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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 06, 2016
Document And Entity Information    
Entity Registrant Name EMPIRE GLOBAL CORP.  
Entity Central Index Key 0001080319  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   24,336,473
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
Consolidted Balance Sheets - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Current Assets    
Cash and cash equivalents $ 178,188 $ 157,363
Gaming accounts receivable, $390,490 and $349,374 on March 31, 2016 and December 31, 2015 263,469 178,151
Prepaid expenses 295,008 310,407
Other current assets 35,380 36,725
Total Current Assets 772,045 682,646
Non-current Assets    
Restricted cash 240,501 232,013
Property, Plant, and Equipment 90,844 88,705
Intangible assets 2,259,154 2,376,540
Goodwill 260,318 260,318
Investment in non-consolidated entities 6,975 6,729
Total Non-current Assets 2,857,792 2,964,305
Total Assets 3,629,837 3,646,951
Current Liabilities    
Line of credit - bank 242,063 312,483
Accounts payable and accrued liabilities 454,868 571,501
Gaming accounts balances 274,026 274,942
Taxes payable 221,212 165,166
Advances from stockholders 55,662 191,675
Liability in connection with acquisition- due to Newgioco 219,378 327,536
Debentures, net of discount 137,612 107,589
Derivative liability 464,843 28,375
Promissory notes payable $ 392,573 294,368
Other current liabilities 1,450
Total Current Liabilities $ 2,462,237 2,275,085
Long term liabilities 69,923 67,532
Total Liabilities 2,532,160 2,342,617
Stockholders' Deficiency    
Common Stock, $0.0001 par value, 80,000,000 shares authorized; 24,336,473 and 24,126,088 issued and outstanding at March 31, 2016 and December 31, 2015 2,434 2,413
Additional paid-in capital 10,765,877 10,472,501
Accumulated other comprehensive income 107,050 124,265
Accumulated deficit (9,777,684) (9,294,845)
Total Stockholders' Equity 1,097,677 1,304,334
Total Liabilities and Stockholders' Equity $ 3,629,837 $ 3,646,951
Consolidted Balance Sheets (Parenthetical) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Debt Discount $ 390,490 $ 349,374
STOCKHOLDERS' EQUITY    
Capital stock - par value $ 0.0001 $ 0.0001
Capital stock - authorized 80,000,000 80,000,000
Capital stock - issued 24,336,473 24,126,088
Capital stock - outstanding 24,336,473 24,126,088
Consolidated Statements of Comprehensive Loss - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Revenue $ 1,747,186 $ 1,227,131
Costs and Expenses    
Selling expenses 1,228,220 896,971
General and administrative expenses 870,846 577,302
Total Costs and Expenses 2,099,066 1,474,273
Loss from Operations (351,880) (247,142)
Other Expenses (Income)    
Interest expense, net of interest income 98,544 5,821
Changes in fair value of derivative liabilities (4,428) 4,393
Imputed interest on related party advances $ 1,620 983
Allowance for deposit on acquisition 40,952
Total Other Expenses $ 95,736 52,149
Loss Before Income Taxes (447,616) $ (299,291)
Provision of Income Taxes (35,223)
Net Loss (482,839) $ (299,291)
Other Comprehensive Income (Loss)    
Foreign currency translation adjustment (17,215) (63,557)
Comprehensive Loss $ (500,054) $ (362,848)
Basic and fully diluted loss from operations $ (0.02) $ (0.02)
Weighted average number of common shares outstanding basic and diluted 24,336,473 21,225,427
Statements of Cash Flows - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash Flows from Operating Activities    
Net loss $ (482,839) $ (299,291)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 123,460 96,076
Amortization of deferred costs 18,982 2,589
Non-cash interest 64,023 2,194
Imputed interest on advances from stockholders 1,620 983
Changes in fair value of derivative liabilities $ (4,428) 4,393
Impairment of assets 40,952
Stock issued for services $ 118,575 $ 125,030
Bad debt 27,580
Changes in Operating Assets and Liabilities    
Prepaid expenses (108,333) $ 147,748
Accounts payable and accrued liabilities (126,461) 58,741
Gaming accounts receivable (104,281) (39,325)
Gaming accounts liabilities (10,682) (8,422)
Taxes payable 48,596 34,734
Other current assets 2,616 (90,759)
Other current liabilities (1,464) (13,840)
Net Cash Provided by (Used in) Operating Activities (433,036) 61,803
Cash Flows from Investing Activities    
Acquisition of property, plant, and equipment, and intangible assets $ (12,010) (1,704)
Cash acquired on acquisition 15,772
Cash paid for acquisition $ (116,939) (63,308)
Deposit on acquisition 55,781
Net Cash Provided by (Used in) Investing Activities $ (128,949) 6,541
Cash Flows from Financing Activities    
Proceeds (repayment) of bank credit line, net $ (79,672) 59,741
Repayment of bank loan $ (37,489)
Proceeds from convertible notes issued $ 600,000
Proceeds from promissory notes, net of repayment 90,750 $ (168,430)
Repayment of convertible notes and debentures (55,000)
Advances from stockholders, net of repayment 256  
Net Cash Provided by (Used in) Financing Activities 556,334 $ (146,178)
Effect of change in exchange rate 26,476 (172,519)
Net increase (decrease) in cash 20,825 (250,353)
Cash- beginning of the period 157,363 422,276
Cash- end of the period 178,188 171,923
Supplemental disclosure of cash flow information    
Cash paid during the year for: Interest $ 34,487 $ 396
Cash paid during the year for: Income Taxes
Supplemental cash flow disclosure for non-cash activities    
Common shares issued to related parties for repayment of debt $ 138,225
Basis of Presentation and Nature of Business
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Nature of Business

