UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-54007
Seaniemac International, Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4292198 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 780 New York Avenue, Suite A, Huntington, New York | 11743 | |
| (Address of principal executive offices) | (Zip Code) |
(386) 409-0200
(Registrant’s telephone number, including area code)
| Compliance Systems Corporation |
| (Former Name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 18, 2013 there are 42,170,345 shares of common stock, $0.001 par value, outstanding.
INDEX PAGE
| 2 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2013 | December 31, 2012 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 4,969 | $ | 726 | ||||
| Prepaid expenses and other current assets | 107,233 | 104,399 | ||||||
| Total Current Assets | 112,202 | 105,125 | ||||||
| Equipment, net | 2,483 | - | ||||||
| Deferred loan costs, net | 1,833 | - | ||||||
| Total Assets | $ | 116,518 | $ | 105,125 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current Liabilities: | ||||||||
| Short-term and demand notes payable | $ | 84,208 | $ | 30,000 | ||||
| Accounts payable and accrued expenses | 1,244,345 | 1,181,107 | ||||||
| Notes and loans payable - related parties - current portion | 818,398 | 170,350 | ||||||
| Total Current Liabilities | 2,146,951 | 1,381,457 | ||||||
| Total Liabilities | 2,146,951 | 1,381,457 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficiency: | ||||||||
| 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, 42,170,345 and 41,170,345 shares issued and outstanding, respectively | 42,170 | 41,170 | ||||||
| Additional paid-in capital | 159,000 | - | ||||||
| Subscriptions receivable | (131 | ) | (131 | ) | ||||
| Accumulated other comprehensive loss | (29,260 | ) | (7,651 | ) | ||||
| Accumulated deficit | (2,008,594 | ) | (1,291,909 | ) | ||||
| Corporate Stockholders’ Deficiency | (1,831,342 | ) | (1,253,048 | ) | ||||
| Non-controlling Interest | (199,091 | ) | (23,284 | ) | ||||
| Total Stockholders’ Deficiency | (2,030,433 | ) | (1,276,332 | ) | ||||
| Total Liabilities and Stockholders’ Deficiency | $ | 116,518 | $ | 105,125 | ||||
See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements
| F-1 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Gross Gaming Revenues | $ | 72,948 | $ | - | $ | 99,352 | $ | - | ||||||||
| Promotional Allowances | 37,238 | - | 54,272 | - | ||||||||||||
| Net Gaming Revenues | 35,710 | - | 45,080 | - | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 436,887 | 34,440 | 925,551 | 286,596 | ||||||||||||
| Operating Loss | (401,177 | ) | (34,440 | ) | (880,471 | ) | (286,596 | ) | ||||||||
| Gain on Forgiveness of Debt | - | 189,750 | - | 189,750 | ||||||||||||
| Reversal of Payroll Taxes | - | 71,601 | - | 71,601 | ||||||||||||
| Interest expense | (6,419 | ) | (27,678 | ) | (10,189 | ) | (67,399 | ) | ||||||||
| Realized foreign exchange loss | (51 | ) | - | (1,833 | ) | - | ||||||||||
| Warrant fair value adjustment | - | 167 | - | 265 | ||||||||||||
| Consolidated Net (Loss) Income | (407,647 | ) | 199,400 | (892,493 | ) | (92,379 | ) | |||||||||
| Preferred Dividends | - | - | - | 78,000 | ||||||||||||
| Loss Attributable to Non-controlling Interest | 85,905 | - | 175,807 | - | ||||||||||||
| Net (Loss) Income Attributable to Common Stockholders | $ | (321,742 | ) | $ | 199,400 | $ | (716,686 | ) | $ | (170,379 | ) | |||||
| Basic and Diluted Per Share Data: | ||||||||||||||||
| Net (Loss) Income - Basic | $ | (0.01 | ) | $ | 0.14 | $ | (0.02 | ) | $ | (0.25 | ) | |||||
| Net (Loss) Income - Diluted | $ | (0.01 | ) | $ | 0.10 | $ | (0.02 | ) | $ | (0.25 | ) | |||||
| Weighted Average Shares Outstanding - | ||||||||||||||||
| Basic | 41,887,736 | 1,437,081 | 41,412,103 | 670,731 | ||||||||||||
