UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarter ended: September 30, 2016

 

OR

 

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

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-55013

 

STL MARKETING GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Colorado   20-4387296
(State or other jurisdiction
of incorporation)
 

(IRS Employer

I.D. No.)

 

10 Boulder Crescent, Suite 102

Colorado Springs, CO 80903

(Address of principal executive offices and zip Code)

 

(719) 219-5797

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]

 

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

 

As of November 14, 2016, there were 1,149,555,646 shares of the registrant’s common stock issued and outstanding.

 

 

 

     
 

 

TABLE OF CONTENTS

 

  PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements. F-1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 6
     
Item 4. Controls and Procedures. 7
     
  PART II – OTHER INFORMATION  
Item 1. Legal Proceedings. 7
     
Item 1A. Risk Factors. 8
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 8
     
Item 3. Defaults Upon Senior Securities. 8
     
Item 4. Mine Safety Disclosures. 8
     
Item 5. Other Information. 8
     
Item 6. Exhibits. 9
     
Signatures 10

 

  2    
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Balance Sheets

 

    September 30, 2016     December 31, 2015  
    (Unaudited)        
Assets                
                 
Current Assets                
Cash   $ 1,262     $ 793
Total Current Assets     1,262       793  
                 
Security Deposit     1,135       1,135  
                 
Total Assets   $ 2,397     $ 1,928  
                 
Liabilities and Deficit                
Current Liabilities:                
Accounts payable and accrued liabilities, including $899,970 and $750,470 salaries due to officers, respectively   $ 1,548,647     $ 1,322,834  
Accrued liabilities and accounts payable - related party     466,547       436,123  
Notes payable     60,000       60,000  
Notes payable - related party     268,672       150,322  
Convertible notes payable, net of discount     921,103       927,992  
Liabilities payable in shares     114,500       114,500  
Derivative liabilities     3,079,395       3,037,500  
Total Current Liabilities     6,458,864       6,049,271  
                 
Commitments and Contingencies                
                 
Deficit                
Class A - Preferred Stock, 10% of Par Value, Non-Cumulative, $1.00 Par Value,1,800,000 Shares Authorized, 1,800,000 Shares Issued and outstanding     1,800,000       1,800,000  
Class B - Preferred Stock, $0.001 Par Value, 1,400,000,000 Shares Authorized, 1,400,000,000 Shares Issued and outstanding     1,400,000       1,400,000  
Class C - Preferred Stock, $0.001 Par Value, 125,000 Shares Authorized, Zero Shares Issued and Outstanding     -       -  
Common Stock, $0.001 Par Value, 2,600,000,000 Shares Authorized, 1,149,555,646 and 910,305,734 Shares Issued and Outstanding, respectively     1,149,556       910,306  
Additional paid in capital     (2,893,545 )     (2,675,428 )
Accumulated Deficit     (7,894,524 )     (7,482,221 )
Total STL Marketing Shareholders' Deficit     (6,438,513 )     (6,047,343 )
                 
Noncontrolling Interests     (17,954 )     -  
                 
Total Deficit     (6,456,467 )     (6,047,343 )
                 
Total Liabilities and Deficit   $ 2,397     $ 1,928  

 

See accompanying notes

 

F- 1  
 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statements of Operations

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2016     September 30, 2015     September 30, 2016     September 30, 2015  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                         
Sales   $ 9,066     $ -     $ 9,066     $ -  
Cost of goods sold     (5,366 )     -       (5,366 )     -  
Gross profit   3,700     $ -     3,700     $ -  
                                 
Operating expenses                                
Compensation     61,899       61,899       186,405       186,405  
Professional fees     14,824       23,424       93,971       88,728  
Selling, general and administrative     17,497       7,858       38,468       111,106  
 Total operating expenses     94,220       93,181       318,844       386,239  
                                 
Loss from operations     (90,520 )     (93,181 )     (315,144 )     (386,239 )
                                 
Other income (expense):                                
Interest expense     (22,069 )     (46,407 )     (73,219 )     (203,489 )
Change in fair value of derivative liabilities     (786,820 )     (29,559 )     (60,534 )     (870,433 )
Gain on extinguisment of derivative liabilities     -       -       18,640       287,635  
Private placement costs     -       -       -       (154,577 )
                                 
Other income (expense) - net     (808,889 )     (75,966 )     (115,113 )     (940,864 )
                                 
