Attached files
| file | filename |
|---|---|
| EX-31.1 - Seaniemac International, Ltd. | ex31-1.htm |
| EX-31.2 - Seaniemac International, Ltd. | ex31-2.htm |
| EX-21.1 - Seaniemac International, Ltd. | ex21-1.htm |
| EX-32.1 - Seaniemac International, Ltd. | ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-54007
Seaniemac International, Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4292198 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 780 New York Avenue, Suite A, Huntington, New York | 11743 | |
| (Address of principal executive offices) | (Zip Code) |
(386) 409-0200
(Registrant’s telephone number, including area code)
Copies of Communications to:
Laura Anthony, Esq.
Legal & Compliance, LLC
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
(561) 514-0936
Fax (561) 514-0832
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 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 [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold as of the last business day of the registrant’s most recently completed second fiscal quarter. $240,458 on June 30, 2014.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 673,842,729 shares of common stock issued and outstanding as of December 16, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Table of Contents
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially are discussed in greater detail under Item 1A - “Risk Factors” of this report.
We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
OTHER PERTINENT INFORMATION
Throughout this annual report on Form 10-K, unless specifically set forth to the contrary, as used in this report the terms “we,” “our,” “us,” “the Company” and similar terms mean Seaniemac International, Ltd., a Nevada corporation, and its 70% owned subsidiary, Seaniemac Limited, an Irish private limited company.
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We maintain a website for online gambling, including sports betting and casino gaming in Ireland under the brand name Seaniemac.com. In May 2013, we launched our online gaming platform (including operational sportsbook) and mobile website at Seaniemac.com, including iOS and Android applications. In July 2013, we added casino games and slots. Now, through our website and mobile media, we offer sports betting and casino gaming in Ireland under our Seaniemac.com brand. Our website menus include Irish horse racing, soccer, online wagering for traditional casino, live casino, poker, bingo and interactive skilled games.
We rely on third parties for all of the web operations for Seaniemac.com. Since its launch, we have implemented multiple business development initiatives in Ireland, including the airing of nationwide television commercials, the implementation of Pay-Per-Click web and mobile advertising campaigns, the establishment of affiliate relationships with certain betting blogs and other feeder websites, as well as utilizing traditional print and billboard advertising. We intend to continue investment in these types of marketing and brand recognition initiatives in the coming months. As we are in the early stages of our business development, we will continually reevaluate the effectiveness of all of our marketing initiatives. Once we have identified those representing the most effective and lowest “cost per acquisition”, we believe we can scale our business rapidly by focusing our efforts on such effective and efficient strategies. We plan to continue to focus our efforts in Ireland and the United Kingdom, where we initiated, and continue to develop, our brand.
Between May 2013, when we launched our website, and December 31, 2014, we had 16,075 new accounts opened and processed over 215,000 bets placed by our customers.
Website Launch and Monitoring its Activity
General. We utilized third party white-label online gaming website provider Boylesports Group (“Boylesports”) to develop and operate Seaniemac.com, including for software development for our branded website, seaniemac.com (“seaniemac.com” or the “Website”), operations, sports book trading, telephone betting operations, licensing, website hosting, payment solutions, security and first line support of gaming related questions. A white-label product or service is a product or service produced by one company often called the “producer” (in our case, Boylesports) that other companies (often called the “marketers” or “partners”) rebrand to meet the specifications of the partner. White-label sites are common in the online gaming business. As a result of this commonality, we will face competition with other sites that may be white-labeled by Boylesports and, consequently, we remain ultimately responsible for building our own brand affinity and brand recognition in the Irish market.
Boylesports. Under the terms of our White Label Services Agreement Seaniemac entered into with Boylesports on January 30, 2013, Boylesports developed and hosts seaniemac.com. Seaniemac.com offers visitors betting (including fixed-odds and/or pari-mutuel betting) on sports events, browser web-based (non-downloadable) bingo games, and browser web-based (non-downloadable) fixed-odds games, other than sports (collectively, the “e-Gaming Offerings”) in addition to the noted mobile web application. Boylesports also provides odds and pricing data feeds for integration with seaniemac.com as well as fee based online acquisition funnel management (player conversion) consulting services, fee based marketing and promotion management services, customer service, promotional events, free telephone customer support, telephone betting, event, payment processing, customer account settlement, management and Seaniemac employee training for the Website.
Seaniemac.com is published in the English language, yet we may integrate additional languages should we determine that offerings upon our Website in other languages would be anticipated to become commercially viable. In such a case, investment in additional development of our Website would be required. Presently we intend to focus our resources on the development and marketing of the Seaniemac.com brand in the English language until our initial objectives have been attained and our operations stabilized.
Net remittances of amounts due under the White Label Services Agreement are paid by Boylesports to Seaniemac monthly on the understanding that customer losses are greater than Boylesports minimum guaranteed payment and operational costs. In the event that client losses are less than what is owed, Seaniemac will be expected to pay the difference as soon as is practicably possible to ensure continued service to their customers. Finally under the White Label Services Agreement, Seaniemac is obligated to pay Boylesports any applicable taxes, and, moreover, would be obligated to additional hosting service fees in the event Boylesports would be required to relocate its current servers at the rate of cost-plus-20%, additional customer support services fees at cost-plus-20% if Boylesports is required to hire additional full-time staff to accommodate the customer support services to be provided to Seaniemac’s customers, fee-based online acquisition funnel management (player conversion) consulting services if requested by Seaniemac as well as fee-based marketing and promotion management services if requested by Seaniemac. Presently, Seaniemac remains solely responsible under the White Label Services Agreement for marketing its Website to potential bettors, at its own cost and expense, the objective of which is to maximize traffic potential bettor traffic to seaniemac.com and, thereby, GGR to be generated thereby and, ultimately, Net Revenue Share to be distributable to Seaniemac.
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Under the White Label Services Agreement with Boylesports, during the 12-month period beginning with June 2013, the first full month subsequent to launch of seaniemac.com, we were required to spend for advertising and promotion of seaniemac.com and e-Gaming Offerings the greater of (i) €120,000 (approximately $156,000); or (ii) 20% of our Net Revenue Share for such period. For the year ended December 31, 2013, we incurred $476,660 in marketing expenses, or approximately €371,268, on such marketing endeavors. During each of the two following 12 month periods, we are required to spend at least 10% of our Net Revenue Share for advertising and promotion of seaniemac.com and e-Gaming Offerings for each such period.
The White Label Services Agreement is for a three-year term commencing as of January 30, 2013 (its “Initial Term”). Upon expiry of its Initial Term, the While Label Agreement provides for its automatic extension for additional periods of 12 months each, subject to termination by either party with six (6) months written notice prior to the end of any such 12-month period (the Initial Term, as expanded by any such extension, the “Term”). The White Label Services Agreement is also terminable by either party in the event of (i) an alleged material breach by a party is not cured within 21 days of the opposite party’s written notice thereof, (ii) immediately in the event either of the parties becomes insolvent and seeks to wind-up its affairs, (iii) either party becomes subject to a judgment that could have a material adverse effect on such party which is not satisfied within 21 days of the entry of such judgment, or (iv) by Boylesports in the event it determines that the business relationship with us becomes commercially unviable and Boylesports provides us written notice thereof.
For the duration of the Term, we and any of our affiliates are prohibited from acquiring or receiving, or attempting to acquire or receive, directly or indirectly, any online or mobile gaming products or related services, for use in any territory whatsoever, from any person or entity other than Boylesports.
Customer Service
One of our main marketing objectives will be to retain active players by keeping attrition rates low through, among other measures, by offering bettors a guarantee policy and superior customer service support. We will rely on our third party gaming website operator for these services and will have no ability to provide independent back-office or website support services.
Each gaming product has strict guidelines and rules to be followed and carried out in order to achieve consistent service standards. Through Boylesports, we will seek to operate with 99.9% up time, which represents the percentage of time that our Website is operational, and within the requirements of the Isle of Man Gambling Supervision Commission license of our third-party website service provider, Boylesports.
Licenses and Permits
We operate under the Isle of Man Gambling Supervision Commission license of Boylesports. This license is a white label United Kingdom regulated license which allows for gambling operations in Ireland and throughout the United Kingdom.
Market & Economic Factors
The online gambling industry was revolutionized by the development of the worldwide web (“Internet”) in the mid-1990s. The evolution of online technology led to the growth of this market making it possible for one to gamble from anywhere, at any time, with the only requirement being the bettor’s interface with the Internet. A solid infrastructure of broadband Internet connectivity, easy access to mobile applications, and safe and secure payments through a native banking system are three of the key market factors that support growth in this industry.
The industry is in the stage of market consolidation where the big players are looking to fill out their capabilities or reach into new markets through acquisitions. New rounds of merger and acquisition activity are predicted in this sector, both among traditional gaming and gambling companies reaching into virtual markets and existing virtual leaders taking over smaller niche competitors.
The global online gambling market is somewhat fragmented with some nations totally prohibiting online gambling, others specifying various restrictions, and only eight nations making online gambling legal in all forms. Based on our review of the applicable regulations of countries that regulated online gambling, in 2010 only 70 jurisdictions worldwide sanction online gambling operations from their shores. The varying gaming options available eases rivalry somewhat, although high fixed costs of online gambling are not favorable to new entrants. Some market players within the online gambling market include a variety of retailers from private operators to monopolies. Monopolies exist in several countries such as Sweden where state run lottery operators offer the chance to purchase online tickets. The monopolies cover approximately 25% of the European online gambling market with a higher rate of 40% throughout Scandinavia. Government regulation is very stringent in some places with countries and particular states around the globe outlawing online gambling whilst many others impose particular restrictions. Due to the nature of the Internet, policing of particular laws are not always possible. Brand strength is powerful in some countries where major players are promoted through heavy advertising and sponsorship campaigns, although varying regulations and differentiated products means that dominance is never absolute. Based on our research there has been a rapid expansion of the online gambling market from 350 online gambling sites in 1998 to 2332 in 2010. Many countries such as France are easing their online gambling regulations thus opening the market up to new players. Overall, we believe the likelihood of new entrants is moderate.
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The cost of switching is relatively low in many places where licensed betting shops or casinos are present. This may be a problem in some areas of the world such as the U.S. states of Tennessee and South Carolina and the Indian state of Maharashtra where State laws prohibit casinos, betting shops or private games. Cheaper alternatives may or may not be available depending on the location or particular rewards on offer; although, online service charges via credit cards, etc. may deem the online market as more expensive. The threat of substitutes to the online gaming market is moderate overall.
Since online gambling is illegal in the U.S., Boylesports has electronic tools in place to prevent U.S.-based persons from betting on our seaniemac.com site, including tools that track IP addresses, block U.S.-issued credit cards and prohibit wires or deposits from U.S. banks.
Rivalry in the online gaming industry is moderate overall, increased by some factors while decreased by others. The market is made up of various sectors competing for customers which eases rivalry somewhat. These include casinos, poker rooms, sports/race books, bingo, skill games, lottery, betting exchange and backgammon. The global reach of the Internet and the plentiful supply of varying games means switching costs for the consumer are virtually nonexistent which increases rivalry. Differing regulations worldwide make it harder for expansion and the easing of regulations in some markets has led to consolidation from monopoly entities which weakens rivalry overall. Yet the opening of new markets such as France will also allow for more players to enter the marketplace, offsetting the balance somewhat.
The following table, which we prepared based on our own research, portrays the major online gambling industry participants and their role in the industry:
| Industry Overview | Primary Focus | |
| Trade Organizations: | ||
| eCogra | eCogra is an internationally accredited testing agency and player protection and standards organization that provides an international framework for best operational practice requirements, with particular emphasis on fair and responsible gambling. | |
| EGBA - European Gaming and Betting Association | EGBA promotes implementation of a fair, competitive and regulated market for online gaming and gambling operators throughout Europe in line with European Union (“EU”) law. | |
| Major Operators: | ||
| Betfair | Internet betting exchange that also operates a poker product and game arcade. | |
| Bwin | Largest online gaming and gambling company focused primarily on sports betting, as well as Internet casino and poker | |
| GTECH (Lottomatica) | Focused on providing software and services in the Internet and sports betting market. | |
| Ladbrokes | Online casino sites offering sportbooks, poker, casino games, bingo and backgammon | |
| Rank Group | Operates bingo services and casinos in the U.K., with complementary online gaming and gambling services. | |
| Major Software Vendors: | ||
| Boylesports | Boylesports.com is the online arm of one of the largest privately owned bookmakers with headquarters in Dundalk, Ireland. | |
| Fremonte | Fremonte provides clients with the management of their online marketing services. We specialize in the complete customer journey, from acquisition to active promotions. | |
| GBGC - Global Betting & Gaming Consultants | GBGC has developed a wide range of gambling and business services that it can provide to its clients to help them operate successfully in the gambling field. | |
| Major Customers: | ||
| Men in the age range of 25 and 35 years | Men play more frequently at higher stakes, yet in shorter sessions | |
| Women | Women generally play for longer, yet at lower stakes, and 43% of all online players in 2009 were women |
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Source of Revenue
Our Net Revenue Share will be derived by subtracting total winnings from total wagers. As a result, we cannot directly control revenue from sports wagering. However, we can indirectly control revenue from casino games by setting the odds high or low as compared to other companies. While we do not have direct control over the actual percentage of winnings for any of our revenue generators, we are able to revise betting odds to gain market share over our competitors.
Industry Trends & Growth
We believe that global online gambling is an industry with strong potential for growth. We expect that legislative and regulatory considerations will likely be the single most substantial factor for growth in online gambling. As previously indicated, legal and regulatory restrictions prohibit or constrain the online gambling industry in several key markets (including the United States). Globally, governments and jurisdictions are still struggling to determine the place of online gambling in the regulatory and legal spectrum. Legalization and/or deregulation can open up or expand national markets significantly if legislative bodies become more comfortable with and receptive to online gambling. In regard to online gambling activities, sport betting remains the most popular form of online gambling. Casino and poker games are the next most popular activities followed by other gambling activities, such as lotteries and bingo.
Competition
Generally, we compete with a number of public and private companies, which provide electronic commerce and/or Internet gaming. In addition to known current competitors, traditional land-based casino operators and other entities, many of which have significant financial resources, and occupy entrenched position in the market and name-brand recognition, may provide Internet gaming services in the future, and thus become our competitors.
We believe the principal competitive factors in our industry that create certain barriers to entry include, but are not limited to, reputation, technology, financial stability and resources, proven track record of successful operations, critical mass (particularly relating to online poker), regulatory compliance, independent oversight and transparency of business practices. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future.
Particularly, we are in direct competition from established online gambling sites like PaddyPower, LadBrokes, Betfair Group and others. However, we, unlike many of our competitors, provide services that are tailored to Gaelic Games (a series of popular Irish sports) enthusiasts, which we believe to be an underserved market niche. Most notably, we are the only Irish and Gaelic Athletic Association (“GAA”) focused site and the only web site offering in-game betting during live-streaming of GAA games.
Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.
Research and Development
We do not currently have a budget specifically allocated for research and development purposes.
Government Regulations and Political Factors
Gambling in Ireland is principally regulated by the Betting Act of 1931 and the Gaming and Lotteries Act of 1956. This legislation pre-dates many of the new developments in the industry. There are other gaming and gambling acts that regulate the industry such as The Horse and Greyhound Racing Act 2001, which falls under overall gaming and gambling regulations but no specific act has been passed in the country for online gambling as of now.
In Europe, there is no EU legislation that regulates the gambling sector yet. However, a number of EU consumer protection directives cover specific aspects of the activity. These include regulations surrounding distance selling, unfair commercial practices and data protection directives. In addition, all EU licensed and regulated gaming and gambling operators are subject to the regulations and laws that govern business in the EU.
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Employees
As of December 31, 2014, we had two full time employees. All other employees, including our CEO/CFO, Mr. Brookstein, is part-time.
Our Corporate History
We were incorporated in Nevada in 2003 under the name GSA Publications, Inc. In conjunction with a reorganization in 2006, we changed our name to Compliance Systems Corporation. In 2010, we merged with Execuserve Corp. (“Execuserve”), pursuant to which we entered the business then operated by Execuserve. The business of Execuserve provided organizations, who are hiring employees, with tests and other evaluation tools and services to assess and compare job candidates.
From 2008 to 2010, we raised capital through the sale to Agile Opportunity Fund, LLC (“Agile”) of secured convertible debentures. In 2010, we breached certain of the terms of the debentures and transferred to Agile all of our operating assets in exchange for a release of our obligations under the debentures and other obligations owed to Agile. At that time, we became a non-operating shell company and sought to acquire or merge with an operating entity.
Seaniemac Acquisition
We completed the acquisition (“Acquisition”) of Seaniemac Limited (“Seaniemac”), an Irish limited company, on October 30, 2012 (the “Closing”) pursuant to that certain June 7, 2012 Securities Exchange Agreement (the “Exchange Agreement”) with RDRD II Holding LLC, a Delaware limited liability company (“RDRD”), as amended on October 29, 2012 and February 18, 2013. Seaniemac, involved in the business of operating a sports gaming website, was incorporated on December 11, 2011 pursuant to its charter which authorized 100,000 shares of a single class of stock, 100 shares of which have been issued, and 70 of those we acquired from RDRD in the Acquisition. In accordance with the Exchange Agreement, we acquired the 70% equity ownership interest of RDRD in Seaniemac (the “Seaniemac Equity Interest”) in exchange for our issuance to RDRD of 29,719,952 shares of our unregistered Common Stock (the “RDRD Exchange Shares”), amounting to approximately 71% of the then outstanding number (on a fully diluted basis) of our authorized Common Stock after taking into account those certain 10 million post-split Common Stock shares we were ordered by a court in Florida to issue to certain of our creditors in satisfaction of an aggregate $500,000 amount of debt then owed to such creditors (the “RDRD Percentage”).
Our Board of Directors approved the change of our name to Seaniemac International, Ltd. effective August 16, 2013 in connection with our current business focus in the operation and expansion of our on-line gaming website, Seaniemac.com. Our name change was effected through the Acquisition effective as of August 16, 2013. As a result of our issuance of the RDRD Exchange Shares and the resulting ownership in us by RDRD, RDRD is deemed under applicable law to be our affiliate.
Prior to the Acquisition, we were a shell company with no business operations. As a result of the Acquisition, we are no longer considered a shell company.
An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our Common Stock could decline, and you may lose all or part of your investment. You should read the section entitled “Forward Looking-Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this annual report on Form 10-K.
Risks Related to Our Business and Financial Condition
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We were formed in December 2011, and our Website was launched in May 2013. As a result, we have little operating history upon which you can evaluate our prospects and our potential value. The likelihood of our success must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new business and the competitive environment in which we will operate. We may never reach profitability. No additional relevant operating history involving Seaniemac’s operations exists upon which an evaluation of our performance can be made. Our performance must be considered in light of the risks, expenses and difficulties frequently encountered in establishing new products and markets in the evolving, highly competitive online gambling industry. If we cannot successfully manage our business, we may not be able to generate future profits and may not be able to support our operations.
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We have incurred substantial losses since our inception and may never be profitable.
As we have incurred losses since inception and further losses are anticipated in the development of our business, there exists substantial doubt regarding our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations. Management intends to finance operating costs over the next 12 months with existing cash on hand, loans from stockholders and directors, and a possible private placement of our securities. No stockholder, director, or possible private placement participant has agreed to loan our company any funds nor agreed to purchase any of our securities. The failure to obtain necessary financing could result in our company ceasing all operations, which would likely result in a loss of all or a significant portion of your investment in our company.
Failure by us to respond to changes in consumer preferences could result in lack of sales revenues and may force us out of business.
Our online gambling website and online operations operate in an industry subject to:
| ● | rapid technological change; |
| ● | the proliferation of new and changing online gambling sites; |
| ● | frequent new product introductions and updates; and |
| ● | changes in customer demands. |
Any of the above changes that we fail to anticipate could reduce the demand for our online business, as well as any products we may introduce in the future. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction, failure to attract demand for our products and lower profit margins.
A decline in the popularity of our Website will negatively impact our business.
Our primary source of revenues is dependent upon our ability to attract and retain new users and attracting existing users to increase their activity on our sites, among other things. If we are unable to maintain or extend web traffic to, and use of, our websites, our revenues may be adversely affected.
Intense competition in the online gambling industry may adversely affect our revenue and profitability.
We operate in a highly competitive environment and we compete for members, visitors and advertisers with numerous well established online gambling sites, as well as many smaller and/or newer sites. If we are unable to differentiate our products and generate sufficient appeal in the marketplace, our ability to achieve our business plan may be adversely affected. We intend to differentiate our Website by launching a marketing campaign utilizing TV commercials and a search engine optimization or “SEO” and other internet advertising tools that features our planned games, web address Seaniemac.com and logo. The effect of such competition may put pressure on profit margins and to involve us in vigorous competition to obtain and retain consumers and advertisers. As compared to us, many of our competitors have significantly longer operating histories and greater brand recognition as well as, greater financial, management, and other resources.