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 March 31, 2016 and the results of operations and cash flows for the three months ended March 31, 2016 and 2015. 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 months ended March 31, 2016 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2016. The balance sheet at December 31, 2015 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, 2015 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, the Company 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, including a variety of online and offline lottery and casino gaming, as well as sports betting through locations situated throughout Italy.

 

Going Concern
3 Months Ended
Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Going Concern

2. Going concern

 

The accompanying 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 a working capital deficit of $1,690,192 as of March 31, 2016, and reported 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.

 

Management plans to mitigate its losses in future years by significantly reducing its operating expenses, seeking out new business opportunities and attempting to raise debt or equity financing. However, there is no assurance that the Company will be able to obtain additional financing, reduce its operating expenses or be successful in maintaining a viable business.

 

Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

 

a) Basis of consolidation

 

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

 

Certain amounts of prior periods were reclassified to conform with current period presentation.

 

b) 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 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.

 

c) 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 not being amortized, but 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.

 

d) 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.

 

e) 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.

 

f) Derivative Financial Instruments

 

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

 

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

 

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. These potentially dilutive securities were not included in the calculation of loss per share for the three months ended March 31, 2016 and 2015, thus the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for all periods presented.

 

h) Currency translation

 

Since the Company's subsidiaries operates in Italy, the subsidiaries 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 period-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.

 

i) Revenue Recognition

 

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

 

j) Gaming accounts receivable & allowance for doubtful accounts

 

Gaming accounts receivable represents gaming deposits made by customers to their gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly in cash at the cashier of a betting shop but 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 an allowance  EUR 344,530 (approximately U.S. $390,490) and EUR 319,530 (approximately U.S. 349,374) for doubtful accounts was needed for the gaming accounts receivable balances as of March 31, 2016 and December 31, 2015, respectively. The Company does not require collateral to support customer receivables.

 

k) Gaming account balances

 

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

 

l) Fair Value Measurements

 

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

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active 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 carrying value of the Company's short term investments, prepaid expenses, accounts receivables, other current assets, accounts payable and accrued liabilities, gaming account balance, and advances from shareholder approximate fair value because of the short term maturity of these financial instruments.

 

The derivative liability in connection with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is the only financial liability measured at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance at December 31, 2015  $28,375 
Issued during the three months ended March 31, 2016   440,896 
Exercised during the three months ended March 31, 2016   —   
Change in fair value recognized in operations   (4,428)
Balance at March 31, 2016  $464,843 

 

m) 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.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

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

 

In Italy, tax years beginning 2010 forward are open and subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

 

n) Recent Accounting Pronouncements

 

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance provides that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance with the annual and the interim period beginning January 1, 2016, and applied the standard on a retrospective basis as of December 31, 2015. As of March 31, 2016, and December 31, 2015, we had $55,094 and $5,259, respectively, of unamortized debt issuance costs that were reclassified from prepaid expenses to a reduction in the carrying amount of the debentures and convertible notes payable. The adoption of this standard did not have a material impact on our financial position and did not impact our results of operations or cash flows.

 

There are no other recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

Intangible Assets
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

4) Intangible Assets

 

Intangible assets consist of the following:

 

   March 31, 2016  December 31, 2015  Life
          
Licenses  $960,652   $956,632    1.5 - 7 
Location contracts   1,000,000    1,000,000    5 - 7 
Customer relationships   786,931    786,931    15 
Trademarks/names   110,000    110,000    14 
Website   40,000    40,000    5 
    2,897,583    2,893,563      
Accumulated amortization   (638,429)   (517,023)     
Balance  $2,259,154   $2,376,540     

 

The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value. The amortization expense was $121,405 and $93,753 in the three months ended March 31, 2016 and 2015, respectively.

Line of Credit-Bank
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Line of Credit-Bank

5. Line of Credit – Bank

 

The Company currently maintains an operating line of credit for a maximum amount of EUR 450,000 (approximately U.S. $510,030) for Multigioco and EUR 50,000 (approximately U.S. $56,670) for Rifa from Banca Veneto in Italy. The line of credit is secured by restricted cash on deposit at Banca Veneto and 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.

Liability in connection with acquisition- due to Newgioco
3 Months Ended
Mar. 31, 2016
Payables and Accruals [Abstract]  
Liability in connection with acquisition- due to Newgioco

6. Liability in connection with acquisition – due to Newgioco

 

Liability in connection with acquisition represent non-interest bearing amount due by the Company’s subsidiaries toward the purchase price per purchase agreement between Newgioco and the Company’s subsidiaries. The Company’s shareholder and director, Beniamino Gianfelici, owns 50% shares of Newgioco. During the three months ended March 31, 2016, the company paid EUR 106,000 (approximately $120,000) to Newgioco.

