 

Deferred Purchase consideration, Related Party

 

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

F-22


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  15. Related Parties (continued)

 

Deferred Purchase consideration, Related Party (continued)

 

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

 

The promissory notes are to be settled as follows:

 

  (a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the Closing Date; and
  (b) an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

 

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

 

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

 

The movement on deferred purchase consideration consists of the following:

 

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

 

F-23


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  15. Related Parties (continued)

 

Related party (payables) receivables

 

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

 

The balances outstanding are as follows:

 

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

 

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

 

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

 

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

 

Michele Ciavarella

 

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

 

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

 

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

 

Gold Street Capital

 

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

 

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

 

F-24


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  15. Related Parties (continued)

 

Luca Pasquini

 

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

 

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

 

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

 

Gabriele Peroni

 

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

 

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

 

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

 

Franco Salvagni

 

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

 

Beniamino Gianfelici

 

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

 

Mark Korb

 

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

 

Paul Sallwasser

 

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

 

Steven Shallcross

 

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

F-25


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

  16. Stockholders’ Equity

 

The Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation, as disclosed in Note 3 above. 

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

 

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

 

On April 22, 2019, the Company issued 14,083 shares of common stock, valued at $45,066, to certain convertible debenture holders as an incentive for them to transfer their convertible debentures to another investor.

 

Between September 4, 2019 and September 17, 2019, the Company issued 284,721 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461 and other liabilities amounting to $553,525.

 

  17. Warrants

 

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

 

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

 

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

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

 

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

 

The following tables summarize information about warrants outstanding as of December 31, 2019:

    Warrants outstanding   Warrants exercisable
  Exercise price       Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$ 4.00       1,089,474       0.41     $ 4.00       1,089,474     $ 4.00  

 

F-26


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  18. Stock options

 

In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. No awards were granted under the 2018 Equity Incentive Plan as of December 31, 2018. During July 2019, we issued an aggregate of 95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938 shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici, our Vice President Regulatory Affairs. On November 11,2019 we issued options to purchase 70,625 shares of common stock to various employees at an exercise price of $2.80 per share. As of December 12, 2019, there was an aggregate of 315,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 834,062 reserved for future grants.

 

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

 

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

 

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

 

   

Year ended

December 31, 2019

Exercise price     2.72 to 2.96  
Risk free interest rate     1.50 to 2.04  
Expected life of options     7 to 10 years  
Expected volatility of underlying stock     237.4 to 270.2  
Expected dividend rate     0 %

 

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

 

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

 

 

The following tables summarize information about stock options outstanding as of December 31, 2019:

 

Options outstanding     Options exercisable  
  Exercise price       Number of shares       Weighted average remaining years       Weighted Average exercise price       Number of shares       Weighted average exercise price  
                                             
$ 2.72       25,000       6.50                        
$ 2.80       220,625       9.73               13,971          
$ 2.96       70,313       9.52               35,859          
          315,938       9.30     $ 2.83       49,830     $ 2.92  
                                             

 

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

 

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

F-27


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  19. Revenues

 

The following table represents disaggregated revenues from our gaming operations for the years ended December 31, 2019 and 2018. Net Gaming Revenues represents Turnover (also referred to as “Handle”), the total bets processed for the period, less customer winnings paid out, commissions paid to agents, and taxes due to government authorities, while Commission Revenues represents commissions on lotto ticket sales and Service Revenues is revenue invoiced for our Elys software service and royalties invoiced for the sale of virtual products.

 

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

 

  20. Net Loss per Common Share

 

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

 

For the years ended December 31, 2019 and 2018, the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the result of the computation was anti-dilutive:

 

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

 

 

F-28


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  21. Income Taxes

 

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

 

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

 

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

 

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

 

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

 

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

   

December 31,

2019

 

December 31,

2018

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

 

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

 

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

 

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

 

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

 

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

 

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

 

F-29


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

  21. Income Taxes (continued)

 

The provisions for income taxes are summarized as follows:

 

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

 

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

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

 

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

 

The following tax years remain subject to examination:

 

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

 

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

 

There are no unrecognized tax benefits.

 

  22. Segmental Reporting

 

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

 

  (i) Betting establishments

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

  (ii) Betting platform software and services

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

 

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

 

    December 31, 2019
   

 

Betting establishments

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

 

F-30


 
 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  22. Segmental Reporting (continued)

 

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

 

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

 

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

 

    December 31, 2018
   

 

 

Betting establishments

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

 

F-31


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  22. Segmental Reporting (continued)

 

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

 

 

    Year ended December 31, 2018
    Betting establishments   Betting platform software and services   All other   Adjustments   Total
                     
Net Gaming Revenue   $ 34,433,461     $ 141,636     $     $     $ 34,575,097  
Intercompany Service revenue     260,063       2,168,870             (2,428,933 )      
      34,693,524       2,310,506             (2,428,933 )     34,575,097  
Operating expenses                                        
Intercompany service expense     2,168,870       260,063             (2,428,933 )      
Selling expenses     24,142,110                         24,142,110  
General and administrative expenses     4,968,280       2,360,357       3,259,525             10,588,162  
      31,279,260       2,620,420       3,259,525       (2,428,933 )     34,730,272  
                                         
(Loss) income from operations     3,414,264       (309,914 )     (3,259,525 )           (155,175 )
                                         
Other (expense) income                                        
Interest expense, net     (25,910 )           (593,799 )           (619,709 )
Amortization of debt discount                 (1,995,128 )           (1,995,128 )
Gain on litigation settlement                 516,120             516,120  
Imputed interest on related party advances                 (761 )           (761 )
Loss on issuance of debt                 (196,403 )           (196,403 )
Mark-to-market of marketable securities                 (75,000 )           (75,000 )
Total other (expenses) income     (25,910 )           (2,344,971 )           (2,370,881 )
                                         
Loss before Income Taxes     3,388,354       (309,914 )     (5,604,496 )           (2,526,056 )
Income tax provision     (1,082,919 )     (18,042 )     (1,740 )           (1,102,701 )
Net Loss   $ 2,305,435     $ (327,956 )   $ (5,606,236 )   $     $ (3,628,757 )

 

F-32


 
 

 

NEWGIOCO GROUP, INC.

Notes to the Consolidated Financial Statements

 

  23. Subsequent Events

 

Subsequent to year end, between January 12, 2020 and May 20, 2020, the Company converted convertible debentures in the aggregate principal amount of $400,000 including interest thereon of $70,492 and CDN$305,600 (approximately $227,227) including interest thereon of CDN$42,504 (approximately $31,604) into 226,792 shares of common stock at a conversion price of $3.20 per share.

 

The Company also repurchased a convertible debenture in the aggregate principal amount of CDN$10,000 (approximately $7,289, including interest thereon of CDN2,000 (approximately $1,458) on February 26, 2020.

 

Additionally, Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation, as disclosed in Note 3 above:

 

  · On January 1, 2020, 22,030 shares of common stock valued at $93,077;
  · On February 1, 2020, 23,890 shares of common stock valued at $91,542;
  · On March 1, 2020, 25,690 shares of common stock valued at $96,372;
  · On April 1, 2020, 61,040 shares of common stock valued at $90,745;
  · On May 1, 2020, 24,390 shares of common stock valued at $91,265
  · On June 1, 2020, 29,300 shares of common stock valued at $92,321

 

On February 15, 2020 the Company and Handle 19, Inc. a District of Columbia corporation (the “Customer”) entered into a Management Services Provider (“MSP”) agreement which is in effect for an initial term of 12 months commencing from the first date on which both parties receive the necessary licenses from the District of Columbia Office of Lottery and Gaming (“DC Lottery”), and the Customer may extend for an additional forty-eight (48) months at its sole discretion. The Customer has defined the first installation location at 319 Pennsylvania Ave, Southeast, Washington, DC (the “Establishment”). Under terms of the agreement, the Company shall:

 

  a) design, create, install and operate unique sports betting products and services for the Customer at the Establishment in compliance with District of Columbia law. This shall be a customized Americanized Interface. All equipment and software provided by Licensor shall meet the latest version of the GLI-33 or other generally accepted standards that are approved by the DC Lottery

 

  b) provide a customized Shop Client design as well as Ancillary Services for each individual Gaming Application activated by the Customer including the processing of payments of wagers for each of the activated Gaming Applications;

 

  c) provide Ancillary Services including customer support, technical support, financial support, risk management and Reporting Service for Settlement by the Service Provider, in full compliance with this Agreement and all applicable laws including, without limitation, the Legislation.

 

The Company shall invoice the Customer a fee based on the Gross Gaming Revenue calculated after the assessment and payment of all relevant taxes imposed under the District of Columbia Sports Wagering Lottery Amendment of 2018.

 

On May 28, 2020 the Company formed Elys Gameboard Technologies, LLC, a wholly owned subsidiary in the State of Delaware for the purposes of operating the Company’s US sports betting operations.

 

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

 

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

F-33


 
 

Financial Statements for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

 

NEWGIOCO GROUP, INC.

Consolidated Balance Sheets

(Unaudited)

  

June 30,

2020

  December 31, 2019
Current Assets          
Cash and cash equivalents  $5,783,449   $5,182,598 
Accounts receivable   95,198    152,879 
Gaming accounts receivable   551,935    1,242,005 
Prepaid expenses   214,754    221,547 
Related party receivable   1,395    4,123 
Other current assets   513,827    461,398 
Total Current Assets   7,160,558    7,264,550 
           
Non - Current Assets          
Restricted cash   1,550,291    1,549,917 
Property, plant and equipment   501,281    520,725 
Right of use assets   684,502    792,078 
Intangible assets   15,505,524    15,857,027 
Goodwill   1,663,207    1,663,385 
Marketable securities   900,000    177,500 
Total Non - current Assets   20,804,805    20,560,632 
Total Assets  $27,965,363   $27,825,182 
           
Current Liabilities          
Line of credit - bank  $1,000,000   $1,000,000 
Accounts payable and accrued liabilities   7,161,828    6,800,765 
Gaming accounts payable   2,131,020    1,735,650 
Taxes payable   556,822    298,476 
Advances from stockholders   14,914    2,551 
Deferred purchase consideration, net of discount of $53,587 and $120,104   866,979    1,682,280 
Deferred purchase consideration, Related Party, net of discount of $35,725 and $90,069   702,616    1,199,361 
Debentures, net of discount of $0 and $627,627   3,331,207    3,361,337 
Operating lease liability   99,298    200,866 
Financial lease liability   6,246    12,476 
Promissory notes payable – related party   300,000    —   
Bank loan payable – current portion   103,855    124,079 
Total Current Liabilities   16,274,785    16,417,841 
           
Non-current Liabilities          
Deferred tax liability   1,269,234    1,315,954 
Operating lease liability   549,120    548,747 
Financial lease liability   25,521    25,025 
Bank loan payable   126,203    96,786 
Other long-term liabilities   617,979    619,544 
Total Non – Current Liabilities   2,588,057    2,606,056 
Total Liabilities   18,862,842    19,023,897 
           
Stockholders' Equity          
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued          
Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,495,002 and 11,949,042 shares issued and outstanding as of June 30, 2020 and December 31, 2019   1,249    1,194 
Additional paid-in capital   34,981,284    32,218,643 
Accumulated other comprehensive income   (270,231)   (176,717)
Accumulated deficit   (25,609,781)   (23,241,835)
Total Stockholders' Equity   9,102,521    8,801,285 
Total Liabilities and Stockholders’ Equity  $27,965,363   $27,825,182 

 

See notes to the unaudited condensed consolidated financial statements

F-34


 
 

NEWGIOCO GROUP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

  

For the Three Months Ended

June 30,

 

For the Six Months Ended

June 30,

   2020  2019  2020  2019
Revenue  $4,810,269   $9,105,353   $14,980,443   $18,371,648 
                     
Costs and Expenses                    
Selling expenses   3,957,366    6,268,772    10,172,527    13,676,478 
General and administrative expenses   2,883,427    3,360,284    5,704,388    6,557,739 
Total Costs and Expenses   6,840,793    9,629,056    15,876,915    20,234,217 
                     
Loss from Operations   (2,030,524)   (523,703)   (896,472)   (1,862,569)
                     
Other (Expenses) Income                    
Other income   13,862    7,725    25,660    7,725 
Interest expense, net of interest income   (33,099)   (277,639)   (173,073)   (425,275)
Amortization of debt discount   (286,845)   (739,604)   (737,074)   (2,096,080)
Loss on extinguishment of convertible debt   (719,390)   —      (719,390)   —   
Loss on conversion of debt   —      (35,943)   —      (35,943)
Gain (Loss) on marketable securities   592,500    —      722,500    (25,000)
Total Other (Expenses) Income   (432,972)   (1,045,461)   (881,377)   (2,574,573)
                     
Loss Before Income Taxes   (2,463,496)   (1,569,164)   (1,777,849)   (4,437,142)
Income tax provision   (62,059)   (209,056)   (590,097)   (455,030)
Net Loss   (2,525,555)   (1,778,220)   (2,367,946)   (4,892,172)
                     
Other Comprehensive Income (Loss)                    
Foreign currency translation adjustment   18,516    69,023    (93,514)   (61,207)
                     
Comprehensive Loss  $(2,507,039)  $(1,709,197)  $(2,461,460)  $(4,953,379)
                     
Loss per common share – basic and diluted*  $(0.20)  $(0.17)  $(0.19)  $(0.50)
Weighted average number of common shares outstanding – basic and diluted*   12,434,338    9,870,357    12,320,653    9,764,450 
                     

 

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

 

 

See notes to the unaudited condensed consolidated financial statements

 

F-35


 
 

NEWGIOCO GROUP, INC.

