10-Q/A 1 newg_2019jun30-10qa1.htm MARCH 31, 2017 QUARTERLY REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q/A

Amendment No. 1

_________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 000-50045

_________________

NEWGIOCO GROUP, INC.

(Exact name of registrant as specified in its charter)

_________________

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

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

(Address of Principal Executive Offices) (Zip Code)

+39-391-306-4134

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No☐

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

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

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

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

As of August 14, 2019, the registrant had 79,949,040 shares of common stock, $0.0001 par value per share, outstanding.

TABLE OF CONTENTS

PART I -	FINANCIAL INFORMATION	PAGE

	Cautionary Statement Regarding Forward Looking Statements	4

Item 1	Financial Statements
	Consolidated Balance Sheets (unaudited)	5
	Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)	6
	Consolidated Statements of Changes in Stockholders' Equity (Deficiency)	7
	Consolidated Statements of Cash Flows (unaudited)	8
	Notes to the Consolidated Financial Statements (unaudited)	9
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operation	42
Item 3	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4	Controls and Procedures	49

PART II -	OTHER INFORMATION	50

Item 1	Legal Proceedings
Item 1A	Risk Factors	50
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3	Defaults Upon Senior Securities	51
Item 4	Mine Safety Disclosures	51
Item 5	Other Information	51
Item 6	Exhibits	51

SIGNATURES		52

EXPLANATORY NOTE

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

The Company has prepared this Amendment No. 1 (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which was originally filed with the Securities and Exchange Commission on August 16, 2019 (the “Original 10-Q”) to reflect the restatement of certain of the Company’s previously issued Consolidated Balance Sheets at June 30, 2019, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholder’ Equity (Deficiency) and Consolidated Statements of Cash Flows for the quarters ended June 30, 2019 and 2018 and the notes related thereto and certain other related matters.

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

The Company intends to file as soon as practicable the restated financial statements for the quarter ended September 30, 2019.

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

Background

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

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

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

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

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

recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard was effective for interim periods beginning after December 15, 2018. The Company adopted the new standard on January 1, 2019 using the prospective transition method, and accordingly restated its Interim Financial Statements. In terms of the adjustment, the Company recorded an initial Right-of-use asset of $646,138 under non-current assets and a corresponding Operating Lease liability of $617,352 on January 1, 2019 and adjusted for subsequent addition to the right of use asset and Operating liability of $217,352 and the disposal of right-of-use assets of $27,517 and a reduction in the corresponding liability of $32,499 during the six months ended June 30, 2019. The subsequent amortization of the Right-of-use asset and Operating lease liability resulted in a net adjustment to the Right-of-use asset of $736,625 and to the operating lease liability of $703,167 and other accrued liabilities of $33,620, after taking into account foreign currency translation differences of $162.

The accounting for finance leases in terms of ASC 842- Leases, was also modified to correct certain immaterial differences in accounting for these leases. The net adjustment resulted in the recording of an asset of $43,961 and a finance lease liability of $44,590 and the subsequent adjustment to net loss from operation of a net $163.

Accounting for Imputed Deferred Taxation in terms of ASC 740, on the acquisition of Virtual Generation which was effective January 31, 2019. ASC 740 require the recognition of imputed deferred tax on the identifiable intangible assets acquired. This resulted in an adjustment to goodwill on acquisition of $1,401,608 and the initial recognition of a deferred tax liability of $1,401,608. The deferred tax liability was subsequently decreased by $38,934, the deferred tax liability is related to the amortization of the intangible asset acquired of $111,239.

Other adjustments, with a net impact of $28,233 to the Statement of Operations and Comprehensive Loss were made to correct errors that perpetuated from the December 31, 2018 balance sheet adjustments in the Interim Financial Statements for the six months ended June 30, 2019. Included in other adjustments is a reclassification of selling expenses of $770,025 to general and administrative expenses to conform to current disclosure.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and Newgioco Group, Inc. cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Newgioco Group, Inc. or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth below, under Part II, “Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and those identified under Part I, Item 1A in our Annual Report on Form 10-K of the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 8, 2019.

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

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEWGIOCO GROUP, INC.

Consolidated Balance Sheets

(Unaudited)

	June 30, 2019			December 31, 2018
	(As Restated)
Current Assets
Cash and cash equivalents	$	5,228,797		$	6,289,903
Accounts receivable		116,398			10,082
Gaming accounts receivable		654,016			1,021,052
Prepaid expenses		140,107			124,712
Related party receivable		851			49,914
Other current assets		145,348			55,700
Total Current Assets		6,285,517			7,551,363

Non-current Assets
Restricted cash		1,439,782			1,560,539
Property, plant and equipment		519,213			476,047
Right-of-use assets		736,625			—
Intangible assets		16,197,962			12,527,980
Goodwill		1,663,591			262,552
Investment in non-consolidated entities		250,000			275,000
Total Noncurrent Assets		20,807,173			15,102,118
Total Assets	$	27,092,690		$	22,653,481

Current Liabilities
Line of credit - bank	$	1,000,000		$	750,000
Accounts payable and accrued liabilities		3,594,997			4,603,608
Gaming accounts balances		2,217,089			1,049,423
Taxes payable		995,004			1,056,430
Advances from stockholders		48,508			39,237
Convertible Debt, net of discount of $2,578,995 and $4,587,228, respectively		6,083,982			3,942,523
Notes payable, net of discount of $132,970		1,421,045			—
Notes payable – related party, net of discount of $88,647		1,405,804			318,078
Bank loan payable – current portion		122,829			120,920
Operating lease liability		91,449
Financial lease liability		6,194
Total Current Liabilities		16,986,901			11,880,219

Non-current liabilities
Deferred tax liability		1,362,674			—
Notes payable, net of discount of $54,216		498,874			—
Notes payable – related party, net of discount of $36,144		332,582			—
Bank loan payable		161,504			225,131
Operating lease liability		611,718			—
Financial lease liability		38,396			—
Other long-term liabilities		613,963			608,728
Total Non-current liabilities		3,619,711			833,859
Total Liabilities		20,606,612			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; 9,918,517 and 9,442,537 shares issued and outstanding as of June 30, 2019 and December 31, 2018*		992			944
Additional paid-in capital*		25,462,926			23,962,920
Accumulated other comprehensive income		(118,638	)		(57,431	)
Accumulated deficit		(18,859,202	)		(13,967,030	)
Total Stockholders' Equity		6,486,078			9,939,403
Total Liabilities and Stockholders’ Equity	$	27,092,690		$	22,653,481

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

See notes to the unaudited consolidated financial statements

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,
	2019			2018			2019			2018
	(As Restated)			(As Restated)			(As Restated)			(As Restated)
Revenue	$	9,105,353		$	8,822,659		$	18,371,648		$	17,416,526

Costs and Expenses
Selling expenses		6,268,772			5,826,243			13,676,478			11,903,600
General and administrative expenses		3,360,284			2,201,805			6,557,739			4,407,119
Total Costs and Expenses		9,629,056			8,028,048			20,234,217			16,310,719

(Loss) Income from Operations		(523,703	)		794,611			(1,862,569	)		1,105,807

Other (Expenses) Income
Other income		7,725			-			7,725			-
Interest expense, net of interest income		(1,017,243	)		(1,050,270	)		(2,521,355	)		(1,262,509	)
Imputed interest on related party advances		-			753			-			(761	)
Gain on litigation settlement		-			-			-			516,120
Loss on debt modification		-			(212,270	)		-			(212,270	)
Loss on conversion of debt		(35,943	)		-			(35,943	)		-
Loss on marketable securities		-			(155,000	)		(25,000	)		(155,000	)
Total Other (Expenses) Income		(1,045,461	)		(1,416,787	)		(2,574,573	)		(1,114,420	)

Loss Before Income Taxes		(1,569,164	)		(622,176	)		(4,437,142	)		(8,613	)
Income tax provision		(209,056	)		(512,406	)		(455,030	)		(757,442	)
Net Loss		(1,778,220	)		(1,134,582	)		(4,892,172	)		(766,055	)

Other Comprehensive Income (Loss)
Foreign currency translation adjustment		69,023			63,305			(61,207	)		160,778

Comprehensive Loss	$	(1,709,197	)	$	(1,071,277	)	$	(4,953,379	)	$	(605,277	)

Loss per common share – basic and diluted*	$	(0.17	)	$	(0.13	)	$	(0.50	)	$	(0.08	)
Weighted average number of common shares outstanding – basic and diluted*		9,870,357			9,344,282			9,870,357			9,308,511

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

See notes to the unaudited consolidated financial statements

NEWGIOCO GROUP, INC.