We currently depend on and may continue to be dependent on third parties to complete the development of our online gambling platform, and any increased costs associated with third party developers or any delay or interruption in production would negatively affect both our ability to develop the platform and our ability to continue our operations.
We currently depend on our agreement with Boylesports to operate our Website. We anticipate that we will continue to need to rely on third party providers to maintain, support and operate our Website. The costs associated with relying on third parties may increase our development costs and negatively affect our ability to operate. Since we have less control over a third party because we cannot control the developer’s personnel, schedule or resources, we may experience delays in maintenance of or repairs to our Website. Additionally, our reliance upon a third party developer and operator exposes us to risks, including reduced control over quality assurance and costs of development. If this happens we could lose anticipated revenues from the Website and may not have the capital necessary to continue our operations. Pursuant to the terms of the White Label Services Agreement with Boylesports, either party may terminate the agreement upon 60 days’ notice. A termination by Boylesports could materially impact the Company’s financial condition, as the ability to timely identify a comparable service provider at similar terms may not be possible.
In addition, we may be required to rely on certain technology that we will license from third parties, including software that we integrate and use with our internally developed software. We cannot provide any assurances that these third party technology licenses will be available to us on commercially reasonable terms. The inability to establish any of these technology licenses, or the loss of such licenses if established, could result in delays in completing our platform until equivalent technology could be identified, licensed and integrated. Any such delays could materially adversely affect our business, operating results and financial condition.
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Our success depends on the scope of our intellectual property rights and not infringing the intellectual property rights of others.
Our success depends in part on our ability to:
| ● | obtain copyrights or trademarks or rights to copyrights or trademarks, where necessary, and to maintain their validity and enforceability; |
| ● | operate without infringing upon the proprietary rights of others; and |
| ● | prevent others from infringing on our proprietary rights. |
We will be able to protect our proprietary intellectual property rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable copyrights or trademarks. Our inability to protect our proprietary rights could materially adversely affect our business prospects and profitability. In addition, if litigation were to take place in connection with the enforcement of our intellectual property rights (or to defend third party claims of infringement against us), there can be no assurance that we would prevail. Legal proceedings could result in substantial costs and diversion of management time and resources and could materially adversely affect our operations and our financial condition. We currently own our Website at www.seaniemac.com and the contents of such Website, though we have not filed for formal copyright or trademark protection.
If we do not comply with the terms of our agreement with Boylesports or it is terminated, our business, operating results and financial condition will be adversely affected.
Our agreement with Boylesports to develop and operate our online gaming Website is crucial to our operations. If we fail to comply with any of the terms or conditions of this agreement, in the event the operator terminates the agreement or the agreement expires and we are unable to find a suitable replacement, our business, operating results and financial condition would be materially adversely affected.
Our Website is subject to security and stability risks that could harm our business and reputation and expose us to litigation or liability.
Online commerce and communications depend on the ability to transmit confidential information and licensed intellectual property securely over private and public networks. Any compromise of our ability to transmit such information and data securely or reliably, and any costs associated with preventing or eliminating such problems, could harm our business. Online transmissions are subject to a number of security and stability risks, including:
| ● | our encryption and authentication technology, and access and security procedures, may be compromised, breached or otherwise be insufficient to ensure the security of customer information; |
| ● | we could experience unauthorized access, computer viruses, system interference or destruction, “denial of service” attacks and other disruptive problems, whether intentional or accidental, that may inhibit or prevent access to our websites or use of our products and services; |
| ● | someone could circumvent our security measures and misappropriate our partners’ or our customers’ intellectual property, interrupt our operations, or jeopardize our licensing arrangements, which are contingent on our sustaining appropriate security protections; |
| ● | our computer systems could fail and lead to service interruptions; |
| ● | we may be unable to scale our infrastructure with increases in customer demand; or |
| ● | our network of facilities may be affected by a natural disaster, terrorist attack or other catastrophic events. |
The occurrence of any of these or similar events could damage our business, hurt our ability to distribute products and services and collect revenue, threaten the proprietary or confidential nature of our technology, harm our reputation and expose us to litigation or liability. We may be required to expend significant capital or other resources to protect against the threat of security breaches, hacker attacks or system malfunctions or to alleviate problems caused by such breaches, attacks or failures.
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We have limited experience competing in international markets. Any international expansion plans will expose us to greater political, intellectual property, regulatory, exchange rate fluctuation and other risks, which could harm our business.
Now that our Website has been launched, we may attempt to market the site in countries outside of our current operations in Ireland. The markets in which we may undertake international expansion may have technology and online industries that are less well developed than in Ireland. There are certain risks inherent in doing business in international markets, such as the following:
| ● | Uncertainty of product acceptance by different cultures; |
| ● | Unforeseen changes in regulatory requirements; |
| ● | Difficulties in staffing and managing multinational operations; |
| ● | State-imposed restrictions on the repatriation of funds; |
| ● | Currency fluctuations; |
| ● | Difficulties in finding appropriate foreign licensees or joint venture partners; |
| ● | Laws and business practices that favor local competitors; |
| ● | Expenses associated with localizing our products, including offering customers the ability to transact business in multiple currencies; |
| ● | Potentially adverse tax consequences; and |
| ● | Less stringent and/or narrower intellectual property protection. |
There is a risk that these factors will have an adverse effect on our ability successfully to operate internationally and on our results of operations and financial condition.
Changes to payment card networks or bank fees, rules, or practices could harm our business and, if we do not comply with the rules, could result in a termination of our ability to accept credit cards. If we are unable to accept credit cards, our competitive position would be seriously damaged.
We are subscribers to, or directly access payment card networks such as, Visa, MasterCard and the National Automated Clearing House Association (“NACHA”) through our third party developer and operating agreement, in order to accept or facilitate the processing of credit cards and debit cards (including some types of prepaid cards) as a means for payment to us. We also expect to rely on banks or other payment processors to process transactions, and must pay fees for these services. From time to time, payment card networks have increased, and may increase in the future, the interchange fees and assessments that they charge for each transaction using one of their cards. Generally, payment card processors have the right to pass any increases in interchange fees and assessments on to payment systems like ours as well as increase their own fees for processing. Changes in interchange fees and assessments could increase our operating costs and reduce profit margins, if any. In addition, in some markets, governments have required Visa and MasterCard to reduce interchange fees, or have opened investigations as to whether Visa or MasterCard’s interchange fees and practices violate antitrust law. The financial reform law enacted in 2010 authorizes the Federal Reserve Board to regulate debit card interchange rates and debit card network exclusivity provisions, and the Federal Reserve Board has proposed rules that include caps on debit card interchange fees at significantly lower rates than Visa or MasterCard currently charge. We expect to be required by our processors to comply with payment card network operating rules, which generally include the obligation to reimburse processors for any fines they are assessed by payment card networks as a result of any rule violations by users. The payment card networks set and interpret the card rules which could be more difficult or expensive to comply with. We also expect to be required to comply with payment card networks’ special operating rules for Internet payment services. Some of these rules may be difficult or even impossible for us to comply with. If we are unable to comply with these rules, we may be subject to fines for any failure to comply with such rules or we may lose our ability to gain access to the credit card associations or NACHA.
Changes in government laws could materially adversely affect our business, financial condition and results of operations.
Our business is regulated by diverse and evolving laws and governmental authorities in Ireland and the Isle of Man and other countries in which we intend to operate in the future. Such laws relate to, among other things, online gambling, gambling in general, internet, licensing, copyrights, commercial advertising, subscription rates, foreign investment, use of confidential customer information and content. Promulgation of new laws, changes in current laws, changes in interpretations by courts and other government officials of existing laws, our inability or failure to comply with current or future laws or strict enforcement by current or future government officers of current or future laws could adversely affect us by reducing our revenue, increasing our operating expenses and/or exposing us to significant liabilities.
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Our ability to compete depends in part on the continued availability and service of qualified employees and third party providers.
Although none of our employees has experience in marketing an online gambling website, we rely on their extensive experience in business and event management and marketing, internet marketing, employing search engine optimization (“SEO”) tools that include Google AdWords, social media marketing, online affiliate management and customer acquisition and analysis to operate our business. In addition, we will be reliant on Boylesports who has developed and hosts seaniemac.com. Much of our future success depends on the continued availability and service of the employees and third parties to provide these services. Experienced employees and third party providers in the gaming, technology and online marketing industry are in high demand. The loss of employees or Boylesports, or the inability to hire additional talented employees or third party providers as necessary could result in significant disruptions to our business, and the integration of replacement employees or third party suppliers could be time-consuming and expensive and cause additional disruptions to our business. If we are unable to attract and retain qualified employees and third party providers, we may not be able to meet our strategic objectives.
In an effort to distinguish our business from those of our competitors, we may set our betting odds slightly lower than our competition; however, this policy may reduce our profitability and affect our business and financial operations negatively.
The amount of gross gambling revenues (“GGR”) we generate from our customers is based, in part, on the odds we set for certain online wagers and betting. By lowering our betting odds, the customer will receive a bigger payout, but correspondingly we will receive a lower payout. We may adopt this policy in an effort to attract more customers and gaming volume to our site.
Economic conditions, particularly in Ireland and the UK, that have an adverse effect on the gaming industry will adversely affect our results of operation.
Our proposed business operations are concentrated in a single industry and geographic area (Ireland and the UK) that is affected by international, national and local economic conditions. A downturn in the economy or in a region such as Ireland and the UK constituting a significant source of our customers, or a reduction in demand for gaming, may harm our financial condition or that of our customers. We cannot predict the effect or duration of an economic slowdown or the timing or strength of any subsequent economic recovery, worldwide, in Ireland and the UK or in the gaming industry, or the impact such slowdown may have on the demand for online gaming. If players have less disposable income to spend on online gaming or if our customers are unable to devote resources to using our products, there could be an adverse effect on our business.
We may require significant additional capital to fund our business plan.
We will be required to expend significant funds to maintain our online gambling operations. Our ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including the status of the national and worldwide economy. Capital markets worldwide have been adversely affected by substantial losses by financial institutions, in turn caused by investments in asset-backed securities. We may not be successful in obtaining the required financing, or if we can obtain such financing, such financing may not be on terms that are favorable to us. Failure to obtain such additional financing could result in delay or indefinite postponement of operations.
We depend upon a limited number of personnel and the loss of any of these individuals could adversely affect our business.
If any of our current executive employees were to die, become disabled or leave our company, we would be forced to identify and retain individuals to replace them. They are critical employees at this time. In addition to the executives, we rely heavily on a several people that have extensive knowledge of our industry. There is no assurance that we can find suitable individuals to replace them or to add to our employee base if that becomes necessary. We are entirely dependent on these individuals as our critical personnel at this time. We have no life insurance on any of our employees, and we may be unable to hire a suitable replacement for them on favorable terms, should that become necessary.
Risks Related to Our Common Stock
There currently is only a minimal public market for our Common Stock. Failure to develop or maintain a trading market could negatively affect the value of our Common Stock and make it difficult or impossible for you to sell your shares.
There currently is only a minimal public market for shares of our Common Stock and an active market may never develop. Our Common Stock is quoted on the OTCQB operated by the OTC Market’s Group, Inc. under the symbol “BETS.” We may not ever be able to satisfy the listing requirements for our Common Stock to be listed on any stock exchange, including the trading platforms of NASDAQ Stock Market which are often more widely-traded and liquid markets. Some, but not all, of the factors which may delay or prevent the listing of our Common Stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our Common Stock may not be sufficiently widely held; we may not be able to secure market makers for our Common Stock; and we may fail to meet the rules and requirements mandated by, any of the several exchanges and markets to have our Common Stock listed.
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We cannot assure you that our Common Stock will become liquid or that it will be listed on a securities exchange.
Until our Common Stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq Stock Market, we expect our Common Stock to remain eligible for quotation on the OTCQB, or on another over-the-counter quotation system. In those venues, however, an investor may find it difficult to obtain accurate quotations as to the market value of our Common Stock. Additionally, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our Common Stock, which may further affect the liquidity of our Common Stock. This would also make it more difficult for us to raise capital.
The application of the “penny stock” rules could adversely affect the market price of our Common Stock and increase your transaction costs to sell those shares.
The SEC has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, SEC Rule 15g-9 requires:
| ● | that a broker or dealer approve a person’s account for transactions in penny stocks, and |
| ● | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | obtain financial information and investment experience objectives of the person, and |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
| ● | sets forth the basis on which the broker or dealer made the suitability determination and |
| ● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock.
The market price for our Common Stock is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your Common Stock at or above your purchase price, which may result in substantial losses to you.
The market for our Common Stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our Common Stock is sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our Common Stock could, for example, decline precipitously in the event that a large number of shares are sold on the market without commensurate demand, as compared to the market for securities or a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our products and services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our Common Stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our Common Stock will be at any time, including as to whether our Common Stock will sustain their current market prices, or as to what effect that the sale of shares or the availability of shares for sale at any time will have on the prevailing market price.
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We do not pay dividends on our Common Stock.
We have not paid any dividends on our Common Stock and do not anticipate paying dividends in the foreseeable future. We plan to retain earnings, if any, to finance the development and expansion of our business.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and include a report of management on our internal control over financial reporting in our annual report on Form 10-K. That report must contain an assessment by management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified.
Our management identified a material weakness in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2014. We did not maintain an adequate number of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements, including the performance of internal audit functions and segregation of duties. In addition, management determined that the lack of an audit committee of our Board of Directors also contributed to insufficient oversight of our accounting and audit functions. See Item 9A, “Controls and Procedures.”
We expect to be materially dependent upon our CEO, who is also our CFO, for the foreseeable future. Until such time as we have adequate financial resources to hire a full complement of accounting personnel with the requisite expertise in U.S. generally accepted accounting principles (“U.S. GAAP”), there are no assurances that the material weaknesses and significant deficiencies in our internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.
Rule 144 Related Risk.
Pursuant to Rule 144 promulgated under the Securities Act, a person who has beneficially owned restricted shares of our common stock for at least six months may sell his or her securities if: (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale, and (iii) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale.
Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
| ● | 1% of the total number of securities of the same class then outstanding (643,004 shares of Common Stock as of September 26, 2014); or |
| ● | the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; |
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
Restrictions on the reliance of Rule 144 by shell companies or former shell companies.
Historically, the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:
| ● | The issuer of the securities that was formerly a shell company has ceased to be a shell company, |
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| ● | The issuer of the securities is subject to the reporting requirements of Section 14 or 15(d) of the Exchange Act, |
| ● | The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and |
| ● | At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company. |
As a result, it is likely that pursuant to Rule 144, stockholders who receive our restricted securities in a business combination will not be able to sell our shares without registration until one year after we have completed our initial business combination.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to a smaller reporting company.
Our executive offices are located at 780 New York Avenue, Suite A, Huntington, NY 11743. The office is used for administration and finance for all Company activities. The office is occupied at no charge to us. There is no rental agreement for the use of this office. If rent were charged for this space, the amount would not be material.
Additionally, we occupy an office in Dublin, Ireland on a month-to-month basis that requires monthly rent payments of approximately $326.
On August 14, 2014, the Company agreed to the entry of an Order Instituting Cease and Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934 (“Agreed Order”), with the Securities and Exchange Commission (SEC). The agreement with the SEC was subsequently modified on September 17, 2014 and is pending final approval from the SEC. Pursuant to the Agreed Order, the Company acknowledged that it was delinquent in its filing requirements in that it had failed to file its annual report on Form 10-K for the year ended December 31, 2013, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and an 8-K filing. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The penalty of $50,000 was expensed during the third quarter of 2014.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us that may materially affect us.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our operations.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is traded over-the-counter and available for quotation on the OTC Markets under the trading symbol “BETS”. The following table sets forth the range of high and low sale prices for our Common Stock for the periods indicated. The information reflects inter-dealer prices, without retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.
| High | Low | ||||||||
| Quarter Ended March 31, 2013 | $ | 0.2800 | $ | 0.0100 | |||||
| Quarter Ended June 30, 2013 | $ | 0.2000 | $ | 0.0300 | |||||
| Quarter Ended September 30, 2013 | $ | 0.1900 | $ | 0.0100 | |||||
| Quarter Ended December 31, 2013 | $ | 0.1400 | $ | 0.0700 | |||||
| Quarter Ended March 31, 2014 | $ | 0.1100 | $ | 0.0420 | |||||
| Quarter Ended June 30, 2014 | $ | 0.1100 | $ | 0.0201 | |||||
| Quarter Ended September 30, 2014 | $ | 0.0390 | $ | 0.0100 | |||||
| Quarter Ended December 31, 2014 | $ | 0.0275 | $ | 0.0062 | |||||
We have never declared or paid cash dividends on our Common Stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
As of December 16, 2015, we had 88 record holders of our Common Stock, and an unknown number of additional holders whose stock is held in “street name.” The closing price of our Common Stock on the OTC Markets on October 23, 2015 was $0.0007 with respect to an insignificant number of shares.
Recent Sales of Unregistered Securities
On February 7, 2014, the Company agreed to issue 1,250,000 shares of its common stock during the three months ended June 30, 2014 as follows:
| 1. | An individual acquired 400,000 shares of restricted common stock at the purchase price of $0.075 per share or $30,000. |
| 2. | The Company accepted the assignment of a third party Advisory Agreement from Summit and issued 100,000 shares of the Company’s restricted common stock as total and complete consideration for the advisor provided services to Summit on behalf of the Company. These shares were valued at $9,000 or $0.09 per share, the closing stock price on February 7, 2014. |
| 3. | The Company agreed to issued 750,000 shares of its restricted common stock to two key Seaniemac consultants at $0.07 per share. The total value of these shares of $52,500. |
On March 17, 2014, the Company issued 650,000 shares of its unregistered common stock to Corporate Ads, LLC valued at $0.055 per share or $35,750 in exchange for performing consulting services for one year.
On March 13, 2014, the Company entered into a Settlement Agreement and Stipulation with IBC Funds, LLC (“IBC”), an unrelated third party. Pursuant to this agreement, IBC acquired $100,885 of Company liabilities from certain creditors. The Company issued to IBC 310,000 shares as a settlement fee in accordance with Section 3(a)(10) of the Securities Act that were valued at $0.06 per share, the March 13, 2014 closing price amounted to $17,398.
On May 13, 2014, the Company entered into a second Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $50,000 of Company liabilities from certain creditors. On July 17, 2014, the Company entered into a third Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $100,000 of Company liabilities from certain creditors. The Company issued 8,336,200 shares, 11,583,900 shares and 10,421,000 shares in regards to above settlements during the year ended December 31, 2014 to IBC in full settlement of the acquired liabilities.
These shares of our common stock were issued in reliance on the exemption from registration provided by Sections 4(a)(2) and 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”). In addition, the recipients of our shares were sophisticated investors and had access to information normally provided in a prospectus regarding us. In addition, the recipients of these shares had the necessary investment intent as required by Section 4(a)(2) since they agreed to allow us to include a legend on the shares stating that such shares are restricted pursuant to Rule 144 of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes. The management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “project,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this annual report on Form 10-K. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We disclaim any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on Form 10-K. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
Our Business
We maintain a website for online gambling, including sports betting and casino gaming in Ireland under the brand name Seaniemac.com. In May 2013, we launched our online gaming platform (including operational sportsbook) and mobile website at Seaniemac.com, including iOS and Android applications. In July 2013, we added casino games and slots. Through our website and mobile media, we offer sports betting and casino gaming in Ireland under our Seaniemac.com brand. Our website menus include Irish horse racing, soccer, online wagering for traditional casino, live casino, poker, bingo and interactive skilled games.
Our Current Business
Since we completed the acquisition of Seaniemac, we developed, with the technical assistance of our website consultant, Boylesports, a website for online gambling, including sports betting and casino gaming in Ireland under the brand name Seaniemac.com.
In May 2013, we launched our online gaming platform (including operational sportsbook) and mobile website at Seaniemac.com, including iOS and Android applications. In July 2013, we added casino games and slots. Now, through our website and mobile media, we offer sports betting and casino gaming in Ireland under our Seaniemac.com brand. Our website menus include Irish horse racing, soccer, online wagering for traditional casino, live casino, poker, bingo and interactive skilled games.
We rely on third parties for all of the web operations for Seaniemac.com. Since its launch, we have implemented multiple business development initiatives in Ireland, including the airing of nationwide television commercials, the implementation of Pay-Per-Click web and mobile advertising campaigns, the establishment of affiliate relationships with certain betting blogs and other feeder websites, as well as having run traditional print and billboard advertising. We intend to continue investment in marketing these types of marketing and brand recognition initiatives in the coming months. As we are in the early stages of our business development, we will continually reevaluate the effectiveness of all of our marketing initiatives. Once we have identified those representing the most effective and lowest “cost per acquisition”, we believe we can scale our business rapidly by focusing our efforts on such effective and efficient strategies. We plan to continue to focus our efforts in Ireland and the United Kingdom where we have initiated and continue to develop our brand.
Since the launch of our website in May 2013 through December 31, 2014, we had 16,075 new accounts opened and processed 242,318 bets placed by our customers.
