UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended: March 31, 2015

 

OR

 

[  ] 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: 000-55013

 

STL MARKETING GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Colorado		20-4387296
(State or other jurisdiction of incorporation)		(IRS Employer I.D. No.)

 

10 Boulder Crescent, Suite 102

Colorado Springs, CO 80903

(Address of principal executive offices and zip Code)

 

(719) 219-5797

(Registrant’s telephone number, including area code)

 

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 past 12 months, 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, or 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]

 

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

 

As of May 15, 2015, there were 356,244,418 shares of the registrant’s common stock issued and outstanding.

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	5
Item 4.	Controls and Procedures.	5
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	6
Item 1A.	Risk Factors.	6
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	7
Item 3.	Defaults Upon Senior Securities.	7
Item 4.	Mine Safety Disclosures.	7
Item 5.	Other Information.	7
Item 6.	Exhibits.	7
Signatures		8

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

STL Marketing Group, Inc. & Subsidiaries

Consolidated Financial Statements

 

March 31, 2015

(Unaudited)

 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Balance Sheets

 

		March 31, 2015				December 31, 2014
Assets
Current Assets
Cash		$	2,299			$	102
Deferred offering costs			84,070				84,070
Total Current Assets			86,369				84,172
Property and Equipment, net			5,207				5,755
Other Assets
Security deposits			1,135				1,135
Total Other Assets			1,135				1,135
Total Assets		$	92,711			$	91,062
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable and accrued liabilities		$	1,140,504			$	1,062,173
Accounts payable - related party			384,198				385,677
Notes payable - related party			66,446				42,751
Liability to be settled in stock			114,500				114,500
Liability settlement			18,681				18,681
Notes payable			60,000				60,000
Current maturities of convertible notes payable, net of discount			1,002,889				978,069
Derivative liabilities			2,447,089				2,439,998
Total Current Liabilities			5,234,307				5,101,849
Total Liabilities			5,234,307				5,101,849
Commitments and Contingencies
Stockholders’ Deficit
Class A - Preferred Stock, 10% of Par Value, Non-Cumulative, $1.00 Par Value, 1,800,000 Shares Authorized, 1,800,000 Shares Issued and 1,800,000 outstanding			1,800,000				1,800,000
Class B - Preferred Stock, $0.001 Par Value, 1,400,000,000 Shares Authorized, 1,400,000,000 Shares Issued and 1,400,000,000 outstanding			1,400,000				1,400,000
Class C - Preferred Stock, $0.001 Par Value, 125,000 Shares Authorized, Zero Shares Issued and Outstanding			-				-
Common Stock, $0.001 Par Value, 2,600,000,000 Shares Authorized, 145,149,354 Shares Issued and Outstanding at March 31, 2015, 59,764,239 Issued and Outstanding at December 31, 2014,			145,149				59,764
Additional paid in capital - Preferred Stock			(232,000	)			(232,000	)
Discount on Preferred Stock			(2,466,999	)			(2,466,999	)
Additional paid in capital - Common Stock			1,400,520				1,305,726
Deficit			(7,188,266	)			(6,877,278	)
Total Stockholders’ Deficit			(5,141,596	)			(5,010,787	)
Total Liabilities and Stockholders’ Deficit		$	92,711			$	91,062

 

See accompanying notes to the condensed consolidated financial statements

 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statements of Operations

 

		For the Quarter Ended
		March 31, 2015				March 31, 2014
Revenues		$	-			$	-
Cost of revenues			-				-
Gross profit			-				-
Operating expenses
Compensation			62,607				62,607
Professional fees			40,086				133,209
Selling, general and administrative			8,156				17,510
Total operating expenses			110,849				213,326
Loss from operations			(110,849	)			(213,326	)
Other income (expense):
Interest expense			(76,188	)			(24,624	)
Interest expense - discount on notes			(56,066	)			(144,470	)
Change in fair value of derivative liabilities			31,759				2,104,406
Derivative expense			(99,644	)			(99,289	)
Other income (expense) - net			(200,139	)			1,836,023
Loss before income tax provision			(310,988	)			1,622,697
Income tax provision			-				-
Net Income (Loss)		$	(310,988	)		$	1,622,697
Net income/(loss) per common share - basic		$	(0.00	)		$	0.17
Net income/(loss) per common share - diluted		$	(0.00	)		$	.07
Weighted average common shares outstanding - basic			63,315,405				9,463,694
Weighted average common shares outstanding - diluted			63,315,405				23,424,228

 

See accompanying notes to the condensed consolidated financial statements

 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

		For the Quarter Ended
		March 31, 2015				March 31, 2014
Cash Flows From Operating Activities:
Net Loss		$	(310,988	)			1,622,697
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization			548				515
Stock based compensation			-				45,000
Amortization of debt discount			56,066				144,470
Change in fair value of derivative liabilities			(31,759	)			(2,104,406	)
Derivative expense			99,644				99,286
Interest of debt converted below par			53,399				-
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid expenses			-				(23,755	)
Security deposits			-				3,398
Increase (decrease) in:
Accounts payable and accrued liabilities			79,071				77,231
Accounts payable - related party			(1,479	)			40,950
Net Cash Used in Operating Activities			(55,498	)			(94,614	)
Cash Flows From Financing Activities:
Proceeds from related party notes			23,695				-
Proceeds from convertible notes			34,000				96,500
Net Cash Provided by Financing Activities			57,695				96,500
Net change in cash			2,197				1,886
Cash at beginning of period			102				717
Cash at end of period		$	2,299				2,603
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible notes payable into common stock		$	31,246			$	-
Note payable issued for deferred offering costs		$	-			$	25,000
Common stock issued for deferred offering costs		$	-			$	50,000

 

See accompanying notes to the condensed consolidated financial statements

 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statements of Stockholders' Deficit

