Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2014
Commission File Number 000-50045
EMPIRE GLOBAL CORP.
(Name of small business issuer in its charter)
Delaware 33-0823179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
671 Westburne Dr.
Concord, Ontario, L4K 4Z1
(647) 229-0136
(Address and telephone number of principal executive offices)
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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if Smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 24,244,800 shares of Common Stock outstanding as of
November 19, 2014.
ITEM 1. FINANCIAL STATEMENTS
The unaudited quarterly financial statements for the period ended September 30,
2014, prepared by the company, immediately follow.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements F-1 - F-18
Item 2. Management's Discussion and Analysis or Plan of Operation 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 1A. Risk Factors 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 29
SIGNATURES 29
- 2 -
ITEM 1. FINANCIAL STATEMENTS
EMPIRE GLOBAL CORP.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Consolidated Balance Sheets F-1 - F-2
Consolidated Statements of Comprehensive Income (Loss) F-3
Consolidated Statements of Cash Flows F-3 - F-4
Notes to Consolidated Financial Statements F-5 - F-18
- 3 -
EMPIRE GLOBAL CORP.
Consolidated Balance Sheets
September 30, December 31,
2014 2013
US$ US$
(Unaudited)
---------- -----------
ASSETS
Current Assets
Cash and cash equivalents 6,707 -
Deposits on acquisitions 263,210 -
Accounts receivable - gaming accounts 336,214 -
Other receivables 13,336 -
Prepaid expenses 57,616 -
Other current assets 19,839 -
------- -------
Total Current Assets 696,922 -
Restricted cash 405,926 -
Property, plant and equipment 21,304 -
Intangible assets 322,960 -
Goodwill 2,270,279 -
Non-marketable investments 42,302 -
------- -------
Total Assets 3,759,693 -
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Line of credit - bank 231,006 -
Accounts payable and accrued liabilities 389,174 8,265
Gaming account balances 398,564 -
Taxes payable 185,580 -
Bank Loan 102,195 -
Advances from stockholders 552,355 165,971
Debenture, net of discount 64,592 -
Derivative liability 5,250 -
Other current liabilities 26,973 -
------- -------
Total Current Liabilities 1,955,689 174,236
Long term debt 33,602 -
Total Liabilities 1,989,291 174,236
--------- ---------
- F1 -
Commitments and Contingencies
Stockholders Deficiency
Preferred Stock, $0.0001 par value,
20,000,000 shares authorized, none issued. - -
Capital Stock, $0.0001 par value,
80,000,000 shares authorized;
20,675,800 and 18,675,800 shares
issued and outstanding at September 30, 2014
and December 31, 2013, respectively 2,068 1,868
Additional paid-in capital 6,934,880 4,924,844
Accumulated other comprehensive income 9,793 -
Accumulated Deficit (5,176,339) (5,100,948)
----------- -----------
Total Liabilities and Stockholders' Deficiency 1,770,402 (174,236)
---------- ---------
3,759,693 -
========= ==========
See notes to consolidated financial statements
- F2 -
EMPIRE GLOBAL CORP.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
--------- ----------- --------- -----------
US$ US$ US$ US$
Revenue $ 663,767 $ - $ 663,767 $ -
Costs and Expenses
Direct selling expenses 477,488 - 477,488 -
General and administrative expenses 171,312 1,696 236,635 5,670
--------- ----------- --------- -----------
Total Costs and Expenses 648,800 1,696 714,123 5.670
Operating income (loss) 14,967 (1,696) (50,356) (5,670)
Other Expenses (Income)
Changes in fair value of derivative liabilities (1,750) - (1,750) -
Interest expense - stockholders 4,064 2,067 10,234 6,173
Interest expense 10,944 - 10,944 -
--------- ----------- --------- -----------
Total Other Expenses (Income) 13,258 2,067 19,428 6,173
Net income (loss) before income tax 1,709 (3,763) (69,784) (11,843)
Income tax 5,607 - 5,607 -
--------- ----------- --------- -----------
Net Income (loss) (3,898) (3,763) (75,391) (11,843)
Other Comprehensive Income
Foreign currency translation adjustment 9,793 - 9,793 -
--------- ----------- --------- -----------
Comprehensive income 5,895 (3,763) (65,598) (11,843)
========= =========== ========= ===========
Basic and fully diluted loss per share
Basic (loss) from operation (0.00) (0.00) (0.003) (0.00)
Fully diluted (loss) from operation (0.00) (0.00) (0.003) (0.00)
========= =========== ========= ===========
Weighted average number
of common shares outstanding
Basic 19,675,800 18,675,800 18,844,918 18,675,800
Fully diluted 19,682,115 18,675,800 18,846,845 18,675,800
========== =========== ========== ==========
See notes to consolidated financial statements
- F3 -
EMPIRE GLOBAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2014 2013
-------- --------
US$ US$
Cash Flows from Operating Activities
Net loss (75,391) (11,843)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization (7,808) -
Non-cash interest 1,592 -
Imputed interest 10,236 6,173
Changes in fair value of derivative liabilities 1,750 -
Changes in operating assets and liabilities:
Prepaid expenses (7,869) -
Accounts payable and accrued expenses (40,158) (117)
Accounts receivable - gaming accounts 9,255 -
Gaming account balances 35,406 -
Taxes payable 80,595 -
Other current assets (10,370) -
Other current liabilities (13,137) -
Other receivable (10,073) -
--------- ---------
Net cash used in operating activities (13,856) (5,787)
--------- ---------
Cash Flows from Investing Activities
Cash acquired from acquisition 10,555 -
Deposit on acquisitions (263,210) -
--------- ---------
Net cash used in investing activities (252,655) -
--------- ---------
Cash Flows from Financing Activities
Payment to line of credit - bank (100,571) -
Proceeds from debenture issued 70,000 -
Payment to bank loan (28,494) -
Advances from stockholders 336,306 5,787
--------- ---------
Net cash provided by financing activities 277,241 5,787
--------- ---------
- F4 -
Effect of foreign exchange in cash (4,023) -
Net increase in cash 6,707 -
Cash - beginning of period - -
--------- ---------
Cash - end of period 6,707 -
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 10,944 -
========= =========
Income taxes 5,607 -
========= =========
Supplemental cash flow for non-cash investing activities:
Common shares issued for acquisition of a subsidiary: $2,000,000 $ -
=========== =========
See notes to consolidated financial statements
- F5 -
EMPIRE GLOBAL CORP.
