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EX-31 - CERTIFICATION OF CEO AND CFO - SECTION 302 - Newgioco Group, Inc.section302-ceocfo.txt
EX-32 - CERTIFICATION OF CEO AND CFO - SECTION 906 - Newgioco Group, Inc.section906-ceocfo.txt

                                  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 March 31, 2015

                         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 23,264,800 shares of Common Stock outstanding as of May 20, 2015.





















ITEM 1. FINANCIAL STATEMENTS The unaudited quarterly financial statements for the period ended March 31, 2015, prepared by the company, immediately follow. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements F-1 - F-22 Item 2. Management's Discussion and Analysis or Plan of Operation 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 Item 4. Controls and Procedures 33 PART II - OTHER INFORMATION Item 1. Legal Proceedings 34 Item 1A. Risk Factors 34 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34 Item 3. Defaults Upon Senior Securities 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 5. Other Information 34 Item 6. Exhibits 35 SIGNATURES 35 - 2 -
PART I ITEM 1. FINANCIAL STATEMENTS EMPIRE GLOBAL CORP. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTENTS Consolidated Balance Sheets F-1 - F-2 Consolidated Statements of Comprehensive Loss F-3 Consolidated Statements of Cash Flows F-4 - F-5 Notes to Consolidated Financial Statements F-6 - F-22 - 3 -
EMPIRE GLOBAL CORP. Consolidated Balance Sheets (Unaudited) March 31, December 31, 2015 2014 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 171,923 422,276 Deposits on acquisitions - 62,698 Gaming account receivable 369,967 371,644 Prepaid expenses 239,227 393,224 Due from affiliates - 256,251 Investment in corporate bonds 346,560 389,536 Other current assets 107,577 16,676 ------------ ------------ Total Current Assets 1,235,254 1,912,305 ------------ ------------ Noncurrent Assets Property, plant and equipment 77,634 17,995 Intangible assets 2,418,714 1,982,437 Goodwill 260,318 179,239 Investment in non-consolidated entities 36,115 40,594 ----------- ------------ Total Noncurrent Assets 2,792,781 2,220,265 ------------ ------------ Total Assets 4,028,035 $ 4,132,570 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Line of credit - Bank $ 232,462 $ 194,139 Accounts payable and accrued liabilities 411,458 377,561 Gaming accounts balances 305,282 352,605 Taxes payable 143,631 121,531 Bank loan payable 12,587 56,286 Advances from stockholders 98,434 65,717 Liability in connection with acquisition 445,242 - Debenture, net of discount 143,540 141,346 Derivative liability 19,790 15,397 Promissory note payable 268,365 436,796 Other current liabilities 6,532 22,898 ------------ ------------ Total Current Liabilities 2,087,323 1,784,276 Long term liabilities 47,075 52,912 ------------ ------------ Total Liabilities 2,134,398 1,837,188 ------------ ------------ F-1
Stockholders' Equity Preferred Stock, $0.0001 par value, 20,000,000 shares authorized, none issued and outstanding - - Common Stock, $0.0001 par value, 80,000,000 shares authorized; 23,264,800 issued and outstanding at March 31, 2015 and December 31, 2014 2,327 2,327 Additional - paid in capital 9,526,340 9,525,357 Accumulated other comprehensive income (loss) (63,557) 39,880 Accumulated deficit (7,571,473) (7,272,182) ------------ ------------ Total Stockholders' Equity 1,893,637 2,295,382 ------------ ------------ 4,028,035 $ 4,132,570 ============ ============ See notes to consolidated financial statements - F2 -
EMPIRE GLOBAL CORP. Consolidated Statements of Comprehensive Loss (Unaudited) Three Months Ended March 31, 2015 2014 ------------ ------------ Revenue $ 1,227,131 $ - Costs and expenses Direct selling costs 869,971 - General and administrative expenses 577,302 41,263 ------------ ------------ Total costs and expenses 1,474,273 41,263 ------------ ------------ Loss from operations (247,142) (41,263) ------------ ------------ Other expenses / (income) Interest income (17,523) - Changes in fair value of derivative liabilities 4,393 - Imputed interest on related party advances 983 2,640 Interest expense 23,344 - Allowance for deposit on acquisition 40,952 - ------------ ------------ Total Other Expenses 52,149 (2,640) Net (loss) before income tax (299,291) (43,903) Income tax - - ------------ ------------ Net loss (299,291) (43,903) Other Comprehensive Income Foreign currency translation adjustment (63,557) - ------------ ------------ Comprehensive loss (362,848) (43,903) ============ ============ Basic and fully diluted loss per common share (0.02) (0.00) ============ ============ Weighted average number of common shares outstanding Basic and diluted 21,225,427 18,675,800 ============ ============ See notes to consolidated financial statements - F3 -
EMPIRE GLOBAL CORP. Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2015 2014 -------- -------- Cash Flows from Operating Activities Net loss $ (299,291) $ (43,903) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 96,076 - Amortization of deferred costs 2,589 - Non-cash interest (debenture discount) 2,194 - Imputed interest 983 2,640 Changes in fair value of derivative liabilities 4,393 - Impairment of assets 40,952 - Non-cash expenses paid in stock 125,030 - Changes in operating assets and liabilities: Prepaid expenses 147,748 - Accounts payable and accrued expenses 58,741 (5,345) Gaming accounts receivable (39,325) - Gaming account liabilities (8,422) - Taxes payable 34,734 - Other current assets (90,759) - Other current liabilities (13,840) - Deposits - (50,000) --------- --------- Net cash provided by (used in) operating activities 61,803 (96,608) --------- --------- Cash Flows from Investing Activities Acquisition of property, plant and equipment (1,704) - Cash acquired on acquisition 15,772 - Deposit on acquisition 55,781 - Cash paid for acquisition of assets (63,308) - --------- --------- Net cash provided by investing activities 6,541 - --------- --------- - F4 -
Cash Flows from Financing Activities Repayment of bank credit line 59,741 - Repayment of bank loan (37,489) - Proceeds from promissory notes, net of repayment (168,430) - Advances from stockholders, net of repayment - 96,608 --------- --------- Net cash (used in) provided by financing activities (146,178) 96,608 --------- --------- Effect of change in exchange rate (172,519) - Net decrease in cash (250,353) - Cash and cash equivalents - beginning of period 422,276 - --------- --------- Cash and cash equivalents - end of period 171,923 - ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest 396 - ========= ========= Income taxes - - ========= ========= See notes to consolidated financial statements - F5 -