How We Measure Our Business
We measure our business with several financial metrics. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and investments and assess the long-term performance of our marketplace. Certain of the financial metrics are reported in accordance with U.S. GAAP and one of these metrics is considered a non-GAAP financial measure. As our business evolves, we may make changes to our key financial metrics used to measure our business in future periods. For further information and a reconciliation to the most applicable financial measure under U.S. GAAP, refer to our discussion under “Non-GAAP Financial Measures” in the “Results of Operations” section.
Certain Key Financial Metrics
| ● | Gross gaming revenues. We believe gross gaming revenue is an important indicator for our business. This amount represents the net gain or loss from online sports betting activities during the period. |
| ● | Promotional allowances. Promotional allowances reflects the cost of customer promotions and bonuses, including free bets, used to generate revenues and incurred during the period. |
| ● | Amounts staked. Amounts staked is a non-GAAP financial measure that reflects the gross amount of online sportsbook betting activities during the period. |
We consider the amounts staked metric to be an important indicator of our growth and business performance as we believe it is representative of the dollar volume of wagers generated through our Website. We intend to use amounts staked, along with other U.S. GAAP financial measures to allocate resources and evaluate performance internally.
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Our Outlook
We plan to continue to grow our business by strategically deploying our marketing resources and expanding the number of new sponsorship programs that will provide nationwide exposure of our brand. We achieved approximate amounts staked of $11,620,518 during the year ended December 31, 2014, compared to $3,438,285 during the year ended December 31, 2013. Turnover during the year ended December 31, 2014 and 2013 was approximately $11,752,367 and $3,480,437, respectively. Our gross profit for the years ended December 31, 2014 and 2013 was approximately $131,849 and $42,152, respectively. We believe that we can continue to achieve this growth though the continuation of our marketing programs and a meaningful contribution from our affiliates.
Our overhead costs outside of discretionary marketing, corporate finance and SEC legal and administrative expenses are expected to remain low due to our utilization of a third party online gaming website provider to develop and operate all aspects of our gaming Website. As we grow, the need to hire additional staff to manage Website and betting operations will be minimized allowing us to focus on marketing and customer retention. Since marketing is a key factor in our growth, we plan to continue to spend available capital on marketing and business development for the foreseeable future and will continue our efforts to raise additional capital to achieve these objectives.
We have funded most of our Website development activities utilizing advances from our related party majority shareholder, RDRD. See “Management’s Discussion and Analysis - Liquidity and Capital Resources.”
The Company’s Results of Operations
The following comparative analysis on results of operations was based primarily on the comparative audited financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report.
Revenue
Gross gaming revenues (“GGRs”) during the years ended December 31, 2014 and 2013 were $589,073 and $233,556, respectively. The increase in gross gaming revenues for the year ended December 31, 2014 over the year ended December 31, 2013 of $355,517 was primarily attributable to the $8,095,153 increase in the amount staked during the year ended December 31, 2014 over the amount staked during the year ended December 31, 2013.
Promotional Allowances
Promotional allowances during the year ended December 31, 2014 totaled $457,224, as compared to promotional allowances of $191,404 for the comparable period in 2013, an increase of $265,820. The increase in promotional allowances reflects the fact that the Company has invested heavily in marketing and the provision of free bets.
Operating Expenses
Operating expenses during the year ended December 31, 2014 totaled $1,671,835, as compared to operating expenses of $1,482,149 for the comparable period in 2013, an increase of $189,686. The increase in operating expenses reflects an increase in website hosting, professional fees and stock based compensation to consultants and was partially offset by a decrease in advertising costs and officer compensation.
Operating Loss
Our operating loss during the year ended December 31, 2014 totaled $1,539,986, as compared to our operating loss of $1,439,997 for the comparable period in 2013. The increase in operating loss for the year ended December 31, 2014 over the year ended December 31, 2013 of $99,989 was primarily attributable to an increase in operating expenses of approximately $190,000 which was partially offset by an increase of net gaming revenue of approximately $90,000 and a reduction in stock based compensation to consultants and partially offset by lower advertising expenses.
Other Expenses
Other expenses increased by $1,244,258 in total, to $1,311,040 from $66,782 for the year ended December 31, 2014 and 2013, respectively. The increase in other expenses is due to a net loss on change in derivative value by $93,321, a loss on debt modification of $187,188 and interest expense increased by $967,641 to $1,028,627 on December 31, 2014 up from $60,986 on December 31, 2013.
Net Loss
Our net loss for the year ended December 31, 2014 was $2,851,026, an increased loss of $1,344,247 compared to a net loss of $1,506,779 for the year ended December 31, 2013, due to the reasons noted above.
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Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measure: amounts staked. This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with U.S. GAAP. However, this measure is not intended to be a substitute for those reported in accordance with U.S. GAAP. This measure may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.
Amounts staked is a non-GAAP financial measure that reflects the gross amount of online sportsbook betting activities during the period. We consider amounts staked to be an important measure for management to evaluate the performance of our business as it includes the gross amount of online sportsbook betting activities. Furthermore, we believe it is important to view gross revenues as a percentage of amounts staked to supplement our entire condensed consolidated statements of operations. When evaluating our performance, you should consider gross revenues as a percentage of amounts staked as a supplement to other financial performance measures, including net loss and our other U.S. GAAP results.
Liquidity and Capital Resources
Liquidity is a measure of a company’s ability to meet potential cash requirements. We had current assets at December 31, 2014, including cash of $446, related parties receivables of $1,825 and prepaid expenses and other current assets of $76,473. We are reliant upon shareholder, affiliate and third-party loans to fund operations. We have not realized positive operating cash flow. As a result, our current cash position is not sufficient to fund our anticipated cash requirements over the next 12 months, including operations and capital expenditures.
Net cash used in operations during the year ended December 31, 2014 was $638,944 primarily relating to our $2,851,026 net loss which was primarily attributable to expenses as a result of advertising, website operations and legal and consulting fees. In the comparable period of 2013, we had net cash used in operations of $904,956, primarily relating to the net loss of $1,506,779 which was primarily attributable to expenses as a result of advertising, website operations and legal and consulting fees.
Net cash provided by financing activities decreased during fiscal year ended December 31, 2014 by $423,465 in total, to $532,725 from $956,190 for the year ended December 31, 2013. Net cash provided by financing activities during the year ended December 31, 2014 was primarily attributable to the proceeds from the issuance of convertible notes and related party loans totaling $522,701, net of payment of loan costs of 26,506. Net cash provided by financing activities during the year ended December 31, 2013 was primarily attributable to the proceeds from the issuance of convertible notes and related party loans totaling $1,000,190, net of payment of loan costs of 44,000.
In order to continue to operate our business, we estimate we will require working capital of approximately $750,000 for Website operations, marketing expenses and general and administrative expenses. In 2014, related parties lent us approximately $279,116 in order to fund our 2014 working capital requirements. While related parties may continue to lend us funds for our working capital needs, we have not entered into any agreements with anyone for any future loans. In the event we are unable to borrow funds needed for our business, or we are unable to repay our current obligations when due, we will have to seek additional financing, and no assurances can be given that such financing would be available on a timely basis, on terms that are acceptable or at all. Failure to obtain such additional financing could result in our inability to operate our website which represents our sole business and would materially adversely affect our business, results of operations and financial condition and threaten our financial viability.
Iliad Note
On December 2, 2013 (“Issuance Date”) the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”). Pursuant to the Purchase Agreement, the Company issued to Iliad a Secured Convertible Promissory Note (the “Note”) in the original principal amount of $667,500 (the “Purchase Price”) which Note bears interest at 8% per annum and is compounded daily. All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is 23 months from Issuance Date of the Note (the “Maturity Date”). Net cash expected will be $607,500, net of original issue discount of $60,000.
The initial cash purchase price of $202,500 (which amount is net of the pro-rata portion of original issue discount of $20,000 and certain transactional expenses of $5,000) was received by the Company on the issuance date and (ii) the balance of $400,000 shall be received no later than the Maturity Date, as evidenced by four separate $100,000 promissory notes issued by Iliad to the Company.
Beginning six months after the Issuance Date and continuing for each installment date thereafter, the Company is required to make monthly principal payments under the Note of $37,083, plus any accrued and unpaid interest as of the installment date. Any installment payment may be either cash or shares of Common Stock, at the election of the Registrant.
The Company also issued Iliad five years warrants to purchase 2,132,426 shares at a conversion price of $0.12 of the Company’s common stock on December 2, 2013. These options were valued at $23,625 using the Black-Scholes option pricing model with the following values: risk free interest rate of 1.5%, volatility of 26.01538% and strike price of $0.12 and was amortized to interest expense during the year ended December 31, 2014.
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At any time after 180 days from the Issuance Date, the Note is convertible into shares of the Company’s common stock, at the option of the Note holder, at a conversion price of $0.12 per share, subject to adjustment downward under certain circumstances defined in the Note. At December 31, 2013, the Company has reserved 16.67 million shares of authorized but unissued common stock in accordance with the terms of the Note. The Company has agreed to reserve these shares until all of the Company’s obligations under the Note are paid and performed in full and the warrants are exercised in full or otherwise expired. The Company may prepay part or all of the Note at any time, provided that any prepayment is subject to a 25% penalty on the amount prepaid.
The Note is subject to various default provisions, including as a result of a failure to make an installment payment by the due date, a failure to deliver shares when required under the Note, or a breach of covenants in the Note and Purchase Agreement, among others. Upon an event of default, the Note accrues interest at the default rate of 1.83% per month (or 22% per annum), compounding daily. The Company is in default on this loan as of June 2, 2014 as a result of failing to make the required installment payments, as well as a result of the Company’s failure to timely file its annual reports with the SEC. Accordingly, the total principal due to Iliad of $227,500 is classified as a current liability.
Default on Iliad Note
On October 1, 2014, Iliad presented the Company with an Event of Default Redemption Notice and is electing to redeem the full outstanding balance of the Note. Note 12 outlines the applicable penalties and additional interest due to the default. On October 29, 2014, the Company and Iliad entered into a forbearance agreement, pursuant to which Iliad agreed, subject to the terms of the forbearance agreement, to refrain and forbear, until December 10, 2014, from exercising and enforcing remedies against the Company with respect to the Note defaults, including the enforcement of the interest rate increase to 22% per annum. Pursuant to an oral agreement between the Company and Iliad on December 12, 2014, the date was extended to December 31, 2014, subject to the terms of the forbearance agreement. As a result, during the year ended December 31, 2014, the Company recorded $152,500 as forbearance liability and charged to the expenses. As of December 31, 2014, the outstanding loan balance on this including forbearance liability was $380,000.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On June 3, 2014 (180 days from Issuance Date), the Company determined the aggregate fair value of $443,169 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 224.54%, (3) weighted average risk-free interest rate of 0.41%, (4) expected life of 1.42 years, and (5) estimated fair value of the Company’s common stock of $0.0394 per share.
The determined fair value of the debt derivatives of $443,169 was charged as a debt discount up to the net proceeds of the note with the remainder of $240,669 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the years ended December 31, 2014 and 2013 was $92,058 and $1,897, respectively, and was accounted for as interest expense.
Redwood Note
On March 3, 2014, the Company entered into a Securities Purchase Agreement with Redwood Management, LLC. (“Redwood”), for the sale of a 10% convertible debenture in the principal amount of $75,000 (the “Note”). The financing closed on March 3, 2014. The total net proceeds the Company received from this Offering was $75,000.
All interest and principal due on September 3, 2014 has not been paid. The Note bears interest at the rate of 10% guaranteed interest regardless of how long the debenture is outstanding. The debenture is convertible into common stock, at Redwood’s option, at a 50% discount to the lowest trading price of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the Redwood debenture, the Company determined the aggregate fair value of $109,741 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 184.71%, (3) weighted average risk-free interest rate of 0.08%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.065 per share.
The determined fair value of the debt derivatives of $109,741 was charged as a debt discount up to the net proceeds of the note with the remainder of $34,741 charged to current period operations as non-cash interest expense.
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The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $75,000 which was accounted for as interest expense. As of date, this note is in default.
WHC Capital Note
On April 4, 2014, the Company entered into a Securities Purchase Agreement with WHC Capital, LLC. (“WHC Capital”), for the sale of a 12% convertible note in the principal amount of $32,000 (the “Note”). The financing closed on April 4, 2014. The total net proceeds the Company received from this Offering was $32,000.
The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on April 4, 2015. The debenture is convertible into common stock, at WHC Capital’s option, at a 58% discount to the lowest trading price of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the WHC Capital note, the Company determined the aggregate fair value of $56,273 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.08%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.06 per share.
The determined fair value of the debt derivatives of $56,273 was charged as a debt discount up to the net proceeds of the note with the remainder of $24,273 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $23,759 accounted for as interest expense.
LG Capital Funding Note
On April 1, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of a 10% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on April 1, 2014. The total net proceeds the Company received from this Offering was $40,000.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on April 1, 2015, further as of date this was not repaid hence the note was in default. The debenture is convertible into common stock, at LG Capital’s option, at a 58% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion.
On July 14, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of an 8% convertible note in the principal amount of $36,750 (the “Note”). The financing closed on July 14, 2014. The total net proceeds the Company received from this Offering was $36,750.
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 14, 2015. The note is convertible into common stock, at LG Capital’s option, at a 50% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion. Subsequent to the year ended December 31, 2014, the LG Capital converted $36,750 during the quarter ended March 31, 2015.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the LG Capital notes, the Company determined the aggregate fair value of $152,414 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.52% to 237.91%, (3) weighted average risk-free interest rate of 0.11% to 0.13%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.0378 to $0.0471 per share.
The determined fair value of the debt derivatives of $152,414 was charged as a debt discount up to the net proceeds of the note with the remainder of $75,664 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $47,143 accounted for as interest expense.
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Summit Note
On August 15, 2014, the Company entered into a Securities Purchase Agreement with Summit Trading, Ltd. (“Summit”), for the sale of an 10% convertible note in the principal amount of $59,835 (the “Note”). The financing closed on August 15, 2014. The total net proceeds the Company received from this Offering was $59,835.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on August 15, 2015. The debenture is convertible into common stock, at Summit’s option, at a 20% discount to the average volume weighted stock price during the 7 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the Summit note, the Company determined the aggregate fair value of $56,804 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 242.32%, (3) weighted average risk-free interest rate of 0.09%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.02 per share.
The determined fair value of the debt derivatives of $56,804 was charged as a debt discount of the note.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $21,478 accounted for as interest expense.
GE Park Note
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp.
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on within five days after demand. The note is convertible into common stock, at a 50% discount to the average lowest trading prices of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the notes, the Company determined the aggregate fair value of $187,188 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.85%, (3) weighted average risk-free interest rate of 0.02, (4) expected life of 0.25 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
The determined fair value of the debt derivatives of $152,414 was charged as a loss on debt modification.
During the year GE Park, LLC loaned the Company $166,200 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand.
In addition, the Company issued GE Park a convertible note in the amount of $79,750 on November 25, 2014. The cash purchase price of $72,500 (which amount is net of the pro-rata portion of original issue discount of $7,250) was received by the Company on the issuance date
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on May 25, 2015. The note is convertible into common stock, at a 50% discount to the lowest trading prices of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
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At the inception of the notes, the Company determined the aggregate fair value of $139,421 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 280.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
The determined fair value of the debt derivatives of $72,500 as charged as a debt discount up to the net proceeds of the note with the remainder of $66,921 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $8,612 and was accounted for as interest expense.
Interest expense for the ended December 31, 2014 and 2013 totaled $7,954 and $845, respectively. Accrued interest at December 31, 2014 and 2013 totaled $8,799 and $845, respectively.
Going Concern
Our consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s continued losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern.
The Company’s primary need for cash during the next 12 months is to fund payments of operating costs. At December 31, 2014 and 2013, the Company had working capital deficiencies and stockholders’ deficit of $5,557,131 and $5,541,403, respectively and $2,645,658 and $2,623,173, respectively.
We believe we will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain our operations until we can achieve profitability and positive cash flows, if ever.
Management intends to finance operating costs over the next 12 months with existing cash on hand, loans from stockholders and directors, and a possible private placement of our securities. No stockholder, director, or possible private placement participant has agreed to loan us any funds nor agreed to purchase any of our securities. The Company continues to explore various financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate additional revenue. However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.
The accompanying audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Related Party Transactions
At December 31, 2014 and 2013, we had outstanding net advances and loans from related parties of $1,062,380 and $941,343, respectively. During the years ended December 31, 2014 and 2013, we recorded interest expense on these advances and loans in the amount of $43,630 and $16,671, respectively.
At December 31, 2014 and 2013, we had outstanding net convertible loans from related parties of $110,862 and $-0-, respectively. During the years ended December 31, 2014 and 2013, we recorded interest expense on these loans in the amount of $43,630 and $16,671, respectively.
RDRD, substantial shareholder of the Company had non-interest bearing demand loans to the Company aggregating $363,980. The loans to Seaniemac aggregating $516,498 bear interest at 4% per annum. At December 31, 2014 and 2013, loans payable were $880,478 and $832,140, respectively, and accrued interest totaled $34,831 and $15,826, respectively. The Company imputed interest of $22,804 and $13,562 on amount loaned to the Company by RDRD during the years ended December 31, 2014 and 2013, respectively, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $47,973 and $35,014 for the years ended December 31, 2014 and 2013, respectively.
Consulting fees incurred for GE Park, LLC were $50,000 and $0 during years ended December 31, 2014 and 2013.
Receivable – Related party
During the year ended December 31, 2014 and 2013, the Company was using one of its officer’s bank accounts for business purposes. As of December 31, 2014 and 2013, $1,825 and $2,509, respectively, was recorded as a receivable from a related party.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Critical Accounting Policies
Our consolidated financial statements and related public information are based on the application of U.S. GAAP. Our significant accounting policies are summarized in Note 4 to our consolidated financial statements. While all of these significant accounting policies impact our financial condition and the results of our operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements. Our critical accounting policies are discussed below.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon the completion of the related gaming event. Gross gaming revenue is the gross gaming yield (which is the difference between gaming wins and losses), and includes promotional betting (“Free Bets”), net of the revenue share portion due our third-party provider (see Note 4 to our consolidated financial statements included herein). Free Bets are included in promotional allowances and are deducted from gross gaming revenue. All other costs are included in selling, general and administrative expenses. For the years ended December 31, 2014 and 2013, no revenue share amounts were due to our third-party provider.
Stock-Based Compensation Arrangements
The Company accounts for stock-based compensation arrangements in accordance with guidance provided by the FASB ASC 718. This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
From time to time, our shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of its assets and expenses.
Derivative Instrument Liability
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2014 and 2013, the Company did not have any derivative instruments that were designated as hedges.
Recently Issued Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015, The Company does not expect the adoption of ASU 2015-07 to have a material effect on its consolidated financial statements.
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In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. This amendment is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on our consolidated financial statements and disclosures.
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In May 2014, the FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
Recent Developments
On January 28, 2015, we entered into an investment agreement (the “Investment Agreement”) with Summit Trading, Ltd. (“Summit”), pursuant to which Summit agreed to invest up to $5 million to purchase our common stock.
Also on January 28, 2015, we entered into a registration rights agreement (the “Registration Rights Agreement”) with Summit, pursuant to which we agreed to use all commercially reasonable efforts to file, within 30 days of the date of the Registration Rights Agreement, with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 covering the resale of the shares issued or issuable pursuant to the Investment Agreement, the Commitment Shares (as such term is hereinafter defined), any shares of capital stock issued or issuable with respect to such shares of common stock, if any, as a result of any stock split, stock dividend, recapitalization exchange or similar event or otherwise which have not been (i) included in the Registration Statement or (ii) sold under circumstances meeting all of the applicable conditions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). We agreed to use all commercially reasonable efforts to have the Registration Statement declared effective by the Commission as soon as practicable, but in no event later than 90 days after the date of the Registration Rights Agreement (the “Effectiveness Deadline”). Pursuant to the terms of the Investment Agreement, if the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Deadline, we will issue the Commitment Shares to Summit. For purposes of the Investment Agreement, “Commitment Shares” means the number of shares of our common stock equal to the quotient obtained by dividing (a) $5,000 by (b) the arithmetic average of the VWAPs over the 10 trading day period immediately preceding the Effectiveness Deadline, rounded up to the nearest whole share.
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Pursuant to the terms of the Investment Agreement, from time to time during the Open Period (as hereinafter defined), but no more than once every 20 trading days, we may, in our sole discretion, deliver a drawdown notice to Summit indicating the dollar amount of the shares which we intend to sell to Summit on the closing date. The “Open Period” means the period beginning on and including the trading day immediately following the effective date of the Registration Statement and ending on the earlier to occur of (a) the date which is 48 months from the effective date of the Registration Statement, or (b) termination of the Investment Agreement. The maximum amount that we will be entitled to drawdown shall be the lesser of (i) $200,000, or (ii) 200% of the average daily trading volume of the common stock during the 10 days preceding the drawdown notice, so long as such amount does not render Summit a holder of more than 4.99% of our outstanding shares. The price per share shall be equal to 90% of the average of the two lowest closing bid prices of our common stock during the five consecutive trading days prior to a drawdown.