For the period from December 31, 2013 to March 31, 2015

 

	Preferred Stock, Class A Par Value $1.00							Preferred Stock, Class B Par Value $0.001							Additional Paid-In Capital Preferred				Discount on Preferred			Common Stock, Class B Par Value $0.001							Additional Paid-In Capital
	Shares				Amount			Shares				Amount			Stock				Stock			Shares				Amount			Common Stock				Deficit				Total
Balance 12/31/2013		1,800,000			$	1,800,000			1,400,000,000			$	1,400,000		$	(232,000	)		$	(2,466,999	)		9,282,191			$	9,282		$	204,718			$	(6,105,536	)			(5,390,535	)
Stock issued for service ($0.30 per share)		-				-			-				-			-				-			48,867				49			14,951				-				15,000
Stock issued for service ($0.21 per share)		-				-			-				-			-				-			73,333				73			14,927				-				15,000
Stock issued for service ($0.195 per share)		-				-			-				-			-				-			256,410				256			49,744				-				50,000
Stock issued for service ($0.048 per share)		-				-			-				-			-				-			573,333				573			26,947				-				27,520
Stock issued for service ($0.0225 per share)		-				-			-				-			-				-			266,667				267			5,733				-				6,000
Stock issued for service ($0.0105 per share)		-				-			-				-			-				-			240,000				240			2,280				-				2,520
Stock issued for service ($0.003 per share)		-				-			-				-			-				-			533,333				533			1,067				-				1,600
Stock issued for conversion of note payable		-				-			-				-			-				-			33,797,238				33,798			473,160				-				506,958
Reclasification of derivative liabilities due to conversion of debt		-				-			-				-			-				-			-				-			280,158				-				280,158
Liabilities settled under Laibility Purchase Agreement		-				-			-				-			-				-			14,692,867				14,693			232,041				-				246,734
Net Profit/(Loss)		-				-			-				-			-				-			-				-			-				(771,742	)			(771,742	)
Balance 12/31/2014		1,800,000			$	1,800,000			1,400,000,000			$	1,400,000		$	(232,000	)		$	(2,466,999	)		59,764,239			$	59,764		$	1,305,726			$	(6,877,278	)		$	(5,010,787	)
Stock issued for conversion of note payable		-				-			-				-			-				-			85,385,115				85,385			-				-				85,385
Reclasification of derivative liabilities due to conversion of debt		-				-			-				-			-				-			-				-			94,794				-				94,794
Net Profit/(Loss)		-				-			-				-			-				-			-				-			-				(310,988	)			(310,988	)
Balance 03/31/2015		1,800,000			$	1,800,000			1,400,000,000			$	1,400,000		$	(232,000	)		$	(2,466,999	)		145,149,354			$	145,149		$	1,400,520			$	(7,188,266	)		$	(5,141,596	)

 

 

See accompanying notes to the condensed consolidated financial statements

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

Note 1 – Nature of Operations and Summary of Significant Accounting Policies

 

Nature of Operations

 

On October 15, 2012, STL Marketing Group, Inc. (“STLK”) entered into a merger agreement with Versant Corporation, a Delaware corporation (“Versant”). The agreement consisted of $75,000 for the Series A and C Preferred Stock. On January 23 and January 29, the respective Boards of Versant and STLK respectively approved the Share Exchange Plan (“SEP”). As a result of the Share Exchange Plan, on February 4, 2013: (1) the STL Marketing holders of Preferred A and Preferred C Series stock, returned their shares to Treasury for the reclassification and restructuring of these shares; (2) STLK’s Preferred Series A, B and C were restructured and amended to reflect the SEP agreed to by the companies; (3) Versant Class X shareholders exchanged their 1,000 Versant Class X Common shares for 1,400,000,000 Preferred Series B STLK Stock; (4) Versant Class A shareholders exchanged their 1,800,000 Versant Class A shares for 1,800,000 Preferred Series A Convertible STLK Stock; (5) of the 200,003 Versant’s Class B Common Stock shareholders, 200,000 shares ($200,000 value) received convertible notes in STLK and the remaining 3 shares ($219,000 value) received 6,666,667 restricted STLK Common Stock; (6) Versant issued 7,500,000 Class B, Common Shares to STL Marketing Group, granting them 100% of the common shares in Versant. Upon finalization of the merger the accounting acquirer held 100,120,000 shares or 98.26% of the combined entity and the legal acquirer held 1,774,902 shares of 1.74% of the combined entity.

 

STL Marketing Group, Inc. was a “shell company” prior to the Merger and did not conduct an active trade or business. From and after the consummation of the Merger on February 4, 2013 STL Marketing Group, Inc.’s primary operations consisted of the business and operations of Versant Corporation. Because STL Marketing Group, Inc. was a shell company at the time of the Merger; we filed a general form for registration under Form 10 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

For accounting purposes, the Merger transaction has been accounted for as a reverse acquisition, with STL Marketing Group, Inc. as the acquirer. The consolidated financial statements of STL Marketing Group, Inc. for the fiscal year ended December 31, 2014 represent a continuation of the financial statements of Versant Corporation, with one adjustment, which is to retroactively adjust the legal capital of Versant Corporation to reflect the legal capital of STL Marketing Group, Inc.

 

The Company has recently added the sale and distribution of PBX equipment (VoIP technology) to its original focus in the development of renewable energy projects. As a result our business is the sales and distribution of VoIP PBXs under the brand name PhoneSuite, as well as the prospective sale of electricity through a wind park to a government owned utility company in Costa Rica. The Company continues to evaluate additional opportunities to bolster its revenue stream.

