Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - EFACTOR GROUP CORP. | Financial_Report.xls |
EX-32 - EFACTOR GROUP CORP. | exhibit321063013vedgar1.htm |
EX-31 - EFACTOR GROUP CORP. | exhibit311063013vedgar1.htm |
EX-32 - EFACTOR GROUP CORP. | exhibit322063013vedgar1.htm |
EX-31 - EFACTOR GROUP CORP. | exhibit312063013vedgar1.htm |
EX-10 - EFACTOR GROUP CORP. | efactoreqmentormergeragreeme.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number: 000-51569
STANDARD DRILLING, INC.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 84-1598154 (I.R.S. Employer Identification No.) |
424 Clay Street, Lower Level San Francisco, CA (Address of principal executive offices) | 94111 (Zip Code) |
(650) 380-8280
Registrants telephone number, including area code
|
(Former address, if changed since last report) |
|
|
(Former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes 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 No X .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company X
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X .
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of August 12, 2013, the Company had 95,237,342 shares of common stock, $0.001 par value outstanding.
2
STANDARD DRILLING, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Financial Statements (Unaudited)
Managements Discussion and Analysis of Financial Condition
Quantitative and Qualitative Disclosures About Market Risk
20
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
23
24
3
PART I FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements are based on managements beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements also include statements in which words such as expect, anticipate, intend, plan, believe, estimate, consider, or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
4
ITEM 1
Financial Statements
STANDARD DRILLING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
| June 30, |
| December 31, |
|
|
| ASSETS |
| 2013 |
| 2012 |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
| ||
| Cash |
| $ | 32,284 | $ | 46,870 | |
| Accounts receivable, net of allowance for doubtful accounts of $2,097 and $2,097 as of June 30, 2013 and December 31, 2012 respectively |
| 146,505 |
| 20,982 | ||
| Other current assets |
|
| 16,717 |
| 14,469 | |
|
| Total current assets |
| 195,506 |
| 82,321 | |
|
|
|
|
|
|
|
|
| Property, website and equipment, net of accumulated depreciation of |
|
|
|
| ||
| $1,008,707 and $827,619 as of June 30, 2013 and December 31, 2012 respectively |
| 397,191 |
| 341,674 | ||
| Deferred financing fees |
|
| 9,617 |
| - | |
| Goodwill |
|
| 3,639,494 |
| 2,131,516 | |
TOTAL ASSETS |
| $ | 4,241,808 | $ | 2,555,511 | ||
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
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|
|
| |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
| |||
| Accounts payable |
| $ | 843,207 | $ | 641,534 | |
| Accounts payable - related party |
| 179,696 |
| 38,548 | ||
| Accrued expenses |
|
| 788,844 |
| 213,220 | |
| Operating line of credit |
| 929,239 |
| 625,604 | ||
| Deferred revenue |
|
| 256,654 |
| 227,044 | |
| Current portion of other long-term obligation |
| 32,700 |
| - | ||
| Current portion of notes payable - third parties |
| 94,424 |
| 101,932 | ||
| Convertible notes payable - third parties, net of discount of $75,773 and $88,809 as of June 30, 2013 and December 31, 2012, respectively |
| 411,325 |
| 276,809 | ||
| Notes payable - related parties, net of discount of $0 and $62,101 as of June 30, 2013 and December 31, 2012, respectively |
| 248,452 |
| 163,675 | ||
|
| Total current liabilities |
| 3,784,541 |
| 2,288,366 | |
|
|
|
|
|
|
|
|
| Other long-term obligation, net of current portion |
| 123,901 |
| - | ||
| Non-current portion of notes payable - third parties |
| 16,116 |
| 18,544 | ||
|
| Total non-current liabilities |
| 140,017 |
| 18,544 | |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
| 3,924,558 |
| 2,306,910 | ||
STOCKHOLDERS' EQUITY |
|
|
|
| |||
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, |
|
|
|
| ||
|
| 5,000,000 and -0- issued and outstanding as of June 30,2013 and December 31, 2012, respectively |
| 5,000 |
| 5,000 | |
| Common stock, $0.001 par value, 100,000,000 shares authorized, |
|
|
|
| ||
|
| 95,237,342 and 42,150,024 issued and outstanding at June 30, 2013 and December 31, 2012, respectively |
| 95,237 |
| 42,150 | |
| Accumulated other comprehensive income |
| 9,131 |
| - | ||
| Additional paid-in capital |
| 13,984,745 |
| 11,938,331 | ||
| Accumulated deficit |
|
| (13,776,863) |
| (11,736,880) | |
|
| Total stockholders' equity |
| 317,250 |
| 248,601 | |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 4,241,808 | $ | 2,555,511 | |||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
STANDARD DRILLING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
|
|
|
|
| For the three months ended June 30, | ||
|
|
|
|
| |||
|
|
|
|
| 2013 |
| 2012 |
|
|
|
|
|
|
|
|
Net revenues |
|
| $ | 228,175 | $ | 71,641 | |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
| ||
| Cost of revenue |
|
| 27,921 |
| 4,436 | |
| Sales and marketing |
|
| 62,883 |
| 40,090 | |
| General and administrative |
|
| 991,361 |
| 504,600 | |
| Depreciation and amortization |
|
| 2,693 |
| 92,432 | |
| Gain on forgiveness of liabilities |
|
| (84,829) |
| - | |
|
| Total operating expenses |
|
| 1,000,029 |
| 641,558 |
|
|
|
|
|
|
|
|
Loss from operations |
|
| (771,854) |
| (569,917) | ||
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
| ||
| Interest expense |
|
| (141,011) |
| (60,885) | |
|
| Total other income (expense), net |
| (141,011) |
| (60,885) | |
|
|
|
|
|
|
|
|
Net loss |
|
| $ | (912,865) | $ | (630,802) | |
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share | $ | (0.01) | $ | (0.02) | |||
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and diluted |
| 95,211,791 |
| 27,651,584 | |||
Comprehensive loss |
|
|
|
| |||
Net loss | $ | (912,865) | $ | (630,802) | |||
Foreign currency translation adjustment |
| 4,590 |
| - | |||
Comprehensive loss | $ | (908,275) | $ | (630,802) | |||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
STANDARD DRILLING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
|
|
|
|
| For the six months ended June 30, | ||
|
|
|
|
| |||
|
|
|
|
| 2013 |
| 2012 |
|
|
|
|
|
|
|
|
Net revenues |
|
| $ | 416,937 | $ | 94,676 | |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
| ||
| Cost of revenue |
|
| 58,356 |
| 9,395 | |
| Sales and marketing |
|
| 168,508 |
| 61,738 | |
| General and administrative |
|
| 1,824,400 |
| 1,141,221 | |
| Depreciation and amortization |
|
| 181,088 |
| 185,303 | |
| Gain on forgiveness of liabilities |
|
| (84,829) |
| - | |
|
| Total operating expenses |
|
| 2,147,523 |
| 1,397,657 |
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,730,586) |
| (1,302,981) | ||
|
|
|
|
|
|
