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EX-31 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Newgioco Group, Inc.exhibit_31.htm
EX-32 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 - Newgioco Group, Inc.exhibit_32.htm

 

 
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2015

or

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: ______ to ______

 

_________________

EMPIRE GLOBAL CORP.

(Exact name of registrant as specified in its charter)

_________________

Delaware 000-50045 33-0823179
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation or Organization) File Number) Identification No.)

 

130 Adelaide Street, West, Suite 701

Toronto, Ontario, Canada M5H 2K4

(Address of Principal Executive Offices) (Zip Code)

(647) 229-0136

(Registrant’s telephone number, including area code)

N/A

(Former name or former address and former fiscal year, if changed since last report)

_________________

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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  o Accelerated filer  o Non-accelerated filer  o Smaller reporting company  þ

 

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

Indicate the number of shares outstanding of the issuer's common stock, as of the latest practical date:

There were 23,758,650 shares of Common Stock outstanding as of November 10, 2015.

 
 

 
 

 

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION  
     
Item 1 Consolidated Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 4
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
Item 4 Controls and Procedures 10
     
PART II - OTHER INFORMATION  
     
Item 1 Legal Proceedings 11
Item 1A Risk Factors 11
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits 11
     
SIGNATURES 12

 

- 2 -


 
 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

 

EMPIRE GLOBAL CORP.

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

CONTENTS  
   
   
Consolidated Balance Sheets F-1
   
Consolidated Statements of Comprehensive Income (Loss) F-2
   
Consolidated Statements of Cash Flows F-3
   
Notes to Consolidated Financial Statements F-4 - F-12

 

 

 

 

 

- 3 -


 
 

EMPIRE GLOBAL CORP.

Consolidated Balance Sheets

(Unaudited)

   September 30,  December 31,
   2015  2014
ASSETS
Current Assets      
Cash and cash equivalents  $143,196   $422,276 
Deposits on acquisitions   —      62,698 
Gaming account receivable   497,368    371,644 
Prepaid expenses   183,142    393,224 
Due from affiliates   —      256,251 
Investment in corporate bonds   225,120    389,536 
Other current assets   46,323    16,676 
Total Current Assets   

1,095,149

    1,912,305 
Noncurrent Assets          
Property, plant and equipment   88,575    17,995 
Intangible assets   2,499,072    1,982,437 
Goodwill   260,318    179,239 
Investment in non-consolidated entities   37,536    40,594 
Total Noncurrent Assets   2,885,501    2,220,265 
           
Total Assets  $3,980,650   $4,132,570 
           
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current Liabilities          
Line of credit - Bank  $212,319   $194,139 
Accounts payable and accrued liabilities   469,158    377,561 
Gaming accounts balances   341,072    352,605 
Taxes payable   293,391    121,531 
Bank loan payable   —      56,286 
Advances from stockholders   54,901    65,717 
Liability in connection with acquisition   344,434    —   
Debenture, net of discount of $106,976 and $8,654   294,179    141,346 
Derivative liability   85,611    15,397 
Promissory note payable   111,780    436,796 
Other current liabilities   7,265    22,898 
Total Current Liabilities   2,214,110    1,784,276 
           
Long term liabilities   46,168    52,912 
Total Liabilities   2,260,278    1,837,188 
           
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; 23,758,650 and 23,264,800 issued and outstanding at September 30, 2015 and December 31, 2014   2,376    2,327 
Additional - paid in capital   10,079,926    9,525,357 
Accumulated other comprehensive income   102,865    39,880 
Accumulated deficit   (8,464,795)   (7,272,182)
Total Stockholders' Equity   1,720,372    2,295,382 
           
Total Liabilities and Stockholders’ Equity  $3,980,650   $4,132,570 

 

See notes to consolidated financial statements

 

F-1


 
 

 

EMPIRE GLOBAL CORP.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2015   2014   2015   2014
                 
Revenue   $ 1,095,343     $ 663,767      $ 3,289,118     $ 663,767   
                                 
Costs and expenses                                
Selling costs     815,039       477,488       2,415,068       477,488  
General and administrative expenses     643,424       171,312       1,806,662       236,635  
Total costs and expenses     1,458,463       648,800       4,221,730       714,123  
                                 
Income (Loss) from operations     (363,120 )     14,967       (932,612 )     (50,356 )
Other expenses / (income)                                
Interest expense, net of interest income     49,782       10,944       82,255       10,944   
Changes in fair value of derivative liabilities     15,614       (1,750 )     15,694       (1,750 )
Imputed interest on related party advances     1,752       4,064       3,698       10,234  
Allowance for deposit on acquisition     —         —         94,952       —    
Total Other Expenses     67,148       13,258       196,599       19,428  
                                 