Consolidated Statements of Changes in Stockholders' Equity

Three and six months ended June 30, 2020 and June 30, 2019

(Unaudited)

 

    Common Stock   Additional  

Accumulated

Other

       
    Shares*   Amount*  

Paid-in

Capital*

 

Comprehensive

Income

  Accumulated Deficit   Total
Three months ended March 31, 2020                        
Balance at December 31, 2019     11,949,042     $ 1,194     $ 32,218,643     $ (176,717 )   $ (23,241,835 )   $ 8,801,285  
                                                 
Shares issued on conversion of convertible debentures     123,399       12       395,241                   395,253  
Common stock issued to settle deferred purchase consideration     204,437       21       842,411                   842,432  
Stock based compensation expense                 118,818                   118,818  
Foreign currency translation adjustment                             (112,030 )             (112,030 )
Net income                                     157,609       157,609  
Balance at March 31, 2020     12,276,878       1,227       33,575,113       (288,747 )     (23,084,226 )     10,203,367  
                                                 
Shares issued on conversion of convertible debentures     103,586       11       333,074                   333,085  
Common stock issued to settle deferred purchase consideration     114,538       11       273,736                   273,747  
Stock based compensation expense                 79,971                   79,971  
Fair value of warrants issued on convertible debt extensions                 719,390                   719,390  
Foreign currency translation adjustment                       18,516             18,516  
Net loss                             (2,525,555 )     (2,525,555 )
Balance at June 30, 2020     12,495,002       1,249       34,981,284       (270,231 )     (25,609,781 )     9,102,521  
                                                 

 

    Common Stock*   Additional   Accumulated Other        
    Shares   Amount   Paid-In Capital*   Comprehensive loss   Accumulated Deficit   Total
                         
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 income (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  

 

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

 

See notes to the unaudited condensed consolidated financial statements

F-36


 
 

 

NEWGIOCO GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited) 

  

For the six months Ended

June 30,

   2020  2019
Cash Flows from Operating Activities          
Net loss  $(2,367,946)  $(4,892,172)
           
Adjustments to reconcile net loss to net cash provided by (used in) operating activities          
Depreciation and amortization   459,434    445,990 
Amortization of deferred costs   737,074    2,096,080 
Non-cash interest   152,188    409,114 
Stock option compensation expense   198,789    —   
Loss on extinguishment of convertible debt   719,390    —   
Loss on debt conversions   —      35,943 
Unrealized (gain) loss on marketable securities   (722,500)   25,000 
Movement in deferred taxation   (46,720)   (38,934)
Changes in Operating Assets and Liabilities          
Prepaid expenses   6,435    (7,732)
Accounts payable and accrued liabilities   2,141,717    (444,743)
Accounts receivable   (1,205)   (57,679)
Gaming accounts receivable   334,186    357,886 
Gaming accounts liabilities   (956,208)   1,167,454 
Taxes payable   253,275    (53,941)
Due from related parties   12,956    —   
Other current assets   (51,340)   (57,163)
Long term liability   (1,948)   9,296 
Net Cash Provided by (Used in) Operating Activities   867,577    (1,005,601)
           
Cash Flows from Investing Activities          
Acquisition of property, plant, and equipment, and intangible assets   (87,994)   (54,283)
Acquisition of Virtual Generation, net of cash of $47,268   —      (216,150)
Net Cash Used in Investing Activities   (87,994)   (270,433)
           
Cash Flows from Financing Activities          
Proceeds from bank credit line   —      250,000 
Repayment of bank loan   (19,925)   (59,007)
Redemption of debentures   (8,996)     
Proceeds from promissory notes, related party   300,000    —   
Proceeds from Government relief loan   29,302    —   
Repayment of deferred purchase consideration – non related parties   (209,005)   (173,862)
Repayment of deferred purchase consideration – related parties   (92,444)   (107,986)
Repayment of financial leases   (6,682)   (5,449)
Loan to related party   —      (11,992)
Repayment of loans advanced to stockholders   —      6,605 
Net Cash Used in Financing Activities   (7,750)   (101,691)
           
Effect of change in exchange rate   (170,608)   195,864 
           
Net increase (decrease) in cash   601,225    (1,181,861)
Cash, cash equivalents and restricted cash – beginning of the period   6,732,515    7,850,442 
Cash, cash equivalents and restricted cash – end of the period  $7,333,740   $6,668,581 
           
Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows          
Cash and cash equivalents  $5,783,449   $5,228,797 
Restricted cash included in non-current assets   1,550,291    1,439,784 
   $7,333,740   $6,668,581 

 

Supplemental disclosure of cash flow information        
Cash paid during the period for:        
Interest   $ 23,613     $ 13,955  
Income tax   $ 378,471     $ 473,679  
                 
Supplemental cash flow disclosure for non-cash activities                
Common shares issued for the acquisition of subsidiaries   $ 1,116,179     $ 272,307  
Common shares issued on conversion of debentures   $ 728,338     $ 104,911  

 

See notes to the unaudited condensed consolidated financial statements 

 

F-37


 
 

 

NEWGIOCO GROUP, INC.

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

 

The entities included in these unaudited condensed consolidated financial statements are as follows:

 

Name   Acquisition or Formation Date   Domicile   Functional Currency
             
Newgioco Group, Inc.   Parent Company   USA   US Dollar
Multigioco Srl (“Multigioco”)   August 15, 2014   Italy   Euro
Ulisse GmbH (“Ulisse”)   July 1, 2016   Austria   Euro
Odissea Betriebsinformatik Beratung GmbH (“Odissea”)   July 1, 2016   Austria   Euro
Virtual Generation Limited (“VG”)   January 31, 2019   Malta   Euro
Newgioco Group Inc. (“NG Canada”)   January 17, 2017   Canada   Canadian Dollar
Elys Technology Group Limited (“Elys”)   April 4, 2019   Malta   Euro
Newgioco Colombia SAS   November 22, 2019   Colombia   Colombian Peso
Elys Gameboard Technologies, LLC   May 28, 2020   USA   US Dollar

 

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

 

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

 

The Company operates in two lines of business: (i) provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and; (ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy. The Company’s operations are carried out through the following three geographically organized groups:

 

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

 

2. Accounting Policies and Estimates

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. The balance sheet at December 31, 2019 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”).

 

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

F-38


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Impact of COVID-19

 

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

 

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

 

Principles of consolidation

 

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

 

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

 

Foreign operations

 

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

 

All revenues were generated in Euro during the years presented.

 

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

 

Business Combinations

 

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

 

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

 

Use of Estimates

 

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

 

F-39


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Loss Contingencies

 

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

 

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

 

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

 

Fair Value Measurements

 

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

 

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

 

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

 

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

 

The carrying value of the Company's accounts receivables, gaming accounts receivable, lines of credit - bank, accounts payable, gaming accounts payable and bank loans payable approximate fair value because of the short-term maturity of these financial instruments.

 

Derivative Financial Instruments

 

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

 

Cash and Cash Equivalents

 

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

 

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

F-40


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Gaming Accounts Receivable

 

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The Company recorded no bad debt expense for the three and six months ended June 30, 2020 and 2019.

 

Gaming Accounts Payable

 

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

 

Long-Lived Assets

 

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

 

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

 

Plant and Equipment

 

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

 

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

 

Description  

Useful Life

(in years)

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

 

Intangible Assets

 

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

 

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

F-41


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

The range of the estimated useful lives is as follows:

Description 

Useful Life

(in years)

Betting Platform Software   15 
Ulisse Bookmaker License   Indefinite 
Multigioco and Rifa ADM Licenses   1.5 - 7 
Location contracts   5 - 7 
Customer relationships   10 - 15 
Trademarks/Tradenames   14 
Websites   5 

 

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

 

Goodwill

 

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

 

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

 

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

 

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

 

Income Taxes

 

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

 

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

 

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

F-42


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Revenue Recognition

 

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

 

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

 

Stock-Based Compensation

 

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

 

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

 

Comprehensive Income (Loss)

 

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

 

Earnings Per Share

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share” provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity and include options and warrants granted and convertible debt, adding back any expenditure directly associated with the convertible instruments, if any. When the Company incurs a net loss, the effect of the Company’s outstanding stock options and warrants and convertible debt are not included in the calculation of diluted earnings (loss) per share as the effect would be anti-dilutive.

 

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

 

Related Parties

 

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

 

F-43


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

2. Accounting Policies and Estimates (continued)

 

Recent Accounting Pronouncements

 

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

 

Since adopted on January 1, 2020, there has not been any material impact on the Company’s financial position, results of operations, and related disclosures.

 

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

 

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

 

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

 

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

 

Reporting by segment

 

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

 

  (i) provider of certified betting Platform software services to leisure betting establishments in Italy and 11 other countries and;

 

  (ii) the operating of web based as well as land based leisure betting establishments situated throughout Italy.

 

Comparatives

 

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

 

 

F-44


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

3. Acquisition of subsidiaries

 

Virtual Generation Limited (“VG”) Acquisition

 

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

 

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

 

   Amount
Purchase consideration, net of discount of $382,778  $4,193,374 
      
Fair value of assets acquired     
Cash   47,268 
Current assets   178,181 
Property, Plant and Equipment   41,473 
Betting Platform   4,004,594 
    4,271,516 
Less: liabilities assumed   (78,141)
Less: Imputed Deferred taxation on identifiable intangible acquired (Betting platform)   (1,401,608)
      
Total identifiable assets less liabilities assumed   2,791,767 
Goodwill arising on acquisition   1,401,608 
Total purchase consideration  $4,193,375 

 

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

 

4. Restricted Cash

 

Restricted cash consists of the following:

 

  · cash held in a segregated bank account at Intesa Sanpaolo Bank S.p.A. (“Intesa Sanpaolo Bank”) as collateral against the Company’s operating line of credit with Intesa Sanpaolo Bank as well as Wirecard Bank as a security deposit for Ulisse betting operations.

 

  · The Company maintains a $1,000,000 deposit at Metropolitan Commercial bank held as security against a $1,000,000 line of credit. See Note 10.

 

5. Plant and equipment

 

    June 30, 2020   December 31, 2019
    Cost   Accumulated depreciation  

Net book

value

 

Net book

value

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

 

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

F-45


 
 


NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Leases

 

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

    
  

June 30,

2020

 

December 31,

2019

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

 

Lease costs consists of the following:

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

 

Other lease information:

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

 

Maturity of Leases

 

Finance lease liability

 

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

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

 

F-46


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

6. Leases (continued)

 

Maturity of Leases (continued)

 

Operating lease liability

 

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

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

 

7. Intangible Assets

 

Intangible assets consist of the following:

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

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

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

 

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

F-47


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

8. Goodwill

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

 

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

 

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

 

The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

 

9. Marketable Securities

 

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

 

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

 

10. Line of Credit - Bank

 

The Company maintains a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3.00% on the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit, see Note 4.

 

11. Convertible Debentures

 

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

 

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

 

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

F-48


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

11. Convertible Debentures (continued)

 

The Aggregate convertible debentures outstanding consists of the following:

 

  

June 30,

2020

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

 

12. Deferred Purchase Consideration

 

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

 

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

 

  (a) an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that was one month after the Closing Date; and
  (b) an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, which issuances commenced on March 1, 2019. See Note 23 Subsequent Events.

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.

 

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

 

 

F-49


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

12. Deferred Purchase Consideration (continued)

 

The movement on deferred purchase consideration consists of the following:

 

Description 

June 30,

2020

 

December 31,

2019

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

 

13. Bank Loan Payable

 

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

 

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

 

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

 

14. Other long term liabilities

 

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

 

Balances of other long term liabilities were as follows:

 

  

June 30,

2020

 

December 31,

2019

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

 

15. Related Parties

 

Notes Payable, Related Party

 

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

F-50


 
 


NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

15. Related Parties (continued)

 

Notes Payable, Related Party (continued)

 

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

  

June 30,

2020

 

December 31,

2019

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

 

Deferred Purchase consideration, Related Party

 

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

 

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

 

The promissory notes are to be settled as follows:

 

  (a) an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the Closing Date; and
  (b) an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019. See Note 23 Subsequent Events.

 

Pursuant to the terms of the Purchase Agreement that the Company entered into with VG, the Company agreed to pay the VG Sellers an earnout payment in shares of our common stock equal to an aggregate amount of €500,000 (approximately $561,500), if the amounts of bets made by users of the VG platform grew by more than 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, based on the 18,449,380 tickets sold in 2019 VG qualified for the earnout payment of 132,735 shares of common stock at a price of $4.23 per share, which shares were issued effective January 2020.

 

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

 

The movement on deferred purchase consideration consists of the following:

Description 

June 30,

2020

 

December 31,

2019

Principal Outstanding          
Promissory notes due to related parties  $1,279,430   $1,830,541 
Additional earnout earned   —      224,540 
Settled by the issuance of common shares   (446,471)   (410,925)
Repayment in cash   (92,444)   (328,734)
Foreign exchange movements   (2,174)   (35,992)
    738,341    1,279,430 
Present value discount on future payments          
Present value discount   (80,069)   (161,393)
Amortization   43,779    78,128 
Foreign exchange movements   565    3,196 
    (35,725)   (80,069)
Deferred purchase consideration, net  $702,616   $1,199,361 

 

F-51


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

15. Related Parties (continued)

 

Related party (payables) receivables

 

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

 

The balances outstanding are as follows:

 

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

 

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

 

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

 

Michele Ciavarella

 

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

 

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

 

On September 4, 2019, Mr. Ciavarella converted $500,000 of accrued salaries into 125,000 shares of common stock at. Conversion price of $4.00 per share.

 

Gold Street Capital

 

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

 

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

 

Luca Pasquini

 

On January 31, 2019, the Company acquired Virtual Generation for €4,000,000 (approximately $4,576,352), Mr. Pasquini was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2020, the Company has paid Mr. Pasquini cash of €145,600 (approximately $162,639) and issued 98,405 shares valued at €215,800 (approximately $241,313)

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Pasquini’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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

F-52


 
 


NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

15. Related Parties (continued)

 

Gabriele Peroni

 

On January 31, 2019, the Company acquired Virtual Generation Limited for €4,000,000 (approximately $4,576,352), Mr. Peroni was a 20% owner of Virtual Generation and was due gross proceeds of €800,000 (approximately $915,270). The gross proceeds of €800,000 was to be settled by a payment in cash of €500,000 over a twelve month period and by the issuance of common stock valued at €300,000 over an eighteen month period. As of June 30, 2020, the Company has paid Mr. Peroni cash of €187,200 (approximately $209,107) and issued 98,405 shares valued at €215,800 (approximately $241,313).

 

In addition, due to the attainment of an earnout clause per the agreement, a further €500,000 (approximately $561,351) was earned as of December 31, 2019, of which Mr. Peroni’s share was €100,000 (approximately $112,270), which earnout was settled by the issue of 26,547 shares of common stock during January 2020.

 

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

 

Alessandro Marcelli

 

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

 

Franco Salvagni

 

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

 

Beniamino Gianfelici

 

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

 

Mark Korb

 

On July 5, 2019, the Company issued to Mr. Korb, the chief financial officer of the Company, seven year options to purchase 25,000 shares of common stock at an exercise price of $2.72 per share.

