UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-54007
Seaniemac International, Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4292198 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 780 New York Avenue, Suite A, Huntington, New York | 11743 | |
| (Address of principal executive offices) | (Zip Code) |
(386) 409-0200
(Registrant’s telephone number, including area code)
N/A
(Former Name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant 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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 16, 2016, there were 2,533,452,820 shares of common stock, $0.001 par value, outstanding.
INDEX
| 2 |
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 14, 2016 and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
| 3 |
Seaniemac International, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30, 2016 | December 31, 2015 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 9,385 | $ | 959 | ||||
| Prepaid expenses and other current assets | 104,261 | 1,000 | ||||||
| Total Current Assets | 113,646 | 1,959 | ||||||
| Equipment, net | 2,018 | 696 | ||||||
| Goodwill | 996,894 | - | ||||||
| Intangible assets | 595,741 | - | ||||||
| Total Assets | $ | 1,708,299 | $ | 2,655 | ||||
| LIABILITIES AND DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Convertible promissory notes, net - related party, net | $ | 197,957 | $ | - | ||||
| Convertible promissory notes, net | 1,105,571 | 566,624 | ||||||
| Notes payable | 1,872,548 | 30,000 | ||||||
| Accounts payable and accrued expenses | 2,853,461 | 1,701,474 | ||||||
| Stock payable | 71 | - | ||||||
| Due to related parties | 398,281 | 474,798 | ||||||
| Due to non related parties | 127,762 | 199,025 | ||||||
| Loans payable -related parties | 1,107,993 | 995,494 | ||||||
| Accrued officer’s compensation | - | 120,000 | ||||||
| Debt derivative liabilities | 3,424,839 | 2,310,067 | ||||||
| Warrant derivative liabilities | 875,871 | 1,616,758 | ||||||
| Total Current Liabilities | 11,964,354 | 8,014,240 | ||||||
| Commitments and Contingencies | ||||||||
| Deficit | ||||||||
| Convertible Preferred stock, $0.001 par value: 10,000,000 shares authorized, | ||||||||
| Series A:2,500,000 shares authorized, 2,293,750 shares issued and outstanding | 2,294 | 2,294 | ||||||
| Series B:1,500,000 shares authorized, 1,250,000 shares issued and outstanding | 1,250 | 1,250 | ||||||
| Series C:2,000,000 shares authorized, 1,828,569 shares issued and outstanding | 1,829 | 1,829 | ||||||
| Series D:100,000 shares authorized, 100,000 shares issued and outstanding | 100 | 100 | ||||||
| Common stock, $0.001 par value; 4,000,000,000 shares authorized, 1,963,227,058 and 673,842,729 shares issued and outstanding, as of September 30, 2016 and December 31, 2015, respectively | 1,963,227 | 673,842 | ||||||
| Common stock issuable, $0.001 par value; 129,000,000 and 15,000,000 shares as of September 30, 2016 and December 31, 2015, respectively | 129,000 | 15,000 | ||||||
| Additional paid-in capital | 422,887 | 476,198 | ||||||
| Subscription receivable | (131 | ) | (131 | ) | ||||
| Accumulated other comprehensive income | 221,537 | 225,629 | ||||||
| Accumulated deficit | (12,307,348 | ) | (8,738,551 | ) | ||||
| Total Seaniemac International, Ltd. Stockholders’ Deficit | (9,565,355 | ) | (7,342,540 | ) | ||||
| Non-controlling interest | (690,700 | ) | (669,045 | ) | ||||
| Total Deficit | $ | (10,256,055 | ) | $ | (8,011,585 | ) | ||
| Total Liabilities and Deficit | $ | 1,708,299 | $ | 2,655 | ||||
| F-1 |
Seaniemac International, Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Gross gaming revenue | $ | 7,480 | $ | 10,621 | $ | 153,444 | $ | 163,650 | ||||||||
| Promotional allowances | 24,300 | 11,438 | 213,168 | 120,159 | ||||||||||||
| Net gaming Income (loss) | (16,820 | ) | (817 | ) | (59,724 | ) | 43,491 | |||||||||
| Operating Expenses | ||||||||||||||||
| Selling, general and administrative expenses | 541,737 | 131,449 | 1,419,784 | 548,106 | ||||||||||||
| Depreciation and amortization expense | 67,461 | - | 184,883 | - | ||||||||||||
| Total Operating Expenses | 609,198 | 131,449 | 1,604,667 | 548,106 | ||||||||||||
| Operating Loss | (626,018 | ) | (132,266 | ) | (1,664,391 | ) | (504,615 | ) | ||||||||
| Other Income / (Expense) | ||||||||||||||||
| Change in fair value of embedded derivative liability | (438,158 | ) | (549,568 | ) | 827,309 | (380,159 | ) | |||||||||
| Loss on debt modification | - | - | (134,614 | ) | (371,824 | ) | ||||||||||
| Loss on debt modification -related party | (444,339 | ) | - | (444,339 | ) | - | ||||||||||
| Interest expense (including amortization of loan costs, debt discount and penalty) | (1,347,693 | ) | (61,685 | ) | (2,174,417 | ) | (346,962 | ) | ||||||||
| Realized foreign exchange loss | - | (1,856 | ) | - | (2,000 | ) | ||||||||||
| Total Other Income / (Expense) | (2,230,190 | ) | (613,109 | ) | (1,926,061 | ) | (1,100,945 | ) | ||||||||
| Net Income (Loss) | $ | (2,856,208 | ) | $ | (745,375 | ) | $ | (3,590,452 | ) | $ | (1,605,560 | ) | ||||
| Income /(Loss) Attributable to Non-controlling Interest | $ | (1,953 | ) | $ | (31,744 | ) | $ | (21,655 | ) | $ | (85,952 | ) | ||||
| Net Income (Loss) Attributable to Common Shareholders | $ | (2,854,255 | ) | $ | (713,631 | ) | $ | (3,568,797 | ) | $ | (1,519,608 | ) | ||||
| Net Income /(Loss) Per Share - Basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Net Income /(Loss) Per Share - Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average number of shares outstanding during the period ended Basic | 1,628,112,178 | 673,842,729 | 1,148,066,775 | 547,032,100 | ||||||||||||
| Weighted average number of shares outstanding during the period ended Diluted | 1,628,112,178 | 673,842,729 | 1,148,066,775 | 547,032,100 | ||||||||||||
| F-2 |
Seaniemac International, Ltd. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Consolidated net Income (loss) | $ | (2,856,208 | ) | $ | (745,375 | ) | $ | (3,590,452 | ) | $ | (1,605,560 | ) | ||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Foreign currency translation income | 32,295 | (3,321 | ) | (4,092 | ) | 96,295 | ||||||||||
| Comprehensive loss | (2,823,913 | ) | (748,696 | ) | (3,594,544 | ) | (1,509,265 | ) | ||||||||
| Comprehensive Income/(loss) attributable to non-controlling interest | (1,953 | ) | 31,744 | (21,655 | ) | 85,952 | ||||||||||
| Comprehensive loss attributable to common shareholders | $ | (2,821,960 | ) | $ | (780,440 | ) | $ | (3,572,889 | ) | $ | (1,595,217 | ) | ||||
| F-3 |
Seaniemac International, Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss, including of non-controlling interest | $ | (3,590,452 | ) | $ | (1,605,560 | ) | ||
| Adjustments to reconcile net income/(loss) to net cash used in operations | ||||||||
| Depreciation and amortization | 184,882 | 576 | ||||||
| Share based payment | 93,600 | 43,500 | ||||||
| Non-cash interest | 979,134 | - | ||||||
| Change in fair value of debt derivative liability | - | 45,225 | ||||||
| Change in fair value of warrant derivative liability | (827,309 | ) | 334,934 | |||||
| Amortization of debt discount and OID attributable to convertible debt | 478,882 | 248,405 | ||||||
| Amortization of deferred loan costs | - | 13,368 | ||||||
| Imputed interest | 133,165 | 22,524 | ||||||
| Loss on debt modification | 134,614 | 371,824 | ||||||
| Loss on debt modification - related party | 444,339 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 117,900 | 68,670 | ||||||
| Due to related parties | (198,286 | ) | - | |||||
| Due to non-related parties | (71,263 | ) | - | |||||
| Accounts payable and accrued expenses | 1,398,012 | 279,274 | ||||||
| Accrued officer’s compensation | - | 22,500 | ||||||
| Total adjustments | 2,867,670 | 1,450,800 | ||||||
| Net Cash Used In Operating Activities | (722,782 | ) | (154,760 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Initial payment made for acquisition | (80,000 | ) | - | |||||
| Net Cash Used In Investing Activities | (80,000 | ) | - | |||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of convertible notes | 716,984 | - | ||||||
| Less: OID | (71,698 | ) | - | |||||
| Proceeds from loans - related parties | 140,014 | 58,404 | ||||||
| Proceeds from the loan | 30,000 | - | ||||||
| Net Cash Provided by Financing Activities | 815,300 | 58,404 | ||||||
| Effect of foreign exchange fluctuations on cash | (4,092 | ) | 96,295 | |||||
| Net Decrease in Cash | 8,426 | (61 | ) | |||||
| Cash at Beginning of Period | 959 | 446 | ||||||
| Cash at End of Period | $ | 9,385 | $ | 385 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Shares issued in conversion of convertible debt, including related party and accrued interest | $ | 345,431 | $ | 445,497 | ||||
| Derivative liability reclass to equity - on conversion of note | $ | 777,878 | $ | 513,143 | ||||
| Accounts payable reclassed into demand note | $ | 71,802 | $ | - | ||||
| Accounts payable reclassed into convertible loan | $ | - | $ | 35,814 | ||||
| Accounts payable reclassed into convertible loan - related party | $ | 197,958 | ||||||
| Short term demand notes payable reclassed into convertible loan | $ | - | $ | 36,530 | ||||
| Loans payable, reclassed into convertible loan - related party | $ | - | $ | 81,200 | ||||
| Loans payable, reclassed into convertible loan | $ | 85,000 | $ | - | ||||
| Accrued interest reclassed into convertible loan | $ | 4,000 | $ | - | ||||
| Debt discount and initial derivative liability at the issuance date of the notes | $ | 1,400,119 | $ | - | ||||
| Accounts payable balance paid directly by convertible promissory notes | $ | 27,500 | $ | - | ||||
| Convertible loan related party reclassified into convertibles notes | $ | - | $ | 176,200 | ||||
| Warrant derivative liability at inception | $ | - | $ | - | ||||
| Apollo Acquisition transaction | $ | 2,000,000 | $ | - | ||||
| Common stock to be issued now issued | $ | 15,000 | $ | - | ||||
| F-4 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2016
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Seaniemac International, Ltd. and Subsidiaries (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information sand footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on April 14. 2016.
The Company’s Board of Directors approved a change of its name to Seaniemac International, Ltd. effective August 16, 2013 in connection with its current business focus in the operation and expansion of its on-line gaming website Seaniemac.com. The name change was effected through the Company’s acquisition of a 70% interest in Seaniemac Limited in which the Company was the surviving entity as discussed below. In accordance with the Nevada Revised Statutes, the Company changed its name effective August 16, 2013. This action was approved by the company’s Board of Directors on June 16, 2013 and no consent of Company’s stockholders was required under Nevada law.
Seaniemac Holdings Ltd. (“Holdings”) was incorporated in England and Wales on December 2, 2015. On February 10, 2016, SeanieMac International, Ltd. (the “Company”) and SeanieMac Holdings Ltd., a wholly owned subsidiary of the Company incorporated in England and Wales (“Holdings”), entered into an agreement (the “Agreement”) with Apollo Betting and Gaming Ltd (“Apollo”), pursuant to which Holdings purchased Apollo’s online gambling and betting business carried on by Apollo in the United Kingdom, via a purchase of Apollo’s assets related to that business. The purchase has an effective date of February 1, 2016.
On July 14, 2016, the Company entered into an agreement with Optima Information Services, S.L (“OIS”). OIS is the proprietor and/or license of software and is a supplier of software and information technology services. The Company was granted world-wide, non –exclusive, non-transferrable license to use the software in the betting and gaming business. The costs of platform setup and customization of platform is a onetime fee is $271,703 (GBP 195,000) and full support and maintenance monthly fee is $30,514 (GBP 21,900) per month. As of September 30, 2016 the Company paid $62,701 (GBP 45,000) in platform set up cost and the balance to be pay in 12 installments of $17,417 (GBP 12,500). The Company expensed full $271,703 as a direct costs during the nine months ended September 30, 2016.
On July 14, 2016, the Company entered into an agreement with SportsBetting and Gaming Services Malta, LTD (“SGS”). Under the agreement the Company will be using the technology which is licensed to SGS for sports betting and gaming. The agreement will remain in effect for twelve months, however, the agreement can be terminated due to non-payment. There is no upfront costs under the agreement. The SGS will pay the Company a commission comprised of a share of 100% of Net Gaming Revenue less 3% commission with a cap of (EU 6,000) and a minimum of (EU 1,800). Net Gaming Revenue is all revenues received by the business on sports betting and gaming after deducting:
| ● | Sums paid out to players as winnings | |
| ● | Betting and gaming ta and duties | |
| ● | Transaction charges to banks and payment processors | |
| ● | Cost of bonuses, promotions and commissions paid to players as a promotion or marketing activity | |
| ● | Commission paid to a third party in order to use any software, technology or other products s online or mobile |
| F-5 |
If negative revenue for the months is a negative figure that amount will be carried over to the future months. Any negative amount is required to be satisfies within days 10 and get gaming revenue minimum fee will EU 1,800 under the term of this contact. As of September 30, 2016, no revenue generation started from this arrangement.
2. Acquisition
On February 10, 2016, the Company, through its wholly owned subsidiary Seaniemac Holdings Ltd. (“Holdings”), entered into an agreement (the “Agreement”) with Apollo Betting and Gaming Ltd (“Apollo”), pursuant to which Holdings purchased Apollo’s online gambling and betting business carried on by Apollo in the United Kingdom, via a purchase of Apollo’s assets related to that business.
In exchange for the assets, the Company agreed to pay Apollo a total of $2,000,000, as follows: (i) $80,000 was paid at the closing; (ii) $10,000 to be paid to Apollo within 2 business days of the date on which Apollo delivers to Holdings audited accounts of Apollo for the year ended March 31, 2014; (iii) $10,000 to be paid to Apollo within 2 business days of the date on which Apollo delivers to Holdings audited accounts of Apollo for the year ended 31 March 2015; and (iv) $1,900,000 to be paid to Apollo upon the migration of the acquired business onto a new operating platform which is capable of delivering the online betting services provided by Apollo in substantially the same way as provided by Apollo as of the closing, and the successful use of the new platform in connection with a bet placed by any person who is included on Apollo’s database of customers as of the closing, with the amounts payable being paid from the combined net profits of Holdings and SeanieMac Ltd., which is also a wholly owned subsidiary of the Company.
In connection with the acquisition of the Apollo assets, a shareholder of the Company advanced $80,000 to the Company which represented the initial payment to the Apollo owners under the Agreement. The advance is informal and has no repayment terms.
The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values is as follows:
| Assets | ||||
| Fixed Assets | $ | 1,779 | ||
| Intangible assets- Domain | 1,300 | |||
| Employee contracts | 52,200 | |||
| Intangible assets-Customer relationships | 845,172 | |||
| Goodwill | 1,099,549 | |||
| Liabilities | ||||
| Accounts Payable | - | |||
| Accrued Expenses | - | |||
| $ | 2,000,000 |
The Customer relationships and the employee contracts provisions will be amortized over their estimated useful lives of 3 years. During the three and nine months ended September 30, 2016, the Company charged to operations amortization expense of $184,575 and $117,422, respectively.
The purchase price allocated to the acquisition of the Apollo Transaction is made up as follows:
| Amount | ||||
| Cash payment made on agreement execution | $ | 80,000 | ||
| Cash payment to be made on Apollo Audit completion | 20,000 | |||
| Cash payment to be made on Closing date | 1,900,000 | |||
| Total | $ | 2,000,000 | ||
Unaudited supplemental pro forma financial information
The following unaudited supplemental pro forma financial information represents the consolidated results of operations of the Group as if the Acquisition had occurred as of the beginning of January 1, 2015. The unaudited supplemental pro forma financial information is not necessarily indicative of what the Group’s consolidated results of operations actually would have been had it completed the Acquisition at the beginning of the period. In addition, the unaudited supplemental pro forma financial information does not attempt to project the Group’s future results of operations after the Acquisition.
| F-6 |
Seaniemac International, Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Gross gaming revenue | $ | 7,480 | $ | 163,784 | $ | 180,836 | $ | 264,741 | ||||||||
| Promotional allowances | 24,300 | 141,344 | 267,066 | 409,575 | ||||||||||||
| Net gaming Income (loss) | (16,820 | ) | 22,440 | (86,230 | ) | (144,834 | ) | |||||||||
| Operating Expenses | ||||||||||||||||
| Selling, general and administrative expenses | 541,737 | 190,363 | 1,452,166 | 715,148 | ||||||||||||
| Depreciation and amortization expense | 67,461 | 560 | 185,401 | 1,660 | ||||||||||||
| Total Operating Expenses | 609,198 | 190,923 | 1,637,567 | 716,808 | ||||||||||||
| Operating Loss | (626,018 | ) | (168,483 | ) | (1,723,797 | ) | (861,642 | ) | ||||||||
| Other Income / (Expense) | ||||||||||||||||
| Change in fair value of embedded derivative liability | (438,158 | ) | (549,568 | ) | 827,309 | (380,159 | ) | |||||||||
| Loss on debt modification | - | - | (134,614 | ) | (371,824 | ) | ||||||||||
| Loss on debt modification -related party | (444,339 | ) | - | (444,339 | ) | - | ||||||||||
| Interest expense (including amortization of loan costs, debt discount and penalty) | (1,347,693 | ) | (61,685 | ) | (2,174,417 | ) | (346,962 | ) | ||||||||
| Realized foreign exchange loss | - | (1,858 | ) | - | (2,401 | ) | ||||||||||
| Total Other Income / (Expense) | (2,230,190 | ) | (613,111 | ) | (1,926,061 | ) | (1,101,346 | ) | ||||||||
| Net Income (Loss) | $ | (2,856,208 | ) | $ | (781,594 | ) | $ | (3,649,858 | ) | $ | (1,962,988 | ) | ||||
| Income /(Loss) Attributable to Non-controlling Interest | $ | (1,953 | ) | $ | (31,744 | ) | $ | (21,655 | ) | $ | (85,952 | ) | ||||
| Net Income (Loss) Attributable to Common Shareholders | $ | (2,854,255 | ) | $ | (749,850 | ) | $ | (3,628,203 | ) | $ | (1,877,036 | ) | ||||
| Net Income /(Loss) Per Share - Basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Net Income /(Loss) Per Share - Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Weighted average number of shares outstanding during the period ended Basic | 1,628,112,178 | 673,842,729 | 1,148,066,775 | 547,032,100 | ||||||||||||
| Weighted average number of shares outstanding during the period ended Diluted | 1,628,112,178 | 673,842,729 | 1,148,066,775 | 547,032,100 | ||||||||||||
(Unaudited)
| F-7 |
On June 7, 2012, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with RDRD II Holding LLC, a Delaware limited liability company (“RDRD”). The Exchange Agreement was amended on October 29, 2012. The Exchange Agreement contemplated the acquisition of RDRD’s 70% equity ownership interest (the “Seaniemac Equity Interest”) in Seaniemac Limited (“Seaniemac”), an Ireland corporation. Seaniemac is in the business of operating a sports gaming website. The Exchange Agreement further contemplated that, in exchange for the Seaniemac Equity Interest, the Company would issue to RDRD an amount of shares of its common stock (the “RDRD Exchange Shares”) which, following such issuance, would equal approximately 71% of the Company’s then outstanding shares of Common Stock (on a fully diluted basis), after taking into account the 10 million post-split shares the Company was ordered by a court in Florida to issue to certain of its creditors in exchange for $500,000 of debt owed to such creditors (the “RDRD Percentage”).