Consolidated Statements of Changes in Stockholders' Equity

Three and six months ended June 30, 2019 and June 30, 2018

(Unaudited)

	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

	Common Stock*						Additional			Accumulated Other					Total
	Shares			Amount			Paid-In Capital*			Comprehensive Income		Accumulated Deficit			Stockholders’ Equity
Balance at December 31, 2017		9,267,948		$	927		$	14,548,951		$	126,612	$	(10,338,273	)	$	4,338,217
Imputed interest on stockholder advances		—			—			1,251			—		—			1,251
Common stock issued with debentures		13,875			1			55,499			—		—			55,500
Beneficial conversion feature of convertible debentures		—			—			91,017			—		—			91,017
ASU 2017-11 adjustment to common stock issued debentures		—			—			(10,853	)		—		—			(10,853	)
ASU2017-11 adjustment to beneficial conversion feature of debentures		—			—			(6,780	)		—		—			(6,780	)
ASU 2017-11 Elimination of derivative liability movement		—			—			—			—		(254,289	)		(254,289	)
Foreign currency translation adjustment		—			—			—			97,473		—			97,473
Net income		—			—			—			—		622,816			622,816

Balance at March 31, 2018		9,281,823		$	928		$	14,679,085		$	224,085	$	(9,969,746	)	$	4,934,352
Common stock issued with debentures		215,028			22			1,770,175			—		—			1,770,197
Common stock retired on acquisition of Multigioco		(255,000	)		(26	)		(2,260,948	)		—		—			(2,260,974	)
Common stock issued net of stock retired on acquisition of Ulisse		175,550			18			5,587,656			—		—			5,587,674
ASU 2017-11 adjustments to common stock issued with debentures		—			—			(1,232,358	)		—		—			(1,232,358	)
ASU 2017-11 adjustments to the beneficial conversion feature of convertible debentures		—			—			2,501,332			—		—			2,501,332
Fair value of warrants issued		—			—			2,951,429			—		—			2,951,429
Foreign currency translation adjustment		—			—			—			63,305		—			63,305
Net loss		—			—			—			—		(1,134,582	)		(1,134,582	)

Balance at June 30, 2018		9,417,401		$	942		$	23,996,371		$	287,390	$	(11,104,328	)	$	13,180,375

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

See notes to the unaudited consolidated financial statements

NEWGIOCO GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	For the six months Ended June 30,
	2019			2018
	(As Restated)			(As Restated)
Cash Flows from Operating Activities
Net loss	$	(4,892,172	)	$	(766,055	)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization		445,990			330,832
Amortization of deferred costs		2,096,080			1,012,225
Non-cash interest		409,114			58.188
Loss on debt conversions		35,943			212,270
Unrealized loss on trading securities		25,000			155,000
Imputed interest on advances from stockholders		—			1,514
Movement in deferred taxation		(38,934	)		—
Recovery of assets					(516,120	)
Bad debt expense					6,354
Changes in Operating Assets and Liabilities
Prepaid expenses		(7,732	)		5,225
Accounts payable and accrued liabilities		(444,743	)		756,987
Accounts receivable		(57,679	)		98,833
Gaming accounts receivable		357,886			31,409
Gaming accounts liabilities		1,167,454			(583,899	)
Taxes payable		(53,941	)		439,731
Other current assets		(57,163	)		(270,259	)
Long term liability		9,296			78,346
Net Cash (Used in) Provided by Operating Activities		(1,005,601	)		1,050,581

Cash Flows from Investing Activities
Acquisition of property, plant, and equipment, and intangible assets		(54,283	)		(4,577,886	)
Acquisition of Virtual Generation, net of cash of $47,268		(216,150	)		—
Net Cash Used in Investing Activities		(270,433	)		(4,577,886	)

Cash Flows from Financing Activities
Proceeds from bank credit line		250,000			—
Repayment of bank credit line		—			(177,060	)
Repayment of bank loan		(59,007	)		71,143	)
Proceeds from debentures and convertible notes, net of repayment		—			6,883,905
Repayment of deferred purchase consideration – non related parties		(173,862	)		—
Repayment of deferred purchase consideration – related parties		(107,986	)		—
Repayment of financial leases		(5,449	)		(215,745	)
Loan to related party		(11,992	)		—
Purchase of treasury stock		—			(2,261,307	)
Loans advanced to stockholders		—			(485,036	)
Repayment of loans advanced to stockholders		6,605			—
Net Cash (Used in) Provided by Financing Activities		(101,691	)		3,673,614

Effect of change in exchange rate		195,864			153,442

Net (decrease) increase in cash		(1,181,861	)		299,751
Cash, cash equivalents and restricted cash – beginning of the period		7,850,442			7,057,763
Cash, cash equivalents and restricted cash – end of the period	$	6,668,581		$	7,357,514

Reconciliation of cash, cash equivalents and restricted cash within the Balance Sheets to the Statement of Cash Flows
Cash and cash equivalents	$	5,228,797		$	6,785,266
Restricted cash included in non-current assets		1,439,784			572,248
	$	6,668,581		$	7,357,514

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	13,955	$	140,815
Income tax	$	473,679	$	341,830

Supplemental cash flow disclosure for non-cash activities
Common shares issued for the acquisition of subsidiaries	$	272,307	$	5,588,088
Common shares issued on conversion of debentures	$	104,911	$	—
Common shares issued to related parties for repayment of debt	$	—	$	54,402
Retirement of treasury stock	$	—	$	2,260,770
Common shares issued for cashless exercise of warrants	$	—	$	201,088

See notes to the unaudited consolidated financial statements

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

1. Nature of Business

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

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

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

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

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

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

2. Accounting Policies and Estimates

Basis of Presentation

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

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Basis of Consolidation

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

Company	Country of Incorporation	Percentage owned %

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

Currency Translation

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

Use of Estimates

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

Loss Contingencies

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Loss Contingencies (continued)

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

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

Derivative Financial Instruments

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

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

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

Business Combinations

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

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Fair Value Measurements

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

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

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

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

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

Cash and Cash Equivalents

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

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

Gaming Accounts Receivable

Gaming accounts receivable represent gaming deposits made by customers to their online gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly by cash collected at the cashier of a betting shop but not yet credited to the Company’s bank accounts and subject to normal trade collection terms without discounts. The Company periodically evaluates the collectability of its gaming accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. The Company does not require collateral to support customer receivables. The company recorded bad debt expense $0 and $0 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $6,354 bad debt expense for the six months ended June 30, 2019 and 2018, respectively. All balances previously recorded as allowance for doubtful accounts were written off as uncollectible.

Gaming Accounts Payable

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Long-Lived Assets

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

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

Property, Plant and Equipment

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

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

Description	Useful Life (in years)

Office equipment	5
Office furniture	8 1/3
Signs and displays	5

Intangible Assets

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

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

The range of the estimated useful lives is as follows:

Description	Useful Life (in years)

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

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Goodwill

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

Income Taxes

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

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

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

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

Revenue Recognition

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Revenue Recognition (continued)

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

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

Stock-Based Compensation

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

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

Comprehensive Income (Loss)

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

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

Earnings Per Share

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

Related Parties

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

2. Accounting Policies and Estimates (continued)

Recent Accounting Pronouncements Not Yet Adopted

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

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

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

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

Comparatives

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results

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

Three and six months ended June 30, 2019

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

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

The Company recorded a right-of-use asset of $646,138 and an operating lease liability of $617,352 and an accrued liability of $28,786 as of January 1, 2019. An additional $217,352 of operating leases were entered into and a further $27,517 of operating leases were terminated before maturity during the six months ended June 30, 2019. The amortization of the right-of-use asset during the six months ended June 30, 2019 amounted to $95,622, the amortization of the operating lease liability of $90,086 and the increase in the accrued liability of $4,834.

The Company adjusted its accounting for financial leases by recording an office equipment asset of $34,638 and a finance lease liability of $34,524 as of January 1, 2019. During the six months ended June 30, 2019, an additional $15,118 of additional office equipment under financial leases was recorded. The Company recorded a depreciation charge of $5,623 related to these assets, an interest charge of $699 and amortization of financial leases of $5,336.

The Company modified its accounting for the acquisition of Virtual Generation by accounting for the imputed deferred tax liability on the value of the Platform acquired, resulting in an adjustment of $1,401,608 to deferred tax liability and recording of a goodwill asset on acquisition of $1,401,608. The Virtual Generation platform valued at $4,004,954 was amortized for the six months ended June 30, 2019, resulting in an amortization expense of $111,239 and a reduction in the deferred tax liability of $38,934.

Other immaterial adjustments relating to the recording of intercompany movements and certain expenses were incorrectly reflected in other comprehensive income, the net adjustment amounted to $16,233 and an adjustment of comprehensive loss of $28,223. Included in other adjustments is a reclassification of selling expenses of $770,025 to general and administrative expenses to conform to current disclosure.