 

Paul Sallwasser

 

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

 

Steven Shallcross

 

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

 

16. Stockholders’ Equity

 

The Company issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation, as disclosed in Note 3 above.

 

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

 

F-53


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

16. Stockholders’ Equity (continued)

 

For the six months ended June 30, 2020, the Company issued a total of 226,985 shares of common stock, valued at $728,338, upon the conversion of convertible debentures into equity and for the year ended December 31, 2019, the Company issued a total of 1,866,528 shares of common stock, valued at $5,972,507, upon the conversion of convertible debentures into equity (Note 11).

 

On April 22, 2019, the Company issued 14,083 shares of common stock, valued at $45,066, to certain convertible debenture holders as an incentive for them to transfer their convertible debentures to another investor.

 

Between September 4, 2019 and September 17, 2019, the Company issued 284,721 shares of common stock, valued at $728,884 in settlement of promissory notes amounting to $457,461 and other liabilities amounting to $553,525.

 

17. Warrants

 

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

 

    Number of shares   Exercise price per share   Weighted average exercise price
  Outstanding January 1, 2019       76,566       $ 4.32     $ 4.32  
  Granted       1,096,224         4.00       4.00  
  Forfeited/cancelled       (27,000 )       5.04       5.04  
  Exercised       (40,761 )       4.64       4.64  
  Expired       (15,555 )       4.64       4.64  
  Outstanding December 31, 2019       1,089,474       $ 4.00     $ 4.00  
  Granted       374,373         3.75 to 5.00       3.99  
  Forfeited/cancelled       (1,089,474 )       4.00       4.00  
  Exercised                      
  Outstanding June 30, 2020       374,373       $ 3.75 to 5.00     $ 3.99  

 

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

 

    Warrants outstanding   Warrants exercisable
  Exercise price       Number of shares       Weighted average remaining years       Weighted average exercise price       Number of shares       Weighted average exercise price  
$ 3.75       301,644       1.92     $ 3.75       301,644     $ 3.75  
  5.00       72,729       2.79       5.00       72,729       5.00  
          374,373       2.,08     $ 3.99       374,373     $ 3,99  

 

 

F-54


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

18. Stock Options

 

In September 2018, our stockholders approved our 2018 Equity Incentive Plan, which provides for a maximum of 1,150,000 awards that can be issued as options, stock appreciation rights, restricted stock, stock units, other equity awards or cash awards. No awards were granted under the 2018 Equity Incentive Plan as of December 31, 2018. During July 2019, we issued an aggregate of 95,313 options to purchase common stock, of which options to purchase 25,000 shares of common stock were issued to our Chief Financial Officer, options to purchase 39,375 shares of common stock were issued to our Chief Executive Officer and options to purchase 30,938 shares of common stock were issued to directors. During August 2019, we issued an aggregate of 150,000 options to purchase shares of common stock of which options to purchase 25,000 shares of common stock were issued to each of Michele Ciavarella, our Chief Executive Officer, Alessandro Marcelli, our Vice President of Operations, Luca Pasquini, our Vice President of Technology, Gabriele Peroni, our Vice President Business Development, Franco Salvagni, our Vice President of Land-based Operations and Beniamino Gianfelici, our Vice President Regulatory Affairs. On November 11, 2019 we issued options to purchase 70,625 shares of common stock to various employees at an exercise price of $2.80 per share. As of June 30, 2020, there was an aggregate of 315,938 options to purchase shares of common stock granted under our 2018 Equity Incentive Plan and 834,062 reserved for future grants.

 

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

 

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

 

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

 

    Options outstanding   Options exercisable
Exercise price   Number of shares  

Weighted

average

remaining years

 

Weighted

Average

exercise price

  Number of shares  

Weighted

average

exercise price

                     
$ 2.72       25,000       6.01                        
$ 2.80       220,625       9.23               97,800          
$ 2.96       70,313       9.02               67,734          
          315,938       8.80     $ 2.84       165,534     $ 2.87  

 

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

 

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

 

F-55


 
 

 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

19. Revenues

 

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

 

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

 

20. Loss on extinguishment of convertible debt

 

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

 

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

 

  

Six months ended

June 30, 2020

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

 

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

 

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

 

F-56


 
 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

21. Net Income (Loss) per Common Share

 

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

 

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

 

For the three and six months ended June 30, 2020 and 2019, the following options, warrants and convertible debentures were excluded from the computation of diluted loss per share as the result of the computation was anti-dilutive:

 

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

 

 

22. Segmental Reporting

 

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

 

  (i) Betting establishments

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

 

  (ii) Betting platform software and services

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

 

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

 

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

 

F-57


 
 

NEWGIOCO GROUP, INC. 

Notes to Unaudited Condensed Consolidated Financial Statements

 

22. Segmental Reporting (continued)

 

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

 

   June 30, 2020
   Betting establishments  Betting platform software and services  All other  Adjustments  Total
Net Gaming Revenue  $14,955,646   $24,797   $—     $—     $14,980,443 
Intercompany Service revenue   —      1.209,799    —      (1,209,799)   —   
    14,955,646    1,234,596    —      (1,209,799)   14,980,443 
                          
Operating expenses                         
Intercompany service expense   1,209,799    —      —      (1,209,799)   —   
Selling expenses   10,165,294    7,233    —      —      10,172,527 
General and administrative expenses   2,151,956    1,841,608    1,710,824    —      5,704,388 
    13,527,049    1,848,841    1,710,824    (1,209,799)   15,876,915 
                          
Income (Loss) from operations   1,428,597    (614,245)   (1,710,824)   —      (896,472)
                          
Other (expense) income                         
Other income   25,660    —      —      —      25,660 
Interest expense, net   (1,574)   7    (171,506)   —      (173,073)
Amortization of debt discount   —      —      (737,074)   —      (737,074)
Loss on extinguishment of convertible debt   —      —      (719,390)   —      (719,390)
Gain (Loss) on marketable securities   —           722,500    —      722,500 
Total other (expenses) income   24,086    7    (905,470)   —      (881,377)
                          
Loss before Income Taxes   1,452,683    (614,238)   (2,616,294)   —      (1,777,849)
Income tax provision   (469,950)   41,965    (162,112)   —      (590,097)
Net Income  $982,733   $(572,273)  $(2,778,406)   —     $(2,367,946)

 

F-58


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

22. Segmental Reporting (continued)

 

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

 

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

 

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

 

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

 

F-59


 
 

 

NEWGIOCO GROUP, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

23. Subsequent Events

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

F-60


 
 

 

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

We estimate that expenses in connection with the distribution described in this registration statement (other than brokerage commissions, discounts or other expenses relating to the sale of the shares by the selling security holders) will be as set forth below. We will pay all of the expenses with respect to the distribution, and such amounts, with the exception of the Securities and Exchange Commission registration fee, are estimates.

 

Accounting fees and expenses  $5,000 
Legal fees and expenses   25,000 
Printing and related expenses   1,500 
Transfer agent fees and expenses   1,500 
SEC registration fee   227 
Miscellaneous   1,773 
Total  $35,000 

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

The Registrant incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred.

 

The Registrant’s amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective immediately prior to the closing of this offering, provide for the indemnification of its directors and officers to the fullest extent permitted under the Delaware General Corporation Law.

 

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

 

·transaction from which the director derives an improper personal benefit;
·act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
·unlawful payment of dividends or redemption of shares; or
·breach of a director’s duty of loyalty to the corporation or its stockholders.

 

The Registrant’s amended and restated certificate of incorporation includes such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by the Registrant upon delivery to it of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Registrant.

 

Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

 

83


 
 

As permitted by the Delaware General Corporation Law, the Registrant has entered into indemnity agreements with each of its directors and executive officers, that require the Registrant to indemnify such persons against any and all costs and expenses (including attorneys’, witness or other professional fees) actually and reasonably incurred by such persons in connection with any action, suit or proceeding (including derivative actions), whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer or is or was acting or serving as an officer, director, employee or agent of the Registrant or any of its affiliated enterprises. Under these agreements, the Registrant is not required to provide indemnification for certain matters, including:

 

  · indemnification beyond that permitted by the Delaware General Corporation Law;
  · indemnification for any proceeding with respect to the unlawful payment of remuneration to the director or officer;
  · indemnification for certain proceedings involving a final judgment that the director or officer is required to disgorge profits from the purchase or sale of the Registrant’s stock;
  · indemnification for proceedings involving a final judgment that the director’s or officer’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct or a breach of his or her duty of loyalty, but only to the extent of such specific determination;
  · indemnification for proceedings or claims brought by an officer or director against us or any of the Registrant’s directors, officers, employees or agents, except for claims to establish a right of indemnification or proceedings or claims approved by the Registrant’s board of directors or required by law;
  · indemnification for settlements the director or officer enters into without the Registrant’s consent; or
  · indemnification in violation of any undertaking required by the Securities Act or in any registration statement filed by the Registrant.

 

The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

 

Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of this registration statement, there is at present no pending litigation or proceeding involving any of the Registrant’s directors or executive officers as to which indemnification is required or permitted, and the Registrant is not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

The Registrant has an insurance policy in place that covers its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

 

The Registrant plans to enter into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify the Registrant’s directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

 

The following information sets forth certain information with respect to all securities that we have sold during the last three years. We did not pay any commissions in connection with any of these sales.

 

The following information sets forth certain information with respect to all securities that we have sold during the last three years. All issuances prior to December 31, 2019 do not reflect the Company’s 1 - for - 8 reverse stock split and all issuances subsequent to December 12, 2019 reflect the Company’s 1 - for - 8 reverse stock split. Except as otherwise stated, the offers, sales and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506 promulgated under Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment, business or other relationships, to information about the Registrant.

 

84


 
 

Post December 31, 2019 Reverse Stock Split

 

During July 2020, we issued an aggregate of 3,342 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.

 

During July 2020, we issued an aggregate of 35,130 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 3 to the financial statements.

 

During the quarter ended June 30, 2020, we issued warrants to purchase an aggregate of 10,727 shares of our common stock at an exercise price of $3.75 per share expiring May 30, 2022 to those debenture holders that extended the maturity date of their debentures to September 28, 2020 and 251,853 warrants to purchase an aggregate of 251,853 shares of our common stock at an exercise price of $3.75 per share expiring on May 30, 2022 and 72,729 warrants to purchase an aggregate of 72,729 shares of our common stock at an exercise price of $5.00 per share expiring on May 30, 2023 to those debenture holders that extended the maturity of the debentures to September 28, 2020.

 

During the quarter ended June 30, 2020, we issued an aggregate of 103,393 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.

 

During the quarter ended June 30, 2020 we issued an aggregate of 114,730 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 3 to the financial statements.

 

During the quarter ended March 31, 2020, we issued an aggregate of 123,591 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.

 

During the quarter ended March 31, 2020 we issued an aggregate of 71,510 shares of common stock to the sellers of Virtual Generation for payments owed to them pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 3 to the financial statements.

 

On December 31, 2019, we issued an aggregate of 132,735 shares of common stock to the sellers of Virtual Generation as full payment of the earnout pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 3 to the financial statements.

 

Between December 12, 2019 to December 31, 2019, we issued an aggregate of 276,081 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.

 

Pre-December 12, 2019 Reverse Stock Split

 

Between September 1, 2019 to December 11, 2019, we issued an aggregate of 8,615,734 pre-split (1,076,967 post-split) 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.

 

During the quarter ended December 31, 2019, we issued an aggregate of 651,680 pre-split (81,460 post-split) shares of common stock to the sellers of Virtual Generation pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 3 to the financial statements.

 

During the three months ended September 30, 2019, we issued an aggregate of 2,375,725 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.

 

During the three months ended September 30, 2019, we issued 833,210 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 4 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.

 

85


 
 

On September 4, 2019, we issued (i) 1,000,000 shares of common stock to Michele Ciavarella in exchange for $500,000 of accrued salary owed to him (ii) 121,570 shares of common stock to Gold Street Capital Corp in exchange for $48,508 of accounts payable owed to it, and (iii) 1,143,652 shares of common stock to Braydon Capital Corp in exchange for debt and accrued interest thereon of $457,460.77. On September 17, 2019, we issued 12,540 shares of common stock to Andrei Sheptikita in exchange for $5,017 of accounts payable owed to him.

 

During the six months ended June 30, 2019, we issued an aggregate of 1,731,868 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.

 

During the six months ended June 30, 2019, we issued 1,245,070 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 4 to the financial statements.

 

On April 22, 2019, we issued an aggregate of 89,857 shares of common stock to certain convertible debenture holders as an incentive for them to transfer the convertible debentures to another investor.

 

On April 29, 2019, we issued an aggregate of 22,808 shares of common stock to certain convertible debenture holders as an incentive for them to transfer the convertible debentures to another investor.

 

On January 30, 2019, we issued to the former stockholders of Virtual Generation Limited and Naos Holding notes in the aggregate principal amount of €2,392,000.

 

On May 31, 2018 and June 18, 2018, we closed a private placement offering (the “May 31, 2018 Private Placement”) and entered into Subscription Agreements (the “Agreements”) with a group of 130 unaffiliated accredited investors (the “Investors”). We offered Subscription Agreements in both US and Canadian dollar denomination. Each Unit sold to US Investors was sold at a per unit price of $1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of $1,000 (the “U.S. Debentures”), (ii) 208 shares of our common stock and (iii) 1082.25 warrants to purchase shares of our common stock (the “U.S. Warrants”). Each Unit sold to Canadian Investors was sold at a per unit price of CDN$1,000 and was comprised of (i) a 10% convertible debenture in the principal amount of CDN$1,000 (the “Canadian Debentures” and together with the U.S. Debentures, the “May Debentures”), (ii) 160 shares of our common stock and (iii) Warrants to purchase 832.5 shares of our common stock (the “Canadian Warrants” and together with the U.S. Warrants, the “May Warrants”). The Investors in the May 31, 2018 Private Placement purchased a total 4,218 U.S. units and we issued US Debentures in the principal amount of $4,218,000 and 4,809.5 Canadian units and we issued Canadian Debentures in the principal amount of CDN$4,809,500 (approximately $3,739,200), and the Investors received 8,627,546 Warrants to purchase shares of common stock and 1,447,744 shares of common stock.