On October 30, 2012, the acquisition was consummated (the “Closing”). In addition, immediately following the Closing, the Company issued 10,000,000 post-split shares of its common stock in accordance with a court order, in exchange for the cancellation of $500,000 of our debt (“Debt Exchange Shares”). As a result of the acquisition and the issuance of our Debt Exchange Shares, RDRD holds approximately 71% of the Company’s common stock.
Prior to the acquisition, the Company was a shell company with no business operations. As a result of the acquisition, the Company is no longer considered a shell company. Its business and operations are now those of Seaniemac. Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to Seaniemac International, Ltd., a Nevada corporation and its 70% owned subsidiary Seaniemac Limited, an Ireland corporation.
Seaniemac, is an Irish company that was incorporated on December 11, 2011. Its corporate charter authorizes 100,000 shares of one class of stock. Seaniemac has issued 100 of those shares, 70 of which we acquired from RDRD in the acquisition. Seaniemac began generating revenue from the second quarter of 2013 from its on-line gaming website that operates in the Irish market.
3. Liquidity and Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception. At September 30, 2016, the Company had working capital deficiencies and accumulated deficit of $11,850,708 and $12,307,348, respectively.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. The Company launched its on-line gaming website that targets the Irish market which began to generate revenues during the quarter ended June 30, 2013. The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The outcome of this uncertainty cannot be assured.
Management intends to finance operating costs over the next 12 months with existing cash on hand, loans from stockholders and directors, and a possible private placement of our securities. No stockholder, director, or possible private placement participant has agreed to loan us any funds nor agreed to purchase any of our securities. The Company is currently in negotiations with a potential investor to purchase shares of our common stock. Although we can give no assurance that the transaction will close, the parties are working toward finalizing an agreement in the fiscal year ending December 31, 2016. If the transaction is consummated, we expect to use the proceeds from the sale of common stock to the investor to partially fund our operating costs. The Company continues to explore various financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate additional revenue. However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.
| F-8 |
The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries including Call Compliance, Inc., Telephone Blocking Services Corporation, Call Compliance.com, Inc., Jasmine Communications, Inc., Call Center Tools, Inc., Execuserve Corp. which are inactive, its 70% owned subsidiary, Seaniemac and Seaniemac Holdings Ltd. All inter-company balances and transactions have been eliminated in consolidation.
The Company formed a subsidiary in Isle of Man called Pledge Limited in October 2012 that was intended to operate as a billing entity to utilize favorable tax treatment in the Isle of Man. The Company abandoned this plan and no transactions were transpired through this entity which remains dormant. There were no assets, liabilities or any transactions for Pledge Limited during its existence.
B. Foreign Currency
The assets and liabilities of Seaniemac, whose functional currency is the Euro, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
The assets and liabilities of Seaniemac Holding, Ltd, whose functional currency is the Sterling, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
C. Equipment Depreciation and Amortization
Equipment is stated at cost less accumulated depreciation. These assets are depreciated on a straight lines basis over their estimated useful lives, generally five years.
D. Identifiable Intangible Assets
ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on goodwill and intangible assets.
| F-9 |
| Useful Life | September 30, 2016 | December 31, 2015 | ||||||||
| Goodwill | Indefinite | 996,894 | - | |||||||
| Customer Lists and Intangible Assets | 3 Years | 767,445 | - | |||||||
| Accumulated amortization | (171,703 | ) | - | |||||||
| Net carrying value | $ | 1,592,636 | $ | - | ||||||
The company recorded above goodwill and intangible assets related to the acquisition of Apollo Betting and Gaming, LTD. It has been determined that the goodwill has an indefinite useful life and are not subject to amortization. However, the goodwill will be reviewed for impairment annually or more frequently if impairment indicators arise. For the nine months September 30, 2016 no impairment loss has been recorded.
E. Revenue Recognition
The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
We had revenues of $7,480 and $10,621 for the three months ended September 30, 2016 and 2015; respectively. Promotional allowances and direct costs of $24,300 and $11,438 for the three months ended September 30, 2016 and 2015; respectively.
We had revenues of $153,444 and $163,650 for the nine months ended September 30, 2016 and 2015; respectively. Promotional allowances and direct costs of $213,168 and $120,159 for the nine months ended September 30, 2016 and 2015; respectively.
The Company recognized Gross gaming revenue is the gross gaming yield which is the difference between gaming wins and losses and includes promotional betting (“Free Bets”). Free Bets are included in promotional allowances and are deducted from gross gaming revenue to arrive at the net gaming revenue. All other costs are included in selling, general and administrative expenses.
Significant Customers
During the three months ended September 30, 2016, the Company had two customers which accounted for more than 10% of the Company’s revenues (29% and 10%).
During the three months ended September 30, 2015 the Company had no customer which accounted for more than 10% of the Company’s revenues.
During the nine months ended September 30, 2016, the Company had two customers which accounted for more than 10% of the Company’s revenues (15% and 11%).
During the nine months ended September 30, 2015 the Company had no customers which accounted for more than 10% of the Company’s revenues).
Significant Vendors
During the three months ending September 30, 2016, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (77% and 22%).
During the nine months ending September 30, 2016, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (44% and 29%).
During the three months ending September 30, 2015, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (31%).
| F-10 |
During the nine months ending September 30, 2015, the Company had one vendor which accounted for more than 10% of the Company’s cost of revenue (14%).
F. Advertising
All advertising costs are expensed as incurred. Advertising costs incurred for the production of a commercial are considered prepaid expenses until the commercial airs, at which time such costs are expensed.
G. Stock Based Compensation Arrangements
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
From time to time, our shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of its assets and expenses.
H. Derivative Financial Instruments
We evaluate our financial instruments 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 in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have 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. Any change in fair value during the period recorded in earnings as “Other income (expense) - gain (loss) on change in derivative liabilities.”
Debt Derivative Liability:
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Debt derivative liability – September 30, 2016 | $ | 3,424,839 | $ | — | $ | — | $ | 3,424,839 | ||||||||
| Debt derivative liability – December 31, 2015 | $ | 2,310,067 | $ | — | $ | — | $ | 2,310,067 | ||||||||
| F-11 |
The following table represents the Company’s derivative liability activity for the nine months ended September 30, 2016:
| Balance December 31, 2015 | $ | 2,310,067 | ||
| Initial measurement at issuance date of the notes | 1,400,119 | |||
| Loss on debt modification | 134,614 | |||
| Loss on debt modification- related party | 444,339 | |||
| Reclassification of derivative liability associated with convertible debt | (777,878 | ) | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (86,422 | ) | ||
| Balance September 30, 2016 | $ | 3,424,839 |
Warrant derivative liability:
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Warrant derivative liability – September 30, 2016 | $ | 875,871 | $ | — | $ | — | $ | 875,871 | ||||||||
| Warrant derivative liability – December 31, 2015 | $ | 1,616,758 | $ | — | $ | — | $ | 1,616,758 | ||||||||
The following table represents the Company’s warrant derivative liability activity for the nine months ended September 30, 2016
| Balance December 31, 2015 | $ | 1,616,758 | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (740,887 | ) | ||
| Balance September 30, 2016 | $ | 875,871 |
I. Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. The Company currently has no cash equivalents which would consist of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased.
J. Allowance for Doubtful Accounts
The Company reserves for receivables that may not be collected. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. During the nine months ended September 30, 2016 and 2015, the Company did not record any accounts receivable and no associated allowance was recorded.
K. Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with U.S. 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
| F-12 |
L. Earnings (loss) per common share
The Company utilizes the guidance per FASB Codification “ASC 260” “Earnings per Share”. Basic earnings (loss) per share are calculated by dividing income (loss) available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified-treasury stock method).
The computation of basic and diluted loss per share for the nine months ended September 30, 2016 and 2015 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| September 30, 2016 | September 30, 2015 | |||||||
| Stock Warrants (Exercise price - $0.000175-0.0042/share) | 2,307,692,571 | 1,488,822,973 | ||||||
| Convertible Debt (Exercise price - $0.000105 - $0.00030share) | 11,651,270,250 | 1,090,438,356 | ||||||
| Preferred Series – A (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 229,375,000 | 229,375,000 | ||||||
| Preferred Series – B (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 125,000,000 | 125,000,000 | ||||||
| Preferred Series – C (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 182,856,900 | 182,856,900 | ||||||
| Preferred Series – D (Exercise price – 1 Preferred shares is convertible into 1000 Common Stock | 100,000,000 | 100,000,000 | ||||||
| Total | 14,596,194,722 | 3,116,493,229 | ||||||
The Company’s obligations to issue shares upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred stock (the “Convertible Instruments”) at current market prices for its common stock exceeds the 12,559,421,780 authorized but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While it is uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such shares fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized shares of common stock or effectuate a recapitalization, or a combination of both, in order to make available additional shares of its Common Stock for the Potentially Issuable Shares. Such action would require shareholder approval. Until such time as the Company has a sufficient number of shares of its Common Stock for available for issuance to cover the Potentially Issuable Shares, the Company could be subject to penalties and damages to the holders of the Convertible Instruments in the event it does not deliver the Potentially Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore, the lack of available shares of common stock may be deemed a default under one or more of the Convertible Instruments.
Material Equity Instruments
The Company evaluates stock options, stock warrants and other contracts (convertible promissory note payable) to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity (“ASC 815”). The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative financial instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
| F-13 |
Certain of the Company’s embedded conversion features on debt, convertible preferred stock and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the convertible notes or warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.
As of September 30, 2016, the Company has already recorded a charge for the derivative liability resulting from the debt and warrants of $4,300,710. Accordingly, the insufficient of authorized capital had no additional impact on the Company’s financial statements.
M. Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2016 and December 31, 2015. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes (net of discount) –September 30, 2016 | $ | 1,105,571 | $ | - | $ | - | $ | 1,105,571 | ||||||||
| Convertible notes (net of discount) - | ||||||||||||||||
| September 30, 2016 – related party | $ | 197,957 | $ | - | $ | – | $ | 197,957 | ||||||||
| Convertible notes (net of discount) – December 31, 2015 | $ | 566,624 | $ | - | $ | - | $ | 566,624 | ||||||||
| Intangible Assets – September 30, 2016 | $ | 595,741 | $ | - | $ | 595,741 | $ | - | ||||||||
The following table provides a summary of the changes in fair value of the Company’s Convertible Promissory Notes, which are both Level 3 liabilities as of September 30, 2016:
| Balance at December 31, 2015 | $ | 566,624 | ||
| Issuance of notes | 716,984 | |||
| Unamortized debt discount | (716,984 | ) | ||
| Principal adjustment – per note assignment and penalty | 296,000 | |||
| Accounts payable and short term demand notes payable reclassified into convertible notes | 85,000 | |||
| Amortized debt discount | 478,882 | |||
| Conversion of notes | (320,935 | ) | ||
| Balance at September 30, 2016 | $ | 1,105,571 |
| F-14 |
The following table provides a summary of the changes in fair value of the Company’s Convertible Promissory Notes – related parties, which are both Level 3 liabilities as of September 30, 2016:
| Balance at December 31, 2015 | $ | - | ||
| Accounts payable and short term demand notes payable reclassified into convertible notes | 197,957 | |||
| Balance at September 30, 2016 | $ | 197,957 |
The Company determined the value of its convertible notes using a market interest rate and the value of the warrants and beneficial conversion feature issued at the time of the transaction less the accretion. There is no active market for the debt and the value was based on the delayed payment terms in addition to other facts and circumstances at the nine months ended September 30, 2016 and year ended December 31, 2015.
N. Deferred Financing Costs
Costs incurred with obtaining and executing debt arrangements are capitalized and amortized over the term of the related debt.
O. Reclassifications
Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.
P. Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 740 “Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted the provisions of FASB ASC 740. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC 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. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At September 30, 2016 and December 31, 2015, the Company had no material uncertain recognized tax positions.
The Company’s policy for recording interest and penalties is to record such items as a component of income before income taxes. Penalties are recorded in other expense and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations. There were no amounts accrued for penalties or interest as of September 30, 2016 and December 31, 2015. The Company does not expect its unrecognized tax benefit position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
| F-15 |
Q. Recently Issued Accounting Pronouncements
ASU. 2016-16
In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted.
ASU.2016-15
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Consolidated Financial Statements.
ASU.2016-13
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Statements,” which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-13 on its Consolidated Financial Statements.
ASU.2016-08
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.
ASU.2016-09
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.
| F-16 |
ASU.2016-10
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.
ASU.2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.
ASU 2016-01
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
ASU 2015-17
In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets.
| F-17 |
ASU 2015-16
In September 2015, the FASB issued ASU 2015-16, simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard is not expected to have a material impact on the Company’s consolidated financial statements.
ASU 2015-15
In August 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-15, “Interest - Imputation of Interest (Subtopic 835-30).” ASU 2015-15 provides guidance as to the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. We do not expect the adoption of ASU 2015-15 to have a material effect on our financial position, results of operations or cash flows.
ASU 2015-14
In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606).” The amendments in this ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09.
ASU 2015-11
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11 to have a material effect on our financial position, results of operations or cash flows.
ASU 2015-05
In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40).” ASU 2015-05 provides guidance regarding the accounting for a customer’s fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies’ annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2015-05 to have a material effect on our financial position, results of operations or cash flows.
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015 The Company does not expect the adoption of ASU 2015-07 to have a material effect on its consolidated financial statements.
| F-18 |
In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. This amendment is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.
ASU 2014-15
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.
| F-19 |
ASU 2014-12
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
ASU 2014-09
In May 2014, the FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.
The Company has evaluated recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC and we have not identified any that would have a material impact on the Company’s financial position, or statements.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Prepaid consulting services | $ | 103,261 | $ | - | ||||
| Deposits | 1,000 | 1,000 | ||||||
| Total | $ | 104,261 | $ | 1,000 | ||||
| F-20 |
On January 10, 2016, the Company entered into a one-year Consulting and Representation Agreement with 626 Vanderbilt, LLC in exchange for 60,000,000 shares of the Company common stock. The shares were valued at $54,000 based upon the closing price of the Company’s stock on January 10, 2016 of $0.0009 per share. The total amount of $15,090 was included in prepaid consulting services and is being amortized over the one-year term. Amortization of $38,910 and $0 was recorded for the nine months ended September 30, 2016 and 2015.
On February 10, 2016, the Company, through its wholly owned subsidiary Seaniemac Holdings Ltd. (“Holdings”), entered into an agreement (the “Agreement”) with Apollo Betting and Gaming Ltd (“Apollo”), pursuant to which Holdings purchased Apollo’s online gambling and betting business carried on by Apollo in the United Kingdom, via a purchase of Apollo’s assets related to that business. Part of the assets acquired includes employment contracts with a fair value of $47,327 and recorded as prepaid consulting services for the nine months ended September 30, 2016 (See Note 2).
On April 27, 2016, the Company entered into a one-year rent agreement with IB Halton for $20,888. The total amount of $11,795 was included in prepaid consulting services and is being amortized over the one-year term. Amortization of $3,482 and $0 was recorded for the nine months ended September 30, 2016 and 2015.
On July 29 2016, the Company entered into a one year Consulting and Representation Agreement with Corporate Adds, LLC in exchange for 25,000,000 shares of the Company common stock and $37,500 cash payment. The shares were valued at $20,000 based upon the closing price of the Company’s stock on July 29, 2016 of $0.0008 per share. The total amount of $29,048 was included in prepaid consulting services and is being amortized over the one-year term. Amortization of $3,452 and $0 was recorded for the nine months ended September 30, 2016 and 2015.
6. Equipment and Intangible, Net
Equipment consists of the following:
| Estimated Useful Life | September 30, 2016 | December 31, 2015 | ||||||||
| (Unaudited) | ||||||||||
| Computer equipment | 5 years | $ | 2,088 | $ | 2,588 | |||||
| Fixtures and fitting (acquired- see note 2) | 1,666 | - | ||||||||
| Accumulated depreciation | (1,736 | ) | (1,893 | ) | ||||||
| Equipment, net | $ | 2,018 | $ | 696 | ||||||
Intangible consists of the following:
| Useful Life | September 30, 2016 | December 31, 2015 | ||||||||
| Goodwill (acquired- see note 2) | Indefinite | 996,894 | - | |||||||
| Customer Lists (acquired- see note 2) | 3 Years | 767,445 | - | |||||||
| Accumulated amortization | (171,703 | ) | - | |||||||
| Net carrying value | $ | 1,592,636 | $ | - | ||||||
Depreciation and amortization expense was $67,460 and $152 for three months ended September 30, 2016 and 2015, respectively.
Depreciation and amortization expense was $184,882 and $576 for nine months ended September 30, 2016 and 2015, respectively.
| F-21 |
7. Deferred Loan Costs, Net
Deferred loan costs, net consists of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Deferred loan costs | $ | - | $ | 14,282 | ||||
| Accumulated amortization | - | (14,282 | ) | |||||
| Deferred loan costs, net | $ | - | $ | - | ||||
The Company incurred deferred loan costs of $21,000 in connection with a Secured Convertible Promissory Note issued to Iliad Research and Trading, L.P. (“Iliad”) on December 2, 2013. These deferred loan costs are being amortized over the twenty-three month term of the note. The Company recorded amortization of deferred loan costs of $0 and $2,739 for the three months ended September 30, 2016 and 2015; respectively and $0 and $8,217during the nine months ended September 30, 2016 and 2015, respectively.
The Company incurred deferred loan costs of $5,800 in connection with the issuance of a 10% convertible note issued to LG Capital Funding, LLC (“LG Capital”) on April 1, 2014. These deferred loan costs are being amortized over the 1 year term of the note. The Company recorded amortization of deferred loan costs of $0 and $1,450 for the nine months ended September 30, 2016 and 2015; respectively. .