 

Summary of Significant Accounting Policies

 

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2014 and 2013, together with Management’s Discussion and Analysis, as contained in the Form 10-K filed on April 22, 2015. The financial information as of December 31, 2014 is derived from the audited financial statements for the year ended December 31, 2014. The interim results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015 or for any future interim periods.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Principles of Consolidation

 

The Company’s consolidated subsidiaries and/or entities are as follows:

 

Name of consolidated subsidiary/entity		State or other jurisdiction of incorporation or organization		Date of incorporation or formation (date of acquisition, if applicable)		Attributable interest
Energia Renovable Versant SRL (ER) (1)		Costa Rica		November, 2010		100%
V Tres Bache SRL (V3) (2)		Costa Rica		November, 2010		100%
Versant Corporation (VC) (3)		Delaware		April, 2010		100%
PhoneSuite Solutions, Inc. (PSS) (4)		Delaware		May, 2014		100%

 

	(1)	ER was incorporated to establish renewable energy wind parks in Costa Rica. ER is the sole stockholder of V3.
	(2)	V3 was incorporated to build and operate the first energy development on the Bache site.
	(3)	VC was incorporated as the original US holding company for the wind development in Costa Rica.
	(4)	PSS was incorporated to handle the distribution markets of PhoneSuite products.

 

All inter-company balances and transactions have been eliminated in consolidation.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

 

Fair Value of Financial Instruments

 

The fair value of our financial assets and liabilities reflects our estimate of amounts that we would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of our assets and liabilities, we seek to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Level 1		Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2		Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3		Pricing inputs that are generally unobservable inputs and not corroborated by market data.

 

The following are the major categories of liabilities measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014 using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

 

		March 31, 2015								December 31, 2014
		Assets				Liabilities				Assets				Liabilities
Level 1
None		$	-			$	-			$	-			$	-
Level 2
None			-				-				-				-
Level 3
Derivative Liabilities			-				2,447,089				-				2,439,998
		$	-			$	2,447,089			$	-			$	2,439,998

 

Changes in the unobservable input values could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurements is the expected volatility assumption. A significant increase (decrease) in the expected volatility assumption could potentially result in a higher (lower) fair value measurement.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross margins, and operating costs. These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions. Any difficulty in sourcing materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing facilities and potentially lead to an impairment charge for long-lived assets. Other factors, such as increased competition or a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely impact cash flows. A significant change in cash flows in the future could result in an impairment of long-lived assets.

 

The impairment charges, if any, are included in operating expenses in the accompanying statements of operations. The Company has not recorded any impairment charges during the months ended March 31, 2015 and 2014.

 

Cash

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Property and Equipment

 

Property and equipment is stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, which ranges from three to seven years.

 

Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.

 

Research and Development

 

Research and development is expensed as incurred.

 

Advertising Costs

 

We expense advertising costs in the period in which they are incurred.

 

Stock-Based Compensation for Obtaining Employee Services

 

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the grant-date fair value of the equity instrument issued and are recognized in the statement of operations as compensation over the relevant service period.

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which a commitment for performance by the counterparty to earn the equity instrument is reached (a performance commitment).

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

 

Derivative Financial Instruments

 

Derivative financial instruments consist of conversion features embedded in convertible debentures, which meet the criteria for bifurcation from their host contract. These financial instruments are recorded in the balance sheet at fair value. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

 

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

 

Debt Issue Costs and Debt Discount

 

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires 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 based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date.

 

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-45, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-40 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances, as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-45 for the three months ended March 31, 2015 and 2014. The Company believes that all prior periods are still subject to examination by tax authorities.

 

Reverse Stock Split

 

In October 2014, the Company’s board of directors and stockholders approved an amended and restated certificate of incorporation to affect a reverse split of shares of our common stock at a 1-for-15 ratio. The reverse split became effective in March 2015. The par value and the authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse split. All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse split for all periods presented.

 

Net Income/(Loss) per Common Share

 

Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

During the three months ended March 31, 2015, the Company reported a net loss, and accordingly dilutive instruments were excluded from the net loss per share calculation for such periods. During the three months ended March 31, 2014, we reported net income and accordingly included potentially dilutive instruments in the fully diluted net income per share calculation and the dilutive effect of convertible instruments were determined by application of the if converted method.

 

Common stock equivalents are as follows:

 

		March 31, 2015				December 31, 2014
Convertible Debt			4,034,389,339				151,220,218
Liability to be settled in common stock (1)			68,125,000				2,422,222
Liability to be settled in common stock (exercise price $0.01/share) (2)			139,728,327				4,289,961
Common stock equivalents			4,242,242,666				157,932,401

 

	(1)	Fair value was $54,500 at March 31, 2015 and $54,500 at December 31, 2014. See Note 6.
	(2)	Fair value was $60,000 at March 31, 2015 and $60,000 at December 31, 2014. See Note 6.

 

Other Recently Issued, but Not Yet Effective Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is currently evaluating the impact of the new standards.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

In June 2014, the FASB issued ASU No. 2014-12, “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, and early adoption is permitted. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position, results of operations or cash flows.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03 , “Interest - Imputation of Interest (Subtopic 835-30),” which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. This guidance will be effective at the beginning of fiscal year 2017. The Company is currently evaluating the impact of the new standards.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

 

Note 2 – Going Concern

 

As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $310,988, net cash used in operations of $55,498 for the three months ended March 31, 2015 and has a working capital deficit of approximately $5,148,000 at March 31, 2015. The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of debt and equity securities. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on management’s plans, which include further implementation of its business plan and continuing to raise funds through debt and/or equity raises.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Note 3 – Property and Equipment

 

		March 31, 2015				December 31, 2014
Property and equipment are as follows:
Furniture and fixtures		$	4,909			$	4,909
Machinery and equipment			8,191				8,191
Leasehold improvements			2,507				2,507
			15,607				15,607
Accumulated depreciation and amortization			(10,400	)			(9,852	)
Property and equipment - net		$	5,207			$	5,755

 

Depreciation expense for the three months ended March 31, 2015 and 2014 was $548 and $515.