Pursuant to the terms of the Investment Agreement, we agreed to pay Summit a commitment fee equal to 0.25% of each drawdown amount. In addition, we agreed to pay $5,000 of Summit’s legal fees with the first drawdown. We also agreed to cause our executive officers, directors and other related parties under our control to refrain from selling our common stock during the five consecutive trading days prior to a drawdown.
Each of the Investment Agreement and the Registration Rights Agreement contains customary representations, warranties, covenants and indemnification provisions.
The Investment Agreement will terminate upon any of the following events: (i) Summit has purchased an aggregate of $5 million in ours common stock pursuant to the Investment Agreement, (ii) the date which is 48 months after the effective date of the Registration Statement, or (iii) at such time that the Registration Statement is no longer in effect.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 to F-29 of this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(a) Prior independent registered public accounting firm
On October 14, 2014, the Board of Directors of Seaniemac International, Ltd. (the “Company”) accepted the resignation of its independent registered public accounting firm Baker Tilly Virchow Krause, LLP (“Baker Tilly”). Baker Tilly audited the Company’s financial statements for the fiscal years ended December 31, 2013 and 2012.
The reports of Baker Tilly on the Company’s financial statements for the fiscal years ended December 31, 2013 and 2012 did not contain an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope, or accounting principles, except that both such reports raised substantial doubts on our ability to continue as a going concern as a result of the Company’s continued losses from operations since inception, and had both stockholders’ and working capital deficiencies.
During our two most recent fiscal years and through the date of resignation, (a) the Company had no disagreements with Baker Tilly on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Baker Tilly would have caused it to make reference to the subject matter of the disagreement in connection with its reports and (b) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
The Company provided Baker Tilly with a copy of this Current Report on Form 8-K prior to its filing with the Securities and Exchange Commission, and requested that the firm furnish us with a letter addressed to the Securities and Exchange Commission stating whether they agree with the statements made in the Report on Form 8-K, and if not, stating the aspects with which they do not agree. A copy of the letter provided by Baker Tilly is filed as Exhibit 16.1 to the Report on Form 8-K.
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(b) New independent registered public accounting firm
On October 16, 2014, our Board of Directors approved the engagement of RBSM LLP (“RBSM”) as our independent registered public accounting firm and RBSM was engaged on October 16, 2014. During the Company’s two most recent fiscal years ended December 31, 2013 and 2012 and from January 1, 2014 through October 15, 2014, neither the Company nor anyone on its behalf consulted RBSM regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report or oral advice was provided to the Company that RBSM concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management conducted an evaluation, with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for the preparation of our financial statements and related information. Management uses its best judgment to ensure that the financial statements present fairly, in material respects, our financial position and results of operations in conformity with generally accepted accounting principles.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of management, including the CEO, who is also the CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, our management concluded that our internal control over financial reporting was ineffective as of December 31, 2014.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of our Company; and (3) unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements are prevented or timely detected.
Management identified a material weakness in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2014. We did not maintain an adequate number of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements, including the performance of internal audit functions and segregation of duties. In addition, management determined that the lack of an audit committee of our Board of Directors also contributed to insufficient oversight of our accounting and audit functions.
We expect to be materially dependent upon our CEO, who is also our CFO, for the foreseeable future. Until such time as we have adequate financial resources to hire a full complement of accounting personnel with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s Report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only Management’s Report in this annual report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter to which this annual report on Form 10-K relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names and ages of the members of our Board of Directors and executive officers.
| Name | Age | Positions and Offices Held | ||
| Barry M. Brookstein | 74 | Director, Chief Executive Officer, Chief Financial Officer, Secretary | ||
| Shane O’Driscoll | 42 | Director | ||
| Jon M. Garfield | 51 | Director |
The directors above were appointed by RDRD to serve as our officers and directors as of the date of the closing of the Acquisition in accordance with the Acquisition Agreement. The directors served until the first annual meeting of our stockholders following completion of the Acquisition. Thereafter, directors will be elected for one-year terms at the annual stockholders’ meeting. All executive officers are elected by the Board and hold office until the next annual meeting of stockholders and until their successors are elected and qualify. Officers serve at the pleasure of the Board of Directors, absent any employment agreement. There is no arrangement or understanding between any of the directors or officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current directors to our Board. There are also no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs.
Barry M. Brookstein. Mr. Brookstein served as our Chief Financial Officer and each of its subsidiaries from such entities’ formation through our merger with and into our predecessor, GSA Publications, Inc. in February 2006. Since the 2006 merger, he served as our Chief Financial Officer and Chief Financial Officer of each of our subsidiaries, as well as our Secretary, Treasurer and director and serves in such capacity on a part time basis. Effective November 23, 2010, he became the Chairman of the Board and Chief Executive Officer of our Company upon the resignation of Mr. Garfinkel. Prior to joining the Company, Mr. Brookstein devoted his full-time to his accounting practice. Mr. Brookstein also currently devotes a portion of his time to his accounting practice. Mr. Brookstein is a graduate of Pace University and has over 40 years of experience in public accounting.
Shane O’Driscoll. Since 2008, Mr. O’Driscoll has served as Entertainment Director at INEC, Gleneagle Hotel Group, Killarney, Ireland. Mr. O’Driscoll’s duties include managing a staff of over 30 employees, all event, festival and production management and procurement of artists and talent for shows. Since 2007, Mr. O’Driscoll has also served as the Director of the Killarney Summerfest.
Jon M. Garfield. Mr. Garfield served as the chairman of the audit committee and Board of Directors for Neah Powers, Inc., a publicly traded technology company from 2008 through the present. From 2005 through 2010, Mr. Garfield as the Chief Financial Officer of Clearant, Inc. and from 2007 to 2010 was also its Chief Executive Officer and director, a publicly traded medical technology device company. Mr. Garfield earned a bachelor’s degree from the University of Texas.
Key Employees
Seaniemac employs Garreth Core, age 34, as director of marketing and operations who, while not an executive officer, makes a significant contribution to our business and operations.
Since July 2012, Mr. Core has been Seaniemac’s director of marketing and operations where he is responsible for all aspects of its event management and marketing, internet marketing, employing search engine optimization (“SEO”) tools that include Google AdWords, social media marketing, online affiliate management and customer acquisition and analysis. From 2010 to July 2012 Mr. Core was the Chief Operating Officer of Connexions Bookings Ltd., an online marketing, consulting and management company that provides Website development, search engine optimization, online marketing, budgeting, business development and management information systems installation services.
With a strong knowledge of both cash and accounting systems, Mr. Core has been responsible for multi-fund budgets. He has experience in all aspects of the service industry, resource allocation, fund management, accounting and control. Mr. Core works closely with clients reducing costs and increasing turn over, while improving overall staff morale and client confidence.
In 2010, Mr. Core was a manager at the Arc Cafe Bar and Restaurant operated by the Towey Group, one of the leading companies in the service industry in Ireland. Arc Cafe Bar is a state of the art bar, nightclub and restaurant that can accommodate up to 1,000 people and employed a staff of approximately 100. While working at the Arch Care Bar and Restaurant, Mr. Core was responsible for all marketing, budget control, staffing, stock control, finances and customer service functions. In addition, Mr. Core employed social media and online marketing to increase its online presence and attract and retain new and existing customers. Mr. Core continues to provide marketing consulting services to the Towey Group.
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Promoters
Each of the following persons may be deemed a “promoter” of the Company as that term is defined in the rules and regulations promulgated under the Securities Act of 1933, as amended (the “Securities Act”), as a result of RDRD’s former ownership of Seaniemac, its current ownership interest in our Company and the management role in Seaniemac of Messrs. Kessler and Trautman, who are managing members of RDRD: Rina Chernaya, Dianna Chernaya, Robert Kessler, Gregory Trautman, and David Gentile.
In December 2009, the SEC entered an order imposing remedial sanctions (Administrative Proceeding File No. 3-12559) against Mr. Trautman due to his unlawful late trading and deceptive market timing in mutual fund shares on behalf of customers and for the account of the broker-dealer in which he was a principal and other securities laws violations as a result of these activities. The sanctions bar Mr. Trautman from association with any broker or dealer, orders him to cease and desist from committing or causing any violations or future violations of Section 17(a) of the Securities Act, Sections 10(b) and 15(c) of the Exchange Act, and Exchange Act Rules 10b-3 and 10b-5, disgorge $608,886, plus prejudgment interest of $260,645.29 and pay a civil money penalty in the amount of $120,000.
Other than as disclosed above, there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of the Company during the past five years.
Director Qualifications, Committees of our Board of Directors and the Role of our Board in Risk Oversight
Director Qualifications
Mr. Brookstein has been involved with our operations since 2006. We believe that the professional experience of Mr. Brookstein in managing public companies and in accounting and his years of service to our Company qualifies him to continue to serve as a director of our Company.
We believe Mr. O’Driscoll’s business experience qualifies him to serve as a director for our Company.
Mr. Garfield’s years of experience servicing public companies and as a CPA qualifies him to serve as a Director on our board.
Committees of our Board of Directors
We have not established any committees, including an audit committee, a compensation committee or a nominating committee. The functions of those committees are being undertaken by Board of Directors as a whole. Because we do not have any independent directors, we believe that the establishment of these committees would be more form over substance.
We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees, nor do we have a policy regarding director diversity. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed. Our board of directors has not considered or adopted any of these policies as we have never received a recommendation from any shareholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our board or directors will participate in the consideration of director nominees. In considering a director nominee, it is likely that our board or directors will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our board or directors.
Mr. Brookstein is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:
| ● | understands generally accepted accounting principles and financial statements, |
| ● | is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves, |
| ● | has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity of our financial statements, |
| ● | understands internal control over financial reporting, and |
| ● | understands audit committee functions. |
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Our securities are not quoted on an exchange that has requirements that a majority of our board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
Board Oversight in Risk Management
Our Chief Executive Officer also serves as Chairman of the Board of Directors and we do not have a lead director. In the context of risk oversight, we believe that our selection of one person to serve in both positions provides the Board with additional perspective which combines the operational experience of a member of management with the oversight focus of a member of the Board. The business and operations of our company are managed by our Board as a whole, including oversight of various risks, such as operational and liquidity risks that our company faces. Because our Board is comprised solely of members of our management, these individuals are responsible for both the day-to-day management of the risks we face as well as the responsibility for the oversight of risk management.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, none of our executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during 2014 except for Messrs. Brookstein and O’Driscoll and RDRD II Holdings LLC who have not filed the required Section 16(a) reports.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information for the fiscal years ended December 31, 2014 and 2013 concerning compensation earned for services rendered in all capacities by our named executive officers during the fiscal years ended December 31, 2014 and 2013.
2014 SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary | Option
Awards (1) | All Other Compensation | Total | |||||||||||||
| Barry Brookstein, Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer | 2014 | $ | 30,000 | $ | - | $ | - | $ | 30,000 | |||||||||
| 2013 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Employment Agreements with Executive Officers
We have no employment agreement with Mr. Brookstein and agreed to pay him $30,000 in fiscal 2014 for services he provided to the Company. We are in discussion with Mr. Brookstein regarding future compensation.
Discussion of Director Compensation
We did not pay any director compensation during the fiscal year ended December 31, 2014. We may begin to compensate our directors in cash or otherwise at some time in the future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set forth certain information, as of December 16, 2015 with respect to the beneficial ownership of our outstanding common stock and preferred stock by (i) any holder of more than 5%, (ii) each of our named executive officers and directors, and (iii) our directors and executive officers as a group.
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The information provided herein is based upon a list of our shareholders and our records with respect to the ownership of warrants and options to purchase securities in our company. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
Series A Senior Convertible Voting Non-Redeemable Preferred Stock
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| Barry Brookstein (1) | 200,000 | 8.7 | % | |||||
| All executive officers and directors as a group (1 person) | 200,000 | 8.7 | % | |||||
| (1) | Mr. Brookstein is a Director and our Chief Executive Officer, Chief Financial Officer, and Secretary. |
Series B Senior Subordinated Convertible Voting Redeemable Preferred Stock
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| Barry Brookstein (1) | 1,250,000 | (2) | 100 | % | ||||
| All executive officers and directors as a group (1 person) | 1,250,000 | (2) | 100 | % | ||||
| Spirits Management Inc. (3) | 750,000 | 60 | % | |||||
| (1) | Mr. Brookstein is a Director and our Chief Executive Officer, Chief Financial Officer, and Secretary. |
| (2) | Includes 750,000 shares of Series B Preferred Stock owned by Spirits Management, Inc. a corporation in which Mr. Brookstein serves as an executive officer and director and is the sole stockholder (“Spirits”). |
| (3) | Spirits is a corporation in which Mr. Brookstein, our Chief Executive Officer, Chief Financial Officer, and Secretary, serves as an executive officer and director and is the sole stockholder. Spirits’ address is c/o Seaniemac International, Inc., 780 New York Avenue, Suite A, Huntington, New York 11743. |
Series C Senior Subordinated Convertible Voting Redeemable Preferred Stock
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| Barry Brookstein (1) | 857,593 | (2) | 46.9 | % | ||||
| All executive officers and directors as a group (1 person) | 857,593 | (2) | 46.9 | % | ||||
| Spirits Management Inc. (3) | 450,601 | 24.6 | % | |||||
| Phone Tel New Corp. (4) | 202,491 | 11.1 | % | |||||
| Tele-Serv Inc. (4) | 141,345 | 7.7 | % | |||||
| Telmax Co. Inc. (4) | 160,390 | 8.8 | % | |||||
| Agile Opportunity Fund, LLC (5) | 466,750 | 25.5 | % | |||||
| (1) | Mr. Brookstein is a Director and our Chief Executive Officer, Chief Financial Officer, and Secretary. |
| (2) | Includes (a) 450,601 shares of Series C Preferred Stock owned by Spirits, a corporation in which Mr. Brookstein serves as an executive officer and director and is the sole stockholder. |
| (3) | Spirits is a corporation in which Mr. Brookstein, our Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary, serves as an executive officer and director and is the sole stockholder. Spirits’ address is c/o Seaniemac International, Inc., 780 New York Avenue, Suite A, Huntington, New York 11743. |
| (4) | The address for Phone Tel New Corp., Tele-Serv Inc., and Telmax Co. Inc. is 153 Symphony Court, Eastport, New York 11941. |
| (5) | The address for Agile Opportunity Fund, LLC is 1175 Walt Whitman Road, Melville, New York 11747. |
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Series D Senior Convertible Voting Redeemable Preferred Stock
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
| Barry Brookstein (1) | 100,000 | 100 | % | |||||
| All executive officers and directors as a group (4 persons) | 100,000 | 100 | % | |||||
| (1) | Mr. Brookstein is a Director and our Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary. |
Common Stock
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class (1) | ||||||
| Barry Brookstein (2) | 726,775 | (3) | * | |||||
| All executive officers and directors as a group (4 persons) | 726,775 | (3) | * | |||||
* Represents less than 1.0%.
| (1) | Based on an aggregate of 673,842,729 common shares outstanding on a fully diluted basis (which includes the common stock issuable upon conversion of the preferred stock). |
| (2) | Mr. Brookstein is a Director and our Chief Executive Officer, Chief Financial Officer, and Secretary. |
| (3) | Represents (a) 367,905 shares of Common Stock held directly, (b) 32 shares of Common Stock held by Mr. Brookstein as custodian under the California Uniform Transfers to Minors Act, (c) 26,245 shares of Common Stock owned by Spirits, (d) 20,111 shares of Common Stock issuable upon conversion of the 200,000 shares of Series A Preferred Stock owned by Mr. Brookstein, (e) 50,277 shares of Common Stock issuable upon conversion of the 500,000 shares of Series B Preferred Stock owned by Mr. Brookstein, (f) 75,416 shares of Common Stock issuable upon conversion of the 750,000 shares of Series B Preferred Stock owned by Spirits, (g) 40,925 shares of Common Stock issuable upon conversion of the 406,992 shares of Series C Preferred Stock owned by Mr. Brookstein, (h) 45,310 shares of Common Stock issuable upon conversion of the 450,601 shares of Series C Preferred Stock owned by Spirits, and (i) 100,554 shares of Common Stock issuable upon conversion of the 100,000 shares of Series D Preferred Stock owned by Mr. Brookstein. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
At December 31, 2014 and 2013, we had outstanding net advances and loans from related parties of $1,062,380 and $941,343, respectively. During the years ended December 31, 2014 and 2013, we recorded interest expense on these advances and loans in the amount of $43,630 and $16,671, respectively.
At December 31, 2014 and 2013, we had outstanding net convertible loans from related parties of $110,862 and $-0-, respectively. During the years ended December 31, 2014 and 2013, we recorded interest expense on these loans in the amount of $43,630 and $16,671, respectively.
RDRD, substantial shareholder of the Company had non-interest bearing demand loans to the Company aggregating $363,980. The loans to Seaniemac aggregating $516,498 bear interest at 4% per annum. At December 31, 2014 and 2013, loans payable were $880,478 and $832,140, respectively, and accrued interest totaled $34,831 and $15,826, respectively. The Company imputed interest of $22,804 and $13,562 on amount loaned to the Company by RDRD during the years ended December 31, 2014 and 2013, respectively, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $47,973 and $35,014 for the years ended December 31, 2014 and 2013, respectively.
Consulting fees incurred for GE Park, LLC were $50,000 and $0 during years ended December 31, 2014 and 2013.
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During the year ended December 31, 2014 and 2013, the Company was using one of its officer’s bank accounts for business purposes. As of December 31, 2014 and 2013, $1,825 and $2,509, respectively, was recorded as a receivable from a related party.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows the fees that were billed for the audit and other services provided by Baker Tilly Virchow Krause, LLP (formerly known as Holtz Rubenstein Reminick LLP) and RBSM LLP for the fiscal years ended December 31, 2014 and 2013.
| 2014 | 2013 | |||||||
| Audit Fees | $ | 132,636 | $ | 57,311 | ||||
| Audit-Related Fees | - | |||||||
| Tax Fees | - | |||||||
| All Other Fees | - | |||||||
| Total | $ | 132,636 | $ | 57,311 | ||||
Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.
Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. Consistent with the Board’s policy, all audit and permissible non-audit services provided by our independent registered public accounting firm during the fiscal years ended December 31, 2014 and 2013 were pre-approved by the Board.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | 1. | Financial Statements |
| The consolidated financial statements and Report of Independent Registered Public Accounting Firm are included on pages F-1 through F-29. | ||
| 2. | Financial Statement Schedules | |
| All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein. |
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| 3. | Exhibits. |
| Exhibit Number | Description of Exhibit | |
| 2.1 | Agreement and Plan of Merger, dated as of February 5, 2010, among Execuserve Corp., Compliance Systems Corporation, CSC/Execuserve Acquisition Corp., W. Thomas Eley, James A. Robinson, Jr. and Robin Rennockl. (Incorporated by reference to Exhibit 2.2 of the registrant’s current report on Form 8-K filed with the Commission on February 17, 2010). | |
| 2.2 | Form of Agreement and Plan of Merger (Incorporated herein by reference to Exhibit 2.1 to the Company’s current report on Form 8-K as filed with the Commission on July 29, 2013). | |
| 3.1 | Composite of Articles of Incorporation of Compliance Systems Corporation, as amended to date (Incorporated herein by reference to Exhibit 3.1 to the Company’s current report on Form 8-K as filed with the Commission on February 26, 2013). | |
| 3.2 | Certificate of Amendment to the Articles of Incorporation of Compliance Systems Corporation effective October 3, 2012 (Incorporated herein by reference to Exhibit 3.2 to the Company’s current report on Form 8-K as filed with the Commission on February 26, 2013). | |
| 3.3 | Articles of Merger as filed with the Secretary of State of Nevada (Incorporated herein by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the Commission on July 29, 2013). | |
| 10.2 | Addendum to Promissory Note, dated July 25, 2005, between Call Compliance, Inc. and Barry Brookstein. (Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006.) | |
| 10.3 | Addendum to Promissory Agreement, dated July 25, 2005, between Compliance Systems Corporation and Barry Brookstein. (Incorporated by reference to Exhibit 10.27 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006.) | |
| 10.4 | Addendum to Promissory Agreement, dated July 26, 2005, between Compliance Systems Corporation and Spirits Management, Inc. (Incorporated by reference to Exhibit 10.28 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006.) | |
| 10.5 | Non-Negotiable Promissory Note, dated July 1, 2005, between Compliance Systems Corporation and Dean Garfinkel. (Incorporated by reference to Exhibit 10.30 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006.) | |
| 10.8+ | Employment Agreement dated September 30, 2005 between Call Compliance, Inc. and Dean Garfinkel. (Incorporated by reference to Exhibit 10.36 to Amendment Number 1 to our Registration Statement on Form SB-2/A, filed with the SEC on August 11, 2006.) | |
| 10.9+ | First Amendment to Employment Agreement dated December 1, 2001, dated September 30, 2005, between Call Compliance, Inc. and Dean Garfinkel. (Incorporated by reference to Exhibit 10.36 to Amendment Number 1 to our Registration Statement on Form SB-2/A, filed with the SEC on August 11, 2006.) | |
| 10.10 | Promissory Note, dated October 28, 2005, between Compliance Systems Corporation and Henry A. Ponzio. (Incorporated by reference to Exhibit 10.34 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006.) | |
| 10.11 | $150,000 Promissory Note, dated September 30, 2006, issued by Call Compliance.com, Inc. to Nascap Corp. (Incorporated by reference to Exhibit 10.61 to Amendment Number 2 to our Registration Statement on Form SB-2/A, filed with the SEC on November 2, 2006.) | |
| 10.12 | Security Agreement, dated March 8, 2006 by and between Call Compliance, Inc. and Nascap Corp. (Incorporated by reference to Exhibit 10.62 to Amendment Number 2 to our Registration Statement on Form SB-2/A, filed with the SEC on November 2, 2006.) | |
| 10.13 | Guaranty Agreement, dated September 30, 2006, by Compliance Systems Corporation in favor of Nascap Corp. (Incorporated by reference to Exhibit 10.63 to Amendment Number 2 to our Registration Statement on Form SB-2/A, filed with the SEC on November 2, 2006.) |
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| 10.14 | Consent, dated September 30, 2006, of Montgomery Equity Partners, Ltd. to the issuance by Call Compliance, Inc. of a $150,000 Promissory Note to Nascap Corp. (Incorporated by reference to Exhibit 10.64 to Amendment Number 2 to our Registration Statement on Form SB-2/A, filed with the SEC on November 2, 2006.) | |
| 10.15 | Investor Registration Rights Agreement, dated March 16, 2007, between Compliance Systems Corporation and Cornell Capital Partners, LP. (Incorporated by reference to Exhibit 10.25 to our Current Report on Form 8-K (Date of Report: March 16, 2007), filed with the SEC on March 23, 2007.) | |
| 10.16 | Secured Convertible Debenture, dated March 16, 2007, issued to Cornell Capital Partners, LP. (Incorporated by reference to Exhibit 10.35 to our Current Report on Form 8-K (Date of Report: March 16, 2007), filed with the SEC on March 23, 2007.) | |
| 10.17 | Form of Option Agreement, dated as of January 4, 2008, with respect to options granted by Compliance Systems Corporation to Dean Garfinkel (20,000,000 shares) and Barry M. Brookstein (10,000,000 shares). (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (Date of Report: January 4, 2008), filed with the SEC on February 15, 2008.) | |
| 10.18 | Warrant Certificate of Compliance Systems Corporation, dated as of May 6, 2008, registered in the name of Cresta Capital Strategies, LLC. (Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K (Date of Report: May 6, 2008), filed with the SEC on May 12, 2008.) | |
| 10.19 | Warrant Certificate of Compliance Systems Corporation, dated as of September 2, 2008, registered in the name of Cresta Capital Strategies, LLC. (Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (Date of Report: September 2, 2008), filed with the SEC on September 5, 2008.) | |
| 10.20 | Waiver and Standstill Agreement, dated as of January 26, 2009, between Compliance Systems Corporation, Call Compliance, Inc. and Nascap Corp (Incorporated by reference to Exhibit 10.8 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.21 | Loan Modification Agreement, dated as of March 31, 2009, among Compliance Systems Corporation, Call Compliance, Inc. and Nascap Corporation (Incorporated by reference to Exhibit 10.12 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.22 | Amended and Restated Promissory Note of Call Compliance, Inc., dated March 31, 2009, in the principal amount of up to $750,000 and payable to Nascap Corporation (Incorporated by reference to Exhibit 10.13 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.23 | Form of Class A Warrant Certificate of Compliance Systems Corporation registered in the name of Nascap Corp. (Incorporated by reference to Exhibit B to the Loan Modification Agreement made Exhibit 10.12 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.24 | Form of Class B Warrant Certificate of Compliance Systems Corporation registered in the name of Nascap Corp. (Incorporated by reference to Exhibit C to the Loan Modification Agreement made Exhibit 10.12 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.25 | Promissory Note of Call Compliance, Inc., dated as of March 3, 2009, in the principal amount of $50,000 and payable to Barry Brookstein (Incorporated by reference to Exhibit 10.16 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.26 | Corporate Guaranty, dated March 3, 2009, of Compliance Systems Corporation in favor of Barry Brookstein (Incorporated by reference to Exhibit 10.17 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). | |
| 10.27 | Purchase of Software and Intellectual Property, dated April 7, 2010, from Thomas Joseph Koty in exchange for Restricted shares and warrants (Incorporated by reference to Exhibit 10.18 of the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2009), filed with the Securities and Exchange Commission on April 14, 2009). |
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| 10.29 | Consulting Agreement, dated as of February 9, 2010, between Execuserve Corp. and W. Thomas Eley. (Incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.30 | Employment Agreement, dated as of February 9, 2010, between Execuserve and Jim Robinson. (Incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.31 | Employment Agreement, dated as of February 9, 2010, between Execuserve and Robin Rennockl. (Incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.32 | Promissory Note of Execuserve Corp., dated as of February 9, 2010 and payable to W. Thomas Eley. (Incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.33 | Promissory Note of Execuserve Corp., dated as of February 9, 2010 and payable to Jim Robinson. (Incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.34 | Form of Lock-Up Agreement to be entered into between Compliance Systems Corporation and each person or entity receiving common stock of Compliance Systems Corporation pursuant to or in accordance with the Agreement and Plan of Merger. (Incorporated by reference to Exhibit 10.6 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.35 | Warrant Certificate of Compliance Systems Corp., dated February 11, 2010, evidencing 7.5 million common stock purchase warrants registered in the name of Moritt Hock Hamroff & Horowitz LLP. (Incorporated by reference to Exhibit 10.15 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.36 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 2.2 million common stock purchase warrants registered in the name of Dean R. Garfinkel. (Incorporated by reference to Exhibit 10.16 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.37 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 2.0 million common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.17 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.38 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 600,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.18 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.39 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 900,000 common stock purchase warrants registered in the name of Spirits Management Inc. (Incorporated by reference to Exhibit 10.19 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.40 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 3,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.20 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). |
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| 10.41 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 4,500,000 common stock purchase warrants registered in the name of Spirits Management Inc. (Incorporated by reference to Exhibit 10.21 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.42 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 90,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.23 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.43 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 270,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.24 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.44 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2009, evidencing 420,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.25 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.45 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 12 million common stock purchase warrants registered in the name of Dean R. Garfinkel. (Incorporated by reference to Exhibit 10.26 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.46 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 12 million common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.27 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.47 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 450,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.28 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.48 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 1,350,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.29 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.49 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2010, evidencing 2,100,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.30 of the registrant’s Current Report on Form 8-K (Date of Report: February 5, 2010), filed with the Securities and Exchange Commission on February 17, 2010). | |
| 10.50 | Independent Sales Representative Agreement, dated June 15, 2010, between Execuserve Corp. and EPC, LLC. (Incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K (Date of Report: June 14, 2010), filed with the Securities and Exchange Commission on June 18, 2010). | |
| 10.51 | Asset Purchase Agreement, dated April 7, 2010, between Thomas Joseph Koty and Call Compliance.com, Inc. (Incorporated by reference to Exhibit 10.22 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2010), filed with the Securities and Exchange Commission on June 24, 2010). | |
| 10.52 | Letter Agreement, dated April 13, 2010, between Chestnut Cove Development LLC and Compliance Systems Corporation. (Incorporated by reference to Exhibit 10.23 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2010), filed with the Securities and Exchange Commission on June 24, 2010). |
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| 10.53 | Warrant Certificate of Compliance Systems Corporation, dated June 30, 2010, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.54 | Warrant Certificate of Compliance Systems Corporation, dated June 30, 2010, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management, Inc. (Incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.55 | Warrant Certificate of Compliance Systems Corporation, dated July 7, 2010, evidencing 6 million common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.56 | Warrant Certificate of Compliance Systems Corporation, dated July 7, 2010, evidencing 4.5 million common stock purchase warrants registered in the name of Dean R. Garfinkel. (Incorporated by reference to Exhibit 10.6 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.57 | Warrant Certificate of Compliance Systems Corporation, dated July 7, 2010, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.7 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.58 | Warrant Certificate of Compliance Systems Corporation, dated July 7, 2010, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.8 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.59 | Warrant Certificate of Compliance Systems Corporation, dated July 7, 2010, evidencing 1.05 million common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.9 of the registrant’s Current Report on Form 8-K (Date of Report: June 30, 2010), filed with the Securities and Exchange Commission on July 12, 2010). | |
| 10.60 | Warrant Certificate of Compliance Systems Corporation, dated as of September 30, 2010, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.61 | Warrant Certificate of Compliance Systems Corporation, dated as of September 30, 2010, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management, Inc. (Incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.62 | Warrant Certificate of Compliance Systems Corporation, dated as of October 1, 2010, evidencing 6 million common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.63 | Warrant Certificate of Compliance Systems Corporation, dated as of October 1, 2010, evidencing 4.5 million common stock purchase warrants registered in the name of Dean R. Garfinkel. (Incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). |
| 36 |
| 10.64 | Warrant Certificate of Compliance Systems Corporation, dated as of October 1, 2010, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.65 | Warrant Certificate of Compliance Systems Corporation, dated as of October 1, 2010, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.6 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.66 | Warrant Certificate of Compliance Systems Corporation, dated as of October 1, 2010, evidencing 1.05 million common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.7 of the registrant’s Current Report on Form 8-K (Date of Report: September 30, 2010), filed with the Securities and Exchange Commission on October 4, 2010). | |
| 10.67 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2011, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2010), filed with the Securities and Exchange Commission on April 15, 2011). | |
| 10.68 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2011, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management, Inc. (Incorporated by reference to the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2010), filed with the Securities and Exchange Commission on April 15, 2011). | |
| 10.69 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2011, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.2 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.70 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2011, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.2 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.71 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2011, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. Incorporated by reference to Exhibit 10.3 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.72 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2011, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.4 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.73 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2011, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.5 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). |
| 37 |
| 10.74 | Warrant Certificate of Compliance Systems Corp., dated March 31, 2011, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.6 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.75 | Warrant Certificate of Compliance Systems Corp., dated March 31, 2011, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management Inc. (Incorporated by reference to Exhibit 10.7 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.76 | Warrant Certificate of Compliance Systems Corp., dated April 1, 2011, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.8 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.77 | Warrant Certificate of Compliance Systems Corp., dated April 1, 2011, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.9 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.78 | Warrant Certificate of Compliance Systems Corp., dated April 1, 2011, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.10 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.79 | Warrant Certificate of Compliance Systems Corp., dated April 1, 2011, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.11 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.80 | Warrant Certificate of Compliance Systems Corp., dated April 26, 2011, evidencing 50,000,000 common stock purchase warrants registered in the name of Cresta Capital Strategies, LLC. (Incorporated by reference to Exhibit 10.12 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: March 31, 2011), filed with the Securities and Exchange Commission on May 16, 2011). | |
| 10.81 | Warrant Exchange Agreement, dated May 12, 2011, between Compliance Systems Corp. and Dean Garfinkel, evidencing the exchange of 26,900,000 common stock purchase warrants. (Incorporated by reference to Exhibit 10.13 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.82 | Warrant Exchange Agreement, dated May 12, 2011, between Compliance Systems Corp. and Barry M. Brookstein, evidencing the exchange of 55,340,000 common stock purchase warrants. (Incorporated by reference to Exhibit 10.14 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.83 | Warrant Exchange Agreement, dated May 12, 2011, between Compliance Systems Corp. and Spirits Management, Inc., evidencing the exchange of 14,850,000 common stock purchase warrants. (Incorporated by reference to Exhibit 10.15 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.84 | Warrant Exchange Agreement, dated May 12, 2011, between Compliance Systems Corp. and Henry A. Ponzio, evidencing the exchange of 10,320,000 common stock purchase warrants. (Incorporated by reference to Exhibit 10.16 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.85 | Warrant Exchange Agreement, dated May 12, 2011, between Compliance Systems Corp. and Nascap Corp., evidencing the exchange of 20,720,000 common stock purchase warrants. (Incorporated by reference to Exhibit 10.17 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). |
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| 10.86 | Warrant Certificate of Compliance Systems Corp., dated June 30, 2011, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.18 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.87 | Warrant Certificate of Compliance Systems Corp., dated June 30, 2011, evidencing 128,600 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.19 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.88 | Warrant Certificate of Compliance Systems Corp., dated July 1, 2011, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.20 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.89 | Warrant Certificate of Compliance Systems Corp., dated July 1, 2011, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to Exhibit 10.21 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.90 | Warrant Certificate of Compliance Systems Corp., dated July 1, 2011, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to Exhibit 10.22 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.91 | Warrant Certificate of Compliance Systems Corp., dated July 1, 2011, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.23 of the registrant’s Quarterly Report on Form 10-Q (Date of Report: June 30, 2011), filed with the Securities and Exchange Commission on August 22, 2011). | |
| 10.92 | Warrant Certificate of Compliance Systems Corp., dated September 30, 2011, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.93 | Warrant Certificate of Compliance Systems Corp., dated September 30, 2011, evidencing 150,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.94 | Warrant Certificate of Compliance Systems Corp., dated September 30, 2011, evidencing 2,250,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.95 | Warrant Certificate of Compliance Systems Corp., dated October 1, 2011, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.96 | Warrant Certificate of Compliance Systems Corp., dated October 1, 2011, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.97 | Warrant Certificate of Compliance Systems Corp., dated October 1, 2011, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). |
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| 10.98 | Warrant Certificate of Compliance Systems Corp., dated October 1, 2011, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q (Date of Report: September 30, 2011), filed with the Securities and Exchange Commission on November 21, 2011). | |
| 10.99 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2011, evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein (Incorporated by reference to Exhibit 10.132 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.100 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2011, evidencing 150,000 common stock purchase warrants registered in the name of Barry M. Brookstein (Incorporated by reference to Exhibit 10.133 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.101 | Warrant Certificate of Compliance Systems Corp., dated December 31, 2011, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management, Inc. (Incorporated by reference to Exhibit 10.134 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.102 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein (Incorporated by reference to Exhibit 10.135 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.103 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein (Incorporated by reference to Exhibit 10.136 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.104 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio (Incorporated by reference to Exhibit 10.137 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.105 | Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. (Incorporated by reference to Exhibit 10.138 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Commission on April 16, 2012). | |
| 10.106 | Securities Exchange Agreement, dated as of June 7, 2012, between Compliance Systems Corporation and RDRD II Holding LLC (Incorporated herein by reference to Exhibit 10.1 as part of the Company’s Form 8-K as filed with the Commission on November 1, 2012). | |
| 10.107 | Amendment to Securities Exchange Agreement between Compliance Systems Corporation and RDRD II Holding, LLC, dated October 29, 2012 (Incorporated herein by reference to Exhibit 10.2 as part of the Company’s Form 8-K as filed with the Commission on November 1, 2012). | |
| 10.108 | Marketing Agreement between Jenningsbet, Limited and Seaniemac Ltd., dated March 13, 2012 (Incorporated herein by reference to Exhibit 10.3 as part of the Company’s Form 8-K as filed with the Commission on November 1, 2012). | |
| 10.109 | Heads of Agreement/Memorandum of Understanding Seaniemac Ltd. and Boyle Media Limited dated July 13, 2012 (Incorporated herein by reference to Exhibit 10.4 as part of the Company’s Form 8-K/A (Amend. No. 1) as filed with the Commission on January 22, 2013) (Incorporated herein by reference to Exhibit 10.4 as part of the Company’s Form 8-K as filed with the Commission on February 26, 2013). |
| 40 |
| 10.110 | White Label Services Agreement between Boylesports and Seaniemac, Ltd. dated January 30, 2013 (Incorporated herein by reference to Exhibit 10.5 as part of the Company’s Form 8-K as filed with the Commission on February 26, 2013). | |
| 10.111 | Amendment to Securities Exchange Agreement between Compliance Systems Corporation and RDRD II Holding, LLC, dated February 18, 2012 (Incorporated herein by reference to Exhibit 10.7 as part of the Company’s Form 8-K as filed with the Commission on February 26, 2013). | |
| 10.112 | Securities Purchase Agreement between Registrant and Iliad Research and Trading, L.P. dated December 2, 2013 (Incorporated herein by reference to Exhibit 10.1 as part of the Company’s Form 8-K as filed with the Commission on December 10, 2013). | |
| 10.113 | Secured Convertible Promissory Note (Incorporated herein by reference to Exhibit 10.2 as part of the Company’s Form 8-K as filed with the Commission on December 10, 2013). | |
| 10.114 | Form of Common Stock Purchase Warrants (Incorporated herein by reference to Exhibit 10.3 as part of the Company’s Form 8-K as filed with the Commission on December 10, 2013). | |
| 10.115 | Form of Buyer Notes (Incorporated herein by reference to Exhibit 10.4 to the Company’s current report on Form 8-K as filed with the Commission on December 10, 2013). | |
| 10.116 | Settlement Agreement and Stipulation dated July 17, 2014 between Seaniemac International, Ltd. and IBC Funds LLC (Incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K as filed with the Commission on July 28, 2014). | |
| 10.117 | Order Granting Approval of Settlement Agreement and Stipulation dated July 18, 2014 (Incorporated herein by reference to Exhibit 10.2 to the Company’s current report on Form 8-K as filed with the Commission on July 28, 2014). | |
| 10.118 | Exclusive Marketing Agreement dated as of August 20, 2014 by and between the Company and Overseas BC Marketing, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on January 30, 2015). | |
| 10.119 | Forbearance Agreement dated as of October 29, 2014 by and between the Company and Iliad Research and Trading, L.P. (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report for the quarter ended March 31, 2014, filed with the Commission on November 26, 2014). | |
| 10.120 | Investment Agreement dated as of January 28, 2015 by and between the Company and Summit Trading, Ltd. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on January 29, 2015). | |
| 10.121 | Registration Rights Agreement dated as of January 28, 2015 by and between the Company and Summit Trading, Ltd. (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on January 29, 2015). | |
| 14.1 | Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14.1 to our Registration Statement on Form SB-2, filed with the SEC on May 12, 2006). | |
| 21.1* | Subsidiaries of the Registrant. | |
| 24.1* | Power of Attorney (included on signature page). | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
| 32.1* | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
(b) The exhibits filed with this annual report on Form 10-K are listed above in response to Item 15(a)(3).
(c) None.
| 41 |
Pursuant to the requirements of Section 13 or 15(d) 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.
| Seaniemac International, Ltd. | |
| (Registrant) |
| By: | /s/ Barry Brookstein | |
| Barry Brookstein | ||
| Chief Executive Officer | ||
| Date: | December 31, 2015 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Barry Brookstein as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to the annual report, which amendments may make such changes in the annual report as the attorney-in-fact deems appropriate and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Barry Brookstein | Chief Executive Officer, Chief Financial Officer and Director (principal executive officer and principal financial and accounting officer) | December 31, 2015 | ||
| Barry Brookstein | ||||
| /s/ Shane O’Driscoll | Director | December 31, 2015 | ||
| Shane O’Driscoll | ||||
| /s/ Jon M. Garfield | Director | December 31, 2015 | ||
| Jon M. Garfield |
| 42 |
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Seaniemac International, Ltd.
Huntington, New York
We have audited the accompanying consolidated balance sheets of Seaniemac International, Ltd and Subsidiaries (the “Company”), as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We have conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Seaniemac International, Ltd as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit as of December 31, 2014, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, the 2013 consolidated financial statements have been restated to correct the accounting for the sale and related currency translation exchange rate in December 2013 and properly present funds were in receivable-related parties account.