 

The May Warrants are exercisable at an exercise price of $4.00 per share and expire two years after the issuance date. The May Warrants are subject to adjustment provisions contained in the May Warrant for stock split and stock dividends and other similar transactions, and exercise of the May Warrants may be accelerated by us if the closing price of our common stock exceeds 200% of the exercise price for a period of 20 trading days in a 30 day period at any time up to the expiration date of the Warrant

 

To facilitate the transaction, we paid finders fees equal to 5% of the gross proceeds in cash plus broker warrants to purchase 5% of the number of Warrants sold to Investors in the May 31, 2018 Private Placement. The broker warrants had like terms as the Warrants issued to Investors in the May 31, 2018 Private Placement.

 

In May 2018, we issued 4,735,600 shares of common stock were issued to the sellers of Ulisse based on the purchase price adjustment per the securities purchase agreement that we entered into in 2016.

 

In May 2018, we issued 201,088 shares of common stock upon the cashless exercise of a warrant. The issuance of common stock in the conversion was exempt from registration under the Securities Act by virtue of the exemption provided under Section 3(a)(9) thereof as the common stock was exchanged by us with our existing security holder exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

 

On May 11, 2018, we issued debentures units to certain Investors (the “May 11, 2018 Private Placement”). The investors in the May 11, 2018 Private Placement purchased an aggregate principal amount of CDN$131,000 (approximately $102,000) debentures and received 32,750 warrants to purchase shares of common stock and 20,960 shares of common stock.

 

On April 23, 2018, we re-issued debenture units that were first issued to certain Investors between January 24, 2017 and January 31, 2018 in order to simplify the various debentures into a single series with the same terms as new convertible debenture units issued on February 26, 2018 (the “April 19, 2018 Debentures”). The investors in the April 19, 2018 debentures received an aggregate principal amount of CDN$1,436,000 (approximately $1,118,600) debentures and received 359,000 warrants to purchase shares of common stock and 229,760 shares of common stock.

 

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In April 2018, we issued debentures units to certain investors (the “April 2018 Private Placement”). The investors in the April 2018 Private Placement purchased an aggregate principal amount of CDN$135,000 (approximately $105,200) debentures and received 33,750 warrants to purchase shares of common stock and 21,600 shares of common stock.

 

On February 26, 2018, we issued debentures units to certain accredited investors (the “February 2018 Private Placement”). Each debenture unit was comprised of (i) a note in the principal amount of CDN$1,000 bearing interest at a rate of 10% per annum, with a maturity date of two years from the date of issuance, (ii) warrants to purchase up to 250 shares of the Company’s common stock at an exercise price equal to the lessor of $0.625 or 125% of the proposed initial Canadian public offering price per warrant, expiring on February 25, 2020, and (iii) 160 shares of restricted common stock. The investors in the February 2018 Private Placement purchased an aggregate principal amount of CDN$670,000 (approximately $521,900) debentures and received warrants to purchase up to 167,500 shares of the Company’s common stock and 111,000 shares of common stock. As a result of the lower debenture conversion price and the warrant exercise price of the May 31, 2018 Private Placement described below, the whole or any part of the principal amount of the February 2018 Private Placement debentures plus any accrued and unpaid interest may be converted into shares of our common stock at a price equal to $3.20 per share and the warrants can be exercised at a price equal to $4.00 per share. In addition, we paid finders fees equal to 5% of the gross proceeds in cash plus 5% in broker warrants with like terms as the Warrants issued to investors in the February 2018 Private Placement.

 

On December 22, 2017, we issued an aggregate of 75,000 shares of common stock at 100% of the market price of $0.26 per share as payment towards fees due to Worldwide Financial Marketing, Inc. to provide investor and financial public relations to us.

 

On October 3, 2017, we issued an aggregate of 50,000 shares of common stock at 100% of the market price of $0.70 per share to retain Worldwide Financial Marketing, Inc. to provide investor and financial public relations to us.

 

On June 15, 2017, in connection with the appointment of the new directors, we issued 40,000 shares of restricted common stock (restricted stock award) to each of the new directors. The 40,000 of the restricted stock awards were cancelled on February 15, 2018 and 120,000 restricted stock awards were cancelled on June 1, 2018.

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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Exhibit No.   Description
3.1   Certificate of Incorporation (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 22, 2002)
3.2   Bylaws 2017 (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 22, 2002)
3.3   Certificate of Amendment (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on December 9, 2004)
3.4   Certificate of Amendment (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 5, 2005)
3.5   Certificate of Amendment (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on October 5, 2005)
3.6   Certificate of Ownership and Merger (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on July 22, 2016)
3.7   Certificate of Amendment of Certificate of Incorporation dated November 28, 2017 (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on December 15, 2017)
3.9   Certificate of Amendment of Certificate of Incorporation dated July 2, 2018 (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on July 9, 2018)
4.1   Subscription Agreement between the Company and the Investors (United States Dollar) that includes the Form of Debenture and Form of Common Share Purchase Warrant Certificate (Incorporated by reference to the Company’s 8-K, File No. 000-50045, filed with the Securities and Exchange Commission on June 1, 2018)
4.2   Form of $5.00 Warrant Issued to FGP Protective Opportunity Master Fund and Thomas Prasil Trust
4.3   Form of $3.75 Warrant Issued to FGP Protective Opportunity Master Fund and Thomas Prasil Trust
5.1   Opinion of Gracin & Marlow, LLP*
21.1   List of Subsidiaries *
23.1   Consent of Independent Registered Public Accounting Firm*
23.2   Consent of Gracin & Marlow, LLP (contained in Exhibit 5.1)*
24.1   Power of Attorney (Included on the signature page of the initial registration statement)*
         

 

*Filed herewith

 

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ITEM 17. UNDERTAKINGS

 

The undersigned Registrant hereby undertakes:

 

 

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)to include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)to reflect in the prospectus any acts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement (notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and
(iii)to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; provided , however , that subparagraphs (i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those subparagraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

(2)That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)To remove from registration, by means of a post-effective amendment, any of the securities being registered which remain unsold at the termination of the offering.

 

(4)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

(i)Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)for the purpose of providing the information statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided , however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

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(5)That, for the purpose of determining liability of the registrant under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a)or Section 15(d)of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d)of the Securities Exchange Act of 1934)that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(6)If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided , however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(7)Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Registrant of expenses incurred or paid by a director, officer or controlling person of a Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, that Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

(8)For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(9)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on the Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Toronto, Ontario, Canada, October 21, 2020.

 

  NEWGIOCO GROUP, INC.
     
     
  By: /s/ Michele Ciavarella
  Name: Michele Ciavarella
  Title: Chief Executive Officer

 

POWER OF ATTORNEY

 

We, the undersigned hereby severally constitute and appoint Michele Ciavarella our true and lawful attorney and agent, with full power to sign for us, and in our names in the capacities indicated below, any and all amendments to this registration statement, any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

 

         

Signature

 

Title

 

Date

 

 

/s/ Michele Ciavarella

 

Chief Executive Officer and Chairman of the

Board of Directors

October 21, 2020
Michele Ciavarella   (Principal Executive Officer)  
       

/s/ Matteo Monteverdi

  President October 21, 2020
Matteo Monteverdi      
       

/s/ Mark Korb

Mark Korb

 

Chief Financial Officer (Principal Financial Officer

and Principal Accounting Officer)

October 21, 2020
       
/s/ Luca Pasquini   Chief Technology Officer and Director October 21, 2020
Luca Pasquini      
       
/s/ Paul Sallwasser   Director October 21, 2020
Paul Sallwasser      
       
/s/ Steven Shallcross   Director October 21, 2020
Steven A. Shallcross      
       
/s/ Philippe Blanc   Director October 21, 2020
Phillipe Blanc      

 

Exhibit 4.2

 

COMMON SHARE PURCHASE WARRANT CERTIFICATE

 

No. W-Form

 

Certificate for ______ Warrants

 

 

NOT EXERCISABLE AFTER 5:00 P.M.,

EASTERN STANDARD TIME, ON May 31, 2022

 

 

 

NEWGIOCO GROUP, INC.

 

 

COMMON SHARE PURCHASE WARRANT CERTIFICATE

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

THIS CERTIFICATE CERTIFIES THAT ___________________________________ or its registered assigns is the registered holder (the “Holder”) of the number of Warrants set forth above, each of which represents the right to purchase, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after December 1, 2020 (the “Initial Exercise Date”) one (1) fully paid and non-assessable common share (the “Common Share”) of NEWGIOCO GROUP, INC., a corporation organized under the laws of the State of Delaware (the “Company”), at the Exercise Price (as hereinafter defined), by surrendering this Warrant Certificate, with the form of Election to Exercise attached hereto duly executed and by paying in full the Exercise Price (the Common Shares issuable upon exercise of the Warrants being referred to herein as (the “Warrant Shares”) at the principal office of the Company as set forth below. No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on May 31, 2022 (the “Expiration Date”). All Warrants evidenced hereby shall thereafter become void.

 

At any time or times on or after the Initial Exercise Date and on or prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate, the Holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate at the principal office of the Company with the form of assignment set forth hereon duly executed. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrant Shares will be issued in accordance with instructions in the form of assignment.

 

 
 

1.Exercise of the Warrants

 

(a)                Cash Exercise. Subject to Section 1. (d), at any time or times on or after the Initial Exercise Date and on or prior to the Expiration Date, the Holder shall be entitled to exercise some or all of the Warrants represented by this Warrant Certificate and purchase an equal number of Common Shares upon surrender of this Certificate at the principal office of the Company, together with:

 

(i)       the form of Election to Purchase annexed hereto duly executed; and

 

(ii)       a certified check, bank draft or wire transfer of funds, payable at par, in United States currency, to or to the order of the Company, in the amount of the Exercise Price per Warrant (as hereinafter determined) multiplied by the number of Warrants being so converted.

 

The exercise price per Warrant to be exercised shall be at a price equal to US$________ (U.S. __________ Dollars) (the “Exercise Price”).

 

(b)               Cashless Exercise. Subject to Section 1. (d), if and only if at any time after the Initial Exercise Date, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the last VWAP immediately preceding the time of delivery of the Form of Election of Purchase giving rise to the applicable “cashless exercise”, as set forth in the applicable Form of Election of Purchase (for the avoidance of doubt, the “last VWAP” will be the VWAP as calculated over the preceding five (5) Trading Days such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the VWAP over the prior five (5) Trading Days shall be used in this calculation);

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares being exercised under this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 1(b).

 

VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Shares so reported, or (d) in all other cases, the fair market value of a share of Common Shares as determined by an independent appraiser selected in good faith by the stockholders of a majority in interest of the securities of the Company then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 
 

“Trading Market” means the stock exchange or market in the United States on which the Common Shares are listed or quoted.

 

Trading Days” means a date on which a Trading Market is open for the conduct of trading.

 

(c)                Partial Exercise. Upon the exercise of less than all of the Warrants to purchase the Common Shares evidenced by this Warrant Certificate, there shall be issued to the Holder a new Warrant Certificate in respect of the Warrants not exercised.

 

(d)               Acceleration. If at any time after the Initial Exercise Date, there is an effective Registration Statement registering, or a current prospectus available for, the resale of the Warrant Shares by the Holder and the closing price of the Company’s Common Shares exceeds one hundred and fifty (150%) per cent of the Exercise Price and the average trading volume is no less than two (2) times the number of Warrant Shares to be exercised for a period of ten (10) trading days in a thirty (30) day period, the Corporation may accelerate the time in which to exercise the Warrants by giving at least ten (10) business days prior written notice to the Holder of such acceleration and the Holder may exercise the Warrants prior to the date specified in such notice of acceleration. Provided however that the number of shares to be issued shall be delivered on a T+2 basis as per the transfer agent documents. The Holder may at their sole discretion demand reasonable compensation if the shares are not delivered to the holder on a T+2 basis.

 

 
 

2.Fractional Shares

 

The Company shall not be required to issue fractional shares upon the exercise of some or all of the Warrants represented by this Warrant Certificate.

 

3.Limitation

 

This Warrant Certificate shall not entitle the Holder to any of the rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company.

 

4.Registration of Warrant Certificates

 

The Company shall number and register the Warrant Certificates in a warrant register maintained by the Company as they are needed. The Company may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof for all purposes. Upon request by a Holder requesting such information for the purpose of obtaining a consent, waiver or other action of Holders, the Company will notify that Holder as to the identity and address of record of the other Holders.

 

5.Transfer of Warrant Certificate and Warrant Shares

 

(1)The Company shall from time to time register the transfer of any outstanding Warrant Certificates in the warrant register upon surrender thereof accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company duly executed by the Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, the Company shall issue as promptly as practicable in any event within three (3) Business Days (as hereinafter defined) after receipt of such notice of transfer of a new Warrant Certificate to the transferee(s). As used in the Warrant Certificate, the term “Business Day” means any day which is not a Saturday, Sunday or statutory holiday in the City of New York.

 

(2)Warrant Certificates may be exchanged at the option of the Holder(s) thereof when surrendered to the Company at the address set forth herein for another Warrant Certificate or Warrant Certificates of like tenor and representing the right to purchase in the aggregate a like number of Warrant Shares; provided that the Company shall not be required to issue any Warrant Certificates representing any fractional Warrant Shares.

 

(3)The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new Warrant Certificates, including, without limitation, any transfer or stamp taxes.

 

6.Lost, Stolen, Mutilated or Destroyed Warrant Certificates

 

If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue, execute and deliver, in exchange and substitution for and upon cancellation of such mutilated Warrant Certificate, or in lieu of or in substitution for such lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate representing an equivalent number of Warrants or Warrant Shares. If required by the Company, the Holder of the mutilated, lost, stolen or destroyed Warrant Certificate must provide an affidavit of loss and an indemnity reasonably sufficient to protect the Company from any loss which it may suffer if the Warrant Certificate is replaced. Any new Warrant Certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by any person.

 

 
 

7.Cancellation of Warrant Certificates

 

Any Warrant Certificate surrendered upon the exercise of Warrants or for exchange or transfer, or purchased or otherwise acquired by the Company, shall be cancelled and shall not be reissued by the Company; and, except as provided in Section 1 with respect to the exercise of less than all of the Warrants evidenced by a Warrant Certificate or in Section 5 with respect to an exchange or transfer, no Warrant Certificate shall be issued hereunder in lieu of such cancelled Warrant Certificate. Any Warrant Certificate so cancelled shall be destroyed by the Company.