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Other income (expense): |
|
|
|
|
| ||
| Interest expense, net |
|
| (309,397) |
| (113,065) | |
|
| Total other income (expense), net |
| (309,397) |
| (113,065) | |
|
|
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Net loss |
|
| $ | (2,039,983) | $ | (1,416,046) | |
|
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|
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|
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Basic and diluted net loss per common share | $ | (0.02) | $ | (0.05) | |||
|
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|
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|
Weighted average common shares outstanding basic and diluted |
| 83,540,548 |
| 27,504,084 | |||
Comprehensive loss |
|
|
|
| |||
Net loss | $ | (2,039,983) | $ | $(1,416,046) | |||
Foreign currency translation adjustment |
| 9,131 |
| - | |||
Comprehensive loss | $ | (2,030,852) | $ | (1,416,046) | |||
|
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|
|
|
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|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
STANDARD DRILLING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| For the six months ended June 30, | |||
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| 2013 |
| 2012 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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| |||||
| Net loss |
|
|
| $ | (2,039,983) | $ | (1,416,046) | |
| Adjustments to reconcile net loss to net cash |
|
|
|
| ||||
| used in operating activities: |
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|
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|
| |||
|
| Depreciation and amortization |
| 181,088 |
| 185,303 | |||
|
| Stock option expense |
|
| 186,620 |
| 93,310 | ||
|
| Amortization of debt discount and deferred financing fees |
| 250,883 |
| 97,212 | |||
|
| Stock compensation expense |
| 329,631 |
| - | |||
|
| Gain on forgiveness of liabilities |
| (84,829) |
| - | |||
| Changes in operating assets and liabilities: |
|
|
|
| ||||
|
|
| Accounts receivables |
|
| (76,323) |
| (19,767) | |
|
|
| Other current assets |
|
| 664 |
| 1,303 | |
|
|
| Accounts payable |
|
| 223,857 |
| 173,459 | |
|
|
| Accounts payable - related party |
| 162,662 |
| 16,185 | ||
|
|
| Accrued expenses |
|
| 219,463 |
| (64,661) | |
|
|
| Deferred revenue |
|
| 29,610 |
| (1,872) | |
Net cash used in operating activities | $ | (616,657) | $ | (935,574) | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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| |||||
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| Cash acquired in reverse merger with Standard Drilling |
| 851 |
| - | |||
|
| Cash acquired in acquisition of MCC |
| 23,593 |
| - | |||
|
| Cash paid for acquisition of property, website and equipment |
| (225,001) |
| (143,084) | |||
|
| Net cash used in investing activities | $ | (200,557) | $ | (143,084) | |||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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|
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| |||||
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| Proceeds from notes payable |
| 629,208 |
| 733,133 | |||
|
| Proceeds from issuance of shares |
| 167,002 |
| 337,593 | |||
|
| Repayment of notes payable |
| (2,713) |
| (1,036) | |||
|
| Net cash provided by financing activities | $ | 793,497 | $ | 1,069,690 | |||
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NET EFFECT OF EXCHANGE RATES ON CASH |
| 9,131 |
| - | |||||
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NET DECREASE IN CASH |
| (14,586) |
| (8,968) | |||||
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CASH, BEGINNING BALANCE |
|
| 46,870 |
| 11,259 | ||||
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CASH, ENDING BALANCE |
| $ | 32,284 | $ | 2,291 | ||||
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Supplemental Disclosure of Cash Flow Information: |
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| |||||
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| Cash paid for interest |
| $ | 17,878 | $ | 11,553 | ||
|
| Cash paid for income taxes |
| $ | - | $ | - | ||
Non-cash Financing Activities: |
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|
|
| |||||
|
| Debt discount | $ | 175,573 | $ | - | |||
|
| Shares issued as deferred financing fees | $ | 9,791 | $ | - | |||
|
| Shares issued for conversion of debt | $ | 214,000 | $ | 130,091 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
8
STANDARD DRILLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
The accompanying consolidated condensed unaudited interim financial statements of Standard Drilling, Inc., (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC), and should be read in conjunction with the audited financial statements and notes thereto of The E-Factor Corp. contained in Form 8-K/A filed with the SEC on July 22, 2013.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended December 31, 2012 as reported in the Companys Form 8-K/A have been omitted.
Description of Business
We were originally formed as a Nevada corporation on July 27, 2001, under the name Online Holdings, Inc. Subsequently, on September 1, 2006, pursuant to an Agreement and Plan of Merger dated July 24, 2006 by and among our company, Standard Drilling Acquisition Co., a Delaware corporation (Standard Drilling Acquisition), and Standard Drilling, Inc., a Delaware corporation (Standard Drilling Delaware), Standard Drilling Acquisition was merged with and into Standard Drilling Delaware, and Standard Drilling Delaware became our wholly-owned subsidiary. As a result of the merger, our company, which previously had no material operations, acquired the business of Standard Drilling Delaware. In conjunction with the merger, we changed our name to Standard Drilling, Inc.
On February 1, 2013, we entered into an Acquisition and Share Exchange Agreement (the Exchange Agreement) by and among (i) Standard Drilling, (ii) EFactor, and (iii) certain shareholders of EFactor, pursuant to which 20 holders of approximately 70% of the outstanding common stock of EFactor transferred to us 6,580,250 of the common stock of EFactor in exchange for the issuance of 50,000,000 shares (the Shares) of our common stock and 5,000,000 shares of a yet to be created series of preferred stock to be entitled the Series A Convertible Preferred Stock (such transaction, the Share Exchange). This transaction closed on February 11, 2013. EFactor was deemed to be the accounting acquirer in this transaction and as a result this transaction was accounted for as reverse merger. The historical financial statements presented in this filing are those of EFactor. The assets and liabilities of Standard Drilling were recorded, as of completion of the merger, at fair value, which is considered to approximate historical cost, and added to those of EFactor.