Related party transactions and balances
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related party transactions and balances

7. Related party transactions and balances

 

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:

 

   March 31,
2016
  December 31,
2015
       
Gold Street Capital Corp.  $237   $138,228 
Doriana Gianfelici   55,425    53,447 
Total advances from stockholders  $55,662   $191,675 

 

During the three months ended March 31, 2016, Gold Street Capital Corp. ("Gold Street"), the major stockholder of the Company, advanced $233 net of repayment of $53,000. On March 31, 2016, the Company issued 145,500 shares to Gold Street to pay $138,225 of the debt at the market price of $0.95 per share.

 

Also, Doriana Gianfelici advanced EUR 150 (approximately U.S. $170) to the Company during the three months ended March 31, 2016.

 

The amounts due to Gold Street and Doriana Gianfelici at March 31, 2016 were non-interest bearing and due on demand.

 

On January 13, 2016, the Company issued a Promissory Note for $90,750 to Braydon Capital Corp, a company owned by Claudio Ciavarella, the brother of our CEO, that bears interest at a rate of 1% per month due in full on the maturity date of January 13, 2017. (See Note 10).

 

The Company currently maintains an operating line of credit for its subsidiaries secured by restricted cash on deposit at Banca Veneto and guaranteed by certain shareholders of the Company. See also Note 5 Line of Credit - Bank.

Stockholders Equity
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Stockholders Equity

8. Stockholders’ Equity

 

On March 8, 2016, the Company entered into a non-exclusive advisory agreement with Newbridge Securities Corp. (“Newbridge”). As consideration for these services, the Company agreed to pay Newbridge advisory fees of $15,000 and issue 50,000 restricted shares of common stock upon signing the agreement and 50,000 restricted shares of common stock upon the presentation of a Term Sheet. The Company paid $7,500 and issued 50,000 shares of common stock which were valued at the market price of $0.97 per share on March 8, 2016 and amortized over the service period of two months.

 

On March 14, 2016, the Company entered into a Mutual Release Agreement with Typenex Co-Investment, LLC to extinguish future “true-up” provisions contained within the Convertible Note dated June 18, 2015 and the Transfer Agent Reserve shares related to the Note. Pursuant to the agreement, the Company issued 14,885 shares of common stock to Typenex Co-Investment, LLC. Those shares were valued at market price on issuance date of $0.97 per share and recorded as an expense.

 

Please see Note 7 for additional common share transactions in repayment of debt.

Debentures and Convertible Notes
3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Debentures and Convertible Notes

9. Debentures and Convertible Notes

 

Debentures and convertible notes outstanding include the following:

 

   March 31,
2016
  December 31,
2015
       
April 2, 2015 Debentures, net of discount of $58 and $2,687  $43,876   $40,336 
April 27, 2015 Debentures, net of discount of $644 and $2,816   35,100    31,602 
July 9, 2015 Debentures net of discount of $0 and $14,090   —      40,910 
February 29, 2016 Convertible Note, net of discount of $486,269   113,730    —   
    192,706    112,848 
Less: unamortized debt issuance costs   (55,094)   (5,259)
   $137,612   $107,589 

 

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 U.S. $18,400). 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 year from the date of issuance and (ii) 500 warrants to receive one common share per warrant prior to April 2, 2017, 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. On April 2, 2016, the maturity date, the Company paid the amounts due in full of $28,770 and CDN $28,770 (approximately US $22,141)  including principle and accrued interest. See also Note 15 Subsequent Events.

 

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 U.S. $15,224). 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 year from the date of issuance and (ii) 500 warrants to receive one common share per warrant prior to April 27, 2017, 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.  On April 27, 2016, the maturity date, the Company paid the amounts due in full of $23,088 and CDN $23,088 (approximately U.S. $18,200) including principle and accrued interest. See also Note 15 Subsequent Events.

 

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 was 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 an OID of $5,000. This initial consideration is a debenture. The Note was pre-paid on January 14, 2016. The total amount of pre-payment was $90,750, including interest and penalties.

 

February 29, 2016 Convertible Promissory Note

 

On February 29, 2016, the Company closed a Securities Purchase Agreement with an unaffiliated private investor, to raise up to $750,000. The Company received gross proceeds from the initial private placement of $600,000, bearing an interest rate of 12% per annum and due on February 28, 2017. The Note is convertible to shares of common stock of the Company at the price of $0.85 per share with certain price adjustment clauses. The convertible promissory note was guaranteed by Confidi Union Impresa, an unrelated party. As part of purchase agreement, the Company also issued a warrant to purchase 130,435 shares of Company’s common stock at $1.15 per share which may be exercised by the warrant holder between August 28, 2016 and February 28, 2019.

 

The Company has determined that the conversion feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as a derivative liability, with a corresponding discount recorded to the associated debt, on the accompanying balance sheet, and revalued to fair market value at each reporting period. (See Note 12).