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Basis of Presentation
Empire Global Corp. ("Empire" or "the Company") was incorporated in the state of
Delaware on August 26, 1998 as Pender International Inc. and maintains its
principal executive office headquartered in Canada. On September 30, 2005
contemporaneously with a change in management and business plan changed its name
to Empire Global Corp. The Company's principal executive offices are
headquartered in Toronto, Canada.
On August 15, 2014 the Company acquired 100% of the outstanding common shares of
Multigioco Srl, an Italian corporation, in exchange for a total of 2,000,000
restricted shares of Empire Global Corp common stock. For accounting purposes,
the purchase was treated as a business combination resulting in Empire Global
Corp. being the acquirer. Pursuant to the Agreement, the Company may at its
discretion, repurchase the shares issued in whole or in part for a period up to
December 31, 2014 or sooner unless extended by written consent of both parties.
The repurchase price is fixed at $1.00/share. On October 31, 2014, the Company
paid EUR 490,000 or US$ 672,389.13 for the partial exercise of the option to
repurchase the shares issued to acquire Multigioco. On October 31, 2014, the
Company paid EUR 490,000 or approximately US$ 672,000 for the partial exercise
of the option to repurchase the shares issued to acquire Multigioco.
Multigioco Srl was organized under the laws of the Republic of Italy on
November 4, 2010. It was previously a division of Newgioco Srl (a company
incorporated in Italy). Operations are carried out under gaming licences
obtained from the Amministrazione Autonoma Monopoli di Stato ("AAMS") on
July 4, 2012 and its subsidiary companies, and mainly consist of online wagering
as well as gaming in a number of land based shops and parlors situated
throughout Italy. For the period ended September 30, 2014, the Company had over
850 shops under its licence.
As a result of the acquisition, Multigioco became a wholly owned subsidiary of
Empire Global Corp. Therefore, Company is no longer considered a so called shell
company and will no longer continue to reported as a development stage company
as defined by Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 915-10-05.
2. Going Concern
The accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates
realization of assets and the satisfaction of liabilities in the normal course
of business.
The Company has a working capital deficit of $ 1,258,767 at September 30, 2014
and had operating losses for the past two years. There are no assurances that
management will be successful in achieving sufficient cash flows to fund the
Company's working capital needs, or whether the Company will be able to
refinance or renegotiate its obligations when they become due or raise
additional capital through future debt or equity. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
No adjustments have been made to the carrying value of assets or liabilities as
a result of this uncertainty.
- F6 -
Management plans to increase its marketing in order to generate more revenues
and to reduce certain other operating expenses. Therefore, for our next fiscal
year, we anticipate our cash flow from operations to improve. Nevertheless, the
Company anticipates that its current cash position will be insufficient to
support the Company's operations at current capacity for the next twelve month
period and, therefore, will need to seek additional financing of its operations.
We may rely on bank borrowing as well as capital issuances and loans from
existing shareholders. We are actively exploring various proposals and
alternatives in order to secure sources of financing and improve our financial
position. We may raise such additional capital through the issuance of our
equity securities, which may result in significant dilution to our current
investors. We are also exploring potential strategic partnerships, which could
provide a capital infusion to the Company
3. Summary of Significant Accounting Policies
a) Basis of presentation and estimates
The unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the financial position as of
September 30, 2014 and the results of operations and cash flows for the periods
ended September 30, 2014 and 2013. The financial data and other information
disclosed in these notes to the interim financial statements related to these
periods are unaudited. The results for the three and nine months ended
September 30, 2014 are not necessarily indicative of the results to be expected
for any subsequent periods or for the entire year ending December 31, 2014. The
balance sheet at December 31, 2013 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. These unaudited financial
statements should be read in conjunction with our audited financial statements
and notes thereto for the year ended December 31, 2013 as included in our Annual
Report on form 10-K.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Critical estimates include the assumptions
used in calculating share-based compensation expense, the useful lives of fixed
assets, the fair value of financial instruments, calculation of penalties and
interest on past due obligations, and the calculation of tax provision and the
valuation allowance for deferred tax assets. Actual results could differ from
those estimates.
b) Cash and equivalents
The Company considers all highly liquid debt instruments with maturities of
three months or less at the time acquired to be cash equivalents. Cash
equivalents represent short-term investments consisting of investment-grade
corporate and government obligations, carried at cost, which approximates market
value.
- F7 -
The Company primarily places its cash with high-credit quality financial
institutions. The Company's cash deposits, of $405,926 at September 30, 2014 are
insured by the Italian Government. Our cash deposits are held as collateral
against our current account line of credit and recorded as Restricted Cash. From
time-to-time the Company has deposits in excess of the insured amounts.
c) Accounts receivable & Allowance for doubtful accounts
The Company extends unsecured credit to its gaming client accounts in the
ordinary course of business when a client applies credit to their gaming account
by credit card or direct deposit either through one of our websites or at the
cashier of a Betting Shop. The client may then place wagers or play games
immediately on the credit applied.
Accounts receivable represents gaming losses and deposits (credits) made by
customers to their gaming accounts not yet credited to our bank accounts and
subject to normal trade collection terms, without discounts. The Company
periodically evaluates the collectability of its 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 has determined that
no allowance for doubtful accounts is needed for the accounts receivable
balances as of September 30, 2014. The Company does not require collateral to
support customer receivables.
d) Gaming account balances
Gaming account balances represent customer gaming account balances that are held
as credits (i.e. deposits on account, winnings, etc.) and have not as of yet
been withdrawn by the customers or that customers want to keep on account for
future gaming betting. Customers can request the payment from the company at any
time and the payment to customers can be made through bank wire, credit card, or
actual cash disbursement from one of our locations. Gaming account credit
balances are non-interest bearing.
e) 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.