| Diluted | 41,887,736 | 2,077,844 | 41,412,103 | 670,731 | ||||||||||||
See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements
| F-2 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Consolidated net (loss) income | $ | (407,647 | ) | $ | 199,400 | $ | (892,493 | ) | $ | (92,379 | ) | |||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Foreign currency translation loss | (28,474 | ) | - | (21,609 | ) | - | ||||||||||
| Comprehensive (loss) income | (436,121 | ) | 199,400 | (914,102 | ) | (92,379 | ) | |||||||||
| Preferred Dividends | - | - | - | (78,000 | ) | |||||||||||
| Comprehensive loss attributable to noncontrolling interest | 94,447 | - | 182,290 | - | ||||||||||||
| Comprehensive (loss) income attributable to common stockholders’ | $ | (341,674 | ) | $ | 199,400 | $ | (731,812 | ) | $ | (170,379 | ) | |||||
See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements
| F-3 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2013 | 2012 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Consolidated net loss | $ | (892,493 | ) | $ | (92,379 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest/penalty accrued and not paid or imputed | 9,269 | 39,000 | ||||||
| Depreciation | 60 | |||||||
| Gain on forgiveness of debt | - | (189,750 | ) | |||||
| Amortization of deferred loan costs | 1,167 | - | ||||||
| Shares issued for extension of vendor terms | - | 10,056 | ||||||
| Shares issued for assignment of debt | - | 17,597 | ||||||
| Stock-based compensation | 151,112 | 746 | ||||||
| Warrant fair value adjustment | - | (265 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 6,054 | - | ||||||
| Accounts payable and accrued expenses | 63,238 | 29,306 | ||||||
| Accrued officers’ compensation | - | 120,000 | ||||||
| Total adjustments | 230,900 | 26,690 | ||||||
| Net Cash Used in Operating Activities | (661,593 | ) | (65,689 | ) | ||||
| CASH USED IN INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | (2,542 | ) | - | |||||
| Net Used in Investing Activities | (2,542 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short term loan | 53,000 | - | ||||||
| Payment of loan costs related to short term loan | (3,000 | ) | - | |||||
| Proceeds from loans payable - related party | 639,987 | 65,290 | ||||||
| Net Cash Provided By Financing Activities | 689,987 | 65,290 | ||||||
| Effect of foreign exchange fluctuations on cash | (21,609 | ) | - | |||||
| NET INCREASE (DECREASE) IN CASH | 4,243 | (399 | ) | |||||
| CASH - Beginning of Period | 726 | 529 | ||||||
| CASH - End of Period | $ | 4,969 | $ | 130 | ||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Preferred dividends declared and accrued, but not paid | $ | - | $ | 78,000 | ||||
| Value of common stock issued for services | $ | 160,000 | $ | - | ||||
| Common stock issued for warrants and options | $ | - | $ | 261 | ||||
| Common stock issued for accrued dividends | $ | - | 532,286 | |||||
| Common stock issued for accrued former officer’s salary | $ | - | 380,000 | |||||
| Waiver of accrued officer’s salaries | $ | - | 750,000 | |||||
| Waiver of accrued interest to officer | $ | - | 24,750 | |||||
| Issuance of preferred stock for debt | $ | - | 50,000 | |||||
See Accompanying Notes to Condensed Consolidated Unaudited Financial Statements
| F-4 |
SEANIEMAC INTERNATIONAL, LTD AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2013
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Seaniemac International, Ltd. and Subsidiaries (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on April 16, 2013.
On July 19, 2012, the Company’s Board of Directors adopted and the Company’s shareholders approved a reverse stock split of its outstanding common stock at a ratio of 1-for-994.488567392 shares. The reverse stock split was effective on October 3, 2012. All shares and results are reflected on a post-split basis.