 

The Company paid commissions of $8,000, $4,000, and $60,000 for the June 18, July 9, 2015, and February 29, 2016 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 notes were amortized over the life of the notes.

 

Warrants issued in relation to the debentures and promissory notes are discussed in Note 11.

Promissory Notes Payable
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Promissory Notes Payable

10. Promissory Notes Payable

 

Promissory Notes include the following:

 

   March 31,
2016
  December 31,
2015
       
Braydon Capital Corp  $276,983   $186,233 
2336414 Ontario Inc.   115,590    108,135 
   $392,573   $294,368 

 

On December 9, 2014, the Company obtained a promissory note for CDN $500,000 (approximately U.S. $436,796) Paymobile Inc., a subsidiary of 2336414 Ontario Inc. (“2336414”) of which the Company owns 666,664 common shares, that bears interest at a rate of 1% per month on the outstanding balance to be paid in installments as follows:

 

- CDN $200,000 on December 31, 2014

- CDN $150,000 on January 31, 2015

- CDN $150,000 on February 28, 2015

 

As of the date of this filing, the final payment of CDN $150,000 plus accrued interest remains due. The Company and 2336414 have agreed in writing to extend the due date until June 30, 2016 unless further extended by mutual consent.  Interest expense of $4,475 and $6,984 were recorded for the three months ended March 31, 2016 and 2015, respectively.

 

On January 13, 2016, the Company issued a Promissory Note for $90,750 to Braydon Capital Corp, a company owned by Claudio Ciavarella, the brother of our CEO that bears interest at a rate of 1% per month due in full on the maturity date of January 13, 2017. Interest expense of $7,869 was recorded for the three months ended March 31, 2016.

Warrants
3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Warrants

11. Warrants

 

On February 29, 2016, as per a Securities Purchase Agreement, the Company issued a warrant to purchase 130,435 shares of the Company’s common stock at $1.15 per share which may be exercised by the warrant holder between August 28, 2016 and February 28, 2019 (See Note 9). The fair value of the warrants of $106,583 was calculated using the Black-Scholes model on the date of issuance and was recorded as a debt discount, which has been amortized as interest expense over the life of the debt.

 

The following assumptions were used to calculate the fair value of warrants at February 29, 2016:

 

Exercise price  $1.15 
Common stock price per share  $0.90 
Volatility   200.38%
Life   3.0 
Dividend yield   0%
Interest rate   0.91%
Forfeiture risk   0%

 

A summary of warrant transactions during the three months ended March 31, 2016 is as follows:

 

   Warrant
Shares
  Weighted Average
Exercise Price
Per Common Share
  Weighted
Average
Life
          
Outstanding at December 31, 2015   30,700   $1.32    1.02 
Issued   130,435   $1.15    3.00 
Exercised   —      —      —   
Expired   —      —      —   
Outstanding March 31, 2016   161,135   $1.18    2.51 

 

Derivative Liability and Fair Value
3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Derivative Liability and Fair Value

12. Derivative Liability and Fair Value

 

The Company has evaluated the application of ASC 815 Derivatives and Hedging and ASC 815-40-25 to the warrants to purchase common stock issued with the convertible notes and debentures. Based on the guidance in ASC 815 and ASC 815-40-25, the Company concluded these instruments were required to be accounted for as derivatives due to the down round protection feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.

 

The Company accounted for the issuance of the convertible promissory note on February 29, 2016 in accordance with ASC 815” Derivatives and Hedging.” The note is convertible into an indeterminate number of shares for which the Company cannot determine if it has sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period.

 

The gross proceeds from the sale of the debentures are recorded net of $440,896 related to the conversion feature of the embedded conversion option and $90,506 allocated to the warrants issued.

 

The following assumptions were used to calculate the fair value of derivative liabilities at March 31, 2016:

 

Exercise price   $1.00-$1.50 
Common stock price per share  $0.95 
Volatility   194.79%
Weighted average life   2.51 
Dividend yield   0%
Interest rate   0.91%
Forfeiture risk   0%

 

Revenues
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Revenues

13. Revenues

 

The following table sets forth the breakdown of gaming revenues for the three months ended March 31, 2016 and 2015:

 

   Three Months Ended
March 31,
2016
  Three Months Ended
March 31,
2015
       
Turnover      
Turnover web-based  $26,463,158   $16,754,945 
Turnover land-based   1,472,198    634,810 
Total Turnover   27,935,356    17,389,755 
           
Winnings/Payouts          
Winnings web-based   24,618,293    15,452,519 
Winnings land-based   1,147,386    474,699 
Total Winnings/payouts   25,765,679    15,927,218 
           
Gross Gaming Revenues   2,169,677    1,462,537 
           
Less: ADM Gaming Taxes   454,460    235,406 
Net Gaming Revenues   1,715,217    1,227,131 
Add: Commission Revenues   31,969    —   
Total Revenues  $1,747,186   $1,227,131 

 

Turnover represents the total bets processed for the period.