 

Note 4 – Due From Investment Bank

 

In April 2011, the Company engaged a Costa Rican investment bank, as its exclusive agent to advise the Company on the structuring of corporate openness and equity placement. During 2012 the Company entered into a dispute with the investment bank. The Company contends that the investment bank retained more than the fee allowed by the contract on the sale of equity securities (the “Closings”) that took place during the period April 2011 through December 2011. At March 31, 2015 and December 31, 2014, the Company believes they are owed $195,400 and $195,400, respectively, from the investment bank relating to excess fees withheld from the Closings. Due to the uncertainty surrounding the recoverability of the funds from the investment bank the Company has recorded a full allowance against the receivable. This amount has been recorded in additional paid in capital in the statement of stockholders equity. If the company wins the dispute and actually recovers the funds it will be recorded to additional paid in capital.

 

Note 5 – Notes Payable

 

		March 31, 2015				December 31, 2014
In October 2010, a third party loaned the Company $50,000 under a demand note bearing zero interest. This note is in default.		$	50,000			$	50,000
In March 2011, third parties loaned the Company $11,500 under demand notes bearing interest from 8-10% per year. The notes were acquired in the merger and are in default. A payment of $1,500 was made as of June 2014, leaving a balance of $10,000 as of March 31, 2015.			10,000				10,000
		$	60,000			$	60,000

 

Note 6 – Liability to be Settled in Stock

 

In August 2012, the Company executed a consulting agreement with a third party to provide various services. Under the terms of the agreement, the consultant would be paid $10,000 per month for six months in the form of free trading shares. The share total is computed as follows:

 

●	Earned compensation will accrue interest at 6%; and
●	Accrued compensation will be convertible into 70% of the average of the lowest three closing bid prices of the 20 days preceding any conversion

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

At March 31, 2015, the fully recorded amount of $60,000 remains outstanding and available to be converted. This liability was acquired in the merger.

 

In January of 2014, the Company executed a three-month consulting agreement with a third party to provide strategic planning matters. The consultant would be paid $15,000 per month for three months in the form of restricted common stock, using the average of the last five trading days of the month. As of March 31, 2015 the last remaining months balance of $15,000 has yet to be issued. There is no interest under this agreement.

 

In February of 2014, the Company engaged Lucosky Brookman LLP as its counsel. According to the contract, a portion of the fees from Lucosky Brookman would be paid in restricted common shares. As of March 31, 2015 the Company has fees in the amount of $39,500, which is available to be converted.

 

Note 7 – Settlement Liability

 

In coordination with Section 3(a)(10) of the Securities Act of 1933, stated by the Circuit Court of the Second Judicial Circuit in Florida, the Company agreed to a settlement liability to pay for its outstanding stock liability debt of $43,333. Total payments of $24,652 were made during the year ending December 31, 2014. As of March 31, 2015 and December 31, 2014 remains a balance of $18,681 and $18,681 respectively.

 

Note 8 – Convertible Notes Payable

 

(A) Convertible Notes Payable

 

At March 31, 2015 and December 31, 2014, convertible debt consisted of the following:

 

		March 31, 2015				December 31, 2014
Convertible into 50% of the average of the lowest three closing prices during the 20 trading days immediately preceding conversion. These notes matured in July 2008 ($75,000), November 2008 ($100,000) and February 2010 ($15,000). These notes bear an interest rate of 8%-10%. These notes were acquired in the merger and are currently in default.		$	190,000			$	190,000
Convertible into 50% of the five day average closing bid prices immediately preceding conversion. This note matured in July 2008. This note has an interest rate of 8%. This note was acquired in the merger and is currently in default.			50,000				50,000
Convertible into 10% of the average of the lowest three closing prices during the 20 trading days immediately preceding conversion. This note matured in March 2008 and bears a 6% interest rate. This note was acquired in the merger and is currently in default.			40,000				40,000
Convertible into 75% of the average of the lowest three closing prices during the 20 trading days immediately preceding conversion. These notes matured in May and June of 2010 and bear an 8% interest rate. These notes were acquired in the merger and are currently in default.			25,000				25,000

