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 March 31, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-54007
Seaniemac International, Ltd.
(Exact name of registrant as specified in its charter)
| Nevada | 20-4292198 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 780 New York Avenue, Suite A, Huntington, New York | 11743 | |
| (Address of principal executive offices) | (Zip Code) |
(386) 409-0200
(Registrant’s telephone number, including area code)
N/A
(Former Name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ] (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of January 28 2016, there are 673,842,729 shares of common stock, $0.001 par value, outstanding.
INDEX
| - 2 - |
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission on October 10, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
| - 3 - |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2015 | December 31, 2014 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 417 | $ | 446 | ||||
| Receivable - related parties | - | 1,825 | ||||||
| Prepaid expenses and other current assets | 20,863 | 76,473 | ||||||
| Total Current Assets | 21,280 | 78,744 | ||||||
| Equipment, net | 1,138 | 1,446 | ||||||
| Deferred loan costs, net | 7,694 | 14,282 | ||||||
| Total Assets | $ | 30,112 | $ | 94,472 | ||||
| LIABILITIES AND DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Convertible promissory notes, net | $ | 360,339 | $ | 421,865 | ||||
| Notes payable | 30,000 | 66,530 | ||||||
| Accounts payable and accrued expenses | 2,018,927 | 2,055,869 | ||||||
| Loans payable -related parties | 1,016,444 | 1,062,380 | ||||||
| Convertible loans payable -related parties, net | 78,340 | 110,862 | ||||||
| Accrued officer’s compensation | 97,500 | 90,000 | ||||||
| Debt derivative liabilities | 825,771 | 1,282,532 | ||||||
| Warrant derivative liabilities | 536,140 | 545,837 | ||||||
| Total Current Liabilities | 4,963,461 | 5,635,875 | ||||||
| Commitments and Contingencies | ||||||||
| 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 | 100 | 100 | ||||||
| Common stock, $0.001 par value; 2,000,000,000 shares authorized, 639,842,729 and 74,721,445 shares issued and outstanding, as of March 31, 2015 and December 31, 2014, respectively | 639,842 | 74,721 | ||||||
| Common stock issuable, $0.001 par value; 15,000,000 and 0 shares as of March 31, 2015 and December 31, 2014, respectively | 15,000 | - | ||||||
| Additional paid-in capital | 390,324 | 1,890 | ||||||
| Subscription receivable | (131 | ) | (131 | ) | ||||
| Accumulated other comprehensive income (loss) | 196,506 | 49,642 | ||||||
| Accumulated deficit | (5,605,323 | ) | (5,124,752 | ) | ||||
| Total Seaniemac International, Ltd. Stockholders’ Deficit | (4,358,309 | ) | (4,993,157 | ) | ||||
| Non-controlling interest | (575,040 | ) | (548,246 | ) | ||||
| Total Deficit | $ | (4,933,349 | ) | $ | (5,541,403 | ) | ||
| Total Liabilities and Deficit | $ | 30,112 | $ | 94,472 | ||||
See the accompanying notes to unaudited condensed consolidated financial statements.
| F-1 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Gross gaming revenue | $ | 107,119 | $ | 96,913 | ||||
| Promotional allowances | 74,223 | 61,166 | ||||||
| Net gaming revenue | 32,896 | 35,747 | ||||||
| Operating Expenses | ||||||||
| Selling, general and administrative expenses | 309,451 | 575,837 | ||||||
| Total Operating Expenses | 309,451 | 575,837 | ||||||
| Operating Loss | (276,555 | ) | (540,090 | ) | ||||
| Other Income / (Expense) | ||||||||
| Change in fair value of embedded derivative liability | 352,167 | (45,726 | ) | |||||
| Loss on debt modification | (371,824 | ) | - | |||||
| Interest expense (including amortization of loan costs) | (214,590 | ) | (71,161 | ) | ||||
| Realized foreign exchange loss | 3,437 | 247 | ||||||
| Total Other Income / (Expense) | (230,810 | ) | (116,640 | ) | ||||
| Net Loss | $ | (507,365 | ) | $ | (656,730 | ) | ||
| Loss Attributable to Non-controlling Interest | $ | 26,794 | $ | 82,047 | ||||
| Net Loss Attributable to Common Shareholders | $ | (480,571 | ) | $ | (574,683 | ) | ||
| Net Loss Per Share - Basic and Diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Weighted average number of shares outstanding during the period ended Basic and Diluted | 292,583,821 | 42,378,123 | ||||||
See the accompanying notes to unaudited condensed consolidated financial statements.
| F-2 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Consolidated net loss | $ | (507,365 | ) | $ | (656,730 | ) | ||
| Other comprehensive loss, net of tax: | ||||||||
| Foreign currency translation income (loss) | 146,864 | (283 | ) | |||||
| Comprehensive loss | (360,501 | ) | (657,013 | ) | ||||
| Comprehensive loss attributable to non-controlling interest | (26,794 | ) | (82,047 | ) | ||||
| Comprehensive loss attributable to common shareholders | $ | (333,707 | ) | $ | (574,966 | ) | ||
See the accompanying notes to unaudited condensed consolidated financial statements.