RBSM LLP
New York, New York
December 30, 2015
| F-2 |
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 446 | $ | 4,233 | ||||
| Receivable – Related Parties | 1,825 | 2,509 | ||||||
| Prepaid expenses and other current assets | 76,473 | 135,414 | ||||||
| Total Current Assets | 78,744 | 142,156 | ||||||
| Equipment, net | 1,446 | 2,398 | ||||||
| Deferred loan costs, net | 14,282 | 20,087 | ||||||
| Total Assets | $ | 94,472 | $ | 164,641 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Convertible promissory notes, net | $ | 421,865 | $ | 185,772 | ||||
| Notes payable | 66,530 | 30,000 | ||||||
| Accounts payable and accrued expenses | 2,055,869 | 1,570,699 | ||||||
| Loans payable - related parties | 1,062,380 | 941,343 | ||||||
| Convertible loans payable - related parties , net | 110,862 | - | ||||||
| Accrued officer’s compensation | 90,000 | 60,000 | ||||||
| Debt derivative liabilities | 1,282,532 | - | ||||||
| Warrant derivative liabilities | 545,837 | - | ||||||
| Total Current Liabilities | 5,635,875 | 2,787,814 | ||||||
| Total Liabilities | 5,635,875 | 2,787,814 | ||||||
| Commitments and Contingencies | - | - | ||||||
Stockholders’ Deficit: | ||||||||
| Seaniemac International, Ltd. Stockholders’ Deficit | ||||||||
| Convertible Preferred Stock, $0.001 par value: | ||||||||
| Series A: 2,500,000 shares authorized, 2,293,750 shares issued and outstanding | 2,294 | 2,294 | ||||||
| Series B: 1,500,000 shares authorized, 1,250,000 shares issued and outstanding | 1,250 | 1,250 | ||||||
| Series C: 2,000,000 shares authorized, 1,828,569 shares issued and outstanding | 1,829 | 1,829 | ||||||
| Series D: 100,000 shares authorized, 100,000 shares issued and outstanding, respectively | 100 | 100 | ||||||
| Common stock, $0.001 par value; 2,000,000,000 shares authorized, 74,721,445 and 42,170,345 shares issued and outstanding, respectively | 74,721 | 42,170 | ||||||
| Additional paid-in capital | 1,890 | 204,077 | ||||||
| Subscriptions receivable | (131 | ) | (131 | ) | ||||
| Accumulated other comprehensive income (loss) | 49,642 | (52,790 | ) | |||||
| Accumulated deficit | (5,124,752 | ) | (2,532,095 | ) | ||||
| Total Seaniemac International, Ltd. Stockholders’ Deficit | (4,993,157 | ) | (2,333,296 | ) | ||||
| Non-controlling Interest | (548,246 | ) | (289,877 | ) | ||||
| Total Stockholders’ Deficit | (5,541,403 | ) | (2,623,173 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 94,472 | $ | 164,641 | ||||
See the accompanying notes to consolidated financial statements.
| F-3 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Year Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| (Restated) | ||||||||
| Gross gaming revenue | $ | 589,073 | $ | 233,556 | ||||
| Promotional allowances | 457,224 | 191,404 | ||||||
| Net gaming revenue | 131,849 | 42,152 | ||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative expenses | 1,671,835 | 1,482,149 | ||||||
| Operating Loss | (1,539,986 | ) | (1,439,997 | ) | ||||
| Other Income (Expense): | ||||||||
| Loss on change in fair value of debt derivative liabilities | (137,522 | ) | - | |||||
| Gain on change in fair value of warrant derivative liabilities | 44,201 | - | ||||||
| Loss on debt modification | (187,188 | ) | - | |||||
| Interest expense (including amortization of loan costs ) | (1,028,627 | ) | (60,986 | ) | ||||
| Realized foreign exchange loss | (1,904 | ) | (5,796 | ) | ||||
| Net Loss | (2,851,026 | ) | (1,506,779 | ) | ||||
| Loss Attributable to Non-controlling Interest | 258,369 | 266,593 | ||||||
| Net Loss Attributable to Common Shareholders | $ | (2,592,657 | ) | $ | (1,240,186 | ) | ||
| Basic and Diluted Per Share Data: | ||||||||
| Net Loss - Basic | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Net Loss - Diluted | $ | (0.05 | ) | $ | (0.03 | ) | ||
| Weighted Average Shares Outstanding - | ||||||||
| Basic and Diluted | 54,600,467 | 41,600,482 | ||||||
See the accompanying notes to consolidated financial statements.
| F-4 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Continued)
| Year ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| (Restated) | ||||||||
| Consolidated net loss | $ | (2,851,026 | ) | $ | (1,506,779 | ) | ||
| Other comprehensive loss, net of tax: | ||||||||
| Foreign currency translation income (loss) | 102,432 | (45,139 | ) | |||||
| Comprehensive loss | (2,748,594 | ) | (1,551,918 | ) | ||||
| Comprehensive loss attributable to non-controlling interest | (227,639 | ) | (280,135 | ) | ||||
| Comprehensive loss attributable to common shareholders | $ | (2,520,955 | ) | $ | (1,271,783 | ) | ||
See the accompanying notes to consolidated financial statements.
| F-5 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Deficiency
Years Ended December 31, 2013 and 2014
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Non- | ||||||||||||||||||||||||||||||||||||||||||||||
| Series | Series | Series | Series | Paid-in | Comprehensive | controlling | Subscriptions | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| A | B | C | D | Shares | Amount | Capital | Loss | Interest | Receivable | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2013 | $ | 2,294 | $ | 1,250 | $ | 1,829 | $ | 100 | 41,170,345 | $ | 41,170 | $ | - | $ | (7,651 | ) | $ | (23,284 | ) | $ | (131 | ) | $ | (1,291,909 | ) | $ | (1,276,332 | ) | ||||||||||||||||||||
| Value of warrants issued | 23,625 | 23,625 | ||||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest on realted party loan | 21,452 | 21,452 | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | 1,000,000 | 1,000 | 159,000 | 160,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (266,593 | ) | (1,240,186 | ) | (1,506,779 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (45,139 | ) | (45,139 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2013 | 2,294 | 1,250 | 1,829 | 100 | 42,170,345 | 42,170 | 204,077 | (52,790 | ) | (289,877 | ) | (131 | ) | (2,532,095 | ) | (2,623,173 | ) | |||||||||||||||||||||||||||||||
| Imputed interest on related party loan | - | - | - | - | - | - | 24,869 | - | - | - | - | 24,869 | ||||||||||||||||||||||||||||||||||||
| IBC A/P conversion | - | - | - | - | 30,651,100 | 30,651 | 237,632 | - | - | - | - | 268,283 | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | 1,900,000 | 1,900 | 125,350 | - | - | - | - | 127,250 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (258,369 | ) | - | (2,592,657 | ) | (2,851,026 | ) | |||||||||||||||||||||||||||||||||
| Value of warrants issued | (590,038 | ) | - | (590,038 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | 102,432 | - | - | - | 102,432 | ||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2014 | $ | 2,294 | $ | 1,250 | $ | 1,829 | $ | 100 | 74,721,445 | $ | 74,721 | $ | 1,890 | $ | 49,642 | $ | (548,246 | ) | $ | (131 | ) | $ | (5,124,752 | ) | $ | (5,541,403 | ) | |||||||||||||||||||||
See the accompanying notes to consolidated financial statements.
| F-6 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| (Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss, inclusive of non-controlling interest | $ | (2,851,026 | ) | $ | (1,506,779 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 952 | 190 | ||||||
| Amortization of website development and hosting | 51,197 | 26,782 | ||||||
| Share based payments | 127,250 | 160,000 | ||||||
| Non-cash interest | 442,267 | - | ||||||
| Change in fair value of debt derivatives liability | 137,523 | - | ||||||
| Change in fair value of warrant derivative liability | (44,201 | ) | - | |||||
| Forbearance penalty | 152,500 | - | ||||||
| Amortization of debt discount and OID attributable to convertible debt | 298,924 | 1,027 | ||||||
| Amortization of deferred loan costs | 22,030 | 4,783 | ||||||
| Imputed interest | 24,869 | 37,352 | ||||||
| Loss on debt modification | 187,188 | |||||||
| Changes in assets and liabilities: | ||||||||
| Receivable – Related Parties | 684 | (2,509 | ) | |||||
| Prepaid expenses and other current assets | 7,744 | (57,797 | ) | |||||
| Accounts payable and accrued expenses | 773,155 | 371,995 | ||||||
| Accrued officers’ compensation | 30,000 | 60,000 | ||||||
| Total adjustments | 2,212,082 | 601,823 | ||||||
| Net Cash Used in Operating Activities | (638,944 | ) | (904,956 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | - | (2,588 | ) | |||||
| Net Cash Used in Investing Activities | - | (2,588 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short term note payable | 36,530 | |||||||
| Proceeds from issuance of convertible notes, net | 243,585 | 227,500 | ||||||
| Payment of loan costs | (26,506 | ) | (44,000 | ) | ||||
| Proceeds from loans from related parties | 279,116 | 772,690 | ||||||
| Net Cash Provided By Financing Activities | 532,725 | 956,190 | ||||||
| Effect of foreign exchange fluctuations on cash | 102,432 | (45,139 | ) | |||||
| NET (DECREASE) INCREASE IN CASH | (3,787 | ) | 3,507 | |||||
| CASH - Beginning of Period | 4,233 | 726 | ||||||
| CASH - End of Period | $ | 446 | $ | 4,233 | ||||
| F-7 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
| SUPPLEMENTAL INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Interest | $ | - | $ | 17,828 | ||||
| Income taxes | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Value of warrants issued | $ | - | $ | 23,625 | ||||
| Debt derivative liability at inception | $ | 1,145,010 | $ | - | ||||
| Warrant derivative liability at inception | $ | 590,038 | $ | - | ||||
| Common stock issued in settlement | $ | 268,283 | $ | - | ||||
| Reclass from loan payable- related parties to convertible loan payable- related parties | $ | 95,000 | $ | - | ||||
See the accompanying notes to consolidated financial statements.
| F-8 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
1. Organization
The Company’s Board of Directors approved a change of its name to Seaniemac International, Ltd. (the “Company”) effective August 16, 2013 in connection with its current business focus in the operation and expansion of its on-line gaming website Seaniemac.com. The name change was effected through the Company’s acquisition of a 70% interest in Seaniemac Limited in which the Company was the surviving entity as discussed below. In accordance with the Nevada Revised Statutes, the Company changed its name effective August 16, 2013. This action was approved by the company’s Board of Directors on June 16, 2013 and no consent of Company’s stockholders was required under Nevada law.
2. Acquisition
On June 7, 2012, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with RDRD II Holding LLC, a Delaware limited liability company (“RDRD”). The Exchange Agreement was amended on October 29, 2012. The Exchange Agreement contemplated the acquisition of RDRD’s 70% equity ownership interest (the “Seaniemac Equity Interest”) in Seaniemac Limited (“Seaniemac”), an Ireland corporation. Seaniemac is in the business of operating a sports gaming website. The Exchange Agreement further contemplated that, in exchange for the Seaniemac Equity Interest, the Company would issue to RDRD an amount of shares of its common stock (the “RDRD Exchange Shares”) which, following such issuance, would equal approximately 71% of the Company’s then outstanding shares of Common Stock (on a fully diluted basis), after taking into account the 10 million post-split shares the Company was ordered by a court in Florida to issue to certain of its creditors in exchange for $500,000 of debt owed to such creditors (the “RDRD Percentage”).
On October 30, 2012, the acquisition was consummated (the “Closing”). In addition, immediately following the Closing, the Company issued 10,000,000 post-split shares of its common stock in accordance with a court order, in exchange for the cancellation of $500,000 of our debt (“Debt Exchange Shares”). As a result of the acquisition and the issuance of our Debt Exchange Shares, RDRD holds approximately 71% of the Company’s common stock.
Prior to the acquisition, the Company was a shell company with no business operations. As a result of the acquisition, the Company is no longer considered a shell company. Its business and operations are now those of Seaniemac. Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to Seaniemac International, Ltd., a Nevada corporation and its 70% owned subsidiary Seaniemac Limited, an Ireland corporation.
Seaniemac, is an Irish company that was incorporated on December 11, 2011. Its corporate charter authorizes 100,000 shares of one class of stock. Seaniemac has issued 100 of those shares, 70 of which we acquired from RDRD in the acquisition. Seaniemac began generating revenue from the second quarter of 2013 from its on-line gaming website that operates in the Irish market.
3. Restatement of Previously Issued Financial Statements
The Company has restated its audited financial statement for the year ended December 31, 2013, filed on October 10, 2014.
| F-9 |
| For the year ended December 31, 2013 | For the year ended December 31, 2013 | |||||||||||
| As Reported | Adjustments | Restated | ||||||||||
| Current Assets | ||||||||||||
| Cash | $ | 6,742 | $ | (2,509 | ) | $ | 4,233 | |||||
| Receivable-related parties | - | 2,509 | 2,509 | |||||||||
| Prepaid expenses and other current assets | 114,989 | 20,425 | 135,414 | |||||||||
| Total Current Assets | 121,731 | 20,425 | 142,156 | |||||||||
| Equipment, net | 2,399 | (1 | ) | 2,398 | ||||||||
| Deferred loan costs, net | 20,087 | - | 20,087 | |||||||||
| Total Assets | $ | 144,217 | $ | 20,424 | $ | 164,641 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
| Current Liabilities | ||||||||||||
| Convertible promissory note | $ | 187,241 | $ | (1,469 | ) | $ | 185,772 | |||||
| Short-term and demand notes payable | 30,000 | - | 30,000 | |||||||||
| Accounts payable and accrued expenses | 1,476,336 | 94,363 | 1,570,699 | |||||||||
| Accrued officer’s compensation | 60,000 | - | 60,000 | |||||||||
| Loans payable and accrued interest - related party | 958,014 | (16,671 | ) | 941,343 | ||||||||
| Total Current Liabilities | 2,711,591 | 76,223 | 2,787,814 | |||||||||
| Total Liabilities | $ | 2,711,591 | $ | 76,223 | $ | 2,787,814 | ||||||
| Commitments and Contingencies | ||||||||||||
| Stockholders’ Deficit | ||||||||||||
| Convertible Preferred stock, $0.001 par value; | ||||||||||||
| Series A: 2,500,000 shares authorized 2,293,750 shares issued and outstanding | 2,294 | - | 2,294 | |||||||||
| Series B: 1,500,000 shares authorized, 1,250,00 shares issued and outstanding | 1,250 | - | 1,250 | |||||||||
| Series C: 2,000,000 shares authorized, 1,828,569 shares issued and outstanding | 1,829 | - | 1,829 | |||||||||
| Series D: 100,000 shares authorized, 100,000 shares issued and outstanding, respectively | 100 | - | 100 | |||||||||
| Common stock $0.001 par value; 2,000,000,000 shares authorized, “42,170,345 and 41,170,345 shares issued and outstanding, respectively | 42,170 | - | 42,170 | |||||||||
| Additional paid in capital | 204,077 | - | 204,077 | |||||||||
| Subscription Receivable | (131 | ) | - | (131 | ) | |||||||
| Accumulated other comprehensive income | (51,635 | ) | (1,155 | ) | (52,790 | ) | ||||||
| Accumulated deficit | (2,491,962 | ) | (40,133 | ) | (2,532,095 | ) | ||||||
| Total Stockholders’ Deficit | (2,292,008 | ) | (41,288 | ) | (2,333,296 | ) | ||||||
| Non - controlling Interest | (275,366 | ) | (14,511 | ) | (289,877 | ) | ||||||
| Total Liabilities and Stockholders’ Deficit | $ | 144,217 | $ | 20,424 | $ | 164,641 | ||||||
| RESTATED STATEMENT OF OPERATIONS | ||||||||||||
| For the year Ended December 31, 2013 As Reported | Adjustments | For the Year Ended December 31, 2013 Restated | ||||||||||
| Gross gaming revenue | $ | 156,630.00 | $ | 76,926.00 | $ | 233,556.00 | ||||||
| Promotional Allowances | $ | 116,121.00 | $ | 75,283.00 | $ | 191,404.00 | ||||||
| Net gaming revenue | $ | 40,509.00 | $ | 1,643.00 | $ | 42,152.00 | ||||||
| Operating Expenses | ||||||||||||
| Selling, general and administrative expenses | 1,429,585 | 52,564 | 1,482,149 | |||||||||
| Total Operating Expenses | 1,429,585 | 52,564 | 1,482,149 | |||||||||
| Loss from Operations | (1,389,076 | ) | (50,921 | ) | (1,439,997 | ) | ||||||
| Other Income/(Expenses) | ||||||||||||
| Interest expense (including amortization of loan coasts) | (60,986 | ) | (60,986 | ) | ||||||||
| Realized foreign exchange loss | (2,073 | ) | (3,723 | ) | (5,796 | ) | ||||||
| Total Other Income/(Expenses) | (63,059 | ) | (3,723 | ) | (66,782 | ) | ||||||
| Consolidated Net Loss | (1,452,135 | ) | (54,644 | ) | (1,506,779 | ) | ||||||
| Loss Attributable to Non-Controlling Interest | 252,082 | 14,511 | 266,593 | |||||||||
| Net Income (Loss) | $ | (1,200,053 | ) | $ | (40,133 | ) | $ | (1,240,186 | ) | |||
| Net Income (Loss) Per Share - Basic and Diluted | $ | (0.03 | ) | $ | (0.03 | ) | ||||||
| Weighted average number of shares outstanding during the period - Basic and Dilated | 41,603,222 | 41,600,482 | ||||||||||
| Consolidated net loss | $ | (1,452,135 | ) | $ | (54,644) | $ | (1,506,779 | ) | ||||
| Other comprehensive loss, net of tax: | ||||||||||||
| Foreign currency translation income (loss) | (43,984 | ) | (1,155 | ) | (45,139 | ) | ||||||
| Comprehensive loss | $ | (1,496,119 | ) | $ | (1,551,918 | ) | ||||||
| Comprehensive loss attributable to non-controlling interest | 265,277 | 14,858 | 280,135 | |||||||||
| Comprehensive loss attributable to common shareholders | $ | (1,230,842 | ) | $ | (1,271,783 | ) | ||||||
Subsequent to the filing of the Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”), the Company reviewed its accounting methodology relating to its sale and related currency translation exchange rate in December 2013. In addition, the Company believes that the presentation of cash on the previously issued balance sheets did not fully disclose that the funds were in receivable-related parties account. The description has been revised on the face of the consolidated balance sheets to indicate that the receivable-related parties account.
| F-10 |
The foregoing restatement is being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, to provide a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings in the statement of financial position as of the beginning of each period presented.
The restatement pertains to the fourth quarter ended December 31, 2013 and has no effect on the previously filed first to third quarterly reports for the year ended December 31, 2013.
4. Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception. At December 31, 2014 and 2013, the Company had working capital deficiencies and stockholders’ deficit of $5,557,131 and $5,541,403, respectively and $2,645,658 and $2,623,173, respectively.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. The Company launched its on-line gaming website that targets the Irish market which began to generate revenues during the quarter ended June 30, 2013. The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The outcome of this uncertainty cannot be assured.
Management intends to finance operating costs over the next 12 months with existing cash on hand, loans from stockholders and directors, and a possible private placement of our securities. No stockholder, director, or possible private placement participant has agreed to loan us any funds nor agreed to purchase any of our securities. The Company is currently in negotiations with a potential investor to purchase shares of our common stock. Although we can give no assurance that the transaction will close, the parties are working toward finalizing an agreement in the fiscal year ending December 31, 2015. If the transaction is consummated, we expect to use the proceeds from the sale of common stock to the investor to partially fund our operating costs. The Company continues to explore various financing alternatives, including debt and equity financings and strategic partnerships, as well as trying to generate additional revenue. However, at this time, the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.
The accompanying audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
5. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries including Call Compliance, Inc., Telephone Blocking Services Corporation, Call Compliance.com, Inc., Jasmine Communications, Inc., Call Center Tools, Inc., Execuserve Corp. which are inactive and its 70% owned subsidiary, Seaniemac. All inter-company balances and transactions have been eliminated in consolidation.
The Company formed a subsidiary in Isle of Man called Pledge Limited in October 2012 that was intended to operate as a billing entity to utilize favorable tax treatment in the Isle of Man. The Company abandoned this plan and no transactions were transpired through this entity which remains dormant. There were no assets, liabilities or any transactions for Pledge Limited during its existence.
B. Foreign Currency
The assets and liabilities of Seaniemac, whose functional currency is the Euro, are translated into US dollars at period-end exchange rates prior to consolidation. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the Company’s financial statements are reflected as a component of other comprehensive (loss) income. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and settlement date.
C. Equipment Depreciation and Amortization
Equipment is stated at cost less accumulated depreciation. These assets are depreciated on a straight lines basis over their estimated useful lives, generally five years.
| F-11 |
D. Revenue Recognition
Gross gaming revenue is the gross gaming yield which is the difference between gaming wins and losses and includes promotional betting (“Free Bets”). Free Bets are included in promotional allowances and are deducted from gross gaming revenue to arrive at the net gaming revenue. All other costs are included in selling, general and administrative expenses.
Significant Customers
During the year ended December 31, 2014 the Company had one customer which accounted for more than 10% of the Company’s revenues (17.9%).
During the year ended December 31, 2013 the Company had none customers which accounted for more than 10% of the Company’s revenues.
E. Advertising
All advertising costs are expensed as incurred. Advertising costs incurred for the production of a commercial are considered prepaid expenses until the commercial airs, at which time such costs are expensed.
F. Stock Based Compensation Arrangements
The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.
From time to time, our shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of its assets and expenses.
G. Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
We have determined that certain convertible debt instruments outstanding as of the date of these financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible debentures have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. Any change in fair value during the period recorded in earnings as “Other income (expense) - gain (loss) on change in derivative liabilities.”