                                 
Loss  before income tax     (430,268 )     1,709       (1,129,211 )     (69,784  )
                                 
Income tax     36,857       5,607        63,402       5,607  
                                 
Net loss     (467,125 )     (3,898 )     (1,192,613 )     (75,391 )
                                 
Other Comprehensive Income (expense)                                
Foreign currency translation adjustment     (124,409 )     9,793         62,985       9,793  
                                 
Comprehensive Income (loss)   $ (591,534 )   $ 5,895     $ (1,129,628 )   $ (65,598 )
                                 
                                 
Basic and fully diluted loss per common share   $ (0.02 )   $ 0.00     $ (0.05 )   $ 0.00  
Weighted average number of common shares outstanding Basic     23,289,257       19,675,800       23,273,042       18,846,845  
Weighted average number of common shares outstanding Diluted   23,289,257    19,682,115    23,273,042    18,846,845 

 

See notes to consolidated financial statements

 

F-2


 
 

EMPIRE GLOBAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

   Nine Months Ended September 30,
   2015  2014
Cash Flows from Operating Activities      
Net loss  $(1,192,613)  $(75,391)
           
Adjustments to reconcile net loss to          
net cash used in operating activities          
Depreciation and amortization   311,605    7,808 
Amortization of deferred costs   14,362    —   
Non-cash interest expense   26,162    1,592 
Imputed interest on advances from stockholders   3,698    10,236 
Changes in fair value of derivative liabilities   15,694    (1,750)
Non-cash commission and legal fees related to debenture   10,721    —   
Impairment of assets   94,952    —   
Amortization of expenses paid in stock   318,375    —   
           
Changes in operating assets and liabilities:          
           
Prepaid expenses   23,239    (7,869)
Accounts payable and accrued expenses   150,818    (40,158)
Gaming accounts receivable   (152,272)   9,255 
Gaming account liabilities   14,887    35,406 
Taxes payable   175,780    80,595 
Other current assets   (28,880)   (10,370)
Other current liabilities   (13,777)   (13,137)
Other receivable   —      (10,073)
Net cash used in operating activities   (227,249)   (13,856)
           
Cash Flows from Investing Activities          
           
Acquisition of property, plant and equipment   (22,458)   —   
Cash acquired on acquisition   14,447    10,555 
Deposit on proposed acquisition   (94,952)   (263,210)
Cash paid for acquisition of assets   (238,768)   —   
Investment in subsidiary – Rifa   (33,450)    —   
Proceed from matured corporate bond   133,800     —   
Deposit on acquisition - Rifa   33,450    —   
Net cash used in investing activities   (207,931)   (252,655)
           
Cash Flows from Financing Activities          
           
Repayment of bank credit line   32,494    (100,571)
Repayment of bank loan   (51,555)   (28,494)
Proceeds from debentures   75,474    70,000 
Proceeds from promissory note   150,000    —   
Proceeds from convertible note, net of fees and discount   150,000    —   
Repayment of promissory note   (325,016)   —   
Advances from stockholders, net of repayment   142,826    336,306 
Net cash provided by financing activities   174,223    277,241 
           
Effect of change in exchange rate   (18,123)   (4,023)
           
Net increase (decrease) in cash   (279,080)   6,707 
           
Cash and cash equivalents - beginning of period   422,276    —   
Cash and cash equivalents - end of period  $143,196   $6,707 
           
Supplemental disclosure of cash flow information:          
           
Cash paid during the period for:          
Interest  $7,941   $10,944 
Income taxes  $3,893   $5,607 
           
Supplemental cash flow disclosure for non-cash activities:          
Common shares issued for acquisition of a subsidiary:        2,000,000 
Common shares issued to related parties for repayment of debt:
   323,145      
Common shares issued for repayment of debt:   22,516      

 

See notes to consolidated financial statements

 

F-3


 
 

 

EMPIRE GLOBAL CORP.

Notes to Consolidated Financial Statements

(Unaudited)

 

1. Basis of Presentation and Nature of Business

 

Basis of Presentation

 

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, 2015 and the results of operations and cash flows for the periods ended September 30, 2015 and 2014. 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, 2015 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2015. The balance sheet at December 31, 2014 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, 2014 as included in our Annual Report on form 10-K.

 

Nature of 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 subsidiaries, Multigioco Srl ("Multigioco") which was acquired on August 15, 2014, and Rifa Srl (“Rifa”) which was acquired on January 1, 2015, provides web-based and land-based gaming services in Italy.