 

8.Issuance of Common Shares

 

As promptly as practicable after the date on which part or all of the Warrants represented by this Warrant Certificate are exercised (the “Date of Exercise”) of any Warrants and in any event within three (3) Business Days after receipt of the Election to Exercise, the Company shall issue, or cause its transfer agent to issue, a certificate or certificates for the number of non-fractional Warrant Shares (the “Common Share Certificate”) or to transfer by electronic delivery of Warrant Shares through the DTC-DWAC system, registered in accordance with the instructions set forth in the Election to Exercise. All Warrant Shares issued upon the exercise of any Warrants shall be legally and validly authorized and issued and outstanding, fully paid, non-assessable, free of pre-emptive rights and free from all taxes, liens, charges and security interests in respect of the issuance thereof. Each person in whose name any such Common Share Certificate is issued shall be deemed for all purposes to have become the holder of record of the Common Shares represented thereby on the Date of the Exercise of the Warrants resulting in the issuance of such shares, irrespective of the date of issuance or delivery of such Common Share Certificate.

 

The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new Common Share Certificates, including, without limitation, any transfer or stamp taxes. 

 

9.Reservation of Common Shares; Listing

 

The Company shall reserve and keep available, free from pre-emptive rights, for issuance upon the exercise of Warrants, the maximum number of its authorized but unissued Common Shares which may then be issuable upon the exercise in full of all outstanding Warrants.

 

10.No Impairment

 

The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, amalgamation, combination, merger, dissolution, issue or sale of securities or any other voluntary action, avoid, or seek to avoid the observation or performance of any of the terms of the Warrants, the Warrant Certificates or this Certificate, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holders against impairment. Without limiting the generality of the foregoing, the Company shall obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants. In case any securities other than the Common Shares (“Other Securities”) shall be issued or sold, or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or Person), for a consideration per share of Other Security such as to dilute the purchase rights evidenced by the Warrants, the computations, adjustments and readjustments provided for in Section 11 with respect to the Exercise Price and the number of Warrant Shares shall be made as nearly as possible in the manner so provided and applied so as to protect the Holders against the effect of such dilution.

 

 
 

11.Adjustment of Exercise Price

 

Subject to the provisions of this Section 11, the Exercise Price in effect from time to time shall be subject to adjustment, as follows:

 

(1)In the event that the Company shall (i) declare a dividend or make a distribution on the outstanding Common Shares in additional Common Shares, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares, or (iii) consolidate, combine or reclassify the outstanding Common Shares into a fewer number of shares, the Exercise Price in effect immediately after the record date for such dividend or distribution or the effective date of such subdivision, consolidation, combination or reclassification, as the case may be, shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of Common Shares outstanding immediately before such dividend, distribution, subdivision, consolidation, combination or reclassification, and of which the denominator shall be the number of Common Shares outstanding immediately after such dividend, distribution, subdivision, consolidation, combination or reclassification. Any Common Shares issuable in payment of a dividend shall be deemed to have been issued immediately prior to the record date or other applicable date cited in Sections 11(2) or 11(3) for the purpose of calculating the number of outstanding Common Shares under Sections 11(2) or 11(3). Such adjustment shall be made successively whenever any event specified above shall occur.

 

(2)In the event that the Company shall fix a record date for the issuance of rights, options, warrants or convertible or exchangeable securities to all or substantially all holders of its Common Shares entitling them (for a period which, by its express terms, expires within forty-five (45) days after such record date) to subscribe for or purchase Common Shares at a price per share less than the Fair Market Value of a Common Share on such record date, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of Common Shares outstanding on such record date plus the maximum number of Common Shares which the aggregate offering price of the total number of Common Shares so offered would purchase at the Fair Market Value per share, and of which the denominator shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares offered for subscription or purchase. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such rights, options, warrants or convertible or exchangeable securities are not so issued or expire unexercised, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such unissued or unexercised rights, options, warrants or convertible or exchangeable securities had not been issuable. As used in this Warrant Certificate, the term “Fair Market Value” means the price at which a buyer and seller would transfer a Common Share both being fully informed of all relevant information and neither being under any compulsion to buy or sell, as the case may be and, for the purposes of this Section 11(2), shall, at the request of a Holder, be determined by the Company’s Board of Directors in good faith and on a reasonable basis.

 

(3)In the event that the Company shall fix a record date for the making of a distribution to all or substantially all holders of Common Shares (i) of shares of any class other than its Common Shares or (ii) of the evidence of its indebtedness or (iii) of assets or (iv) of rights, options, warrants or convertible or exchangeable securities, then in each such case the Exercise Price in effect immediately thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Fair Market Value per share on such record date, less the aggregate fair market value as determined in good faith by the Company’s Board of Directors of said shares or evidences of indebtedness or assets or rights, options, warrants or convertible or exchangeable securities as distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Fair Market Value per share. Such adjustment shall be made successively whenever such a record date is fixed; provided, however, that in no event shall the Exercise Price be less than zero. In the event that such distribution is not so made, or that such distribution, by its express terms, is intended to be made, and is in fact made, to all holders of Warrant Shares upon exercise of their respective Warrants, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed.
 
 

12.No Adjustment to Exercise Price

 

No adjustment in the Exercise Price in accordance with the provisions of Section 11 need be made unless such adjustment would amount to a change of at least one (1.0%) per cent in such Exercise Price, provided, however, that the amount by which any adjustment is not made by reason of the provisions of this Section 12 shall be carried forward and taken into account at the time of any subsequent adjustment in the Exercise Price.

 

13.Adjustment of Number of Shares

 

Upon each adjustment of the Exercise Price pursuant to Section 11, each Warrant shall thereupon evidence the right to purchase that number of Warrant Shares (calculated to the nearest hundredth of a share) obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment upon exercise of the Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment.

 

14.Reorganizations

 

In the event of any capital reorganization, other than in the cases referred to in Section 11(1), or the consolidation, amalgamation, merger or other combination of the Company with or into another corporation (other than a consolidation, amalgamation, merger or other combination in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Shares or the conversion of such outstanding Common Shares into shares of other stock or other securities or property), or the sale, transfer or conveyance of the property of the Company as an entirety or substantially as an entirety (collectively such actions being hereinafter referred to as “Reorganizations”), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of Warrant Shares theretofore deliverable) the number of shares of stock or other securities of property to which a holder of the number of Warrant Shares which would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In the event of any Reorganization, appropriate adjustment, as determined in good faith by the Company’s Board of Directors, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. Any such adjustment shall be made by and set forth in a supplemental agreement prepared by the Company or any successor thereto, between the Company and any successor thereto, and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization, unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of Common Shares outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder of any Warrant Certificate such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the foregoing provisions.

 

15.Notice of Certain Actions

 

In the event the Company shall (a) declare any dividend payable in stock to the holders of its Common Shares or make any other distribution in property other than cash to the holders of its Common Shares, (b) offer to the holders of its Common Shares rights to subscribe for or purchase any shares of any class of stock or any other rights or options, or (c) effect any reclassification of its Common Shares (other than a reclassification involving merely the subdivision or combination of outstanding Common Shares) or any capital reorganization or any consolidation, amalgamation, merger or other combination (other than a consolidation, amalgamation, merger or other combination in which no distribution of securities or other property is made to holders of Common Shares) or any sale, transfer or other disposition of its property, assets and business substantially as an entirety, or the liquidation, dissolution or winding up of in the Company; then, in each such case, the Company shall cause notice of such proposed action to be mailed to each Holder at least thirty (30) days prior to such action. Such notice shall specify the date on which the books of the Company shall close, or a record be taken, for determining holders of Common Shares entitled to receive such stock dividend or other distribution or such rights or options, or the date on which such reclassification, reorganization, consolidation, amalgamation, combination, merger, sale, transfer, other disposition, liquidation, dissolution, winding up or exchange shall take place or commence, as the case may

 

 
 

be, and the date as of which it is expected that holders of record of Common Shares shall be entitled to receive securities or other property deliverable upon such action, if any such date has been fixed. Such notice shall be mailed in the case of any action covered by paragraph (a) and (b) of this Section 15, at least ten (10) days prior to the record date for determining holders of the Common Shares for purposes of receiving such payment or offer, and in the case of any action covered by this paragraph (c), at least ten (10) days prior to the record date to determine holders of Common Shares entitled to receive such securities or other property.

 

16.Certificate of Adjustment

 

The Company shall perform any computations and determine any adjustments required to be made under this Certificate (the “Adjustment”) and shall cause an independent nationally recognized firm of chartered accountants selected by the Company to verify each Adjustment. As promptly as practicable after determining any Adjustment, and upon receipt of the aforementioned verification, the Company shall prepare a certificate executed by the President of the Company setting forth such Adjustment and mail such certificate to each Holder (an “Adjustment Notice”). The Adjustment Notice shall include in reasonable detail (a) the events precipitating the Adjustment, (b) the computations relating to such Adjustment, and (c) the Exercise Price and the number of shares or the securities or other property purchasable upon exercise of each Warrant after giving effect to such Adjustment. In the event that the Holders of Warrants entitling such Holders to purchase a majority of the Warrant Shares subject to purchase upon exercise of Warrants at the time outstanding (the “Required Interest”) shall disagree with any Adjustment, the Required Interest shall give notice thereof (the “Dispute Notice”) to the Company within fifteen (15) days after the Adjustment Notice. Upon receipt of the Dispute Notice, the Company shall promptly engage an independent nationally recognized firm of chartered accountants acceptable to the Required Interest to make an independent determination of such disputed Adjustment (the “Independent Adjustment”). The Independent Adjustment shall be final and binding on the Company and all Holders. If the disputed Adjustment and the Independent Adjustment differ by an amount of three (3%) per cent or less of the value of the disputed Adjustment, then the costs of conducting the independent determination shall be borne by the Required Interest (pro rata, in accordance with the number of Warrants held by each, with each subject Holder jointly and severally liable); if the disputed Adjustment and the Independent Adjustment differ by more than three (3%) per cent of the disputed Adjustment, then the costs of conducting the independent determination shall be borne entirely by the Company; provided that in each case costs separately incurred by the Company and any Holders shall be separately borne by them.

 

17.Warrant Certificate Amendments

 

Irrespective of any adjustments pursuant to this Section 17, Warrant Certificates theretofore or thereafter issued need not be amended or replaced, but certificates thereafter issued shall bear an appropriate legend or other notice of any adjustments; provided the Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment in the Exercise Price and number of Warrant shares purchasable under the Warrants.

 

18.Fractional Shares

 

The Company shall not be required upon the exercise of any Warrant to issue fractional Warrant Shares which may result from adjustments in accordance with this Section 18 to the Exercise Price or number of Warrant Shares purchasable under each Warrant. If more than one Warrant is exercised at one time by the same Holder, the number of Warrant Shares which shall be issuable upon the exercise thereof shall be computed based on the aggregate number of Warrant Shares purchasable upon exercise of such Warrants.

 

19.Payment of Taxes and Charges

 

The Company will pay all taxes (other than income taxes or other similar taxes personal to the Holders, including without limitation, non-resident withholding taxes) and other government charges payable in connection with the issuance or delivery or transfer of the Warrants and the initial issuance or delivery of Warrant Shares upon the exercise of any Warrants and payment of the Exercise Price.

 

 
 

20.Changes to Agreement

 

The Company, when authorized by its Board of Directors, with the written consent of Holders of Warrants entitling such Holders to purchase a majority of the Warrant Shares subject to purchase upon exercise of the Warrants outstanding at such time, may amend or supplement this Certificate, except that no amendment which (i) increases the Exercise Price or reduces the number of Warrant Shares or otherwise economically impairs the value of the Warrants or (ii) amends the provisions of Sections 11, 12, 13, 14, 15, 16, 17 and 18 shall be enforceable against a Holder who has not consented in writing to such amendment.

 

21.Assignment

 

All the covenants and provisions of this Certificate by or for the benefit of the Company or the Holders shall bind and inure to the benefit of their respective successors and assigns.

 

22.Successor to Company

 

In the event that the Company consolidates, amalgamates, merges or otherwise combines with or into any other corporation or sells, transfers or otherwise conveys its property, assets and business substantially as an entirety to a successor corporation or entity, the Company shall prior to such events becoming effective, have such successor corporation or other entity assume by a written instrument each and every undertaking covenant and condition of this Certificate to be performed and observed by the Company, and such successor corporation or other entity shall be deemed, upon the closing of such merger, amalgamation, combination, consolidation, conveyance or sale, to have so assumed such liabilities.

 

 
 

23.Notices

 

Any notice or demand required by this Certificate to be given or made by any Holder to or on the Company shall be sufficiently given or made if such notice is in writing and sent by first-class or registered mail, postage prepaid, addressed as follows:

 

To the Company: NEWGIOCO GROUP, INC.

c/o 130 Adelaide St. W., Suite 701

Toronto, Ontario M5H 2K4

 

Attention: Michele Ciavarella, C.E.O.

 

 

To the Holder at: See Subscription Agreement

 

 

In all cases with a copy to: Signature Stock Transfer, Inc.

14673 Midway Road, Suite #220,

Addison, Texas 75001

 

Attention: Jason M. Bogutski, President

 

Any notice or demand required by this Certificate to be given or made by the Company to or on any Holder shall be sufficiently given or made if such notice is in writing and sent by first-class or registered mail, postage prepaid, addressed to such Holder and sent to the address set below such Holder’s name on the attached signature pages or, if a subsequent Holder, the address of such Holder on the Company’s warrant register.

 

Any notice or demand required by this Certificate to be given or made by the Company to or on any Holder shall be sufficiently given or made, whether or not such Holder receives the notice, five (5) days after mailing, if sent by first-class or registered mail, postage prepaid, addressed to such Holder at its last address as shown on the books of the Company. Otherwise, such notice or demand shall be deemed given when received by the party entitled thereto.

 

24.Defects in Notice

 

Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice pursuant to this Certificate shall not affect in any way the right of any Holder or the legality or validity of any adjustment made pursuant to Section 11 hereof.

 

 
 

25.Securities Law.

 

Neither the sale of this Warrant nor the issuance of any of the Warrant Shares upon exercise of this Warrant have been registered under the Act or under the securities laws of any state. If there is no effective Registration Statement registering, or no current prospectus available for the resale, unless the Holder utilises a cashless exercise the issuance of the Warrant Shares upon exercise of this Warrant shall be subject to compliance with all applicable Federal and state securities laws. Until the Warrant Shares have been registered under the Act and registered and qualified under the securities laws of any state in question, the Corporation shall cause each certificate evidencing any Warrant Shares to bear the following legend and such other legends as may be required by applicable law:

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

26.Governing Law

 

This Certificate and each Warrant Certificate issued hereunder shall be governed by the laws of the State of Delaware applicable therein without regard to principles of conflicts of laws thereof.