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

Three and six months ended June 30, 2018

The error corrected in the financial statements for the year ended December 31, 2018, resulted in an adjustment to depreciation and amortization expense of $235,296, an adjustment to foreign exchange movements of $55,764 and an immaterial $331 adjustment to general and administrative expenses.

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

The restatement recorded by the Company for the six months ended June 30, 2019 was as follows:

	Prior year adjustment			Lease adjustments			Acquisition of Virtual Generation adjustments			Other adjustments			Total Restated

Opening retained earnings	$	958,136		$	—		$	—		$	—		$	958,136
Selling Expenses		—			—			—			(770,025	)		(770,025	)
General and administrative expenses		—			(6,148	)		—			798,248			792,100
Depreciation and amortization		—			5,623			111,239			(11,990	)		104,872
Interest expense		—			699			—			—			699
Deferred taxation		—			—			(38,934	)		—			(38,934	)
Net increase in accumulated deficit		958,136			174			72,305			16,233			1,046,848

Net decrease in other Comprehensive loss		(1,023,907	)		617			—			(28,223	)		(1,051,513	)

Net increase in plant and equipment and intangibles		65,771			780,586			1,290,369			11,990			2,148,716

Total increase in current liabilities		—			(131,263	)		—			—			(131,263	)

Net increase in non-current liabilities	$	—		$	(650,114	)	$	(1,362,674	)	$	—		$	(2,012,788	)

The restatement recorded by the Company for the six months ended June 30, 2018 was as follows:

	Plant and equipment and intangibles adjustments		Foreign currency adjustments		Other adjustments		Total Restated

General and administrative expenses	$	—	$	55,764	$	331	$	56,095
Depreciation and amortization		235,296		—		—		235,296
Net increase in accumulated deficit	$	235,296	$	55,764	$	331	$	291,391

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

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

	As Previously Reported			Prior year adjustment			Lease adjustments			Acquisition of Virtual Generation			Other Adjustments			As Restated
Current Assets
Cash and cash equivalents	$	5,228,797		$	—		$	—		$	—		$	—		$	5,228,797
Accounts receivable		116,398			—			—			—			—			116,398
Gaming accounts receivable		654,016			—			—			—			—			654,016
Prepaid expenses		140,107			—			—			—			—			140,107
Related party receivable		851			—			—			—			—			851
Other current assets		145,348			—			—			—			—			145,348
Total Current Assets		6,285,517			—			—			—			—			6,285,517

Non-Current Assets
Restricted cash		1,439,782			—			—			—			—			1,439,782
Property, plant and equipment		347,824			121,248			43,961			—			6,180			519,213
Right-of-use assets		—			—			736,625			—			—			736,625
Intangible assets		16,353,775			(55,477	)		—			(111,239	)		10,903			16,197,962
Goodwill		267,076			—			—			1,401,608			(5,093	)		1,663,591
Investment in non-consolidated entities		250,000			—			—			—			—			250,000
Total Non-Current Assets		10,658,457			65,771			780,586			1,290,369			11,990			20,807,173
Total Assets	$	24,943,974		$	65,771		$	780,586		$	1,290,369		$	11,990		$	27,092,690

Current Liabilities
Line of credit - bank	$	1,000,000		$	—		$	—		$	—		$	—		$	1,000,000
Accounts payable and accrued liabilities		3,982,319			—			33,620			—			(420,942	)		3,594,997
Gaming accounts balances		2,217,089			—			—			—			—			2,217,089
Taxes payable		995,004			—			—			—			—			995,004
Advances from stockholders		48,508			—			—			—			—			48,508
Convertible Debt, net of discount of $2,578,995 and $4,587,228, respectively		6,083,982			—			—			—			—			6,083,982
Notes payable, net of discount of $132,970		1,421,045			—			—			—			—			1,421,045
Notes payable – related party, net of discount of $88,647		1,405,804			—			—			—			—			1,405,804
Bank loan payable – current portion		122,829			—			—			—			—			122,829
Operating lease liability		—			—			91,449			—						91,449
Financial lease liability		—			—			6,194			—						6,194
Total Current Liabilities		17,276,580			—			131,263			—			—			16,986,901

Non-current liabilities
Deferred tax liability					—			—			1,362,674			—			1,362,674
Notes payable, net of discount of $54,216		498,874															498,874
Notes payable – related party, net of discount of $36,144		332,582															332,582
Bank loan payable		161,504			—			—			—			—			161,504
Operating lease liability					—			611,718			—			—			611,718
Financial lease liability					—			38,396			—			—			38,396
Other long-term liabilities		193,021			—			—			—			420,942			613,963
Total Non-Current Liabilities		1,185,981			—			650,114			1,362,674			—			3,619,711
Total Liabilities		18,462,561			—			781,377			1,362,674			—			20,606,612

Stockholders' Equity
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, none issued		—			—			—			—			—			—
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 9,795,396 shares issued and outstanding as of June 30, 2019*		7,935			—			—			—			(6,943	)		992
Additional paid-in capital*		25,455,983			—			—			—			6,943			25,462,926
Accumulated other comprehensive income		(1,170,151	)		1,023,907			(617	)		—			28,223			(118,638	)
Accumulated deficit		(17,812,354	)		(958,136	)		(174	)		(72,305	)		(16,233	)		(18,859,202	)
Total Stockholders' Equity		6,481,413			65,771			(791	)		(72,305	)		11,990			6,486,078
Total Liabilities and Stockholders’ Equity	$	24,943,974		$	65,771		$	780,586		$	1,290,369		$	11,990		$	27,092,690

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

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

	As Previously Reported			Lease adjustments			Acquisition of Virtual Generation			Other Adjustments			As Restated

Revenue	$	9,105,353		$	—		$	—		$	—		$	9,105,353

Costs and Expenses
Selling expenses		7,038,797			—			—			(770,025	)		6,268,772
General and administrative expenses		2,487,299			(214	)		66,744			806,553			3,360,284
Total Costs and Expenses		9,526,096			(214	)		66,744			36,430			9,629,056

Loss from Operations		(420,743	)		214			(66,744	)		(36,430	)		(523,703	)

Other (Expenses) Income
Other income		7,725			—			—			—			7,725
Interest expense, net of interest income		(1,016,866	)		(377	)		—			—			(1,017,243	)
Loss on conversion of debt		(35,943	)		—			—			—			(35,943	)
Total Other (Expenses) Income		(1,045,084	)		(377	)		—			—			(1,045,461	)

Loss Before Income Taxes		(1,465,827	)		(163	)		(66,744	)		(36,430	)		(1,569,164	)

Income tax provision		(232,417	)		—			23,361			—			(209,056	)

Net Loss	$	(1,698,244	)	$	(163	)	$	(43,383	)	$	(36,430	)	$	(1,778,220	)

Other Comprehensive Loss
Foreign currency translation adjustment		(32,633	)		(55	)		—			101,711			69,023

Comprehensive Loss	$	(1,730,877	)	$	(218	)	$	(43,383	)	$	65,281		$	(1,709,197	)

Loss per common share – basic and diluted*	$	(0.18	)										$	(0.17	)
Weighted average number of common shares outstanding – basic and diluted*		9,870,357												9,870,357

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

	As Previously Reported			Lease adjustments			Acquisition of Virtual Generation			Other Adjustments			As Restated

Revenue	$	18,371,648		$	—		$	—		$	—		$	18,371,648

Costs and Expenses
Selling expenses		14,446,503			—			—			(770,025	)		13,676,478
General and administrative expenses		5,660,767			(525	)		111,239			786,258			6,557,739
Total Costs and Expenses		20,107,270			(525	)		111,239			16,233			20,234,217

Loss from Operations		(1,735,622	)		525			(111,239	)		(16,233	)		(1,862,569	)

Other (Expenses) Income
Other income		7,725			—									7,725
Interest expense, net of interest income		(2,520,656	)		(699	)		—			—			(2,521,355	)
Loss on conversion of debt		(35,943	)		—			—			—			(35,943	)
		(25,000	)		—			—			—			(25,000	)
Total Other (Expenses) Income		(2,573,874	)		(699	)		—			—			(2,574,573	)

Loss Before Income Taxes		(4,309,496	)		(174	)		(111,239	)		(16,233	)		(4,437,142	)

Income tax provision		(493,964	)		—			38,934			—			(455,030	)

Net Loss	$	(4,803,460	)	$	(174	)	$	(72,305	)	$	(16,233	)	$	(4,892,172	)

Other Comprehensive Loss
Foreign currency translation adjustment		(88,813	)		(617	)		—			28,223			(61,207	)

Comprehensive Loss	$	(4,892,273	)	$	(791	)	$	(72,305	)	$	11,990		$	(4,953,379	)