The Company’s Board of Directors approved a change of its name to Seaniemac International, Ltd. effective August 16, 2013 in connection with its current business focus in the operation and expansion of its on-line gaming website Seaniemac.com. The name change was effected through the Company’s acquisition of a 70% interest in Seaniemac Limited in which the Company was the surviving entity as discussed below. In accordance with the Nevada Revised Statutes, 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 during the three month period ended June 30, 2013 from its on-line gaming website that operates in the Irish market.
3. 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 September 30, 2013, the Company had working capital and stockholders’ deficiencies of $2,034,749 and $2,030,433 respectively.
| F-5 |
SEANIEMAC INTERNATIONAL, LTD AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2013
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 recently 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.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. Significant Accounting Policies Applicable to Interim Financial Statements
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries which are inactive and its 70 percent owned subsidiary, Seaniemac. All inter-company balances and transactions have been eliminated in consolidation.
B. Subsequent Events
Management has evaluated subsequent events through the date of this filing.
C. 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.
D. 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.
E. 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. All other costs are included in selling, general and administrative expenses.
F. Advertising
All advertising costs are expensed as incurred. Advertising costs incurred for the production of a commercial are considered prepaid expenses until the commercial airs, at which time such costs are expensed.
G. Stock Based Compensation Arrangements
We have accounted for stock-based compensation arrangements in accordance with guidance provided by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”). 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.
| F-6 |
SEANIEMAC INTERNATIONAL, LTD AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2013
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
| (Unaudited) | ||||||||
| September 30, 2013 | December 31, 2012 | |||||||
| Cost of commercial production | $ | - | $ | 18,501 | ||||
| Cost of website development and hosting | 76,893 | 85,898 | ||||||
| Prepaid consulting services | 17,846 | - | ||||||
| Miscellaneous receivables | 12,494 | - | ||||||
| Total | $ | 107,233 | $ | 104,399 | ||||
Costs incurred to produce a commercial to market Seaniemac’s website were expensed when the website became operational and the commercial aired in May 2013. The prepaid costs related to website development and hosting are the upfront charges for set up, delivery and hosting beginning in May 2013. On April 10, 2013, the Company entered into a consulting agreement with Mirador Consulting LLC (“Mirador”) to provide certain financial related consulting services. The Company agreed to issue to Mirador 1,000,000 shares of the Company’s unregistered common stock valued at $160,000. These costs are being expensed on a straight line basis over the initial six month term of the agreement.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| (Unaudited) | ||||||||
| September 30, 2013 | December 31, 2012 | |||||||
| Accounts payable | $ | 984,892 | $ | 1,081,654 | ||||
| Accrued expenses and other current liabilities | 259,453 | 99,453 | ||||||
| Total | $ | 1,244,345 | $ | 1,181,107 | ||||
Accounts payable includes $28,063 owed to Barry M. Brookstein (“Brookstein”) at September 30, 2013 and December 31, 2012. Brookstein is the Company’s chief executive officer and chief financial officer. Accounts payable also includes consulting fees of $222,671 and $172,468 at September 30, 2013 and December 31, 2012, respectively, payable to Seaniemac’s non-controlling shareholders.
7. Short-Term and Demand Notes Payable
Short-term and demand notes payable consist of the following:
| (Unaudited) | ||||||||
| September 30, 2013 | December 31, 2012 | |||||||
| John Koehler | $ | 30,000 | $ | 30,000 | ||||
| Asher Enterprises Inc. | 54,208 | - | ||||||
| Total | $ | 84,208 | $ | 30,000 | ||||
On October 1, 2003, the predecessor to Execuserve Corp. (“Execuserve”) issued a $150,000 non-interest bearing promissory note to Koehler, an investor in the predecessor. Upon completion of the merger of Execuserve and the Company pursuant to an agreement and plan of merger dated as of February 5, 2010, the balance of the amount Execuserve owed Koehler was $37,000. Although the Company agreed to pay the balance in monthly installments of $1,000, the Company is in default as it has not made a payment since September 2010. The balance due to Koehler at both September 30, 2013 and December 31, 2012 totaled $30,000.