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Convertible into 50% of the average of the lowest three closing prices during the 10 trading days immediately preceding conversion. Notes mature in July 2013 – May 2014 and bear an 8% interest rate. These notes are currently in default. As of March 31, 2015, $5,000 of these notes has been converted.			487,000				487,000
Convertible into 60% of the lowest of any day during the 10 trading days immediately preceding conversion. Note matured in September 2014 and bears a 9.9% interest rate and is currently in default. As of March 31, 2015, $16,641 of this note has been converted, leaving a balance of $10,859.			10,859				10,859
Convertible at the greater (a) $0.015 or (b) at 50% of the lowest closing bid price during the 30 trading days immediately preceding conversion. This note matured in May 2014, bears a 10% interest rate and is currently in default.			25,000				25,000
Convertible at a 50% discount of the lowest of any day during the 15 trading days immediately preceding conversion. Note matures in March 2015, bears an 8% interest rate and is currently in default. As of March 31, 2015, $9,450 of this note has been converted, leaving a balance of $12,050.			12,050				16,780
Convertible at a 50% of the lowest closing bid price during the 30 trading days immediately preceding conversion. Note matures in September 2014, bears a 10% interest rate and is currently in default. As of March 31, 2015, $8,320 of this note has been converted, leaving a balance of $16,680.			16,680				16,680
Convertible at the lessor of (a) $0.004 or (b) at 40% discount of the lowest trade price during the 25 trading days immediately preceding conversion. Note matures in May 2016, has a 10% OID and bears a one time interest charge of 12% after ninety days (August 2014). As of March 31, 2015, $1,521 of this note has been converted, leaving a balance of $25,979.			25,979				27,500
Convertible at a 42% discount of the lowest three closing prices during the 15 trading days immediately preceding conversion. Note matures in March 2015, bears an 8% interest rate and is currently in default. As of March 31, 2015, $17,995 of this note has been converted, leaving a balance of $14,505.			14,505				32,500
Convertible at a 42% discount of the lowest three closing prices during the 15 trading days immediately preceding conversion. Note matures in March 2015, bears an 8% interest rate and is currently in default.			32,500				32,500
Convertible into 50% of the lowest close price during the 10 trading days immediately preceding conversion. Note matures in July 2015 and bears an 8% interest.			40,000				40,000
Convertible at a 42% discount of the lowest three closing prices during the 15 trading days immediately preceding conversion. Note matures in April 2015 and bears an 8% interest rate.			32,500				32,500
Convertible into 50% of the lowest close price during the 10 trading days immediately preceding conversion. Note matures in August 2015 and bears an 8% interest. In connection with this convertible note, the Company issued a Back End convertible note, in the principal amount of $25,000. The Back End Note has the same terms, due dates and conditions the convertible note. This Back End note is secured by a $25,000 Promissory Note to the Company, issued by the Holder. As of March 31, 2015, $7,000 of this note has been converted, leaving a balance of $18,000.			18,000				25,000
Convertible at the lessor of (a) $0.004 or (b) at 40% discount of the lowest trade price during the 25 trading days immediately preceding conversion. Note matures in September 2016, has a 10% OID and bears a one time interest charge of 12% after ninety days (December 2014).			33,000				33,000
Convertible at a 42% discount of the lowest three closing prices during the 15 trading days immediately preceding conversion. Note matures in December 2015 and bears an 8% interest rate.			34,000				-
		$	1,087,073			$	1,084,319

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

The debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at conversion prices and terms discussed above. The Company classifies embedded conversion features in these notes as a derivative liability due to the discount to market feature, which could require a settlement in shares that cannot be determined until such conversions occur. The Company may not be able to determine if sufficient authorized shares exist in connection with contemplated conversions, which requires liability classification.

 

Convertible debt consisted of the following activity and terms:

 

						Interest Rate				Maturity
Convertible Debt Balance as of December 31, 2014		$	978,069				8% -12%				March 2008 – Dec. 2016 ($903,324 is in default as of March 31, 2015)
Borrowings during the period ended March 31, 2015			34,000				8%				December 2015
Conversions during the period ended March 31, 2015			(31,246	)
Convertible Debt Balance as of March 31, 2015			1,087,073
Debt Discount			(84,184	)
Convertible Debt Balance as of March 31, 2015 - Net		$	1,002,889

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

(B) Debt Discount

 

During the three months ended March 31, 2015 and 2014, the Company recorded debt discounts totaling $34,000 and $111,836 respectively.

 

The debt discounts pertain to convertible debt that contains embedded conversion options that are required to be bifurcated and reported at fair value.

 

The Company amortized $56,066 and $144,470 during the three months ended March 31, 2015 and 2014 respectively, to interest expense.

 

		March 31, 2015				December 31, 2014
Debt Discount		$	765,398			$	762,644
Amortization of debt discount			(681,214	)			(656,394	)
Debt Discount - net		$	84,184			$	106,250

 

Note 9 – Derivative Liabilities

 

Derivative liability – December 31, 2014		$	2,439,998
Fair value mark to market adjustment for convertible instruments			(31,759	)
Reduction in fair value due to debt conversions			(94,794	)
Fair value at the commitment date for convertible instruments			133,644
Derivative liability – March 31, 2015		$	2,447,089

 

The Company records debt discount to the extent of the gross proceeds raised, any excess amount is recorded as a derivative expense. The Company recorded a derivative expense of $99,644 and $99,289 for the three months ended March 31, 2015 and 2014.

 

The Company uses the Black-Scholes model to estimate the fair value of its derivative liabilities at the end of each reporting period. The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of March 31, 2015:

 

		Commitment Date				March 31, 2015
Expected dividends:			0%				0%
Expected volatility:			238% - 636%				515% - 743%
Expected term:			0.50 - 2 years				0.01 – 1.43 year
Risk free interest rate:			0.08% - 0.37%				0.05% - 0.56%

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Note 10 – Related Party Transactions

 

(A)	Accounts Payable – Related Party

 

As of March 31, 2015 and December 31, 2014 the Company had accounts payable due to board members and companies owned by board members of $384,198 and $385,677. Since April 8, 2010 through March 31, 2015, management and board members have been loaning money to the Company, paying expenses on behalf of the Company and deferring salaries and consulting fees.

 

(B)	Related Party Consulting Services

 

The Company incurred consulting expenses to a company that is owned by a board member, and for the three months ending March 31, 2015 and 2014 the amounts were $7,500 and $37,500 respectively.

 

(C)	Notes Payable – Related Parties

 

The Company executed various promissory notes to related parties since inception. New notes were issued for the three months ending March 31, 2015, in the amount of $23,695.

 

The notes had the following range of terms:

 

●	Maturing in 3 months to 1 year;
●	Non-interest bearing
●	Unsecured
●	Default interest rate at 6%, per annum;

 

During the three months ended March 31, 2015 and the year ended December 31, 2014, the Company repaid $0 and $34,071 respectively leaving a balance of $66,446 and $42,751 respectively. The Company is currently in default on $39,877 of these notes.