Amortization 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:
Office equipment 5 years
Office furniture 8 1/3 years
Signs and displays 5 years
f) Intangible Assets
Intangible assets are made up of licences and rights (i.e. AAMS Licences) and
are amortized over a useful life of 10 years. We evaluate intangible assets for
impairment on an annual basis, and do so during the last month of each year
using balances as of the end of December and at an interim date if indications
- F8 -
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 where the fair value is less than carrying value.
g) Goodwill
We evaluate goodwill for impairment on an annual basis, and do so during the
last month of each year using balances as of the end of December and at an
interim date if indications of impairment exist. Goodwill impairment is
determined by comparing the fair value of a reporting unit to its carrying
amount in a two-step process with an impairment being recognized only where the
fair value is less than carrying value. We define a reporting unit at the
individual property level.
When determining fair value in step one, we utilize internally developed
discounted future cash flow models, third party appraisals and, if appropriate,
current estimated net sales proceeds from pending offers. Under the discounted
cash flow approach we utilize various assumptions, including projections of
revenues based on assumed long-term growth rates, estimated costs and
appropriate discount rates based on the weighted-average cost of capital. The
principal factors used in the discounted cash flow analysis requiring judgment
are the projected future operating cash flow, the weighted-average cost of
capital and the terminal value growth rate assumptions. The weighted-average
cost of capital takes into account the relative weights of each component of our
capital structure (equity and long-term debt) and is determined at the reporting
unit level. Our estimates of long-term growth and costs are based on historical
data, various internal estimates and a variety of external sources, and are
developed as part of our routine, long-term planning process. We then compare
the estimated fair value to our carrying value.
If the carrying value is in excess of the fair value, we must determine our
implied fair value of goodwill to measure if any impairment charge is necessary.
The determination of our implied fair value of goodwill requires the allocation
of the reporting unit's estimated fair value to the individual assets and
liabilities of the reporting unit as if we had completed a business combination.
We perform the allocation based on our knowledge of the market in which we
operate, and our overall knowledge of the gaming industry.
h) Long-Lived Assets
We evaluate 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.
We evaluate the carrying value of our long-lived assets based on our plans, at
the time, for such assets and such qualitative factors as future development in
the surrounding area and status of expected local competition. If impairment is
indicated, the asset is written down to its estimated fair value. There were no
such impairments for the periods ended September 30, 2014 and December 31, 2013.
- F9 -
i) Fair Value of Financial Instruments
We measure our financial assets and liabilities in accordance with accounting
principles generally accepted in the United States of America. The carrying
value of the Company's short term investments, prepaid, accounts receivables,
and sundry assets, accounts payable and accrued charges, gaming account balance,
and advances from shareholder approximate fair value because of the short term
maturity of these financial instruments.
The Company adopted accounting guidance for financial assets and liabilities
(ASC 820). The adoption did not have a material impact on our results of
operations, financial position or liquidity. This standard defines fair value,
provides guidance for measuring fair value and requires certain disclosures.
This standard does not require any new fair value measurements, but rather
applies to all other accounting pronouncements that require or permit fair value
measurements. This guidance does not apply to measurements related to
share-based payments. This guidance discusses valuation techniques, such as the
market approach (comparable market prices), the income approach (present value
of future income or cash flow), and the cost approach (cost to replace the
service capacity of an asset or replacement cost). The guidance utilizes a fair
value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. The following is a brief description
of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active market
for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists,
therefore developed using estimates and assumptions developed by us,
which reflect those that a market participant would use.
The warrant liability issued in connection with the debentures, classified as a
level 3 liability, are the only financial liability measured at fair value on a
recurring basis.
j) Investment in equity securities and available-for-sale securities
The Company accounts for non-marketable investments using the equity method of
accounting if the investment gives us the ability to exercise significant
influence over, but not control of, an investee. Significant influence generally
exists if the Company has an ownership interest representing between 20% and 50%
of the voting stock of the investee. Under the equity method of accounting,
investments are stated at initial cost and are adjusted for subsequent
additional investments and our proportionate share of earnings or losses and
distributions. The Company records its share of the investee's earnings or
losses in earnings (losses) from unconsolidated entities, net of income taxes in
the accompanying consolidated statements of operations. The Company evaluates
its equity method investment for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such investment may have experienced other than temporary decline in value. When
evidence of loss in value has occurred, management compares the estimated fair
value of the investment to the carrying value of the investment to determine
whether an impairment has occurred. If the estimated fair value is less than the
carrying value and management considers the decline in value to be other than
temporary value, the excess of the carrying value over the estimated fair value
is recognized in the financial statements as an impairment.
- F10 -
The Company accounts for non-marketable investment using the cost method of
accounting if the Company has an ownership interest below 20% and does not have
the ability to exercise significant influence over an investee.
On September 30, 2014 the Company held $42,302 in shares of Banca Veneto SCpA.
Banca Veneto is a private mutual enterprise organized under Italian banking laws
of which its shares do not have an active market. We carry the value of the
shares at cost.
k) 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 it financial
instruments, including 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.
l) Leasing
All lease agreements of the Company as lessees are accounted for as operating
leases.
m) Advances from stockholders
Advances from stockholders to the Group are all non-interest bearing. Italian
law provides that the advances from stockholders to a corporation ("Srl") are
not preferred and their repayment is subordinated to other categories of debt.