On June 18, 2013, the Company issued a $53,000 convertible promissory note to Asher Enterprises, Inc. (“Asher”). The note bears interest at 8% per annum and matures on March 20, 2014. Interest is payable upon the note’s maturity. Asher may at its option convert the note into shares of the Company’s common stock after 180 days of the date the note is signed through its maturity date. The conversion price is the greater of (i) the fixed conversion price of $0.00005 per share and (ii) variable conversion price. The variable conversion price is 58% of the average of the lowest three closing bid prices for the common stock during the 10 day trading days prior to the date of conversion. Accrued interest as of September 30, 2013 is $1,208. The Company incurred $3,000 in loan costs in connection with the promissory note. These costs were capitalized and are being amortized on a straight line basis over the term of the loan. Amortization of $1,000 and $1,167 was recorded in the three and nine month periods ended September 30, 2013.
| F-7 |
SEANIEMAC INTERNATIONAL, LTD AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2013
8. Notes and Loans Payable – Related Parties
Notes and loans payable consist of the following:
| (Unaudited) | ||||||||
| September 30, 2013 | December 31, 2012 | |||||||
| Loans payable - Brookstein (A) | $ | 14,202 | $ | 14,202 | ||||
| Loans payable - RDRD II Holding, LLC(B) | 804,196 | 156,148 | ||||||
| Total notes and loans payable | $ | 818,398 | $ | 170,350 | ||||
A. 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 September 30, 2013 and December 31, 2012, loans payable to Brookstein totaled $14,202.
B. Loans Payable – RDRD II Holding, LLC
During the nine months ended September 30, 2013, 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 $219,593 do not bear interest and are due on demand. The loans to Seaniemac aggregating $574,845 bear interest at 4% per annum. At September 30, 2013, loans payable were $794,438 and accrued interest totaled $9,758.
We have specified the following person and entity as related parties with ending balances as of September 30, 2013 and December 31, 2012:
RDRD, a substantial shareholder of the company and
Barry Brookstein, our Chief Executive Officer and Chief Financial Officer.
9. Commitments
A. Marketing Agreements
On March 13, 2012, Seaniemac entered into a marketing agreement with Jennigsbet Ltd (“JB”), an Isle of Man company. JB was to be responsible for developing and operating the Company’s gaming site. The Company was charged an initial set-up fee of GBP 35,000 that covered the first year of operations. Seaniemac paid a 50% up front deposit that was originally recorded as prepaid expense. Seaniemac determined that Boylesports Group (“Boylesports”), another third party white-label online gaming website provider, had a more robust website with a greater level of functionality and customer support. Accordingly, the Jenningsbet agreement was terminated. The GBP 17,500 (USD 22,502) prepaid by Seaniemac was expensed in 2013 upon termination of the agreement.
On January 13, 2013, Seaniemac entered into a three year White Label Services Agreement with Boyslesports. Boylesports will be paid 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.
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 issued Mirador one million shares of Company unregistered common stock valued at $160,000 or $0.16 per share on the date of the agreement. This amount is included in prepaid expenses and is being amortized over the six month term of the agreement.
| F-8 |
SEANIEMAC INTERNATIONAL, LTD AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2013
10. Income Taxes
The Company did not accrue income taxes for the nine months ending September 30, 2013 and 2012 as the Company incurred taxable losses. During the current and prior periods, the company did not record an income tax benefit for net deferred tax assets generated due to the uncertainty of their realization.
Net operating losses (“NOLs”) may be utilized under certain conditions as a deduction against future income to offset against future taxes. Internal Revenue Code (“IRC”) Section 382 and the regulations promulgated under IRC Section 382 limit the utilization of NOLs due to ownership changes. Since there was a change of control in October 2012, utilization of the Company’s NOLs will be subject to severe limitations in future periods, which has an effect of eliminating the future tax benefits of the NOLs. Accordingly, the Company has provided a valuation allowance against the total of the net deferred assets due to the uncertainty of future realization.