 

Acquisitions

 

On January 1, 2015 the Company acquired 100% of the outstanding common shares of Rifa, an Italian corporation, making Rifa a wholly owned subsidiary. Rifa was an inactive gaming company with a Monti license and one (1) Agency Concession right. Also on January 1, 2015, the Company acquired gaming assets from New Gioco Srl. (“New Gioco”) which included a Bersani license and 3 Corner Concession rights as well as 1 Agency Concession right.

 

The financial statements of Rifa were included in the consolidated financial statements starting from the date of acquisition, January 1, 2015. (See Note 4)

 

During the 3 months ended September 30, 2015 the Company purchased 4 additional Corner Concession rights (“Rights”) for Euro 20,000 (approximately $22,500 USD) each paid in cash. Each of the Rights allow the Company to open a Corner location under our Bersani license. Three of the Corner locations have been identified and are pending regulatory approval to open while the forth remains unassigned. In addition, the Company signed 2 Master Agent agreements to add up to 389 web shops under its wholly owned subsidiary Multigioco. The Company expects regulatory approval to be granted for all 4 of the new Corners and integration of the new web-shops to be completed by the end of 2015.


 

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 and has a working capital deficit of $1,118,961 at September 30, 2015. 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-4


 
 

Management plans to increase its marketing in order to generate more revenues and to reduce certain other operating expenses. 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. There is no assurance that we will be successful in obtaining financing and if such financing would be available, at terms which are acceptable to us.

 

3. Summary of Significant Accounting Policies

 

a) Basis of consolidation

 

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.

 

 

b) 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.

 

c) 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.

 

d) 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 instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

F-5


 
 

 

e) Currency translation

 

Since the Company's subsidiary operates in 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.

 

f) Revenue Recognition

 

Revenues from sports-betting; casino, cash and skill games; slots, lotteries, bingo and horse race wagers represent the gross pay-ins (also referred to as Turnover) from customers less gaming taxes and payouts to customers. In addition, the Company receives commissions from the sale of scratch tickets and other lottery games. Revenues are recorded when the game is closed. Commissions are recorded when the ticket for scratch off tickets and lottery tickets are sold.

 

g) 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 three and nine months ended September 30, 2015, the calculation of diluted loss per common share does not include the dilutive effect to outstanding warrants.

 

h) 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 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.

 

i) 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. Acquisition of Offline (Land-based) Gaming Assets

 

(a) Rifa Srl.

 

On January 1, 2015 the Company completed the acquisition of Rifa, an inactive legal entity incorporated in Italy. Rifa's assets include a "Monti license" and 1 Diritti Negozio Sportivo (“Agency”) Concession right that enables the Company to operate Agency locations. During the year ended December 31, 2014 Multigioco paid EUR 51,506 (approximately $62,300 USD) towards the acquisition of Rifa, which was classified as deposit on acquisitions at December 31, 2014. The Company paid EUR 30,000 (approximately $36,300 USD) towards the purchase price of Rifa and also advanced EUR 21,506 (approximately $26,000 USD) for payments of debts of Rifa.

 

F-6


 
 

(b) Gaming assets from New Gioco Srl. (“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 from New Gioco to operate under Rifa’s Monti license. Pursuant to the agreement Rifa assumed the lease on the New Gioco Agency premises. The purchase price paid to New Gioco also includes equipment and assets related to each of the Corner and Agency locations.

 

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 comprised of EUR 210,507 (approximately $256,251 USD) which was recorded as due from affiliates at December 31, 2014. As of the date of this report, the Company has paid EUR 144,000 (approximately $160,560 USD) towards the cash purchase price.

 

For accounting purposes, the purchase was accounted for using the acquisition method of accounting. The assets and liabilities of Rifa are included in the Consolidated Balance Sheet from the acquisition date and the results of the operation subsequent to the acquisition date are included in the Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2015.

 

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.

 

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.

 

F-7


 
 

5. 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 and New Gioco which we recorded as due from affiliates (See Note 6).

 

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:

 

   September 30,  December 31,
   2015  2014
       
Gold Street Capital Corp.  $57   $17,086 
Doriana Gianfelici   54,844    48,631 
Total advances from stockholders  $54,901   $65,717 

 

  

During the nine months ended September 30, 2015, Gold Street Capital Corp. ("Gold Street"), the major stockholder of Empire Global, 198,447 to the Company of which $65,404 has been repaid in cash. On September 30, 2015 the Company issued 144,300 shares to Gold Street Capital Corp to pay $150,129 of the debt at the market price of $1.04 per share. Also, Doriana Gianfelici advanced $9,432 and $9,783 during the three and nine months September 30, 2015, respectively. The amount due to Doriana Gianfelici at September 30, 2015 is non-interest bearing and due on demand.