| F-3 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss, including of non-controlling interest | $ | (507,365 | ) | $ | (656,730 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation | 308 | 192 | ||||||
| Interest/penalty accrued and not paid or imputed | - | 16,583 | ||||||
| Share based payment | 43,500 | 80,806 | ||||||
| Non-cash interest | - | 34,741 | ||||||
| Change in fair value of derivative liability | (342,470 | ) | 45,726 | |||||
| Change in fair value of warrant derivative liability | (9,697 | ) | - | |||||
| Amortization of debt discount and OID attributable to convertible debt | 170,649 | 17,104 | ||||||
| Amortization of deferred loan costs | 6,588 | 2,739 | ||||||
| Imputed interest | 7,215 | - | ||||||
| Loss on debt modification | 371,824 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 57,435 | (3,179 | ) | |||||
| Accounts payable and accrued expenses | 12,356 | 324,559 | ||||||
| Accrued officer’s compensation | 7,500 | 7,500 | ||||||
| Total adjustments | 325,208 | 526,771 | ||||||
| Net Cash Used In Operating Activities | (182,157 | ) | (129,959 | ) | ||||
| Cash Flows From Investing Activities: | - | - | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of convertible notes | - | 75,000 | ||||||
| Proceeds from issuance of common stock | - | 30,000 | ||||||
| Proceeds from loans - related parties | 35,264 | 29,275 | ||||||
| Net Cash Provided by Financing Activities | 35,264 | 134,275 | ||||||
| Effect of foreign exchange fluctuations on cash | 146,864 | (2,018 | ) | |||||
| Net Decrease in Cash | (29 | ) | 2,298 | |||||
| Cash at Beginning of Period | 446 | 6,742 | ||||||
| Cash at End of Period | $ | 417 | $ | 9,040 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash paid for taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Shares issued in conversion of convertible debt and accrued interest | $ | 431,727 | $ | - | ||||
| Derivative liability reclass to equity | $ | 486,113 | $ | - | ||||
| Accounts payable reclassed into convertible loan | $ | 35,814 | $ | - | ||||
| Short term demand notes payable reclassed into convertible loan | $ | 36,530 | $ | - | ||||
| Loans payable, reclassed into convertible loan - related party | $ | 81,200 | $ | - | ||||
| Common stock issued in settlement of payables | $ | - | $ | 504 | ||||
| Common stock issued for prepaid consulting services | $ | - | $ | 35,750 | ||||
See the accompanying notes to unaudited condensed consolidated financial statements.
| F-4 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on December 31. 2015.
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. 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 March 31, 2015, the Company had working capital deficiencies and deficit of $4,942,181 and $4,933,349, respectively.
| F-5 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries including Call Compliance, Inc., Telephone Blocking Services Corporation, Call Compliance.com, Inc., Jasmine Communications, Inc., Call Center Tools, Inc., Execuserve Corp. which are inactive 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.
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.
| F-6 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
Significant Customers
During the three months ended March 31, 2015, the Company had one customer which accounted for more than 10% of the Company’s revenues (10.4%).
During the three months ended March 31, 2014 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 | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liability – March 31, 2015 | $ | 825,771 | $ | — | $ | — | $ | 825,771 | ||||||||
| Derivative liability – December 31, 2014 | $ | 1,282,532 | $ | — | $ | — | $ | 1,282,532 | ||||||||
| F-7 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
The following table represents the Company’s derivative liability activity for the year ended:
| Balance at December 31, 2014 | $ | 1,282,532 | ||
| Loss on debt modification | 371,822 | |||
| Reclassification of derivative liability associated with convertible debt | (486,113 | ) | ||
| Change in derivative liability during the three months ended March 31, 2015 | (342,470 | ) | ||
| Balance March 31, 2015 | $ | 825,771 |
Warrant derivative liability:
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Warrant liability – March 31, 2015 | $ | 536,140 | $ | — | $ | — | $ | 536,140 | ||||||||
| Warrant liability – December 31, 2014 | $ | 545,837 | $ | — | $ | — | $ | 545,837 | ||||||||
The following table represents the Company’s warrant liability activity for the three months ended March 31, 2015:
| Balance at December 31, 2014 | $ | 545,837 | ||
| Change in derivative liability during the three months ended March 31, 2015 | (9,697 | ) | ||
| Balance March 31, 2015 | $ | 536,140 |
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 three months ended March 31, 2015 and 2014, 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.
| F-8 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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).
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 March 31, 2015 and December 31, 2014. The respective carrying value of certain on-balance-sheet financial instruments, approximate their fair values. These financial instruments include cash, accounts payable, accrued expenses and notes payable. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
The Company uses fair value measurements under the three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure for fair value measures. The three levels are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes (net of discount) – March 31, 2015 | $ | 360,339 | $ | - | $ | - | $ | 360,339 | ||||||||
| Convertible notes (net of discount) – December 31, 2014 | $ | 421,865 | $ | - | $ | - | $ | 421,865 | ||||||||
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 March 31, 2015:
| Balance at December 31, 2014 | $ | 421,865 | ||
| Accounts payable and short term demand notes payable reclassed into convertible notes | 72,344 | |||
| Amortized debt discount | 80,000 | |||
| Conversion of notes | (213,870 | ) | ||
| Balance at March 31, 2015 | $ | 360,339 |
| F-9 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
Convertible Loan Payable- Related party
| Carrying | Fair Value Measurements Using Fair Value Hierarchy | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes (net of discount) Related party –March 31, 2015 | $ | 78,340 | $ | - | $ | - | $ | 78,340 | ||||||||
| Convertible notes (net of discount) Related party – December 31, 2014 | $ | 110,862 | $ | - | $ | - | $ | 110,862 | ||||||||
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 March 31, 2015:
| Balance at December 31, 2014 | $ | 110,862 | ||
| Issuance of notes – net | ||||
| Reclass from loan payable into convertible loan payable | 81,200 | |||
| Amortized debt discount | 90,649 | |||
| Conversion of notes | (204,371 | ) | ||
| Balance at March 31, 2015 | $ | 78,340 |
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 March 31, 2015 and December 31, 2014.
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.
| F-10 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 March 31, 2015 and December 31, 2014, 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 three months ended March 31, 2015 and 2014. 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.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.
| F-11 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.
ASU 2014-15
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.
ASU 2014-12
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718):Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
ASU 2014-09
In May 2014, the FASB has issued ASU No. 2014-09,Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.
The Company has evaluated recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC and we have not identified any that would have a material impact on the Company’s financial position, or statements.
| F-12 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Cost of website development and hosting | $ | 19,863 | $ | 47,760 | ||||
| Prepaid consulting services | - | 27,713 | ||||||
| Deposits | 1,000 | 1,000 | ||||||
| Total | $ | 20,863 | $ | 76,473 | ||||
Amortization of website development and hosting totaled $27,897 and $7,451 for the three months ended March 31, 2015 and 2014, respectively. The prepaid costs related to website development and hosting are the upfront charges for set up, delivery and hosting of Seaniemac branded gaming website; amortization of these costs began in May 2013 and will be amortized over three years.