 

Debt under these obligations at March 31, 2015 and December 31, 2014 is as follows:

 

		March 31, 2015				December 31, 2014
Notes payable		$	66,446			$	42,751
Less: Current maturities			(66,446	)			(42,751	)
Notes payable, net of Current maturities		$	-			$	-

 

Note 11 – Retirement Plan

 

401(k)

 

The Company provided a 401(k) employee savings and retirement plan (the “Plan”). The Plan covered all employees who have completed six months of consecutive service with 160 hours monthly or have completed one year of service. The Company matched 100 percent of a participant’s elective deferrals up to 3 percent of the participant’s compensation, plus 50 percent of the participant’s elective deferrals that exceed 3 percent of the participant’s compensation, up to 5 percent of the participant’s compensation. The Company has not contributed to the Plan for the three months ended March 31, 2015 and 2014.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Note 12 – Foreign Operations

 

Costa Rica

 

Operations outside the U.S. include subsidiaries in Costa Rica. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange. These subsidiaries are still in the development stage and have not generated any revenues.

 

The consolidated financial statements of the Company’s subsidiary, located in Costa Rica, are translated from colones, its functional currently, into U.S. dollars, the Company’s functional currency. All foreign currency assets and liabilities are translated at the exchange rate in effect at the reporting date, and all revenue and expenses are translated at the month-end exchange rate. The effects of translating the financial statements of the foreign subsidiary into U.S. dollars are reported as a cumulative translation adjustment, a separate component of the accumulated other comprehensive income (loss) in the consolidated statements of the shareholders’ equity (deficit). Foreign currency transaction gains/losses are reported as a component of other income – net in the consolidated statements of operations. The amount of foreign currency transaction gains and losses and translation adjustments were de minimis during the periods ended March 31, 2015 and 2014.

 

Note 13 – Stockholders Deficit

 

Common Stock –

 

Common Stock has 2,600,000,000 shares authorized at $0.001 par value. Subject to the foregoing provisions, dividends may be declared on the Common Stock, and each Share of Common Stock shall entitle the holder thereof to one vote in all proceedings in which action shall be taken by stockholders of the Corporation.

 

For the three month ended March 31, 2015 the following Common Stock has been issued:

 

- 19,127,704 Common Stock the Holder of a convertible note that converted $7,000 in principal and $351 in accrued interest for a note with the maturity date of August 2015.

 

- 43,180,986 Common Stock the Holder of various convertible notes that converted $17,995 in principal and $0 in accrued interest for a note with the maturity date of March 2015.

 

- 14,626,426 Common Stock the Holder of various convertible notes that converted $4,730 in principal and $389 in accrued interest for a note with the maturity date of March 2015.

 

- 8,450,000 Common Stock the Holder of various convertible notes that converted $1,521 in principal and $0 in accrued interest for a note with the maturity date of May 2016.

 

Note 14 – Commitments and Contingencies

 

Operating Leases

 

On November 1, 2010, the Company began leasing office space in Colorado Springs. This lease has been renewed for an additional three-year term. Monthly rent begins at $694 per month and increases over the term of the lease. The Company is also responsible for paying a share of the landlord’s property operating costs. The renewal lease began in November 2013 and expires in October 2016.

 

Rent expense amounted to $2,712 and $9,542 for the period ending March 31, 2015 and March 31, 2014, respectively and is included in selling, general and administrative expenses in the consolidated statements of operations.

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

Future minimum lease payments under these operating leases are approximately as follows:

 

Period Ending March 31,
2015				11,468
2016				13,147
Total			$	24,614

 

Agreements with Placement Agents and Finders

 

In April 2011, the Company engaged, a Costa Rican investment bank, as its exclusive agent to advise the Company on the structuring of corporate openness and equity placement with the following terms:

 

●	To assist the Company in connection with a best efforts private placement of up to $9.5 million of the Company’s equity and/or debt securities
●	Compensation – a fee in an amount equal to 5% of the aggregate gross proceeds raised

 

A former principal member of the board of directors of the Company is an employee of the investment bank.

 

During the year ended December 31, 2011 the Company paid the investment bank fees of $262,000. The Company is disputing $195,400 of these fees. (See Note 4)

 

Liability Purchase Agreement

 

On March 19, 2014, the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida, entered an order approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in accordance with a stipulation of settlement between STL Marketing Group, Inc., a Colorado corporation, and Tarpon Bay Partners, LLC, a Florida limited liability company, in the matter entitled Tarpon Bay Partners, LLC v. STL Marketing Group, Inc. , Case No. 2014-CA-278. Tarpon commenced the Action against the Company on February 6, 2014 to recover an aggregate of $519,282 of past-due accounts payable of the Company, which Tarpon had purchased from certain service providers of the Company pursuant to the terms of separate receivable purchase agreements between Tarpon and each of such vendors, plus fees and costs. The Assigned Accounts relate to certain legal, accounting, and financial services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and Tarpon upon execution of the Order by the Court on March 19, 2014.

 

Pursuant to the Settlement Agreement, the Company shall issue and deliver to Tarpon shares (the “Settlement Shares”) of the Company’s Common Stock in one of more tranches as necessary, and subject to adjustment and ownership limitations, sufficient to generate proceeds such that the aggregate Remittance Amount (as defined in the Settlement Agreement) equals the Claim.

 

In addition, pursuant to the terms of the Settlement Agreement, the Company issued to Tarpon the Tarpon Initial Note in the principal amount of $25,000. Under the terms of the Tarpon Initial Note, the Company shall pay Tarpon $25,000 on the date of maturity which was May 31, 2014. This Note is convertible by Tarpon into the Company’s Common Shares (See Note 8).

 

Also per the Company’s agreement with Tarpon, the Company issued the Tarpon Success Fee Note in the principal amount of $25,000 in favor of Tarpon as a commitment fee. The Tarpon Success Fee Note is due on September 20, 2014. The Tarpon Success Fee Note is convertible into shares of the Company’s common stock (See Note 8).