 

27.Standing

 

Nothing in this Certificate expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company and the Holders any right, remedy or claim under or by reason of this Certificate or of any covenant, condition, stipulation, promise or agreement contained herein; and all covenants, conditions, stipulations, promises and agreements contained in this Certificate shall be for the sole and exclusive benefit of the Company and its successors and the Holders.

 

28.Headings

 

The descriptive headings of the sections of this Certificate are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

29.Counterparts

 

This Certificate may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and all of which together shall constitute one and the same instrument.

 

30.Availability of the Agreement

 

The Company shall keep copies of this Certificate available for inspection by Holders during normal business hours. Copies of this Certificate may be obtained upon written request addressed to the Company at the address set forth in Section 23.

 

 
 

31.Entire Agreement

 

This Certificate, including Schedules referred to herein and the other agreements and writings specifically identified herein or contemplated hereby, is complete, reflects the entire agreement of the parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings.

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed.

 

DATED as of the 1 day of June, 2020.

 

NEWGIOCO GROUP, INC.

 

 

 

 

By: _______________________________

Name: Michele Ciavarella

Title: C.E.O.

 

 
 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of Warrants to purchase Common Shares set for below:

 

Name of Assignee ___________________________

 

Address _____________________________________________________________________

 

No. of Warrants: __________

 

and does hereby irrevocably constitute and appoint ___________________________ true and lawful attorney, to make such transfer on the books of NEWGIOCO GROUP, INC. maintained for that purpose, with full power of substitution in the premises.

 

 

 

DATED:____________________________ ____________________________________

Signature

 

 

____________________________________

(Signature must conform in all respects to

name of holder as specified on the face of

the Warrant Certificate.)

 
 

FORM OF ELECTION OF EXERCISE

(to be executed only upon exercise of Warrant)

 

To: Newgioco Group, Inc.

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

Attn: Julian L. Doyle, LLB

 

or such other address notified by the Company to the Holder.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Newgioco Group, Inc. a Delaware corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

CASH BASIS

 

Exercise Price. The Holder intends that payment of the Exercise Price shall be with respect to Warrant Shares.

 

Payment of Exercise Price. The Holder shall pay the Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant.

 

Payment is being made by:

_____       enclosed check

_____       wire transfer

_____       other

 

Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant.

 

CASHLESS BASIS

 

Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant based on the following formula:

 

Y =       (A-B) x X

A

 

Where Y = the number of shares of Common Stock to be issued to the Holder

A =the last VWAP immediately preceding the time of delivery of the Form of Election of Purchase giving rise to the applicable “cashless exercise”, as set forth in the applicable Form of Election of Purchase (for the avoidance of doubt, the “last VWAP” will be the VWAP as calculated over the preceding five (5) Trading Days such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the VWAP over the prior five (5) Trading Days shall be used in this calculation);
B =the Exercise Price of this Warrant, as adjusted hereunder; and
X =the number of Warrant Shares being exercised under this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

Delivery. The shares of Warrant Shares shall be delivered to the following:

 

 
 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:

 

 

 

 

Signature of Authorized Signatory of Investing Entity:

 

 

 

Name of Authorized Signatory:

 

 

Title of Authorized Signatory:

 

 

Date:

 

 
 

 

SCHEDULE “D”

TO BE COMPLETED BY SUBSCRIBERS UNDER ACCREDITED INVESTOR EXEMPTION

ACCREDITED INVESTOR CERTIFICATE

In connection with the purchase of Debentures of the Corporation by the undersigned subscriber or, if applicable, the principal on whose behalf the undersigned is purchasing as agent (the “Subscriber” for the purposes of this Schedule D), the Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:

 

1.The Subscriber is resident in the jurisdiction as set forth on the face page of this Subscription Agreement or is subject to the securities laws of such jurisdiction;

 

2.The Subscriber is purchasing the Debentures as principal for its own account or a fully managed account;

 

3.The Subscriber is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated by the SEC under the 1933 Act and the regulations promulgated thereunder, by virtue of satisfying the indicated criterion as set out in Appendix A to this Accredited Investor Certificate;

 

4.The Subscriber was not created or used solely to purchase or hold securities as an “accredited investor” as described in paragraph (m) of the attached Appendix A of this Schedule D;

 

5.Upon execution of this Schedule D by the Subscriber, this Schedule D shall be incorporated into and form a part of the Subscription Agreement; and

 

6.The Subscriber acknowledges that he has requested and is satisfied that this Subscription Agreement and all documentation related thereto be drawn up in the English language. Le soussigné reconnaît qu’il a exigé que cette contrat d’abonnement ainsi que toutes les autres documents qui s’y rattachent soit rédigé et exécuté en anglais et s’en déclare satisfait.

 

The foregoing representations and warranties are true an accurate as of the date of this certificate and will be true and accurate as of Closing Date. If any such representations and warranties shall not be true and accurate prior to Closing Date, the Subscriber shall give immediate written notice of such fact to the Corporation.

Dated: _________________________________________, 2020.

 

 

Print name of Subscriber

 

By:

Signature

 

 

Print name of Signatory (if different from Subscriber)

 

 

Title

 

IMPORTANT: PLEASE MARK THE CATEGORY OR CATEGORIES

IN APPENDIX A ON THE NEXT PAGE THAt DESCRIBES YOU.

 
 

APPENDIX A

 

CONFIRMATION OF APPLICABLE PORTION OF ACCREDITED INVESTOR DEFINITION

 

NOTE: THE INVESTOR MUST INITIAL BESIDE THE APPLICABLE PORTION OF THE DEFINITION BELOW.

 

NEWGIOCO GROUP, INC.

(The “Company”)

 

The purpose of this Statement is to obtain information relating to whether or not you are an accredited investor as defined in Securities and Exchange Regulation D as well as your knowledge and experience in financial and business matters and to your ability to bear the economic risks of an investment in the Company.

 

As used in Regulation D, the following terms shall have the meaning indicated:

 

a.       Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

 

1.       Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

 

2.       Any private business development company as defined in section 202(a)22 of the Investment Advisers Act of 1940;

 

3.       Any organization described in section 501(c)3 of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

4.       Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

 

5.       Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000, excluding the value of the person’s primary residence, but including any excess liability between the value of the residence and the amount of any obligation(s) thereon;

 

6.       Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

7.       Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

 

 
 

8.       Any entity in which all of the equity owners are accredited investors.

1.       Name, Home Address and Telephone Number:

 

________________________________________________________________________

Name

________________________________________________________________________

Address

 

Telephone (_____) ______________________________

 

2.       Residence

 

(a)       If an individual, what is your principal place of residence?

 

__________________________________________________________________

 

__________________________________________________________________

 

(b)       If not an individual:

 

(1)       Where is your principal place of business?

 

____________________________________________________________

____________________________________________________________

 

(2)       Where are your executive headquarters?

 

____________________________________________________________

____________________________________________________________

 

(3)       If a partnership, in which states(s) does (do) each of your partners reside?

 

____________________________________________________________

____________________________________________________________

 

 
 

(4)       If a corporation, what is your state of incorporation?

 

____________________________________________________________

____________________________________________________________

 

(5)       If a trust, in which state(s) does (do) each of the beneficiaries reside?

 

____________________________________________________________

____________________________________________________________

 

3.       Business or occupation (including title):

 

________________________________________________________________________

 

________________________________________________________________________

 

4.       Educational background (level, degrees completed):

 

________________________________________________________________________

 

 
 

 

5.       Net Worth, Partners' Capital or Total Assets (check one):

 

_____ $5,000,000 or more

_____ $1,000,000-$5,000,000

_____ Less than $1,000,000

 

6.       For individual or married persons only - Gross income for each of the last 2 years (check one):

 

_____ $300,000 or more

_____ $200,000 - $300,000

_____ Less than $200,000

 

Is this income amount combined with that of your spouse? Yes _____ No _____

 

Do you expect to reach the same level of income in the current year? Yes ______ No _____

 

7.       In connection with my investment activities, I utilize the services of the following attorney, accountant or other advisor to assist me in analyzing investment opportunities:

 

(a)       Name of advisor: ______________________________________

(b)       Position or occupation: _________________________________________________

(c)       Business address: _____________________________________________________

 

_____________________________________________________

 

8.       Personal data:

 

Age: _______________________

Marital Status: _______________

Number of dependents: ________

 

9.       I am an “accredited investor” as defined in Rule 501(a) of Securities and Exchange Commission Regulation D. _______________ (Initials)

 

10.       I have adequate means of providing my current needs, and possible personal contingencies, and have no need for liquidity in an investment in the Company. _______________ (Initials)

 

11.       I, together with my advisors, have specific knowledge and experience in related financial and business matters so as to be capable of evaluating the relative economic and operational merits and risks of an investment in the stock. _______________ (Initials)

 

12.       I hereby certify that I have answered the foregoing questions to the best of my knowledge and that my answers hereto are complete and accurate. _______________ (Initials)

 

 

_______________________________

Name (Please Print)

 

 

_______________________________ ____________________________

Signature Date

 

Exhibit 4.3

 

COMMON SHARE PURCHASE WARRANT CERTIFICATE

 

No. W-Form

 

Certificate for ______ Warrants

 

 

NOT EXERCISABLE AFTER 5:00 P.M.,

EASTERN STANDARD TIME, ON May 31, 2023

 

 

 

NEWGIOCO GROUP, INC.

 

 

COMMON SHARE PURCHASE WARRANT CERTIFICATE

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

THIS CERTIFICATE CERTIFIES THAT ___________________________________ or its registered assigns is the registered holder (the “Holder”) of the number of Warrants set forth above, each of which represents the right to purchase, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after December 1, 2020 (the “Initial Exercise Date”) one (1) fully paid and non-assessable common share (the “Common Share”) of NEWGIOCO GROUP, INC., a corporation organized under the laws of the State of Delaware (the “Company”), at the Exercise Price (as hereinafter defined), by surrendering this Warrant Certificate, with the form of Election to Exercise attached hereto duly executed and by paying in full the Exercise Price (the Common Shares issuable upon exercise of the Warrants being referred to herein as (the “Warrant Shares”) at the principal office of the Company as set forth below. No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on May 31, 2023 (the “Expiration Date”). All Warrants evidenced hereby shall thereafter become void.

 

At any time or times on or after the Initial Exercise Date and on or prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may appear on this Warrant Certificate, the Holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate at the principal office of the Company with the form of assignment set forth hereon duly executed. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrant Shares will be issued in accordance with instructions in the form of assignment.

 

 
 

1.Exercise of the Warrants

 

(a)                Cash Exercise. Subject to Section 1. (d), at any time or times on or after the Initial Exercise Date and on or prior to the Expiration Date, the Holder shall be entitled to exercise some or all of the Warrants represented by this Warrant Certificate and purchase an equal number of Common Shares upon surrender of this Certificate at the principal office of the Company, together with:

 

(i)       the form of Election to Purchase annexed hereto duly executed; and

 

(ii)       a certified check, bank draft or wire transfer of funds, payable at par, in United States currency, to or to the order of the Company, in the amount of the Exercise Price per Warrant (as hereinafter determined) multiplied by the number of Warrants being so converted.

 

The exercise price per Warrant to be exercised shall be at a price equal to US$________ (U.S. __________ Dollars) (the “Exercise Price”).

 

(b)               Cashless Exercise. Subject to Section 1. (d), if and only if at any time after the Initial Exercise Date, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the last VWAP immediately preceding the time of delivery of the Form of Election of Purchase giving rise to the applicable “cashless exercise”, as set forth in the applicable Form of Election of Purchase (for the avoidance of doubt, the “last VWAP” will be the VWAP as calculated over the preceding five (5) Trading Days such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the VWAP over the prior five (5) Trading Days shall be used in this calculation);

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares being exercised under this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 1(b).

 

VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Shares for such date (or the nearest preceding date) on the Trading Market on which the Common Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Shares are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Shares so reported, or (d) in all other cases, the fair market value of a share of Common Shares as determined by an independent appraiser selected in good faith by the stockholders of a majority in interest of the securities of the Company then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 
 

“Trading Market” means the stock exchange or market in the United States on which the Common Shares are listed or quoted.

 

Trading Days” means a date on which a Trading Market is open for the conduct of trading.

 

(c)                Partial Exercise. Upon the exercise of less than all of the Warrants to purchase the Common Shares evidenced by this Warrant Certificate, there shall be issued to the Holder a new Warrant Certificate in respect of the Warrants not exercised.

 

(d)               Acceleration. If at any time after the Initial Exercise Date, there is an effective Registration Statement registering, or a current prospectus available for, the resale of the Warrant Shares by the Holder and the closing price of the Company’s Common Shares exceeds one hundred and fifty (150%) per cent of the Exercise Price and the average trading volume is no less than two (2) times the number of Warrant Shares to be exercised for a period of ten (10) trading days in a thirty (30) day period, the Corporation may accelerate the time in which to exercise the Warrants by giving at least ten (10) business days prior written notice to the Holder of such acceleration and the Holder may exercise the Warrants prior to the date specified in such notice of acceleration. Provided however that the number of shares to be issued shall be delivered on a T+2 basis as per the transfer agent documents. The Holder may at their sole discretion demand reasonable compensation if the shares are not delivered to the holder on a T+2 basis.

 

 
 

2.Fractional Shares

 

The Company shall not be required to issue fractional shares upon the exercise of some or all of the Warrants represented by this Warrant Certificate.

 

3.Limitation

 

This Warrant Certificate shall not entitle the Holder to any of the rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of stockholders or any other proceedings of the Company.

 

4.Registration of Warrant Certificates

 

The Company shall number and register the Warrant Certificates in a warrant register maintained by the Company as they are needed. The Company may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof for all purposes. Upon request by a Holder requesting such information for the purpose of obtaining a consent, waiver or other action of Holders, the Company will notify that Holder as to the identity and address of record of the other Holders.