EFactor was incorporated in the state of Delaware on October 30, 2007, and provides full-featured social network for entrepreneurs. EFactor provides a platform that enables access to a network of contacts, registration for networking events, advisory consulting, various business tools and a broad range of services and information.
On October 31, 2012, EFactor merged with EQmentor, an online professional development company that provides working professionals 24/7 access to a custom-matched mentor, a global cross-industry peer community, and repositories of knowledge to empower high performance in the workplace organized in 2007.
On February 14, 2013, EFactor acquired MCC International (MCC), a Public Relations and Communications agency, founded in 1988. The agency based in the United Kingdom promotes high and emerging technology and science companies, as well as professional service organizations, from entrepreneur start-ups and spin-offs to global consumer brands.
The Company currently maintains its corporate office in San Francisco, California.
Note 2. Going Concern
The Company's financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has no history and relatively few sales, no certainty of continuation can be stated. The accompanying consolidated financial statements for the three and six month period ended June 30, 2013 and 2012 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
9
The Company has suffered losses from operations and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern.
Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Companys ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations. The financial statements contain no adjustments for the outcome of this uncertainty.
Note 3. Notes Payable and Line of Credit
Notes payable
During the six months ended June 30, 2013 the Company obtained several convertible unsecured short term notes payable from individuals totaling $325,573. These notes bear annual interest of 12%, mature within a period ranging from six (6) months to one (1) year and are convertible into common shares at prices ranging from $2 to $3 per common share. The Company also issued 76,410 common shares with the two notes issued during the period. The relative fair value of the shares amounting to $99,415 was recognized as a debt discount and amortized over the term of the notes. The Company evaluated the embedded conversion features within the convertible debt under ASC 815 Derivatives and Hedging and determined the embedded conversion feature should be classified in equity. Additionally, the instruments were evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion feature. The Company determined a the beneficial conversion feature for two of the notes totaling to $76,158 which was recognized as a debt discount and amortized over the term of the notes.
During the six months ended June 30, 2013, the Company made principal repayments totaling $1,876 and issued shares to convert $214,000 of convertible debt (see Note 7).
During the three and six months ended June 30, 2013 the Company recognized $104,699 and $188,609, respectively, of interest expense due to the amortization of debt discounts on all convertible notes.
A summary of activity for notes payable during the six months ended June 30, 2013 is set forth below:
Balance at December 31, 2012 Proceeds from convertible notes Repayments of notes payable Conversion of convertible notes to equity Debt discount on new convertible notes Amortization of debt discount Foreign currency loss |
|
| $ 397,285 325,573 (1,876) (214,000) (175,573) 188,609 1,847 | |
Balance at June 30, 2013 Less: Convertible notes payable Current portion of notes payable third parties |
|
| 521,865 (411,325) (94,424) | |
Non-current portion of notes payable third parties |
|
| $ 16,116 |
Line of credit
On June 7, 2013, the Company entered into a Revolving Line of Credit Agreement (the Agreement) with Charles Odom, the lender, in the amount of $750,000. Pursuant to the Agreement, the lender shall make loans to the Company from time to time commencing on the date of the Agreement and shall continue for a period of twenty four (24) months thereafter ending June 7, 2015. As of June 30, 2013, the Company has drawn $300,000 from the line leaving a current available balance of $450,000. As required by the Agreement, the Company also issued 75,000 shares to the lender, proportionate to amounts drawn, which was recognized as deferred financing fees and amortized over the term of the line of credit. All amounts drawn from the line of credit are subject to annual interest of 15% and will mature within a period of 12 months or within 14 days after the Company has a capital raise with proceeds of $10 million, whichever is earlier. The line of credit is secured by all of the assets of the Company.
10
A summary of activity on the line of credit during the six months ended June 30, 2013 is set forth below:
Balance at December 31, 2012 Drawdowns from line of credit with Charles Odom Interest payments from Wells Fargo line of credit |
|
| $ 625,604 300,000 3,635 | |
Balance at June 30, 2013 |
|
| $ 929,239 |
Note 4. Other long-term obligation
As a component of the MCC acquisition the Company acquired a long term liability related to a previous recapitalization of MCC. In this arrangement MCC entered into an arrangement with its creditors during 2010, in what is referred as a Company Voluntary Arrangement (CVA), in order to protect MCC from any unreceptive creditor action. In connection with the arrangement, the Company is required to make monthly fixed payments of $2,275 (£1,500 GBP) over a period of 5 years.
Note 5. Related Parties and Related Party Transactions
Accounts Payable Related Party
As of June 30, 2013, two of our executive officers, Adrie Reinders and Marion Freijsen, had unreimbursed expenses and unpaid management fees of $115,777 and 63,919, respectively.
Notes Payable Related Parties
A summary of activity for notes payable related parties for the six months ended June 30, 2013 are set forth below:
Balance at December 31, 2012 Related party notes assumed from the reverse merger Related party payables converted to notes Amortization of debt discount Repayment of related party notes |
|
| $ 163,675 2,000 21,513 62,101 (837) | |
Balance at June 30, 2013 |
|
| $ 248,452 |
The notes payable-related parties includes a $200,000 short-term note obtained from Linge Beleggingen in 2012. The discount on this note was fully amortized as of June 30, 2013. On July 9, 2013 the note agreement was amended modifying certain terms and conditions for which an additional 190,000 shares of common stock were agreed to be issued and valued at $380,000.
The remaining balance as of June 30, 2013 includes $42,490 of notes payable and $800 advance due to related parties associated with Marion Freijsen, a $4,000 advance due to related parties associated with Adrie Reinders plus an outstanding advance due to David Rector, the former Chief executive officer and sole board member of Standard Drilling, Inc. of $1,162.
Note 6.
Commitments and Contingencies
Eric Bobo vs. Izzy Justice, EQmentor and The E-Factor Corp., Superior Court of Mecklenbury County, North Carolina Business Court, Case No. 12 CVS 21548.