EMPIRE GLOBAL CORP. Notes to Consolidated Financial Statements (Unaudited) 1. Nature of Business Business Empire Global Corp. ("Empire" or "the Company") was incorporated in the state of Delaware on August 26, 1998 as Pender International Inc. On September 30, 2005 changed its name to Empire Global Corp. and maintains its principal executive offices headquartered in Toronto, Canada. The Company, through its wholly owned subsidiary, Multigioco Srl ("Multigioco") provides online gaming services mainly consisting of online and offline wagering as well as online web based betting shops situated throughout Italy. Acquisition On August 15, 2014 the Company acquired 100% of the outstanding common shares of Multigioco, an Italian corporation, in exchange for 2,000,000 restricted shares of Empire's common stock. As a result of the acquisition, Multigioco became a wholly owned subsidiary of Empire. For accounting purposes, the purchase was accounted for using the acquisition method of accounting. Multigioco was formed on November 4, 2010 by the founder of New Gioco Srl, ("New Gioco") Beniamino Gianfelici and Doriana Gianfelici, the father-in-law and spouse respectively of our President Alessandro Marcelli, with New Gioco holding a 66% interest and Doriana Gianfelici holding a 34% interest respectively, in Multigioco. On January 1, 2015 the Company acquired 100% of the outstanding common shares of Rifa Srl, ("Rifa") an Italian corporation making Rifa a wholly owned subsidiary. Rifa was an inactive gaming company with a Monti license and one (1) inactive Agency Concession right. Also on January 1, 2015, the Company acquired gaming assets from New Gioco which included a Bersani license and 3 Corner Concession rights as well as 1 Agency Concession right. Therefore, the Company now provides online gaming and wagering to its customers in 850 online web shops as well as 1 Agency and 3 Corner locations throughout Italy. The financial statements of Multigioco and Rifa were included in the consolidated financial statements starting from the date of acquisition, August 15, 2014 and January 1, 2015 respectively. (See Note 4 and 5) 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 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 among others, 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. F-6
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 that our cash flow from operations will improve. Nevertheless, the Company expects 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 The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances among the Company and its subsidiaries are eliminated upon consolidation. c) Use of estimates The preparation of the financial statements in conformity with Generally Accepted Accounting Principles ("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 our common stock, the collectability of receivables and advances and deferred taxes and related valuation allowances. Certain of our 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. d) 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. The Company has no cash equivalents as of March 31, 2015 and December 31, 2014. The Company primarily places its cash with high-credit quality financial institutions, one of which is located in the United States which is insured by the Federal Deposit Insurance Corporation for up to $250,000 and another which is located in Italy and is insured by the Italian government. F-7
e) Gaming 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. Gaming 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 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 has determined that no allowance for doubtful accounts is needed for the gaming accounts receivable balances as of March 31, 2015. The Company does not require collateral to support customer receivables. f) 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 betting. Customers can request 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 any one of our locations. Gaming account credit balances are non-interest bearing. g) 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: Office equipment 5 years Office furniture 8 1/3 years Signs and displays 5 years h) Intangible Assets Intangible assets are amortized on a straight-line basis over their remaining useful life and consist of the following: Trademarks / names 14 years Websites 5 years AAMS GAD license 7 years AAMS Bersani license 1.5 years AAMS Monti license 1.5 years Location contracts 7 years Customer relationships 15 years F-8
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 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. i) Goodwill Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Goodwill is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we proceed to a two-step process to test goodwill for impairment including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an income or market approach incorporating market participant considerations and management's assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter. We perform the allocation based on our knowledge of the market in which we operate, and our overall knowledge of the gaming industry. j) 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. k) 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 F-9
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. l) Investments in non-consolidated entities Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment are accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company's investment in 2336414 Ontario Inc. and Banca Veneto were accounted for using the cost method of accounting. The Company monitors its investment for impairment at least annually and make appropriate reductions in the carrying value if it determines that an impairment charge is required based on qualitative and quantitative information. m) 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 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 F-10
instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. n) Leases Leases are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account and is included in accrued expenses and other current liabilities. All lease agreements of the Company as leasees are accounted for as operating leases as of March 31, 2015 and December 31, 2014. o) Currency translation Since the Company's subsidiary operates in the Italy, the subsidiary's functional currency is the Euro. In the consolidated financial statements, revenue and expense accounts are translated at the average rates during the period, and assets and liabilities are translated at year-end rates and equity accounts are translated at historical rate. 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. p) 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 the game is closed net of payouts and AAMS taxes from wagers by customers. Multigioco's Net Gaming Revenues (also referred to as NGR) are derived by subtracting total winnings and AAMS taxes from total wagers. Revenue from online casino games is a fixed percentage of payout based on guidelines set out by the AAMS (generally 97%) and programmed by producers of the casino software. Multigioco determines fees based on industry standards for poker and fixed revenue by law with respect to bingo at 30%. q) 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 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. F-11