Additional deferred loan costs of $5,000 were incurred in connection with the issuance of a 12% convertible note issued to WHC Capital, LLC (“WHC Capital”) on April 4, 2014. These deferred loan costs are being amortized over the 1 year term of the note. The Company recorded amortization of deferred loan costs of $0 and $1,308 for the three and nine months ended September 30, 2016 and 2015; respectively, and of $0 and $1,308 for the three and nine months ended September 30, 2016 and 2015; respectively.
On July 14, 2014, the Company incurred deferred loan costs of $1,750 in connection with the issuance of an 8% convertible note to LG Capital. These deferred loan costs are being amortized over the 1 year term of the note. The Company recorded amortization of deferred loan costs of $0 and $365 for the three and nine months ended September 30, 2016 and 2015; respectively.
On August 15, 2014, the Company incurred additional deferred loans costs of $3,675 in connection with the issuance of a 10% convertible note to Summit Trading Ltd. (“Summit”). These deferred loan costs are being amortized over the 1 year term of the note. The Company recorded amortization of deferred loan costs of $0 and $357 for the three months ended September 30, 2016 and 2015; respectively, and $0 and $2,247 for the nine months ended September 30, 2016.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Accounts payable | $ | 1,372,728 | $ | 1,325,813 | ||||
| Accrued expenses and other current liabilities | 1,480,733 | 375,661 | ||||||
| Total | $ | 2,853,461 | $ | 1,701,474 | ||||
Consulting fees expenses incurred for non-controlling shareholders were $54,724 and $57,338 for the three months ended September 30, 2016 and 2015, respectively.
Consulting fees expenses incurred for non-controlling shareholders were $153,268 and $162,240 for the nine months ended September 30, 2016 and 2015, respectively.
Accrued expenses include related party accrued interest of $70,365 and $42,697 as of September 30, 2016 and December 31, 2015, respectively.
| F-22 |
Accrued expenses include accrued late fees of $360,000 and $-0- as of September 30, 2016 and December 31, 2015, respectively, in respect to Iliad Warrant (see Note 14).
9. Accrued Officer’s Compensation
Effective July 1, 2016 the Company increased the officer’s compensation to $5,000 per month and a $5,000 bonus for the Officers’ acceptance of salary in a form of a convertible note in lieu of the cash payment. . The Company accrued compensation for Brookstein in the amount of $35,000 during the three months ended September 30, 2016 and 2015 and $15,000 during the nine months ended September 30, 2016 and 2015, the unpaid balance was $155,000 and $120,000 as September 30, 2016 and December 31, 2015, respectively. Effective September 30, 2016, the Company issued a 12% convertible promissory note in the principal amount of $155,000 for unpaid salary. The remaining unpaid salary is $0.
10. Notes Payable
Notes payable consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Notes payable - John Koehler | $ | 30,000 | $ | 30,000 | ||||
| Note payable – Chris Gingold | 30,000 | - | ||||||
| Summit | 71,802 | - | ||||||
| Apollo Betting | 1,740,746 | - | ||||||
| Total | $ | 1,872,548 | $ | 30,000 | ||||
On October 1, 2003, Execuserve Corp. (“Execuserve”), issued a $150,000 non-interest bearing promissory note to Koehler, an investor in the predecessor. Upon completion of the merger of Execuserve and the Company pursuant to an agreement and plan of merger dated as of February 5, 2010, the balance of the amount Execuserve owed Koehler was $37,000. Although the Company agreed to pay the balance in monthly installments of $1,000, the Company is in default as it has not made a payment since September 2010. The balance due to Koehler at both September 30, 2016 and December 31, 2015 totaled $30,000.
On May 29, 2014, the Company issued a demand note to Summit Trading Ltd. (“Summit”) in the amount of $8,500. A second note in the amount of $18,030 was issued to Summit on September 15, 2014, and a third note in the amount of $10,000 was issued to Summit on November 6, 2014. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand. Interest expense was $6,630 and $3,030 for the nine months ended September 30, 2016 and 2015, respectively. On February 27, 2015, the terms of the Summit demand notes were modified. The $36,530 became convertible notes that are convertible at 60% of the lowest trading price utilizing a six-day look-back period (see Note 12).
On February 10, 2016, the Company, through its wholly owned subsidiary Seaniemac Holdings Ltd. (“Holdings”), entered into an agreement (the “Agreement”) with Apollo Betting and Gaming Ltd (“Apollo”), pursuant to which Holdings purchased Apollo’s online gambling and betting business carried on by Apollo in the United Kingdom, via a purchase of Apollo’s assets related to that business.
In exchange for the assets, the Company agreed to pay Apollo a total of $2,000,000, as follows: (i) $80,000 was paid at the closing; (ii) $10,000 to be paid to Apollo within 2 business days of the date on which Apollo delivers to Holdings audited accounts of Apollo for the year ended March 31, 2014; (iii) $10,000 to be paid to Apollo within 2 business days of the date on which Apollo delivers to Holdings audited accounts of Apollo for the year ended 31 March 2015; and (iv) $1,900,000 to be paid to Apollo upon the migration of the acquired business onto a new operating platform which is capable of delivering the online betting services provided by Apollo in substantially the same way as provided by Apollo as of the closing, and the successful use of the new platform in connection with a bet placed by any person who is included on Apollo’s database of customers as of the closing, with the amounts payable being paid from the combined net profits of Holdings and SeanieMac Ltd., which is also a wholly owned subsidiary of the Company. As of September 30, 2016 $1,740,746 is owed to Apollo. The Company also recorded an in kind contribution of interest in the amount of $62,157.
| F-23 |
On June 1, 2016 the Company issued a demand note to Summit Trading Ltd. (“Summit”) in the amount of $71,802 in exchange for accounts payable balance. The note bear interest of 4% per annum on any unpaid principal and are payable on demand. Interest expense was $951 and $0 for the nine months ended September 30, 2016 and 2015, respectively.
On July 21, 2016, the Company issued to Chris Gingold a Promissory Note (the “Note”) in the original principal amount of $30,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. In addition, 10,000,000 shares of common stock will be issued as additional interest on the note within five days of receipt of note proceeds. All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is August 21, 2016 (the “Maturity Date”). If the loan is paid later than 30 days the following additional payments are due:
| ● | If more than 30 days an additional 10,000,000 shares | |
| ● | If more than 45 days additional 20,000,000 shares | |
| ● | If more than 60 days additional 10,000,000 shares |
For the nine months ended September 30, 2016, the note remains outstanding. Interest expense was $9,881 and $0 for the nine months ended September 30, 2016 and 2015, based on the interest rate of $12% per annum and the issuance of 10,000,000 shares of common stock valued at $9,000 based on upon the closing price of the Company’s stock on July 21, 2016 of $0.0009 per share. In addition since the note is more than 30 days in default, the Company will issue 10,000,000 shares of common stock valued at $5,000 based upon the closing price of the Company’s stock on September 21, 2016 of $0.0005 per share and accounted under “stock to be issued” in the accompanying unaudited condensed consolidated balance sheet.
11. Loans Payable – Related Parties and Non Related Parties
Loans payable to related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Loan payable - GE Park, LLC (A) | $ | - | $ | 85,000 | ||||
| Loans payable – Other related parties | - | 4,615 | ||||||
| Loans payable - Brookstein (B) | 933 | 15,702 | ||||||
| Loans payable - RDRD II Holding, LLC (C), net of $17,534 debt discount | 1,107,060 | 890,177 | ||||||
| Total | $ | 1,107,993 | $ | 995,494 | ||||
Due to related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Due to related party - GE Park, LLC (D) | $ | 370,195 | $ | 426,737 | ||||
| Due to related party – Brookstein B. (D) | - | 28,188 | ||||||
| Due to related party – Kessler (D) | 28,086 | 19,873 | ||||||
| Total | $ | 398,281 | $ | 474,798 | ||||
| F-24 |
On September 30, 2016, the Company issued a 12% convertible promissory note in the principal amount of $28,188 for loan payable to Brookstein B. The remaining unpaid salary is $0.
Due to non-related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Summit Trading LTD (D) | $ | 127,576 | $ | 199,025 | ||||
| Total | $ | 127,576 | $ | 199,025 | ||||
The Company has specified the following person and entities as related parties with ending balances as of September 30, 2016 and December 31, 2015:
RDRD, a shareholder of the Company, Barry Brookstein, our Chief Executive Officer and Chief Financial Officer and GE Park, LLC an affiliate of the non-controlling interest holder in Seaniemac minority shareholder.
A. Loan Payable – GE Park, LLC
During the year ended December 31, 2014, GE Park, LLC loaned the Company $166,200 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand.
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10-day look-back period (see Note 12). The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the year ended December 31, 2015. The note was fully converted into 79,193,262 shares during the year ended December 31, 2015 (See Note 12).
On February 20, 2015, the terms of two GE Park demand notes totaling $33,600 were modified into convertible note and subsequently transferred to Apollo Capital Corp. (See Note 12). These notes became convertible at 50% of the lowest traded price utilizing a 10-day look-back period (see Note-12). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the year ended December 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the year ended December 31, 2015 and $12,000 plus accrued interest of $819 was converted into 28,487,000 shares during the period ended September 30, 2016 (See Note 12). The remaining balance as of September 30, 2016 is $0.
On January 10, 2016, the terms a GE Park demand note totaling $50,000 and $4,000 of accrued interest was modified into convertible note (See Note 12). This note became convertible at 70% of the lowest traded price utilizing a 10-day look-back period. The determined fair value of the debt derivatives of $53,398 was charged as a loss on debt modification for the nine months ended September 30, 2016.The note was fully $54,000 converted into 77,142,856 shares during the nine months ended September 30, 2016. The remaining balance for the nine months ended September 30, 2016 is $0.
On January 10, 2016, the terms a GE Park demand note totaling $35,000 was modified into convertible note and subsequently transferred to Apollo Capital Corp. (See Note 12). This note became convertible at 65% of the lowest traded price utilizing a 30-day look-back period. The determined fair value of the debt derivatives of $81,216 was charged as a loss on debt modification for the nine months ended September 30, 2016.The note was fully $35,000 converted into 158,196,306 shares during the nine months ended September 30, 2016. The remaining balance for the nine months ended September 30, 2016 is $0.
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp. (See Note 12). The remaining balance as of September 30, 2016 is $0.
| F-25 |
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on within five days after demand. The note is convertible into common stock, at a 50% discount to the average lowest trading prices of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On October 22, 2013, the Company determined the aggregate fair value of $187,188 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.85%, (3) weighted average risk-free interest rate of 0.02, (4) expected life of 0.25 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
During the year ended December 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock (See Note 12). The determined fair value of the debt derivatives of $139,813 was reclassified into equity during the period ended December 31, 2015.
In addition, the Company issued GE Park a convertible note in the amount of $79,750 on November 25, 2014. The cash purchase price of $72,500 (which amount is net of the pro-rata portion of original issue discount of $7,250) was received by the Company on the issuance date. The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on May 25, 2015. The note is convertible into common stock, at a 50% discount to the lowest trading prices of the common stock during the 20 trading day period prior to conversion. On March 3, 2015, the GE Park conversion terms of the GE Park convertible note dated November 25, 2014 for $79,750 were modified to 50% of the lowest traded price utilizing a 10-day look-back. A loss a $38,052 resulted from this modification. The note was transferred to Apollo Capital Corp on March 3, 2015 (See Note 12). The remaining balance as of September 30, 2016 is $0.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On October 25, 2014, the Company determined the aggregate fair value of $139,421 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 280.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share. The determined fair value of the debt derivatives of $72,500 as charged as a debt discount up to the net proceeds of the note with the remainder of $66,921 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $0 and $63,888, respectively, and was accounted for as interest expense.
Interest expense for the nine months ended September 30, 2016 and 2015 totaled $7,084 and $5,009, respectively. Accrued interest at September 30, 2016 and December 31, 2015 totaled $18,083 and $13,551, respectively.
B. Loans Payable – Brookstein
At various times, Brookstein loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. On September 30, 2016 the Company issued a 12% convertible note for $14,769 in exchange for loans payable. At September 30, 2016 and December 31, 2015, loans payable to Brookstein totaled $933 and $15,702 for both.
| F-26 |
C. Loans Payable – RDRD II Holding, LLC
RDRD II Holding, LLC, a Delaware limited liability company and substantial shareholder of the Company (“RDRD”) loaned monies to the Company and its subsidiary, Seaniemac, for working capital purposes. The loans to the Company aggregating $370,067 do not bear interest and are due on demand. The loans to Seaniemac aggregating $529,543 bear interest at 4% per annum.
On April 8, 2016, the Company issued a demand note to RDRD Holdings, (“RDRD”) in the original principal amount of $220,000 (the “Purchase Price”) which Note bears interest at 4% per annum and is compounded daily. The Company sold the Note to RDRD for $200,000 with $20,000 retained by RDRD as an original issuance discount for due diligence and legal expenses related to the transaction. The loan proceeds were used to pay down the amount due to GE Park, LLC.
At September 30, 2016 and December 31, 2015, loans payable were $1,107,060 and $890,177, respectively, and accrued interest totaled $68,692 and $51,897, respectively.
The Company imputed interest of $8,391 and $7,748 on amount loaned to the Company by RDRD during the three months ended September 30, 2016 and 2015, respectively, at an assumed rate of 8% per annum.
The Company imputed interest of $24,681 and $22,526 on amount loaned to the Company by RDRD during the nine months ended September 30, 2016 and 2015, respectively, at an assumed rate of 8% per annum.
D. Due related and non-related parties.
During the nine months ended the payments were made on the Company’s behalf from related and non-related parties. The amounts were reclassified from accounts payable to loans due to related and non-related parties.
For the nine months ended September 30, 2016 and 2015, the Company paid approximately $52,000 and $0, respectively, in respect to loans payable related parties.
For the nine months ended September 30, 2016 and 2015, the Company received approximately $8,200 and $0, respectively, in respect to loans payable related parties.
On June 1, 2016 the Company issued a demand note to Summit Trading Ltd. (“Summit”) in the amount of $71,802 in exchange for accounts payable balance- non related party.
On September 30, 2016 the Company issued a 12% convertible note for $28,188 in exchange for Brookstein loans payable. At September 30, 2016 and December 31, 2015, loans payable to Brookstein totaled $-0- and $28,188 for both.
For the three months ended September 30, 2016 and 2015 the Company imputed interest of $14,601 and $0 on payments made on Company’s behalf, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $44,047 and $41,626 for nine months ended September 30, 2016 and 2015 respectively.
| F-27 |
12. Convertible Promissory Notes, Net
Convertible promissory notes consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Iliad Note (1): | ||||||||
| Secured convertible promissory note - Iliad | $ | 380,000 | $ | 380,000 | ||||
| Total | 380,000 | 380,000 | ||||||
| Less: | ||||||||
| OID of $20,000, net of amortization of $20,000 and $20,000 as of June 30, 2016 December 31, 2015, respectively | - | - | ||||||
| Conversions into 99,520,802 shares of common stock | (100,062 | ) | (100,062 | ) | ||||
| Principal adjustment per note assignment | 40,119 | 40,119 | ||||||
| Assignment to Apollo Capital Corporation | (320,057 | ) | (320,057 | ) | ||||
| Loan discount of $202,500, net of amortization of $202,500 and $202,500 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Secured convertible promissory note - Iliad | $ | - | $ | - | ||||
| Redwood Note (2): | ||||||||
| Secured convertible promissory note - Redwood | $ | 75,000 | $ | 75,000 | ||||
| Total | 75,000 | 75,000 | ||||||
| Less: | ||||||||
| Conversion into 44,988,900 shares of common stock | (43,738 | ) | (43,738 | ) | ||||
| Assignment to Apollo Capital Corporation | (31,262 | ) | (31,262 | ) | ||||
| - | - | |||||||
| Total | - | - | ||||||
| Loan discount of $75,000, net of amortization of $75,000 and $75,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Secured convertible promissory note – Redwood (note in default) | $ | - | $ | - | ||||
| LG Capital Funding, LLC (3): | ||||||||
| 10% convertible redeemable note - LG Capital | $ | 40,000 | $ | 40,000 | ||||
| Principal adjustment per note penalty clause | 97,000 | - | ||||||
| Total | 137,000 | 40,000 | ||||||
| Loan discount of $40,000, net of amortization of $40,000 and $40,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| 10% convertible redeemable note - LG Capital | $ | 137,000 | $ | 40,000 | ||||
| 8% convertible redeemable note - LG Capital | $ | 36,750 | $ | 36,750 | ||||
| Total | 36,750 | 36,750 | ||||||
| Loan discount of $36,750, net of amortization of $36,750 and $36,750 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion into 51,082,166 shares of stock | (36,750 | ) | (36,750 | ) | ||||
| 8% convertible redeemable note - LG Capital | $ | - | $ | - | ||||
| WHC Capital, LLC (4): | ||||||||
| 10% convertible redeemable note - WHC Capital | $ | 32,000 | $ | 32,000 | ||||
| - | - | |||||||
| Total | 32,000 | 32,000 | ||||||
| Loan discount of $32,000, net of amortization of $32,000 and $32,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion into 37,034,976 shares of stock | (32,000 | ) | (32,000 | ) | ||||
| 10% convertible redeemable note - WHC Capital | $ | - | $ | - | ||||
| Summit Trading Ltd, (5): | ||||||||
| 10% convertible redeemable note - Summit | $ | 62,589 | $ | 62,589 | ||||
| Total | 62,589 | 62,589 | ||||||
| Loan discount of $56,804, net of amortization of $56,804 and $56,804 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion of demand note into a convertible note | 36,530 | 36,530 | ||||||
| Conversion of accounts payable into a convertible note | 35,814 | 35,814 | ||||||
| Transfer to Apollo Capital Corp | (62,559 | ) | (62,589 | ) | ||||
| Conversion into 45,260,256 shares of common stock as of December 31, 2015 | (8,500 | ) | (8,500 | ) | ||||
| 10% convertible redeemable note - Summit | $ | 63,844 | $ | 63,844 | ||||
| Apollo Capital Corporation (6): | ||||||||
| Notes purchased from GE Park, LLC | $ | 291,190 | $ | 256,190 | ||||
| Notes purchased from Summit | 62,589 | 62,589 | ||||||
| Notes purchased from Redwood | 31,262 | 31,262 | ||||||
| Notes purchased from Iliad | 320,057 | 320,057 | ||||||
| 12% convertible redeemable note - Apollo | 35,500 | - | ||||||
| 12% convertible redeemable note - Apollo | 55,000 | - | ||||||
| 12% convertible redeemable note - Apollo | 16,500 | 8,500 | ||||||
| Principal adjustment per note penalty clause | 199,000 | - | ||||||
| Assignment to Old Main Capital LLC | (88,235 | ) | ||||||
| Loan discount of $107,000 net of amortization of $105,085 and $1,915 as of September 30, 2016 and December 31, 2015, respectively | - | (6,585 | ) | |||||
| Conversion into 1,052,670,044 and 321,234,184 shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (410,515 | ) | (209,233 | ) | ||||
| 12% convertible redeemable note - Apollo Capital Corp | $ | 512,348 | $ | 462,780 | ||||
| GE Park, LLC (7) | ||||||||
| Conversion of demand note into a convertible note | $ | 54,000 | $ | - | ||||
| Conversion into 77,142,856 and 0 shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (54,000 | ) | - | |||||
| 4% convertible redeemable note - GE Park, LLC | $ | - | $ | - | ||||
| Apollo Management Group (8) | ||||||||
| 12% convertible redeemable note - Apollo | 220,000 | - | ||||||
| 12% convertible redeemable note – Apollo | 110,000 | - | ||||||
| 12% convertible redeemable note – Apollo | 205,150 | |||||||
| Loan discount of $535,150 net of amortization of $300,904 and $0 as of September 30, 2016 and December 31, 2015, respectively | (234,246 | ) | - | |||||
| 12% convertible redeemable note - Apollo Management Group | $ | 300,904 | $ | - | ||||
| Old Main Capital LLC (9) | ||||||||
| Notes purchased from Apollo Capital Corporation | $ | 88,236 | $ | - | ||||
| 12% convertible redeemable note – OMC | 83,334 | - | ||||||
| Loan discount of $83,334 net of amortization of $23,239 and $0 as of September 30, 2016 and December 31, 2015, respectively | (60,095 | ) | - | |||||
| Conversion into 178,571,429 and -0- shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (20,000 | ) | - | |||||
| 12% convertible redeemable note - Old Main Capital LLC | $ | 91,475 | $ | - | ||||
| Convertible promissory notes, net | $ | 1,105,571 | $ | 566,624 | ||||
| F-28 |
Convertible promissory notes related party consists of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Brookstein Note (10): | ||||||||
| Conversion of accrued compensation into a convertible note | $ | 155,000 | $ | - | ||||
| Conversion of loan payable into a convertible note | 14,768 | - | ||||||
| Conversion of due to balance into a convertible note | $ | 28,189 | $ | - | ||||
| Secured convertible promissory note – related party | $ | 197,957 | $ | - | ||||
1. Iliad Note – Assigned to Apollo Capital Group, Inc.
On December 2, 2013 (“Issuance Date”) the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”). Pursuant to the Purchase Agreement, the Company issued to Iliad a Secured Convertible Promissory Note (the “Note”) in the original principal amount of $667,500 (the “Purchase Price”) which Note bears interest at 8% per annum and is compounded daily. All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is 23 months from Issuance Date of the Note (the “Maturity Date”). Net cash expected will be $607,500, net of original issue discount of $60,000.