 

On January 1, 2015 the Company acquired land-based gaming assets from New Gioco for a purchase price of EUR 650,649 (approximately $787,158 USD) which included a forgiveness of EUR 210,507 (approximately $256,251 USD) debt due for the administrative services. Pursuant to the agreement with New Gioco, the Company made payments of EUR 80,000 (approximately $88,960 USD) and EUR 144,000 (approximately $160,560 USD) during the three and nine months ended September 30, 2015, respectively.

 

On February 13, 2015 the Company issued a Promissory Note for $150,000 to 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 which was extended by mutual consent. On September 30, 2015 the Company issued 166,400 shares at the market price of $1.04 per share to Braydon Capital Corp. to pay the debt, including principal and accrued interest of $173,016, in full.

 

6. 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 EUR 210,507 for administrative services which was recorded as due from affiliates and a reduction of the administrative expenses.

 

As a result of the acquisition on January 1, 2015 of the Bersani license and Corner rights, as well as 1 Agency right from New Gioco, the Company forgave EUR 210,507 (approximately $256,251 USD) due from New Gioco for the administrative services, net of credit of EUR 9,858 (approximately $11,000 USD), see Note 4.

 

7. Deposits on Acquisitions

 

Deposits on acquisitions includes the following:

 

   September 30,  December 31,
   2015  2014
Acquisition of Rifa Srl.  $—     $62,698 
Acquisition of Streamlogue Holdings Ltd.   750,929    655,976 
    750,929    718,674 
Less allowance for doubtful account   (750,929)   (655,976)
   $—     $62,698 

 

F-8


 
 

  

The Company made no advances during the three months ended September 30, 2015 towards the acquisition of Streamlogue and advanced $94,953 during the nine months ended September 30, 2015. During the year ended December 31, 2014 the Company advanced $655,976 to Streamlogue. The advances were credited to the purchase price for Streamlogue of EUR 950,000 (approximately $1,202,855 USD).

 

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 set up a 100% allowance on the advances made as of September 30, 2015.

 

8. Revenues

 

The following table sets forth the breakdown of gaming revenues for the three and nine months ended September 30, 2015:

   Nine Months  Three Months  Three and Nine
   Ended  Ended  Months Ended
   September 30,  September 30,  September 30,
   2015  2015  2014
Turnover         
Turnover web-based  $46,765,451   $16,476,300   $9,491,209 
Turnover land-based   3,364,792    1,056,523    —   
Total Turnover  50,130,243   17,532,823   9,491,209 
Winnings/Payouts               
Winnings web-based   43,490,311    15,374,398    8,709,516 
Winnings land-based   2,602,896    804,158    —   
Total Winnings/payouts   46,093,207    16,178,556    8,709,516 
Gross Gaming Revenues  4,037,036   1,354,267   781,693 
                
Less: AAMS Gaming Taxes   747,918    258,924    117,926 
Net Gaming Revenues  $3,289,118   $1,095,343   $663,797 

Turnover represents the total of bets processed for the period.

 

9. Other Equity Transactions

 

On September 15, 2015, the Company entered into a non-exclusive one year advisory agreement with Merriman Capital Inc. pursuant to which Merriman agreed to act as a capital markets advisor and placement agent to the Company. As consideration for these services, Merriman was paid a one-time retainer fee of 150,000 shares of the Company’s common stock. In addition to the retainer fee, Merriman will receive performance-based compensation for services related to (1) completion of financing, and (2) if the Company qualifies for and completes an up-listing to any of the national markets designated as the NYSE, NYSE/AMEX, or NASDAQ. This amount is being amortized over one year term of this agreement. The unamortized balance of $135,125 is included in prepaid expenses on the accompanied balance sheet.

 

On September 30, 2015, the Company issued 21,650 shares at the market price of $1.04 per share to pay $22,500 of accounts payable to CorCapital Inc. in full.

 

Please see Note 5 and Note 10 of this form 10-Q for additional common share transactions in the repayment of debt.