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 March 31, 2015 and December 31, 2014, 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. r) Promotion, Marketing, and Advertising Costs The costs of promotion, marketing, and advertising are charged to expense as incurred. s) 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. As a result of the net loss in the year 2014, the calculation of diluted loss per common share does not include the dilutive effect to outstanding warrants. t) 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. u) Business Combinations We allocate 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 F-12
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. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. v) Recent Accounting Pronouncements There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows. 4. Multigioco Srl Acquisition On August 15, 2014, the Company completed its acquisition of Multigioco in which it acquired 100% of the outstanding common shares of Multigioco, an Italian corporation. Based on the Share Purchase Agreement ("Agreement"), the Company will pay EUR 1,000,000 (approximately $1,336,600 USD using the exchange rate at the closing date) in consideration for 100% shares of Multigioco at closing. In Lieu of the cash consideration due at closing, the Company issued 2,000,000 restricted shares of Empire's common stock, which was valued at a fair market value of $1.00 per share. As stated in the Agreement, the shareholders of Multigioco have the option to give back those shares in exchange for the cash consideration no later than 90 days from the closing of this Agreement. On October 24, 2014, the Company paid EUR 490,000 (approximately $620,700 USD) to reacquire 49% (or 980,000 shares) of the shares issued to Multigioco shareholders. The cash paid for reacquiring those shares was treated as measurement period purchase price adjustment. The parties have informally agreed to extend the option indefinitely. The acquisition was accounted for under the acquisition method of accounting. The assets and liabilities of Multigioco are included in the Consolidated Balance Sheet and the results of the Multigioco operations subsequent to the acquisition date are included in the Consolidated Statement of Comprehensive Loss as of March 31, 2015 and December 31, 2014. The purchase price was allocated to the fair market value of tangible and intangible assets acquired and liabilities assumed as follows: Useful life Current assets $441,049 Property, Plant and Equipment 22,779 Identifiable intangible assets Trademarks / names: 110,000 14 years Websites: 40,000 5 years AAMS license: 490,000 7 years Location contracts: 1,000,000 7 years Customer relationships: 440,000 15 years Total identifiable intangible assets 2,080,000 Liabilities assumed (1,554,743) Total identifiable assets less liabilities $1,461,461 Goodwill 179,239 ----------- Total purchase price $1,640,700 F-13
The unaudited pro forma combined historical results, as if Multigioco had been acquired at the beginning of 2013 are as follows: For the year ended December 31, December 31, 2014 2013 -------- ----------- Revenue $ 4,682,561 $ 4,653,520 Costs and expenses ( 5,372,971) ( 4,677,080) Other income (expenses) ( 1,558,489) 25,227 Income tax (8,609) (3,440) -------- ----------- Net (loss) ($2,257,508) $ (1,773) ========== =========== 5. Acquisition of Offline (Land-based) Gaming Assets (a) Rifa Srl. On January 1, 2015 the Company completed the acquisition of Rifa Srl ("Rifa") an inactive legal entity incorporated in Italy. Rifa's only asset is a "Monti license" and 1 inactive Diritti Negozio Sportivo (Agency) Concession right. The acquisition of Rifa enables the Company to operate Agency locations. During the year ended December 31, 2014 Multigioco paid EUR 30,000 (approximately $36,300 USD) towards the purchase price of Rifa. The Company also advanced EUR 21,506 (approximately $26,000 USD) for payments of debts or a total of EUR 51,506 (approximately $62,300 USD) towards the acquisition of Rifa which was classified as deposit on acquisitions at December 31, 2014. (b) Gaming assets from New Gioco Also on January 1, 2015, Multigioco purchased offline gaming assets from New Gioco which included a Bersani license along with 3 Diritti Punto Sportivo (Corner) rights to operate under Multigioco and Rifa purchased 1 Agency right at Via Mario Chiri, Roma from New Gioco to operate under Rifa's Monti license. Pursuant to the agreement Rifa assumed the lease on the premises at the Mario Chiri address. The purchase price paid to New Gioco also includes equipment and assets related to each of the Corner and Agency locations but the Company did not purchase the New Gioco Srl. corporate entity, its Monti license or its liabilities. New Gioco is an Italian gaming company which is 50% owned by Laura Tabacco an Italian citizen and 50% owned by Beniamino Gianfelici who along with his daughter, owned 100% of Multigioco prior to its acquisition by Empire. The Company agreed to pay New Gioco EUR 650,649 (approximately $787,158 USD) which included EUR 450,000 (approximately $569,700 USD) payable in 9 cash instalments of EUR 50,000 (approximately $63,308 USD) each until paid in full and forgiveness of debt which was comprised of EUR 210,507 (approximately $256,261 USD) which was recorded as due from affiliates at December 31, 2014 less a credit of EUR 9,858 (approximately $12,000 USD) in consideration for a payment made by New Gioco towards the debt. As of the date of this report, the Company has paid EUR 50,000 (approximately $63,308 USD) towards the cash purchase price of the assets from New Gioco and eliminated the Due from affiliates. For accounting purposes, the purchase was accounted for using the acquisition method of accounting. The operating results of this acquisition for the three months ended March 31, 2015 are included in F-14