As a result all advances from stockholders are classified as current
liabilities.
n) Revenue Recognition
Revenues from Sports Betting; Casino, Cash and Skill Games; Slots, Lotteries,
Bingo and Horse Race wagers represent the gross pay-ins from customers less
gaming taxes and payouts to customers in addition to commissions paid to us for
scratch tickets and other lottery games. Revenues are recorded when cash is
received net of payouts and AAMS taxes from wagers by customers.
o) Income Taxes
We use the asset and liability method of accounting for income taxes in
accordance with ASC Topic 740, "Income Taxes." Under this method, income tax
expense is recognized for the amount of: (i) taxes payable or refundable for the
current year and (ii) deferred tax consequences of temporary differences
resulting from matters that have been recognized in an entity's financial
statements or tax returns. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax
- F11 -
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.
As of September 30, 2014 and December 31, 2013, the earnings of the Company have
yielded cumulative losses. The Company has elected to include interest and
penalties related to uncertain tax positions, if determined, as a component of
income tax expense. To date, no penalties or interest has been accrued.
In Italy, tax years beginning 2009 forward are open and subject to examination.
The Company is not currently under examination and it has not been notified of a
pending examination.
p) Promotion, Marketing, and Advertising Costs
The costs of promotion, marketing, and advertising are charged to expense as
incurred.
q) Earnings Per Share
FASB 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 similar to fully diluted earnings per share. Basic and
diluted loss per share were the same, at the reporting dates, as there were no
common stock equivalents outstanding.
r) 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 is presented in the statements of operations, and consists of net income
and unrealized gains (losses) on available for sale marketable securities;
foreign currency translation adjustments and changes in market value of future
contracts that qualify as a hedge; and negative equity adjustments.
s) Recent Accounting Pronouncements
In April 2014, the FASB issued amendments to ASC Topic 205 "Presentation of
Financial Statements" and ASC Topic 360 "Property, Plant and Equipment". The
amendments change the current requirements for reporting discontinued
operations in Subtopic 205-20. It requires an entity to present, for each
comparative period, the assets and liabilities of a disposal group that includes
- F12 -
a discontinued operation separately in the asset and liability section,
respectively, of the statement of financial position. This topic is effective
for public entities for reporting periods beginning after December 15, 2014. An
entity should not apply the amendments to a component classified as held for
sale before the effective date even if the component of an entity is disposed of
after the effective date. Early adoption is permitted, but only for disposals
(or classifications as held for sale) that have not been reported in financial
statements previously issued. The Company does not believe the adoption of the
amendments to ASC 205 and ASC 360 will have a material effect on its
consolidated financial statements.
The Company does not believe that any other recently issued, but not yet
effective accounting standards, when adopted, will have a material effect on the
accompanying financial statements.
4. Multigioco Srl Acquisition
On August 15, 2014, the Company completed its acquisition of Multigioco Srl and
purchased the outstanding common shares of Multigioco Srl, an Italian
corporation for an amount of $2,000,000. The acquisition was financed through
the issuance of 2,000,000 restricted shares of Empire Global Corp common stock
which was valued at a fair market price of $1.00 per share. The acquisition was
accounted for under the purchase method. The assets and liabilities of
Multigioco are included in the Consolidated Balance Sheet as of September 30,
2014 and the results of the Multigioco Srl operations subsequent to the
acquisition date are included in the Consolidated Statement of Income.
The Company is currently in the process of obtaining an appraisal to properly
allocate the fair value of the net assets acquired. As of September 30, 2014
the Company estimated the fair value based on the book value of the net assets
acquired and will make the appropriate adjustments upon final receipt of the
appraisal.
Goodwill has been calculated as follows:
Purchase price of Multigioco Srl $2,000,000
Less: Identifiable assets
Current assets $441,048
Property, Plant and Equipment 22,779
Intangible assets 348,261
Investments 472,376
Total Assets $1,284,464
Liabilities 1,554,743
Net Assets Acquired (270,279)
--------- -----------
Goodwill $2,270,279
Goodwill is calculated as the excess of the purchase price over the fair value
of the net assets recognized. The goodwill recorded as part of the acquisition
primarily reflects the value of obtaining the Multigioco gaming licence,
customer data base of approximately 20,000 registrants, as well as 850 locations
across Italy to leverage the Company's existing brand, and synergies expected to
arise from the combined management, as well as any intangible assets that do not
qualify for separate recognition.
- F13 -
The unaudited pro forma combined historical results, as if Multigioco had been
acquired at the beginning of fiscal 2013 are estimated to be as follows:
For the nine months ended
September 30, September 30,
2014 2013
-------- -----------
Revenue $3,480,384 $3,339,626
Costs and expenses ( 3,698,528) ( 3,310,548)
Other income (expenses) (24,338) 9,174
Income tax (8,923) (2,558)
-------- -----------
Net income (loss) ($ 251,405) $ 35,694
============ ===========
5. Restricted Cash
The restricted cash represents certificates of deposit that are held as
collateral against our operating line of credit as described in Note 8 with the
Veneto Banca Societa Cooperativa Per Azioni ("SCpA") and mature in 2016. The
restricted cash is made up as follows:
September 30, December 31,
2014 2013
-------- -----------
Deposits:
Certificate IT0004716202 $ 253,704 $ -
Certificate IT0004699994 152,222 -
-------- -----------
Total Deposits $ 405,926 $ -
6. Line of credit - bank
The Company obtained a line of credit for maximum amount of EUR 300,000
(approximately $414,000) from a Banca Veneto in Italy on December 3, 2013.
The line of credit is unsecured and bears a fixed rate of interest at 5% per
annum on the outstanding balance and is fully open with no minimum payment,
maturity or due date.
7. Bank loan
The amount represents a bank loan held with Banca Veneto. The loan amount of
$634,260 originated March, 2011 with a 49 monthly repayment term ending on
May, 2015. The interest rate on the loan is 5.041% plus Euro Inter Bank Offered
Rate ("EURIBOR"). The loan balance outstanding as of September 30, 2014 is
$102,195. Debt repayments over the next five years are made up as follows:
Short term portion of debt:
Due in 2014 $ 43,257
Due in 2015 58,938
--------
Total Short term portion of debt $ 102,195
- F14 -
8. Long term debt
The long term debt represents the Italian "Trattamento di Fine Rapporto" (TFR)
which is a severance amount set up by Italian companies to be paid to employees
on termination.