The initial cash purchase price of $202,500 (which amount is net of the pro-rata portion of original issue discount of $20,000 and certain transactional expenses of $5,000) was received by the Company on the issuance date and (ii) the balance of $400,000 shall be received no later than the Maturity Date, as evidenced by four separate $100,000 promissory notes issued by Iliad to the Company.
Beginning year after the Issuance Date and continuing for each installment date thereafter, the Company is required to make monthly principal payments under the Note of $37,083, plus any accrued and unpaid interest as of the installment date. Any installment payment may be either cash or shares of Common Stock, at the election of the Registrant.
The Company also issued Iliad five year warrants to purchase 2,132,426 shares at a conversion price of $0.12 per share of the Company’s common stock on December 2, 2013. These options were valued at $23,625 using the Black-Scholes option pricing model with the following values: risk free interest rate of 1.5%, volatility of 26.01538% and strike price of $0.12 and was amortized to interest expense during the year ended December 31, 2014.
At any time after 180 days from the Issuance Date, the Note is convertible into shares of the Company’s common stock, at the option of the Note holder, at a conversion price of $0.12 per share, subject to adjustment downward under certain circumstances defined in the Note. At December 31, 2013, the Company has reserved 16.67 million shares of authorized but unissued common stock in accordance with the terms of the Note. The Company has agreed to reserve these shares until all of the Company’s obligations under the Note are paid and performed in full and the warrants are exercised in full or otherwise expired. The Company may prepay part or all of the Note at any time, provided that any prepayment is subject to a 25% penalty on the amount prepaid.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On June 3, 2014 (180 days from Issuance Date), the Company determined the aggregate fair value of $443,169 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 224.54%, (3) weighted average risk-free interest rate of 0.41%, (4) expected life of 1.42 years, and (5) estimated fair value of the Company’s common stock of $0.0394 per share. The determined fair value of the debt derivatives of $443,169 was charged as a debt discount up to the net proceeds of the note with the remainder of $240,669 charged to current period operations as non-cash interest expense.
| F-29 |
Default on Iliad Note
On October 1, 2014, Iliad presented the Company with an Event of Default Redemption Notice and is electing to redeem the full outstanding balance of the Note. See below for information regarding applicable penalties and additional interest due to the default. On October 29, 2014, the Company and Iliad entered into a forbearance agreement, pursuant to which Iliad agreed, subject to the terms of the forbearance agreement, to refrain and forbear, until December 10, 2014, from exercising and enforcing remedies against the Company with respect to the Note defaults, including the enforcement of the interest rate increase to 22% per annum. Pursuant to an oral agreement between the Company and Iliad on December 12, 2014, the date was extended to December 31, 2014, subject to the terms of the forbearance agreement. As a result, during the year ended December 31, 2014, the Company recorded $152,500 as forbearance liability and charged to the expenses.
For the year ended December 31, 2015, the Company converted $108,752 of principal and accrued interest into 99,520,802 shares of common stock.
The Note is subject to various default provisions, including as a result of a failure to make an installment payment by the due date, a failure to deliver shares when required under the Note, or a breach of covenants in the Note and Purchase Agreement, among others. Upon an event of default, the Note accrues interest at the default rate of 1.83% per month (or 22% per annum), compounding daily. The Company is in default on this loan as of June 2, 2014 as a result of failing to make the required installment payments, as well as a result of the Company’s failure to timely file its annual reports with the SEC. Accordingly, the total principal due to Iliad of $302,185 is classified as a current liability.
On December 18, 2015, the remaining balance of $302,185 of principal and $17,872 in accrued interest was assigned to Apollo Capital Corp from Iliad Research and Trading, L.P. A loss of $576,431 resulted from the debt modification. The remaining balance as of December 31, 2015 is $0 after the assignment of the note to Apollo Capital Corp.
The charge of the amortization of debt discounts and costs for the three months ended September 30, 2016 and 2015 was $0 and $27,362, respectively, and was accounted for as interest expense.
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $0 and $109,932, respectively, and was accounted for as interest expense.
2. Redwood Note
On March 3, 2014, the Company entered into a Securities Purchase Agreement with Redwood Management, LLC. (“Redwood”), for the sale of a 10% convertible debenture in the principal amount of $75,000 (the “Note”). The financing closed on March 3, 2014. The total net proceeds the Company received from this offering was $75,000.
All interest and principal due on September 3, 2014 has not been paid. The Note bears interest at the rate of 10% guaranteed interest regardless of how long the debenture is outstanding. The debenture is convertible into common stock, at Redwood’s option, at a 50% discount to the lowest trading price of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
| F-30 |
At the inception of the Redwood debenture, the Company determined the aggregate fair value of $109,741 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 184.71%, (3) weighted average risk-free interest rate of 0.08%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.065 per share. The determined fair value of the debt derivatives of $109,741 was charged as a debt discount up to the net proceeds of the note with the remainder of $34,741 charged to current period operations as non-cash interest expense.
For the year ended December 31, 2015, the Company converted $43,738 of principal and accrued interest into 44,988,900 shares of common stock.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp. A loss of $26,577 resulted from the debt modification. Subsequently, during the years ended December 31, 2015 the Company converted $31,262 of principal transferred to Apollo Capital Corp into 72,091,670 shares of common stock. The remaining balance as of December 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was reclassified into equity during the period ended December 31, 2015.
The charge of the amortization of debt discounts and costs for the three and nine months ended September 30, 2016 and 2015 was $-0- and $-0-, respectively, which was accounted for as interest expense.
3. LG Capital Funding, LLC Notes
On April 1, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of a 10% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on April 1, 2014. The total net proceeds the Company received from this offering was $40,000.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on April 1, 2015, further as of date this was not repaid hence the note was in default. The debenture is convertible into common stock, at LG Capital’s option, at a 58% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion.
The Company has failed “to keep in reserve the number of shares of its common stock sufficient to meet the Company’s obligation to LG Capital” as required by the note which constituted an Event of Default. Around March 15, 2016 the Company failed to issue conversion shares as requested by LG Capital. As a result of the default and breach, thee interest rate on the outstanding balance increased to 22% per annum and $500 per day penalty began to accrue. The aggregate amount of penalty from August 24, 2016 to September 30, 2016 is $97,000.
The remaining balance as of September 30, 2016 and December 31, 2015 is $137,000 and $40,000, respectively.
On July 14, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of an 8% convertible note in the principal amount of $36,750 (the “Note”). The financing closed on July 14, 2014. The total net proceeds the Company received from this offering was $36,750.
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 14, 2015. The note is convertible into common stock, at LG Capital’s option, at a 50% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the LG Capital notes, the Company determined the aggregate fair value of $152,414 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.52% to 237.91%, (3) weighted average risk-free interest rate of 0.11% to 0.13%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.0378 to $0.0471 per share. The determined fair value of the debt derivatives of $152,414 was charged as a debt discount up to the net proceeds of the note with the remainder of $75,664 charged to current period operations as non-cash interest expense.
| F-31 |
The charge of the amortization of debt discounts and costs for the three months ended September 30, 2016 and 2015 was $0 and $0, respectively, accounted for as interest expense.
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $0 and $29,607, respectively, accounted for as interest expense.
For the year ended December 31, 2015, the Company converted the note issued on July 14, 2014 for $36,750 of principal into 51,082,166 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $66,758 was reclassified into equity during the period ended December 31, 2015.
4. WHC Capital, LLC
On April 4, 2014, the Company entered into a Securities Purchase Agreement with WHC Capital, LLC. (“WHC Capital”), for the sale of a 12%convertible note in the principal amount of $32,000 (the “Note”). The financing closed on April 4, 2014. The total net proceeds the Company received from this offering was $32,000.
The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on April 4, 2015. The debenture is convertible into common stock, at WHC Capital’s option, at a 58% discount to the lowest trading price of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the WHC Capital note, the Company determined the aggregate fair value of $56,273 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.08%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.06 per share. The determined fair value of the debt derivatives of $56,273 was charged as a debt discount up to the net proceeds of the note with the remainder of $24,273 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended September 30, 2016 and 2015 was $0 and $0, respectively.
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $0 and $9,529, accounted for as interest expense.
For the year ended December 31, 2015, the Company converted $35,211 of principal and accrued interest into 37,034,976 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $38,937 was reclassified into equity during the period ended December 31, 2015.
5. Summit Trading Ltd.
In addition, the terms of Summit’s convertible note in the amount of $59,835 were modified; the note is now convertible at a conversion rate equal to 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
| F-32 |
On August 15, 2014, the Company entered into a Securities Purchase Agreement with Summit Trading, Ltd. (“Summit”), for the sale of an 10% convertible note in the principal amount of $59,835 (the “Note”). The financing closed on August 15, 2014. The total net proceeds the Company received from this offering was $59,835.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on August 15, 2015. The debenture is convertible into common stock, at Summit’s option, at a 20% discount to the average volume weighted stock price during the 7 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the Summit note, the Company determined the aggregate fair value of $56,804 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 242.32%, (3) weighted average risk-free interest rate of 0.09%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.02 per share. The determined fair value of the debt derivatives of $56,804 was charged as a debt discount of the note.
The charge of the amortization of debt discounts and costs for nine month ended September 30, 2016 and 2015 was $0 and $35,327, respectively, accounted for as interest expense.
On January 2, 2015 and January 5, 2015, the Company issued demand notes to Summit in the amounts of $13,844 and $21,970, respectively. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand.
As mentioned above in Note 10, on May 29, 2014, the Company issued a demand note to Summit Trading Ltd. (“Summit”) in the amount of $8,500. A second note in the amount of $18,030 was issued to Summit on September 15, 2014, and a third note in the amount of $10,000 was issued to Summit on November 6, 2014. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand. Interest expense was $6,630 and $4,828 for the years ended December 31, 2015.
On February 27, 2015, the terms of the Summit demand notes were modified and assigned to Apollo Capital Corp. All outstanding notes totaling $62,589 became convertible notes that are convertible at 60% of the lowest trading price utilizing a three-day look-back period. A loss of $57,860 resulted from the debt modification.
For the year ended December 31, 2015, the Company converted $8,500 of principal into 45,260,256 shares of common stock, the related derivative liability of notes conversion $27,030 reclassified into additional paid in capital and the remaining balance is $63,844 as of December 31, 2015.
For the nine months ended September 30, 2016 and December 31, 2015 the remaining balance due to Summit Trading, Ltd is $63,844.
6. Apollo Capital Corp
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp. During the year ended December 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock. The remaining balance as of December 31, 2015 is $0 and the determined fair value of the debt derivatives of $139,813 was reclassified into equity during the period ended December 31, 2015.
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10-day look-back period. The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the year ended December 31, 2015. The note was fully converted into 79,193,262 shares during the year ended December 31, 2015. The remaining balance as of December 31, 2015 is $0 and the determined fair value of the debt derivatives of $94,917 was reclassified into equity during the period ended December 31, 2015.
| F-33 |
On February 20, 2015, the terms of two GE Park demand notes totaling $33,600 were modified. These notes became convertible at 50% of the lowest traded price utilizing a 10-day look-back period (see Note 11). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the year ended December 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the year ended December 31, 2015 (See Note 11). The remaining balance as of December 31, 2015 is $12,000. On April 1, 2016, $12,000 plus accrued interest of $819 was converted into 28,487,000 shares, and the determined fair value of the debt derivatives of $17,334 was reclassified into equity during the period ended September 30, 2016. The remaining balance as of September 30, 2016 is $0.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp from Redwood Management, LLC. A loss of $26,577 resulted from the debt modification. Subsequently, during the year ended December 31, 2015 the Company converted $31,262 of principal into 72,091,670 shares of common stock. The remaining balance as of December 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was reclassified into equity during the period ended December 31, 2015
On March 3, 2015, the GE Park conversion terms of the GE Park convertible note dated November 25, 2014 for $79,750 were modified to 50% of the lowest traded price utilizing a 10-day look-back. A loss a $38,052 resulted from this modification. The note was transferred to Apollo Capital Corp on March 3, 2015 (see note 11).
In addition, the terms of Summit’s convertible note in the amount of $59,835 and accrued interest of $2,992 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
On November 20, 2015, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $16,500 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded. As of September 30, 2016 the Company received $16,500 of the convertible note. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 60% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is May 20, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $18,758 of embedded derivatives. Subsequent to the December 31, 2015, the Company recorded an additional fair value of $13,369 for the additional funding received subsequent to the year end. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.06%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00024 per share. The determined fair value of the debt derivatives of $8,500 was charged as a debt discount up to the net proceeds of the note with the remainder of $10,258 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the three and nine months ending September 30, 2016 and 2015 was $0 and $0 and $16,500 and $0, respectively, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $78,783.
| F-34 |
On October 11, 2016, the Company entered into a forbearance agreement effective on August 24, 2016 related to the note dated November 20, 2016. . The Company has failed “to keep in reserve the number of shares of its common stock sufficient to meet the Company’s obligation to Apollo” as required by the note which constituted an Event of Default. As a result of the default the interest rate on the outstanding balance increased to 22% per annum and $2,000 per day penalty began to accrue. The aggregate amount of penalty from August 24, 2016 to September 30, 2016 is $76,000
In additions to above penalty, during the nine months ended September 30, 2016, the Company accrued $24,000 as penalty for being not filing on time and having a yield sign up and adjusted the principal loan balance accordingly.
On January 10, 2016, the terms a GE Park demand note totaling $35,000 was modified and assigned to Apollo Capital. This note became convertible at 35% of the lowest traded price utilizing a 30-day look-back period. The determined fair value of the debt derivatives of $81,216 was charged as a loss on debt modification for nine months ended September 30, 2016. The note was fully $35,000 converted into 158,196,306 shares during the nine months ended September 30, 2016. The remaining balance for the nine months ended September 30, 2016 is $0.
On February 25, 2016, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $35,500 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The Company sold the Note to Apollo Capital for $30,000 with $5,500 retained by Apollo Capital as an original issuance discount for due diligence and legal expenses related to the transaction. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 60% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is August 25, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Apollo Capital by paying Apollo Capital an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 150% during the period beginning on the date the Note is issued and ending 90 days thereafter or (ii) 200% during the period beginning 91 days after the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
So long as the Company has any obligation outstanding under the Note, the Company may not make distributions on its capital stock, repurchase shares of its common stock, borrow funds except debts existing as of the date of the Note, indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of its business.
So long as the Company shall have any obligation under the Note, the Company shall not, without Apollo Capital’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries, and affiliates of the Company, except loans, credits or advances (a) in existence or committed on the date hereof and which the Company has informed Apollo Capital in writing prior to the date hereof, (b) made in the ordinary course of business, or (c) not in excess of $100,000.
The Company granted Apollo Capital a five (5) business day right of first refusal to provide the Company with any and all of the Company’s future capital needs until Apollo Capital has converted this Note in full or until the Company’s obligations to Apollo hereunder are otherwise satisfied in full. The Company will give Apollo Capital ten (10) business days’ prior written notice by email, receipt requested, of all capital needs during the period of such right of first refusal.
| F-35 |
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $126,760 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 177.05%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00032 per share. The determined fair value of the debt derivatives of $30,000 was charged as a debt discount up to the net proceeds of the note with the remainder of $96,791 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended September 30, 2016 and 2015 was $12,150 and $0, accounted for as interest expense. The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $35,500 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $0.
On March 17 2016, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $50,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded. As of September 30, 2016 the Company received $55,000 of the convertible note. The Company sold the Note to Apollo Capital for $50,000 with $5,000 retained by Apollo Capital as an original issuance discount for due diligence and legal expenses related to the transaction. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 60% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is September 17, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $187,519 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 176.67%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00032 per share. The determined fair value of the debt derivatives of $55,000 was charged as a debt discount up to the net proceeds of the note with the remainder of $132,519 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the for the three months ended September 30, 2016 and 2015 was $25,370 and $0 and for the nine months ended September 30, 2016 and 2015 was $55,000 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $0.
On March 29, 2016 the Company entered into a Leak-Out agreement with Apollo Capital Corp. The agreement will remain in effect until July 1, 2016. According to the agreement Apollo Capital Corp can trade no more than 18.5% of the daily number of cash volume of the common stock traded either of (i) the prior calendar week (Sunday – Saturday) or (ii) the prior seven calendar days, in each case as reported by OTC Markets Group, Inc. In addition, the daily limit is cumulative and applied in aggregate and not for each of the security and derivate security of the Company owned of record or beneficially by each Holder.