the Corporation's consolidated results from the date of acquisition. The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of the acquisition. The Company conducted an internal assessment on the fair value of the tangible and intangible assets acquired. As a result, the Company determined that the total purchase price of the New Gioco assets acquired could be allocated equally to the Corner license and rights and the Agency rights. The initial amounts of the transaction resulted in goodwill (the excess of the purchase price over the fair value of net assets acquired) of EUR 66,608 (approximately $81,079 USD). The estimated purchase price allocation for the acquisition of the offline (land-based) gaming assets is preliminary and subject to revision as valuation work is still being conducted. The following represents the preliminary purchase price allocation: Useful life Property, Plant and Equipment Furniture and fixtures: 42,606 8 1/3 years Lighting and electrical: 3,652 10 years Servers, routers, computers, network: 6,087 5 years Electronics, televisions: 4,261 4 years Security and surveillance: 6,087 10 years Total property, plant and equipment $ 62,693 Identifiable intangible assets Bersani license: 36,519 1.5 years Monti license: 36,519 1.5 years Corner concession rights: 57,381 5 years Agency concession rights: 226,327 5 years Customer relationships: 346,931 15 years Total identifiable intangible assets $ 703,677 Assets acquired (Rifa) 20,598 Liabilities assumed (39,493) Net $ (18,895) Total identifiable assets less net liabilities $ 747,475 Goodwill 81,079 ----------- Total purchase price $ 828,554 Pro forma results of operations have not been presented because the effect of this acquisition was not deemed material. 6. Investment in corporate bond The investment in the corporate bond represents bonds issued by the Veneto Banca Societa Cooperativa Per Azioni ("SCpA") an Italian bank bearing interest from 3 - 4.2% and maturing in November 2015. 7. Line of credit - bank The Company obtained a line of credit from Banca Veneto in Italy for maximum amount of EUR 300,000 (approximately $414,000 USD) which was guaranteed by certain shareholders of the Company on December 3, 2013. The line of credit bears a fixed rate of interest at 5% per annum on the outstanding balance and has no minimum payment requirement or maturity date. F-15
8. Bank loan payable The amount represents a bank loan held with Banca Veneto which was guaranteed by certain shareholders of the Company. The loan amount of $634,260 originated in March 2011 with a 49 month repayment term ending in May 2015. The interest rate on the loan is 5.041% plus Euro Inter Bank Offered Rate ("EURIBOR"). 9. Long term liabilities The long term liabilities at March 31, 2015 consist of $47,075 of "TFR" which represents the Italian "Trattamento di Fine Rapporto" which is a severance amount set up by Italian companies to be paid to employees on termination of employment. 10. Related party transactions and balances Related party transactions consist of advances from and repayments to stockholders recorded as advances from stockholders as well as transactions between our subsidiary Multigioco and Rifa as well as Multigioco and New Gioco Srl which we recorded as due from affiliates (See Note 11). During the three months ended March 31, 2015 and the year ended December 31, 2014 the major stockholder of Empire Global was Gold Street Capital Corp. ("Gold Street"). During the three months ended March 31, 2015 and the year ended December 31, 2014 Gold Street advanced $37,708 and $423,090 to the Company respectively while Doriana Gianfelici advanced $598 during the year ended December 31, 2014 and the Company repaid $4,992 during the three months ended March 31, 2015. The amount due to Doriana Gianfelici at March 31, 2015 was $43,640 which was assumed by the Company as a result of the acquisition of Multigioco. During the year ended December 31, 2014, the Company repaid $214,825 in cash and issued 325,836 shares and 31,314 shares to Gold Street Capital Corp. and Braydon Capital Corp. respectively for repayment of advances. Those shares were valued at fair market value of $1.00 per share. For the three months ended March 31, 2015 the Company repaid $13,232 to Gold Street Capital Corp. The Company also issued 42,850 shares of common stock to David Ciavarella a relative of our CEO for accounting services rendered during the year ended December 31, 2014, which was valued at fair market value of $42,850. On February 13, 2015 the Company obtained a Promissory Note for $150,000 from Braydon Capital Corp. a Company owned by Claudio Ciavarella, the brother of our CEO, which bears interest at a rate of 2% per month on the outstanding balance due in full with the principal amount on the Maturity Date of May 15, 2015 unless extended by mutual consent. As of the date of this filing, the full amount of the Promissory Note remains outstanding. The Company and Braydon Capital Corp. have informally agreed to extend the due date until June 15, 2015 unless further extend by mutual consent. Advances from stockholders represent non-interest bearing loans that are due on demand. Interest was imputed at 5% per annum. Balances of Advances from stockholders are as follows: F-16
March 31, December 31, 2015 2014 -------- ----------- Gold Street Capital $ 54,794 $ 17,086 Doriana Gianfelici 43,640 48,631 -------- --------- Total advances from related parties: $ 98,434 $ 65,717 ========= ========= 11. Due from affiliates In addition to the Advances from and payments to stockholders, during the year ended December 31, 2014, Multigioco provided management, office space and utilities, business administration and services as well as customer care call center (the "administrative services") to New Gioco the former shareholder of Multigioco. Multigioco billed New Gioco, a related party, for administrative services which was recorded as due from affiliates and a reduction of the administrative expenses. On January 1, 2015 the Company acquired the Bersani license and Corner rights as well as 1 Agency right from New Gioco for a purchase price of EUR 650,649 (approximately $787,158 USD) which included a forgiveness of EUR 210,507 (approximately $256,261 USD) debt due for the administrative services. 12. Investment in non-consolidated entities Investments in non-consolidated entities consists of the following: 2336414 Ontario Inc. $ 875,459 Banca Veneto 36,115 ------- 911,574 Less impairment (875,459) --------- $ 36,115 ========= On December 9, 2014, the Company invested CDN$1,000,000 (approximately $875,459 USD) in a private placement of common shares of 2336414 Ontario Inc. ("2336414") representing 666,664 common shares or 2.3% of 2336414. 2336414 is an Ontario corporation and the parent company of Paymobile Inc. a carrier-class, PCI compliant transaction platform, delivering Visa prepaid card programs for social disbursements, corporate payroll replacement and cheque replacement. The Company is seeking to obtain a supplemental multi-currency payment processing system for our various clients and partners which may offer us unique, competitive, loyalty benefits in our markets. The Company subscribed for 666,664 Units (CDN$1,000,000) (approximately $875,458 USD), with each Unit being comprised of one (1) common share in the capital of 2336414 and one-quarter (1/4) of one common share purchase warrant, which will require four quarter warrants to acquire one additional common share in the capital of 2336414, for CDN$2.25 within 18 months after the closing of the Offering, or such longer period of time as 2336414 may determine. The Company paid CDN$1,000,000 (approximately $875,459 USD) in cash, and obtained a promissory note for CDN$500,000 (approximately $436,796 USD) from 2336414's subsidiary, Paymobile Inc, which bears interest at a rate of 1% per F-17