9. Advances from stockholders
Advances from stockholders represent non-interest bearing loans that are due on
demand. Interest was imputed at 5% per annum. Advances from stockholders as of
September 30, 2014 and as of December 31, 2013 are as follows:
September 30, December 31,
2014 2013
-------- -----------
Braydon Capital Corp. $ 31,314 $ 31,314
Gold Street Capital 470,963 134,657
Doriana Gianfelici 50,078
-------- ---------
Total advances from related parties: $ 552,355 $ 165,971
======== =========
10. Commitments and contingencies
There are no legal actions, lawsuits or disputes related to Company as of the
date of the financial statements.
11. Gaming Revenues
The Company derives revenues from the wagers on Sports Bets; Casino and Card
Games; Slots and other gaming entertainment. The Company is subject to licensing
requirements established by the AAMS. The following table sets forth the
breakdown of gaming revenues (total wagers less customer payouts), for the
period:
September 30,
2014 %
-------- -------
Total Turnover $ 9,491,209 100.00%
Less: Winnings/payouts 8,711,427 91.78%
Gross Gaming Revenues $ 779,782 8.22%
Less: AAMS Gaming Taxes 117,926 1.24%
Net Gaming Revenues $ 661,856 6.97%
12. Income Taxes
The Company is incorporated in the United States of America and is subject to
United States federal taxation. No provisions for income taxes have been made,
as the Company had no U.S. taxable income for the nine months ended
September 30, 2014 and for the year ended December 31, 2013.
The Company has accumulated a net operating loss carryforward ("NOL") of
approximately $5 million as of September 30, 2014. This NOL may be offset
against future taxable income through the year 2034. The use of these losses to
- F15 -
reduce future income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the NOL. No tax benefit has been reported in
the consolidated financial statements for nine months ended September 30, 2014
because it has been fully offset by a valuation reserve. The use of future tax
benefit is undeterminable because we presently have no operations.
NOL incurred are subject to limitation due to any ownership change (as defined
under Section 382 of the Internal Revenue Code of 1986) which resulted in a
change in business direction. Unused limitations may be carried over to future
years until the NOLs expire. Utilization of NOLs may also be limited in any one
year by alternative minimum tax rules.
The reconciliation of income tax expense at the U.S. statutory rate of 35% to
the Company's effective income tax is as follows:
For the nine months ended September 30,
2014 2013
-------- -----------
U.S. statutory rate of 35% ($ 1,811,719) ($ 1,784,000)
Tax rate difference between U.S and Italy (17,331) -
Change in valuation allowance 1,834,657 1,784,000
--------- -----------
Income tax expense $ 5,607 $ -
========= ==========
13. Debentures and Debenture Warrants
July 2014 Debentures
On July 9, 2014, the Company issued debentures to a group of accredited
investors designated as "Debenture Due July 9, 2016" or "Debentures" in a
private placement agreement pursuant to an exemption from registration under
Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities
Act"). In connection with the issuance of the Debentures, the Company issued
warrants (the "Debenture Warrants") to purchase shares of the Company's common
stock equal to 10% of the aggregate principal amount of the Debentures. The
gross proceeds received in connection with this private placement were $70,000.
Under the private placement agreement, the accredited investors agreed to
purchase from us 14 unsecured Debenture Units for gross proceeds of $70,000.
Each Debenture Unit is comprised of (i) the issuance of $5,000 of debentures
bearing interest at a rate of 24% per annum, with a minimum maturity period of
three (3) months to a maximum of one (1) year from the date of issuance and
(ii) 500 warrants which may be exercised at $1.00 per warrant to receive one
common share prior to July 9, 2016.
For the three and nine months ended September 30, 2014, the Company recorded a
total of $3,820 of accrued interest expense related to the Debentures and as of
September 30, 2014, the entire amount of $3,820 of interest due on the
Debentures was accrued and is included as a component of accrued expenses. As of
September 30, 2014, the unamortized discount on the Debentures was $5,408 and
the net carrying value of the Debentures was $64,592.
As described in Note 17 - Subsequent Events, the Company extinguished the
Debentures in full and paid a total of $4,741.09 in interest.
- F16 -
Warrant to Purchase Common Stock
The Company has determined that the warrants issued in connection with the
debentures on July 9, 2014 should be treated as a liability since it has been
determined not to be indexed to the Company's own stock.
The fair value of the warrants on the date of issuance as calculated using the
Black-Scholes model was $7,000, using the following weighted average
assumptions: exercise price of $1.00 per share; common stock price of $1.00 per
share; volatility of 688%; term of two years; dividend yield of 0%; interest
rate of 0.91%; and risk of forfeiture of 0%.
The fair value of the warrants has been recorded as a debt discount which is to
be amortized as interest expense using the effective interest method over the
one-year term of the Debentures.
The Company paid commissions and administrative fees of $3,500 plus $1,500
respectively, which we recorded as general and administrative expenses to
facilitate the transaction.
A summary of warrant transactions during the nine months ended
September 30, 2014 is as follows:
Weighted Average
Warrant Exercise Price Aggregate
Shares Per Common Share Intrinsic Value
Outstanding at January 1, 2014 - $ - $ -
Issued during the period 7,000 $ 1.00
Exercised during the period - -
Expired during the period - -
Outstanding at September 30, 2014 7,000 $ 1.00 $ -
Exercisable at September 30, 2014 7,000 $ 1.00 $ -
As of September 30, 2014, the weighted average remaining contractual life for
warrants outstanding and exercisable was 1.75 years.
14. Deposits on Acquisitions
The deposits on acquisitions represents amounts paid by the company towards the
acquisition of Streamlogue Holdings Ltd. (Streamlogue). The deposits are
credited to the purchase price of EUR 650,000.