Loss per common share – basic and diluted*	$	(0.50	)										$	(0.50	)
Weighted average number of common shares outstanding – basic and diluted*		9,764,450												9,870,357

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

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

	As Previously Reported			Depreciation and amortization adjustments			Foreign Exchange adjustments			Other Adjustments		As Restated

Revenue	$	8,822,659		$	—		$	—		$	—	$	8,822,659

Costs and Expenses
Selling expenses		5,826,243			—			—			—		5,826,243
General and administrative expenses		2,056,275			117,648			27,882			—		2,201,805
Total Costs and Expenses		7,882,518			117,648			27,882			—		8,028,048

Income from Operations		940,141			(117,648			(27,882	)		—		794,611

Other (Expenses) Income
Interest expense, net of interest income		(1,050,270	)		—			—			—		(1,050,270	)
Imputed interest on related party advances		753			—			—			—		753
Loss on debt modification		(212,270	)		—			—			—		(212,270	)
Loss on marketable securities		(155,000	)		—			—			—		(155,000	)
Total Other (Expenses) Income		(1,416,787	)		—			—			—		(1,416,787	)

Loss Before Income Taxes		(476,646	)		(117,648	)		(27,882	)		—		(622,176	)

Income tax provision		(512,406	)		—			—			—		(512,406	)

Net Loss	$	(989,052	)	$	(117,648	)	$	(27,882	)	$	—	$	(1,134,582	)

Other Comprehensive Loss
Foreign currency translation adjustment		(98,355	)		—			—			—		(98,355	)

Comprehensive Loss	$	(1,087,407	)	$	(117,648	)	$	(27,882	)	$	—	$	(1,232,937	)

Loss per common share – basic and diluted*	$	(0.12	)									$	(0.13	)
Weighted average number of common shares outstanding – basic and diluted*		9,344,282											9,344,282

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

	As Previously Reported			Depreciation and amortization adjustments			Foreign Exchange adjustments			Other Adjustments			As Restated

Revenue	$	17,416,526		$	—		$	—		$	—		$	17,416,526

Costs and Expenses
Selling expenses		11,903,600			—			—			—			11,903,600
General and administrative expenses		4,115,728			235,296			55,764			331			4,407,119
Total Costs and Expenses		16,019,328			235,296			55,764			331			16,310,719

Income from Operations		1,397,198			(235,296	)		(55,764	)		(331	)		1,105,807

Interest expense, net of interest income		(1,262,509	)		—			—			—			(1,262,509	)
Imputed interest on related party advances		(761	)		—			—			—			(761	)
Gain on litigation settlement		516,120			—			—			—			516,120
Loss on debt modification		(212,270	)											(212,270	)
Loss on marketable securities		(155,000	)											(155,000	)
Total Other Expenses (Income)		(1,114,420	)		—			—			—			(1,114,420	)

Income (Loss) Before Income Taxes		282,778			(235,296	)		(55,764	)		(331	)		(8,613	)

Income tax provision		(757,442	)		—			—			—			(757,442	)

Net Loss	$	(474,664	)	$	(235,296	)	$	(55,764	)	$	(331	)	$	(766,055	)

Other Comprehensive Income (Loss)
Foreign currency translation adjustment		(162,873	)		267,556			55,764			331			160,778

Comprehensive Loss	$	(637,537	)	$	32,260		$	—		$	—		$	(605,277	)

Loss per common share – basic and diluted*	$	(0.05	)										$	(0.08	)
Weighted average number of common shares outstanding – basic and diluted*		9,308,511												9,308,511

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

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

	As Previously Reported			Lease adjustments			Acquisition of Virtual Generation			Other Adjustments and reclassifications			As Restated
Cash Flows from Operating Activities
Net loss	$	(4,803,460	)	$	(174	)	$	(72,305	)	$	(16,233	)	$	(4,892,172	)

Adjustments to reconcile net loss to net cash generated by operating activities
Depreciation and amortization		291,332			5,623			111,239			37,796			445,990
Amortization of deferred costs		2,096,080			—			—			—			2,096,080
Non-cash interest		409,114			—			—			—			409,114
Loss on debt conversions		35,943									—			35,943
Unrealized loss on trading securities		25,000			—			—			—			25,000
Deferred taxation movements		—			—			(38,934	)		—			(38,934	)
Foreign translation loss		173,400			—						(173,400	)		—
Changes in Operating Assets and Liabilities
Prepaid expenses		(7,732	)		—			—			—			(7,732	)
Accounts payable and accrued liabilities		(26,789	)		—			—			(417,954	)		(444,743	)
Accounts receivable		(57,679	)		—			—			—			(57,679	)
Gaming accounts receivable		357,886			—			—			—			357,886
Gaming accounts liabilities		727,433			—			—			440,021			1,167,454
Taxes payable		(53,941	)		—			—			—			(53,941	)
Other current assets		(57,163	)		—			—			—			(57,163	)
Long term liability		30,995			—			—			(21,699	)		9,296
Net Cash used in operating Activities		(859,581	)		5,449			—			(151,469	)		(1,005,601	)

Cash Flows from Investing Activities
Acquisition of property, plant, and equipment, and intangible assets		(59,253	)		—			4,954			16			(54,283	)
Decrease in restricted cash		100,140			—			—			(100,140	)		—
Acquisition of Virtual Generation, net of cash of $47,268		46,668			—			(262,818	)		—			(216,150	)
Net Cash Used in Investing Activities		87,555			—			(257,864	)		(100,124	)		(270,433	)

Cash Flows from Financing Activities
Proceeds from bank credit line, net		250,000			—			—			—			250,000
Repayment of bank loan		(59,007	)		—			—			—			(59,007	)
Repayment of deferred purchase consideration – non-related parties		(331,913	)		—			158,051			—			(173,862	)
Repayment of deferred purchase consideration – related parties		(213,353	)					105,367						(107,986	)
Movement in financial leases		—			(5,449	)		—			—			(5,449	)
Advance to related party		(11,992	)		—			—			—			(11,992	)
Repayment of loans advanced to stockholders		6,605			—			—			—			6,605
Net Cash Used in Financing Activities		(359,660	)		(5,449	)		263,418			—			(101,691	)

Effect of change in exchange rate		70,580			—			(5,554	)		130,838			195,864

Net decrease in cash		(1,061,106	)		—			—			(120,755	)		(1,181,861	)
Cash, cash equivalents and restricted cash – beginning of the period		6,289,903			—			—			1,560,539			7,850,442
Cash, cash equivalents and restricted cash – end of the period	$	5,228,797		$	—		$	—		$	1,439,784		$	6,668,581

Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows

Cash and cash equivalents	$	5,228,797		$	—		$	—		$	—		$	5,228,797
Restricted cash		—									1,439,784			1,439,784
	$	5,228,797								$	1,439,784		$	6,668,581

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

3. Restatement of prior period results (continued)

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

	As Previously Reported			Depreciation and amortization adjustments			Foreign Exchange adjustments			Other Adjustments and reclassifications			As Restated
Cash Flows from Operating Activities
Net Loss	$	(474,664	)	$	(235,296	)	$	(55,764	)	$	(331	)	$	(766,055	)

Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		226,436			104,396			—			—			330,832
Amortization of deferred costs		1,012,225			—			—			—			1,012,225
Non-cash interest		58,188			—			—			—			58,188
Loss on debt modification		212,270												212,270
Imputed interest on advances from stockholders		1,514			—			—			—			1,514
Unrealized loss on trading securities		155,000			—			—			—			155,000
Recovery of assets		(516,120	)		—			—			—			(516,120	)
Bad debt expense		6,354			—			—			—			6,354
Changes in Operating Assets and Liabilities
Prepaid expenses		5,225			—			—			—			5,225
Accounts payable and accrued liabilities		756,656			—			—			331			756,987
Accounts receivable		98,833			—			—			—			98,833
Gaming accounts receivable		31,409			—			—			—			31,409
Gaming accounts liabilities		(583,899	)		—			—			—			(583,899	)
Taxes payable		439,731			—			—			—			439,731
Other current assets		(270,259	)		—			—			—			(270,259	)
Long term liability		78,346			—			—			—			78,346
Net Cash Provided by operating Activities		1,237,245			(130,900	)		(55,764	)		—			1,050,581

Cash Flows from Investing Activities
Acquisition of property, plant, and equipment, and intangible assets		(4,442,508	)		(135,378	)		—			—			(4,577,886	)
Decrease in restricted cash		15,657			—			—			(15,657	)		—
Net Cash Used in Investing Activities		(4,426,851	)		(135,378	)		—			(15,657	)		(4,577,886	)