month on the outstanding balance. As of the date of this filing, the final payment of CDN$150,000 which was due on February 28, 2015 remains due. The Company and 2336414 Ontario Inc. have informally agreed to extend the due date until June 30, 2015 unless further extend by mutual consent. Since Paymobile has not produced any meaningful income, the Company has determined that it may not be able to realize its investment in 2336414 and has therefore decided to set up a 100% impairment on the investment made as of March 31, 2015. If the investment in 2336414 is unsuccessful, the Company may lose some or all of its investment in 2336414 Ontario Inc. On March 31, 2015 the Company held $36,115 in shares of Banca Veneto SCpA. Banca Veneto is a private mutual enterprise organized under Italian banking laws. We carry the value of the shares of Banca Veneto SCpA and 2336414 Ontario Inc. at cost less impairment. The Company accounts for investment in non-consolidated entities 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. The shares of Banca Veneto and 2336414 Ontario Inc. do not have an active market. 13. Deposits on Acquisitions Deposits on acquisitions includes the following: Acquisition of Streamlogue Holdings Ltd. $ 696,929 --------- Less allowance for doubtful account (696,929) --------- $ 0 ========= On September 1, 2014 the Company entered into a Share Purchase Agreement (SPA) to acquire Streamlogue Holdings Ltd. ("Streamlogue"), a Maltese licensed gaming company. The purpose of seeking the acquisition of Streamlogue is to expand our gaming products and services outside of the Italian operations of our subsidiary Multigioco. Under the terms of the SPA, the company agreed to pay Euro 600,000 (approximately $759,698 USD) of outstanding debts of Streamlogue plus Euro 350,000 (approximately $443,157 USD) in shares of the company payable on closing of the transaction. The Closing of the transaction is subject to full and satisfactory due diligence which includes an audit of the financial statements of Streamlogue. To date, the due diligence and audit of the financial statements have not been completed. Streamlogue owns two operating subsidiaries incorporated in Malta which are licensed by the Lottery and Gaming Authority of Malta ("LGA"): Streamlogue Services Ltd, a Business to Business (B2B) company which provides a "Live Online Casino" platform to global online gaming operators situated in authorized countries and Streamlogue Operations Ltd, a Business to Consumer (B2C) company which provides the Live Online Casino gaming platform for direct end user patrons that can establish betting accounts directly with the company. As of December 31, 2014 the company made advances of $655,976 and $40,953 during the three months ended March 31, 2015 towards the purchase price of Streamlogue. The deposits are credited to the purchase price of EUR 950,000 (approximately $1,202,855 USD). If the transaction to acquire Streamlogue Holdings Ltd. is unsuccessful, the F-18
Company may lose some or all of the deposits credited towards the purpose price. Since Streamlogue has not produced any meaningful income, the Company determined that it may not be able to realize its deposit in Streamlogue if the transaction is unsuccessful. Therefore, the Company decided to set up a 100% allowance on the advances made as of March 31, 2015. 14. 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 in Italy. The following table sets forth the breakdown of gaming revenues for the three months ended March 31, 2015: March 31, March 31, 2015 % 2014 % -------- -------- Turnover Turnover web-based $ 16,754,945 $ 22,669,470 Turnover land-based 634,810 - Total Turnover $ 17,389,755 100.00% $ 22,669,470 100.00% ------------ ------------ Winnings/Payouts Winnings web-based 15,452,519 20,900,318 Winnings land-based 474,699 - Total Winnings/payouts 15,927,218 91.59% 20,900,318 92.23% ------------ ------------ Gross Gaming Revenues 1,462,537 8.41% 1,769,153 7.80% Less: AAMS Gaming Taxes 235,406 1.35% 287,850 1.27% ------------ ------------ Net Gaming Revenues $ 1,227,131 7.06% $ 1,481,302 6.53% ============ ============ Turnover represents the total of bets processed for the period. 15. Debentures and Debenture Warrants July 2014 Debentures On July 9, 2014, the Company issued debentures to a group of accredited investors to purchase 14 unsecured Debenture Units for gross proceeds of $70,000. Each Debenture Unit is comprised of (i) a $5,000 debenture bearing interest at a rate of 24% per annum, maturing two (2) 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. On October 17, 2014, the Company repurchased $70,000 in aggregate principal amount of the July 2014 Debentures plus accrued interest of $4,741. December 2014 Debentures On December 17, 2014, the Company issued debentures to a group of accredited investors to purchase 30 unsecured Debenture Units for gross proceeds of $150,000. Each Debenture Unit is comprised of (i) a $5,000 debenture bearing interest at a rate of 24% per annum, maturing one (1) year from the date of issuance and (ii) 500 warrants which may be exercised at $1.50 per warrant to receive one common share prior to December 17, 2016. F-19
The Company recorded a total of $1,381 and $10,159 of accrued interest related Debentures at December 31, 2014 and for the three months ended March 31, 2015 respectively, and the amount is included as a component of accrued expenses. As of March 31, 2015, the amortized discount on the Debenture was $6,386. The Company paid commissions of $3,500 and $10,500 for the July 2014 and the December 2014 debentures respectively. The commissions related to the December 2014 debentures were amortized over the life of the debenture. Warrants to Purchase Common Stock The Company has determined that the warrants issued in connection with the debentures on July 9, 2014 and December 17, 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 $6,267 and $13,523 for the June 2014 and December 2014 warrants respectively, using the following weighted average assumptions: Common Warrant Exercise Stock Dividend Interest Forfeiture Date Price Price Volatility Term Yield Rate Risk per/sh per/sh ------------- -------- ------ ---------- ----- -------- -------- ---------- July 9, 2014 $1.00 $0.895 460% 2 yrs 0% 0.91% 0% Dec. 17, 2014 $1.50 $0.897 460% 2 yrs 0% 0.91% 0% The fair value of the warrants has been recorded as a debt discount which is to be amortized as interest expense over the life of the Debentures. A summary of warrant transactions during the three months ended March 31, 2015 is as follows: Weighted Average Warrant Exercise Price Shares Per Common Share Outstanding at January 1, 2015 - $ - Issued 22,000 $ 1.34 Exercised - - Expired - - Outstanding at March 31, 2015 22,000 $ 1.34 Exercisable at March 31, 2015 22,000 $ 1.34 As of March 31, 2015, the weighted average remaining contractual life for warrants outstanding and exercisable was 1.5 years and 1.75 years for the July 9, 2014 and the December 17, 2014 warrants respectively. 16. Shareholder's Equity (a) On August 15, 2014 the Company issued 2,000,000 shares of common stock for the acquisition of Multigioco. (See Note 4) F-20