Net loss     (899,409 )     (169,147 )     (430,257 )     (1,327,103 )
                                 
Net loss attributable to noncontrolling interests     13,214       -       17,954       -  
                                 
Net loss attributable to STL Marketing Group, Inc.   $ (886,195 )   $ (169,147 )   $ (412,303 )   $ (1,327,103 )
                                 
Net loss per common share - basic and diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average common shares outstanding - basic                                
and diluted     1,149,555,646       866,507,801       1,060,632,561       483,549,766  

 

See accompanying notes

 

F- 2  
 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statement of Deficit

For the period from January 1, 2016 to September 30, 2016

(Unaudited)

 

    Preferred Stock,
Class A
Par Value $1.00
    Preferred Stock,
Class B
  Par Value $0.001
    Common Stock,
Class B
Par Value $0.001 
    Additional
Paid-In
    Accumulated     Total STLK     Noncontrolling        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity     Interest     Total  

Balance January 1, 2016

 

    1,800,000     $ 1,800,000       1,400,000,000     $ 1,400,000       910,305,734     $ 910,306     $ (2,675,428 )   $ (7,482,221 )   $ (6,047,343 )   $ -     $ (6,047,343 )
                                                                                         
Shares issued for conversion of notes payable
    -       -       -       -       239,249,912       239,250       (218,117 )     -       21,133       -       21,133  
                                                                                         
Net loss     -       -       -       -       -       -       -       (412,303 )     (412,303 )     (17,954 )     (430,257 )
                                                                                         
Balance September 30, 2016 (Unaudited)     1,800,000     $ 1,800,000       1,400,000,000     $ 1,400,000       1,149,555,646       1,149,556     $ (2,893,545 )   $ (7,894,524 )   $ (6,438,513 )   $ (17,954 )   $ (6,456,467 )

 

See accompanying notes

 

F- 3  
 

 

STL Marketing Group, Inc. & Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

    For the Nine Months Ended  
    September 30, 2016     September 30, 2015  
    (Unaudited)     (Unaudited)  
             
Cash Flows From Operating Activities:                
Net loss   $ (430,257 )   $ (1,327,103 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     -       1,643  
Amortization of debt discount     14,152       136,069  
Change in fair value of derivative liabilities     60,534       870,433  
Gain on extinguishment of derivative liabilities     (18,640 )     (287,635 )
Private placement costs     -       154,577  
Interest of debt converted below par     -       84,070  
Changes in operating assets and liabilities:                
Accounts payable and accrued liabilities     225,906       194,926  
Accounts payable - related party     30,424       40,184  
Net Cash Used in Operating Activities     (117,881 )     (132,836 )
                 
Cash Flows From Financing Activities:                
Proceeds from related party notes payable     118,350       83,695  
Payment of related party notes payable     -       (5,000 )
Proceeds from convertible notes     -       59,000  
Net Cash Provided by Financing Activities     118,350       137,695  
                 
Net increase (decrease) cash     469       4,859  
                 
Cash at beginning of period     793       102  
                 
Cash at end of period   $ 1,262     $ 4,961  
                 
Supplemental disclosure of cash flow information:                
Cash paid during the period for interest   $ -     $ -  
Cash paid during the period for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
                 
Shares issued for conversion of notes payable   $ 21,133     $ 100,868  

 

See accompanying notes

 

F- 4  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2016 and 2015

(Unaudited)

  

Note 1 – Nature of Operations

 

Nature of Operations

 

STL Marketing Group, Inc., (the “Company”) has several business operations. The Company’s initial focus, renewable energy, is currently on hold due to political delays in this industry in Costa Rica. The Company has pivoted to technology, a core competency of its senior management team. The Company has sales and marketing operations in: (1) PhoneSuite Solutions, an IP PBX product for the hospitality industry and (2) F3TCH, a patent pending technology, that virtualizes the hotel guest room telephone to a guest’s smart phone or device.