 

Income Taxes
3 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

14. 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, 2016 and March 31, 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 4.85%) 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 tax rate is as follows:

 

   March 31,
2016
  March 31,
2015
       
U.S. Statutory rate  $(124,831)  $(96,871)
Tax rate difference between Italy and U.S.   22,457    (5,613)
Change in Valuation Allowance   127,222    102,484 
Permanent difference   10,375    —   
Effective tax rate  $35,223   $—   

 

The Company has accumulated a net operating loss carry forward ("NOL") of approximately $9.3 million as of March 31, 2016. 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, 2016 because it has been fully offset by a valuation allowance.

 

Utilization of NOLs is 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 consist of currently payable Italian income tax.

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax asset are as follows:

 

   March 31,
2016
  March 31,
2015
       
Net loss carryforward - US  $3,276,183   $2,641,407 
Less valuation allowance   (3,276,183)   (2,641,407)
Deferred tax assets   —      —   
Subsequent events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent events

15. Subsequent Events

 

a.On April 2, 2016, the maturity date, the Company paid the amounts due in full under the April 2, 2015 debentures for $28,770 and CDN $28,770 (approximately U.S. $22,141), including principle and interest accrued.

 

b.On April 27, 2016, the maturity date, the Company paid the amounts due in full under the April 27, 2015 debentures for $23,088 and CDN $23,088 (approximately U.S. $18,200), including principle and interest accrued.

 

c.On April 1 and April 4, 2016, the Company received the second tranche of proceeds of $150,000 less legal expenses of $15,000 due under the Convertible Promissory Note issued February 29, 2016. The Company paid commissions of $15,000 and issued warrants to the placement agent, to purchase 75,000 shares of the Company, which may be exercised at $1.15 per share prior to April 4, 2019.
Basis of Presentation and Nature of Business (Policies)
3 Months Ended
Mar. 31, 2016
Basis Of Presentation And Nature Of Business Policies  
Basis of Presentation

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 March 31, 2016 and the results of operations and cash flows for the three months ended March 31, 2016 and 2015. 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 months ended March 31, 2016 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2016. The balance sheet at December 31, 2015 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, 2015 as included in our Annual Report on form 10-K.

 

Nature of Business

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, the Company 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, including a variety of online and offline lottery and casino gaming, as well as sports betting through locations situated throughout Italy.

 

Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Basis of consolidation

a) Basis of consolidation

 

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

 

Certain amounts of prior periods were reclassified to conform with current period presentation.

Use of estimates

b) 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 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.

 

Goodwill

c) 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 not being amortized, but 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.

Business Combinations

d) 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.

Long-Lived Assets

e) 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.

 

Derivative Financial Instruments

f) Derivative Financial Instruments

 

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

 

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

Earnings Per Share

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. These potentially dilutive securities were not included in the calculation of loss per share for the three months ended March 31, 2016 and 2015, thus the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for all periods presented.

 

Currency translation

h) Currency translation

 

Since the Company's subsidiaries operates in Italy, the subsidiaries 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 period-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 operatio

Revenue Recognition

i) Revenue Recognition

 

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

 

Gaming accounts receivable & allowance for doubtful accounts

j) Gaming accounts receivable & allowance for doubtful accounts

 

Gaming accounts receivable represents gaming deposits made by customers to their gaming accounts either directly by credit card, bank wire, e-wallet or other accepted method through one of our websites or indirectly in cash at the cashier of a betting shop but 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 an allowance  EUR 344,530 (approximately U.S. $390,490) and EUR 319,530 (approximately U.S. 349,374) for doubtful accounts was needed for the gaming accounts receivable balances as of March 31, 2016 and December 31, 2015, respectively. The Company does not require collateral to support customer receivables.

Gaming balances

k) Gaming account balances

 

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

 

Fair Value Measurements

l) Fair Value Measurements

 

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

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active 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 carrying value of the Company's short term investments, prepaid expenses, accounts receivables, other current assets, accounts payable and accrued liabilities, gaming account balance, and advances from shareholder approximate fair value because of the short term maturity of these financial instruments.

 

The derivative liability in connection with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is the only financial liability measured at fair value on a recurring basis.

 

The change in the Level 3 financial instrument is as follows:

 

Balance at December 31, 2015  $28,375 
Issued during the three months ended March 31, 2016   440,896 
Exercised during the three months ended March 31, 2016   —   
Change in fair value recognized in operations   (4,428)
Balance at March 31, 2016  $464,843 

 

Income Taxes

m) 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.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

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

 

In Italy, tax years beginning 2010 forward are open and subject to examination. The Company is not currently under examination and it has not been notified of a pending examination.

Recent Accounting Pronouncements

n) Recent Accounting Pronouncements

 

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance provides that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance with the annual and the interim period beginning January 1, 2016, and applied the standard on a retrospective basis as of December 31, 2015. As of March 31, 2016, and December 31, 2015, we had $55,094 and $5,259, respectively, of unamortized debt issuance costs that were reclassified from prepaid expenses to a reduction in the carrying amount of the debentures and convertible notes payable. The adoption of this standard did not have a material impact on our financial position and did not impact our results of operations or cash flows.