15. Shareholder Equity
On August 15, 2014 the company issued 2,000,000 shares of common stock at a
strike price of $1.00 per share for the acquisition of Multigioco Srl. As a
result of the issuance of shares for the acquisition of the subsidiary, the
total issued and outstanding shares of the company was 20,675,800 on
September 30, 2014.
16. Subsequent Events
The Company has evaluated all events or transactions that occurred subsequent to
September 30, 2014 through the date these financial statements were issued, and
has disclosed as follows:
- F17 -
On October 3, 2014, Empire Global Corp. borrowed the sum of CDN$85,000
(EIGHTY-FIVE THOUSAND CANADIAN DOLLARS) at an interest rate of 2% per month, and
issued a Promissory Note to Paymobile Inc. an Ontario corporation. All principal
and interest accrued under the Note become payable on the maturity date of
October 31, 2014. The proceeds were used for working capital purposes and the
Note may be prepaid at any time prior to the maturity date without notice,
penalty, or bonus. On October 21, 2014, the Promissory Note plus accrued
interest has been paid in full.
Also on October 3, 2014, we issued an aggregate of 900,000 restricted shares of
our common stock which were exempt from registration under the Securities Act
pursuant to the exemption provided under Section 4(2) of the Securities Act with
a cost basis of $1 per share as follows:
- 500,000 shares for legal advisory retainer to Beard Winter LLP
- 150,000 shares for accounting services related to completion of Multigioco Srl
- 250,000 shares for cancelation of $250,000 of debt recorded as advances from a
related party from Gold Street Capital to accredited investors
On October 16, 2014, Empire Global Corp. closed a subscription agreement (the
"Subscription Agreement") with an accredited non-US investor. Pursuant to the
Subscription Agreement, the Company agreed to sell to the investor a total of
2,699,000 shares of Common Stock (the "Shares") in a private placement (the
"Private Placement"). The price to the investor in the Private Placement was
US$1.00 per common share for gross proceeds to the Company of CDN$3,000,000
(THREE MILLION CANADIAN DOLLARS) or US$2,669,000 after giving effect for the
foreign exchange from the Canadian to the US dollar. Following the consummation
of the Private Placement, the investor will hold approximately 11% of the
Company's outstanding common stock. The Company will use the proceeds to advance
our online gaming business and for working capital purposes.
The Company repurchased $70,000 in aggregate principal amount of our 24%
unsecured Debentures due July 9, 2016 plus accrued interest of $4,741.09
On October 31, 2014 the Company exercised EUR490,000 of its options to
repurchase shares issued to acquire Multigioco Srl., in addition the Company
also advanced an additional EUR350,000 to Multigioco for working capital
purposes. In addition the parties agreed to extend the exercise option date to
December 31, 2014 for the remaining EUR 510,000 purchase option.
- F18 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information included in this form 10-Q and other materials filed or to
be filed by us with the Securities and Exchange Commission (as well as
information included in oral or written statements made by us or on our behalf),
may contain forward-looking statements about our current and expected
performance trends, growth plans, business goals and other matters. These
statements may be contained in our filings with the Securities and Exchange
Commission, in our press releases, in other written communications, and in oral
statements made by or with the approval of one of our authorized officers. Words
or phrases such as "believe," "plan," "will likely result," "expect," "intend,"
"will continue," "is anticipated," "estimate," "project," "may," "could,"
"would," "should," and similar expressions are intended to identify
forward-looking statements. These statements, and any other statements that are
not historical facts, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as codified in Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, as amended from time to time (the "Act").
In connection with the "safe harbor" provisions of the Act, we have identified
and filed important factors, risks and uncertainties that could cause our actual
results to differ materially from those projected in forward-looking statements
made by us, or on our behalf (see Part I, Item 1, "Risk Factors" included in our
form 10-K for the fiscal year ended December 31, 2012). These cautionary
statements are to be used as a reference in connection with any forward-looking
statements. The factors, risks and uncertainties identified in these cautionary
statements are in addition to those contained in any other cautionary
statements, written or oral, which may be made or otherwise addressed in
connection with a forward-looking statement or contained in any of our
subsequent filings with the Securities and Exchange Commission. Because of these
factors, risks and uncertainties, we caution against placing undue reliance on
forward-looking statements. Although we believe that the assumptions underlying
forward-looking statements are reasonable, any of the assumptions could be
incorrect, and there can be no assurance that forward-looking statements will
prove to be accurate. Forward-looking statements speak only as of the date on
which they are made. We do not undertake any obligation to modify or revise any
forward-looking statement to take into account or otherwise reflect subsequent
events or circumstances arising after the date that the forward-looking
statement was made.
General
This discussion and analysis should be read in conjunction with our interim
unaudited consolidated financial statements and related notes on this form 10-Q
and the audited consolidated financial statements and related notes thereto
included in our Annual Report on form 10-K for the fiscal year ended
December 31, 2013 as well as the Company's form 8-K filed on August XX, 2014
reporting the acquisition of our wholly owned subsidiary, Multigioco. The
inclusion of supplementary analytical and related information herein may require
us to make appropriate estimates and assumptions to enable us to fairly present,
in all material respects, our analysis of trends and expectations with respect
to our results of operations and financial position taken as a whole.
Hereinafter, Empire Global Corp. ("Empire") will be referred to as the Company
throughout the balance of this document.
- 22 -
Our Company, History and Operations
We were incorporated as Pender International, Inc. ("Pender") under the laws of
the state of Delaware on August 26, 1998. Since inception, the Company has
explored a number of business ventures and in conjunction with the various
business opportunities has changed its name.
On August 15, 2014 we completed the Acquisition of 100% ownership in Multigioco
Srl. a corporation organized under the laws of the Republic of Italy and is now
a wholly owned subsidiary of Empire. As a result of the Acquisition our
principal business is now a licensed gaming operator offering land based and
internet based gambling and sports betting. Our revenues are derived from
Multigioco's gaming operations with online website gaming, sports betting
terminals and approximately 850 betting shops (Punti di commercializzizione)
throughout Italy.