 

STL Marketing Group, Inc. (the “Company,” “our Company,” “we,” “us,” “our,” or “STL,”) was incorporated under the laws of the State of Colorado on February 16, 1999 under the original name of Fountain Colony Ventures, Inc. Fountain Colony Ventures, Inc. changed its name to SGT Ventures, Inc. in March 2006. In June 2006, SGT Ventures, Inc. changed its name to Stronghold Industries, Inc. On October 30, 2007, Stronghold Industries, Inc. entered into a share purchase and exchange agreement with Image Worldwide, Inc. The Company name was officially changed with the Secretary of State to Image Worldwide, Inc. (“Image Worldwide”) on November 21, 2007. Image Worldwide entered into a share exchange agreement with St. Louis Packaging Inc. and Image Worldwide Marketing, Inc., a Delaware corporation, on January 31, 2009. On November 27, 2009 the Company entered into an asset purchase agreement to sell all of its assets to Invicta Group, Inc., a Nevada corporation. In April 2009, the Company changed its name to STL Marketing Group, Inc. On October 15, 2012, the Company transferred ownership to Versant I, Inc., a Panamanian company owned by the current CEO. On February 4, 2013 the Company entered into a share exchange and merged with Versant Corporation, a Delaware company whereby Versant became the Company’s wholly owned operating subsidiary. The transaction was accounted for as a reverse merger.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, during the nine months ended September 30, 2016, the Company recorded a net loss of $430,257 and used cash in operations of $117,881, and at September 30, 2016, had a stockholders’ deficit of $6,438,513 and a working capital deficiency of $6,457,602. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2015 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

At September 30, 2016, the Company had cash on hand in the amount of $1,262. Management estimates that the current funds on hand will not be sufficient to continue operations. We expect to be able to secure capital advances from our officers or principal shareholders in order to pay our operating expenses. In addition, management is seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business, and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.

 

No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing. The ability of the Company to continue as a going concern is dependent on management’s plans, which include further implementation of its business plan and continuing to raise funds through debt and/or equity raises.

 

F- 5  
 

 

Note 2 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The Company consolidates the accounts of subsidiaries in which it has a controlling financial interest under the voting control model. The financial statements include the accounts of STL Marketing Inc., and its wholly-owned subsidiaries and its 51% owned subsidiary Kinver Technologies, Inc. Intercompany balances and transactions have been eliminated in consolidation.

 

Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The more significant estimates and assumptions by management include, among others, the accrual of potential liabilities, and the assumptions used in valuing derivatives and share-based instruments issued for services and financing. Actual results could differ from those estimates.

 

Revenue

 

During the three months ended September 30, 2016, the Company recorded its first sale of a PhoneSuite Solutions IP PBX product. Sales are recognized when the following revenue criteria are met: the price is fixed or determinable, persuasive evidence of an arrangement exists, the product or service has been delivered, and collectability is reasonably assured.

 

Share-Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

  

Derivative Financial Instruments

 

The Company evaluates its 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 revalued at each reporting date, with changes in the fair value reported in the statements of operations. 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. To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.

 

F- 6  
 

 

Fair Value of Financial Instruments

 

Under current accounting guidance, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied. A fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3 – Unobservable inputs based on the Company’s assumptions.

 

The Company is required to use observable market data if such data is available without undue cost and effort. As of September 30, 2016, the amounts reported for cash, accounts payable and accrued liabilities approximated fair value because of their short-term maturities. At September 30, 2016 and December 31, 2015, derivative liabilities of $3,079,395 and $3,037,500, respectively, were valued using Level 2 inputs.

 

Non-controlling Interests

 

The Company accounts for the non-controlling interests in accordance with guidance issued by the FASB which defines a non-controlling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The guidance requires, among other items, that a non-controlling interest be included in the consolidated balance sheets within equity separate from the parent’s equity and consolidated net income (loss) is reported inclusive of both the parent’s and non-controlling interest’s shares and, separately, the amounts of consolidated net income (loss) attributable to the parent and non-controlling interest in the consolidated statement of operations.

 

Reverse Stock Split

 

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

 

Net Loss per Common Share

 

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Potential common shares are excluded from the computation when their effect is anti-dilutive.

 

At September 30, 2016 and 2015, the dilutive impact of convertible debt and liability payable in shares have been excluded because their impact on the loss per share is anti-dilutive as follows:

 

    September 30, 2016     September 30, 2015  
             
Convertible Debt     266,774,950,998       31,546,431,115  
Liability to be paid in shares     10,948,283,522       1,399,684,664  
Common stock equivalents     277,723,234,520       32,946,115,779  

 

F- 7  
 

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers . ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU 2014-15 on the Company’s financial statements and disclosures.