 

10. Debentures and Convertible Note

 

April 2, 2015 Debentures

 

On April 2, 2015, the Company issued debentures to a group of accredited investors to purchase 5 unsecured Debenture Units for gross proceeds of $25,000 and 5 Debenture Units for gross proceeds of CDN$25,000 (approximately $18,400 USD). Each Debenture Unit is comprised of (i) a $5,000 and CDN $5,000 debenture respectively, bearing interest at a rate of 15% per annum, maturing one (1) year from the date of issuance and (ii) 500 warrants which may be exercised at the lower of (a) $1.25 and CDN$1.25 respectively and (b) a 25% discount to the offering price of common shares of the Company in the next equity financing of the Company per warrant to receive one common share prior to April 2, 2017.

 

F-9


 
 

April 27, 2015 Debentures

 

On April 27, 2015, the Company issued debentures to a group of accredited investors to purchase 4 unsecured Debenture Units for gross proceeds of $20,000 and 4 unsecured Debenture Units for gross proceeds of CDN$20,000 (approximately $15,224 USD). Each Debenture Unit is comprised of (i) a $5,000 and CDN$5,000 debenture respectively, bearing interest at a rate of 15% per annum, maturing one (1) year from the date of issuance and ii) 500 warrants which may be exercised at the lower of (a) $1.25 and CDN$1.25 respectively and (b) a 25% discount to the offering price of common shares of the Company in the next equity financing of the Company per warrant to receive one common share prior to April 27, 2017.

 

June 18, 2015 Convertible Promissory Note

 

On June 18, 2015, the Company issued a convertible promissory note (the “Note”) bearing an interest rate of 10% per annum to purchase a gross amount of $330,000 which includes an Original Issue Discount (“OID”) of 10% to an accredited investor. On the Closing Date the Company received the initial cash purchase price of $115,000 which includes $10,000 OID and $5,000 for legal fees incurred by the Company as well as two Investor Notes of $100,000 each bearing interest of 8% per annum. The Note includes warrants equal to 50% of the total cash received by the Company which may be exercised at $1.00. However, in the event the market capitalization of the Company falls below $10,000,000, the warrant may be exercised at the lower of $1.00 and the market price as of any applicable date of conversion per warrant to receive one common share prior to June 18, 2018. The Company is not required to make payments against the Note and may pre-pay the Note for 180 days after issue.

 

July 9, 2015 Convertible Promissory Note

 

On July 9, 2015, the Company issued a convertible promissory note (the “Note”) bearing an interest of 10% per annum to purchase a gross amount of $220,000 which includes an Original Issue Discount (“OID”) of 10% to an accredited investor. The Note is convertible to shares of common stock of the Company at a price equal to the lower of $0.80 or 60% of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the date on which the Investor elects to convert all or part of the Note. On July 21, 2015, the Closing Date, the Company received an initial consideration of $55,000 which includes $5,000 OID. As of September 30, 2015, the Company has yet to issue the remaining authorized value of the Note. The Company is not required to make payments against the Note and may pre-pay the Note for 180 days after issue.

 

The Company paid commissions of $3,135 and $2,546, for the April 2 and April 27, 2015 debentures, respectively and $8,000 and $4,000 for the June 18 and July 9, 2015 Notes, respectively. The Company also paid commissions of 7,500 shares of common stock at a price of $0.80 per share or $6,000 and 4,000 shares of common stock at a price of $0.75 per share or $3,000 related to the June 18 and July 9, 2015 Notes, respectively. The commissions related to the debentures and the Notes were amortized over the life of the debentures and the Notes.

 

Warrants issued in relation to the April 2, 2015, April 27, 2015, and June 18, 2015 debentures and Note are discussed in Note 11 below.

 

11. Warrants

 

The Company has determined that the warrants issued in connection with the debentures on April 2, 2015 and April 27, 2015 should be treated as a liability since it has been determined not to be indexed to the Company's own stock.

 

Warrants issued on June 18, 2015 in connection with a convertible promissory note are entitled to a price adjustment provision that allows the exercise price of the warrants to be the lower of $1.00 or the market price of Company’s common stock. The Company determined that the Warrants meet the definition of a derivative under ASC Topic 815, Derivatives and Hedging “ASC Topic 815”. In determining whether the Warrants were eligible for a scope exception from ASC Topic 815, the Company considered the provisions of ASC Topic 815-40 (Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock). The Company determined that the Warrants do not meet a scope exception because they are not deemed indexed to the Company’s own stock. Pursuant to ASC Topic 815, derivatives should be measured at fair value as of the inception date and re-measured at fair value as of each subsequent balance sheet date with changes in fair value recorded in earnings at each reporting period.