11. Capital Stock Transactions
On July 27, 2013, the Company issued 1,000,000 shares of its unregistered common stock to Mirador valued at $0.16 per share.
| F-9 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q 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 is set forth below, and these factors are discussed in greater detail under the “Risk Factors” section of our Annual Report on Form 10-K as filed with the SEC on April 16, 2013:
| ● | Our limited operating history, ability to achieve profitability and history of losses. |
| ● | Our ability to respond to changes in consumer preferences, the decline in the popularity of our proposed website and competition. |
| ● | Our dependence on a limited number of personnel and third parties who develop, operate and maintain our online gambling platform. |
| ● | Changes in government laws. |
| ● | Economic conditions, particularly in Ireland and the UK, that have an adverse effect on the gaming industry. |
| ● | Our need for significant additional capital to fund our business plan. |
| ● | The ability of our stockholders to sell their common stock may be limited because we are listed on the OTCQB Tier of the OTC Markets and do not meet the criteria to list our securities on an exchange such as The NASDAQ Stock Market. |
| ● | The affects on our stock price as a result of sales of our common stock by existing shareholders pursuant to Rule 144. |
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.
Our History
We were incorporated in Nevada on November 17, 2003 under the name GSA Publications, Inc. In conjunction with a reorganization in February 2006, we changed our name to our current name, Compliance Systems Corporation.
In February 2010, we merged with 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 May 2008 through July 2010, we raised capital through the sale to Agile Opportunity Fund, LLC of secured convertible debentures. Subsequent thereto, we breached certain on the terms of such debentures in December 2010 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 began seeking to acquire or merge with an operating entity.
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On September 11, 2012, we filed with the SEC a definitive Information Statement on Schedule 14C in which we reported that our Board of Directors and the requisite number of our stockholders have authorized a 1 for 994.488567392 reverse split (the “Reverse Split”) of our common stock and a corresponding amendment to our Articles of Incorporation. The Reverse Split was necessary in order to effectuate the Acquisition as contemplated in the Exchange Agreement. In accordance with the definitive Information Statement, we filed an amendment to our Articles of Incorporation and the reverse split was declared effective on October 3, 2012. The effect of the Reverse Split is to decrease the number of our shares of Common Stock issued and outstanding from 1,441,770,097 pre-Reverse Split shares to approximately 1,449,760 post-Reverse Split shares.
Seaniemac Acquisition
On October 30, 2012, we acquired a 70% equity ownership interest (the “Seaniemac Equity Interest”) in Seaniemac Limited, an Ireland corporation (“Seaniemac”) from RDRD, an affiliate. Seaniemac is in the business of operating a sports gaming website. In connection with this acquisition, we issue to RDRD 29,719,952 shares of our unregistered common stock which, following such issuance, was approximately 71% of our then outstanding shares of Common Stock.
Our Current Business
In May 2013, Seaniemac launched its gambling website that includes sports betting and casino gaming in Ireland under the brand name Seaniemac.com. The website is focused on Irish horse racing and soccer and 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 our gaming website. Since the launch of our gaming website, we have implemented multiple business development initiatives in Ireland. We have aired nationwide television commercials, implemented Pay-Per-Click web and mobile advertising campaigns, established affiliate relationships with betting blogs and other feeder websites and run traditional print and billboard advertising. We plan to continue to spend marketing dollars on these initiatives in the coming months. As we are in the early stages of our business development, we plan to continually evaluate the returns on our marketing programs. Once we have identified the most effective and lowest “cost per acquisition” programs, we believe we can scale our business rapidly by focusing our efforts on these programs and marketing strategies. We plan to continue to focus our efforts in Ireland and the United Kingdom where we have been developing our brand.