 

There are no other recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Level 3 Fair Value Measurements

 

Balance at December 31, 2015  $28,375 
Issued during the three months ended March 31, 2016   440,896 
Exercised during the three months ended March 31, 2016   —   
Change in fair value recognized in operations   (4,428)
Balance at March 31, 2016  $464,843 

Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles
   March 31, 2016  December 31, 2015  Life
          
Licenses  $960,652   $956,632    1.5 - 7 
Location contracts   1,000,000    1,000,000    5 - 7 
Customer relationships   786,931    786,931    15 
Trademarks/names   110,000    110,000    14 
Website   40,000    40,000    5 
    2,897,583    2,893,563      
Accumulated amortization   (638,429)   (517,023)     
Balance  $2,259,154   $2,376,540     
Related party transactions and balances (Tables)
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related party transactions and balances
   March 31,
2016
  December 31,
2015
       
Gold Street Capital Corp.  $237   $138,228 
Doriana Gianfelici   55,425    53,447 
Total advances from stockholders  $55,662   $191,675 
Debentures and Convertible Notes (Tables)
3 Months Ended
Mar. 31, 2016
Debentures And Convertible Notes Tables  
Debentures outstanding
   March 31,
2016
  December 31,
2015
       
April 2, 2015 Debentures, net of discount of $58 and $2,687  $43,876   $40,336 
April 27, 2015 Debentures, net of discount of $644 and $2,816   35,100    31,602 
July 9, 2015 Debentures net of discount of $0 and $14,090   —      40,910 
February 29, 2016 Convertible Note, net of discount of $486,269   113,730    —   
    192,706    112,848 
Less: unamortized debt issuance costs   (55,094)   (5,259)
   $137,612   $107,589 
Promissory Notes Payable (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Convertible Promissory Note
   March 31,
2016
  December 31,
2015
       
Braydon Capital Corp  $276,983   $186,233 
2336414 Ontario Inc.   115,590    108,135 
   $392,573   $294,368 
Warrants (Tables)
3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Black-scholes modle
Exercise price  $1.15 
Common stock price per share  $0.90 
Volatility   200.38%
Life   3.0 
Dividend yield   0%
Interest rate   0.91%
Forfeiture risk   0%
Warrants
   Warrant
Shares
  Weighted Average
Exercise Price
Per Common Share
  Weighted
Average
Life
          
Outstanding at December 31, 2015   30,700   $1.32    1.02 
Issued   130,435   $1.15    3.00 
Exercised   —      —      —   
Expired   —      —      —   
Outstanding March 31, 2016   161,135   $1.18    2.51 
Revenues (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Revenue
   Three Months Ended
March 31,
2016
  Three Months Ended
March 31,
2015
       
Turnover      
Turnover web-based  $26,463,158   $16,754,945 
Turnover land-based   1,472,198    634,810 
Total Turnover   27,935,356    17,389,755 
           
Winnings/Payouts          
Winnings web-based   24,618,293    15,452,519 
Winnings land-based   1,147,386    474,699 
Total Winnings/payouts   25,765,679    15,927,218 
           
Gross Gaming Revenues   2,169,677    1,462,537 
           
Less: ADM Gaming Taxes   454,460    235,406 
Net Gaming Revenues   1,715,217    1,227,131 
Add: Commission Revenues   31,969    —   
Total Revenues  $1,747,186   $1,227,131 
Income Taxes (Tables)
3 Months Ended
Mar. 31, 2016
Income Taxes Tables  
Reconciliation of income tax expense
   March 31,
2016
  March 31,
2015
       
U.S. Statutory rate  $(124,831)  $(96,871)
Tax rate difference between Italy and U.S.   22,457    (5,613)
Change in Valuation Allowance   127,222    102,484 
Permanent difference   10,375    —   
Effective tax rate  $35,223   $—   
Deferred tax assets
   March 31,
2016
  March 31,
2015
       