The above-captioned case seeks damages for breach of contract, violation of wage and hour laws, unjust enrichment, and breach of fiduciary duty related to the alleged treatment of Plaintiffs stock and stock options during the merger between Defendant EQmentor, Inc. and EFactor. In addition to alleging breach of contract and wage and hour violations relating to purported compensation in the form of stock and stock options, the complaint also alleges that the individual defendant, who was the manager and majority shareholder of EQmentor, breached his fiduciary duty by engaging in self-dealing and failing to present the transaction between EQmentor and EFactor to a shareholder vote. It is our opinion that EFactor is wrongly named in this case, as it was not party to the agreements between Mr. Bobo and Mr. Justice and had not been informed of any such arrangements by Mr. Justice or his counsel during either due diligence or other merger disclosures and discussions and did not owe any fiduciary duty to Mr. Bobo. On or about April 23, 2013, Mr. Bobo, EQmentor, Mr. Justice and EFactor entered into a settlement agreement wherein as it relates to EFactor, EFactor is obligated to pay Mr. Bobo $50,000 (the Settlement) before July 1, 2013. On May 1, 2013 Mr. Bobo filed a Notice of Dismissal with the North Carolina Business Court dismissing all of his claims in the case against EFactor without prejudice. Mr. Bobo is obligated to file a Notice of Dismissal without Prejudice within three (3) business days following his receipt of the Settlement payment.
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Note 7.
Stockholders Equity
Common Stock
During the six months ended June 30, 2013:
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the Company issued 415,772 shares of its common stock for cash proceeds of $167,002
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the Company issued 1,254,540 shares of stock to convert $214,000 of convertible debt.
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the Company issued 108,150 shares of stock as an enticement to enter into a transaction to lend money to the Company.
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the Company issued 10,000,000 shares of stock for services with a fair value of $150,000
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the Company granted 452,100 shares of stock for services with a fair value of $179,631
Stock Options
During the three and six months ended June 30, 2013, the Company recognized $93,310 and $186,620 of stock option expense related to the options granted in prior periods.
Note 8.
Acquisition of MCC International
On February 14, 2013, EFactor acquired 100% of MCC International Ltd (MCC) for 7,849,976 shares of its common stock. An additional 3,490,281 shares of the Companys common stock will be issued after the proposed 1-for-40 reverse stock split. The fair value of the shares on the acquisition date was $1,333,335. MCC is a public relations and communications agency, founded in 1988. The agency based in the United Kingdom promotes high and emerging technology and science companies, as well as professional service organizations, from entrepreneur start-ups and spin-offs to global consumer brands. MCC is expected to be able to be integrated into the Company as an additional service available to our members along with having more visibility to other US based companies.
The following table summarizes the preliminary allocation of the acquisition purchase price based on the estimated fair value of the acquired assets and assumed liabilities:
Assets Acquired: |
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Cash | $ | 23,593 |
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Accounts Receivable |
| 49,199 |
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Prepaid Expenses |
| 2,912 |
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Property, Plant and equipment |
| 11,603 |
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Goodwill |
| 1,507,978 |
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Assets acquired | $ | 1,595,285 |
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Liabilities Assumed: |
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Accounts payable | $ | 36,084 |
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Other current liabilities |
| 55,764 |
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Other long term liabilities |
| 170,103 |
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Liabilities assumed | $ | 261,951 |
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Net assets acquired | $ | 1,333,334 |
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Fair value of consideration given | $ | 1,333,334 |
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While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed as of February 14, 2013, the purchase price allocation could change during the measurement period (not to exceed one year) if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of additional, or change in existing, assets and liabilities as of that date.
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The following is the unaudited pro forma information for the six months ended June 30, 2013 and 2012 assuming the acquisition of MCC occurred on January 1, 2012:
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| 2013 |
| 2012 |
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Sales | $ | 466,562 | $ | 395,543 |
Operating expenses |
| 2,193,803 |
| 1,623,090 |
Operating loss |
| (1,727,241) |
| (1,227,547) |
Non-operating expense |
| 309,397 |
| 172,982 |
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Net loss | $ | (2,036,638) | $ | (1,400,529) |
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Basic and diluted net income per common share | $ | (0.02) | $ | (0.05) |
Note 9.
Subsequent Events
The Company issued non-interest bearing promissory notes aggregating $95,536 to four nonaffiliated investors. The promissory notes are convertible to shares of common stock of the Company at $3.00 per share at the election of the note holders. Also, on July 10th and 29th 2013, the Company received two additional draw downs on its line of credit (as described further in Liquidity and Capital Resources below), totaling to $175,000, leaving an available balance of $275,000.
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ITEM 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance or financial condition. Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements. The historical results set forth in this discussion and analysis is not necessarily indicative of trends with respect to any actual or projected future financial performance. This discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report.
Overview
On February 1, 2013, we entered into an Acquisition and Share Exchange Agreement (the Exchange Agreement) by and among (i) Standard Drilling, (ii) EFactor, and (iii) certain shareholders of EFactor, pursuant to which 20 holders of approximately 70% of the outstanding common stock of EFactor transferred to us 6,580,250 of the common stock of EFactor in exchange for the issuance of: (a) 50,000,000 shares (the Shares) of our common stock; (b) 5,000,000 shares of a yet to be created series of preferred stock to be entitled the Series A Convertible Preferred Stock; and (c) approximately 22,120,956 additional shares of SDIs common stock upon the effectiveness of a reverse stock split of SDIs common stock (such transaction, the Share Exchange). This transaction closed on February 11, 2013. As a result of the Share Exchange, EFactor became our majority-owned subsidiary. We are now a holding company with all of our operations conducted through EFactor, which primarily consist of owning, operating and administering certain assets related to a social media network, on- and offline content and interests in a subsidiary that conducts business operations such as EQmentor and certain other intellectual property, as more fully discussed herein. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein EFactor is considered the acquirer for accounting and financial reporting purposes. As a result, the financial statements presented in this Quarterly Report are those of EFactor, the acquired entity. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
Factors Affecting Results of Operations
Historically, our operating expenses have exceeded our revenues. For our two most recent fiscal years ending December 31, 2012 and 2011, we have incurred net losses of $4.1 million and $3.4 million, respectively. As in the prior fiscal years, for the six-month period ended June 30, 2013 we incurred a net loss of $2,039,983, and our operating expenses consisted primarily of the following:
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Cost of revenue, which consists primarily of the cost of services including applied labor costs and benefits expenses, maintenance, facilities and other operating costs associated with our revenues;
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Salaries and wages, which consist primarily of common stock and cash, issued for services; and
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General and administrative expenses, which consist primarily of office rent and other administrative costs including professional fees.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred compensation and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.
Revenue Recognition
Revenues are presented net of discounts. In general, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered to the customer, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Where arrangements have multiple elements, revenue is allocated to the elements based on the
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relative selling price method and revenue is recognized based on our policy for each respective element. We generate revenue primarily from sales of the following services:
Member Fees We hold a variety of networking and informational events for our members and sell various membership packages to customers that allow users to have access to premium services via the EFactor website. Revenue from member services is recognized ratably over the contractual period, generally from one to 12 months.