 

5.Transfer of Warrant Certificate and Warrant Shares

 

(1)The Company shall from time to time register the transfer of any outstanding Warrant Certificates in the warrant register upon surrender thereof accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company duly executed by the Holder or Holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, the Company shall issue as promptly as practicable in any event within three (3) Business Days (as hereinafter defined) after receipt of such notice of transfer of a new Warrant Certificate to the transferee(s). As used in the Warrant Certificate, the term “Business Day” means any day which is not a Saturday, Sunday or statutory holiday in the City of New York.

 

(2)Warrant Certificates may be exchanged at the option of the Holder(s) thereof when surrendered to the Company at the address set forth herein for another Warrant Certificate or Warrant Certificates of like tenor and representing the right to purchase in the aggregate a like number of Warrant Shares; provided that the Company shall not be required to issue any Warrant Certificates representing any fractional Warrant Shares.

 

(3)The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new Warrant Certificates, including, without limitation, any transfer or stamp taxes.

 

6.Lost, Stolen, Mutilated or Destroyed Warrant Certificates

 

If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue, execute and deliver, in exchange and substitution for and upon cancellation of such mutilated Warrant Certificate, or in lieu of or in substitution for such lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate representing an equivalent number of Warrants or Warrant Shares. If required by the Company, the Holder of the mutilated, lost, stolen or destroyed Warrant Certificate must provide an affidavit of loss and an indemnity reasonably sufficient to protect the Company from any loss which it may suffer if the Warrant Certificate is replaced. Any new Warrant Certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by any person.

 

7.Cancellation of Warrant Certificates

 

Any Warrant Certificate surrendered upon the exercise of Warrants or for exchange or transfer, or purchased or otherwise acquired by the Company, shall be cancelled and shall not be reissued by the Company; and, except as provided in Section 1 with respect to the exercise of less than all of the Warrants evidenced by a Warrant Certificate or in Section 5 with respect to an exchange or transfer, no Warrant Certificate shall be issued hereunder in lieu of such cancelled Warrant Certificate. Any Warrant Certificate so cancelled shall be destroyed by the Company.

 

8.Issuance of Common Shares

 

As promptly as practicable after the date on which part or all of the Warrants represented by this Warrant Certificate are exercised (the “Date of Exercise”) of any Warrants and in any event within three (3) Business Days after receipt of the Election to Exercise, the Company shall issue, or cause its transfer agent to issue, a certificate or certificates for the number of non-fractional Warrant Shares (the “Common Share Certificate”) or to transfer by electronic delivery of Warrant Shares through the DTC-DWAC system, registered in accordance with the instructions set forth in the Election to Exercise. All Warrant Shares issued upon the exercise of any Warrants shall be legally and validly authorized and issued and outstanding, fully paid, non-assessable, free of pre-emptive rights and free from all taxes, liens, charges and security interests in respect of the issuance thereof. Each person in whose name any such Common Share Certificate is issued shall be deemed for all purposes to have become the holder of record of the Common Shares represented thereby on the Date of the Exercise of the Warrants resulting in the issuance of such shares, irrespective of the date of issuance or delivery of such Common Share Certificate.

 

The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of new Common Share Certificates, including, without limitation, any transfer or stamp taxes.

 

 

 
 

 

9.Reservation of Common Shares; Listing

 

The Company shall reserve and keep available, free from pre-emptive rights, for issuance upon the exercise of Warrants, the maximum number of its authorized but unissued Common Shares which may then be issuable upon the exercise in full of all outstanding Warrants.

 

10.No Impairment

 

The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, amalgamation, combination, merger, dissolution, issue or sale of securities or any other voluntary action, avoid, or seek to avoid the observation or performance of any of the terms of the Warrants, the Warrant Certificates or this Certificate, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holders against impairment. Without limiting the generality of the foregoing, the Company shall obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants. In case any securities other than the Common Shares (“Other Securities”) shall be issued or sold, or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or Person), for a consideration per share of Other Security such as to dilute the purchase rights evidenced by the Warrants, the computations, adjustments and readjustments provided for in Section 11 with respect to the Exercise Price and the number of Warrant Shares shall be made as nearly as possible in the manner so provided and applied so as to protect the Holders against the effect of such dilution.

 

 
 

11.Adjustment of Exercise Price

 

Subject to the provisions of this Section 11, the Exercise Price in effect from time to time shall be subject to adjustment, as follows:

 

(1)In the event that the Company shall (i) declare a dividend or make a distribution on the outstanding Common Shares in additional Common Shares, (ii) subdivide or reclassify the outstanding Common Shares into a greater number of shares, or (iii) consolidate, combine or reclassify the outstanding Common Shares into a fewer number of shares, the Exercise Price in effect immediately after the record date for such dividend or distribution or the effective date of such subdivision, consolidation, combination or reclassification, as the case may be, shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of Common Shares outstanding immediately before such dividend, distribution, subdivision, consolidation, combination or reclassification, and of which the denominator shall be the number of Common Shares outstanding immediately after such dividend, distribution, subdivision, consolidation, combination or reclassification. Any Common Shares issuable in payment of a dividend shall be deemed to have been issued immediately prior to the record date or other applicable date cited in Sections 11(2) or 11(3) for the purpose of calculating the number of outstanding Common Shares under Sections 11(2) or 11(3). Such adjustment shall be made successively whenever any event specified above shall occur.

 

(2)In the event that the Company shall fix a record date for the issuance of rights, options, warrants or convertible or exchangeable securities to all or substantially all holders of its Common Shares entitling them (for a period which, by its express terms, expires within forty-five (45) days after such record date) to subscribe for or purchase Common Shares at a price per share less than the Fair Market Value of a Common Share on such record date, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of Common Shares outstanding on such record date plus the maximum number of Common Shares which the aggregate offering price of the total number of Common Shares so offered would purchase at the Fair Market Value per share, and of which the denominator shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares offered for subscription or purchase. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such rights, options, warrants or convertible or exchangeable securities are not so issued or expire unexercised, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such unissued or unexercised rights, options, warrants or convertible or exchangeable securities had not been issuable. As used in this Warrant Certificate, the term “Fair Market Value” means the price at which a buyer and seller would transfer a Common Share both being fully informed of all relevant information and neither being under any compulsion to buy or sell, as the case may be and, for the purposes of this Section 11(2), shall, at the request of a Holder, be determined by the Company’s Board of Directors in good faith and on a reasonable basis.

 

(3)In the event that the Company shall fix a record date for the making of a distribution to all or substantially all holders of Common Shares (i) of shares of any class other than its Common Shares or (ii) of the evidence of its indebtedness or (iii) of assets or (iv) of rights, options, warrants or convertible or exchangeable securities, then in each such case the Exercise Price in effect immediately thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Fair Market Value per share on such record date, less the aggregate fair market value as determined in good faith by the Company’s Board of Directors of said shares or evidences of indebtedness or assets or rights, options, warrants or convertible or exchangeable securities as distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Fair Market Value per share. Such adjustment shall be made successively whenever such a record date is fixed; provided, however, that in no event shall the Exercise Price be less than zero. In the event that such distribution is not so made, or that such distribution, by its express terms, is intended to be made, and is in fact made, to all holders of Warrant Shares upon exercise of their respective Warrants, the Exercise Price then in effect shall be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed.

 

 
 

12.No Adjustment to Exercise Price

 

No adjustment in the Exercise Price in accordance with the provisions of Section 11 need be made unless such adjustment would amount to a change of at least one (1.0%) per cent in such Exercise Price, provided, however, that the amount by which any adjustment is not made by reason of the provisions of this Section 12 shall be carried forward and taken into account at the time of any subsequent adjustment in the Exercise Price.

 

13.Adjustment of Number of Shares

 

Upon each adjustment of the Exercise Price pursuant to Section 11, each Warrant shall thereupon evidence the right to purchase that number of Warrant Shares (calculated to the nearest hundredth of a share) obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment upon exercise of the Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment.

 

14.Reorganizations

 

In the event of any capital reorganization, other than in the cases referred to in Section 11(1), or the consolidation, amalgamation, merger or other combination of the Company with or into another corporation (other than a consolidation, amalgamation, merger or other combination in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Shares or the conversion of such outstanding Common Shares into shares of other stock or other securities or property), or the sale, transfer or conveyance of the property of the Company as an entirety or substantially as an entirety (collectively such actions being hereinafter referred to as “Reorganizations”), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of Warrant Shares theretofore deliverable) the number of shares of stock or other securities of property to which a holder of the number of Warrant Shares which would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In the event of any Reorganization, appropriate adjustment, as determined in good faith by the Company’s Board of Directors, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. Any such adjustment shall be made by and set forth in a supplemental agreement prepared by the Company or any successor thereto, between the Company and any successor thereto, and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization, unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of Common Shares outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder of any Warrant Certificate such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the foregoing provisions.

 

15.Notice of Certain Actions

 

In the event the Company shall (a) declare any dividend payable in stock to the holders of its Common Shares or make any other distribution in property other than cash to the holders of its Common Shares, (b) offer to the holders of its Common Shares rights to subscribe for or purchase any shares of any class of stock or any other rights or options, or (c) effect any reclassification of its Common Shares (other than a reclassification involving merely the subdivision or combination of outstanding Common Shares) or any capital reorganization or any consolidation, amalgamation, merger or other combination (other than a consolidation, amalgamation, merger or other combination in which no distribution of securities or other property is made to holders of Common Shares) or any sale, transfer or other disposition of its property, assets and business substantially as an entirety, or the liquidation, dissolution or winding up of in the Company; then, in each such case, the Company shall cause notice of such proposed action to be mailed to each Holder at least thirty (30) days prior to such action. Such notice shall specify the date on which the books of the Company shall close, or a record be taken, for determining holders of Common Shares entitled to receive such stock dividend or other distribution or such rights or options, or the date on which such reclassification, reorganization, consolidation, amalgamation, combination, merger, sale, transfer, other disposition, liquidation, dissolution, winding up or exchange shall take place or commence, as the case may be, and the date as of which it is expected that holders of record of Common Shares shall be entitled to receive securities or other property deliverable upon such action, if any such date has been fixed. Such notice shall be mailed in the case of any action covered by paragraph (a) and (b) of this Section 15, at least ten (10) days prior to the record date for determining holders of the Common Shares for purposes of receiving such payment or offer, and in the case of any action covered by this paragraph (c), at least ten (10) days prior to the record date to determine holders of Common Shares entitled to receive such securities or other property.

 

16.Certificate of Adjustment

 

The Company shall perform any computations and determine any adjustments required to be made under this Certificate (the “Adjustment”) and shall cause an independent nationally recognized firm of chartered accountants selected by the Company to verify each Adjustment. As promptly as practicable after determining any Adjustment, and upon receipt of the aforementioned verification, the Company shall prepare a certificate executed by the President of the Company setting forth such Adjustment and mail such certificate to each Holder (an “Adjustment Notice”). The Adjustment Notice shall include in reasonable detail (a) the events precipitating the Adjustment, (b) the computations relating to such Adjustment, and (c) the Exercise Price and the number of shares or the securities or other property purchasable upon exercise of each Warrant after giving effect to such Adjustment. In the event that the Holders of Warrants entitling such Holders to purchase a majority of the Warrant Shares subject to purchase upon exercise of Warrants at the time outstanding (the “Required Interest”) shall disagree with any Adjustment, the Required Interest shall give notice thereof (the “Dispute Notice”) to the Company within fifteen (15) days after the Adjustment Notice. Upon receipt of the Dispute Notice, the Company shall promptly engage an independent nationally recognized firm of chartered accountants acceptable to the Required Interest to make an independent determination of such disputed Adjustment (the “Independent Adjustment”). The Independent Adjustment shall be final and binding on the Company and all Holders. If the disputed Adjustment and the Independent Adjustment differ by an amount of three (3%) per cent or less of the value of the disputed Adjustment, then the costs of conducting the independent determination shall be borne by the Required Interest (pro rata, in accordance with the number of Warrants held by each, with each subject Holder jointly and severally liable); if the disputed Adjustment and the Independent Adjustment differ by more than three (3%) per cent of the disputed Adjustment, then the costs of conducting the independent determination shall be borne entirely by the Company; provided that in each case costs separately incurred by the Company and any Holders shall be separately borne by them.

 

17.Warrant Certificate Amendments

 

Irrespective of any adjustments pursuant to this Section 17, Warrant Certificates theretofore or thereafter issued need not be amended or replaced, but certificates thereafter issued shall bear an appropriate legend or other notice of any adjustments; provided the Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment in the Exercise Price and number of Warrant shares purchasable under the Warrants.

 

18.Fractional Shares

 

The Company shall not be required upon the exercise of any Warrant to issue fractional Warrant Shares which may result from adjustments in accordance with this Section 18 to the Exercise Price or number of Warrant Shares purchasable under each Warrant. If more than one Warrant is exercised at one time by the same Holder, the number of Warrant Shares which shall be issuable upon the exercise thereof shall be computed based on the aggregate number of Warrant Shares purchasable upon exercise of such Warrants.

 

19.Payment of Taxes and Charges

 

The Company will pay all taxes (other than income taxes or other similar taxes personal to the Holders, including without limitation, non-resident withholding taxes) and other government charges payable in connection with the issuance or delivery or transfer of the Warrants and the initial issuance or delivery of Warrant Shares upon the exercise of any Warrants and payment of the Exercise Price.

 

20.Changes to Agreement

 

The Company, when authorized by its Board of Directors, with the written consent of Holders of Warrants entitling such Holders to purchase a majority of the Warrant Shares subject to purchase upon exercise of the Warrants outstanding at such time, may amend or supplement this Certificate, except that no amendment which (i) increases the Exercise Price or reduces the number of Warrant Shares or otherwise economically impairs the value of the Warrants or (ii) amends the provisions of Sections 11, 12, 13, 14, 15, 16, 17 and 18 shall be enforceable against a Holder who has not consented in writing to such amendment.

 

21.Assignment

 

All the covenants and provisions of this Certificate by or for the benefit of the Company or the Holders shall bind and inure to the benefit of their respective successors and assigns.

 

22.Successor to Company

 

In the event that the Company consolidates, amalgamates, merges or otherwise combines with or into any other corporation or sells, transfers or otherwise conveys its property, assets and business substantially as an entirety to a successor corporation or entity, the Company shall prior to such events becoming effective, have such successor corporation or other entity assume by a written instrument each and every undertaking covenant and condition of this Certificate to be performed and observed by the Company, and such successor corporation or other entity shall be deemed, upon the closing of such merger, amalgamation, combination, consolidation, conveyance or sale, to have so assumed such liabilities.