Cash Flows from Financing Activities
Repayment of bank credit line, net		(177,060	)		—			—			—			(177,060	)
Repayment of bank loan		(71,143	)		—			—			—			(71,143	)
Proceeds from debentures and convertible notes, net of repayment		6,883,905			—			—			—			6,883,905
Loan to related party		(215,745	)											(215,745	)
Purchase of treasury stock		(2,261,307	)											(2,261,307	)
Repayment to stockholders, net of advances		(485,036	)		—			—			—			(485,036	)
Net Cash Provided by Financing Activities		3,673,614			—			—			—			3,673,614

Effect of change in exchange rate		(168,600	)		266,278			55,764			—			153,442

Net increase in cash		315,408			—			—			(15,657	)		299,751
Cash, cash equivalents and restricted cash – beginning of the period		6,469,858			—			—			587,905			7,057,763
Cash, cash equivalents and restricted cash – end of the period	$	6,785,266		$	—		$	—		$	572,248		$	7,357,514

Reconciliation of cash, cash equivalents and restricted cash within the balance sheet to the statement of cash flows

Cash and cash equivalents	$	6,785,266		$	—		$	—		$	—		$	6,785,266
Restricted cash		—			—			—			572,248			572,248
	$	6,785,266		$	—		$	—		$	572,248		$	7,357,514

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

4. Reclassification of prior period results

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

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

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

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

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

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

	Convertible Debentures		Derivative Liability			Additional Paid-in Capital		Accumulated Deficit
Balance as of January 1, 2018	$	1,148,107	$	222,915		$	14,254,582	$	(9,897,620	)
Reclassified derivative liabilities and cumulative effect of adoption		—		(222,915	)		287,881		(64,966	)
Balance as of January 1, 2018, restated	$	1,148,107	$	—		$	14,542,463	$	(9,962,586	)

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

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

4. Reclassification of prior period results (continued)

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

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

The reconciliation of the unaudited consolidated statement of comprehensive loss for the three months ended June 30, 2018 is as follows:

	As Previously reported			Reclass of disclosure			As Reclassed			Effect of adoption of ASU 2017-11			As Reclassified

Revenue	$	8,822,659		$	—		$	8,822,659		$	—		$	8,822,659

Costs and Expenses
Selling expenses		5,826,243			—			5,826,243			—			5,826,243
General and administrative expenses		2,056,275			—			2,056,275			—			2,056,275
Total Costs and Expenses		7,882,518			—			7,882,518			—			7,882,518

Income from Operations		940,141			—			940,141			—			940,141

Other (Expenses) Income
Interest expense, net of interest income		(1,050,270	)		—			(1,050,270	)		—			(1,050,270	)
Changes in fair value of derivative liabilities		18,014,364			(23,513,240	)		(5,498,876	)		(5,498,876	)		—
Imputed interest on related party advances		753			—			753			—			753
Gain on litigation settlement		—			—			—			—			—
Loss on issuance of debt		(23,725,510	)		23,725,510			—			—			—
Loss on debt modification		—			(212,270	)		(212,270	)		—			(212,270	)
Loss on Marketable Securities		(155,000	)		—			(155,000	)		—			(155,000	)
Total Other (Expenses) Income		(6,915,663	)		—			(6,915,663	)		5,498,876			(1,416,787	)

Income (Loss) Before Income Taxes		(5,975,522	)		—			(5,975,522	)		5,498,876			(476,646	)
Income tax provision		(512,406	)		—			(512,406	)		—			(512,406	)
Net Loss		(6,487,928	)		—			(6,487,928	)		5,498,876			(989,052	)

Other Comprehensive Loss
Foreign currency translation adjustment		(98,355	)		—			(98,355	)		—			(98,355	)

Comprehensive Loss	$	(6,586,283	)	$	—		$	(6,586,283	)	$	5,498,876		$	(1,087,407	)

Loss per common share – basic and diluted	$	(0.71	)	$	—		$	(0.71	)	$	0.59		$	(0.12	)
Weighted average number of common shares outstanding – basic and diluted		9,344,282			9,344,282			9,344,282			9,344,282			9,344,282

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

4. Reclassification of prior period results (continued)

The reconciliation of the unaudited consolidated statement of comprehensive loss for the six months ended June 30, 2018 is as follows:

	As Previously reported			Reclass of disclosure			As Reclassed			Effect of adoption of ASU 2017-11		As Reclassified

Revenue	$	17,416,526		$	—		$	17,416,526		$	—	$	17,416,526

Costs and Expenses
Selling expenses		11,903,600			—			11,903,600			—		11,903,600
General and administrative expenses		4,115,728			—			4,115,728			—		4,115,728
Total Costs and Expenses		16,019,328			—			16,019,328			—		16,019,328

Income from Operations		1,397,198			—			1,397,198			—		1,397,198

Other (Expenses) Income
Interest expense, net of interest income		(1,262,509	)		—			(1262,509	)		—		(1,262,509	)
Changes in fair value of derivative liabilities		18,268,653			(23,513,240	)		(5,244,587	)		5,244,587		—
Imputed interest on related party advances		(761	)		—			(761	)		—		(761	)
Gain on litigation settlement		516,120			—			516,120			—		516,120
Loss on issuance of debt		(23,725,510	)		23,725,510			—			—		—
Loss on debt modification		—			(212,270	)		(212,270	)		—		(212,270	)
Loss on Marketable Securities		(155,000	)		—			(155,000	)		—		(155,000	)
Total Other (Expenses) Income		(6,359,007	)		—			(6,359,007	)		5,244,587		(1,114,420	)

Income (Loss) Before Income Taxes		(4,961,809	)		—			(4,961,809	)		5,244,587		282,778
Income tax provision		(757,442	)		—			(757,442	)		—		(757,442	)
Net Loss		(5,719,251	)		—			(5,719,251	)		5,244,587		(474,664	)

Other Comprehensive Loss
Foreign currency translation adjustment		(162,873	)		—			(162,873	)		—		(162,873	)

Comprehensive Loss	$	(5,882,124	)	$	—		$	(5,882,124	)	$	5,244,587	$	(637,537	)

Loss per common share – basic and diluted	$	(0.63	)	$	—		$	(0.63	)	$	0.56	$	(0.07	)
Weighted average number of common shares outstanding – basic and diluted		9,308,511			9,308,511			9,308,511			9,308,511		9,308,511

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

4. Reclassification of prior period results (continued)

The reconciliation of the unaudited consolidated statement of cash flows for the six months ended June 30, 2018 is as follows:

	As Previously reported			Reclass of disclosure			As Reclassed			Effect of adoption of ASU 2017-11			As Reclassified
Cash Flows from Operating Activities
Net loss	$	(5,719,251	)	$	—		$	(5,719,251	)	$	5,244,587		$	(474,664	)

Adjustments to reconcile net loss to net cash Provided by operating activities					—						—
Depreciation and amortization		226,436			—			226,436			—			226,436
Amortization of deferred costs		58,188			—			58,188			—			58,188
Non-cash interest		1,012,225			—			1,012,225			—			1,012,225
Loss on issuance of debt		23,725,510			(23,725,510	)		—			—			—
Loss on debt modification		—			212,270			212,270			—			212,270
Imputed interest on advances from stockholders		1,514			—			1,514			—			1,514
Changes in fair value of derivative liabilities		(18,268,653	)		23,513,240			5,244,587			(5,244,587	)		—
Unrealized loss on trading securities		155,000			—			155,000			—			155,000
Recovery of assets		(516,120	)		—			(516,120	)		—			(516,120	)
Bad debt expense		6,354			—			6,354			—			6,354

Changes in Operating Assets and Liabilities
Prepaid expenses		5,225			—			5,225			—			5,225
Accounts payable and accrued liabilities		756,656			—			756,656			—			756,656
Accounts receivable		98,833			—			98,833			—			98,833
Gaming accounts receivable		31,409			—			31,409			—			31,409
Gaming accounts liabilities		(583,899	)		—			(583,899	)		—			(583,899	)
Taxes payable		439,731			—			439,731			—			439,731
Other current assets		(270,259	)		—			(270,259	)		—			(270,259	)
Long term liability		78,346			—			78,346			—			78,346
Net Cash Provided by Operating Activities		1,237,245			—			1,237,245			—			1,237,245

Cash Flows from Investing Activities
Acquisition of property, plant, and equipment, and intangible assets		(4,442,508	)		—			(4,442,508	)		—			(4,442,508	)
Decrease in restricted cash		15,657			—			15,657			—			15,657
Net Cash Used in Investing Activities		(4,426,851	)		—			(4,426,851	)		—			(4,426,851	)

Cash Flows from Financing Activities
Proceeds from bank credit line		(177,060	)		—			(177,060	)		—			(177,060	)
Repayment of bank loan		(71,143	)		—			(71,143	)		—			(71,143	)
Proceeds from convertible debentures and promissory notes, net of repayment		6,883,905			—			6,883,905			—			6,883,905
Loan to related party		(215,745	)		—			(215,745	)		—			(215,745	)
Purchase of treasury stock		(2,261,307	)		—			(2,261,307	)		—			(2,261,307	)
Advances from stockholders, net of repayment		(485,036	)		—			(485,036	)		—			(485,036	)
Net Cash Provided by Financing Activities		3,673,614			—			3,673,614			—			3,673,614

Effect of change in exchange rate		(168,600	)		—			(168,600	)		—			(168,600	)

Net increase in cash		315,408			—			315,408			—			315,408
Cash – beginning of the period		6,469,858			—			6,469,858			—			6,469,858
Cash – end of the period	$	6,785,266		$	—		$	6,785,266		$	—		$	6,785,266

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

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

Ulisse GmbH (“Ulisse”) Acquisition

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

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

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

Multigioco Acquisition

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

Virtual Generation Limited (“VG”) Acquisition

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

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

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

ii.