 

F-10


 
 

The fair value of the warrants on the date of issuance as calculated using the

Black-Scholes model was:

 

Debenture  Fair Value
April 2, 2015  $4,291
April 27, 2015  $4,264
June 18, 2015  $45,964

 

 

The following assumptions were used to calculate the fair value:

 

      Common               
Warrant  Exercise  Stock        Dividend  Interest  Forfeiture
Date  Price  Price  Volatility  Term  Yield  Rate  Risk
   per/sh  per/sh               
April 2, 2015  $1.25   $0.90    392%  2 yrs   0%   0.91%   0%
                                  
April 27, 2015  $1.25   $1.10    392%  2 yrs   0%   0.91%   0%
                                  
June 18, 2015  $1.00   $0.80    392%  3 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 nine months ended September 30, 2015 is as follows:

 

      Weighted Average  Weighted
   Warrant  Exercise Price  Average
   Shares  Per Common Share  Life
          
Outstanding at January 1, 2015   22,000   $1.34    1.17 
Issued   66,200   $1.03    2.55 
Exercised   —      —      —   
Expired   —      —      —   
Outstanding at September 30, 2015   88,200   $1.11    2.21 
Exercisable at September 30, 2015   88,200   $1.11    2.21 

 

The following assumptions were used to calculate the fair value of warrants at September 30, 2015:

 

Exercises price $1 - $1.5
Common stock price per share $1.04
Volatility 270.31%
Weighted average life 2.21 years
Dividend yield 0%
Interest rate 0.91%
Forfeiture risk 0%

 

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 three and nine months ended September 30,2015.

 

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.

 

F-11


 
 

 

The reconciliation of income tax expense at the U.S. statutory rate of 35% to the Company’s effective tax rate is as follows:

 

   September 30,  September 30,
   2015  2014
U.S. statutory rate of 35%  $(395,224)  $(1,811,719)
Tax rate difference between U.S and Italy (27.5%)   30,487    (17,331)
Change in valuation allowance   396,229    1,834,657 
Permanent difference   31,910    —    
Effective tax rate  $63,402   $5,607 

 

 

The Company has accumulated a net operating loss carry forward ("NOL") of approximately $8.4 million as of September 30, 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 and nine months ended September 30, 2015 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 provisions for income taxes are summarized as follows:

 

   September 30,  September 30,
   2015  2014
Current - foreign  $63,402   $5,607 
Deferred   —      —   
Total  $63,402   $5,607 

 

13. Subsequent Events

 

The Company has evaluated subsequent events through the filing date of these financial statements on form 10-Q and has disclosed as follows:

 

On October 29, 2015, the Company obtained, through its wholly owned subsidiary Multigioco Srl., a bank loan of EUR 500,000 at an interest rate of 5% per annum with monthly payments of approximately EUR 9,426 for a term of 5 years from Banca Veneto ScPA. The loan is fully open for repayment without penalty and is guaranteed by certain shareholders of the Company.

 

F-12


 
 

 

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 and 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 from New Gioco to operate under Rifa's Monti license. Pursuant to the agreement Rifa assumed the lease on the premises and also acquired the equipment assets within the Agency. On June 1, 2015 the Company opened its second Agency location in Rome under Rifa.

 

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.

 

During the period covered by this report the Company purchased 4 additional Corner rights, therefore, Multigioco now owns a GAD (Gioco a Distanza) online license #15133 with approximately 900 web-based shops (Punti di Commercializzazione), a Bersani license #4070 with seven (7) Corner (Punto Sportivo) rights, as well as a Monti license #4583 with two (2) Agency (Negozio Sportivo) rights.

 

Our revenues are derived from our subsidiaries Multigioco and Rifa. The product offering includes a variety of online and offline lottery and casino gaming, as well as sports betting through locations situated throughout Italy.

 

COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014.

 

Overall Results of Operations

 

As a result of the acquisition of Multigioco, Rifa, and assets from New Gioco on August 15, 2014 and January 1, 2015 our business operations have changed. Accordingly, comparisons of our results of operations and cash flows with prior periods are generally not meaningful.

 

 

- 4 -


 
 

 

The Company has incurred substantial costs related to the acquisition of our new businesses and is subject to risks inherent in the establishment of a new business venture, including limited capital resources, possible delays in the decision and implementation of a new business plan. Our primary focus is on growing EBITDA through our new business venture, which we expect to continue to improve over the next 12 months. EBITDA is primarily driven by increasing revenues by capturing a larger market share by acquiring new clients and gaming locations.

 

Revenues

 

The Company generated revenues of $1,095,343 and $3,289,118 for the three and nine months ended September 30, 2015 respectively, compared to $663,767 in revenues for the three and nine months ended September 30, 2014. The revenues are comprised of Net Gaming Revenues derived from providing online and offline gaming products and services in Italy.