 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

March 31, 2015

(Unaudited)

 

In connection with the settlement, and during the three months ending March 31, 2015, the Company issued zero shares. However, for the year ending December 31, 2014, the Company issued Tarpon 14,692,867 shares of Common Stock from which gross proceeds of $246,734 were generated from the sale of the Common Stock. In connection with the transaction, Tarpon received fees of $81,287 and providing payments of $165,447 to settle outstanding vendor payables. A portion of the fees that Tarpon has received has not been fully documented by Tarpon to the Company as requested, and therefore are in dispute and are pending of file date. For audit purposes, we have recorded these fees as fees paid to Tarpon.

 

Any shares not used by Tarpon are subject to return to the Company. Accordingly, the Company accounts for these shares as issued but not outstanding until the shares have been sold by Tarpon and the proceeds are known. Net proceeds received by Tarpon are included as a reduction to accounts payable or other liability as applicable, as such funds are legally required to be provided to the party Tarpon purchased the debt from.

 

Litigations, Claims and Assessments

 

The Company may become involved in various lawsuits and legal proceedings, which 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 that may harm its business. Other than the litigation with Costa Rican Investment Bank, as discussed in Note 4, the Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

 

Note 15 – Subsequent Events

 

The following conversions have been made:

 

	-	54,794,444 Common Stock the Holder of a convertible note that converted $6,435 in principal and $0 in accrued interest for a note with the maturity date of September 2014.
	-	35,215,753 Common Stock the Holder of a convertible note that converted $7,750 in principal and $419 in accrued interest for a note with the maturity date of August 2015.
	-	58,160,769 Common Stock the Holder of various convertible notes that converted $17,015 in principal and $0 in accrued interest for notes with the maturity dates of March 2015.
	-	30,446,166 Common Stock the Holder of various convertible notes that converted $4,565 in principal and $412 in accrued interest for a note with the maturity date of March 2015.
	-	31,930,000 Common Stock the Holder of various convertible notes that converted $4,036 in principal and $0 in accrued interest for a note with the maturity date of May 2016.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by STL Marketing Group, Inc. (“STL” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K, filed with the SEC on April 22, 2015, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

 

Plan of Operation

 

The Company’s efforts for the next 12 months are its continued focus on the following two key areas: (i) continuing efforts to pursue the proposed Power Purchase Agreement (“PPA”) to begin generating renewable wind energy in Costa Rica, and (ii) the initiation of our telecommunications business focused on the distribution and sales of VoIP telecommunications equipment (“PBX Systems”).

 

Efforts to Finalize the Power Purchase Agreement

 

In December 2012, we received an official letter affirming our PPA proposal from the Compañia Nacional de Fuerza y Luz (“CNFL”) issued and signed by its General Manager and filed with the Securities and Exchange Commission on July 30, 2013 (the “PPA Letter”). In 2013, based on the PPA Letter and ongoing meetings with the CNFL, the Company had its personnel in Costa Rica providing additional technical and tender information in an effort to finalize the PPA. However, since November 2013, the Costa Rica presidential elections were in process and our progress was delayed.

 

The Costa Rica presidential elections resulted in Mr. Luis Guillermo Solis becoming the President of Costa Rica (as the candidate from the Partido Accion Ciudadana or PAC). We believed Mr. Solis, as a candidate, took a very favorable position to the generation of electricity by private enterprises as part of an overall solution to the energy crisis of the country. However, since his election, President Solis has since appointed the new Grupo ICE Chairman and CEO whom we believe opposes any private generation of electricity. Further complicating matters, the General Manager who issued us the PPA Letter from CNFL, was unexpectedly removed from office. In fact, a great majority of the CNFL executive staff, who the Company believes was key in its efforts to finalize the PPA have been removed and replaced.

 

 

As a result, the Board has reached out to CNFL and requested a meeting with the new General Manager to move forward on our PPA proposal as reflected in the PPA Letter. The Company will also be exploring alternatives to CNFL, including the possibility of a 7200/7508 license (maximum of 20MW). At this time, it is unclear on how these changes affect our progress to date. Due to the governmental changes in Costa Rica, we may have to reinitiate the process with CNFL.

 

In the interim, the Company has cut its operating costs in Costa Rica by approximately $13,000 per month. Most of the professional studies and technical assessments for the PPA have been paid for and will continue to be applicable in the future leaving minimal costs for us to continue pursuing the PPA. Additionally, the Company believes that all of the services related to the PPA can be easily reinstated or expanded as needed.

 

In October 2014, the Company met with representatives of CNFL and has also met with a variety of business and government officials to gather more information on the eighteen-month review of private generation in Costa Rica. We believe from these meetings that there is a possibility that the delay may be less than the announced eighteen months and that the Company may be allowed to continue its PPA work in 2016. The Company is cautiously optimistic about this possibility and is continuing its political work to ensure we are up to date and fully informed. We believe the political pressure to address rising energy costs is becoming a point of concern for the new administration. As of the date of this filing, the Company continues to focus on finalizing the PPA and operate in Costa Rica at reduced staff levels.

 

PhoneSuite Solutions, Inc.

 

On May 29, 2014, the Board of Directors (the “Board”) of STL Marketing Group, Inc. (the “Company”) approved the formation of PhoneSuite Solutions, Inc. (“PSS”), as a Delaware corporation and a wholly owned subsidiary of the Company. On June 16, 2014, the Board approved the issuance of one-hundred (100) shares of common stock of PSS to the Company (the “Subsidiary Shares”). The Subsidiary Shares represent 100% of the authorized shares of common stock of PSS.

 

On June 24, 2014, PSS, as the Company’s wholly owned subsidiary, entered into a Strategic Alliance and Distribution Agreement (the “Agreement”) with Call Management Products, Inc. (“CMP”), a Colorado corporation in the business of designing, manufacturing, marketing, and selling telecommunications products. The Agreement provides that PSS will establish a dealer network and market and sell CMP’s products both internationally and in the United States (the “Territory”). In the domestic market PSS will market to the general business market, excluding the hospitality and assisted living verticals. Internationally, PSS may sell to all markets and develop both the hospitality and general business marketplaces.