Net loss carryforward - US  $3,276,183   $2,641,407 
Less valuation allowance   (3,276,183)   (2,641,407)
Deferred tax assets   —      —   
Derivative Liability and Fair Value (Tables)
3 Months Ended
Mar. 31, 2016
Notes to Financial Statements  
Derivative Liabilities
Exercise price   $1.00-$1.50 
Common stock price per share  $0.95 
Volatility   194.79%
Weighted average life   2.51 
Dividend yield   0%
Interest rate   0.91%
Forfeiture risk   0%
Going Concern (Details)
Mar. 31, 2015
USD ($)
Going Concern Details  
Working capital deficit $ 1,690,192
Summary of Significant Accounting Policies (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Accounting Policies [Abstract]    
Allowance for doubtful accounts $ 390,490 $ 349,374
Summary of Significant Accounting Policies (Details 1)
3 Months Ended
Mar. 31, 2016
USD ($)
Change in the Level 3 financial instrument [Rollforward]  
Beginnng Balance $ 28,375
Issued during the year $ 440,896
Exercised during the year
Change in fair value recognized in operations $ (4,428)
Ending Balance $ 464,843
Intangible Assets - Intangibles (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Intangible assets, gross $ 2,897,583 $ 2,893,563
Accumulated amortization (638,429) (517,023)
Intangible assets 2,259,154 2,376,540
Licenses [Member]    
Intangible assets, gross 960,652 956,632
Location contracts [Member]    
Intangible assets, gross 1,000,000 1,000,000
Customer relationships [Member]    
Intangible assets, gross 786,931 786,931
Trademarks/names [Member]    
Intangible assets, gross 110,000 110,000
Website [Member]    
Intangible assets, gross $ 40,000 $ 40,000
Intangible Assets - Useful life (Details)
3 Months Ended
Mar. 31, 2016
Licenses [Member] | Minimum [Member]  
Useful Life 1 year 6 months
Licenses [Member] | Maximum [Member]  
Useful Life 7 years
Location contracts [Member] | Minimum [Member]  
Useful Life 5 years
Location contracts [Member] | Maximum [Member]  
Useful Life 7 years
Customer relationships [Member]  
Useful Life 15 years
Trademarks/names [Member]  
Useful Life 14 years
Website [Member]  
Useful Life 5 years
Intangible Assets (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2015
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization Expense $ 121,405 $ 93,753
Line of Credit-Bank (Details Narrative)
Mar. 31, 2016
USD ($)
Multgioco [Member]  
Line of credit $ 510,030
Interest rate 5.00%
Rifa [Member]  
Line of credit $ 56,670
Liability in connection with acquisition – due to Newgioco (Details)
3 Months Ended
Mar. 31, 2015
USD ($)
Accrued Liabilities, Current [Abstract]  
Cash paid to Newgioco $ 120,000
Related party transactions and balances - Related party (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Related Party Transaction [Line Items]    
Balance of advances from stockholders $ 55,662 $ 191,675
Gold Street Capital Corp. [Member]    
Related Party Transaction [Line Items]    
Balance of advances from stockholders 237 138,228
Doriana Gianfelici [Member]    
Related Party Transaction [Line Items]    
Balance of advances from stockholders $ 55,425 $ 53,447
Related party transactions and balances (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Related Party Transaction [Line Items]    
Advance from related party $ 256  
Related Party [Member]    
Related Party Transaction [Line Items]    
Interest rate   5.00%
Gold Street Capital Corp. [Member]    
Related Party Transaction [Line Items]    
Advance from related party 233  
Debt repaid $ 53,000  
Shares issued for debt, shares 145,500  
Share price $ 0.95  
Shares issued for debt, amount $ 138,225  
Braydon Capital Corp. [Member]    
Related Party Transaction [Line Items]    
Promissory note 90,750  
Doriana Gianfelici [Member]    
Related Party Transaction [Line Items]    
Advance from related party $ 170  
Stockholders Equity (Details Narrative)
3 Months Ended
Mar. 31, 2016
USD ($)
$ / shares
shares
Newbridge [Member]  
Shares commitment for advisory fees, shares 50,000
Advisory fees commitment | $ $ 15,000
Shares issue for advisory fees, shares 50,000
Advisory fees paid | $ $ 7,500
Share price | $ / shares $ 0.97
Newbridge Addtional [Member]  
Shares commitment for advisory fees, shares 50,000
Typenex [Member]  
Shares issued for debt, shares 14,885
Share price | $ / shares $ 0.97
Debentures and Convertible Notes (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Debenture $ 192,706 $ 112,848
Less: unamortized debt issuance costs (55,094) (5,259)
Debenture, net of discount 137,612 107,589
April 2, 2015 [Member]    
Debenture 43,876 40,336
Debt discount 58 2,687
April 27, 2015 [Member]    
Debenture 35,100 31,602
Debt discount $ 644 2,816
July 9, 2015 [Member]    
Debenture 40,910
Less: unamortized debt issuance costs $ 5,000  
Debt discount 0 $ 14,090
February 29, 2016 [Member]    
Debenture 113,730  
Debt discount $ 486,269  
Debentures and Convertible Notes (Details Narrative) - USD ($)
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Original Issue Discount $ (55,094) $ (5,259)
April 2, 2015 [Member]    
Proceeds from debentures/convertible notes $ 25,000  
Number of debentures 5 debentures issued  
Debenture purchased $ 5,000  
Interest rate 15.00%  
Warrants 500  
Warrant price $ 1.25  
Discount

a 25% discount to the offering price of common shares

 
Payment on debentures $ 28,770  
April 2, 2015 [Member] | CDN    
Proceeds from debentures/convertible notes 18,400  
Debenture purchased $ 5,000  
Warrant price $ 1.25  
Payment on debentures $ 22,141  
April 27, 2015 [Member]    
Proceeds from debentures/convertible notes $ 20,000  
Number of debentures 4 debentures issued  
Debenture purchased $ 5,000  
Interest rate 15.00%  
Warrants 500  
Warrant price $ 1.25  
Discount