 

The increase in revenues in the three months ended September 30, 2015 over the same period ended September 30, 2014 is attributed to the acquisition the land-based operations of Rifa Srl on January 1, 2015. The Company also added 3 corners on July 29, 2015 and 1 corner on September 10, 2015 as well as the addition of approximately 50 new web-shop locations in September 2015. In addition, revenue for the period ended September 30, 2014 represented a partial period from August 15, 2014, the date of the acquisition of Multigioco’s operations.

 

The following table represents a detailed breakdown of revenue from our gaming operations for the three and nine months ended September 30, 2015:

 

   Nine Months  Three Months  Three and Nine
   Ended  Ended  Months Ended
   September 30,  September 30,  September 30,
   2015  2015  2014
Turnover         
Turnover web-based  $46,765,451   $16,476,300   $9,491,209 
Turnover land-based   3,364,792    1,056,523    —   
Total Turnover   50,130,243    17,532,823    9,491,209 
Winnings/Payouts               
Winnings web-based   43,490,311    15,374,398    8,709,516 
Winnings land-based   2,602,896    804,158    —   
Total Winnings/payouts   46,093,207    16,178,556    8,709,516 
Gross Gaming Revenues   4,037,036    1,354,267    781,693 
                
Less: AAMS Gaming Taxes   747,918    258,924    117,926 
Net Gaming Revenues  $3,289,118   $1,095,343   $663,767 

 

Turnover represents the total of bets processed for the period.

 

General and Administrative Expenses

 

The Company incurred general and administrative expenses of $643,424 and $1,806,662 for the three months and nine months ended September 30, 2015 respectively, compared to general and administrative expenses of $171,312 and $236,635 for the three and nine months ended September 30, 2014 respectively.

 

The Company's major general and administrative expenses for the nine months ended September 30, 2015 were salaries of $299,553, cash and non-cash professional fees of $530,928, and management fees of $90,000. Included in general and administrative expenses during the nine months ended September 30, 2015 were deposits towards the acquisition of Streamlogue of $94,953, which the Company set up a 100% allowance. While salaries of $95,333, cash and non-cash professional fees of $147,627, and management fees of $30,000 represented the Company’s major general and administrative expenses during the three months ended September 30, 2015.

 

- 5 -


 
 


 

Selling Costs

 

Selling costs represent the AAMS license fees, the fees we pay to our network service providers which are comprised of monthly service fees plus a variable percentage of gaming turnover based on the gaming product, and commissions for field agents and promoters which are calculated as a variable percentage of turnover based on the gaming product, all of which are essentially considered ongoing marketing costs.

 

During the three months ended September 30, 2015 customer winnings increased to 92.3% of turnover therefore skewing direct selling costs higher by 2.4% from 72% to 74.4% of revenue over the same period ended September 30, 2014. The company incurred selling expenses of $815,039 and $2,415,068 for the three and nine months September 30, 2015 respectively, compared to $477,488 in selling expenses for the three and nine months ended September 30, 2014, respectively. The year over year change in direct selling costs is also related to the partial period reported from August 15, 2014 the date of the acquisition of Multigioco to September 30, 2014.

 

Interest Expenses, net of interest income

 

The Company had incurred interest expenses, net of interest income of $49,782 and $82,255 recorded for the three and nine months ended September 30, 2015 respectively, compared to $10,944 in interest expense, net of interest income for the three and nine months ended September 30, 2014, respectively.

 

The increase in interest expense incurred is related to interest accrued on debentures issued in December 2014, April 2015, July 2015, the promissory note issued in February and convertible notes issued in June and July 2015.

 

The Company had recorded an imputed interest expense of $1,752 and $3,698 for the three and nine months ended September 30, 2015, respectively, compared to the imputed interest expense of $4,064 and $10,234 for the three and nine months ended September 30, 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 liabilities generated a loss of $15,614 and $15,694 for the three and nine months ended September 30, 2015, respectively, compared to a gain of $1,750 for the three and nine months ended September 30, 2014, respectively.

 

Net Loss

 

The company had a net loss of $467,125, or $0.02 per share (basic and diluted); and $1,192,613, or $0.05 (basic and diluted) for the three and nine months ended September 30, 2015 respectively, compared to a net loss of $3,898, or $0.00 per share (basic and diluted); and $75,391, or $0.00 per share (basic and diluted) for the three and nine months ended September 30, 2014 respectively.

 

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 adjustment expense of $124,408 and income of $62,985 during for the three and nine months ended September 30, 2015 respectively, compared to a foreign currency translation adjustments income of $9,793 during the three and nine months ended September 30, 2014, respectively.