While the multigioco.it website offers wagering in many categories outside of
sports, Multigioco intends to capture a larger share of the Italian market by
focusing on the Serie A, B and C Soccer (Calcio), Online Poker, Casino and Skill
Games as well as Italian horse racing and Online Slots.
Multigioco's mission is to offer a user-friendly, market-leading website for
online wagering, including sports betting and casino gaming (traditional casino,
live casino, poker, bingo and interactive skilled games) combined with a large
footprint of strategically located distribution of land based betting shops for
its gaming products to promote the 'Newgioco' brand image throughout Italy.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company's financial condition and results of
operations are based upon the interim financial statements contained elsewhere
herein, which have been prepared in accordance with U.S. GAAP. The preparation
of these financial statements required us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to income taxes,
contingencies and litigation. We based our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The critical accounting estimates that we believe affect the more significant
judgments and estimates used in preparation of the financial statements
contained elsewhere herein are described in this Management's Discussion and
Analysis of Financial Condition and Results of Operations and in the Notes to
the Financial Statements included in the Company's annual report on form 10-K
for the fiscal year ended December 31, 2013. There have been no material changes
to the critical accounting policies.
A summary of critical accounting policies and recent accounting pronouncements
is included in Note 3 of this form 10-Q.
- 23 -
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
Overall Results of Operations
As a result of the acquisition of Multigioco Srl our business operations have
changed. Accordingly, comparisons with prior periods are generally not
meaningful.
The Company is subject to risks inherent in the establishment of a new business
enterprise, including limited capital resources, possible delays in the decision
and implementation of a new business plan.
We anticipate continuing to rely on equity sales of common stock to fund our
operations and to seek out additional acquisitions or enter into new business
opportunities. The issuance of any additional shares will result in dilution to
our existing shareholders.
Revenues
Our gross revenue of $ 663,767 for both the three months and nine months ended
September 30, 2014 is comprised of revenue from gaming operations as well as
other revenue which includes $1,908 in service charges which we impose for
withdrawals from gaming accounts compared to no revenue for the three months
and nine months ended September 30, 2013. The increase was a result of the
acquisition of the Multigioco Srl gaming business.
The following table represents a detailed breakdown of revenue from our gaming
operations for the three and nine months ended September 30, 2014:
September 30,
2014
-----------
US$
Total Turnover $ 9,491,209
Less: Winnings/payouts 8,711,427
Gross Gaming Revenues $ 779,782
Less: AAMS Gaming Taxes 117,923
Net Gaming Revenues $ 661,859
General and Administrative Expenses
The amount of general and administrative expenses incurred by us during the
three months and nine months ended September 30, 2014 was $171,312 and $236,635
respectively compared to $1,696 and $5,670 for the three months and nine months
ended September 30, 2013 respectively. The large change was a result of the
acquisition of Multigioco Srl.
Direct Selling Expenses
The largest component of our total expenses are the direct selling costs which
represent the fees we pay to our network service provider, AAMS licence fees,
and commissions for field agents and promoters which essentially is considered
an ongoing marketing cost. For the three months and nine months ended
September 30, 2014 our direct selling costs were $477,488 for each period
compared to no direct selling costs for the same periods ending on
September 30, 2013. this change is due to the acquisition of the Multigioco
gaming business.
- 24 -
Interest Expenses
For the three months and nine months ended September 30, 2014, total interest
expense was $15,008 and $21,178 respectively, which included $4,064 and $10,234
in imputed interest as compared to $2,067 and $6,173 for the three months and
nine months ended September 30, 2013. The increase in interest expense incurred
in the period ended September 30, 2014 was related to the interest accrued on
the July 9 Debentures.
Net Loss
For the three months ended September 30, 2014, the Company had a net loss of
$3,898, or $0.000 per share (basic and diluted), as compared to a net loss of
$3,763, or $0.000 per share (basic and diluted), for the three months ended
September 30, 2013.
For the nine months ended September 30, 2014, the Company had a net loss of
$75,391, or $0.003 per share (basic and diluted), as compared to a net loss of
$11,843, or $0.000 per share (basic and diluted), for the nine months ended
September 30, 2013. The increase in the net loss for the nine months ended
September 30, 2014 was primarily due to an increase in general and
administrative expenses due to the acquisition of Multigioco and an increase
in interest expense.
Other comprehensive income
Our other comprehensive income consists of foreign currency translation
adjustments related to the effect of foreign exchange on our operations.
The Company's reporting currency is the U.S. dollar while the functional
currency of our subsidiary Multigioco is the Euro, the local currency in Italy.
The financial statements of the Company 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.
For the three months and nine months ended September 30, 2014 the foreign
currency translation adjustment was $9,793 for both periods respectively and
was classified as an item accumulated in other comprehensive income in the
stockholders' equity (deficit) section of the consolidated balance sheets.
There was no foreign currency translation adjustment for the three months and
nine months ended September 30, 2013 and no foreign currency translation
adjustment to accumulated other comprehensive deficit of the balance sheet for
the year ended December 31, 2013.
Liquidity and Capital Resources for the years ended December 31, 2013 and
December 31, 2012
The Company had $6,707 in cash at September 30, 2014 and no cash on December 31,
2013. The notes to our unaudited consolidated financial statements as of
September 30, 2014, contain a disclosure regarding our uncertain ability to
continue as a going concern. As of September 30, 2014, we have not generated
revenues to cover our expenses, and we have total accumulated deficit of
$5,176,339. We had $1,955,689 in current liabilities and $696,922 current
assets, as such we are left with a working capital deficit of $1,258,767 and
cannot assure that we will be able to achieve a profitable level of operations
sufficient to meet our ongoing cash needs.