On December 18, 2015, the remaining balance of $302,185 of principal and $17,872 in accrued interest was assigned to Apollo Capital Corp from Iliad Research and Trading, L.P. A loss of $576,431 resulted from the debt modification. The remaining balance as of December 31, 2015 is $320,057. On December 18, 2015, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $320,057 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 65% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is June 18, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
| F-36 |
On April 5, 2016 Iliad Research and Trading, L.P. (“Iliad”) made a demand on the Company to issue 64,660,484 shares of the Company’s common stock (the “Delivery Shares”) issuable upon exercise of warrants issued to Iliad on December 2, 2013 (the “Iliad Warrant”) and for damages due to Company’s failure to deliver the Delivery Shares to Iliad pursuant to the terms of the Warrant, late fees in the amount of $2,000.00 per trading day (the greater of $2,000.00 and 2% of the product of the number of Delivery Shares not delivered to Investor (64,660,484) multiplied by the closing sales price of the Common Stock on the last trading day the Company could have delivered the Delivery Shares to Iliad without breaching the terms of the Warrant (which closing sale price was $0.0011 according to Iliad’s demand) have been accruing since April 1, 2016 (the “Late Fees”). For the nine months ended September 30, 2016, the Company accrued $360,000 in penalties. The Company has been notified by Apollo that Apollo Capital Corp. believes that it acquired the Warrants when it acquired the Note on December 18, 2015 as discussed in Note 12 despite Iliad’s demand for issuance of the Delivery Shares. The Company has elected to withhold issuance of the Delivery Shares until the dispute between Iliad and Apollo regarding ownership of the Warrants and the rights to the Delivery Shares has been resolved. The Company is, however, subject to possible late fees and damages as a result of its failure to issue the Delivery Shares to Iliad in the event Iliad is deemed the owner of the Warrant.
On October 11, 2016, the Company entered into a forbearance agreement effective on August 24, 2016. The Company has failed “to keep in reserve the number of shares of its common stock sufficient to meet the Company’s obligation to Apollo” as required by the note which constituted an Event of Default. As a result of the default the interest rate on the outstanding balance increased to 22% per annum and $2,000 per day penalty began to accrue. The aggregate amount of penalty from August 24, 2016 to September 30, 2016 is $75,000.
In additions to above penalty, during the nine months ended September 30, 2016, the Company accrued $24,000 as penalty for being not filing on time and having a yield sign up and adjusted the principal loan balance accordingly.
On August 19, 2016, Old Main Capital, LLC and Apollo Capital Corp. executed a note purchase and assignment agreement. Under the agreement Old Main Capital, LLC will purchase up to $352,942 of debt from Apollo Capital Corp. The sale of the balance will take place in one more closings with the first closing in tranches of $58,824. Each additional tranche can be purchased as frequently as the buyer desires. The Company issued replacement Convertible Promissory Note (the “Note”) in the original principal amount of $352,942 (the “Purchase Price”) which Note bears interest at 12% per annum, (with the initial 6 months of interest being guaranteed upon the Issue Date) and is compounded daily. Each tranche the Company sold the Note to Old Main Capital for $50,000 with $8,824 retained by Old Main Capital as an original issuance discount (“OID”) for due diligence and legal expenses related to the transaction. During the nine months ended September 30, 2016, the Apollo Capital Corp. assigned $88,236 to Old Main Capital, LLC.
On May 12, 2016, the Company converted $2,000 of principal into 8,163,265 shares of common stock. The determined fair value of the debt derivatives of $6,163 was reclassified into equity during the period ended September 30, 2016. As of September 30, 2016, the outstanding loan balance on this including forbearance liability was $304,995.
During the three months ended September 30, 2016, the Company converted $23,827 of principal and $49,950 of interest into 427,474,446 shares of common stock. The determined fair value of the debt derivatives of $210,012 was reclassified into equity during the period ended September 30, 2016.
| F-37 |
Apollo Capital Corp- Convertible loan summary:
The charge of the amortization of debt discounts and costs for the three months ended September 30, 2016 and 2015 was $0 and $27,362, respectively, and was accounted for as interest expense.
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2016 and 2015 was $105,085 and $0, respectively, and was accounted for as interest expense.
For the nine months ended September 30, 2016, the Company converted $410,515 of principal into 466,777,189 shares of common stock, the related derivative liability of notes.
As of September 30, 2016 and December 31, 2015 the remaining balance due to Apollo Capital Corp is $512,348 and $0, respectively.
7. GE Park, LLC
On January 10, 2016, the terms a GE Park demand note totaling $50,000 and $4,000 of accrued interest was modified into convertible note (See Note 10). This note became convertible at 70% of the lowest traded price utilizing a 10-day look-back period. The determined fair value of the debt derivatives of $53,398 was charged as a loss on debt modification for the nine months ended September 30, 2016. The note was fully converted into 77,142,856 shares valued at $54,000 during the nine months ended September 30, 2016. The remaining balance for the nine months ended September 30, 2016 is $0.
8. Apollo Management Group, LLC
On July 25, 2016, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $275,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The Company sold the Note to Apollo Capital for $250,000 with $25,000 retained by Apollo Capital as an original issuance discount for due diligence and legal expenses related to the transaction. . During the nine months ended September 30, 2016, the Company received $205,150. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is January 25, 2017 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. During the nine months ended the Company received $205,150 under the terms of the note.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Apollo Capital by paying Apollo Capital an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 150% during the period beginning on the date the Note is issued and ending 90 days thereafter or (ii) 200% during the period beginning 91 days after the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $367,633 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 197.02%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00035 per share. The determined fair value of the debt derivatives of $205,150 was charged as a debt discount up to the net proceeds of the note with the remainder of $162,483 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the for the three months ended September 30, 2016 and 2015 was $46,561 and $0 and for the nine months ended September 30, 2016 and 2015 was $69,047 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $205,150.
| F-38 |
On June 17, 2016, the Company issued to Apollo Management Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $100,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. During the nine months ended September 30, 2016, the Company received $110,000. The Company sold the Note to Apollo Capital for $100,000 with $10,000 retained by Apollo Management Group as an original issuance discount for due diligence and legal expenses related to the transaction. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is December 17, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Apollo Capital by paying Apollo Capital an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 150% during the period beginning on the date the Note is issued and ending 90 days thereafter or (ii) 200% during the period beginning 91 days after the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $93,206 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 197.02%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00035 per share. The determined fair value of the debt derivatives of $110,500 was charged as a debt discount up to the net proceeds of the note with the remainder of $32,706 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the for the three months ended September 30, 2016 and 2015 was $56,269 and $0 and for the nine months ended September 30, 2016 and 2015 was $57,886 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $110,000.
On April 18, 2016, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $220,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The Company sold the Note to Apollo Capital for $200,000 with $20,000 retained by Apollo Capital as an original issuance discount for due diligence and legal expenses related to the transaction. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is October 17, 2016 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
| F-39 |
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Apollo Capital by paying Apollo Capital an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 150% during the period beginning on the date the Note is issued and ending 90 days thereafter or (ii) 200% during the period beginning 91 days after the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
At the inception of the Apollo Capital note, the Company determined the aggregate fair value of $400,567 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 197.02%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00035 per share. The determined fair value of the debt derivatives of $220,000 was charged as a debt discount up to the net proceeds of the note with the remainder of $180,567 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the for the three months ended September 30, 2016 and 2015 was $127,410 and $0 and for the nine months ended September 30, 2016 and 2015 was $196,457 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $220,000.
9. Old Main Capital, LLC
On August 10, 2016, the Company issued to Old Main Capital, LLC (“Old Main Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $222,222 (the “Purchase Price”) which Note bears interest at 8% per annum, (with the initial 6 months of interest being guaranteed upon the Issue Date) and is compounded daily. The Company sold the Note to Old Main Capital for $200,000 with $22,222 retained by Old Main Capital as an original issuance discount (“OID”) for due diligence and legal expenses related to the transaction. Old Main Capital will issue $50,000.00 of the Note (the “First Tranche”) within a reasonable amount of time of the full execution of the Note and related transactional documents. At the closing of the First Tranche, the outstanding principal amount under the Note will be $55,555.50, consisting of the First Tranche and $5,555.50 of the OID. Unless an event of default under the Note occurs, Old Main Capital shall fund the remainder of the $200,000 as follows: (i) $25,000.00 on the Friday of the third week following the funding of the First Tranche, (ii) $25,000.00 on the Friday of the sixth week following the funding of the First Tranche, (iii) $50,000.00 on the Friday of the tenth week following the funding of the First Tranche, (iv) $25,000.00 on the Friday of the twelfth week following the funding of the First Tranche, and (v) $25,000.00 on the Friday of the fifteenth week following the funding of the First Tranche. . During the nine months ended September 30, 2016, the Company received $83,334. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Old Main Capital’s option, at any time beginning 180 days after the date of issuance at a 65% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is February 10, 2017 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
At the inception of the Old Main Capital note, the Company determined the aggregate fair value of $176,377 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 206.98%, (3) weighted average risk-free interest rate of 0.47%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00033 per share. The determined fair value of the debt derivatives of $83,334 was charged as a debt discount up to the net proceeds of the note with the remainder of $93,043 charged to current period operations as non-cash interest expense. The charge of the amortization of debt discounts and costs for the for the three months ended September 30, 2016 and 2015 was $23,239 and $0 and for the nine months ended September 30, 2016 and 2015 was $23,239 and $0, accounted for as interest expense. The remaining balance for the nine months ended September 30, 2016 is $83,334.
| F-40 |
On August 19, 2016, Old Main Capital, LLC and Apollo Management Group, Inc. executed a note purchase and assignment agreement. Under the agreement Old Main Capital, LLC will purchase up to $352,942 of debt from Apollo Management Group, Inc. The sale of the balance will take place in one more closings with the first closing in tranches of $58,824. Each additional tranche can be purchased as frequently as the buyer desires. The Company issued replacement Convertible Promissory Note (the “Note”) in the original principal amount of $352,942 (the “Purchase Price”) which Note bears interest at 12% per annum, (with the initial 6 months of interest being guaranteed upon the Issue Date) and is compounded daily. Each tranche the Company sold the Note to Old Main Capital for $50,000 with $8,824 retained by Old Main Capital as an original issuance discount (“OID”) for due diligence and legal expenses related to the transaction. , During the nine months ended September 30, 2016, the Company received $88,236. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Old Main Capital’s option, at any time after the date of issuance at a 65% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which six month from closing each of each tranche (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
For the nine months ended September 30, 2016, the Company converted $20,000 of principal into 178,571,429 shares of common stock, the related derivative liability of notes. The determined fair value of the debt derivatives of $68,095 was reclassified into equity during the period ended September 30, 2016. The remaining balance for the nine months ended September 30, 2016 is $68,236.
10. Barry Brookstein – related party
On September 30, 2016, the Company issued to Barry Brookstein (“Barry Brookstein”) a Convertible Promissory Note (the “Note”) in the original principal amount of $155,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The note was issued in exchange for unpaid salary owed to Barry Brookstein as of September 30, 2016 for services rendered. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Barry Brookstein’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is September 30, 2017 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Barry Brookstein by paying Barry Brookstein an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 125% during the period beginning on the date the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
| F-41 |
On September 30, 2016, the Company issued to Barry Brookstein (“Barry Brookstein”) a Convertible Promissory Note (the “Note”) in the original principal amount of $42,958 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The note was issued in exchange for expenses paid personally by Barry Brookstein on the Company’s behalf. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Barry Brookstein’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is September 30, 2017 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Barry Brookstein by paying Barry Brookstein an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 125% during the period beginning on the date the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
At the inception of the Barry Brookstein notes, the Company determined the aggregate fair value of $444,339 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 218,79%, (3) weighted average risk-free interest rate of 0.47%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.00033 per share. The Company recorded a loss on debt medication of $444,339 during the nine months ended September 30, 2016.
13. Derivative Liabilities
As described in Note 12, as of September 30, 2016 and December 31, 2015, the Company issued convertible notes which are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.
The following table represents the Company’s debt derivative liability activity for the nine months ended September 30, 2016:
| Balance December 31, 2015 | $ | 2,310,067 | ||
| Initial measurement at issuance date of the notes | 1,400,119 | |||
| Loss on debt modification | 134,614 | |||
| Loss on debt modification- related party | 444,339 | |||
| Reclassification of derivative liability associated with convertible debt | (777,878 | ) | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (86,422 | ) | ||
| Balance September 30, 2016 | $ | 3,424,839 |
At inception, the fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 2%, (3) weighted average risk-free interest rate of 0.03% to 0.13%, (4) expected life of 0.25 to 1.09 years, and (5) estimated fair value of the Company’s common stock of $0.0139 per share.
At September 30, 2016, the fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 218.79% (3) weighted average risk-free interest rate of 0.234% to 0.36%, (4) expected life of 0.15 to 0.47 years, and (5) estimated fair value of the Company’s common stock of $0.00052 to $0.0012241 per share.
| F-42 |
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
Warrant derivative liability
As described in Note 12, the Company issued warrants in conjunction with the issuance with certain convertible notes. These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of the effectiveness of the reset provisions. Subsequent to the initial effectiveness date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations.
The Company estimated the fair value at date of effectiveness of the warrants issued in connection with the issuance of the convertible promissory notes to be $590,038 using the Binomial Lattice formula assuming no dividends, a risk-free interest rate of 1.65%, expected volatility of 224.54%, and expected warrant life of 4.50 years. Since the warrants have reset provisions, pursuant to ASC 815-40, the Company has reclassified from equity the fair value of the warrants of $590,038 as a warrant liability. Until conversion and expiration of the warrants, changes in fair value were recorded as non-operating, non-cash income or expense at each reporting date.
For the year ended December 31, 2015, the fair value of the warrant liability of $1,616,758 was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 261.65%, (3) weighted average risk-free interest rate of 1.15%, (4) expected life of 3.52 years, and (5) estimated fair value of the Company’s common stock of $0.00109 per share.
At September 30, 2016, the fair value of the warrant liability of $1,185,478 was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 198.225%, (3) weighted average risk-free interest rate of 0.71%, (4) expected life of 2.43 years, and (5) estimated fair value of the Company’s common stock of $0.00117 per share.
The following table represents the Company’s warrant derivative liability activity for the nine months ended September 30, 2016
| Balance December 31, 2015 | $ | 1,616,758 | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (740,887 | ) | ||
| Balance September 30, 2016 | $ | 875,871 |
14. Commitments and Contingencies
A. Marketing Agreements
On January 30, 2013, Seaniemac entered into a three year White Label Services Agreement with Boylesports (“initial term”) with the option to renew for further periods of 12 months after the initial term. This agreement expired on January 30, 2016. Boylesports will receive a portion of the gross gaming revenue (GGR) generated from the seanimac.com website. GGR is gross turnover, minus gross win, leaving gross gaming yield and subtracting from that amount tax and any payments to software providers. Seaniemac is entitled to 70% of GGR up to 50,000 Euros, 75% of GGR from 50,000 Euros to 250,000 Euros, 80% of GGR from 250,000 Euros to 1,000,000 Euros, and 85% of GGR in excess of 1,000,000 Euros. Minimum guaranteed payments to Boylesports during the first year of the agreement of 7,500 Euros during months four through nine, 10,000 Euros during months seven through twelve and 15,000 Euros in years two and three. There were no minimum guaranteed payments during the first three months of the contract. As of September 30, 2016 and December 31, 2015, accrued fees to Boylesports totaled $273,893 and $163,532, of which $109,557 and $111,692 was commission due pursuant to the terms of the White Label Services Agreement with Boylesports and $82,168 was primarily attributable to customer service and processing fees.
| F-43 |
B. Consulting and Employment and Material Agreements
The Company have informal arrangement in respect to the receiving services from four parties approximately $25,000 per month was expensed as consulting expenses.
The Company have informal arrangement in respect to the receiving services from three employees approximately $17,200 per month was expensed as payroll expenses
On April 7, 2016, the Company entered into a nine months consulting agreement, effective from June 1, 2016. The fee is $50,000 per month for the first 90days and reduced to $6,500 per month for the next 90 days. During the nine months ended September 30, 2016 the Company paid $100,000 in fees and the same was recorded as “Advertising expenses”. As of September 30, 2016, the agreement was terminated and no additional payments will be made.
On July 14, 2016, the Company entered into an agreement with Optima Information Services, S.L (“OIS”). OIS is the proprietor and/or license of software and is a supplier of software and information technology services. The Company was granted world-wide, non –exclusive, non-transferrable license to use the software in the betting and gaming business. The costs of platform setup and customization of platform is a onetime fee is $271,703 (GBP 195,000) and full support and maintenance monthly fee is $30,514 (GBP 21,900) per month. As of September 30, 2016 the Company paid $62,701 (GBP 45,000) in platform set up cost and the balance to be pay in 12 installments of $17,417 (GBP 12,500). The Company expensed full $271,703 as a direct costs during the nine months ended September 30, 2016.
On July 14, 2016, the Company entered into an agreement with SportsBetting and Gaming Services Malta, LTD (“SGS”). Under the agreement the Company will be using the technology which is licensed to SGS for sports betting and gaming. The agreement will remain in effect for twelve months, however, the agreement can be terminated due to non-payment. There is no upfront costs under the agreement. The SGS will pay the Company a commission comprised of a share of 100% of Net Gaming Revenue less 3% commission with a cap of (EU 6,000) and a minimum of (EU 1,800). Net Gaming Revenue is all revenues received by the business on sports betting and gaming after deducting:
| ● | Sums paid out to players as winnings | |
| ● | Betting and gaming ta and duties | |
|
|
● | Transaction charges to banks and payment processors |
| ● | Cost of bonuses, promotions and commissions paid to players as a promotion or marketing activity | |
| ● | Commission paid to a third party in order to use any software, technology or other products s online or mobile |
If negative revenue for the months is a negative figure that amount will be carried over to the future months. Any negative amount is required to be satisfies within days 10 and get gaming revenue minimum fee will EU 1,800 under the term of this contact. As of September 30, 2016, no revenue generation started from this arrangement.
C. Receivable-Related Parties
During the nine months ended September 30, 2016, in order to timely take advantage of business opportunities provided for under Irish laws, the Company processed a number of transactions through bank accounts of a related party. Following the completion of the fiscal year ended December 31, 2014, the Company as established its own banking relationships and no longer processes transactions using bank accounts of a related party. As of September 30, 2016, the Company’s own banking account was not yet established.
As of September 30, 2016 and December 31, 2015, $0 and $4,615 respectively, was recorded as a payable and receivable from a related party, respectively.