 

23.Notices

 

Any notice or demand required by this Certificate to be given or made by any Holder to or on the Company shall be sufficiently given or made if such notice is in writing and sent by first-class or registered mail, postage prepaid, addressed as follows:

 

To the Company: NEWGIOCO GROUP, INC.

c/o 130 Adelaide St. W., Suite 701

Toronto, Ontario M5H 2K4

 

Attention: Michele Ciavarella, C.E.O.

 

 

To the Holder at: See Subscription Agreement

 

 

In all cases with a copy to: Signature Stock Transfer, Inc.

14673 Midway Road, Suite #220,

Addison, Texas 75001

 

Attention: Jason M. Bogutski, President

  

 

Any notice or demand required by this Certificate to be given or made by the Company to or on any Holder shall be sufficiently given or made if such notice is in writing and sent by first-class or registered mail, postage prepaid, addressed to such Holder and sent to the address set below such Holder’s name on the attached signature pages or, if a subsequent Holder, the address of such Holder on the Company’s warrant register.

 

Any notice or demand required by this Certificate to be given or made by the Company to or on any Holder shall be sufficiently given or made, whether or not such Holder receives the notice, five (5) days after mailing, if sent by first-class or registered mail, postage prepaid, addressed to such Holder at its last address as shown on the books of the Company. Otherwise, such notice or demand shall be deemed given when received by the party entitled thereto.

 

24.Defects in Notice

 

Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice pursuant to this Certificate shall not affect in any way the right of any Holder or the legality or validity of any adjustment made pursuant to Section 11 hereof.

 

25.Securities Law.

 

Neither the sale of this Warrant nor the issuance of any of the Warrant Shares upon exercise of this Warrant have been registered under the Act or under the securities laws of any state. If there is no effective Registration Statement registering, or no current prospectus available for the resale, unless the Holder utilises a cashless exercise the issuance of the Warrant Shares upon exercise of this Warrant shall be subject to compliance with all applicable Federal and state securities laws. Until the Warrant Shares have been registered under the Act and registered and qualified under the securities laws of any state in question, the Corporation shall cause each certificate evidencing any Warrant Shares to bear the following legend and such other legends as may be required by applicable law:

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

26.Governing Law

 

This Certificate and each Warrant Certificate issued hereunder shall be governed by the laws of the State of Delaware applicable therein without regard to principles of conflicts of laws thereof.

 

27.Standing

 

Nothing in this Certificate expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company and the Holders any right, remedy or claim under or by reason of this Certificate or of any covenant, condition, stipulation, promise or agreement contained herein; and all covenants, conditions, stipulations, promises and agreements contained in this Certificate shall be for the sole and exclusive benefit of the Company and its successors and the Holders.

 

28.Headings

 

The descriptive headings of the sections of this Certificate are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

29.Counterparts

 

This Certificate may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and all of which together shall constitute one and the same instrument.

 

30.Availability of the Agreement

 

The Company shall keep copies of this Certificate available for inspection by Holders during normal business hours. Copies of this Certificate may be obtained upon written request addressed to the Company at the address set forth in Section 23.

 

31.Entire Agreement

 

This Certificate, including Schedules referred to herein and the other agreements and writings specifically identified herein or contemplated hereby, is complete, reflects the entire agreement of the parties with respect to its subject matter, and supersedes all previous written or oral negotiations, commitments and writings.

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed.

 

DATED as of the 1 day of June, 2020.

 

NEWGIOCO GROUP, INC.

 

 

 

 

By: _______________________________

Name: Michele Ciavarella

Title: C.E.O.

 

 
 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and transfers unto the assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of Warrants to purchase Common Shares set for below:

 

Name of Assignee ___________________________

 

Address _____________________________________________________________________

 

No. of Warrants: __________

 

and does hereby irrevocably constitute and appoint ___________________________ true and lawful attorney, to make such transfer on the books of NEWGIOCO GROUP, INC. maintained for that purpose, with full power of substitution in the premises.

 

 

 

DATED:____________________________ ____________________________________

Signature

 

 

____________________________________

(Signature must conform in all respects to

name of holder as specified on the face of

the Warrant Certificate.)

 
 

FORM OF ELECTION OF EXERCISE

(to be executed only upon exercise of Warrant)

 

To: Newgioco Group, Inc.

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

Attn: Julian L. Doyle, LLB

 

or such other address notified by the Company to the Holder.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Newgioco Group, Inc. a Delaware corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

CASH BASIS

 

Exercise Price. The Holder intends that payment of the Exercise Price shall be with respect to Warrant Shares.

 

Payment of Exercise Price. The Holder shall pay the Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant.

 

Payment is being made by:

_____       enclosed check

_____       wire transfer

_____       other

 

Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant.

 

CASHLESS BASIS

 

Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant based on the following formula:

 

Y =       (A-B) x X

A

 

Where Y = the number of shares of Common Stock to be issued to the Holder

A =the last VWAP immediately preceding the time of delivery of the Form of Election of Purchase giving rise to the applicable “cashless exercise”, as set forth in the applicable Form of Election of Purchase (for the avoidance of doubt, the “last VWAP” will be the VWAP as calculated over the preceding five (5) Trading Days such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the VWAP over the prior five (5) Trading Days shall be used in this calculation);
B =the Exercise Price of this Warrant, as adjusted hereunder; and
X =the number of Warrant Shares being exercised under this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

Delivery. The shares of Warrant Shares shall be delivered to the following:

 

 
 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:

 

 

 

 

Signature of Authorized Signatory of Investing Entity:

 

 

 

Name of Authorized Signatory:

 

 

Title of Authorized Signatory:

 

 

Date:

 

 
 

SCHEDULE “D”

TO BE COMPLETED BY SUBSCRIBERS UNDER ACCREDITED INVESTOR EXEMPTION

ACCREDITED INVESTOR CERTIFICATE

In connection with the purchase of Debentures of the Corporation by the undersigned subscriber or, if applicable, the principal on whose behalf the undersigned is purchasing as agent (the “Subscriber” for the purposes of this Schedule D), the Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:

 

7.The Subscriber is resident in the jurisdiction as set forth on the face page of this Subscription Agreement or is subject to the securities laws of such jurisdiction;

 

8.The Subscriber is purchasing the Debentures as principal for its own account or a fully managed account;

 

9.The Subscriber is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated by the SEC under the 1933 Act and the regulations promulgated thereunder, by virtue of satisfying the indicated criterion as set out in Appendix A to this Accredited Investor Certificate;

 

10.The Subscriber was not created or used solely to purchase or hold securities as an “accredited investor” as described in paragraph (m) of the attached Appendix A of this Schedule D;

 

11.Upon execution of this Schedule D by the Subscriber, this Schedule D shall be incorporated into and form a part of the Subscription Agreement; and

 

12.The Subscriber acknowledges that he has requested and is satisfied that this Subscription Agreement and all documentation related thereto be drawn up in the English language. Le soussigné reconnaît qu’il a exigé que cette contrat d’abonnement ainsi que toutes les autres documents qui s’y rattachent soit rédigé et exécuté en anglais et s’en déclare satisfait.

 

The foregoing representations and warranties are true an accurate as of the date of this certificate and will be true and accurate as of Closing Date. If any such representations and warranties shall not be true and accurate prior to Closing Date, the Subscriber shall give immediate written notice of such fact to the Corporation.

Dated: _________________________________________, 2020.

 

 

Print name of Subscriber

 

By:

Signature

 

 

Print name of Signatory (if different from Subscriber)

 

 

Title

 

 

IMPORTANT: PLEASE MARK THE CATEGORY OR CATEGORIES

IN APPENDIX A ON THE NEXT PAGE THAt DESCRIBES YOU.

 
 

APPENDIX A

 

CONFIRMATION OF APPLICABLE PORTION OF ACCREDITED INVESTOR DEFINITION

 

NOTE: THE INVESTOR MUST INITIAL BESIDE THE APPLICABLE PORTION OF THE DEFINITION BELOW.

 

NEWGIOCO GROUP, INC.

(The “Company”)

 

The purpose of this Statement is to obtain information relating to whether or not you are an accredited investor as defined in Securities and Exchange Regulation D as well as your knowledge and experience in financial and business matters and to your ability to bear the economic risks of an investment in the Company.

 

As used in Regulation D, the following terms shall have the meaning indicated:

 

a.       Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

 

1.       Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

 

2.       Any private business development company as defined in section 202(a)22 of the Investment Advisers Act of 1940;

 

3.       Any organization described in section 501(c)3 of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

4.       Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

 

5.       Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000, excluding the value of the person’s primary residence, but including any excess liability between the value of the residence and the amount of any obligation(s) thereon;

 

6.       Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

7.       Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

 

 
 

8.       Any entity in which all of the equity owners are accredited investors.

1.       Name, Home Address and Telephone Number:

 

________________________________________________________________________

Name

________________________________________________________________________

Address

 

Telephone (_____) ______________________________

 

2.       Residence

 

(a)       If an individual, what is your principal place of residence?

 

__________________________________________________________________

 

__________________________________________________________________

 

(b)       If not an individual:

 

(1)       Where is your principal place of business?

 

____________________________________________________________

____________________________________________________________

 

(2)       Where are your executive headquarters?

 

____________________________________________________________

____________________________________________________________

 

(3)       If a partnership, in which states(s) does (do) each of your partners reside?

 

____________________________________________________________

____________________________________________________________

 

 
 

(4)       If a corporation, what is your state of incorporation?

 

____________________________________________________________

____________________________________________________________

 

(5)       If a trust, in which state(s) does (do) each of the beneficiaries reside?

 

____________________________________________________________

____________________________________________________________

 

3.       Business or occupation (including title):

 

________________________________________________________________________

 

________________________________________________________________________

 

4.       Educational background (level, degrees completed):

 

________________________________________________________________________

 

 
 

 

5.       Net Worth, Partners' Capital or Total Assets (check one):

 

_____ $5,000,000 or more

_____ $1,000,000-$5,000,000

_____ Less than $1,000,000

 

6.       For individual or married persons only - Gross income for each of the last 2 years (check one):

 

_____ $300,000 or more

_____ $200,000 - $300,000

_____ Less than $200,000

 

Is this income amount combined with that of your spouse? Yes _____ No _____

 

Do you expect to reach the same level of income in the current year? Yes ______ No _____

 

7.       In connection with my investment activities, I utilize the services of the following attorney, accountant or other advisor to assist me in analyzing investment opportunities:

 

(a)       Name of advisor: ______________________________________

(b)       Position or occupation: _________________________________________________

(c)       Business address: _____________________________________________________

 

_____________________________________________________

 

8.       Personal data:

 

Age: _______________________

Marital Status: _______________

Number of dependents: ________

 

9.       I am an “accredited investor” as defined in Rule 501(a) of Securities and Exchange Commission Regulation D. _______________ (Initials)

 

10.       I have adequate means of providing my current needs, and possible personal contingencies, and have no need for liquidity in an investment in the Company. _______________ (Initials)

 

11.       I, together with my advisors, have specific knowledge and experience in related financial and business matters so as to be capable of evaluating the relative economic and operational merits and risks of an investment in the stock. _______________ (Initials)

 

12.       I hereby certify that I have answered the foregoing questions to the best of my knowledge and that my answers hereto are complete and accurate. _______________ (Initials)

 

 

_______________________________

Name (Please Print)

 

 

_______________________________ ____________________________

Signature Date

Exhibit 5.1

 

The Chrysler Building

405 Lexington Avenue, 26th Floor

New York, New York 10174

Telephone (212) 907-6457

www.gracinmarlow.com

October 21, 2020

 

The Board of Directors

Newgioco Group, Inc.

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

 

Re: Registration Statement on Form S-1

 

Ladies and Gentlemen:

 

We have acted as counsel to Newgioco Group, Inc., a Delaware corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), of a Registration Statement on Form S-1 (the “Registration Statement”) pertaining to the offer and sale of 183,504 shares (the “Shares”) of the Company’s common stock, par value $0.0001 (the “Common Stock”), issuable upon exercise of outstanding warrants (the “Warrants”).

 

In rendering the opinion set forth herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purposes of rendering this opinion and we are familiar with the proceedings taken and proposed to be taken by the Company in connection with the authorization, issuance and sale of the Shares and the Warrant Shares.

 

In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all items submitted to us as originals, the conformity with originals of all items submitted to us as copies, and the authenticity of the originals of such copies. As to any facts material to the opinions expressed herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and public officials.

 

Based upon and subject to the foregoing, we are of the opinion that the Shares, when issued and paid for in accordance with the terms of the Warrants, will be validly issued, fully paid and non-assessable under the laws of the State of Delaware. We express no opinion as to matters governed by any laws other than the General Corporation Law of the State of Delaware (including all related provisions of the Delaware Constitution and all reported judicial decisions interpreting the General Corporation Law of the State of Delaware and the Delaware Constitution), the State of New York and the federal laws of the United States of America, as in effect on the date hereof.

 

We consent to the inclusion of this opinion as an exhibit to the Registration Statement and further consent to all references to us under the caption “Legal Matters” in the Prospectus. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.

 

This opinion is delivered solely in connection with the consummation of the transactions described herein, and may not be relied upon by you for any other purpose nor by any other person for any purpose.

 

  Very truly yours,
   
  /s/ Gracin & Marlow, LLP
 

 

GRACIN & MARLOW, LLP

Exhibit 21.1

 

List of Subsidiaries

 

Ulisse GmbH, a company organized under the laws of Austria

 

Odissea Betriebsinformatik Beratung GmbH, a company organized under the laws of Austria

 

Multigioco Srl., a company organized under the laws of the Republic of Italy

 

Virtual Generation Limited, a company organized under the laws of Malta

 

Newgioco Group, Inc. (Canada), a company organized under the Canadian laws

 

Newgioco Colombia SAS, a company organized under Colombian laws

 

Elys Technology Limited, a company organized under the laws of Malta

 

Elys Gameboard, LLC, a Delaware Limited Liability Company 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

Newgioco Group, Inc.

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

 

 

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement (File No. 333-_________) of our report dated July 2, 2020, relating to the consolidated financial statements of Newgioco Group, Inc., which is contained in that Prospectus.

 

We also consent to the reference to us under the caption “Experts” in the Prospectus.

 

BDO AG

 

 

s/ Christoph Tschumi   /s/ Felix Reisser
Christoph Tschumi   Felix Reisser
     

 

Zurich, Switzerland, October 21, 2020



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