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 $9,531 and $1,906 was recorded for the three months ended March 31, 2015 and 2014, respectively.
7. Equipment, Net
Equipment consists of the following:
| Estimated Useful Life | March 31, 2015 | December 31, 2014 | ||||||||
| (Unaudited) | ||||||||||
| Computer equipment | 5 years | $ | 2,588 | $ | 2,588 | |||||
| Accumulated depreciation | (1,450 | ) | (1,142 | ) | ||||||
| Equipment, net | $ | 1,138 | $ | 1,446 | ||||||
Depreciation expense for equipment was $308 and $192 for the years ended March 31, 2015 and 2014, respectively.
| F-13 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
8. Deferred Loan Costs, Net
Deferred loan costs, net consists of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Deferred loan costs | $ | 14,282 | $ | 37,225 | ||||
| Accumulated amortization | (6,588 | ) | (22,943 | ) | ||||
| Deferred loan costs, net | $ | 7,694 | $ | 14,282 | ||||
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 $2,739 and $2,739 during the three months ended March 31, 2015 and 2014, 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 $1,450 during the three months ended March 31, 2015.
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 $1,308 during the three months ended March 31, 2015.
On July 14, 2014, the Company incurred deferred loan costs of $1,750 in connection with the issuance of an 8% convertible note to LG Capital. These deferred loan costs are being amortized over the 1 year term of the note. Amortization of deferred loan costs totaled $146 during the three months ended March 31, 2015.
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 $945 during the three months ended March 31, 2015.
9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Accounts payable | $ | 1,814,389 | $ | 1,843,217 | ||||
| Accrued expenses and other current liabilities | 204,537 | 212,652 | ||||||
| Total | $ | 2,018,927 | $ | 2,055,869 | ||||
Accounts payable includes $28,063 owed to Barry M. Brookstein (“Brookstein”) at March 31, 2015 and December 31, 2014. 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 non-controlling shareholders at March 31, 2015 and December 31, 2014, respectively and $67,348 and $17,767 is payable to GE Park, LLC at March 31, 2015 and December 31, 2014, respectively.
| F-14 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
Consulting fees expenses incurred for non-controlling shareholders were $49,050 and $56,867 for the three months ended March 31, 2015 and 2014, respectively. $0 and $50,000 for GE Park, LLC during the three months ended March 31, 2014 and 2013, respectively.
Accrued expenses include related party accrued interest of $35,848 and $43,630 as of March 31, 2015 and December 31, 2014, respectively.
10. Accrued Officer’s Compensation
The Company accrued compensation for Brookstein in the amount of $7,500 during the three months ended March 31, 2015 and 2014, the unpaid balance was $97,500 and $90,000 as of March 31, 2015 and December 31, 2014, respectively.
11. Notes Payable
Notes payable consist of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Notes payable -Summit Trading Ltd. | $ | - | $ | 36,530 | ||||
| Notes payable - John Koehler | 30,000 | 30,000 | ||||||
| Total | $ | 30,000 | $ | 66,530 | ||||
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 March 31, 2015 and December 31, 2014 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 $524 for the three months ended March 31, 2015.
On February 27, 2015, the terms of the Summit demand notes were modified. The $36,530 became convertible notes that are convertible at 60% of the lowest trading price utilizing a three day lookback period (see Note 13).
12. Loans Payable – Related Parties
Loans payable to related parties consist of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Loan payable - GE Park, LLC (A) | $ | 114,374 | $ | 166,200 | ||||
| Loans payable - Brookstein (B) | 15,702 | 15,702 | ||||||
| Loans payable - RDRD II Holding, LLC (C) | 886,368 | 880,478 | ||||||
| Total | $ | 1,016,444 | $ | 1,062,380 | ||||
| F-15 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
Convertible loans payable to related parties consist of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Convertible loan payable - GE Park, LLC (A) | $ | - | $ | 95,000 | ||||
| Convertible loan payable - GE Park, LLC (A) | 79,750 | 79,750 | ||||||
| Unamortized debt discount | (1,410 | ) | (63,888 | ) | ||||
| Total | $ | 78,340 | $ | 110,862 | ||||
The Company has specified the following person and entities as related parties with ending balances as of March 31, 2015 and December 31, 2014:
RDRD, a shareholder of the Company, Barry Brookstein, our Chief Executive Officer and Chief Financial Officer and GE Park, LLC an affiliate of the non-controlling interest holder in Seaniemac minority shareholder.
A. Loan Payable – GE Park, LLC
During the year ended December 31, 2014, GE Park, LLC loaned the Company $166,200 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand.
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10 day lookback period (see Note-13). The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the three months ended March 31, 2015. The note was fully converted into 79,193,262 shares during the three months ended March 31, 2015 (See Note 13).
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 (see Note-13). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the three months ended March 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the three months ended March 31, 2015 (See Note 13).
During the three months ended March 31 2015, the GE Park accounts payable balance amounted to $17,374 was re classed into as “loan payable”.
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp (See Note 13).
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.
| F-16 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
On October 22, 2013, the Company determined the aggregate fair value of $187,188 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.85%, (3) weighted average risk-free interest rate of 0.02, (4) expected life of 0.25 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
During the three months ended March 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock (See Note 13). The determined fair value of the debt derivatives of $139,813 was reclassed into equity during the period ended March 31, 2015.
In addition, the Company issued GE Park a convertible note in the amount of $79,750 on November 25, 2014. The cash purchase price of $72,500 (which amount is net of the pro-rata portion of original issue discount of $7,250) was received by the Company on the issuance date.
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on May 25, 2015. The note is convertible into common stock, at a 50% discount to the lowest trading prices of the common stock during the 20 trading day period prior to conversion. On March 3, 2015, the GE Park conversion terms of the GE Park convertible note dated November 25, 2014 for $79,750 were modified to 50% of the lowest traded price utilizing a 10 day lookback. A loss a $38,052 resulted from this modification.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On October 25, 2014, the Company determined the aggregate fair value of $139,421 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 280.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share. The determined fair value of the debt derivatives of $72,500 as charged as a debt discount up to the net proceeds of the note with the remainder of $66,921 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 was $63,888 and was accounted for as interest expense.