 

In 2015, the Company’s continued focus is for PhoneSuite Solutions, Inc. to begin generating revenue, add dealers, and follow through with our goal to gain financial independence.

 

 

Results of Operations

 

For the three months ended March 31, 2015 compared to the three months ended March 31, 2014

 

For the three months ended March 31, 2015 and 2014, the Company reported a net income/(loss) of $(310,988) and $1,622,697, respectively. The change in net income/(loss) between the periods ended March 31, 2015 and 2014 is due to the derivative liabilities.

 

Operating expenses decreased by roughly 48% during the three months ended March 31, 2015, as compared to the three months ended March 31, 2014. The $102,477 decrease in operating expenses is primarily attributed to the following changes in operating expenses: decrease in professional fees of $93,123 and decrease in general and administrative of $9,354 primarily related to the decrease in outside service expenses.

 

The Company has no revenues to date.

 

Liquidity and Capital Resources

 

As of March 31, 2015, we had a working deficit of $5,147,938 as compared to December 31, 2014 of $5,017,677, an increase of $130,261. The increase in working capital deficit for the period ended March 31, 2015, is primarily attributed to an increase in derivative liabilities of $7,091. In addition, the Company had an increase in liabilities related to accrued payables and expenses of $78,331, additional convertible notes, net of discount of $24,820 and in notes payable – related party of $23,695.

 

Net cash used in operating activities for the three months ended March 31, 2015 and 2014, was $(55,498) and $(94,614), respectively. The Net Income/(Loss) for the three months ended March 31, 2015 and 2014 was $(310,988) and $1,622,697, respectively.

 

No net cash was provided or used by investing activities for the three months ended March 31, 2015 and 2014.

 

Net cash provided by all financing activities for the three months ended March 31, 2015 was $57,695, as compared to $96,500 for the three months ended March 31, 2014. During the three month period ended March 31, 2015, the Company sold convertible notes for the proceeds of $34,000 and related party notes for proceeds of $23,695.

 

As reflected in the accompanying financial statements, the Company has a net loss and net cash used in operations of $310,988 and $55,498, respectively, for the three months ended March 31, 2015.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which 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. Other than disclosed below, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. Other than described below, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Arbitration- Grupo Aldesa - (Pending)

 

In 2012, the Company filed an arbitration claim with the “Centro Internacional de Conciliacion y Arbitraje” or “CICA” alleging that Grupo Aldesa, S.A., its then investment bank, withheld $195,400 of investor funds from the Company in mid-2011 for its own use and benefit and contrary to the executed agreement between the companies. The case claims that Aldesa received funds from two investors and remitted 50% of those funds and keeping the balance without authorization. Additionally, the Company did notify the Federal Bureau of Investigation (FBI), as well as, the State Attorney General of both Delaware and Colorado in mid-2012. Grupo Aldesa appealed to the Sala Primera de la Corte Suprema (the Supreme Court over these types of legal matters) in October of 2012 claiming CICA did not have subject matter jurisdiction or the right to adjudicate the case. In a strongly worded opinion Sala Primera rejected Aldesa’s appeal in the Company’s favor. CICA has received the official notice from the Sala Primera regarding the opinion and has taken up the case from where we were before the appeal.

 

The CICA process has reached its final legal stage, we are awaiting the final judgment which is expected this year.

 

Exchange Under Section - 3(a)(10)

 

On March 19, 2014, the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida (the “Court”), entered an order (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement (the “Settlement Agreement”) between the Company, and Tarpon Bay Partners, LLC, a Florida limited liability company (“Tarpon”), in the matter entitled Tarpon Bay Partners, LLC v. STL Marketing Group, Inc., Case No. 2014-CA-278 (the “Action”). Tarpon commenced the Action against the Company on February 6, 2014 to recover an aggregate of $519,281.96 of past-due accounts payable of the Company, which Tarpon had purchased from certain service providers of the Company pursuant to the terms of separate receivable purchase agreements between Tarpon and each of such vendors (the “Assigned Accounts”), plus fees and costs (the “Claim”). The Assigned Accounts relate to certain legal, accounting, and financial services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and Tarpon upon execution of the Order by the Court on March 19, 2014. Please see the current report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2014.

 

Item 1A. Risk Factors.

 

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 22, 2015.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

For the three months ended March 31, 2015 the Company issued the following shares of Common Stock:

 

19,127,704 Shares of Common Stock to the Holder of a convertible note that converted $7,000 in principal and $351 in accrued interest for a convertible note with the maturity date of August 2015.

 

43,180,986 Shares of Common Stock to the Holder of various convertible notes that converted $17,995 in principal and $0 in accrued interest for a convertible note with the maturity date of March 2015.

 

14,626,426 Shares of Common Stock to the Holder of various convertible notes that converted $4,730 in principal and $389 in accrued interest for a convertible note with the maturity date of March 2015.

 

8,450,000 Shares of Common Stock to the Holder of various convertible notes that converted $1,521 in principal and $0 in accrued interest for a convertible note with the maturity date of May 2016.

 

These securities were not registered under the Securities Act of 1933 (the “Securities Act”). Unless otherwise noted, such issuance of securities was exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(a)(2) of the Securities Act. We made this determination in part based on the representations of investors, which included, in pertinent part, that such investors were sophisticated as defined in Rule 506(b)(2)(ii) of Regulation D, and upon such further representations from the investors that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor in the Subscription Agreement prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Regulation D Rule 506 and Section 4(a)(2) of the Securities Act.

 

Item 3. Defaults upon Senior Securities.

 

There has been no default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosure.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	STL Marketing Group, Inc.
Date: May 19, 2015	By:	/s/ Jose P. Quiros
	Name:	Jose P. Quiros
	Title:	Chief Executive Officer
		(Principal Executive Officer)