Debt Derivative Liability:
| Carrying Value | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Derivative liability – December 31, 2014 | $ | 1,282,532 | $ | — | $ | — | $ | 1,282,532 | ||||||||
| Derivative liability – December 31, 2013 (Restated) | $ | — | $ | — | $ | — | $ | — | ||||||||
| F-12 |
The following table represents the Company’s derivative liability activity for the year ended:
| Balance at December 31, 2013 (Restated) | $ | - | ||
| Initial measurement at issuance date of the notes | 1,145,010 | |||
| Change in derivative liability during the year ended December 31, 2014 | 137,522 | |||
| Balance December 31, 2014 | $ | 1,282,532 |
Warrant derivative liability:
| Carrying Value | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Warrant liability – December 31, 2014 | $ | 545,837 | $ | — | $ | — | $ | 545,837 | ||||||||
| Warrant liability – December 31, 2013 (Restated) | $ | — | $ | — | $ | — | $ | — | ||||||||
The following table represents the Company’s warrant liability activity for the year ended:
| Balance at December 31, 2013 (Restated) | $ | - | ||
| Initial measurement at issuance date of the notes | 590,038 | |||
| Change in derivative liability during the year ended December 31, 2014 | (44,201 | ) | ||
| Balance December 31, 2014 | $ | 545,837 |
H. Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. The Company currently has no cash equivalents which would consist of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased.
I. Allowance for Doubtful Accounts
The Company reserves for receivables that may not be collected. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. During the years ended December 31, 2014 and 2013 the Company did not record any accounts receivable and no associated allowance was recorded.
J. Use of Estimates in Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
K. Earnings (loss) per common share
The Company utilizes the guidance per FASB Codification “ASC 260” “Earnings per Share”. Basic earnings (loss) per share are calculated by dividing income (loss) available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified-treasury stock method).
| F-13 |
L. Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2014 and 2013. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
| Carrying Value | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Convertible notes (net of discount) – December 31, 2014 | $ | 421,865 | $ | - | $ | - | $ | 421,865 | ||||||||
| Convertible notes (net of discount) – December 31, 2013 (Restated) | $ | 185,772 | $ | - | $ | - | $ | 185,772 | ||||||||
The following table provides a summary of the changes in fair value of the Company’s Promissory Notes, which are both Level 3 liabilities as of December 31, 2014:
| Balance at December 31, 2012 | $ | - | ||
| Issuance of notes – net | 280,500 | |||
| Unamortized debt discount | (41,728 | ) | ||
| Repayment of notes | (53,000 | ) | ||
| Balance at December 31, 2013 (Restated) | $ | 185,772 | ||
| Issuance of notes – net | 243,585 | |||
| Unamortized debt discount | (159,992 | ) | ||
| Forbearance penalty | 152,500 | |||
| Conversion of notes | - | |||
| Balance at December 31, 2014 | $ | 421,865 |
Convertible Loan Payable- Related party
| Carrying Value | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Convertible notes (net of discount) Related party – December 31, 2014 | $ | 110,862 | $ | - | $ | - | $ | 110,862 | ||||||||
| Convertible notes (net of discount) Related party – December 31, 2013 (Restated) | $ | - | $ | - | $ | - | $ | - | ||||||||
| F-14 |
The following table provides a summary of the changes in fair value of the Company’s Convertible loan payable- related party, which are both Level 3 liabilities as of December 31, 2014:
| Balance at December 31, 2013 (Restated) | $ | - | ||
| Issuance of notes – net | 79,750 | |||
| Reclass from loan payable into convertible loan payable | 95,000 | |||
| Unamortized debt discount | (63,888 | ) | ||
| Conversion of notes | - | |||
| Balance at December 31, 2014 | $ | 110,862 |
The Company determined the value of its convertible notes using a market interest rate and the value of the warrants and beneficial conversion feature issued at the time of the transaction less the accretion. There is no active market for the debt and the value was based on the delayed payment terms in addition to other facts and circumstances at the end of December 2014 and 2013.
M. Deferred Financing Costs
Costs incurred with obtaining and executing debt arrangements are capitalized and amortized over the term of the related debt.
N. Reclassifications
Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.
O. Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 740 “Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company has adopted the provisions of FASB ASC 740. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2014 and 2013, the Company had no material uncertain recognized tax positions.
The Company’s policy for recording interest and penalties is to record such items as a component of income before income taxes. Penalties are recorded in other expense and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations. There were no amounts accrued for penalties or interest as of or during the years ended December 31, 2014 and 2013. The Company does not expect its unrecognized tax benefit position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
P. Recently Issued Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015, The Company does not expect the adoption of ASU 2015-07 to have a material effect on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. This amendment is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.
| F-15 |
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In May 2014, the FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Cost of website development and hosting | $ | 47,760 | $ | 110,791 | ||||
| Prepaid consulting services | 27,713 | 17,178 | ||||||
| Deposits | 1,000 | - | ||||||
| Miscellaneous receivables | - | 7,445 | ||||||
| Total | $ | 76,473 | $ | 135,414 | ||||
Amortization of website development and hosting totaled $51,197 and $26,782 for the years ended December 31, 2014 and 2013, respectively. The prepaid costs related to website development and hosting are the upfront charges for set up, delivery and hosting of Seaniemac’s branded gaming website; amortization of these costs began in May 2013 and will be amortized over three years. The miscellaneous receivables pertain to foreign valued added taxes that have been paid by Seaniemac and are expected to be refunded. At December 31, 2014, the remaining balance was written off as the Company determined that it was uncollectible.
On March 17, 2014, the Company entered into a one year Consulting and Representation Agreement with Corporate Ads, LLC in exchange for 650,000 shares of the Company plus $10,000. The shares were valued at $35,750 based upon the closing price of the Company’s stock on March 17, 2014 of $0.055 per share. The total amount of $45,750 was included in prepaid consulting services and is being amortized over the one-year term. Amortization of $36,219 was recorded for the year ended December 31, 2014.
On September 23, 2014, the Company deposited $25,000 in an escrow account with our legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the Securities and Exchange Commission (See Note 15D).
| F-16 |
7. Equipment, Net
Equipment consists of the following:
| Estimated
Useful Life |
December 31, 2014 | December 31, 2013 | ||||||||
| (Restated) | ||||||||||
| Computer equipment | 5 years | $ | 2,588 | $ | 2,588 | |||||
| Accumulated depreciation | (1,142 | ) | (190 | ) | ||||||
| Equipment, net | $ | 1,446 | $ | 2,398 | ||||||
Depreciation expense for equipment was $952 and $190 for the years ended December 31, 2014 and 2013, respectively.
8. Deferred Loan Costs, Net
Deferred loan costs, net consists of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Deferred loan costs | $ | 37,225 | $ | 21,000 | ||||
| Accumulated amortization | (22,943 | ) | (913 | ) | ||||
| Deferred loan costs, net | $ | 14,282 | $ | 20,087 | ||||
The Company incurred deferred loan costs of $21,000 in connection with a Secured Convertible Promissory Note issued to Iliad Research and Trading, L.P. (“Iliad”) on December 2, 2013. These deferred loan costs are being amortized over the twenty-three month term of the note. Amortization of deferred loan costs totaled $10,956 and $913 during the years ended December 31, 2014, and 2013, respectively.
The Company incurred deferred loan costs of $5,800 in connection with the issuance of a 10% convertible note issued to LG Capital Funding, LLC (“LG Capital”) on April 1, 2014. These deferred loan costs are being amortized over the 1 year term of the note. Amortization of deferred loan costs totaled $4,350 during the year ended December 31, 2014.
Additional deferred loan costs of $5,000 were incurred in connection with the issuance of a 12% convertible note issued to WHC Capital, LLC (“WHC Capital”) on April 4, 2014. These deferred loan costs are being amortized over the 1 year term of the note. Amortization of deferred loan costs totaled $3,692 during the year ended December 31, 2014.
On July 14, 2104, the Company incurred deferred loan costs of $1,750 in connection with the issuance of an 8% convertible note to LG Capital. These deferred loan costs are being amortized over the 1 year term of the note. Amortization of deferred loan costs totaled $1,604 during the year ended December 31, 2014.
On August 15, 2014, the Company incurred additional deferred loans costs of $3,675 in connection with the issuance of a 10% convertible note to Summit Trading Ltd. (“Summit”). These deferred loan costs are being amortized over the 1 year term of the note. Amortization of deferred loan costs totaled $1,428 during year ended December 31, 2014.
9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Accounts payable | $ | 1,843,217 | $ | 1,453,104 | ||||
| Accrued expenses and other current liabilities | 212,652 | 117,595 | ||||||
| Total | $ | 2,055,869 | $ | 1,570,699 | ||||
Accounts payable includes $28,063 owed to Barry M. Brookstein (“Brookstein”) at December 31, 2014 and 2013. Brookstein is the Company’s chief executive officer and chief financial officer. Accounts payable also includes consulting fees of $290,560 and $241,510 payable to Seaniemac’s non-controlling shareholders at December 31, 2014 and 2013, respectively and $17,767 and $75,000 is payable to GE Park, LLC at December 31, 2014 and 2013, respectively.
| F-17 |
Consulting fees expenses incurred for non-controlling shareholders were $161,042 and $220,078 for the years ended December 31, 2014 and 2013, respectively, and $50,000 and $75,000 were incurred for GE Park, LLC (“GE Park”) during the years ended December, 2014 and 2013, respectively.
Accrued expenses include related party accrued interest of $43,630 and $16,671 for the years ended December 31, 2014 and 2013, respectively.
10. Accrued Officer’s Compensation
The Company accrued compensation for Brookstein in the amount of $30,000 during the year ended December 31, 2014. As of December 31, 2014 and 2013, the unpaid balance was $90,000 and $60,000, respectively.
11. Notes Payable
Notes payable consist of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Notes payable -Summit Trading Ltd. | $ | 36,530 | $ | - | ||||
| Notes payable - John Koehler | 30,000 | 30,000 | ||||||
| Total | $ | 66,530 | $ | 30,000 | ||||
On October 1, 2003, Execuserve Corp. (“Execuserve”), issued a $150,000 non-interest bearing promissory note to Koehler, an investor in the predecessor. Upon completion of the merger of Execuserve and the Company pursuant to an agreement and plan of merger dated as of February 5, 2010, the balance of the amount Execuserve owed Koehler was $37,000. Although the Company agreed to pay the balance in monthly installments of $1,000, the Company is in default as it has not made a payment since September 2010. The balance due to Koehler at both December 31, 2014 and 2013 totaled $30,000.
On May 29, 2014, the Company issued a demand note to Summit Trading Ltd. (“Summit”) in the amount of $8,500. A second note in the amount of $18,030 was issued to Summit on September 15, 2014, and a third note in the amount of $10,000 was issued to Summit on November 6, 2014. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand. Interest expense was $292 for the year ended December 31, 2014.
12. Loans Payable – Related Parties
Loans payable to related parties consist of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Loan payable - GE Park, LLC (A) | $ | 166,200 | $ | 95,000 | ||||
| Loans payable - Brookstein (B) | 15,702 | 14,202 | ||||||
| Loans payable - RDRD II Holding, LLC(C) | 880,478 | 832,140 | ||||||
| Total | $ | 1,062,380 | $ | 941,343 | ||||
Convertible loans payable to related parties consist of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| (Restated) | ||||||||
| Convertible loan payable - GE Park, LLC (A) | $ | 95,000 | $ | - | ||||
| Convertible loan payable - GE Park, LLC (A) | 79,750 | - | ||||||
| Unamortized debt discount | (63,888) | - | ||||||
| Total | $ | 110,862 | $ | - | ||||
The Company has specified the following person and entities as related parties with ending balances as of December 31, 2014 and 2013:
| F-18 |
RDRD, a shareholder of the Company, Barry Brookstein, our Chief Executive Officer and Chief Financial Officer and GE Park, LLC an affiliate of the non-controlling interest holder in Seaniemac minority shareholder.
A. Loan Payable – GE Park, LLC
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp.
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on within five days after demand. The note is convertible into common stock, at a 50% discount to the average lowest trading prices of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the notes, the Company determined the aggregate fair value of $187,188 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.85%, (3) weighted average risk-free interest rate of 0.02, (4) expected life of 0.25 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
The determined fair value of the debt derivatives of $152,414 was charged as a loss on debt modification.
During the year GE Park, LLC loaned the Company $166,200 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand.
In addition, the Company issued GE Park a convertible note in the amount of $79,750 on November 25, 2014. The cash purchase price of $72,500 (which amount is net of the pro-rata portion of original issue discount of $7,250) was received by the Company on the issuance date
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on May 25, 2015. The note is convertible into common stock, at a 50% discount to the lowest trading prices of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the notes, the Company determined the aggregate fair value of $139,421 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 280.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
The determined fair value of the debt derivatives of $72,500 as charged as a debt discount up to the net proceeds of the note with the remainder of $66,921 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $8,612 and was accounted for as interest expense.
Interest expense for the ended December 31, 2014 and 2013 totaled $7,954 and $845, respectively. Accrued interest at December 31, 2014 and 2013 totaled $8,799 and $845, respectively.
B. Loans Payable – Brookstein
At various times, Brookstein loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At December 31, 2014 and 2013, loans payable to Brookstein totaled $15,702 and $14,202, respectively.
C. Loans Payable – RDRD II Holding, LLC
| F-19 |
RDRD II Holding, LLC, a Delaware limited liability company and substantial shareholder of the Company (“RDRD”) loaned monies to the Company and its subsidiary, Seaniemac, for working capital purposes. The loans to the Company aggregating $363,980 do not bear interest and are due on demand. The loans to Seaniemac aggregating $516,498 bear interest at 4% per annum. At December 31, 2014 and 2013, loans payable were $880,478 and $832,140, respectively, and accrued interest totaled $34,831 and $15,826, respectively.
The Company imputed interest of $22,804 and $13,562 on amount loaned to the Company by RDRD during the years ended December 31, 2014 and 2013, respectively, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $47,973 and $35,014 for the years ended December 31, 2014 and 2013, respectively.
13. Convertible Promissory Notes, Net
Convertible promissory notes consists of the following:
| December 31, 2014 | December 31, 2013 | |||||||
| Iliad Note (1): | ||||||||
| Secured convertible promissory note - Iliad | $ | 380,000 | $ | 227,500 | ||||
| Total | 380,000 | 227,500 | ||||||
| Less: | ||||||||
| OID of $20,000, net of amortization of $11,310 and $870 as of December 31, 2014 and December 31, 2013, respectively | (8,690 | ) | (19,130 | ) | ||||
| Loan discount of $202,500, net of amortization of $82,645 and $1,027 as of December 31, 2014 and December 31, 2013, respectively | (119,855 | ) | (22,598 | ) | ||||
| Secured convertible promissory note - Iliad | $ | 251,455 | $ | 185,772 | ||||
| Redwood Note (2): | ||||||||
| Secured convertible promissory note - Redwood | $ | 75,000 | $ | - | ||||
| - | - | |||||||
| Total | 75,000 | - | ||||||
| Loan discount of $75,000, net of amortization of $75,000 and $0 as of December 31, 2014 and December 31, 2013, respectively | - | - | ||||||
| Secured convertible promissory note – Redwood (note in default) | $ | 75,000 | $ | |||||
| LG Capital Funding, LLC (3): | ||||||||
| 10% convertible redeemable note - LG Capital | $ | 40,000 | $ | - | ||||
| - | - | |||||||
| Total | 40,000 | - | ||||||
| Loan discount of $40,000, net of amortization of $30,027 and $0 as of December 31, 2014 and December 31, 2013, respectively | (9,973 | ) | - | |||||
| 10% convertible redeemable note - LG Capital | $ | 30,027 | $ | - | ||||
| 8% convertible redeemable note - LG Capital | $ | 36,750 | $ | - | ||||
| - | - | |||||||
| Total | 36,750 | - | ||||||
| Loan discount of $36,750, net of amortization of $17,116 and $0 as of December 31, 2014 and December 31, 2013, respectively | (19,634 | ) | - | |||||
| 8% convertible redeemable note - LG Capital | $ | 17,116 | $ | - | ||||
| WHC Capital, LLC (4): | ||||||||
| 12% convertible redeemable note - WHC Capital | $ | 32,000 | $ | - | ||||
| - | - | |||||||
| Total | 32,000 | - | ||||||
| Loan discount of $32,000, net of amortization of $23,759 and $0 as of December 31, 2014 and December 31, 2013, respectively | (8,241 | ) | - | |||||
| 10% convertible redeemable note - WHC Capital | $ | 23,759 | $ | - | ||||
| Summit Trading Ltd. (5): | ||||||||
| 10% convertible redeemable note - Summit | $ | 59,835 | $ | - | ||||
| - | - | |||||||
| Total | 59,835 | - | ||||||
| Loan discount of $56,804, net of amortization of $21,478 and $0 as of December 31, 2014 and December 31, 2013, respectively | (35,327 | ) | - | |||||
| 10% convertible redeemable note - Summit | $ | 24,508 | $ | - | ||||
| Convertible promissory notes and accrued interest, net | $ | 421,865 | $ | 185,772 | ||||
| F-20 |
1. Iliad Note
On December 2, 2013 (“Issuance Date”) the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”). Pursuant to the Purchase Agreement, the Company issued to Iliad a Secured Convertible Promissory Note (the “Note”) in the original principal amount of $667,500 (the “Purchase Price”) which Note bears interest at 8% per annum and is compounded daily. All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which date is 23 months from Issuance Date of the Note (the “Maturity Date”). Net cash expected will be $607,500, net of original issue discount of $60,000.
The initial cash purchase price of $202,500 (which amount is net of the pro-rata portion of original issue discount of $20,000 and certain transactional expenses of $5,000) was received by the Company on the issuance date and (ii) the balance of $400,000 shall be received no later than the Maturity Date, as evidenced by four separate $100,000 promissory notes issued by Iliad to the Company.
Beginning six months after the Issuance Date and continuing for each installment date thereafter, the Company is required to make monthly principal payments under the Note of $37,083, plus any accrued and unpaid interest as of the installment date. Any installment payment may be either cash or shares of Common Stock, at the election of the Registrant.
The Company also issued Iliad five year warrants to purchase 2,132,426 shares at a conversion price of $0.12 per share of the Company’s common stock on December 2, 2013. These options were valued at $23,625 using the Black-Scholes option pricing model with the following values: risk free interest rate of 1.5%, volatility of 26.01538% and strike price of $0.12 and was amortized to interest expense during the year ended December 31, 2014.
At any time after 180 days from the Issuance Date, the Note is convertible into shares of the Company’s common stock, at the option of the Note holder, at a conversion price of $0.12 per share, subject to adjustment downward under certain circumstances defined in the Note. At December 31, 2013, the Company has reserved 16.67 million shares of authorized but unissued common stock in accordance with the terms of the Note. The Company has agreed to reserve these shares until all of the Company’s obligations under the Note are paid and performed in full and the warrants are exercised in full or otherwise expired. The Company may prepay part or all of the Note at any time, provided that any prepayment is subject to a 25% penalty on the amount prepaid.
The Note is subject to various default provisions, including as a result of a failure to make an installment payment by the due date, a failure to deliver shares when required under the Note, or a breach of covenants in the Note and Purchase Agreement, among others. Upon an event of default, the Note accrues interest at the default rate of 1.83% per month (or 22% per annum), compounding daily. The Company is in default on this loan as of June 2, 2014 as a result of failing to make the required installment payments, as well as a result of the Company’s failure to timely file its annual reports with the SEC. Accordingly, the total principal due to Iliad of $227,500 is classified as a current liability.
Default on Iliad Note
On October 1, 2014, Iliad presented the Company with an Event of Default Redemption Notice and is electing to redeem the full outstanding balance of the Note. Note 12 outlines the applicable penalties and additional interest due to the default. On October 29, 2014, the Company and Iliad entered into a forbearance agreement, pursuant to which Iliad agreed, subject to the terms of the forbearance agreement, to refrain and forbear, until December 10, 2014, from exercising and enforcing remedies against the Company with respect to the Note defaults, including the enforcement of the interest rate increase to 22% per annum. Pursuant to an oral agreement between the Company and Iliad on December 12, 2014, the date was extended to December 31, 2014, subject to the terms of the forbearance agreement. As a result, during the year ended December 31, 2014, the Company recorded $152,500 as forbearance liability and charged to the expenses. As of December 31, 2014, the outstanding loan balance on this including forbearance liability was $380,000.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On June 3, 2014 (180 days from Issuance Date), the Company determined the aggregate fair value of $443,169 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 224.54%, (3) weighted average risk-free interest rate of 0.41%, (4) expected life of 1.42 years, and (5) estimated fair value of the Company’s common stock of $0.0394 per share.
The determined fair value of the debt derivatives of $443,169 was charged as a debt discount up to the net proceeds of the note with the remainder of $240,669 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the years ended December 31, 2014 and 2013 was $92,058 and $1,897, respectively, and was accounted for as interest expense.
| F-21 |
2. Redwood Note
On March 3, 2014, the Company entered into a Securities Purchase Agreement with Redwood Management, LLC. (“Redwood”), for the sale of a 10% convertible debenture in the principal amount of $75,000 (the “Note”). The financing closed on March 3, 2014. The total net proceeds the Company received from this Offering was $75,000.