Interest expense for the three months ended March 31, 2015 and 2014 totaled $1,653 and $950, respectively. Accrued interest at March 31, 2015 and December 31, 2014 totaled $8,492 and $8,799, 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 March 31, 2015 and 2014, loans payable to Brookstein totaled $15,702 for both.
C. Loans Payable – RDRD II Holding, LLC
RDRD II Holding, LLC, a Delaware limited liability company and substantial shareholder of the Company (“RDRD”) loaned monies to the Company and its subsidiary, Seaniemac, for working capital purposes. The loans to the Company aggregating $370,067 do not bear interest and are due on demand. The loans to Seaniemac aggregating $516,498 bear interest at 4% per annum. At March 31, 2015 and December 31, 2014, loans payable were $886,368 and $880,748, respectively, and accrued interest totaled $35,848 and $34,831, respectively.
| F-17 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
The Company imputed interest of $7,215 and $5,174 amount loaned to the Company by RDRD during the three months ended March 31, 2015 and 2014, respectively, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $12,344 and $12,089 for the three month ended March 31, 2015 and 2014 respectively.
13. Convertible Promissory Notes, Net
Convertible promissory notes consists of the following:
| March 31, 2015 | December 31, 2014 | |||||||
| (Unaudited) | ||||||||
| Iliac Note (1): | ||||||||
| Secured convertible promissory note - Iliad | $ | 380,000 | $ | 330,000 | ||||
| Total | 380,000 | 330,000 | ||||||
| Less: | ||||||||
| OID of $20,000, net of amortization of $20,000 and $11,310 as of March 31, 2015 and December 31, 2014. Respectively | - | (8,690 | ) | |||||
| Conversions into 99,520,802 shares of common stock | (100,062 | ) | - | |||||
| Loan discount of $202,500, net of amortization of $137,552 and $82,645 as of March 31. 2015 and December 31, 2014, respectively | (64,948 | ) | (119,855 | ) | ||||
| Secured convertible promissory note - Iliad | $ | 214,990 | $ | 251,455 | ||||
| Redwood Note (2): | ||||||||
| Secured convertible promissory note - Redwood | $ | 75,000 | $ | 75,000 | ||||
| Total | 75,000 | 75,000 | ||||||
| Less: | ||||||||
| Conversion into 44,988,900 shares of common stock | (43,738 | ) | - | |||||
| Assignment to Apollo Capital Corporation | (31,262 | ) | - | |||||
| - | - | |||||||
| Total | - | 75,000 | ||||||
| Loan discount of $75,000, net of amortization of $75,000 and $0 as of March 31, 2015 and December 31, 2014, respectively | - | - | ||||||
| Secured convertible promissory note — Redwood (note in default) | $ | - | $ | 75,000 | ||||
| LG Capital Funding, LLC (3): | ||||||||
| 10% convertible redeemable note - LG Capital | $ | 40,000 | $ | 40,000 | ||||
| Total | 40,000 | 40,000 | ||||||
| Loan discount of $40,000. net of amortization of $40,000 and $30,027 as of March 31, 2015 and December 31, 2014 respectively | - | (9,973 | ) | |||||
| 10% convertible redeemable note - LG Capital | $ | 40,000 | $ | 30,027 | ||||
| 8% convertible redeemable note - LG Capital | $ | 36,750 | $ | 36,750 | ||||
| Total | 36,750 | 36,750 | ||||||
| Loan discount of $36,750, net of amortization of $36,750 and $17,116 as of March 31, 2015 and December 31, 2014. respectively | - | (19,634 | ) | |||||
| Conversion into 51,032,166 shares of stock | (36,750 | ) | - | |||||
| 8% convertible redeemable note - LG Capital | $ | - | $ | 17,116 | ||||
| WHC Capital. LLC (4): | ||||||||
| 10% convertible redeemable note - WHC Capital | $ | 32,000 | $ | 32,000 | ||||
| - | - | |||||||
| Total | 32,000 | 32,000 | ||||||
| Loan discount of $32,000, net of amortization of $23,759 and $0 as of March 31, 2015 and December 31, 2014, respectively | - | (8,241 | ) | |||||
| Conversion into 37,034,976 shares of stock | (32,000 | ) | - | |||||
| 10% convertible redeemable note - WHC Capital | $ | - | $ | 23,759 | ||||
| Summit Trading Ltd. (5): | ||||||||
| 10% convertible redeemable note - Summit | $ | 59,835 | $ | 59,835 | ||||
| Total | 59,835 | 59,835 | ||||||
| Loan discount of $56,804. net of amortization of $35,484 and $21,478 as of March 31, 2015 and December 31, 2014. respectively | (21,321 | ) | (35,327 | ) | ||||
| Conversion of demand note into a convertible note | 36,530 | - | ||||||
| Conversion of accounts payable into a convertible note | 35,814 | - | ||||||
| Transfer to Apollo Capital Corp | (59,335 | ) | - | |||||
| Conversion into 11,260,256 shares of common stock | (8,500 | ) | - | |||||
| 10% convertible redeemable note - Summit | $ | 42,523 | $ | 24,508 | ||||
| Apollo Capital Corp (6) | ||||||||
| Notes purchased from GE Park, LLC | 176,200 | - | ||||||
| Notes purchased from Summit | 62,827 | - | ||||||
| Notes purchased from Redwood | 31,262 | - | ||||||
| Conversion into 321,234,184 shares of common stock | (207,463 | ) | - | |||||
| 10% convertible redeemable aote - Apollo Capital Group | $ | 62,826 | $ | - | ||||
| Convertible promissory notes and accrued interest, net | $ | 360,339 | $ | 421,365 | ||||
| F-18 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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. For the three months ended March 31, 2015, the Company converted $108,752 of principal and accrued interest into 99,520,802 shares of common stock. As of March 31, 2015, the outstanding loan balance on this including forbearance liability was $279,938.
The Company has identified the embedded derivatives related to the above described debenture. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
| F-19 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 three Months ended March 31, 2015 was $54,907 and $3,465, respectively, and was accounted for as interest expense.