Further, currently, no deposit insurance system has been set up to cover the above related party’s accounts. Therefore, the Company will bear a risk if any of these banks become insolvent.
| F-44 |
E. Litigation
On August 14, 2014, the Company agreed to the entry of an Order Instituting Cease and Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934 (“Agreed Order”), with the SEC. The agreement with the SEC was subsequently modified on September 17, 2014 and is pending final approval from the SEC. Pursuant to the Agreed Order, the Company acknowledged that it was delinquent in its filing requirements in that it had failed to file its annual report on Form 10-K for the year ended December 31, 2013, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and an 8-K filing. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The Company is diligently working towards completing and filing its delinquent reports. The penalty of $50,000 was expensed during the third quarter of 2014. On September 23, 2014, the Company deposited $25,000 in an escrow account with its legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the Securities and Exchange Commission. During the year ended December 31, 2015, the Company paid $12,000 towards the penalty. The remaining balance due is $14,000. The balance remained the same as of September 30, 2016.
On April 5, 2016 Iliad Research and Trading, L.P. (“Iliad”) made a demand on the Company to issue 64,660,484 shares of the Company’s common stock (the “Delivery Shares”) issuable upon exercise of warrants issued to Iliad on December 2, 2013 (the “Iliad Warrant”) and for damages due to Company’s failure to deliver the Delivery Shares to Iliad pursuant to the terms of the Warrant, late fees in the amount of $2,000.00 per trading day (the greater of $2,000.00 and 2% of the product of the number of Delivery Shares not delivered to Investor (64,660,484) multiplied by the closing sales price of the Common Stock on the last trading day the Company could have delivered the Delivery Shares to Iliad without breaching the terms of the Warrant (which closing sale price was $0.0011 according to Iliad’s demand) have been accruing since April 1, 2016 (the “Late Fees”). For the nine months ended September 30, 2016 the Company accrued $360,000 in penalties. The Company has been notified by Apollo that Apollo Capital Corp. believes that it acquired the Warrants when it acquired the Note on December 18, 2015 as discussed in Note 12 despite Iliad’s demand for issuance of the Delivery Shares. The Company has elected to withhold issuance of the Delivery Shares until the dispute between Iliad and Apollo regarding ownership of the Warrants and the rights to the Delivery Shares has been resolved. The Company is, however, subject to possible late fees and damages as a result of its failure to issue the Delivery Shares to Iliad in the event Iliad is deemed the owner of the Warrant.
On November 1, 2016, the Company entered into a settlement agreement and release of claims with Rotenberg, Meril, Solomon, Bertiger & Guttilla, P.C. (“Rotenberg”). Under the Settlement Agreement to Company agreed to settle the debt of $73,045 for $60,000 paid in twenty-four monthly installments of $2,500 each with the first payment due on November 15, 2016. As of September 30, 2016 the Company had the entire liability due Rotenberg recorded in accounts payable.
15. Capital Stock and Capital Stock Transactions
A. Preferred Stock
On December 26, 2007, the Company filed an amendment to its articles of incorporation to the effect of (a) increasing the number of authorized shares of Common Stock to 2 billion from 500 million and (b) authorizing up to 10 million shares of serial preferred stock, with the Company’s board having the authority to establish, from time to time, classes and series of such serial preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each such class or series. The amendments, which were approved in a manner consistent with applicable Nevada law, had been the subject of a definitive information statement filed with the SEC on December 4, 2007.
| F-45 |
The Company has 10,000,000 shares of preferred stock authorized of which 6,100,000 shares were designated in four series as follows:
| ● | Series A Senior Convertible Voting Non-Redeemable Preferred Stock (the “Series A Preferred”) - 2,500,000 shares authorized, 2,293,750 shares issued and outstanding; | |
| ● | Series B Senior Subordinated Convertible Voting Redeemable Preferred Stock (the “Series B Preferred”) - 1,500,000 shares authorized, 1,250,000 shares issued and outstanding; | |
| ● | Series C Senior Subordinated Convertible Voting Redeemable Preferred Stock (the “Series C Preferred”) - 2,000,000 shares authorized, 1,828,569 shares issued and outstanding; and | |
| ● | Series D Senior Convertible Voting Redeemable Preferred Stock (the “Series D Preferred”) -shares, 100,000 shares authorized, 100,000 shares issued and outstanding. |
Each share of Series A Preferred, Series B Preferred and Series C Preferred Stock are convertible, at any time, into 100 restricted shares of Common Stock.
The Company Preferred Stock has liquidation rights as follows: The Series A Preferred is senior in liquidation preference to all other series or classes of capital stock, preferred or common; the Series B Preferred is senior in liquidation preference to all series or classes of capital stock other than the Series A Preferred; the Series C Preferred is senior in liquidation preference to all classes of Common Stock.
Terms of the Series D Preferred include the following:
| ● | Each share of Series D Preferred has a liquidation preference of $1.00 per share. | |
| ● | Each share of Series D Preferred shall entitle its holder to 10,000 votes on all matters submitted to the vote of stockholders of the Company. | |
| ● | Prior to December 31, 2020, the Company has the right, but not the obligation, to redeem the then outstanding shares of Series D Preferred at a rate of $1.00 per share. | |
| ● | Each share of Series D Preferred is convertible into 1,000 shares of Company Common Stock. |
Issuance of Preferred Stock
There were no issuances, conversions or redemptions of Preferred Stock during the nine months ended September 30, 2016.
B. Common Stock.
On October 6 2016, the Company with the consent of the Majority Shareholder and Unanimous Written Consent of the Board of Directors filed with the Securities and Exchange Commission a Schedule 14C and with the State of Nevada an Amended Certificate of Incorporation increasing the authorized shares of common stock by 2,000,000,000 shares of common stock from 2,000,000,000 million shares of common stock to 4,000,000,000 shares of common stock.
We have 4,000,000,000 shares of common stock, par value $.001 per share, authorized. At September 30, 2016 and December 31, 2015 there were 1,963,227,058 and 673,842,729 shares issued and outstanding, respectively.
Common Stock Issuances
During the nine months ended September 30, 2016, the Company converted debt and accrued interest totaling $1,123,309 into 1,274,384,329 shares of common stock and their related derivative liability amounted to $777,878 reclassified into additional paid in capital.
On February 11, 2015 the Company entered into a one-year Consulting and Representation Agreement with Corporate Ads, LLC in exchange for 15,000,000 shares of Company common stock plus $10,000. The shares were valued at $43,500 based upon the closing price of the stock February 11, 2015 of $0.029 per share. The total amount of $45,750 was expensed as consulting expense. The 15,000,000 shares were recorded as common stock issuable for the year ended December 31, 2015. On March 28, 2016, the Company issued 15,000,000 shares of common stock.
| F-46 |
Common Stock Issuable
On July 29 2016, the Company entered into a one year Consulting and Representation Agreement with Corporate Adds, LLC in exchange for 25,000,000 shares of the Company common stock and $25,000 cash payment. The 25,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
On January 10, 2016, the Company entered into a one year Consulting and Representation Agreement with 626 Vanderbilt, LLC in exchange for 60,000,000 shares of the Company common stock. The shares were valued at $54,000 based upon the closing price of the Company’s stock on January 10, 2016 of $0.0009 per share and is being amortized over the one-year term. The total amount of $28,553 was included in prepaid consulting services. Amortization of $25,447 and $0 was recorded for the nine months ended September 30, 2016 and 2015. The 60,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
On July 21, 2016, the Company issued to Chris Gingold a Promissory Note (the “Note”) in the original principal amount of $30,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. For the nine months ended September 30, 2016 and 2015, based on the interest rate of $12% per annum and the issuance of 10,000,000 shares of common stock valued at $9,000 based on upon the closing price of the Company’s stock on July 21, 2016 of $0.0009 per share. In addition since the note is more than 30 days in default, the Company will issue 10,000,000 shares of common stock valued at $5,000 based upon the closing price of the Company’s stock on September 21, 2016 of $0.0005 per share. The 20,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
For the nine months ended September 30, 2016, the company approved the issuance to two officers each of 12,000,000 shares of common stock valued at $4,800 each based on upon the closing price of the Company’s stock on September 30, 2016 of $0.0004 per share for services rendered in relation to Apollo acquisition. The 24,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
16. Warrants and Options
At September 30, 2016 and December 31, 2015, there are no outstanding stock option awards.
The following is a summary of warrant activity during the period from December 31, 2015 to September 30, 2016:
| Number of Warrants |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in Years) |
||||||||||
| Balance, December 31, 2015 | 2,132,426 | $ | 0.012 | 2.9 | ||||||||
| Granted | - | - | ||||||||||
| Exercised | - | - | ||||||||||
| Cancelled Forfeited | - | - | ||||||||||
| Balance, September 30, 2016 | 2,132,426 | $ | 0.012 | 2.17 | ||||||||
For the nine months ended September 30, 2016, the following warrants were outstanding:
| Weighted Average | ||||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Aggregate | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | Intrinsic Value | ||||||||||||||
| $ | 0.012 | 2,132,426 | 2,132,426 | 2.17 | $ | - | ||||||||||||
| F-47 |
On April 5, 2016 Iliad made a demand on the Company to issue 64,660,484 shares of the Company’s common stock (the “Delivery Shares”) issuable upon exercise of warrants issued to Iliad on December 2, 2013 (the “Iliad Warrant”) and for damages due to Company’s failure to deliver the Delivery Shares to Iliad pursuant to the terms of the Warrant, late fees in the amount of $2,000.00 per trading day (the greater of $2,000.00 and 2% of the product of the number of Delivery Shares not delivered to Investor (64,660,484) multiplied by the closing sales price of the Common Stock on the last trading day the Company could have delivered the Delivery Shares to Iliad without breaching the terms of the Warrant (which closing sale price was $0.0011 according to Iliad’s demand) have been accruing since April 1, 2016 (the “Late Fees”). For the nine months ended September 30, 2016 the Company accrued $360,000 in penalties. The Company has been notified by Apollo that Apollo Capital Corp. believes that it acquired the Warrants when it acquired the Note on December 18, 2015 as discussed in Note 12 above despite Iliad’s demand for issuance of the Delivery Shares. The Company has elected to withhold issuance of the Delivery Shares until the dispute between Iliad and Apollo regarding ownership of the Warrants and the rights to the Delivery Shares has been resolved. The Company is, however, subject to possible late fees and damages as a result of its failure to issue the Delivery Shares to Iliad in the event Iliad is deemed the owner of the Warrant.
For the year ended December 31, 2015, the following warrants were outstanding:
| Weighted Average | ||||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Aggregate | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | Intrinsic Value | ||||||||||||||
| $ | 0.012 | 2,132,426 | 2,132,426 | 2.9 | $ | - | ||||||||||||
17. Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
During 2015, the Company’s valuation allowance was increased by approximately $466,000 from the prior year. Further, for interim reporting the Company will pass the valuation allowance calculation and feels that the same would be done during the year ended reporting December 31, 2016 for better comparison.
18. Subsequent Events
A. Conversions
As of the date of the filing of these financial statements with the SEC on Form 10-Q, the holders of convertible debt issued by the Company in the approximate amount of $62,041 comprised of principal and accrued interest into approximately 501,225,762 shares of the Company’s common stock.
B. Financing
On October 6, 2016, the Company issued to GE Park, LLC (“GE Park”) a Convertible Promissory Note (the “Note”) in the original principal amount of $250,000 (the “Purchase Price”) which Note bears interest at 8% per annum and is compounded daily. The note was issued in exchange for expenses paid on the Company’s behalf by GE Park as of September 30, 2016. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Barry Brookstein’s option, at any time beginning 180 days after the date of issuance at a 65% discount of by the lowest trading price for the Company’s common stock during the 30 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on demand. The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
| F-48 |
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Barry Brookstein by paying Barry Brookstein an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is 130% multiplied the amount that the Company is prepaying. Notice of prepayment has to be provided two business days prior to prepayment date and prepayment much be received within twelve business days of the repayment notice. GE Park may convert the note in whole or in party at any time during the prepayment period.
On October 19, 2016, the Company issued to Apollo Capital Group, LLC (“Apollo Capital”) a Convertible Promissory Note (the “Note”) in the original principal amount of $220,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The Company sold the Note to Apollo Capital for $200,000 with $20,000 retained by Apollo Capital as an original issuance discount for due diligence and legal expenses related to the transaction. . Subsequent to September 30, 2016, the Company received $104,500. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at Apollo Capital’s option, at any time beginning 180 days after the date of issuance at a 50% discount of by the lowest trading price for the Company’s common stock during the 20 trading day period prior to conversion (the “Conversion Price”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is April 18, 2017 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time after 10 days’ prior written notice by the Company to Apollo Capital by paying Apollo Capital an amount equal to the Prepayment Percentage (as hereinafter defined) multiplied by the sum of the principal amount due, accrued interest and any other amounts due under the Note. The Prepayment Percentage is (i) 150% during the period beginning on the date the Note is issued and ending 90 days thereafter or (ii) 200% during the period beginning 91 days after the Note is issued and ending 180 days thereafter. After the expiration of the 180 days after the date the Note issued, the Company has no right of prepayment.
On October 19, 2016, the Company issued to GHS Investments, LLC (“GHS Investments”) a Convertible Promissory Note (the “Note”) in the original principal amount of $97,500 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. The Company sold the Note to GHS Investments for $75,000 with $22,500 retained by GHS Investments as an original issuance discount for due diligence and legal expenses related to the transaction. . Subsequent to September 30, 2016, the Company received $75,000. As a further inducement the Company will issue 90,000,000 shares of the Company’s stock on the first business day which is 180 calendar days from the execution of the agreement. The principal amount and accrued interest under the Note is convertible into the Company’s common stock, $0.001 par value (the “Common Stock”), at GHS Investments option, at any time beginning 180 days after the date of issuance at a 40% discount of by the lowest trading price for the Company’s common stock during the 25 trading day period prior to conversion (the “Conversion Price”). If at any time after the execution of this Note, the Company experiences a “DTC Chill,” the Conversion Price Discount shall be increased by five percent (5%). If at any time following the execution of this Note, the Company becomes ineligible to participate in the DTC’s “DWAC” system, the Conversion Price Discount will be increased by five percent (5%). Following any Event of Default, the Conversion Price discount shall be increased by ten percent (10%). All outstanding principal and accrued interest on the Note is due and payable on December 3, 2016 or within 48 business hours from the Company’s receipt of any financing or proceeds over $150,000 (the “Maturity Date”). The conversion price is subject to adjustment in the event the Company sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of Common Stock at an effective price per share that is lower than the conversion price in effect on the date of such issuance. In addition, the Conversion Price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
The principal balance of the Note may be prepaid at any time prior to maturity.
C. Agreements
On October 17, 2016, the Company entered into a one month Advertisement Agreement with Worldwide Strategies, Inc. in exchange for $80,000 cash payment. Payment is due $40,000 upon the execution of the agreement and $40,000 paid over 4 weeks in equal installments
| F-49 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Business
SeanieMac International, Ltd. (the “Company”) maintain a website for online gambling, including sports betting and casino gaming on the apollobet.com website following our acquisition of assets from Apollo Betting and Gaming Ltd (“Apollo Betting”) discussed below. Following our acquisition of Apollo Betting, we closed down the seaniemac.com website which we launched in May 2013.
Certain Key Financial Metrics
| ● | Gross gaming revenues. We believe gross gaming revenue is an important indicator for our business. This amount represents the net gain or loss from online sports betting activities during the period. |
| ● | Promotional allowances. Promotional allowances reflect the cost of customer promotions and bonuses, including free bets, used to generate revenues and incurred during the period. |
| ● | Amounts staked. Amounts staked is a non-GAAP financial measure that reflects the gross amount of online sportsbook betting activities during the period. |
We consider the amounts staked metric to be an important indicator of our growth and business performance as we believe it is representative of the dollar volume of wagers generated through our Website. We intend to use amounts staked, along with other U.S. GAAP financial measures to allocate resources and evaluate performance internally.
Our Outlook
We plan to continue to grow our business by strategically deploying our marketing resources and expanding the number of new sponsorship programs that will provide nationwide exposure of our brand. In addition, we expect to expand our business following our recent acquisition of assets from Apollo Betting, pursuant to which the Company and its wholly owned subsidiary SeanieMac Holdings Ltd., (“Holdings”) purchased Apollo Betting’s online gambling and betting business carried in the United Kingdom, via a purchase of Apollo Betting’s assets related to that business. and the migration of the acquired business onto a new operating platform which is capable of delivering the online betting services provided by Apollo.
Our overhead costs outside of discretionary marketing, corporate finance and Securities and Exchange Commission (“SEC”) legal and administrative expenses are expected to remain low due to our utilization of a third party online gaming website provider to develop and operate all aspects of our gaming Website. As we grow, the need to hire additional staff to manage Website and betting operations will be minimized allowing us to focus on marketing and customer retention. Since marketing is a key factor in our growth, we plan to continue to spend available capital on marketing and business development for the foreseeable future and will continue our efforts to raise additional capital to achieve these objectives.
We have funded most of our Website development activities utilizing advances from a related party shareholder. See “Management’s Discussion and Analysis—Liquidity and Capital Resources.”
The Company’s Results of Operations
The following comparative analysis on results of operations was based primarily on the condensed consolidated financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. The results discussed below are for the three and nine months ended September 30, 2016 and 2015. For comparative purposes, we are comparing the three and nine months ended September 30, 2016, to the three and nine months ended September 30, 2015. The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and the related notes included in this quarterly report.
| 4 |
Comparison of operating results for three months ended September 30, 2016 and the three months ended September, 2015
Revenue
Gross gaming revenues (“GGRs”) during the three months ended September 30, 2016 and 2015 were $7,480 and $10,621 respectively. The decrease in gross gaming revenues for the three months ended September 30, 2016 over the three months ended September 30, 2015 was primarily attributable to losses from online sports betting activities during the period.
Promotional Allowances
Promotional allowances during the three months ended September 30, 2016 totaled $24,300, as compared to promotional allowances of $11,438 for the comparable period in 2015, an increase of $12,862. The increase in promotional allowances reflects the cost of customer’s promotions and bonuses, including free bets.
Operating Expenses
Operating expenses during the three months ended September 30, 2016 totaled $541,737, as compared to operating expenses of $131,449 for the comparable period in 2015, an increase of $410,288. The increase in operating expenses reflects an increase in selling, general and administrative expenses including platform costs of $271,703.
Operating Loss
Our operating loss during the three months ended September 30, 2016 totaled $626,018, as compared to our operating loss of $132,266 for the comparable period in 2015. The increase in operating loss for the three months ended September 30, 2016 over the three months ended September 30, 2015 of $493,752 was attributable to the increases in operating expenses.
Other Income (Expenses)
Other expenses increased by $1,617,081 to $2,230,190 for the three months ended September 30, 2016, from $613,019 for the three months ended September 30, 2015. The increase in other expenses is primarily due to change in fair value of derivative liabilities, partially offset by a loss on debt modification and an increase in interest expense.