Sponsorships - We generate revenues from Sponsors in a variety of ways. Sponsors can gain exposure to our members, either through placement or short write-ups in newsletters, on event invitations or by participating as a sponsor at one of our events where a Sponsor may provide access to its products or service (booth/stall) or by being a speaker or panelist at an event that fits in their industry. This revenue is recognized over the specific event timeline, which varies from a single day event or a longer-term promotional event over a series of weeks.
Advisory Services We promote and make available advisory and consulting services to members for the purpose of support, introduction guidance and general mentoring of members in their pursuit of their entrepreneurial objectives, for which fees are charged.
Public Relations We provide market and brand awareness consulting services, targeting high and emerging technology and science companies, as well as professional service organizations that help get recognition within the practiced community and provide an explicit company identity.
These revenues are recorded when services for the transactions are determined to be concluded, generally as set forth under the terms of the engagement or when the sundry milestones have been completed after the defined services are performed. Transaction-related expenses, primarily consisting of costs directly associated with the transaction, are deferred and recognized in the same period as the transaction revenue.
Amounts billed or collected in excess of revenue recognized are recorded as deferred revenue. The table below sets forth the amount of revenues EFactor has recognized under each of these methods for the three and six months ended June 30, 2013 and 2012:
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| three months ended June 30, |
| six months ended June 30, | ||
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| 2013 | 2012 |
| 2013 | 2012 |
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Member Services | $ 3,622 | $ 16,305 |
| $ 10,422 | $ 35,282 | |
Sponsorships | 400 | 55,336 |
| 3,604 | 56,085 | |
Advisory Services | 114,343 | - |
| 250,906 | 3,309 | |
Public Relations | 109,810 | - |
| 152,005 | - | |
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| $ 228,175 | $ 71,641 |
| $ 416,937 | $ 94,676 |
Stock-Based Compensation
We plan to record stock-based compensation at fair value at the grant date and recognize the expense over the employees requisite service period. We use the Black-Scholes option-pricing model to estimate the fair value of the stock option grants. This valuation model for stock-based compensation expense requires us to make assumptions and judgments about variables used in the calculation, including the fair value of our common stock, the expected term (the period of time the options granted are expected to be outstanding), the volatility of our stock, a risk-free interest rate, and dividends. We plan to use the simplified calculation of expected term described in SEC Staff Accounting Bulletin No. 107, Share-Based Payment, and volatility based on an average of the historical volatilities of similar companies, as we do not have a history of a publicly traded stock price. The risk-free interest rate for the expected term of the options will be based on the U.S. Treasury yield curve in effect at the time of the grant
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Results of Operations
Results of Operations for the Three and Six Months ended June 30, 2013 compared to June 30, 2012
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| For the Three-Months Ended June 30, | |||||
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| 2013 |
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| 2012 | |
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Revenues |
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| $ | 228,175 |
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| $ | 71,641 | ||
Operating expenses |
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| |||
| Cost of revenue |
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| 27,921 |
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| 4,436 | ||
| Sales and marketing |
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| 62,883 |
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| 40,090 | ||
| General and administrative |
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| 991,361 |
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| 504,600 | ||
| Depreciation and amortization |
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| 2,693 |
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| 92,432 | ||
| Gain on forgiveness of liabilities |
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| (84,829) |
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| - | ||
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| Total operating expenses |
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| 1,000,029 |
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|
| 641,558 | |
Loss from operations |
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| (771,854) |
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|
| (569,917) | |||
Other income (expense): |
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| |||
| Interest expense |
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| (141,011) |
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| (60,885) | ||
| Other income |
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| - |
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| - | ||
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| Total other income (expense), net |
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| (141,011) |
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| (60,885) | |
Net loss |
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| $ | (912,865) |
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| $ | (630,802) | ||
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| For the Six-Months Ended June 30, | |||||
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| 2013 |
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| 2012 | |
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Revenues |
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| $ | 416,937 |
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| $ | 94,676 | ||
Operating expenses |
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| Cost of revenue |
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| 58,356 |
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| 9,395 | ||
| Sales and marketing |
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| 168,508 |
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| 61,738 | ||
| General and administrative |
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| 1,824,400 |
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| 1,141,221 | ||
| Depreciation and amortization |
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| 181,088 |
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| 185,303 | ||
| Gain on forgiveness of liabilities |
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| (84,829) |
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| - | ||
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| Total operating expenses |
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| 2,147,523 |
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| 1,397,657 | |
Loss from operations |
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| (1,730,586) |
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| (1,302,981) | |||
Other income (expense): |
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| |||
| Interest expense |
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| (309,397) |
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| (113,065) | ||
| Other income |
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| - |
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| - | ||
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| Total other income (expense), net |
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| (309,397) |
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| (113,065) | |
Net loss |
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| $ | (2,039,983) |
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| $ | (1,416,046) | ||
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Summary of Results of Operations
Operating Loss; Net Loss
Our net loss increased to $912,865 from $630,802, for the three month period ended June 30, 2013 compared to June 30, 2012 and to $2,039,983 from $1,416,046 for the six month period ended June 30, 2013 compared to June 30, 2012. The significant increase in operating loss and net loss compared to the prior year period is primarily a result of increase in administrative costs from
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the acquisition and addition of two new entities EQmentor and MCC International and the additional costs involved in public company compliance costs. As we grow we need to continue to attract top-notch personnel and the use of our equities securities as compensation has help reduce the demand for cash to secure the employment of key personnel.
Revenue
Our revenue from the three month period ended June 30, 2013 was $228,175 compared to $71,641 for the three month period ended June 30, 2012 and for the six month period ended June 30, 2013 was $416,937 compared to $94,676 for the six month period ended June 30, 2012. All of our revenue was derived from member payments, event fees, annual event packages, an increase in mentoring fees associated with the addition of EQmentor, an addition of public relations revenue along with advisory fees, sponsorships and revenue shares with strategic partners.
During the fiscal year ended December 31, 2012 we launched our VIP membership, a premium membership that allows members to get discounts on webinars, events and our library of content (Knowledge). During 2013 we are continuing to add value to the VIP membership and have marketing campaigns on a regular basis amongst our growing member-base to increase the number of VIP members. We see such premium memberships as a potential substantial growth area for revenue. In addition to the VIP premium membership, we intend to launch additional premium memberships (all on a recurring revenue bass) such an ESpace premium membership during 2013 to provide flexible office locations for our members.