For the three months ended March 31, 2015, the Company converted $108,752 of principal and accrued interest into 99,520,802 shares of common stock.
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.
For the three months ended March 31, 2015, the Company converted $43,738 of principal and accrued interest into 44,988,900 shares of common stock.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp. A loss of $26,577 resulted from the debt modification. Subsequently, during the three months ended March 31, 2015 the Company converted $31,262 of principal into 72,091,670 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was reclassed into equity during the period ended March 31, 2015.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 and 2014 was $-0- and $11,413, respectively, which was accounted for as interest expense.
3. LG Capital Funding, LLC Notes
On April 1, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC. (“LG Capital”), for the sale of a 10% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on April 1, 2014. The total net proceeds the Company received from this Offering was $40,000.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on April 1, 2015, further as of date this was not repaid hence the note was in default. The debenture is convertible into common stock, at LG Capital’s option, at a 58% discount to the average two lowest trading prices of the common stock during the 20 trading day period prior to conversion.
| F-20 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 three months ended March 31, 2015 and 2014, was $29,607 and $0, respectively, accounted for as interest expense.
For the three months ended March 31, 2015, the Company converted the note issued on July 14, 2014 for $36,750 of principal into 51,082,166 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $66,758 was reclassed into equity during the period ended March 31, 2015.
4. WHC Capital, LLC
On April 4, 2014, the Company entered into a Securities Purchase Agreement with WHC Capital, LLC. (“WHC Capital”), for the sale of a 12%convertible note in the principal amount of $32,000 (the “Note”). The financing closed on April 4, 2014. The total net proceeds the Company received from this Offering was $32,000.
The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on April 4, 2015. The debenture is convertible into common stock, at WHC Capital’s option, at a 58% discount to the lowest trading price of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the WHC Capital note, the Company determined the aggregate fair value of $56,273 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.08%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.06 per share. The determined fair value of the debt derivatives of $56,273 was charged as a debt discount up to the net proceeds of the note with the remainder of $24,273 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 and 2014 was $9,529 and $0, accounted for as interest expense.
| F-21 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
For the three months ended March 31, 2015, the Company converted $35,211 of principal and accrued interest into 37,034,976 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $38,937 was reclassed into equity during the period ended March 31, 2015.
5. Summit Trading Ltd.
.In addition, the terms of Summit’s convertible note in the amount of $59,835 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
On 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 three month ended March 31, 2015 and 2014 was $14,006 and $ 0, respectively, accounted for as interest expense.
On January 2, 2015 and January 5, 2015, the Company issued demand notes to Summit in the amounts of $13,844 and $21,970, respectively. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand.
As mentioned above in Note 11, 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 $524 for the three months ended March 31, 2015.
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. A loss of $79,038 resulted from the debt modification.
For the three months ended March 31, 2015, the Company converted $8,500 of principal into 11,260,256 shares of common stock and the remaining balance is $63,844.
6. Apollo Capital Corp
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp (See Note 12). During the three months ended March 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $139,813 was re classed into equity during the period ended March 31, 2015.
| F-22 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10 day lookback period (see Note-12). The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the three months ended March 31, 2015. The note was fully converted into 79,193,262 shares during the three months ended March 31, 2015 (See Note 12). The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $94,917 was re classed into equity during the period ended March 31, 2015.
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 (see Note-13). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the three months ended March 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the three months ended March 31, 2015 (See Note 12). The remaining balance as of March 31, 2015 is $12,000.
In addition, the terms of Summit’s convertible note in the amount of $59,835 and accrued interest of $2,992 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp from Redwood Management, LLC. A loss of $26,577 resulted from the debt modification. Subsequently, during the three months ended March 31, 2015 the Company converted $31,262 of principal into 72,091,670 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was re classed into equity during the period ended March 31, 2015.
14. Derivative Liabilities
As described in Note 13, as of March 31, 2015 and December 31, 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 three months ended March 31, 2015:
| Balance at December 31, 2014 | $ | 1,282,532 | ||
| Loss on debt modification | 371,822 | |||
| Reclassification of derivative liability associated with convertible debt | (486,113 | ) | ||
| Change in debt derivative liability during the three months ended March 31, 2015 | (342,470 | ) | ||
| Balance March 31, 2015 | $ | 825,771 |
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 March 31, 2015, 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 289.33% to 299.66%, (3) weighted average risk-free interest rate of 0.04% to 0.15%, (4) expected life of 0.25 to 0.59 years, and (5) estimated fair value of the Company’s common stock of $0.00064 to $0.00158 per share.
| F-23 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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.
For the three months ended March 31, 2015, 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 289.58%, (3) weighted average risk-free interest rate of 1.15%, (4) expected life of 3.52 years, and (5) estimated fair value of the Company’s common stock of $0.00109 per share
The following table represents the Company’s warrant derivative liability activity for the three months March 31, 2015:
| Balance at December 31, 2014 | $ | 545,837 | ||
| Change in derivative liability during the three months ended March 31, 2015 | (9,697 | ) | ||
| Balance March 31, 2015 | $ | 536,140 |
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 three months ended March 31, 2015, accrued fees to Boylesports totaled $102,846, of which $74,223 was commission due pursuant to the GGR share agreement and $28,623 was primarily attributable to customer service and processing fees.
| F-24 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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.
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.
On February 11, 2015 the Company entered into a one-year Consulting and Representation Agreement with Corporate Ads, LLC in exchange for 15,000,000 shares of Company common stock plus $10,000. The shares were valued at $43,500 based upon the closing price of the stock February 11, 2015 of $0.029 per share. The total amount of $45,750 was expensed as consulting expense.
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 three months ended March 31, 2015 and years ended December 31, 20143, 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 March 31, 2015, the Company’s own banking account was not yet established.
As of March 31, 2015 and December 31, 2014, $5,061 and $1,825, respectively, was recorded as a payable and receivable from a related party, respectively.