a 25% discount to the offering price of common shares

 
Payment on debentures $ 23,088  
April 27, 2015 [Member] | CDN    
Proceeds from debentures/convertible notes 15,224  
Debenture purchased $ 5,000  
Warrant price $ 1.25  
Payment on debentures $ 18,200  
June 18, 2015 [Member]    
Commissions 8,000  
Commissions payments $ 6,000  
Commissions, share issued 7,500  
Price per share $ 0.80  
July 9, 2015 [Member]    
Issue Value $ 220,000  
Proceeds from debentures/convertible notes $ 55,000  
Original Issue Discount Percentage 10.00%  
Original Issue Discount $ 5,000  
Commissions 4,000  
Commissions payments $ 3,000  
Commissions, share issued 4,000  
Price per share $ 0.75  
Payment on debentures $ 90,750  
February 29, 2016 [Member]    
Private Placement 750,000  
Proceeds from private placement $ 600,000  
Warrant per debenture 130,435  
Interest rate 12.00%  
Warrant price $ 1.15  
Commissions $ 60,000  
Debentures and Convertible Notes(Details Narrative) (Parenthetical)
3 Months Ended
Mar. 31, 2016
July 9, 2015 [Member]  
Terms

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.

Promissory Notes Payable - Convertible Promissory Note (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Promissory note payable $ 392,573 $ 294,368
Braydon Capital Corp. [Member]    
Promissory note payable 276,983 186,233
2336414 Ontario Inc. [Member]    
Promissory note payable $ 115,590 $ 108,135
Promissory Notes Payable (Details Narrative)
1 Months Ended 3 Months Ended 12 Months Ended
Jan. 13, 2016
USD ($)
Feb. 28, 2015
CAD
Jan. 31, 2015
CAD
Mar. 31, 2016
USD ($)
shares
Dec. 31, 2015
USD ($)
Dec. 31, 2014
CAD
Dec. 09, 2014
USD ($)
Debt Instrument [Line Items]              
Promissory note payable       $ 392,573 $ 294,368    
Braydon Capital Corp. [Member]              
Debt Instrument [Line Items]              
Promissory Note $ 90,750            
Promissory note payable       276,983 186,233    
Interest rate 1.00%            
Interest Expense $ 7,869            
2336414 Ontario Inc.              
Debt Instrument [Line Items]              
Promissory note payable       $ 150,000   CAD 500,000 $ 436,796
Common shares owned | shares       666,664      
Payments on Promissory Note | CAD           CAD 200,000  
Interest Expense       $ 4,475      
2336414 Ontario Inc. [Member]              
Debt Instrument [Line Items]              
Payments on Promissory Note | CAD   CAD 150,000 CAD 150,000        
Interest Expense         $ 6,984    
Fair Value Debenture (Details)
Mar. 31, 2016
USD ($)
February 29, 2016 Warrant [Member]  
Debt Conversion [Line Items]  
Fair value of debenture $ 106,583
Warrants - Assumptions (Details)
3 Months Ended
Mar. 31, 2016
$ / shares
Minimum [Member]  
Exercise price $ 1.00
Maximum [Member]  
Exercise price $ 1.50
Warrant [Member]  
Volatility 200.38%
Weighted average life 3 years 3 days
Dividend yield 0.00%
Interest rate 0.91%
Risk of forfeiture 0.00%
Warrant [Member] | Minimum [Member]  
Exercise price $ 1.15
Common stock price per warrant $ 0.90
Warrants (Details) - Warrant [Member]
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Warrant Shares [Rollforward]  
Outstanding at beginning of period 30,700
Issued during the period 130,435
Excercised during the period
Outstanding and exercisable at end of period 161,135
Weighted Average Exercise Price Per Common Share  
Outstanding atbeginning of period | $ / shares $ 1.32
Issued during the period | $ / shares $ 1.15
Exercised during the period | $ / shares
Outstanding and exercisable at end of period | $ / shares $ 1.18
Weighted Average Life per Warrant  
Outstanding at beginning of period 1 year 2 days
Issued 3 years
Outstanding and exercisable at end of period 2 years 6 months
Derivative Liability and Fair Value - Derivative Liabilities (Details)
3 Months Ended
Mar. 31, 2016
$ / shares
Minimum [Member]  
Exercise price $ 1.00
Maximum [Member]  
Exercise price 1.50
Derivative Liability [Member]  
Common stock price per share $ 0.95
Volatility 194.79%
Weighted average life 2 years 5 months 1 day
Dividend yield 0.00%
Interest rate 0.91%
Risk of forfeiture 0.00%
Derivative Liability and Fair Value (Details Narrative)
3 Months Ended
Mar. 31, 2016
USD ($)
Proceeds from the sale of the debentures-conversion feature of the embedded conversion option $ 440,896
Proceeds from the sale of the debentures-Warrant $ 90,506
Revenues (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Gaming Revenues    
Total Turnover $ 27,935,356 $ 17,389,755
Less: Winnings/payouts 25,765,679 15,927,218
Gross Gaming Revenues 2,169,677 1,462,537
Less: ADM Gaming Taxes 454,460 235,406
Net Gaming Revenues 1,715,217 1,227,131
Add: Commission Revenues 31,969 0
Revenue 1,747,186 1,227,131
Web-based [Member]    
Gaming Revenues