 

- 6 -


 
 

 

 

Cash Flows from Operating Activities

 

The net cash used in operating activities for the nine months period ended September 30, 2015 was $227,249 compared to $13,856 for the same period ended September 30, 2014.

 

Cash Flows from Investing Activities

 

The net cash used in investing activities for the nine months period ended September 30, 2015 was $207,931 compared to $252,655 for the same period ended September 30, 2014.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities for the nine months period ended September 30, 2015 was $174,223 compared to $277,241 for the same period ended September 30, 2014.

 

Liquidity and Capital Resources

 

Assets

 

At September 30, 2015 we had a total of $3,980,650 in Assets compared to $4,132,570 in assets at December 31, 2014.

 

Liabilities

 

At September 30, 2015 we had $2,214,110 in current liabilities and $46,168 in long term liabilities, compared to current liabilities of $1,784,276 and long term liabilities of $52,912 at December 31, 2014. The increase in current liabilities was a result of liabilities associated with acquisition of gaming operations during 2015.

 

Working Capital

 

The Company had $143,196 in cash and cash equivalents at September 30, 2015, compared to $422,276 cash and cash equivalents at December 31, 2014. As of September 30, 2015 we have not generated revenues to cover our expenses, and we have total accumulated deficit of $8,464,795.

 

We had $2,214,110 in current liabilities and $1,095,149 in current assets, as such we are left with a working capital deficit of $1,118,961.

 

The Company cannot assure that we will be able to achieve a profitable level of operations sufficient to meet our ongoing cash needs.

 

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, convertible and promissory notes as well as through the issuance of our common stock. We are pursuing potential equity and/or debt investors and have 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.

 

The Company currently maintains an operating line of credit for a maximum amount of EUR 300,000 (approximately $337,680 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 was paid off in May, 2015.

 

Subsequent to the period covered by this report, the Company obtained a loan for EUR 500,000 (approximately $600,000 USD) at an interest rate of 5% per annum with monthly payments of approximately EUR 9,426 for a term of 5 years from Banca Veneto. The loan is fully open for repayment without penalty and is guaranteed by certain shareholders of the Company.

 

- 7 -


 
 

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 and/or the sale of our registered securities. Any additional equity financing may result in substantial dilution to our stockholders.

 

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 4, 5, 10, 11, and 13 of the Notes to the Consolidated Financial Statements for information related to debt obligations.

 

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 and New Gioco which we recorded as due from affiliates.

 

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:

 

    September 30,   December 31,
    2015   2014
         
Gold Street Capital Corp.   $ 57     $ 17,086  
Doriana Gianfelici     54,844       48,631  
Total advances from stockholders:   $ 54,901     $ 65,717  

 

During the nine months ended September 30, 2015, Gold Street Capital Corp. ("Gold Street"), the major stockholder of Empire Global, advanced $198,447 to the Company of which $65,404 has been repaid in cash. On September 30, 2015 the Company issued 144,300 shares to Gold Street Capital Corp to pay $150,129 of the debt at the market price of $1.04 per share. Also, Doriana Gianfelici advanced $9,432 and $9,783 during the three and nine months September 30, 2015, respectively. The amount due to Doriana Gianfelici at September 30, 2015 is non-interest bearing and due on demand.

 

In addition to the Advances from, and payments to, stockholders during the year ended December 31, 2014 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 land-based gaming assets from New Gioco for a purchase price of EUR 650,649 (approximately $787,158 USD) which included a forgiveness of EUR 210,507 (approximately $256,251 USD) debt due for the administrative services. Pursuant to the agreement with New Gioco, the Company made payments of EUR 80,000 (approximately $88,960 USD) and EUR 144,000 (approximately $160,560 USD) during the three and nine months ended September 30, 2015, respectively.

 

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 which was extended by mutual consent. On September 30, 2015 the Company issued 166,400 shares at the market price of $1.04 per share to Braydon Capital Corp. to pay the debt, including principal and accrued interest, of $173,016 in full.

 

Please see Note 4, Note 5, and Note 6 of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this form 10-Q for additional information regarding related party transactions, the purchase of gaming assets, and amounts due from Affiliates related to New Gioco.

 

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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.

 

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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 September 30, 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 September 30, 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.

 

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.

 

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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.

 

 

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.

 

Exhibit Number   Description
31   13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer
32   Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.
     

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 12, 2015 Empire Global Corp.
  By: /s/ Michele Ciavarella
 

Michele Ciavarella

Chairman of the Board, Chief Executive Office, and Chief Financial Officer

 

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