We have launched our online gaming platform (including operational sportsbook), mobile website on our Seaniemac.com website as well as an iOS and Android application. In July, 2013, we added casino games and slots to our online gaming website and an iOS mobile platform and plan to see a contribution from those programs in the third quarter.
Since the launch of our website in May 2013 through September 30, 2013, we have had over 4,500 new accounts opened and have processed over 27,746 bets by our customers.
How We Measure Our Business
With the launch of our gaming website during the quarter ended June 30, 2013, we plan to measure our business with several financial metrics. We will 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. generally accepted accounting principles (“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.
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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 GAAP financial measures to allocate resources and evaluate performance internally.
Our Outlook
We plan to continue to grow our business by strategically deploying our marketing resources and expanding the number of new sponsorship programs that will provide nationwide exposure of our brand. We exceeded our internal goal of tripling the amount of betting activities in the third quarter of 2013 versus the second quarter of 2013. We achieved approximate amounts staked of $1,230,019 during the three months ended September 30, 2013 compared to approximately $206,254 during the three months ended June 30, 2013, a 573% increase. We believe that we can continue to achieve this growth though the continuation of our marketing programs and a meaningful contribution from our affiliates. Also, with our focused branding and advertising campaign we should also benefit from the start of the soccer season in August which runs through the balance of 2013.
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. We believe we will achieve sufficient revenue to cover our non-marketing fixed expenses by the end of 2013. 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.
Our Results of Operations
As discussed above, Seaniemac was acquired as of October 30, 2012 and, in accordance with the Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) 805-10, the transaction is being accounted for as an asset acquisition. The following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.
The results discussed below are for the three and nine months ended September 30, 2013 and 2012. For comparative purposes, we are comparing the three and nine months ended September 30, 2013 to the three and nine months ended September 30, 2012.
Gross Gaming Revenue
Gross Gaming Revenue during the three month and nine month periods ended September 30, 2013 increased $72,948 and $99,352, respectively compared to the same period in 2012 as a result of revenues from our on-line gaming website that began to operate in May 2013. During the nine months ended September 30, 2013, Amounts Staked, a non-GAAP financial measure, was approximately $1,436,273 and gross gaming revenue as a percentage of amounts staked was 8.3%. There are no comparable amounts for these items in same period in 2012 as we launched our on-line gaming website in May 2013.
Promotional Allowances
Promotional Allowances totaled $37,238 and $54,272, respectively during the three month and nine month periods ended September 30, 2013 and were the result of customer promotions and bonuses, including free bets for customers, used to generate revenues from our on-line gaming website that began to operate in May 2013. Promotional Allowances as a percentage of gross gaming revenue was 51.0% and 54.6%, respectively during the three month and nine month periods ended September 30, 2013. As we began to operate our website in May 2013, the promotional allowance in the same periods in 2012 were $0.
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Operating Expenses
Operating expenses during the three month period ended September 30, 2013 increased $402,447 compared to the same period of fiscal 2012. Operating expenses during the nine month period ended September 30, 2013 increased $638,955 compared to the same period of fiscal 2012. These increases are primarily attributable to advertising, promotional and operational expenses related to our gaming website, corporate financial related consulting services and our increased legal and administrative expenses and costs of compliance with U.S. Federal securities laws.
Loss from Continuing Operations
Our loss from continuing operations during the three month period ended September 30, 2013 was $407,647 compared to net income of $199,400 in the same period of fiscal 2012 and during the nine months ended September 30, 2013 a loss of $892,493 compared to a loss of $92,379 in the same period of fiscal 2012. The increases in losses are primarily attributable to increases in our operating expenses and interest expense, partially offset by an increase in net gaming revenues discussed above, a gain on the forgiveness of debt and a reversal of payroll taxes.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with U.S. GAAP, we have provided the following non-GAAP financial measures: 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. 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 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 September 30, 2013 of $112,202, including cash of $4,969 and prepaid expenses and other current assets of $107,233. We are reliant upon shareholder loans to fund operations and to a lesser extent on revenues from our operations. We have not yet recognized positive operating cash flow. As a result, our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures.
