STL MARKETING GROUP, INC. - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) Forward Looking Statements
This quarterly report on Form 10-Q and other reports (collectively, the
"Filings") filed by STL Marketing Group, Inc. ("STL" or the "Company") from time
to time with the U.S. Securities and Exchange Commission (the "SEC") contain or
may contain forward-looking statements and information that are based upon
beliefs of, and information currently available to, the Company's management as
well as estimates and assumptions made by Company's management. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
are only predictions and speak only as of the date hereof. When used in the
Filings, the words "anticipate," "believe," "estimate," "expect," "future,"
"intend," "plan," or the negative of these terms and similar expressions as they
relate to the Company or the Company's management identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events and are subject to risks, uncertainties, assumptions, and other
factors, including the risks contained in the "Risk Factors" section of the
Company's Annual Report on Form 10-K, filed with the SEC on April 15, 2014,
relating to the Company's industry, the Company's operations and results of
operations, and any businesses that the Company may acquire. Should one or more
of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States ("GAAP"). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management's judgment in its application.
There are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. The following
discussion should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this report.
Plan of Operation
The Company's efforts through the period ending June 30, 2014 and for the next
12 months have focused on two key areas: continuing efforts to pursue the
proposed Power Purchase Agreement ("PPA") and the initiation of our new business
opportunity based on the distribution and sales of VoIP telecommunications
equipment ("PBX Systems").
Power Purchase Agreement
In December 2012, we received an official letter affirming our PPA proposal from
the Compañia Nacional de Fuerza y Luz ("CNFL") issued and signed by its General
Manager and filed with the Securities and Exchange Commission on July 30, 2013
(the "PPA Letter"). Based on the confirmation letter and ongoing meetings with
the CNFL, in 2013 the Company had its personnel in Costa Rica providing
additional technical and tender information in an effort to finalize the PPA.
However, since November 2013, the Costa Rica Presidential elections were in
process and our progress was delayed.
The elections resulted in Mr. Luis Guillermo Solis becoming the President of
Costa Rica (as the candidate from the Partido Accion Ciudadana or PAC). Mr.
Solis, as a candidate, took a very favorable position to the generation of
electricity by private enterprises as part of an overall solution to the energy
crisis of the country. However, since his election, President Solis has since
appointed the new Grupo ICE Chairman and CEO whom we believe opposes any private
generation of electricity. Indeed, news reports are stating that any new private
electricity generation will be delayed for at least eighteen months. Further
complicating matters, the General Manager who issued us the letter from CNFL,
was unexpectedly removed from office. In fact, a great majority of the CNFL
executive staff, who the Company believes was key in its efforts to finalize the
PPA have been removed and replaced.
As a result, the Board has reached out to CNFL and requested a meeting with the
new General Manager to move forward on our PPA proposal as reflected in the PPA
Letter. The Company will also be exploring alternatives to CNFL, including the
possibility of a 7200/7508 license (maximum of 20MW). Since the new
administration in Costa Rica is still settling in, it is unclear on how these
changes affect our progress to date. Due to the governmental changes in Costa
Rica, we may have to reinitiate the process with CNFL.
In the interim, the Company has cut its operating costs in Costa Rica by
approximately $13,000 per month. Most of the professional studies and technical
assessments for the PPA have been paid for and will continue to be applicable in
the future leaving minimal costs for us to continue pursuing the PPA.
Additionally, the Company believes that all of the services related to the PPA
can be easily reinstated or expanded as needed.
PhoneSuite Solutions, Inc. ("PSS")
On June 24, 2013, the Company entered into a Strategic Alliance and Distribution
Agreement with Call Management Products Inc. ("CMP"), doing business as
PhoneSuite Solutions, Inc. PhoneSuite Solutions, Inc. was formed as a wholly
owned subsidiary of the Company and is a separate legal entity from CMP focused
on the sale, distribution and channel development of VoIP telecommunications
equipment. The Company issued an 8-K filing for this Agreement and is tasked
with the distribution, sales and channel development of CMP's technology in
Internal work has been completed on both the structural necessities for this
type of transactional business, and the necessary training and certifications
processes to ensure the proper infrastructure in instituting a process to
establish dealers that includes documents like Credit Applications, New Customer
Forms and a standard Dealer Agreement. Internal review of our accounting systems
has also been completed and is now loaded and adapted to quoting, entering
orders, and invoicing. While we do want to implement a more integrated system
(CRM and Accounting), the current system in place can handle the business levels
To date, the Company has issued just under $100,000 of quotes to interested,
potential customers for VoIP equipment. While there is no guarantee these quotes
will be sold, it is an important milestone, as we believe this sales funnel does
begin to indicate that we may have revenue in the near term, which we believe
will help to establish a baseline to provide future goals based on previous
To ensure an active and successful dealer program (and sales funnel) we have
begun the process of establishing our dealer network. In this area, we are
actively working with a handful of potential dealers that should execute dealer
agreements in the short term. These dealers operate in places as diverse as
Australia, the UAE and Mexico. We have announced one partnership with VTECH's
CALA hospitality division where VTECH will provide us leads for the PhoneSuite
product line and vice versa. This also provides us access to their dealer
network if applicable. Additionally, we have had preliminary discussions with
UNIDEN to explore providing business telephones with the IP PBX as a whole
solution. All of this is underway as we await progress on the energy front.
Over the balance of 2014, we believe PhoneSuite Solutions, Inc. will begin to
generate revenue, add dealers, and follow through with our goal to gain
financial independence, as outlined to shareholders in our OTC presentation on
the subject. We believe that this should ease dependence on fundraising over the
near term and lessen our need for the current funding mechanisms.
In conjunction with the PhoneSuite Solutions, Inc. distribution business model,
the Company has reinitiated discussions with Grupo IUSA and look forward to
working towards a potential second distribution business.