(b) On October 3, 2014, the Company issued an aggregate of 900,000 restricted shares of our common stock which were valued at fair market value of $1.00 per share as follows: - 500,000 shares with a total value of $500,000 for legal advisory services to Beard Winter LLP which is being amortized over the service period of one year. As of March 31, 2015 and December 31, 2014, $187,500 and $312,500 respectively, remained unamortized and is included in prepaid expenses. - 150,000 shares to David Ciavarella a relative of our CEO with a total value of $150,000 for accounting services related to the acquisition of Multigioco and repayment of advance from shareholders. - 250,000 shares for cancellation of $250,000 of debt recorded as advances from a shareholder, Gold Street Capital. (c) On October 16, 2014, Empire closed a subscription agreement with an accredited non-US investor for a total of 2,699,000 shares of common stock 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 (US$2,669,000). 17. Commitments and contingencies There are no legal actions, lawsuits or disputes related to Company as of the date of the financial statements. 18. Income Taxes The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S. taxable income for the three months ended March 31, 2015 and the year ended December 31, 2014. The Company periodically evaluates whether it is more likely than not that it will generate sufficient taxable income to realize the deferred income tax asset. The ultimate realization of this asset is dependent upon the generation of future taxable income sufficient to offset the related deductions. At the present time, management cannot presently determine when the Company will be able to generate sufficient taxable income to realize the deferred tax asset; accordingly, a valuation allowance has been established to offset the asset. The Company's Italian subsidiaries are governed by the income tax laws of Italy. The corporate tax rate in Italy is 32.32% (IRES at 27.5% plus IRAP ordinary at 4.82%) on income reported in the statutory financial statements after appropriate tax adjustments. The reconciliation of income tax expense at the U.S. statutory rate of 35% to the Company's effective income tax as of March 31, 2015 and December 31, 2014 are: March 31, December 31, 2015 2014 -------- ----------- U.S. statutory rate of 35% ($ 96,871) ($ 730,328) Tax rate difference between U.S and Italy (27.5%) (5,613) (42,317) Change in valuation allowance 102,484 777,736 --------- ----------- Income tax expense $ - $ 5,091 ========= ========== F-21
The Company has accumulated a net operating loss carry forward ("NOL") of approximately $7 million as of March 31, 2015. This NOL may be offset against future taxable income through the year 2035. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the NOL. No tax benefit has been reported in the consolidated financial statements for the three months ended March 31, 2015 and the year ended December 31, 2014 because it has been fully offset by a valuation allowance. NOL's 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. 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, in 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). The tax effects of temporary differences that give rise to the Company's net deferred tax asset as of March 31, 2015 and December 31, 2014 are as follows: March 31, December 31, 2015 2014 -------- ----------- Net operating loss carryforward 2,641,407 2,563,068 Less valuation allowance (2,641,407) (2,563,068) ---------- ---------- Deferred Tax Asset $ - $ - ========== ========== The provisions for income taxes as of March 31, 2015 and December 31, 2014 are summarized as follows: March 31, December 31, 2015 2014 -------- ----------- Current - foreign $ 5,091 Deferred - - --------- ----------- Total $ - 5,091 ========= ========== 19. Subsequent Events The Company has evaluated subsequent events through the filing date of these financial statements on form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements. F-22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Except as expressly stated, the financial condition and results of operations discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are those of Empire Global Corp. and its consolidated subsidiaries. The MD&A is intended to provide the reader of our consolidated financial statements with a narrative explanation from the perspective of management of our financial condition, results of operations, liquidity and certain other factors that may affect future results. The MD&A is provided as a supplement to, and 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, 2014 as well as the Company's form 8-K filed on August 19, 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. General Plan of Operation The Company was incorporated in the state of Delaware on August 26, 1998 as Pender International Inc. On September 30, 2005 changed its name to Empire Global Corp. and maintains its principal executive offices headquartered in Toronto, Canada. 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 of Multigioco our principal business is now a licensed gaming operator offering land based and internet based gambling and sports betting. On January 1, 2015 we completed the acquisition of Rifa Srl ("Rifa") an inactive legal entity incorporated in Italy. Rifa's only asset is a "Monti license" number #4583 and 1 inactive Diritti Negozio Sportivo (Agency) Concession right. The acquisition of Rifa enables the Company to operate Agency locations. According to AAMS regulations, unless the purchaser already holds a Monti License, Monti licenses must be acquired through the transfer of the legal entity to which was granted the license at issue. Therefore, in order to acquire the Monti license for our business development plan in Italy, Multigioco was required to purchase the legal corporate entity "Rifa" which owned the Monti license. As a result of the transaction, Multigioco acquired Rifa's Monti license and an inactive Agency right. Also on January 1, 2015, Multigioco purchased offline gaming assets from New Gioco which included a Bersani license along with 3 Diritti Punto Sportivo (Corner) rights to operate under Multigioco and Rifa purchased 1 Agency right at Via Mario Chiri, Roma from New Gioco to operate under Rifa's Monti license. Pursuant to the agreement Rifa assumed the lease on the premises at the Mario Chiri address and also acquired the equipment assets within the agency. New Gioco is an Italian gaming company which is 50% owned by Laura Tabacco an - 26 -