We intend to add other premium membership services going forward based on products and services our acquired companies can offer specifically to our members in the coming year.
Our mentoring and advisory fees are derived through EMentoring - our online/offline mentoring service that we plan to extend in the coming year as well as Sponsorships from companies that wish to gain exposure to our membership base. Sponsorship can be for a specific event or series of events or to gain placement in our newsletters or on the site. We have thus far not fully engaged any "traditional" advertising on our site such as banners or pop-ups. We will add some retargeted advertising in 2013 assuming we receive the additional working capital we need. We do not intend to have blatant advertising on our site.
Operating Expenses
Our operating expenses increased by $358,471 to $1,000,029 for the three month period ended June 30, 2013, from $641,558 for the three month period ended June 30, 2012, and for the six month period ended June 30, 2013 these expenses increased by $749,866 to $2,147,523 from $1,397,657 for the six month period ended June 30, 2012. These relative increases were primarily due to increase in administrative costs related to the consolidations of EQmentor and MCC International during the first quarter 2013 and legal and accounting fees incurred for the sundry public reporting filing requirements.
Interest Income/Expense; Net
Interest expense increased to $141,011 for the three month period ended June 30, 2013, compared to $60,885 for the three month period ended June 30, 2012 and increased to $309,397 for the six months period ended June 30, 2013, compared to $113,065 for the six month period ended June 30, 2012. In the three and six month period ended June 30, 2013 our interest expenses includes interest on its notes payable issued in order to meet our capital and operating requirements. These notes are converted to equity where possible and/or have been repaid. We foresee meeting all outstanding notes subject to the raising further capital and increasing revenues over the course of the next 18 months.
Liquidity and Capital Resources for Six-Months ended June 30, 2013 compared June 30, 2012
Introduction
During the six month period ended June 30, 2013 and 2012, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of June 30, 2013 was $32,284 and our monthly cash flow burn rate, that now includes EQmentor and MCC International, has increased to approximately $200,000, excluding professional fees and consultants on an as needs basis. As a result, we have significant short-term cash needs. These needs historically have been satisfied through proceeds from the sales of our securities and/or issuance of promissory notes. We are expecting to reduce the need for such short term financing as we continue to build our revenues through both acquisitions and organic growth. (See Cash Requirements below).
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2013 compared to June 30, 2012, respectively, are as follows:
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| June 30, |
| December 31, |
| Change Increase (Decrease) | |||
2013 | 2012 | |||||||
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Cash | $ | 32,284 |
| $ | 46,870 |
| $ | (14,586) |
Total Current Assets |
| 195,506 |
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| 82,321 |
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| 113,185 |
Total Assets |
| 4,241,808 |
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| 2,555,511 |
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| 1,686,297 |
Total Current Liabilities |
| 3,784,541 |
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| 2,288,366 |
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| 1,496,175 |
Total Liabilities | $ | 3,924,558 |
| $ | 2,306,910 |
| $ | 1,617,648 |
Our current assets increased by $113,185 as of June 30, 2013 as compared to December 31, 2012. The increase in our total assets between the two periods was primarily attributed to an increase in cash on hand along with the additional assets acquired from EQmentor and MCC International. Another component of our assets is the goodwill associated with the acquisitions of EQmentor and MCC International. Also include in total assets is our website capitalization as we continue to develop and build new software and add new functionality to fulfill the needs of our members and the changes in the social media industry. Continuing along this same course in 2013, we built and launched an improved "matching" algorithm directly allowing members to create stronger connections with other members based on mutual interest and skills. We also created and launched help me, help you functionality -- allowing peer-to-peer collaboration and engagement between members.
Our current liabilities increased by $1,496,175 as of June 30, 2013 as compared to December 31, 2012. A large portion of this increase was due to the operating line of credit assumed in the EQmentor transaction, an increase in notes payable as we required added capital and an increase in accounts payable as we continue to grow our business and add new services and products.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
We had cash available of $32,284 as of June 30, 2013 as compared to $46,870 on December 31, 2012. Based on our revenues, cash on hand and current monthly burn rate, around $200,000, excluding professional fees and consultants on an as needs basis, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.
On June 7, 2013 we entered into a revolving line of credit (the Line of Credits) with an accredited investor for an amount of up to $750,000. Under the terms of the Line of Credit, the lender has agreed to advance to us for a period of 24 months ending on July 7, 2015 such amounts as we may request up to $750,000. All sums advanced will bear interest from the date each advance is made until paid-in-full at a rate of 15% per annum. Each advance will be due and payable in full 12 months following the day each advance is made. In addition, should we consummate a capital raise, that when aggregated with any preceding capital raise results in $10 million of gross proceeds (excluding amounts advanced under this line of credit) (the Capital Raise), all amounts due and payable under Line of Credit will become due and payable 14 days after the consummation of such Capital Raise. In addition to the repayment of each advance, we shall issue to the lender 187,500 shares of restricted common stock (the Restricted Shares). The Restricted Shares will be issued upon each advance upon filing of our information statement, initially filed on March 1, 2013, in definitive form. The number of Restricted Shares issued will be pro-rated according to the amount of the advance. In connection with the Line of Credit, we entered into a security agreement (the Security Agreement) with the lender, whereby we granted to lender, as collateral for our obligations to be performed under the Line of Credit, a first priority security interest in all property held by us. As of As of June 30, 2013, we received advances under the line of credit totaling $300,000, leaving an available balance of $450,000.
The Company has been able to satisfy short term needs through the sale of securities to individual accredited investors, over the past year. Even though management has had success in the past in generating funds from these sundry sources of capital, there can be no assurance or certainties that we will be successful in procuring these types of proceeds in the future.
We expect to expend approximately $285,000 in connection with development of our website and the expansion of our business. In addition, to strengthen its ability to generate higher revenues and profitability EFactor is acquiring strategically complementary business to significantly build its membership base and product/service offerings. The targeted businesses are either
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producing cash or sufficiently close to breakeven in order to not increase EFactor's burn rate. Additionally, the Company is closely controlling its costs as revenues are building.
To secure its long term objectives for growth and profitability the Company is in active discussions with respected investment banking firms to assist the Company in its long-term strategies. The Company believes it will require approximately $10 million dollars as an interim step in achieving its mid- term goals of which $2.5 million will be utilized in solidifying its current business. There can be no assurance that we will be able to achieve this type of capital raise.