Net Income (Loss)
Our net loss for the three months ended September 30, 2016 was $2,856,208, an increase of $2,110,833, compared to a net loss of $745,375 for the three months ended September 30, 2015, due to the reasons noted above.
Comparison of operating results for the nine months ended September 30, 2016 and the nine months ended September 30, 2015
Revenue
GGRs during the nine months ended September 30, 2016 and 2015 were $153,444 and $163,450, respectively. The decrease in gross gaming revenues for the nine months ended September 30, 2016 over the nine months ended September 30, 2015 of $10,006 was primarily attributable to losses from online sports betting activities during the period.
Promotional Allowances
Promotional allowances during the nine months ended September 30, 2016 totaled $213,168, as compared to promotional allowances of $120,159 for the comparable period in 2015, an increase of $93,009. The increase in promotional allowances reflects the cost of customer promotions and bonuses, including free bets, used to generate revenues.
| 5 |
Operating Expenses
Operating expenses during the nine months ended September 30, 2016 totaled $1,419,784, as compared to operating expenses of $548,106 for the comparable period in 2015, an increase of $871,678. The increase in operating expenses reflects an increase in selling, general and administrative expenses including platform costs of $271,703.
Operating Loss
Our operating loss during the nine months ended September 30, 2016 totaled $1,664,391, as compared to our operating loss of $504,615 for the comparable period in 2015. The increase in operating loss for the nine months ended September 30, 2016 over the nine months ended September 30, 2015 of $1,159,776 was attributable to the revenue reduction and increases in promotional allowances and operating expenses.
Other Income (Expenses)
Other income (expenses) increased by $(825,116) to $(1,926,061) for the nine months ended September 30, 2016, from $(1,100,945) for the nine months ended September 30, 2015. The increase in other income is primarily due to change in fair value of derivative liabilities, partially offset by a loss on debt modification and an increase in interest expense.
Net Income (Loss)
Our net income (loss) for the nine months ended September 30, 2016 was $3,590,452, a increase of $1,984,892, compared to a net loss of $1,605,560 for the nine months ended September 30, 2015, due to the reasons noted above.
Liquidity and Capital Resources
Liquidity is a measure of a company’s ability to meet potential cash requirements. We had current assets at September 30, 2016, including cash of $9,385 and prepaid expenses and other current assets, of $113,646. We had total current liabilities of $11,964,354 and working capital deficiency of $11,850,708, accumulated deficit of $12,307,358 and stockholders’ deficit of $9,565,355 as of September 30, 2016. We are reliant upon shareholder, affiliate and third-party loans to fund operations. We have not realized positive operating cash flow. As a result, our current cash position is not sufficient to fund our anticipated cash requirements over the next 12 months, including operations and capital expenditures.
Net cash used in operating activities during the nine months ended September 30, 2016 was $722,782, primarily relating to our $3,590,452 net loss, increases in operating assets and liabilities, non-cash interest expense, partially offset by change in fair value of derivative liabilities, increase in prepaid expenses and accrued officer’s compensation. In the comparable period of 2015, we had net cash used in operating activities of $154,760.
Net cash used in investing activities increased during the nine months ended September 30, 2016 by $80,000 to $80,000 from $0 for the nine months ended September 30, 2015 due to due to acquisition of Apollo Betting during the period.
Net cash provided by financing activities increased during the nine months ended September 30, 2016 by $756,896 to $815,300 from $58.404 for the nine months ended September 30, 2015. The increase was primarily attributable to proceeds received from issuance of convertible notes approximately $645,286 (net of discount) and from related party approximately $140,014 during the period.
In order to continue to operate our business, we estimate we will require working capital of approximately $500,000 for Website operations, marketing expenses and general and administrative expenses. During the nine months ended September 30, 2016, related parties lent us approximately $140,014 in order to fund our temporary working capital requirements. While related parties may continue to lend us funds for our temporary working capital needs, we have not entered into any agreements with anyone for any future loans. In the event we are unable to borrow funds needed for our business, or we are unable to repay our current obligations when due, we will have to seek additional financing, and no assurances can be given that such financing would be available on a timely basis, on terms that are acceptable or at all. Failure to obtain such additional financing could result in our inability to operate our website which represents our sole business and would materially adversely affect our business, results of operations and financial condition and threaten our financial viability.
| 6 |
Convertible Promissory Notes
Convertible promissory notes as of September 30, 2016 and December 31, 2015 consisted of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Iliad Note (1): | ||||||||
| Secured convertible promissory note - Iliad | $ | 380,000 | $ | 380,000 | ||||
| Total | 380,000 | 380,000 | ||||||
| Less: | ||||||||
| OID of $20,000, net of amortization of $20,000 and $20,000 as of June 30, 2016 December 31, 2015, respectively | - | - | ||||||
| Conversions into 99,520,802 shares of common stock | (100,062 | ) | (100,062 | ) | ||||
| Principal adjustment per note assignment | 40,119 | 40,119 | ||||||
| Assignment to Apollo Capital Corporation | (320,057 | ) | (320,057 | ) | ||||
| Loan discount of $202,500, net of amortization of $202,500 and $202,500 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Secured convertible promissory note - Iliad | $ | - | $ | - | ||||
| Redwood Note (2): | ||||||||
| Secured convertible promissory note - Redwood | $ | 75,000 | $ | 75,000 | ||||
| Total | 75,000 | 75,000 | ||||||
| Less: | ||||||||
| Conversion into 44,988,900 shares of common stock | (43,738 | ) | (43,738 | ) | ||||
| Assignment to Apollo Capital Corporation | (31,262 | ) | (31,262 | ) | ||||
| - | - | |||||||
| Total | - | - | ||||||
| Loan discount of $75,000, net of amortization of $75,000 and $75,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Secured convertible promissory note – Redwood (note in default) | $ | - | $ | - | ||||
| LG Capital Funding, LLC (3): | ||||||||
| 10% convertible redeemable note - LG Capital | $ | 40,000 | $ | 40,000 | ||||
| Principal adjustment per note penalty clause | 97,000 | - | ||||||
| Total | 137,000 | 40,000 | ||||||
| Loan discount of $40,000, net of amortization of $40,000 and $40,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| 10% convertible redeemable note - LG Capital | $ | 137,000 | $ | 40,000 | ||||
| 8% convertible redeemable note - LG Capital | $ | 36,750 | $ | 36,750 | ||||
| Total | 36,750 | 36,750 | ||||||
| Loan discount of $36,750, net of amortization of $36,750 and $36,750 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion into 51,082,166 shares of stock | (36,750 | ) | (36,750 | ) | ||||
| 8% convertible redeemable note - LG Capital | $ | - | $ | - | ||||
| WHC Capital, LLC (4): | ||||||||
| 10% convertible redeemable note - WHC Capital | $ | 32,000 | $ | 32,000 | ||||
| - | - | |||||||
| Total | 32,000 | 32,000 | ||||||
| Loan discount of $32,000, net of amortization of $32,000 and $32,000 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion into 37,034,976 shares of stock | (32,000 | ) | (32,000 | ) | ||||
| 10% convertible redeemable note - WHC Capital | $ | - | $ | - | ||||
| Summit Trading Ltd, (5): | ||||||||
| 10% convertible redeemable note - Summit | $ | 62,589 | $ | 62,589 | ||||
| Total | 62,589 | 62,589 | ||||||
| Loan discount of $56,804, net of amortization of $56,804 and $56,804 as of September 30, 2016 and December 31, 2015, respectively | - | - | ||||||
| Conversion of demand note into a convertible note | 36,530 | 36,530 | ||||||
| Conversion of accounts payable into a convertible note | 35,814 | 35,814 | ||||||
| Transfer to Apollo Capital Corp | (62,559 | ) | (62,589 | ) | ||||
| Conversion into 45,260,256 shares of common stock as of December 31, 2015 | (8,500 | ) | (8,500 | ) | ||||
| 10% convertible redeemable note - Summit | $ | 63,844 | $ | 63,844 | ||||
| Apollo Capital Corporation (6): | ||||||||
| Notes purchased from GE Park, LLC | $ | 291,190 | $ | 256,190 | ||||
| Notes purchased from Summit | 62,589 | 62,589 | ||||||
| Notes purchased from Redwood | 31,262 | 31,262 | ||||||
| Notes purchased from Iliad | 320,057 | 320,057 | ||||||
| 12% convertible redeemable note - Apollo | 35,500 | - | ||||||
| 12% convertible redeemable note - Apollo | 55,000 | - | ||||||
| 12% convertible redeemable note - Apollo | 16,500 | 8,500 | ||||||
| Principal adjustment per note penalty clause | 199,000 | - | ||||||
| Assignment to Old Main Capital LLC | (88,235 | ) | ||||||
| Loan discount of $107,000 net of amortization of $105,085 and $1,915 as of September 30, 2016 and December 31, 2015, respectively | - | (6,585 | ) | |||||
| Conversion into 1,052,670,044 and 321,234,184 shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (410,515 | ) | (209,233 | ) | ||||
| 12% convertible redeemable note - Apollo Capital Corp | $ | 512,348 | $ | 462,780 | ||||
| GE Park, LLC (7) | ||||||||
| Conversion of demand note into a convertible note | $ | 54,000 | $ | - | ||||
| Conversion into 77,142,856 and 0 shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (54,000 | ) | - | |||||
| 4% convertible redeemable note - GE Park, LLC | $ | - | $ | - | ||||
| Apollo Management Group (8) | ||||||||
| 12% convertible redeemable note - Apollo | 220,000 | - | ||||||
| 12% convertible redeemable note – Apollo | 110,000 | - | ||||||
| 12% convertible redeemable note – Apollo | 205,150 | |||||||
| Loan discount of $535,150 net of amortization of $300,904 and $0 as of September 30, 2016 and December 31, 2015, respectively | (234,246 | ) | - | |||||
| 12% convertible redeemable note - Apollo Management Group | $ | 300,904 | $ | - | ||||
| Old Main Capital LLC (9) | ||||||||
| Notes purchased from Apollo Capital Corporation | $ | 88,236 | $ | - | ||||
| 12% convertible redeemable note – OMC | 83,334 | - | ||||||
| Loan discount of $83,334 net of amortization of $23,239 and $0 as of September 30, 2016 and December 31, 2015, respectively | (60,095 | ) | - | |||||
| Conversion into 178,571,429 and -0- shares of common stock, respectively, as of September 30, 2016 and December 31, 2015 | (20,000 | ) | - | |||||
| 12% convertible redeemable note - Old Main Capital LLC | $ | 91,475 | $ | - | ||||
| Convertible promissory notes, net | $ | 1,105,571 | $ | 566,624 | ||||
| 7 |
Convertible promissory notes related party consists of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Brookstein Note (10): | ||||||||
| Conversion of accrued compensation into a convertible note | $ | 155,000 | $ | - | ||||
| Conversion of loan payable into a convertible note | 14,768 | - | ||||||
| Conversion of due to balance into a convertible note | $ | 28,189 | $ | - | ||||
| Secured convertible promissory note – related party | $ | 197,957 | $ | - | ||||
Notes Payable
Loans payable to related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Loan payable - GE Park, LLC (A) | $ | - | $ | 85,000 | ||||
| Loans payable – Other related parties | - | 4,615 | ||||||
| Loans payable - Brookstein (B) | 933- | 15,702 | ||||||
| Loans payable - RDRD II Holding, LLC (C), net of $17,534 debt discount | 1,107,060 | 890,177 | ||||||
| Total | $ | 1,107,993 | $ | 995,494 | ||||
Due to related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Due to related party - GE Park, LLC (D) | $ | 370,195 | $ | 426,737 | ||||
| Due to related party – Brookstein B. (D) | - | 28,188 | ||||||
| Due to related party – Kessler (D) | 28,086 | 19,873 | ||||||
| Total | $ | 398,281 | $ | 474,798 | ||||
| 8 |
On September 30, 2016, the Company issued a 12% convertible promissory note in the principal amount of $28,188 for loan payable to Brookstein B. The remaining unpaid salary is $0.
Due to non-related parties consist of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| Summit Trading LTD (D) | $ | 127,576 | $ | 199,025 | ||||
| Total | $ | 127,576 | $ | 199,025 | ||||
Going Concern
Our condensed consolidated unaudited financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s continued losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern.
The Company’s primary need for cash during the next 12 months is to fund payments of operating costs. At September 30, 2016, the Company had working capital deficiencies and accumulated deficit of $11,850,708 and $12,307,348, respectively.
We believe we will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain our operations until we can achieve profitability and positive cash flows, if ever.
Management intends to finance operating costs over the next 12 months with existing cash on hand, loans from stockholders and directors, and a possible private placement of our securities. No stockholder, director, or possible private placement participant has agreed to loan us any funds nor agreed to purchase any of our securities. The Company continues to explore various financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate additional revenue. However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Related Party Transactions
As of September 30, 2016 and December 31, 2015, $398,281 and $474,798 respectively, was recorded as a payable to a related party.
Accrued Officer’s Compensation. Effective July 1, 2016 the Company increased the officer’s compensation to $5,000 per month and a $5,000 bonus for the Officers’ acceptance of salary in a form of a convertible note in lieu of the cash payment. The Company accrued compensation for Brookstein in the amount of $35,000 during the three months ended September 30, 2016 and 2015 and $15,000 during the nine months ended September 30, 2016 and 2015, the unpaid balance was $155,000 and $120,000 as September 30, 2016 and December 31, 2015, respectively. Effective September 30, 2016, the Company issued a 12% convertible promissory note in the principal amount of $155,000 for unpaid salary. The remaining unpaid salary is $0.
| 9 |
Loans Payable. Loans payable to related parties were an aggregate of $1,107,993 and $995,494 for the period ended September 30, 2016 and December 31, 2015, respectively. See Note 11 to the unaudited condensed consolidated financial statements appearing elsewhere in this report.
Due to related parties. At September 30, 2016 and December 31, 2015, due to related parties totaled $398,221 and $474,798, respectively. See Note 11 to the unaudited condensed consolidated financial statements appearing elsewhere in this report.
Interest Expense - Related Parties. Interest expense to related parties totaled $44,047 and $41,626 for nine months ended September 30, 2016 and 2015 respectively. See Note 11 to the unaudited condensed consolidated financial statements appearing elsewhere in this report.
Off-Balance Sheet Arrangements
There are 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Critical Accounting Policies
Our condensed consolidated financial statements and related public information are based on the application of U.S. GAAP. Our significant accounting policies are summarized in Note 4 to our consolidated financial statements. While all of these significant accounting policies impact our financial condition and the results of our operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements. Our critical accounting policies are discussed below .
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries including Call Compliance, Inc., Telephone Blocking Services Corporation, Call Compliance.com, Inc., Jasmine Communications, Inc., Call Center Tools, Inc., Execuserve Corp. which are inactive, its 70% owned subsidiary, Seaniemac and Seaniemac Holdings Ltd. All inter-company balances and transactions have been eliminated in consolidation.
The Company formed a subsidiary in Isle of Man called Pledge Limited in October 2012 that was intended to operate as a billing entity to utilize favorable tax treatment in the Isle of Man. The Company abandoned this plan and no transactions were transpired through this entity which remains dormant. There were no assets, liabilities or any transactions for Pledge Limited during its existence.
B. Foreign Currency
The assets and liabilities of Seaniemac, whose functional currency is the Euro, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
The assets and liabilities of Seaniemac Holding, Ltd, whose functional currency is the Sterling, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
| 10 |
C. Equipment Depreciation and Amortization
Equipment is stated at cost less accumulated depreciation. These assets are depreciated on a straight lines basis over their estimated useful lives, generally five years.
D. Identifiable Intangible Assets
ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on goodwill and intangible assets.
| Useful Life | September 30, 2016 | December 31, 2015 | ||||||||
| Goodwill | Indefinite | 996,894 | - | |||||||
| Customer Lists and Intangible Assets | 3 Years | 767,445 | - | |||||||
| Accumulated amortization | (171,703 | ) | - | |||||||
| Net carrying value | $ | 1,592,636 | $ | - | ||||||
The company recorded above goodwill and intangible assets related to the acquisition of Apollo Betting and Gaming, LTD. It has been determined that the goodwill has an indefinite useful life and are not subject to amortization. However, the goodwill will be reviewed for impairment annually or more frequently if impairment indicators arise. For the nine months September 30, 2016 no impairment loss has been recorded.
E. Revenue Recognition
The Company recognized revenue on arrangements in accordance with FASB Codification Topic 605, “Revenue Recognition” (“ASC Topic 605”). Under ASC Topic 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
We had revenues of $7,480 and $10,621 for the three months ended September 30, 2016 and 2015; respectively. Promotional allowances and direct costs of $24,300 and $11,438 for the three months ended September 30, 2016 and 2015; respectively.
We had revenues of $153,444 and $163,650 for the nine months ended September 30, 2016 and 2015; respectively. Promotional allowances and direct costs of $213,168 and $120,159 for the nine months ended September 30, 2016 and 2015; respectively.
The Company recognized Gross gaming revenue is the gross gaming yield which is the difference between gaming wins and losses and includes promotional betting (“Free Bets”). Free Bets are included in promotional allowances and are deducted from gross gaming revenue to arrive at the net gaming revenue. All other costs are included in selling, general and administrative expenses.
| 11 |
Significant Customers
During the three months ended September 30, 2016, the Company had two customers which accounted for more than 10% of the Company’s revenues (29% and 10%).
During the three months ended September 30, 2015 the Company had no customer which accounted for more than 10% of the Company’s revenues.
During the nine months ended September 30, 2016, the Company had two customers which accounted for more than 10% of the Company’s revenues (15% and 11%).
During the nine months ended September 30, 2015 the Company had no customers which accounted for more than 10% of the Company’s revenues).
Significant Vendors
During the three months ending September 30, 2016, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (77% and 22%).
During the nine months ending September 30, 2016, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (44% and 29%).
During the three months ending September 30, 2015, the Company had two vendors which accounted for more than 10% of the Company’s cost of revenue (31%).
During the nine months ending September 30, 2015, the Company had one vendor which accounted for more than 10% of the Company’s cost of revenue (14%).
F. Advertising
All advertising costs are expensed as incurred. Advertising costs incurred for the production of a commercial are considered prepaid expenses until the commercial airs, at which time such costs are expensed.
G. Stock Based Compensation Arrangements
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
From time to time, our shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of its assets and expenses.
H. Derivative Financial Instruments
We evaluate our financial instruments 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 in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
| 12 |
We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have 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. Any change in fair value during the period recorded in earnings as “Other income (expense) - gain (loss) on change in derivative liabilities.”