Italian citizen and 50% owned by Beniamino Gianfelici who along with his daughter, owned 100% of Multigioco prior to its acquisition by Empire. Therefore, Multigioco now owns a GAD (Gioco a Distanza) online license #15133 with approximately 850 web-based shops (Punti di Commercializzazione), a Bersani license #4070 with three (3) Corner (Punto Sportivo) rights #8358; #8359; and #8360, as well as a Monti license #4583 with two (2) Agency (Negozio Sportivo) rights (1 active #37925 and 1 inactive #37924 which will remain idle until approved by AAMS.) Our revenues are derived from Multigioco's operations offering a variety of lottery and casino gaming as well as sports betting through online and offline locations situated throughout Italy. Results of Operations Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014. Overall As a result of the acquisition of Multigioco, 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. Our primary financial focus is on growing EBITDA through our new business venture, which we expect to continue to improve throughout 2015. EBITDA is primarily driven by increasing revenues by capturing a larger market share by acquiring new clients and gaming locations. We generate revenues by providing online gaming products and services in regulated countries. 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 Compared to no revenue for the three months ended March 31, 2014, the Company had gross revenues of $1,227,131 for March 31, 2015. The revenues are comprised of Net Gaming Revenue derived from gaming operations as a result of the Acquisition of Multigioco's gaming business. The following table represents a detailed breakdown of revenue from our gaming operations for the three months ended March 31, 2015: - 27 -
March 31, 2015 % -------- Turnover Turnover web-based $ 16,754,945 Turnover land-based 643,810 Total Turnover $ 17,389,755 100.00% ------------ Winnings/Payouts Winnings web-based 15,452,519 Winnings land-based 474,699 Total Winnings/payouts 15,927,218 91.59% ------------ Gross Gaming Revenues 1,462,537 8.41% Less: AAMS Gaming Taxes 235,406 1.35% ------------ Net Gaming Revenues $ 1,227,131 7.06% ============ General and Administrative Expenses As compared to $41,263 incurred in three months ended March 31, 2014, our general and administrative expenses are $577,302 for the three months ended March 31, 2015 a result of the acquisition of Multigioco. The segmented general and administrative expenses were: Empire operations: $ 211,119 Multigioco operations: 179,506 Rifa operations: 117,251 ------------ Adjustment for depreciation of intangible assets of Multigioco: 69,426 ============ General and administrative expenses: $ 577,302 The Company's major costs included in general and administrative expenses were: cash and non-cash professional fees of $154,596, management fees of $30,000, amortization of intangible assets acquired of $63,628, travel, foreign currency translation differences and other miscellaneous expenses. Direct Selling Expenses As a result of our acquisition of the Multigioco gaming business we now incur direct selling costs which represent the fees we pay to our network service provider, AAMS license fees, and commissions for field agents and promoters which is essentially considered an ongoing marketing cost. For the three months ended March 31, 2015 our direct selling costs were $896,971 compared to no direct selling costs for the same period ending on March 31, 2014. This change is attributed to the acquisition of the Multigioco gaming business. Interest Expenses The Company recorded an interest expense of $23,344 for the three months ended March 31, 2015 compared to no interest expense for the three months ended March 31, 2014. The increase in interest expense incurred was related to interest paid on debentures issued in July 2014 and the promissory note issued in October 2014 which were both paid off as well as the interest accrued on the debentures issued and promissory note issued in December 2014. - 28 -
The Company recorded an imputed interest expense of $983 for the three months ended March 31, 2015 compared to $2,640 for three months ended March 31, 2014 respectively. Advances from stockholders are non-interest bearing and are due on demand. Interest was imputed at 5% per annum. Change in Fair Value of Derivative Liability Changes in fair value of derivative liability generated gain of $4,393 for the three months ended March 31, 2015. This was due to a higher value of the derivative liability at March 31, 2015. We had no change in derivative liability for the three months ended March 31, 2014 because we did not issue debentures or warrants. Net Loss For the three months ended March 31, 2015 the Company had a net loss of $299,291, or $0.017 per share (basic and diluted), as compared to a net loss of $43,903, or $0.001 per share (basic and diluted) for the three months ended March 31, 2014. This increase is primarily attributed to an increase in general and administrative expenses incurred for business development and the acquisition of Multigioco, Rifa as well as the gaming assets of New Gioco Srl. 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 Multigioco 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. The company experienced a foreign currency translation adjustments of $63,557 during the three months ended March 31, 2015 compared to no foreign currency translation adjustments during the three months ended March 31, 2014. Liquidity and Capital Resources for the Three Months Ended March 31, 2015 and March 31, 2014. Assets At March 31, 2015 we had a total Assets of $4,028,035 in Assets compared to no Assets at March 31, 2014. Liabilities At March 31, 2015 we had $2,087,323 in current liabilities and $47,075 in long term debt. Compared to current liabilities of $265,499 and no long term liabilities at March 31, 2014. The increase was a result of liabilities associated with the acquisition of our gaming operations during 2015. - 29 -