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

iii.

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

The value of the EUR 4,000,000 promissory note net of discount was EUR 3,665,255 ($4,193,374 U.S.). The note was allocated as 40% as related party and 60% non-related party. In the six months ending June 30, 2019, cash payments were $240,015 net of interest of $2,354. Shares were issued at an equivalent of $195,220 net of interest of $1,563. Transaction gain during the quarter was $150. As of June 30, 2019, the promissory note net of discount related to the purchase of VG had a balance of $3,758,289 ($1,502,832 related party; $2,255,457 non-related party).

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

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

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

Cash	$	47,268
Current assets		178.181
Property, Plant and Equipment		41,473
Betting Platform		4,004,594
		4,271,516
Less: liabilities assumed		(78,141	)
Less: Imputed Deferred taxation on identifiable intangible assets acquired		(1,401,608	)
Total identifiable assets less liabilities assumed		2,791,767
Goodwill arising on acquisition		1,401,608
Total purchase price	$	4,193,375

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

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited 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%.

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

6. Leases (continued)

Right of use assets

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

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

	June 30, 2019

Non-Current assets
Right-of-use assets - operating leases, net of amortization	$	736,625
Right-of-use assets – finance leases, net of amortization (included in plant and equipment)	$	43,961

Lease costs consists of the following:

	Six months ended June 30, 2019

Finance lease cost:	$	15,817
Amortization of right-of-use assets		15,118
Interest expense on lease liabilities		699

Operating lease cost		95,371

Total lease cost	$	111,191

Other lease information:

	Six months ended June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(699	)
Operating cash flows from operating leases		(95,371	)
Financing cash flows from finance leases		(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		3.88 years
Weighted average remaining lease term – operating leases		3.83 years

Weighted average discount rate – finance leases		3.48	%
Weighted average discount rate – operating leases		3.66	%

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

6. Leases (continued)

Maturity of Leases

Finance lease liability

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

	Amount
2019	$	6,890
2020		13,780
2021		10,543
2022		8,536
2023		6,788
2024		817
Total undiscounted minimum future lease payments		47,354
Imputed interest		(2,764	)
Total finance lease liability	$	44,590

Disclosed as:
Current portion	$	6,194
Non-Current portion		38,396
	$	44,590

Operating lease liability

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

	Amount
2019	$	114,297
2020		186,474
2021		179,902
2022		153,301
2023		104,850
2024 and beyond		29,098
Total undiscounted minimum future lease payments		767,922
Imputed interest		(64,755	)

Total operating lease liability	$	703,167

Disclosed as:
Current portion	$	91,449
Non-Current portion		611,718
	$	703,167

7. Investment in non-consolidated entities

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

On June 30, 2019, the shares of Zoompass were last quoted at $0.10 per share on the OTC market, resulting in an unrealized loss recorded to earnings related to these securities of $25,000 for the three and six months ended June 30, 2019.

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

8. Intangible Assets

Intangible assets consist of the following:

	June 30, 2019					December 31, 2018
Betting Platform Software	$	1,685,371		$	1,685,371
Ulisse Bookmaker License		9,727,914			9,727,914
Multigioco and Rifa ADM Licenses		960,977			961,756
VG Licenses		4,004,594			—
Location contracts		1,000,000			1,000,000
Customer relationships		870,927			870,927
Trademarks/names		110,000			110,000
Websites		40,000			40,000
		18,399,783			14,395,968
Accumulated amortization		(2,201,821	)		(1,867,986		)
Balance	$	16,197,962		$	12,527,982

The Company evaluates intangible assets for impairment on an quarterly basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value. The Company recorded approximately $376,457 and $206,568 in amortization expense for the finite-lived assets for the six months ended June 30, 2019 and June 30, 2018 respectively.

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

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

9. Restricted cash

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

10. Line of Credit – Bank

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

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

11. Related Parties

Notes Payable – Related Party

The Company has 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 bear interest at 12% per annum and are due on demand.

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

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

11. Related Parties (continued)

Notes Payable – Related Party (continued)

The promissory note is to be settled as follows:

(a)

an aggregate of €956,800 in cash in 23 equal and consecutive monthly instalments of €41,600 with the first such payment due and payable on the date that is one month after the Closing Date; and

(b)

an aggregate of €564,400 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €33,200 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

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

The movement on notes payable consists of the following:

Description	June 30, 2019

Principal Outstanding
Opening balance	$	318,078
Promissory note due to non-related parties		1,830,541
Settled by the issuance of common shares		(190,128	)
Repayment in cash		(213,353	)
Foreign exchange movements		(14,442	)
		1,730,696
Accrued Interest
Opening balance		113,553
Interest expense		18,928
		132,481
Present value discount on future payments
Present value discount		(161,393	)
Amortization		35,347
Foreign exchange movements		1,255
		(124,791	)
Notes payable – Related Party, net	$	1,738,386

Disclosed as follows:
Current liability	$	1,405,804
Long term liability		332,582
Notes payable – Related Party, net	$	1,738,386

Advances from Stockholders

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

Advances from stockholders are as follows:

	June 30, 2019		December 31, 2018

Gold Street Capital Corp.	$	48,508	$	39,237

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

During the six months ended June 30, 2018, the Company paid management fees of approximately $6,000 to Luca Pasquini.

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

12. Stockholders’ Equity

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

On January 30, 2019, the Company issued 32,450 shares of common stock valued at $101,763 and issued the following shares of common stock to promissory note holders in terms of the agreement entered into for the acquisition of Virtual Generation Limited, as disclosed in Note 5 above.

· On March 1, 2019, 32,845 shares of common stock valued at $101,249;

· On April 1, 2019, 29,975 shares of common stock valued at $86,328;

· On May 1, 2019, 33,105 shares of common stock valued at $93,018;

· On June 1, 2019, 27,256 shares of common stock valued at $92,961.

For the six months ended June 30, 2019, the Company issued a total of 86,850 shares of common stock, valued at $989,169, upon the conversion of convertible debentures into equity (Note 13).

On April 22, 2019, the Company issued 11,232 shares of common stock, valued at $35,943, to certain convertible debenture holders as an incentive for them to transfer their convertible debentures to another investor.

13. Convertible Debt

Convertible debt consists of Notes in USD and CAD issued in the first and second quarter of 2018. For the three and six months ended June 30, 2019, $919,824 ($864,623 principal plus $55,200 accrued interest) of convertible notes were redeemed for 287,561 of the Company’s common stock. At June 30, 2019, the Company has $7,774,208 principal debt plus accrued interest of $668,492 net of a discount of $3,300,942 and recorded a loss of $109,810 to account for the foreign currency translation of the debt issued in CAD.

The Aggregate convertible debentures outstanding consists of the following:

Description	June 30, 2019

Principal Outstanding
Opening balance	$	8,529,021
Conversion to equity		(925,963	)
Foreign exchange movements		195,999
		7,799,057
Accrued Interest
Opening balance		528,141
Interest expense		390,186
Conversion to equity		(63,206	)
Foreign exchange movements		10,307
		865,428
Debenture Discount
Opening balance		(4,588,215	)
Amortization		2,007,712
		(2,580,503	)
Convertible Debentures, net	$	6,083,982

14. Notes Payable

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

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

(a)

an aggregate of €1,435,200 in cash in 23 equal and consecutive monthly instalments of €62,400 with the first such payment due and payable on the date that is one month after the Closing Date; and

(b)

an aggregate of €846,600 in shares of the Company’s common stock in 17 equal and consecutive monthly instalments of €49,800 as determined by the average of the closing prices of such shares on the last 10 trading days immediately preceding the determination date of each monthly issuance, commencing on March 1, 2019.