- 25 -
The Company currently maintains an operating line of credit for a maximum amount
of EUR 300,000 (approximately $414,000) from Banca Veneto in Italy. The line
of credit is unsecured and bears a fixed rate of interest at 5% per annum on the
outstanding balance and is fully open with no minimum payment, maturity or due
date. In addition, in March 2011 the Company obtained a bank loan held with
Banca Veneto in the amount of $634,260 which term ends in May, 2015. The loan
balance outstanding as of September 30, 2014 is $102,195.
Although we intend to maintain our lending relationships with Banca Veneto, we
believe that our focus should be on obtaining additional capital through the
private placement of our securities. We are pursuing potential equity and/or
debt investors and have from time to time engaged placement agents to assist us
in this initiative. While we are pursuing the opportunities and actions
described above, there can be no assurance that we will be successful in our
efforts. Any additional equity financing may result in substantial dilution to
our stockholders.
During the past several years, we generally sustained recurring losses and
negative cash flows from operations. We currently do not generate sufficient
revenue from operations. Our operations most recently have been funded through a
combination of the sale of a debenture on July 9, 2014 and a promissory note on
October 3, 2014 and through the issuance of our common stock in exchange for
$2,669,000 in cash on October 16, 2014.
Cash Flows from Operating Activities
On August 15, 2014 our business changed as a result of the acquisition of
Multigioco Srl. Therefore our comparisons cash flows with prior periods are
generally not meaningful.
Cash flows from operating activities resulted in net cash used in operating
activities of $13,856 compared to $5,787 of cash used in operating activities
for the same period ended September 30, 2013.
Cash Flows from Investing Activities
The net cash used in investing activities for the period ended September 30,
2014 was approximately $252,655 in deposits on acquisitions compared to
no cash from investing activities for the period ended September 30, 2013.
Cash Flows from Financing Activities
Net cash provided by financing activities for the period ended September 30,
2013 was $277,241 compared to $5,787 in cash provided by financing activities
for the period ended September 30, 2013.
Related-Party Transactions
Included in current liabilities at September 30, 2014 is $552,355 and $165,971
at December 31, 2013 in advances from stockholders. Advances from stockholders
are non-interest bearing and are due on demand. Interest was imputed at 5% per
annum. The Company recorded an interest expense of $4,064 and $10,234 for the
three and nine month periods ending September 30, 2014 respectively and $2,067
and $6,173 for the three and nine months ending September 30, 2013 respectively.
Contingencies and Commitments
See Note 10 of Notes to consolidated Financial Statements for a detailed
explanation of our contingencies.
- 26 -
Contractual Obligations
None.
Inflation
We do not believe that inflation will have a material impact on our future
operations.
Off-Balance-Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources that we expect to be material to investors. We
do not have any non-consolidated, special-purpose entities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Empire 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.
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934 ("Exchange
Act"), the Company carried out an evaluation, with the participation of the
Company's management, Director of Operations including the Company's Chief
Executive Officer ("CEO") and Chief Financial Officer (the Company's principal
financial officer), of the effectiveness of the Company's disclosure controls
and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of
the end of the period covered by this report. Based upon that evaluation and the
identification of material weaknesses in our internal control over financial
reporting, the Company's CEO and CFO concluded that the Company's disclosure
controls and procedures are not effective to ensure that information required to
be disclosed by the Company in the reports that the Company files or submits
under the Exchange Act, is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms.
Changes in Internal Controls
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 period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management's Report on Internal Controls over Financial Reporting
Empire 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.
- 27 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be subject to claims arising in the ordinary course of business.
We are not a party to, or the subject of, any pending legal proceeding.
Item 1A. Risk Factors.
Empire 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On July 9, 2014 the Company completed a Securities Purchase Agreement (the
"Agreement") with a group of accredited investors.
The Debentures are issued pursuant to an exemption from registration under
Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act")
and therefore are not registered under the Securities Act or the securities laws
of any state of the United States and cannot be offered, sold, pledged or
otherwise transferred or assigned in the United States or to a resident of the
United States unless an exemption from such registration requirements is
available. This Debenture has not been and will not be qualified for sale or
registered under the laws of any other jurisdiction and any transferee should
refer to the securities laws of any jurisdiction applicable to them.
Under the Agreement, the accredited investors agreed to purchase from us 14
unsecured Debenture Units for gross proceeds of $70,000. Each Debenture Unit is
comprised of (i) the issuance of $5,000 of debentures bearing interest at a rate
of 24% per annum, with a minimum maturity period of three (3) months to a
maximum of one (1) year from the date of issuance and (ii) 500 warrants which
may be exercised at $1.00 per warrant to receive one common share prior to
July 9, 2016. The Debenture shall be designated as Debenture Due July 9, 2016.
On August 15, 2014 pursuant to the Purchase Agreement, we issued an aggregate of
2,000,000 shares of our common stock to Doriana Gianfelici and Beniamino
Gianfelici, the shareholders of Multigioco, in exchange for all of the
outstanding capital stock of Multigioco. The issuance of our common stock to
Doriana Gianfelici and Beniamino Gianfelici was exempt from the registration
requirements of the Securities Act pursuant to Section 492 for the offer and
sale of securities not involving a public offering. These shares of our common
stock have not been registered under the Securities Act and may not be offered
or sold absent registration or an applicable exemption from registration
requirements.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved)
Item 5. Other Information.
During the quarter of the fiscal year covered by this report, Empire reported
all information that was required to be disclosed in a report on form 8-K.
- 28 -
Item 6. Exhibits
(a) Index to and Description of Exhibits
All Exhibits required to be filed with the form 10-Q are included in this
quarterly filing or incorporated by reference to Empire's previous filings with
the SEC, which can be found in their entirety at the SEC website at www.sec.gov
under SEC File Number 000-50045.
31 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EMPIRE GLOBAL CORP.
By: /s/ Michele Ciavarella Date: November 19,2014.
-------------------------
Michele Ciavarella
Chairman of the Board,
Chief Executive Officer and
Chief Financial Office