Empire Additional Working Capital The Company had $171,923 in cash and cash equivalents at March 31, 2015 as compared to no cash and cash equivalents at March 31, 2014. As of March 31, 2015 we have not generated revenues to cover our expenses, and we have total accumulated deficit of $7,571,473. We had $2,087,323 in current liabilities and $1,235,254 in current assets, as such we are left with a working capital deficit of $852,069. The Company cannot assure that we will be able to achieve a profitable level of operations sufficient to meet our ongoing cash needs. The Company currently maintains an operating line of credit for a maximum amount of EUR 300,000 (approximately $414,000 USD) from Banca Veneto in Italy. The line of credit is guaranteed by certain shareholders of the Company 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 March 31, 2015 is $12,587. 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 debentures on July 9, 2014 and December 17, 2014 and promissory notes on October 3, 2014 and December 9, 2014 as well as through the issuance of our common stock in exchange for $2,669,000 in cash on October 16, 2014. On August 15, 2014 our business changed as a result of the acquisition of Multigioco. Therefore the significant change in our cash flows is a result of our new business. Comparisons with cash flows from prior periods are generally not meaningful. Below is a discussion of our sources and uses of funds for the three months ended March 31, 2015 and 2014. Cash Flows from Operating Activities Cash flows from operating activities resulted in net cash provided by operating activities of $61,803 for the three months ended March 31, 2015. Compared to $96,608 of cash used in operating activities for the same period ended March 31, 2014. Cash Flows from Investing Activities The net cash provided by investing activities for the three months ended March 31, 2015 was $6,541 compared to none for the same period ended March 31, 2014. - 30 -
Cash Flows from Financing Activities Net cash used in financing activities for the three months ended March 31, 2015 was $146,178 compared to $96,608 in cash provided by financing activities for the same period ended March 31, 2014. 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. Please refer to Notes 7, 8, 9, 10 and 15 of the Notes to the Consolidated Financial Statements for information related to debt obligations and Note 17 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this form 10-Q. 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 Related party transactions consist of advances from and repayments to stockholders recorded as advances from stockholders as well as transactions between our subsidiary Multigioco and Rifa as well as Multigioco and New Gioco Srl which we recorded as due from affiliates (See Note 11). During the three months ended March 31, 2015 and the year ended December 31, 2014 the major stockholder of Empire Global was Gold Street Capital Corp. ("Gold Street"). During the three months ended March 31, 2015 and the year ended December 31, 2014 Gold Street advanced $41,562 and $423,090 to the Company respectively while Doriana Gianfelici advanced $598 during the year ended December 31, 2014 and the Company repaid $4,992 during the three months ended March 31, 2015. The amount due to Doriana Gianfelici at March 31, 2015 was $43,640 which was assumed by the Company as a result of the acquisition of Multigioco. During the year ended December 31, 2014, the Company repaid $214,825 in cash and issued 325,836 shares and 31,314 shares to Gold Street and Braydon Capital Corp. respectively for repayment of advances. Those shares were valued at fair market value of $1.00 per share. For the three months ended March 31, 2015 the Company repaid $13,232 to Gold Street. The Company also issued 42,850 shares of common stock to David Ciavarella a relative of our CEO for accounting services rendered during the year ended December 31, 2014, which was valued at fair market value of $42,850. On February 13, 2015 the Company obtained a Promissory Note for $150,000 from Braydon Capital Corp. a Company owned by Claudio Ciavarella, the brother of our CEO, which bears interest at a rate of 2% per month on the outstanding balance due in full with the principal amount on the Maturity Date of May 15, 2015 unless extended by mutual consent. As of the date of this filing, the full amount of the Promissory Note remains outstanding. The Company and Braydon Capital Corp. have informally agreed to extend the due date until June 15, 2015 unless further extend by mutual consent. - 31 -
Please see Note 10 to the consolidated financial statements in Part I, Item 1 of this form 10-Q for additional information regarding related party transactions. In addition to the Advances from and payments to stockholders, during the year ended December 31, 2014, Multigioco provided management, office space and utilities, business administration and services as well as customer care call center (the "administrative services") to New Gioco the former shareholder of Multigioco. Multigioco billed New Gioco, a related party, for administrative services which was recorded as due from affiliates and a reduction of the administrative expenses. On January 1, 2015 the Company acquired the Bersani license and Corner rights as well as 1 Agency right from New Gioco for a purchase price of EUR 650,649 (approximately $787,158 USD) which included a forgiveness of EUR 210,507 (approximately $256,261 USD) debt due for the administrative services. Please see Note 11 of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this form 10-Q for additional information regarding due from affiliates. Inflation We do not believe that general price inflation will have a material effect on the Company's business in the near future. Foreign Exchange Transactions involving the Company are generally denominated in U.S. dollars while the functional currency of our subsidiary is the Euro. Changes and fluctuations in the Foreign exchange rate between the Euro and the U.S. dollar will have an effect on our results of operations. 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, 2014. 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. - 32 -
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. We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), who are the same person, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, our CEO and CFO concluded that due to our limited resources our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below. Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our internal control system was designed to, in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2015. The framework used by management in making that assessment was the criteria set forth in the document entitled "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that assessment, our management has determined that as of March 31, 2015, our internal control over financial reporting was not effective due to material weaknesses resulting from our limited resources. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission. This quarterly report does not include an attestation report of the Company's registered accounting firm regarding internal control over financial reporting. - 33 -
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 periods covered by this report 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. 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. None. 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. - 34 -
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 report 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: May 20, 2015. ------------------------- Michele Ciavarella Chairman of the Board, Chief Executive Officer and Chief Financial Officer - 35 -