All interest and principal due on September 3, 2014 has not been paid. The Note bears interest at the rate of 10% guaranteed interest regardless of how long the debenture is outstanding. The debenture is convertible into common stock, at Redwood’s option, at a 50% discount to the lowest trading price of the common stock during the 20 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the Redwood debenture, the Company determined the aggregate fair value of $109,741 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 184.71%, (3) weighted average risk-free interest rate of 0.08%, (4) expected life of 0.50 years, and (5) estimated fair value of the Company’s common stock of $0.065 per share.
The determined fair value of the debt derivatives of $109,741 was charged as a debt discount up to the net proceeds of the note with the remainder of $34,741 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $75,000 which was accounted for as interest expense. As of date, this note is in default.
3. LG Capital Funding, LLC Notes
On April 1, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of a 10% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on April 1, 2014. The total net proceeds the Company received from this Offering was $40,000.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on April 1, 2015, further as of date this was not repaid hence the note was in default. The debenture is convertible into common stock, at LG Capital’s option, at a 58% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion.
On July 14, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of an 8% convertible note in the principal amount of $36,750 (the “Note”). The financing closed on July 14, 2014. The total net proceeds the Company received from this Offering was $36,750.
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 14, 2015. The note is convertible into common stock, at LG Capital’s option, at a 50% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion. Subsequent to the year ended December 31, 2014, the LG Capital converted $36,750 during the quarter ended March 31, 2015.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the LG Capital notes, the Company determined the aggregate fair value of $152,414 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.52% to 237.91%, (3) weighted average risk-free interest rate of 0.11% to 0.13%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.0378 to $0.0471 per share.
The determined fair value of the debt derivatives of $152,414 was charged as a debt discount up to the net proceeds of the note with the remainder of $75,664 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $47,143 accounted for as interest expense.
| F-22 |
4. WHC Capital, LLC
On April 4, 2014, the Company entered into a Securities Purchase Agreement with WHC Capital, LLC. (“WHC Capital”), for the sale of a 12%convertible note in the principal amount of $32,000 (the “Note”). The financing closed on April 4, 2014. The total net proceeds the Company received from this Offering was $32,000.
The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on April 4, 2015. The debenture is convertible into common stock, at WHC Capital’s option, at a 58% discount to the lowest trading price of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the WHC Capital note, the Company determined the aggregate fair value of $56,273 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.08%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.06 per share.
The determined fair value of the debt derivatives of $56,273 was charged as a debt discount up to the net proceeds of the note with the remainder of $24,273 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $23,759 accounted for as interest expense.
5. Summit Trading Ltd.
On August 15, 2014, the Company entered into a Securities Purchase Agreement with Summit Trading, Ltd. (“Summit”), for the sale of an 10% convertible note in the principal amount of $59,835 (the “Note”). The financing closed on August 15, 2014. The total net proceeds the Company received from this Offering was $59,835.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on August 15, 2015. The debenture is convertible into common stock, at Summit’s option, at a 20% discount to the average volume weighted stock price during the 7 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the Summit note, the Company determined the aggregate fair value of $56,804 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 242.32%, (3) weighted average risk-free interest rate of 0.09%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.02 per share.
The determined fair value of the debt derivatives of $56,804 was charged as a debt discount of the note.
The charge of the amortization of debt discounts and costs for the year ended December 31, 2014 was $21,478 accounted for as interest expense.
14. Derivative Liabilities
As described in Note 13, in 2013 and 2014 the Company issued a convertible notes which is are convertible into common stock, at holders’ option, at a discount to the market price of the Company’s common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.
The following table represents the Company’s debt derivative liability activity for the year ended:
| Balance at December 31, 2013 (Restated) | $ | - | ||
| Initial measurement at issuance date of the notes | 1,145,010 | |||
| Change in debt derivative liability during the year ended December 31, 2014 | 137,522 | |||
| Balance December 31, 2014 | $ | 1,282,532 |
| F-23 |
At inception, the fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 242.33%, (3) weighted average risk-free interest rate of 0.03% to 0.13%, (4) expected life of 0.25 to 1.09 years, and (5) estimated fair value of the Company’s common stock of $0.0139 per share.
At December 31, 2014, the fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 234.11%, (3) weighted average risk-free interest rate of 1.20%, (4) expected life of 4.24 years, and (5) estimated fair value of the Company’s common stock of $0.0248 per share.
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
Warrant derivative liability
As described in Note 13, the Company issued warrants in conjunction with the issuance with certain convertible notes. These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of the effectiveness of the reset provisions. Subsequent to the initial effectiveness date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations.
The Company estimated the fair value at date of effectiveness of the warrants issued in connection with the issuance of the convertible promissory notes to be $590,038 using the Binomial Lattice formula assuming no dividends, a risk-free interest rate of 1.65%, expected volatility of 224.54%, and expected warrant life of 4.50 years. Since the warrants have reset provisions, pursuant to ASC 815-40, the Company has reclassified from equity the fair value of the warrants of $590,038 as a warrant liability. Until conversion and expiration of the warrants, changes in fair value were recorded as non-operating, non-cash income or expense at each reporting date.
At December 31, 2014, the Company marked to market the fair value of the warrant liability and determined a fair value of $545,837. The Company recorded a gain from the change in fair value of debt derivatives of $44,201 for the year ended December 31, 2014 The fair value of the warrant liability was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 234.11%, (3) weighted average risk-free interest rate of 1.20%, (4) expected life of 4.24 years, and (5) estimated fair value of the Company’s common stock of $0.0248 per share.
The following table represents the Company’s warrant derivative liability activity for the year ended:
| Balance at December 31, 2013 (Restated) | $ | - | ||
| Initial measurement at issuance date of the notes | 590,038 | |||
| Change in warrant derivative liability during the year ended December 31, 2014 | (44,201 | ) | ||
| Balance December 31, 2014 | $ | 545,837 |
15. Commitments and Contingencies
A. Marketing Agreements
On January 30, 2013, Seaniemac entered into a three year White Label Services Agreement with Boylesports (“initial term”) with the option to renew for further periods of 12 months after the initial term. Boylesports will be paid approximately 65,000 Euros to set up, deliver and host the branded website. In addition, Boylesports will receive a portion of the gross gaming revenue (GGR) generated from the seanimac.com website. GGR is gross turnover, minus gross win, leaving gross gaming yield and subtracting from that amount tax and any payments to software providers. Seaniemac is entitled to 70% of GGR up to 50,000 Euros, 75% of GGR from 50,000 Euros to 250,000 Euros, 80% of GGR from 250,000 Euros to 1,000,000 Euros, and 85% of GGR in excess of 1,000,000 Euros. Minimum guaranteed payments to Boylesports during the first year of the agreement of 7,500 Euros during months four through six, 10,000 Euros during months seven through twelve and 15,000 Euros in years two and three. There were no minimum guaranteed payments during the first three months of the contract. During the year ended December 31, 2014, accrued fees to Boylesports totaled $325,337, of which $215,095 was commission due pursuant to the GGR share agreement and $110,242 was primarily attributable to customer service and processing fees.
The Company is dependent upon Boylesports for website hosting and maintenance of back-office operations. While either party may terminate the White Label Services Agreement (“Services Agreement”) upon 60 days’ notice, a termination by Boylesports could materially impact the Company’s financial condition, as the ability to timely identify a comparable service provider at similar terms may not be possible.
| F-24 |
B. Consulting Agreements
On April 10, 2013, the Company entered into a Consulting Agreement with Mirador for an initial six month term that may be renewed for successive six month terms. Mirador will use its best effort to locate and identify private and/or public companies for potential merger with or acquisition by the Company in addition to providing shareholder and public relation services. In exchange for these services, the Company is required to issue Mirador 1,000,000 shares of Company unregistered common stock valued at $160,000 or $0.16 per share on the date of the agreement. This amount was included in prepaid expenses and was amortized over the six month term of the agreement during 2013. The shares were issued to Mirador on July 27, 2013.
On March 17, 2014, the Company entered into a one-year Consulting and Representation Agreement with Corporate Ads, LLC in exchange for 650,000 shares of Company common stock plus $10,000. The shares were valued at $35,750 based upon the closing price of the stock on March 17, 2014 of $0.055 per share. The total amount of $45,750 was included in prepaid expenses and is being amortized over the one-year term. During the year ended December 31, 2014, $36,219 was amortized to expense.
C. Settlement Agreements
On March 13, 2014, the Company entered into a Settlement Agreement and Stipulation with IBC Funds, LLC (“IBC”), an unrelated third party. Pursuant to this agreement, IBC acquired $100,885 of Company liabilities from certain creditors. IBC agreed to accept 290,000 shares as a settlement fee in accordance with Section 3(a)(10) of the Securities Act that were valued at $0.06 per share, the March 13, 2014 closing price. The Company issued 6,693,900 shares during the year ended December 31, 2014 to IBC in full settlement of the acquired liabilities.
On May 13, 2014, the Company entered into a second Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $50,000 of Company liabilities from certain creditors. The Company issued 4,336,200 during the year ended December 31, 2014 to IBC in full settlement of the acquired liabilities.
On July 17, 2014, the Company entered into a third Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $100,000 of Company liabilities from certain creditors. The Company issued 19,621,000 shares during the year ended December 31, 2014 in full settlement of the acquired liabilities.
D. Receivable-Related Parties
During the years ended December 31, 2014 and 2013, in order to timely take advantage of business opportunities provided for under Irish laws, the Company processed a number of transactions through bank accounts of a related party. Following the completion of the fiscal year ended December 31, 2014, the Company as established its own banking relationships and no longer processes transactions using bank accounts of a related party.
As of December 31, 2014 and 2013, $1,825 and $2,509, respectively, was recorded as a receivable from a related party.
Further, currently, no deposit insurance system has been set up in above related party’s accounts. Therefore, the Company will bear a risk if any of these banks become insolvent.
E. Litigation
On August 14, 2014, the Company agreed to the entry of an Order Instituting Cease and Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934 (“Agreed Order”), with the SEC. The agreement with the SEC was subsequently modified on September 17, 2014 and is pending final approval from the SEC. Pursuant to the Agreed Order, the Company acknowledged that it was delinquent in its filing requirements in that it had failed to file its annual report on Form 10-K for the year ended December 31, 2013, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and an 8-K filing. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The Company is diligently working towards completing and filing its delinquent reports. The penalty of $50,000 was expensed during the third quarter of 2014. On September 23, 2014, the Company deposited $25,000 in an escrow account with its legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the Securities and Exchange Commission. (See note 6)
We are not presently a party to any material litigation, nor to the knowledge of management, is any litigation threatened against us that may materially affect us.
| F-25 |
16. Capital Stock and Capital Stock Transactions
A. Preferred Stock
On December 26, 2007, the Company filed an amendment to its articles of incorporation to the effect of (a) increasing the number of authorized shares of Common Stock to 2 billion from 500 million and (b) authorizing up to 10 million shares of serial preferred stock, with the Company’s board having the authority to establish, from time to time, classes and series of such serial preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each such class or series. The amendments, which were approved in a manner consistent with applicable Nevada law, had been the subject of a definitive information statement filed with the SEC on December 4, 2007.
The Company has 10,000,000 shares of preferred stock authorized of which 6,000,000 shares were designated in three series as follows:
| ● | Series A Senior Convertible Voting Non-Redeemable Preferred Stock (the “Series A Preferred”) - 2,500,000 shares authorized, 2,293,750 shares issued and outstanding; | |
| ● | Series B Senior Subordinated Convertible Voting Redeemable Preferred Stock (the “Series B Preferred”) - 1,500,000 shares authorized, 1,250,000 shares issued and outstanding; | |
| ● | Series C Senior Subordinated Convertible Voting Redeemable Preferred Stock (the “Series C Preferred”) - 2,000,000 shares authorized, 1,828,569 shares issued and outstanding; and | |
| ● | Series D Senior Convertible Voting Redeemable Preferred Stock (the “Series D Preferred”) -shares, 100,000 shares authorized, 100,000 shares issued and outstanding. |
Each share of Series A Preferred, Series B Preferred and Series C Preferred Stock are convertible, at any time, into 100 restricted shares of Common Stock.
The Company Preferred Stock has liquidation rights as follows: The Series A Preferred is senior in liquidation preference to all other series or classes of capital stock, preferred or common; the Series B Preferred is senior in liquidation preference to all series or classes of capital stock other than the Series A Preferred; the Series C Preferred is senior in liquidation preference to all classes of Common Stock.
Terms of the Series D Preferred include the following:
| ● | Each share of Series D Preferred has a liquidation preference of $1.00 per share. | |
| ● | Each share of Series D Preferred shall entitle its holder to 10,000 votes on all matters submitted to the vote of stockholders of the Company. | |
| ● | Prior to December 31, 2020, the Company has the right, but not the obligation, to redeem the then outstanding shares of Series D Preferred at a rate of $1.00 per share. | |
| ● | Each share of Series D Preferred is convertible into 1,000 shares of Company Common Stock. |
Issuance of Preferred Stock
There were no issuances or redemptions of Preferred Stock during the fiscal years ended December 31, 2013 and 2014.
B. Common Stock.
We have 2,000,000,000 shares of common stock, par value $.001 per share, authorized. At December 31, 2014 and 2013 there were 74,721,445 and 42,170,345 shares issued and outstanding, respectively.
Common Stock Issuances
On April 10, 2013, the Company entered into a Consulting Agreement with Mirador for an initial six month term that may be renewed for successive six month terms. In exchange for these consulting services, the Company issued Mirador 1,000,000 shares of Company unregistered common stock valued at $160,000 or $0.16 per share on the date of the agreement. This amount was included in prepaid expenses and was amortized over the six month as per term of the agreement during 2013. The shares were issued to Mirador on July 27, 2013.
On February 7, 2014, the Company’s board of directors approved the following transactions for the issuance of 1,250,000 shares of its common stock that were issued during the three months ended June 30, 2014:
| 1. | An individual acquired 400,000 shares of restricted common stock at the purchase price of $0.075 per share or $30,000. |
| 2. | The Board accepted the assignment of a third party Advisory Agreement from Summit and issued 100,000 shares of the Company’s restricted common stock as total and complete consideration for the advisor provided services to Summit on behalf of the Company. These shares were valued at $9,000 or $0.09 per share, the closing stock price on February 7, 2014 and expensed at that time. |
| 3. | The Board approved the issuance of 750,000 shares of the Company’s restricted common stock to two key Seaniemac consultants at $0.07 per share. The total value of these shares of $52,500 was expensed as compensation in February 2014. |
| F-26 |
On March 17, 2014, the Company issued 650,000 shares of its unregistered common stock to Corporate Ads, LLC valued at $0.055 per share or $35,750 in exchange for performing consulting services for one year. (See Note 5).
On March 13, 2014, the Company entered into a Settlement Agreement and Stipulation with IBC Funds, LLC (“IBC”), an unrelated third party. Pursuant to this agreement, IBC acquired $100,885 of Company liabilities from certain creditors. IBC agreed to accept 310,000 shares as a settlement fee in accordance with Section 3(a)(10) of the Securities Act that were valued at $0.06 per share, the March 13, 2014 closing price amounted to $17,398.
On May 13, 2014, the Company entered into a second Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $50,000 of Company liabilities from certain creditors.
On July 17, 2014, the Company entered into a third Settlement Agreement and Stipulation with IBC whereby IBC agreed to acquire $100,000 of Company liabilities from certain creditors.
The Company issued 8,336,200 shares, 11,583,900 shares and 10,421,000 shares in regards to above settlements during the year ended December 31, 2014 to IBC in full settlement of the acquired liabilities.
17. Warrants and Options
For the year ended December 31, 2014 and 2013, there are no outstanding stock option awards.
For the years ended December 31, 2014 and 2013 the following warrants were outstanding:
| Number of Warrants | Weighted Average Exercise Price | Weighted
Average Remaining Contractual Life (in Years) | ||||||||||
| Balance, December 31, 2012 | - | - | - | |||||||||
| Granted | 2,132,426 | $ | 0.012 | |||||||||
| Exercised | - | $ | - | |||||||||
| Cancelled Forfeited | - | |||||||||||
| Balance, December 31, 2013 | 2,132,426 | $ | 0.012 | 4.9 | ||||||||
| Granted | - | $ | - | |||||||||
| Exercised | - | $ | - | |||||||||
| Cancelled Forfeited | - | |||||||||||
| Balance, December 31. 2014 | 2,132,426 | $ | 0.012 | 3.9 | ||||||||
For the year ended December 31, 2014, the following warrants were outstanding:
| Weighted Average | ||||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Aggregate | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | Intrinsic Value | ||||||||||||||
| $ | 0.012 | 2,132,426 | 2,132,426 | 3.92 | $ | - | ||||||||||||
For the year ended December 31, 2013, the following warrants were outstanding:
| Weighted Average | ||||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Aggregate | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | Intrinsic Value | ||||||||||||||
| $ | 0.012 | 2,132,426 | 2,132,426 | 4.92 | $ | - | ||||||||||||
| F-27 |
17. Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Seaniemac Limited is governed by the Income Tax Law of the Republic of Ireland. Pursuant to the Ireland Income Tax Law, Seaniemac Limited is subject to tax at a maximum statutory rate of 12.5%.
The components of income (loss) before income tax consist of the following:
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| U.S. Operations | $ | (1,989,795 | ) | $ | (618,137 | ) | ||
| Ireland Operations (Seaniemac Limited) | (861,231 | ) | (888,642 | ) | ||||
| Total | $ | (2,851,026 | ) | $ | (1,506,779 | ) | ||
The components of the provision (benefit) for income taxes are as follows:
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Federal, State and Local | $ | (236,882 | ) | $ | (165,560 | ) | ||
| Ireland income tax | (104,803 | ) | (109,365 | ) | ||||
| Valuation Allowance | 341,685 | 274,925 | ||||||
| Total | $ | - | $ | - | ||||
The table below summarizes the reconciliation of our income tax provision (benefit) computed at the statutory U.S. Federal rate and the actual tax provision (presented to the nearest thousand):
| Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Income tax provision at federal statutory rate | $ | (1,103,000 | ) | $ | (583,000 | ) | ||
| State income taxes, net of federal benefit | - | - | ||||||
| Permanent differences | 542,000 | 79,000 | ||||||
| U.S. tax rate in excess of foreign tax rate | 185,000 | 191,000 | ||||||
| U.S. valuation allowance | 376,000 | 313,000 | ||||||
| Tax provision | $ | - | $ | - | ||||
We have a net operating loss (“NOL”) carry forward for U.S. income tax purposes at December 31, 2014 expiring through the year 2034. Management estimates the NOL as of December 31, 2014 to be approximately $6,576,000. The utilization of our NOL’s will be significantly limited because of a change in ownership as defined under Section 382 of Internal Revenue Code of 1986, if in the future the Company issues common stock or additional equity instruments convertible in common shares which result in an ownership change exceeding the 50% limitation threshold imposed by that section, all of the Company’s net operating losses carry forwards may be significantly limited as to the amount of use in a particular years. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Included in the deferred tax asset is the aforementioned NOL. We are not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, we do not believe the benefit is more likely than not to be realized and we recognize a full valuation allowance for those deferred tax assets. Our deferred tax asset as of December 31, 2014 and 2013 is as follows:
| December 31, | ||||||||
| 2014 | 2013 | |||||||
| Total deferred tax asset - from NOL carry forwards | $ | 2,217,000 | $ | 2,308,000 | ||||
| Valuation allowance | (2,217,000 | ) | (2,308,000 | ) | ||||
| Deferred tax asset, net of allowance | $ | - | $ | - | ||||
During 2014, the valuation allowance was increased by approximately $341,685 from the prior year.
| F-28 |
18. Subsequent Events
A. Note Issuances/Modifications
Summit
On January 2, 2015 and January 5, 2015, the Company issued demand notes to Summit in the amounts of $13,844 and $21,970, respectively. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand.
On February 27, 2015, the terms of the Summit demand notes were modified. All outstanding notes totaling $72,344 became convertible notes that are convertible at 60% of the lowest trading price utilizing a three day lookback period.
In addition, the terms of Summit’s convertible note in the amount of $59,835 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
GE Park
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10 day lookback period.
On February 20, 2015, the terms of two GE Park demand notes totaling $33,600 were modified. These notes became convertible at 50% of the lowest traded price utilizing a 10 day lookback period.
On March 3, 2015, the GE Park conversion terms of the GE Park convertible note dated November 25, 2014 for $79,750 were modified to 50% of the lowest traded price utilizing a 10 day lookback. A loss a $38,052 resulted from this modification.
B. Capital Transactions
An additional 34,000,000 shares were issued in April 2015 in settlement of certain convertible notes.
As of the date of the filing of these financial statements with the SEC on Form 10-K, the holders of convertible debt issued by the Company in the approximate amount of $429,967 comprised of principal and accrued interest into approximately 565,121,284 shares of the Company’s common stock.
| F-29 |