The movement on notes payable consists of the following:

Description	June 30, 2019

Principal Outstanding
Promissory note due to non-related parties	$	2,745,811
Settled by the issuance of common shares		(285,192	)
Repayment in cash		(331,913	)
Foreign exchange movements		(21,601	)
		2,107,105
Present value discount on future payments
Present value discount		(242,089	)
Amortization		53,020
Foreign exchange movements		1,883
		(187,186	)
Notes payable, net	$	1,919,919

Disclosed as follows:
Current liability	$	1,421,045
Long term liability		498,874
Notes payable, net	$	1,919,919

15. Bank Loan Payable

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

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

16. 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, 2019		December 31, 2018
Severance liability	$	193,021	$	168,706
Customer deposit balance		420,942		440,021
Total other long term liabilities	$	613,963	$	608,727

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

17. Warrants

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

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

	Number of shares			Exercise price per share		Weighted average exercise price

Outstanding January 1, 2018		76,566		$	4.32	$	4.32
Granted		1,095,883			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		1,089,133		$	4.00		4.00
Granted		—			—		—
Forfeited/cancelled		—			—		—
Exercised		—			—		—
Outstanding June 30, 2019		1,089,133		$	4.00	$	4.00

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

		Warrants outstanding					Warrants exercisable
	Exercise price		Number of shares	Weighted average remaining years		Weighted average exercise price		Number of shares		Weighted average exercise price

$	4.00		1,089,133	0.90	$	4.00		1,089,133	$	4.00

NEWGIOCO GROUP, INC.

Notes to the Unaudited Consolidated Financial Statements

18. Revenues

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

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Turnover
Turnover web-based	$	88,647,748	$	55,025,859	$	175,223,649	$	101,091,758
Turnover land-based		10,617,656		45,013,592		61,017,220		89,507,552
Total Turnover		99,265,404		100,039,451		236,240,869		190,599,310

Winnings/Payouts
Winnings web-based		81,857,558		54,687,682		164,120,495		97,305,678
Winnings land-based		7,199,276		35,765,405		51,555,578		74,511,647
Total Winnings/payouts		89,056,834		90,453,087		215,676,073		171,817,325

Gross Gaming Revenues		10,208,570		9,586,364		20,564,796		18,781,985

Less: ADM Gaming Taxes		1,172,993		799,016		2,366,739		1,565,849
Net Gaming Revenues		9,035,577		8,787,348		18,198,057		17,216,136
Add: Commission Revenues		33,360		18,152		62,433		117,152
Add: Service Revenues		36,416		17,159		111,158		83,238
Total Revenues	$	9,105,353	$	8,822,659	$	18,371,648	$	17,416,526

19. Net Loss per Common Share

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

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

Description	Three and Six Months ended June 30, 2019		Three and Six Months ended June 30, 2018

Warrants		1,089,133		1,089,133
Convertible debentures		2,707,652		2,707,652
		3,796,785		3,796,785

19. Income Taxes

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

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

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

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

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

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

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

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

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

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

20. Subsequent Events

Subsequent to the period covered by this report, the principal amount of $550,000 and CDN$20,000 (approximately $16,400) of outstanding convertible debentures plus accrued interest was presented to the Company for conversion into 195,297 shares of common stock.

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

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

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “might,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “pro forma” or the negative of these words or other words or expressions of and similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 8, 2019 under the heading “Risk Factors” and the Risk Factors as described in Item 1A of this report on Form 10Q for the six months ended June 30, 2019.

Overview

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

General Plan of Operation

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

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

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

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

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

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

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

This Management’s Discussion and Analysis includes a discussion of our operations for the quarter ended June 30, 2019, which reflects the operations of VG and Naos for the three months of the quarter ended June 2019 and for five months of the six month period ended June 30, 2019. The operations of VG and Naos are not included in the discussion for the three months and six months ended June 30, 2018 due to the fact that the acquisition was consummated in January 2019.

Highlights and Recent Developments

Acquisition of VG

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

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

VG’s operations have grown rapidly in the highly competitive virtual sports market from approximately 67,000 tickets in 2014 to over 20 million bet tickets traded in 2018. VG now operates in 12 countries including: Italy, Peru, Nigeria, Paraguay, Albania, Honduras, Colombia, Mexico, Dominican Republic, Uganda, Nicaragua, and Turkey.

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

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

ii.

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

iii.

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

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

As of June 30, 2019, we made cash payments to the VG former shareholders under the promissory note that we issued to them equal to €482,400 (approximately $545,000) and we have issued 155,635 shares (or €421,000 (approximately $475,320) of common stock to the former shareholders of VG pursuant to the promissory note, and the remaining amounts due to the vendors in cash was €2,017,600 (approximately $2,293,000) and €1,079,000 (approximately $1,226,500) in common shares of the company.

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 and Mississippi have passed laws that were ready to be enacted once the federal ban on sports betting was lifted. Additional states including Maine, New Hampshire, California, Connecticut, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Kentucky, Michigan, Ohio and Maryland are considering active bills.

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

Inflation

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

Foreign Exchange

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

Critical Accounting Policies and Estimates

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

Results of Operations

Comparison of the three and six months ended June 30, 2019 and 2018.

Revenues

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Turnover
Turnover web-based	$	88,647,748	$	55,025,859	$	175,223,649	$	101,091,758
Turnover land-based		10,617,656		45,013,592		61,017,220		89,507,552
Total Turnover		99,265,404		100,039,451		236,240,869		190,599,310

Winnings/Payouts
Winnings web-based		81,857,558		54,687,682		164,120,495		97,305,678
Winnings land-based		7,199,276		35,765,405		51,555,578		74,511,647
Total Winnings/payouts		89,056,834		90,453,087		215,676,073		171,817,325

Gross Gaming Revenues		10,208,570		9,586,364		20,564,796		18,781,985

Less: ADM Gaming Taxes		1,172,993		799,016		2,366,739		1,565,849
Net Gaming Revenues		9,035,577		8,787,348		18,198,057		17,216,136
Add: Commission Revenues		33,360		18,152		62,433		117,152
Add: Service Revenues		36,416		17,159		111,158		83,238
Total Revenues	$	9,105,353	$	8,822,659	$	18,371,648	$	17,416,526

The Company generated total revenues of $9,105,353 and $18,371,648 for the three and six months ended June 30, 2019, compared to revenues of $8,822,659 and $17,416,526 for the three and six months ended June 30, 2018, respectively.

The increase in revenues for the three months ended June 30, 2019 over the same period ended June 30, 2018 is attributed to the substantial increase in web-based turnover for the three and six months periods, as the Company pursues the global trend of web-based gaming, offset by the substantial decline in land based turnover due to the soccer world cup sporting event in 2018, the event occurs every four years.

Selling expenses

The Company incurred selling expenses of $6,268,772 and $13,676,478 for the three and six months ended June 30, 2019, compared to $5,826,243 and $11,903,600 for the three and six months ended June 30, 2018. Selling expenses are commissions paid to agents based on a percentage of Handle (Turnover). During the three and six months ended June 2019 our percentage of selling expenses to gross gaming revenues was approximately 61%and 75.1%, respectively compared to approximately 66.3% and 63.3% for the three and six months ended June 2018, respectively.

General and Administrative Expenses

The Company incurred $3,360,284 and $6,557,739 in general and administrative expenses during the three and six months ended June 30, 2019, compared to $2,201,805 and $4,407,119 in the three and six months ended June 30, 2018. The increase in general and administrative expenses was mostly as a result of an increase in payroll expenses, professional fees and gaming related conferences. These expenses have been curtailed with effect from May 2019.

(Loss) Income from Operations

The loss from operations of $(523,703) and $(1,862,569) for the three and six months ended June 30, 2019, respectively, compares to income from operations of $794,611 and $1,105,807. The loss from operations during the current fiscal year is directly attributable to higher commissions paid on turnover and the increase in general and administrative expenses discussed above.

Interest Expense, Net of Interest Income

Interest expense of $1,017,243 and $2,521,355 for the three and six months ended June 30, 2019, respectively compares to interest expense of $1,050,270 and $1,262,509 for the three and six months ended June 30, 2018. The increase in interest expense for the six month period is attributable to the convertible debenture funding which took place from February 2018 to June 2018, resulting in a significant increase in interest and debenture discount amortization during the three months ended June 30, 2018. The convertible debenture interest and amortization expense was incurred for the full six months during the current fiscal year.

Gain on Litigation Settlement.