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.
| F-25 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
E. Litigation
On August 14, 2014, the Company agreed to the entry of an Order Instituting Cease and Desist Proceedings Pursuant to Section 21C of the Securities and Exchange Act of 1934 (“Agreed Order”), with the SEC. The agreement with the SEC was subsequently modified on September 17, 2014 and is pending final approval from the SEC. Pursuant to the Agreed Order, the Company acknowledged that it was delinquent in its filing requirements in that it had failed to file its annual report on Form 10-K for the year ended December 31, 2013, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and an 8-K filing. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The Company is diligently working towards completing and filing its delinquent reports. The penalty of $50,000 was expensed during the third quarter of 2014. On September 23, 2014, the Company deposited $25,000 in an escrow account with its legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the Securities and Exchange Commission. During the three months ended March 31, 2015, the Company paid $8,000 towards the penalty. The remaining balance due is $42,000.
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.
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 6,100,000 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.
| F-26 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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 March 31, 2015 and December 31, 2014 there were 639,842,729 and 74,124,445 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-27 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
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.
During the three months ended March 31, 2015, the Company converted debt and accrued interest, totaling $1,172,660 into 565,121,284 shares of common stock
17. Warrants and Options
At March 31, 2015 and December 31, 2014, there are no outstanding stock option awards.
At March 31, 2015 and December 31, 2014, the following warrants were outstanding:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Balance, December 31, 2014 | 2,132,426 | $ | 0.012 | 3.9 | ||||||||
| Granted | - | $ | - | |||||||||
| Exercised | - | $ | - | |||||||||
| Cancelled Forfeited | - | |||||||||||
| Balance, March 31, 2015 | 2,132,426 | $ | 0.012 | 3.7 | ||||||||
For the three months ended March 31, 2015, the following warrants were outstanding:
| Weighted Average | ||||||||||||||||||
| Exercise | Warrants | Warrants | Remaining | Aggregate | ||||||||||||||
| Price | Outstanding | Exercisable | Contractual Life | Intrinsic Value | ||||||||||||||
| $ | 0.012 | 2,132,426 | 2,132,426 | 3.65 | $ | - | ||||||||||||
| F-28 |
SEANIEMAC INTERNATIONAL, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2015
For the year ended December31, 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 | $ | - | ||||||||||||
17. Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
During 2014, the Company’s valuation allowance was increased by approximately $341,685 from the prior year. Further, for interim reporting the Company will pass the valuation allowance calculation and feels that the same would be done during the year ended reporting December 31, 2015 for better comparison.
18. Subsequent Events
A. Note Issuances/Modifications
Subsequent to March 31, 2015, the Company issued a $16,500 convertible note to Apollo Group. The Note bears interest at the rate of 12%. The debenture is convertible into common stock, at Apollo’s option, at a 60% discount to the lowest trading price of the common stock during the 30 trading day period prior to conversion.
B. Capital Transactions
An additional 34,000,000 shares were issued in April 2015 in settlement of certain convertible notes.
| F-29 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 March 31, 2015, we had 18,580 new accounts opened and processed 273,803 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.
| - 4 - |
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 $1,195,453 during the three months ended March 31, 2015 , compared to $1,748,178 during the three months ended March 31, 2014. Turnover during the three months ended March 31, 2015 and 2014 was approximately $1,195,453 and $1,748,178 respectively. Our gross profit for the three months ended March 31, 2015 and 2014 was approximately $141,864 and $122,295, respectively. Whilst turnover was down year on year gross profit increased due to a greater yield for us on bets staked due to more favorable sporting results 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.”
Revenue
Gross gaming revenues (“GGRs”) during the three months ended March 31, 2015 and 2014 were $107,119 and $96,913, respectively. The increase in gross gaming revenues for the three months ended March 31, 2015 over the three months ended March 31, 2014 of $10,206 was primarily attributable to the increased yield from the amounts staked during the three months ended March 31, 2015 over the amount staked during the three months ended March 31, 2014.
Promotional Allowances
Promotional allowances during the three months ended March 31, 2015 totaled $74,223, as compared to promotional allowances of $61,166 for the comparable period in 2014, an increase of $13,057. The increase in promotional allowances reflects an increase in marketing and the provision of free bets associated with higher GGRs.
Operating Expenses
Operating expenses during the three months ended March 31, 2015 totaled $309,451, as compared to operating expenses of $575,837 for the comparable period in 2014, a decrease of $266,836. The decrease in operating expenses reflects a decrease in website hosting, professional fees , stock based compensation to consultants and advertising costs.
Operating Loss
Our operating loss during the three months ended March 31, 2015 totaled $276,555, as compared to our operating loss of $540,090 for the comparable period in 2014. The decrease in operating loss for the three months ended March 31, 2015 over the three months ended March 31, 2014 of $262,535 was primarily attributable to a decrease in operating expenses of approximately $266,836 which was partially offset by a decrease of net gaming revenue of approximately $2,851.
Other Expenses
Other expenses increased by $114,170 in total, to $230,810 from $116,640 for the three months ended March 31, 2015 and 2014, respectively. The increase in other expenses is due to a loss on debt modification of $371,824 and interest expense increased by $143,429 to $241,590 on March 31, 2015 up from $71,161 on March 31, 2014.
Net Loss
Our net loss for the three months ended March 31, 2015 was $507,365, a decreased loss of $149,365 compared to a net loss of $656,730 for the three months ended March 31, 2014, due to the reasons noted above.
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.
| - 5 - |
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 March 31, 2015, including cash of $417 and prepaid expenses and other current assets of $20,863. 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 three months ended March 31, 2015 was $182,157 primarily relating to our $507,365 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 2014, we had net cash used in operations of $129,959, primarily relating to the net loss of $656,730 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 three months ended March 31, 2015 by $99,011 in total, to $35,264 from $134,275 for the three months ended March 31, 2014. Net cash provided by financing activities during the three months ended March 31, 2015 was primarily attributable to the proceeds from related party loans totaling $35,264. Net cash provided by financing activities during the three months ended March 31, 2014 was primarily attributable to the proceeds from the issuance of convertible notes, common stock, and related party loans totaling $134,275.