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Sources and Uses of Cash
Operations
We had net cash used in operating activities of $616,657 for the six month period ended June 30, 2013, as compared to $935,574 for the six months ended June 30, 2012. For the period in 2013, the net cash used was primarily used to fund our growth such as the additional office space, hiring of new personnel (although part of this cost was in stock and thus did not affect our cash), continued development of the website, increase in the number of events and investment in systems associated with running our new webinar series which we commenced in 2012. Thus net cash used in operating activities consisted primarily of our net loss of $2,039,983 offset by an increase in our current liabilities of $635,592, depreciation of $181,088, which was for of our website, and stock related expense of $516,251.
Investments
We had net cash used in investing activities of $200,557 for the six month period ended June 30, 2013, as compared to $143,084 for the six months ended June 30, 2012. In the six months ended June 30, 2013 the net cash provided by investing activities related to expenditures associated with building our website and increasing in the infrastructure and architecture needed to support the growth in the member base. We expanded our range of servers. In mid-2013 we will look to move our entire server set to the Cloud ensuring a cost saving per month.
Financing
Our net cash provided by financing activities of $793,497 for the six month period ended June 30, 2013, as compared to $1,069,690 for the six months ended June 30, 2012. For the period in 2013, our financing activities consisted primary of $629,208 in proceeds from notes payable, and $167,002 in proceeds from common stock, offset by $2,713 in repayment of debt. For the period in 2012, our financing activities consisted of $337,593 developed by proceeds from issuance of common stock, $733,133 in proceeds from notes payable, offset by $1,036 in repayment of debt.
Capital Expenditures
We expect to expend approximately $100,000 in connection with development of our website and the expansion of our business during the next three months.
Off-Balance Sheet Arrangements
As of June 30, 2013, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated under which it has:
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a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit;
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liquidity or market risk support to such entity for such assets;
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an obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument; or
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an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to the Company, where such entity provides financing, liquidity, market risk or credit risk support to or engages in leasing, hedging, or research and development services with the Company.
Inflation
Management believes that inflation has not had a material effect on our results of operations.
Impact on SDI Shareholders of Share Issuance to EFactor Shareholders as a Result of Exchange Agreement and Other Factors
Immediately prior to closing the transaction contemplated by the Exchange Agreement, SDI shareholders owned 33,458,880 shares of SDI common stock, which represented 100% of the SDI outstanding voting securities. Immediately upon the closing of the transaction contemplated by the Exchange Agreement, the SDI shareholders owned 33,458,880 shares of SDI common stock, which represented 35.8% of the SDI outstanding common stock and 15.3% of the SDI outstanding voting rights. Assuming the completion of the contemplated 1-for-40 reverse stock split, the SDI shareholders will own approximately 836,472 shares of the SDI common stock which will represent approximately 2.2% of the SDI outstanding common stock and less than 1%
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of the SDI outstanding voting rights after giving effect to (i) the issuance of the approximately 22,231,155 additional shares of SDIs common stock to the 20 EFactor shareholder, and (ii) the automatic conversion of 2,500,000 shares of Series A Convertible Preferred Stock into approximately 13,086,222 shares of SDI Common Stock. Therefore, after the completion of all the contemplated transactions under the Exchange Agreement, the SDI shareholders that owned 100% of the SDI outstanding common stock and voting rights prior to the transaction will own approximately 2.2% and less than 1%, of the outstanding common stock and voting right respectively.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4
Controls and Procedures
(a)
Evaluation of Disclosure Controls Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
As of June 30, 2013, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. We also do not have an audit committee. Based on the evaluation described above, and as a result, in part, of not having an audit committee and having one individual serve as our chief executive officer and chief financial officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.
As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures.
(b)
Changes in internal controls over financial reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
(c)
Officers Certifications
Appearing as an exhibit to this quarterly report on Form 10-Q are Certifications of our Chief Executive and Financial Officer. The Certifications are required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This section of the quarterly report on Form 10-Q contains information concerning the Controls Evaluation referred to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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PART II OTHER INFORMATION
ITEM 1
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On July 26, 2010, we filed a lawsuit against Prentis Tomlinson and PBT Capital Partners (PBT) in the 151st Judicial District Court of Harris County, Texas, Case No. 2010-46137, seeking damages for breach of contract, negligent misrepresentation, fraud, unjust enrichment, fiduciary misconduct, exemplary damages, and declaratory judgment with respect to certain agreements entered into between Mr. Tomlinson, PBT and the Company. On January 24, 2012 we consummated a Settlement Agreement with Mr. Tomlinson and PBT whereby Mr. Tomlinson and PBT agreed to resolve a certain liability from Johnson County, Texas and pay us a total of $115,000 in the form of seven payments, the last of which was due on July 30, 2012. We received only the first payment of $15,000 in January 2012.
On April 2, 2012 we obtained a Final Agreed Judgment in the above-entitled matter whereby the District Court of Harris County, Texas, 151st Judicial District, ordered and decreed Mr. Tomlinson and PBT to pay us $351,626.30, pursuant to the Settlement Agreement. In addition, the judgment ordered Tomlinson and PBT to pay the Company $5,000 for attorney fees incurred and that the entire judgment total should accrue interest at a rate of 5.0% per annum. Furthermore, we are entitled to a total of $15,000 in attorneys fees incurred in the enforcement and collection of the judgment.
Eric Bobo vs. Izzy Justice, EQmentor and The E-Factor Corp., Superior Court of Mecklenbury County, North Carolina Business Court, Case No. 12 CVS 21548. The above-captioned case seeks damages for breach of contract, violation of wage and hour laws, unjust enrichment, and breach of fiduciary duty related to the alleged treatment of Plaintiffs stock and stock options during the merger between Defendant EQmentor, Inc., a Delaware corporation (EQmentor), and EFactor. In addition to alleging breach of contract and wage and hour violations relating to purported compensation in the form of stock and stock options, the Complaint also alleges that the individual defendant, who was the manager and majority shareholder of EQmentor, breached his fiduciary duty to the Plaintiff, as an EQmentor shareholder, by engaging in self-dealing and failing to present the transaction between EQmentor and EFactor to a shareholder vote. It is our opinion that EFactor is wrongly named in this case, as it was not party to the agreements between Mr. Bobo and Mr. Justice and had not been informed of any such arrangements by Mr. Justice or his counsel during either due diligence or other merger disclosures and discussions and did not owe any fiduciary duty to Mr. Bobo. On or about April 23, 2013, Mr. Bobo, EQmentor, Mr. Justice and EFactor entered into a settlement agreement wherein as it relates to EFactor, EFactor is obligated to pay Mr. Bobo $50,000 (the Settlement) before July 1, 2013. On May 1, 2013 Mr. Bobo filed a Notice of Dismissal with the North Carolina Business Court dismissing all of his claims in the case against EFactor without prejudice. Mr. Bobo is obligated to file a Notice of Dismissal without Prejudice within three (3) business days following his receipt of the Settlement payment.