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

Loss on Marketable Securities

The loss on marketable securities of $0 and $25,000 for the three and six months ended June 30, 2019, respectively, compares to the loss on marketable securities of $155,000 and $155,000 for the three and six months ended June 30, 2018. The loss 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) Income Before Income Taxes

The loss before income taxes of $(1,569,164) and $(4,437,142) for the three and six months ended June 30, 2019, respectively, compares to the loss before income taxes of $(622,176) and $(8,613) for the three and six months ended June 30, 2019. The increase in loss before income taxes is attributable to the increased selling expenses and increased general and administrative expenses discussed above.

Income Tax Provision

The income tax provision of $209,056 and $455,030 for the three and six months ended June 30, 2019, respectively, compares to the income tax provision of $512,406 and $757,442 for the three and six months ended June 30, 2018. The decrease in the income tax provision is attributable to lower income earned in one of our subsidiaries in the three and six months ended June 30, 2019 compared to June 30, 2018, impacting on both the overall group profitability and the provision for income tax.

Net Loss

Net loss of $1,778,220 and $4,892,172 for the three and six months ended June 30, 2019, respectively, compares to the net loss of $1,134,582 and $766,055 for the three and six months ended June 30, 2018. The increase in net loss is discussed above.

Comprehensive Loss

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

We recorded a foreign currency translation adjustment of $69,023 and $(61,207) for the three and six months ended June 30, 2019, respectively, compared to a foreign currency translation adjustment of $63,305 and $160,778 for the three and six months ended June 30, 2018, respectively.

Liquidity and Capital Resources

Assets

At June 30, 2019, we had a total of $27,092,690 in assets compared to $22,653,481 in assets at December 31, 2018. The increase is primarily related to the increase in intangible assets related to the acquisition of the Virtual Generation licenses acquired on January 31, 2019 in terms of the Securities Purchase agreement entered into as disclosed in Note 5 to the financial statements, offset by a reduction in cash balances and gaming accounts receivable.

Liabilities

At June 30, 2019, we had $20,606,612 in total liabilities and compared to total liabilities of $12,714,078 at December 31, 2018. The increase is attributable to the promissory note payable to related and non-related parties incurred on the acquisition of Virtual Generation Limited during January 2019 as discussed in Note 5 to the financial statements.

Working Capital

We had $5,228,797 in cash and cash equivalents at June 30, 2019 compared to $6,289,903 on December 31, 2018.

We had a working capital deficit of $10,701,384 at June 30, 2019, compared to a working capital deficit of $4,328,856 at December 31, 2018. The increase in the working capital deficit is due to the acquisition of Virtual Generation as disclosed in Note 5 to the financial statements resulting in the acquisition of primarily long term assets in the form of licenses funded by primarily a short-term promissory note.

We currently maintain an operating line of credit for a maximum amount of €300,000 (approximately $340,000) for Multigioco and €50,000 (approximately $57,000) for Rifa from Intesa Sanpaolo Bank in Italy. The line of credit is secured by restricted cash on deposit at Intesa Sanpaolo Bank and guaranteed by certain of our shareholders and bears a fixed rate of interest at 5% per annum on the outstanding balance with no minimum payment, maturity or due date. In addition, we maintain a $1,000,000 secured revolving line of credit from Metropolitan Commercial Bank in New York, which bears a fixed rate of interest of 3% on the outstanding balance with an interest only monthly minimum payment, no maturity or due date and is secured by a $1,000,000 security deposit.

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

Accumulated Deficit

As of June 30, 2019, we had accumulated deficit of $18,859,202 compared to accumulated deficit of $13,967,030 at December 31, 2018.

Cash Flows from Operating Activities

Cash flows from operating activities resulted in net cash used in operating activities of $1,005,601 for the six months ended June 30, 2019, compared to cash provided by operating activities of $1,050,581 for the six months ended June 30, 2018. The increase in cash used in operating activities of $2,056,182 is primarily related to the increase in net loss of $4,126,117 offset by the movement in non-cash amortization of deferred costs of $2,037,892.

Cash Flows from Investing Activities

The net cash used in investing activities for the six months ended June 30, 2019 was $270,433 compared to net cash used in investing activities of $4,577,886 for the six months ended June 30, 2018 that was attributed directly to the asset purchases of Ulisse and Multigioco on May 31, 2018 pursuant to the Ulisse Put Option and the Multigioco Put Option.

Cash Flows from Financing Activities

Net cash used in financing activities for the six months ended June 30, 2019 was $101,691 compared to $3,673,614 of net cash provided by financing activities for the six months ended June 30, 2018. We raised funding through the issue of debentures in the prior year of $6,883,905 and repurchased common shares totaling $2,261,307 in the prior year. The common share repurchase was attributed to the asset purchases of Ulisse and Multigioco on May 31, 2018 pursuant to the Ulisse Put Option and the Multigioco Put Option.

Contractual Obligations

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

Promissory notes payable to Braydon Capital Corp., a company owned by Claudio Ciavarella, the brother of our CEO, a related party with principal and interest of approximately $450,559 that is due on demand.

a Promissory note to acquire VG for €3,803,000 that is payable in monthly instalments until January 2022. The amount due under this promissory note as of June 30, 2019 was approximately $3,519,722 (approximately €3,100,000), before debt discount of $311,977.

Convertible Debentures denominated in both US$ and CDN$ issued in the first and second quarter of 2018 that mature two years from the issue date. At June 30, 2019, we have outstanding a principal amount of $7,799,057 plus accrued interest of $865,428.

Off-Balance-Sheet Arrangements

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

Related Party Transactions

Promissory Notes

The Company has three promissory notes entered into in 2015 and 2016 with Braydon Capital Corp., a related party, with an aggregate principal amount outstanding of $318,078. The promissory notes bear interest at 12% per annum and are due on demand. The amount outstanding under the promissory notes was $450,559 as of June 30, 2019.

In connection with the acquisition of VG on January 31, 2019, disclosed in Note 5 to the financial statements, the Company issued a non-interest bearing promissory note of €3,803,000 owing to both related parties and non-related parties, the balance to be settled as follows:

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

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

The amount due under the VG promissory note is $3,519,723, before debt discount of $311,977 as at June 30, 2019.

Advances from Stockholders

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

The amount payable to stockholders as of June 30, 2019 was $48,508.

During the six months ended June 30, 2018, the Company paid management fees of approximately $6,000 to Luca Pasquini.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

Management's Evaluation of Disclosure Controls and Procedures

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

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

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

Changes in Internal Control Over Financial Reporting

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

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

Risks Related to Our Financial Position

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

We have a history of losses and are anticipated to incur additional losses in the development of our business. For the year ended December 31, 2018, we had a net loss of $3.6 million and for the six month period ended June 30, 2019 we had a net loss of $4.9 million. As of December 31, 2018, and June 30, 2019 we had accumulated deficits of $14.0 million, and $18.9 million, respectively. Since we are currently in the early stages of our development and strategy, we intend to continue to invest in sales and marketing, product and solution development and operations, including by hiring additional personnel, upgrading our technology and infrastructure and expanding into new geographical markets. To the extent we are successful in increasing our customer base, we expect to also incur increased losses in the short term despite the fact that our Platform is easily scalable and because costs associated with entering new markets, acquiring clients, customers and operators are generally incurred up front, while service and transactional revenues are generally recognized at future dates if at all. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenues enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and unforeseen expenses, difficulties, complications and delays and other unknown events. Although we cannot assure that we will be able to maintain a profitable level of betting operations to meet normal business operating obligations, in recent years we have relied on issuance of debt and equity securities to grow our business such that we have generated sufficient revenue to maintain our existing level of operations and to continue moderate organic growth in the regulated Italian leisure betting market. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.

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

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

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

If all of the holders of our outstanding convertible debentures and warrants converted or exercised their securities, we would be obligated to issue 3,796,785 common shares.

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

During the six months ended June 30, 2019, we issued 245,970 shares of common stock to the vendors of Virtual Generation limited pursuant to the terms of a Securities Purchase Agreement as disclosed in Note 5 to the financial statements. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made by the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

During the six months ended June 30, 2019, we issued an aggregate of 221,614 shares of common stock upon the conversion of convertible debentures into equity. The issuance was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereunder as a transaction not involving a public offering as the issuance was made to existing holders, there was no additional consideration paid for the common stock and no commission or remuneration was paid.

On April 22, 2019, we issued an aggregate of 11,232 shares of common stock to certain convertible debenture holders as an incentive for them to transfer the convertible debentures to another investor. We issued the securities in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. We relied on this exemption from registration for private placements based in part on the representations made by the investors with respect to their status as accredited investors, as such term is defined in Rule 501(a) of the Securities Act.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

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

SIGNATURES

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

Date: August 4, 2020

Newgioco Group, Inc.

By: /s/ Michele Ciavarella

Michele Ciavarella

Chief Executive Officer (Principal Executive Officer)

By: /s/ Mark Korb

Mark Korb

Chief Financial Officer (Principal Financial Officer)