Debt Derivative Liability:
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Debt derivative liability – September 30, 2016 | $ | 3,424,839 | $ | — | $ | — | $ | 3,424,839 | ||||||||
| Debt derivative liability – December 31, 2015 | $ | 2,310,067 | $ | — | $ | — | $ | 2,310,067 | ||||||||
The following table represents the Company’s derivative liability activity for the nine months ended September 30, 2016:
| Balance December 31, 2015 | $ | 2,310,067 | ||
| Initial measurement at issuance date of the notes | 1,400,119 | |||
| Loss on debt modification | 134,614 | |||
| Loss on debt modification- related party | 444,339 | |||
| Reclassification of derivative liability associated with convertible debt | (777,878 | ) | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (86,422 | ) | ||
| Balance September 30, 2016 | $ | 3,424,839 |
Warrant derivative liability:
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Warrant derivative liability – September 30, 2016 | $ | 875,871 | $ | — | $ | — | $ | 875,871 | ||||||||
| Warrant derivative liability – December 31, 2015 | $ | 1,616,758 | $ | — | $ | — | $ | 1,616,758 | ||||||||
The following table represents the Company’s warrant derivative liability activity for the nine months ended September 30, 2016
| Balance December 31, 2015 | $ | 1,616,758 | ||
| Change in derivative liability during the nine months ended September 30, 2016 | (740,887 | ) | ||
| Balance September 30, 2016 | $ | 875,871 |
I. Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. The Company currently has no cash equivalents which would consist of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased.
| 13 |
J. Allowance for Doubtful Accounts
The Company reserves for receivables that may not be collected. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. During the nine months ended September 30, 2016 and 2015, the Company did not record any accounts receivable and no associated allowance was recorded.
K. Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with U.S. 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
L. Earnings (loss) per common share
The Company utilizes the guidance per FASB Codification “ASC 260” “Earnings per Share”. Basic earnings (loss) per share are calculated by dividing income (loss) available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified-treasury stock method).
The computation of basic and diluted loss per share for the nine months ended September 30, 2016 and 2015 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| September 30, 2016 | September 30, 2015 | |||||||
| Stock Warrants (Exercise price - $0.000175-0.0042/share) | 2,307,692,571 | 1,488,822,973 | ||||||
| Convertible Debt (Exercise price - $0.000105 - $0.00030share) | 11,651,270,250 | 1,090,438,356 | ||||||
| Preferred Series – A (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 229,375,000 | 229,375,000 | ||||||
| Preferred Series – B (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 125,000,000 | 125,000,000 | ||||||
| Preferred Series – C (Exercise price – 1 Preferred shares is convertible into 100 Common Stock | 182,856,900 | 182,856,900 | ||||||
| Preferred Series – D (Exercise price – 1 Preferred shares is convertible into 1000 Common Stock | 100,000,000 | 100,000,000 | ||||||
| Total | 14,596,194,722 | 3,116,493,229 | ||||||
The Company’s obligations to issue shares upon conversion of its outstanding convertible notes, the exercise of stock options and warrants and conversion of its preferred stock (the “Convertible Instruments”) at current market prices for its common stock exceeds the 12,559,421,780 authorized but unissued shares of Common Stock as of the date of this report (the “Potentially Issuable Shares”). While it is uncertain whether the Company would receive requests to issue all of the Potentially Issuable Shares and the number of such shares fluctuates based on the market price of the Company’s common stock, the Company may increase the number of its authorized shares of common stock or effectuate a recapitalization, or a combination of both, in order to make available additional shares of its Common Stock for the Potentially Issuable Shares. Such action would require shareholder approval. Until such time as the Company has a sufficient number of shares of its Common Stock for available for issuance to cover the Potentially Issuable Shares, the Company could be subject to penalties and damages to the holders of the Convertible Instruments in the event it does not deliver the Potentially Issuable Shares upon request by a holder of the Convertible Instruments. Furthermore, the lack of available shares of common stock may be deemed a default under one or more of the Convertible Instruments.
| 14 |
Material Equity Instruments
The Company evaluates stock options, stock warrants and other contracts (convertible promissory note payable) to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of ASC 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity (“ASC 815”). The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative financial instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to a liability account at the fair value of the instrument on the reclassification date.
Certain of the Company’s embedded conversion features on debt, convertible preferred stock and outstanding warrants are treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. In the case of insufficient authorized share capital available to fully settle outstanding contracts, the Company utilizes the earliest maturity date sequencing method to reclassify outstanding contracts as derivative instruments. These contracts are recognized currently in earnings until such time as the convertible notes or warrants are exercised, expire, the related rights have been waived and/or the authorized share capital has been amended to accommodate settlement of these contracts. These instruments do not trade in an active securities market.
As of September 30, 2016, the Company has already recorded a charge for the derivative liability resulting from the debt and warrants of $4,300,710. Accordingly, the insufficient of authorized capital had no additional impact on the Company’s financial statements.
M. Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2016 and December 31, 2015. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
| 15 |
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes (net of discount) –September 30, 2016 | $ | 1,105,571 | $ | - | $ | - | $ | 1,105,571 | ||||||||
| Convertible notes (net of discount) - | ||||||||||||||||
| September 30, 2016 – related party | $ | 197,957 | $ | - | $ | – | $ | 197,957 | ||||||||
| Convertible notes (net of discount) – December 31, 2015 | $ | 566,624 | $ | - | $ | - | $ | 566,624 | ||||||||
| Intangible Assets – September 30, 2016 | $ | 595,741 | $ | - | $ | 595,741 | $ | - | ||||||||
The following table provides a summary of the changes in fair value of the Company’s Convertible Promissory Notes, which are both Level 3 liabilities as of September 30, 2016:
| Balance at December 31, 2015 | $ | 566,624 | ||
| Issuance of notes | 716,984 | |||
| Unamortized debt discount | (716,984 | ) | ||
| Principal adjustment – per note assignment and penalty | 296,000 | |||
| Accounts payable and short term demand notes payable reclassified into convertible notes | 85,000 | |||
| Amortized debt discount | 478,882 | |||
| Conversion of notes | (320,935 | ) | ||
| Balance at September 30, 2016 | $ | 1,105,571 |
The following table provides a summary of the changes in fair value of the Company’s Convertible Promissory Notes – related parties, which are both Level 3 liabilities as of September 30, 2016:
| Balance at December 31, 2015 | $ | - | ||
| Accounts payable and short term demand notes payable reclassified into convertible notes | 197,957 | |||
| Balance at September 30, 2016 | $ | 197,957 |
The Company determined the value of its convertible notes using a market interest rate and the value of the warrants and beneficial conversion feature issued at the time of the transaction less the accretion. There is no active market for the debt and the value was based on the delayed payment terms in addition to other facts and circumstances at the nine months ended September 30, 2016 and year ended December 31, 2015.
N. Deferred Financing Costs
Costs incurred with obtaining and executing debt arrangements are capitalized and amortized over the term of the related debt.
O. Reclassifications
Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.
| 16 |
P. Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 740 “Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted the provisions of FASB ASC 740. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC 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. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At September 30, 2016 and December 31, 2015, the Company had no material uncertain recognized tax positions.
The Company’s policy for recording interest and penalties is to record such items as a component of income before income taxes. Penalties are recorded in other expense and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations. There were no amounts accrued for penalties or interest as of September 30, 2016 and December 31, 2015. The Company does not expect its unrecognized tax benefit position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Q. Recently Issued Accounting Pronouncements
ASU. 2016-16
In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 will require the tax effects of intercompany transactions, other than sales of inventory, to be recognized currently, eliminating an exception under current GAAP in which the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the first interim period of our 2019 fiscal year, with early adoption permitted.
ASU.2016-15
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017 (fiscal year 2019 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-15 on its Consolidated Financial Statements.
ASU.2016-13
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Statements,” which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019 (fiscal year 2021 for the Company). The Company has not yet determined the potential effects of the adoption of ASU 2016-13 on its Consolidated Financial Statements.
| 17 |
ASU.2016-08
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.
ASU.2016-09
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.
ASU.2016-10
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.
ASU.2016-02
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.
| 18 |
ASU 2016-01
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
ASU 2015-17
In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets.
ASU 2015-16
In September 2015, the FASB issued ASU 2015-16, simplifying the Accounting for Measurement –Period Adjustments. Changes to the accounting for measurement-period adjustments relate to business combinations. Currently, an acquiring entity is required to retrospectively adjust the balance sheet amounts of the acquiree recognized at the acquisition date with a corresponding adjustment to goodwill as a result of changes made to the balance sheet amounts of the acquiree. The measurement period is the period after the acquisition date during which the acquirer may adjust the balance sheet amounts recognized for a business combination (generally up to one year from the date of acquisition). The changes eliminate the requirement to make such retrospective adjustments, and, instead require the acquiring entity to record these adjustments in the reporting period they are determined. The new standard is effective for both public and private companies for periods beginning after December 15, 2015. Adoption of this new standard is not expected to have a material impact on the Company’s consolidated financial statements.
ASU 2015-15
In August 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-15, “Interest - Imputation of Interest (Subtopic 835-30).” ASU 2015-15 provides guidance as to the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. We do not expect the adoption of ASU 2015-15 to have a material effect on our financial position, results of operations or cash flows.
ASU 2015-14
In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606).” The amendments in this ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09.
ASU 2015-11
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” ASU 2015-11 simplifies the accounting for the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11 to have a material effect on our financial position, results of operations or cash flows.
| 19 |
ASU 2015-05
In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40).” ASU 2015-05 provides guidance regarding the accounting for a customer’s fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies’ annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2015-05 to have a material effect on our financial position, results of operations or cash flows.
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015 The Company does not expect the adoption of ASU 2015-07 to have a material effect on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. This amendment is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.
| 20 |
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.
ASU 2014-15
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.
ASU 2014-12
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
ASU 2014-09
In May 2014, the FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.
| 21 |
The Company has evaluated recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC and we have not identified any that would have a material impact on the Company’s financial position, or statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
This item is not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, who is also our Chief Financial Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2016. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2016.
Management identified a material weakness in its assessment of the effectiveness of disclosure controls and procedures as of September 30, 2016. We did not maintain an adequate number of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements, including the performance of internal audit functions and segregation of duties. In addition, management determined that the lack of an audit committee of our Board of Directors also contributed to insufficient oversight of our accounting and audit functions.
We expect to be materially dependent upon our CEO, who is also our CFO, for the foreseeable future. Until such time as we have adequate financial resources to hire a full complement of accounting personnel with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our financial statements which could lead to a restatement of those financial statements.
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control
There were no changes identified in connection with our internal control over financial reporting during the nine months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 22 |
On August 14, 2014, the Company agreed to the entry of an Order Instituting Cease and Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934 (“Agreed Order”), with the SEC. The agreement with the SEC was subsequently modified on September 17, 2014 and is pending final approval from the SEC. Pursuant to the Agreed Order, the Company acknowledged that it was delinquent in its filing requirements in that it had failed to file its annual report on Form 10-K for the year ended December 31, 2013, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and a current report on Form 8-K. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The Company is diligently working toward completing and filing its delinquent reports. The penalty of $50,000 was expensed during the third quarter of 2014. On September 23, 2014, the Company deposited $25,000 in an escrow account with its legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the SEC. During the year ended December 31, 2015, the Company paid $12,000 toward the penalty. The remaining balance due is $14,000. The balance remained the same as of September 30, 2016.
On April 5, 2016 Iliad Research and Trading, L.P. (“Iliad”) made a demand on the Company to issue 64,660,484 shares of the Company’s common stock (the “Delivery Shares”) issuable upon exercise of warrants issued to Iliad on December 2, 2013 (the “Iliad Warrant”) and for damages due to Company’s failure to deliver the Delivery Shares to Iliad pursuant to the terms of the Warrant, late fees in the amount of $2,000.00 per trading day (the greater of $2,000.00 and 2% of the product of the number of Delivery Shares not delivered to Investor (64,660,484) multiplied by the closing sales price of the Common Stock on the last trading day the Company could have delivered the Delivery Shares to Iliad without breaching the terms of the Warrant (which closing sale price was $0.0011 according to Iliad’s demand) have been accruing since April 1, 2016 (the “Late Fees”). For the six months ended June 30, 2016 the Company accrued $360,000 in penalties. The Company has been notified by Apollo that Apollo Capital Corp. believes that it acquired the Warrants when it acquired the Note on December 18, 2015 as discussed in Note 12 to the Company’s financial statements despite Iliad’s demand for issuance of the Delivery Shares. The Company has elected to withhold issuance of the Delivery Shares until the dispute between Iliad and Apollo regarding ownership of the Warrants and the rights to the Delivery Shares has been resolved. The Company is, however, subject to possible late fees and damages as a result of its failure to issue the Delivery Shares to Iliad in the event Iliad is deemed the owner of the Warrant.
On November 1, 2016, the Company entered into a settlement agreement and release of claims with Rotenberg, Meril, Solomon, Bertiger & Guttilla, P.C. (“Rotenberg”). Under the Settlement Agreement to Company agreed to settle the debt of $73,045 for $60,000 paid in twenty-four monthly installments of $2,500 each with the first payment due on November 15, 2016. As of September 30, 2016 the Company had the entire liability due Rotenberg recorded in accounts payable.
We are not presently a party to any other material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.
Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations. For a discussion of these risks, please refer to the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2015. In connection with its preparation of this quarterly report on Form 10-Q, management has reviewed and considered these risk factors and has determined that there have been no material changes to our risk factors since the date of filing the annual report on Form 10-K for the year ended December 31, 2015.
| 23 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine months ended September 30, 2016, the Company converted debt and accrued interest totaling $1,123,309 into 1,274,384,329 shares of common stock and their related derivative liability amounted to $777,878 reclassified into additional paid in capital.
On February 11, 2015 the Company entered into a one-year Consulting and Representation Agreement with Corporate Ads, LLC in exchange for 15,000,000 shares of Company common stock plus $10,000. The shares were valued at $43,500 based upon the closing price of the stock February 11, 2015 of $0.029 per share. The total amount of $45,750 was expensed as consulting expense. The 15,000,000 shares were recorded as common stock issuable for the year ended December 31, 2015. On March 28, 2016, the Company issued 15,000,000 shares of common stock.
On July 29 2016, the Company entered into a one year Consulting and Representation Agreement with Corporate Adds, LLC in exchange for 25,000,000 shares of the Company common stock and $25,000 cash payment. The 25,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
On January 10, 2016, the Company entered into a one year Consulting and Representation Agreement with 626 Vanderbilt, LLC in exchange for 60,000,000 shares of the Company common stock. The shares were valued at $54,000 based upon the closing price of the Company’s stock on January 10, 2016 of $0.0009 per share and is being amortized over the one-year term. The total amount of $28,553 was included in prepaid consulting services. Amortization of $25,447 and $0 was recorded for the nine months ended September 30, 2016 and 2015. The 60,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
On July 21, 2016, the Company issued to Chris Gingold a Promissory Note (the “Note”) in the original principal amount of $30,000 (the “Purchase Price”) which Note bears interest at 12% per annum and is compounded daily. For the nine months ended September 30, 2016 and 2015, based on the interest rate of $12% per annum and the issuance of 10,000,000 shares of common stock valued at $9,000 based on upon the closing price of the Company’s stock on July 21, 2016 of $0.0009 per share. In addition since the note is more than 30 days in default, the Company will issue 10,000,000 shares of common stock valued at $5,000 based upon the closing price of the Company’s stock on September 21, 2016 of $0.0005 per share. The 20,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
For the nine months ended September 30, 2016, the company approved the issuance to two officers each of 12,000,000 shares of common stock valued at $4,800 each based on upon the closing price of the Company’s stock on September 30, 2016 of $0.0004 per share for services rendered in relation to Apollo acquisition. The 24,000,000 shares were recorded as common stock issuable for the nine months ended September 30, 2016.
These shares of our common stock were issued in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
On October 6, 2016, the Company amended its Articles of Incorporation, as amended (effective as of such date), to increase its authorized shares from 2,010,000,000 shares to 4,010,000,000 shares. To effect this increase, the fourth article of the Company’s Articles of Incorporation was amended to provide as follows:
“The total number of shares of all classes of stock which the Corporation shall have authority to issue is FOUR BILLION, TEN MILLION (4,010,000,000) of which (i) FOUR BILLION (4,000,000,000) shares shall be common stock with a par value of $.001 per share (the “Common Stock”) and (ii) TEN MILLION (10,000,000) shares shall be preferred stock with a par value of $.001 per share (the “Serial Preferred Stock”)”.
| 24 |
On October 6, 2016, action was taken by the written consent of the stockholders of the Company, upon the recommendation of the Company’s Board of Directors, to approve the proposal described below. The written consents were solicited pursuant to a consent solicitation statement dated September 19, 2016, which was included as a part of the consent solicitation statement on Schedule 14A filed with the Securities and Exchange Commission on September 19, 2016. The record date for the solicitation of written consents was September 16, 2016 (the “Record Date”). A sufficient number of consents to approve the proposal described below was received on October 6, 2016. As a result, the consent solicitation, and the period during which consents could be revoked, concluded on October 6, 2016.
Proposal: Amendment to the Company’s Articles of Incorporation to increase its authorized capital stock from 2,010,000,000 shares to 4,010,000,000 shares, of which 4,000,000,000 shares will be common stock and 10,000,000 shares will be preferred stock. Through the conclusion of the consent solicitation period on October 6, 2016, consents were received as follows:
| Votes For | Votes Against | Abstain | Broker Non-Votes | |||||||||||
| 1,797,425,645 | -0- | -0- | -0- | |||||||||||
Accordingly, the proposal was approved by stockholders representing approximately 51.35% of the total voting power of the Company as of the Record Date. The amendment was filed with the Secretary of State of Nevada on October 6, 2016, and is attached hereto as Exhibit 3.1.
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:
| Exhibit Number |
Description | |
| 3.1* | Certificate of Amendment to Articles of Incorporation | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | |
| 32.1* | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema | |
| 101.CAL* | XBRL Taxonomy Extension Calculation | |
| 101.DEF* | XBRL Taxonomy Extension Definition | |
| 101.LAB* | XBRL Taxonomy Extension Labels | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
| 25 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| November 18, 2016 | Seaniemac International, Ltd. | |
| By: | /s/ Barry M. Brookstein | |
| Barry M. Brookstein, | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
| 26 |
Exhibit 31.1
Certifications
I, Barry Brookstein, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of Seaniemac International, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 18, 2016 | /s/ Barry Brookstein |
| Barry Brookstein | |
| Chief Executive Officer (principal executive officer) |
Exhibit 31.2
Certifications
I, Barry Brookstein, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of Seaniemac International, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 18, 2016 | /s/ Barry Brookstein |
| Barry Brookstein | |
| Chief Financial Officer (principal financial and accounting officer) |
Exhibit 32.1
Section 1350 Certification
In connection with the Quarterly Report on Form 10-Q of Seaniemac International, Ltd. (the “Company”) for the quarterly period ended September 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), I Barry Brookstein, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| November 18, 2016 | /s/ Barry Brookstein |
| Barry Brookstein | |
| Chief Executive Officer (principal executive officer) | |
| Chief Financial Officer (principal financial and accounting officer) |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.