ITEM 1A
Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds
Issuances by Standard Drilling, Inc.
Pursuant to the Share Exchange Transaction, we agreed to issue 5,000,000 shares of our newly-created Series A Preferred Stock to Mr. Adriaan Reinders and Ms. Marion Freijsen, both of whom are now officers and directors of SDI. We have not issued those shares as of the date of this filing. Mr. Reinders and Ms. Freijsen exchanged 2,333,946 shares of EFactor common stock, representing approximately 24% of the outstanding common stock of EFactor, for the 5,000,000 shares of our Series A Preferred Stock. Based on the representation and warranties provided by Mr. Reinders and Ms. Freijsen in the Exchange Agreement, the issuances to them will be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact Mr. Reinders and Ms. Freijsen are either accredited or sophisticated investors and are familiar with our operations.
Pursuant to the Share Exchange Transaction, on or about March 7, 2013, we issued 50,000,000 shares of our common stock to eighteen (18) shareholders of EFactor that are listed on Exhibit A to the Share Exchange Agreement, including to Mr. Jim Solomon and Mr. Thomas Trainer, both of whom are now directors of SDI. Those eighteen (18) shareholders exchanged 4,246,304 shares of EFactor common stock, representing approximately 44% of the outstanding common stock of EFactor, for the 50,000,000
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shares of our common stock. Based on the representation and warranties provided by the EFactor Shareholders in the Exchange Agreement, the issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact these shareholders are either accredited or sophisticated investors and are familiar with our operations.
Pursuant to the Share Exchange Transaction, on or about March 7, 2013, we issued 6,500,000 shares of our common stock to David S. Rector, SDIs sole officer and director immediately prior to the Closing, and 3,500,000 to Keith Gilmour, in exchange for services rendered to SDI prior to the Closing. Based on the representation and warranties provided by Mr. Rector and Mr. Gilmour in the Exchange Agreement, the issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact these shareholders are either accredited or sophisticated investors and are familiar with our operations.
Pursuant to the agreement and plan of merger with MCC International, on February 14, 2013, we issued 7,849,976 shares of our common stock to the sole shareholder of MCC to acquire 100% of the shares of MCC International, a United Kingdom company. The relative value associated with this transaction was $1,333,335. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact these shareholders are either accredited or sophisticated investors and are familiar with our operations.
Issuances by The EFactor Corp.
Common Stock
During the three months ended June 30, 2013, EFactor issued 96,131 shares of its common stock to two non-affiliate investors for a total of $40,000. These issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact these shareholders are either accredited or sophisticated investors and are familiar with our operations.
Convertible Notes
During the three month period ended June 30, 2013, EFactor entered into three convertible unsecured short-term notes payable from individuals totaling $125,000. The convertible notes bear annual interest of 12% and repayment of the notes is due in one year. The notes payable are convertible into shares at a price of $3.00. With respect to the foregoing issuances of EFactor convertible notes, the issuances are exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact these shareholders are either accredited or sophisticated investors and familiar with EFactors operations.
Options
There was no activity for stock options during the three month period ended June 30, 2013.
ITEM 3
Defaults Upon Senior Securities
There have been no events that are required to be reported under this Item.
ITEM 4
Mine Safety Disclosures
There have been no events that are required to be reported under this Item.
ITEM 5
Other Information
There have been no events that are required to be reported under this Item.
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ITEM 6
Exhibits
2.1 | Agreement and Plan of Merger dated July 27, 2006 by and among Online Holdings, Inc., a Nevada corporation, Standard Drilling Acquisition Corp., a Delaware corporation, and Standard Drilling, Inc., a Delaware corporation (1) | |||||
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3.1 | Amended and Restated Articles of Incorporation (2) | |||||
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3.2 |
| Bylaws (3) | ||||
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10.1 |
| Acquisition and Share Exchange Agreement by and between Standard Drilling, Inc. and The E-Factor Corp. and Certain of its Shareholders, dated February 1, 2013, with Exhibits and Schedules (4) | ||||
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10.2 |
| Sale and Purchase Agreement between The E-Factor Corp. and DASPV, PTE Ltd, dated August 17, 2012, as amended (4) | ||||
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10.3 |
| Share Exchange Agreement between The E-Factor Corp. and Five5Five PTE Ltd, dated January 8, 2013, as amended (5) | ||||
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10.4 |
| Agreement and Plan of Merger between The E-Factor Corp. and EQmentor, Inc., dated June 30, 2012, as amended* | ||||
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10.5 |
| Revolving Line of Credit Agreement dated June 7, 2013 between Charles Odom as Lender and Standard Drilling, Inc. as Borrower (6) | ||||
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23.1 |
| List of Subsidiaries (4) | ||||
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31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | ||||
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | ||||
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32.1 |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | ||||
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32.2 |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | ||||
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101.INS ** |
| XBRL Instance Document | ||||
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101.SCH ** |
| XBRL Taxonomy Extension Schema Document | ||||
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101.CAL ** |
| XBRL Taxonomy Extension Calculation Linkbase Document | ||||
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101.DEF ** |
| XBRL Taxonomy Extension Definition Linkbase Document | ||||
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101.LAB ** |
| XBRL Taxonomy Extension Label Linkbase Document | ||||
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101.PRE ** |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) | Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 27, 2006. |
(2) | Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on September 6, 2006. |
(3) | Incorporated by reference to the Registration Statement on Form SB-2, SEC File No. 333-75434, as declared effective by the Securities and Exchange Commission on May 14, 2002. |
(4) (5) | Incorporated by reference to the Current Report on Form 8-K/A as filed with the Securities Exchange Commission on February 14, 2013. Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 14, 2013, and Current Report on Form 8-K/A as filed with the Securities Exchange Commission on May 10, 2013. |
(6) | Filed as Exhibit 99.1 to Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 17, 2013, which is incorporated by reference. |
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SIGNATURES
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.
| Standard Drilling, Inc. a Nevada corporation | |
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Dated: August 12, 2013 |
| /s/ Adriaan Reinders |
| By: | Adriaan Reinders |
| Its: | President |
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