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 the three months ended March 31, 2015, related parties lent us approximately $35,264 in order to fund our 2015 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.
| - 6 - |
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. For the three months ended March 31, 2015, the Company converted $108,752 of principal and accrued interest into 99,520,802 shares of common stock. As of March 31, 2015, the outstanding loan balance on this including forbearance liability was $279,938.
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 charge of the amortization of debt discounts and costs for the three Months ended March 31, 2015 and 2014 was $54,907 and $0, respectively, and was accounted for as interest expense.
For the three months ended March 31, 2015, the Company converted $108,752 of principal and accrued interest into 99,520,802 shares of common stock.
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.
| - 7 - |
For the three months ended March 31, 2015, the Company converted $43,738 of principal and accrued interest into 44,988,900 shares of common stock.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp. A loss of $26,577 resulted from the debt modification. Subsequently, during the three months ended March 31, 2015 the Company converted $31,262 of principal into 72,091,670 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was reclassed into equity during the period ended March 31, 2015.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 and 2014 was $-0- and $11,413, respectively, which was accounted for as interest expense.
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 three months ended March 31, 2015 and 2014, was $29,607 and $0, respectively, accounted for as interest expense.
For the three months ended March 31, 2015, the Company converted the note issued on July 14, 2014 for $36,750 of principal into 51,082,166 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $66,758 was reclassed into equity during the period ended March 31, 2015.
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.
| - 8 - |
The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on April 4, 2015. The debenture is convertible into common stock, at WHC Capital’s option, at a 58% discount to the lowest trading price of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the WHC Capital note, the Company determined the aggregate fair value of $56,273 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 205.08%, (3) weighted average risk-free interest rate of 0.11%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.06 per share. The determined fair value of the debt derivatives of $56,273 was charged as a debt discount up to the net proceeds of the note with the remainder of $24,273 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 and 2014 was $9,529 and $0, accounted for as interest expense.
For the three months ended March 31, 2015, the Company converted $35,211 of principal and accrued interest into 37,034,976 shares of common stock. The remaining balance is $0 and the determined fair value of the debt derivatives of $38,937 was reclassed into equity during the period ended March 31, 2015.
Summit Trading Ltd.
In addition, the terms of Summit’s convertible note in the amount of $59,835 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
On 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 three month ended March 31, 2015 and 2014 was $14,006 and $ 0, respectively, accounted for as interest expense.
On January 2, 2015 and January 5, 2015, the Company issued demand notes to Summit in the amounts of $13,844 and $21,970, respectively. These notes bear interest of 4% per annum on any unpaid principal and are payable on demand.
As mentioned above in Note 11, 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 $524 for the three months ended March 31, 2015.
| - 9 - |
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. A loss of $79,038 resulted from the debt modification.
For the three months ended March 31, 2015, the Company converted $8,500 of principal into 11,260,256 shares of common stock and the remaining balance is $63,844.
Apollo Capital Corp
On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp (See Note 12). During the three months ended March 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $139,813 was re classed into equity during the period ended March 31, 2015.
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10 day lookback period (see Note-12). The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the three months ended March 31, 2015. The note was fully converted into 79,193,262 shares during the three months ended March 31, 2015 (See Note 12). The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $94,917 was re classed into equity during the period ended March 31, 2015.
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 (see Note-13). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the three months ended March 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the three months ended March 31, 2015 (See Note 12). The remaining balance as of March 31, 2015 is $12,000.
In addition, the terms of Summit’s convertible note in the amount of $59,835 and accrued interest of $2,992 were modified; the note is now convertible 45% of the lowest stock price 20 days prior to conversion. This note was assigned to Apollo Capital Corp. (“Apollo”) on March 19, 2015. A loss of $57,860 resulted from the debt modification.
On March 9, 2015, the remaining balance of $23,762 of principal and $7,500 in accrued interest was assigned to Apollo Capital Corp from Redwood Management, LLC. A loss of $26,577 resulted from the debt modification. Subsequently, during the three months ended March 31, 2015 the Company converted $31,262 of principal into 72,091,670 shares of common stock. The remaining balance as of March 31, 2015 is $0 and the determined fair value of the debt derivatives of $145,688 was re classed into equity during the period ended March 31, 2015.
Loan Payable – GE Park, LLC
During the year ended December 31, 2014, GE Park, LLC loaned the Company $166,200 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand.
On February 12, 2015, the terms a GE Park demand note totaling $47,600 was modified. This note became convertible at 50% of the lowest traded price utilizing a 10 day lookback period (see Note-13). The determined fair value of the debt derivatives of $94,917 was charged as a loss on debt modification for the three months ended March 31, 2015. The note was fully converted into 79,193,262 shares during the three months ended March 31, 2015 (See Note 13).
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 (see Note-13). The determined fair value of the debt derivatives of $75,378 was charged as a loss on debt modification for the three months ended March 31, 2015. The note amounted to $21,600 was converted into 33,895,385 shares during the three months ended March 31, 2015 (See Note 13).
During the three months ended March 31 2015, the GE Park accounts payable balance amounted to $17,374 was re classed into as “loan payable”.
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On October 22, 2013, GE Park, LLC loaned the Company $95,000 to be used for working capital purposes. These notes bear interest at 4% per annum and are due on demand. On November 22, 2014, this promissory loan was modified into convertible note and subsequently transferred to Apollo Capital Corp (See Note 13).
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on within five days after demand. The note is convertible into common stock, at a 50% discount to the average lowest trading prices of the common stock during the 10 trading day period prior to conversion.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On October 22, 2013, the Company determined the aggregate fair value of $187,188 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 278.85%, (3) weighted average risk-free interest rate of 0.02, (4) expected life of 0.25 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share.
During the three months ended March 31, 2015, the Company converted $95,000 of principal into 136,053,867 shares of common stock (See Note 13). The determined fair value of the debt derivatives of $139,813 was reclassed into equity during the period ended March 31, 2015.