Net cash used in operating activities was $661,593 during the nine months ended September 30, 2013 compared to $65,689 in the same period in 2012. The increase in cash used in operating activities is primarily attributable to an increase in our net loss and partially offset by an increase in stock-based compensation and a reduction in accrued officers’ compensation.
Net cash provided by financing activities during the nine months ended September 30, 2013 was $689,987 compared to $65,290 in the same period in 2012. The increase was primarily as a result of loans we received from RDRD and a third party to fund our working capital needs partially offset by payment of loan costs.
Our continued operations and expansion are dependent upon our ability to obtain additional working capital. Although RDRD, a major shareholder of our company may continue to lend us funds for our working capital needs, we have not entered into any agreements with RDRD 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 delay or indefinite postponement of our operations which represent our sole business which would materially adversely affect our business, results of operations and financial condition and threaten our financial viability.
Going Concern
Our 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. Our continued losses and negative operating cash flows raise substantial doubt about our ability to continue as a going concern.
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Our primary need for cash during the next twelve months is to fund our operating costs. At September 30, 2013, we had continued losses from operations since inception, and had both stockholders’ and working capital deficiencies of $2,030,433 and $2,034,749respectively. 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. Seaniemac’s on-line gaming website that is targeted towards the Irish market began operations in May 2013 and has only had minimal revenues since its launch. Based on these factors, our auditors included a “going concern” qualification in their auditors’ report for the year ended December 31, 2012. Such “going concern” qualification may make it more difficult for us to raise funds when needed. The current economic environment is impacting our ability to obtain any needed financing. No assurance can be given that financing will be available when needed or, if available, such financing will be on terms beneficial to us.
Related Party Transactions
We have specified the following person and entity as related parties with ending balances as of September 30, 2013 and December 31, 2012:
RDRD II Holding LLC, a Delaware limited liability company (“RDRD”), a substantial shareholder of the company.
Barry Brookstein, our Chief Executive Officer and Chief Financial Officer.
At various times, Brookstein loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At September 30, 2013 and December 31, 2012, loans payable to Brookstein totaled $14,202.
At September 30, 2013, the Company owed RDRD $804,196 reflecting $794,438 of principal and $9,758 of accrued interest and at December 31, 2012 the loan payable to RDRD was $156,148.
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 generally accepted accounting principles in the United States (“GAAP”). Our significant accounting policies are summarized in Note 2 to our annual consolidated financial statements. While all of these significant accounting policies impact our financial condition and results of 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 generally accepted accounting principles 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.
Stock Based Compensation Arrangements
We have accounted for stock-based compensation arrangements in accordance with guidance provided by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”). 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.
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Income Taxes
We have accounted for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 740 “Income Tax”. 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.
We have adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
This item is not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, who is also our Chief Financial Officer, CFO, to allow timely decisions regarding required disclosure. Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2013. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2013.
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Changes in Internal Control
There were no changes identified in connection with our internal control over financial reporting during the nine months ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Pursuant to the terms of a Consulting Agreement with Mirador Consulting, LLC (“Mirador”), on July 27, 2013 the Company issued to Mirador 1,000,000 shares of its unregistered common stock in exchange for certain financial related consulting services. The issuance of such shares was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
The following exhibits are being filed as part of this Quarterly Report on Form 10-Q.
Exhibit Number | Description | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certification of Barry M. Brookstein. | |
| 32.1* | Section 1350 Certification of Barry M. Brookstein. | |
| 101.INS** | XBRL Instance Document | |
| 101.SCH** | XBRL Taxonomy Extension Schema | |
| 101.CAL** | XBRL Taxonomy Extension Calculation | |
| 101.DEF** | XBRL Taxonomy Extension Definition | |
| 101.LAB** | XBRL Taxonomy Extension Labels | |
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase |
| * | Filed Herewith | |
| ** | XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 19, 2013 | Seaniemac International, Ltd. | |
| By: | /s/ Barry M. Brookstein | |
Barry M. Brookstein, | ||
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