Results of Operations
For the three months ended June 30, 2014 and 2013
For the three months ended June 30, 2014 and 2013, the Company reported a net
loss of $(1,985,553) and $(130,850), respectively. The change in net (loss)
between the periods ended June 30, 2014 and 2013 is primarily attributed to
increased liabilities in derivative liabilities.
Operating expenses decreased by roughly 37% during the three months ended June
30, 2014, as compared to the three months ended June 30, 2013. The $90,842
decrease in operating expenses is primarily attributed to the following changes
in operating expenses: increase in compensation of $4,399 due to the inclusion
of payroll taxes, decrease in professional fees of $34,198 related to completed
studies needed for the wind park and a decrease in general and administrative of
$61,043 related in an overall decrease in expenses in Costa Rica, including
rent, travel and marketing.
The Company is still a development stage company and therefore has no revenues
For the six months ended June 30, 2014 and 2013
For the periods ended June 30, 2014 and 2013, the Company reported a net loss of
$(362,856) and $(413,049), respectively. The change in net loss between the
periods ended June 30, 2014 and 2013 is due to a decrease in derivative
Operating expenses decreased by roughly 6% during the six months ended June 30,
2014, as compared to the six months ended June 30, 2013. The $23,681 decrease in
operating expenses is primarily attributed to the following changes in operating
expenses: increase in compensation of $9,506 due to the inclusion of payroll
taxes, increase in professional fees of $73,345 and decrease in general and
administrative of $106,532 primarily related in reclassifying outside service
fees of $75,000, as well an overall decrease in expenses including rent, travel
The Company is still a development stage company and therefore has no revenues
Liquidity and Capital Resources
As of June 30, 2014, we had a working deficit of $5,397,917 as compared to
December 31, 2013 of $5,402,299 a decrease of $4,382. The decrease in working
deficit for the period ended June 30, 2014, is primarily attributed to an
increase in the Company's assets deferred offering costs of $67,153, as well as
an increase in liabilities related to accrued payables and expenses of $158,095,
additional convertible notes, net of discount of $224,201 and a decrease in
notes payable of $42,000, as well as in derivative liabilities of $272,332.
Net cash used in operating activities for the six months ended June 30, 2014 and
2013, was $(176,927) and $(226,046), respectively. The net loss for the six
months ended June 30, 2014 and 2013 was $(362,856) and $(413,049), respectively.
Net cash provided by investing activities for the six months ended June 30, 2014
was $3,398, as compared to the six months ended June 30, 2013 was $14,806.
Net cash provided by all financing activities for the six months ended June 30,
2014 was $186,500, as compared to $258,050 for the six months ended June 30,
2013. During the six month period ended June 30, 2014, the Company sold notes
for the proceeds of $186,500.
The estimated working capital requirements for the next twelve months is
$500,000.00 with an estimated burn rate of $42,000 per month. The Company
continues to proceed with the process for the Power Purchase Agreement and the
sale and distribution of the PhoneSuite VoIP telecommunications equipment.
As reflected in the accompanying financial statements, the Company has a net
loss and net cash used in operations of $362,856 and $176,927, respectively, for
the six months ended June 30, 2014.
Our auditor has expressed substantial doubt about our ability to continue as a
going concern. Our plan regarding these matters is to raise additional debt and
or equity financing to allow us the ability to cover our current cash flow
requirements and meet our obligations as they become due. There can be no
assurances that financing will be available or if available, that such financing
will be available under favorable terms. In the event that we are unable to
generate adequate revenues to cover expenses and cannot obtain additional
financing in the near future, we may seek protection under bankruptcy laws. The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have an
effect on the Company's financial statements.
Critical Accounting Policies
Our financial statements and related public financial information are based on
the application of accounting principles generally accepted in the United States
("GAAP"). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenues and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
Our significant accounting policies are summarized in Note 2 of our financial
statements. While all these significant accounting policies impact our financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in this
We believe the following critical accounting policies and procedures, among
others, affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements:
Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions impact, among
others, the following: allowance for bad debt, inventory obsolescence, the fair
value of share-based payments.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate could change
in the near term due to one or more future confirming events. Accordingly, the
actual results could differ significantly from our estimates.
Stock-Based Compensation - The Company accounts for stock-based compensation in
accordance with ASC Topic 718, "Accounting for Stock-Based Compensation"
established financial accounting and reporting standards for stock-based
employee compensation. It defines a fair value based method of accounting for an
employee stock option or similar equity instrument. The Company accounts for
compensation cost for stock option plans in accordance with ASC 718. The Company
accounts for share based payments to non-employees in accordance with ASC 505-50
"Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in
Conjunction with Selling, Goods or Services".
The Company recognizes all forms of share-based payments, including stock option
grants, warrants and restricted stock grants, at their fair value on the grant
date, which are based on the estimated number of awards that are ultimately
expected to vest.
Share based payments, excluding restricted stock, are valued using a
Black-Scholes option pricing model. Share based payment awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The grants are amortized on a straight-line basis
over the requisite service periods, which is generally the vesting period. If an
award is granted, but vesting does not occur, any previously recognized
compensation cost is reversed in the period related to the termination of
service. Stock based compensation expenses are included in cost of goods sold or
Selling, general and administrative expenses, depending on the nature of the
services provided, in the Statement of Operations.
When computing fair value of share based payments, the Company has considered
the following variables:
? The risk-free interest rate assumption is based on the U.S. Treasury yield for
a period consistent with the expected term of the option in effect at the time
of the grant.
? The Company has not paid any dividends on common stock since its inception and
does not anticipate paying dividends on its common stock in the foreseeable
? The expected warrant term is the contractual term of the warrant.
Off Balance Sheet Arrangements:
We do not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
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