In addition, the Company issued GE Park a convertible note in the amount of $79,750 on November 25, 2014. The cash purchase price of $72,500 (which amount is net of the pro-rata portion of original issue discount of $7,250) was received by the Company on the issuance date
The Note bears interest at the rate of 4% per annum. All interest and principal must be repaid on May 25, 2015. The note is convertible into common stock, at a 50% discount to the lowest trading prices of the common stock during the 20 trading day period prior to conversion. On March 3, 2015, the GE Park conversion terms of the GE Park convertible note dated November 25, 2014 for $79,750 were modified to 50% of the lowest traded price utilizing a 10 day lookback. A loss a $38,052 resulted from this modification.
The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
On October 25, 2014, the Company determined the aggregate fair value of $139,421 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 280.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.00719 per share. The determined fair value of the debt derivatives of $72,500 as charged as a debt discount up to the net proceeds of the note with the remainder of $66,921 charged to current period operations as non-cash interest expense.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2015 was $63,888 and was accounted for as interest expense.
Interest expense for the three months ended March 31, 2015 and 2014 totaled $1,653 and $950, respectively. Accrued interest at March 31, 2015 and December 31, 2014 totaled $8,492 and $8,799, respectively.
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 March 31, 2015 and 2014, loans payable to Brookstein totaled $15,702 for both.
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Loans Payable – RDRD II Holding, LLC
RDRD II Holding, LLC, a Delaware limited liability company and substantial shareholder of the Company (“RDRD”) loaned monies to the Company and its subsidiary, Seaniemac, for working capital purposes. The loans to the Company aggregating $370,067 do not bear interest and are due on demand. The loans to Seaniemac aggregating $516,498 bear interest at 4% per annum. At March 31, 2015 and December 31, 2014, loans payable were $886,368 and $880,748, respectively, and accrued interest totaled $35,848 and $34,831, respectively.
The Company imputed interest of $7,215 and $5,174 amount loaned to the Company by RDRD during the three months ended March 31, 2015 and 2014, respectively, at an assumed rate of 8% per annum.
Interest expense to related parties totaled $12,344 and $12,089 for the three month ended March 31, 2015 and 2014 respectively.
Going Concern
Our condensed consolidated unaudited financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s continued losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern.
The Company’s primary need for cash during the next 12 months is to fund payments of operating costs. At March 31, 2015 and December 31, 2014, the Company had working capital deficiencies of $4,942,181and $5,557,131, respectively, and stockholders’ deficit of $4,933,349 and $5,541,403, 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 March 31, 2015 and December 31, 2014, we had outstanding net advances and loans from related parties of $1,016,444 and $1,062,380, respectively.
At March 31, 2015 and December 31, 2014, we had outstanding net convertible loans from related parties of $78,340 and $110,862, respectively.
During the three months ended March 31, 2015 and year ended December 31, 2014, we recorded accrued interest expense on these advances and loans in the amount of $35,848 and $43,630, 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 March 31, 2015 and December 31, 2014, loans payable were $886,368 and $880,478, respectively, and accrued interest totaled 35,848 and $34,831, respectively. The Company imputed interest of 7,215 and $5,174 on the amount loaned to the Company by RDRD during three months ended March 31, 2015 and 2014, at an assumed rate of 8% per annum.
Interest expense to related parties totaled 12,344 and 12,089 for the three months ended March 31, 2015 and 2014, respectively.
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Consulting fees incurred for GE Park, LLC were $0 and $50,000 during three months ended March 31, 2015 and 2014, respectively.
Receivable – Related party
During the three months ended March 31, 2015 and 2014, the Company was using one of its officer’s bank accounts for business purposes. As of March 31, 2015 $4,522, payable to a related party, and December 31, 2014, $1,825, was recorded as a receivable from a related party.
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 three months ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, the Company did not have any derivative instruments that were designated as hedges.
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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.
In February 2015, the FASB issued new guidance to improve consolidation guidance for legal entities (Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis), effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
ASU 2015-01
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.
ASU 2014-17
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.
ASU 2014-16
In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.
ASU 2014-15
In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the impact of adopting this accounting standard update on its consolidated financial statements and disclosures.
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ASU 2014-12
In June 2014, the FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718):Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
ASU 2014-09
In May 2014, the FASB has issued ASU No. 2014-09,Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not expect the future adoption of any such pronouncements to have a significant impact on the results of operations, financial condition or cash flow.
ASU 2014-08
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.
The Company has evaluated recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC and we have not identified any that would have a material impact on the Company’s financial position, or statements.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
This item is not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, who is also our Chief Financial Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2015. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2015.
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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 three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, 2014, its quarterly reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 and an 8-K filing. Moreover, the Company has agreed to pay civil penalties in the total amount of $50,000 as a result of these delinquent filings. The Company is diligently working towards completing and filing its delinquent reports. The penalty of $50,000 was expensed during the third quarter of 2014. On September 23, 2014, the Company deposited $25,000 in an escrow account with its legal counsel. During 2014, $24,000 of these funds was used to partially pay the civil penalties of $50,000 that are due the Securities and Exchange Commission. During the three months ended March 31, 2015, the Company paid $8,000 towards the penalty. The remaining balance due is $42,000.
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.
Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations. For a discussion of these risks, please refer to the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended December 31, 2014. In connection with its preparation of this quarterly report on Form 10-Q, management has reviewed and considered these risk factors and has determined that there have been no material changes to our risk factors since the date of filing the annual report on Form 10-K for the fiscal year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2015, the Company converted debt and accrued interest, totaling $565,121 into 565,121,284 shares of common stock.
These shares of our common stock were issued in reliance on the exemption from registration provided by Sections 4(a)(2) and 3(a)(9) 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. These restrictions ensure that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Sections 4(a)(2) and 3(a)(9) of the Securities Act for the above transactions.
Item 3. Defaults upon Senior Securities.
None.
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Item 4. Mine Safety Disclosures.
Not applicable.
None.
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 Principal Executive Officer. | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. | |
| 32.1* | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema | |
| 101.CAL* | XBRL Taxonomy Extension Calculation | |
| 101.DEF* | XBRL Taxonomy Extension Definition | |
| 101.LAB* | XBRL Taxonomy Extension Labels | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* Filed Herewith.
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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: February 9, 2016 | Seaniemac International, Ltd. | |
| By: | /s/ Barry M. Brookstein | |
| Barry M. Brookstein, | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
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