 

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

Note 3 – Notes Payable

 

    September 30, 2016     December 31, 2015  
In October 2010, a third party loaned the Company $50,000 under a demand note bearing zero interest. At September 30, 2016 and December 31, 2015, this note is in default.   $ 50,000     $ 50,000  
In March 2011, third parties loaned the Company $10,000 under a demand note bearing zero interest. The note was acquired in the merger.  At September 30, 2016 and December 31, 2015, this note is in default.     10,000       10,000  
    $ 60,000     $ 60,000  

 

Note 4 – Notes Payable-Related Party

 

    September 30, 2016     December 31, 2015  
The Company’s officers and shareholders have made various promissory notes to the Company to fund operations.  The notes are unsecured, and bear interest at 6% per annum. During the nine months ended September 30, 2016, eight notes to related parties were issued for $82,025.  At September 30, 2016, $199,156 is past due and in default, and the balance of $69,516 is due through February 1, 2017.     $ 268,672     $ 150,322  

 

F- 8  
 

  

Note 5 – Convertible Notes Payable

 

At September 30, 2016 and December 31, 2015, convertible notes consisted of the following:

 

    September 30, 2016     December 31, 2015  
Unsecured convertible notes payable   $ 921,103     $ 942,144  
Debt discount     -       (14,152 )
Notes payable, net of discount   $ 921,103     $ 927,992  

 

From 2009 to 2015, the Company issued Convertible Promissory Notes (“Notes”) to various accredited investors. The Notes bear interest ranging from 8% to 12% per annum and mature on various dates from February 2010 to September 2016. The Company is currently in default of payment for Notes in the aggregate principal amount of $888,103.

 

At September 30, 2016, the notes are convertible into shares of common stock of the Company at the option of the holder at price per share discounts ranging from 10% to 75% of the Company’s common stock trading market price during a certain time period (usually 10-20 days) as defined in the notes. In addition, the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition of all or substantially all of the Company’s assets or consummation of a transaction or series of related transactions in which the Company is not the surviving entity.

 

As of December 31, 2015, the principal balance of the Notes was $942,144. During the nine months ended September 30, 2016, the Company did not issue any new unsecured convertible notes and note holders converted $21,041 of principal and $92 of accrued interest into 239,249,912 shares of the Company’s common stock. At September 30, 2016, the principal balance of the Notes was $921,103.

 

As of December 31, 2015, the debt discount related to issuance of the Notes was $14,152. During the nine months ended September 30, 2016, the Company recorded discount amortization of $14,152 and at September 30, 2016, debt discount was zero.

 

The Company considered the current FASB guidance on derivative accounting. As the ultimate determination of shares to be issued upon conversion of these notes could exceed the current number of available authorized shares, the conversion feature of these notes is recorded as a derivative liability (See Note 7).

 

Management and legal counsel have reviewed previous agreements and believe, pursuant to the Stock Purchase and Share Exchange Agreement effective as of January 31, 2009 (the “2009 Agreement”) entered into by the Company (then known as Image Worldwide, Inc., a Colorado corporation), Image Worldwide Marketing, Inc., a Delaware corporation and subsidiary of the Company (“Image Worldwide Marketing Delaware”), and St. Louis Packaging, Inc., an Illinois corporation, that Image Worldwide Delaware should have assumed all liabilities of the Company as of or prior to the 2009 Agreement. Management believes this amounts to $308,333 of debt (including $265,000 of convertible debt), plus its related interest and derivatives. The Company is currently reviewing and weighing its options and will proceed accordingly. At September 30, 2016 and December 31, 2015, this debt is included on the accompanying consolidated financial statements.

 

F- 9  
 

 

Note 6 – Liabilities Payable in Shares

 

At September 30, 2016 and December 31, 2015, the Company has recorded $114,500 of liabilities payable in shares of its Common Stock for services received from three unrelated parties in 2012 and 2014. Of the total, $60,000 is payable in shares at a price at 70% of the average of the lowest three closing bid prices, as defined, $15,000 is payable in shares using the average of the last five trading days from date of service, as defined, and $39,500 is payable at the current price of the Company shares, as defined. At September 30, 2016, the balance of $114,500 is convertible into 10,948,283,522 shares of Common Stock.

 

The Company considered the current FASB guidance on derivative accounting. As the ultimate determination of shares to be issued upon payment of these liabilities could exceed the current number of available authorized shares, the conversion feature of these liabilities is recorded as a derivative liability (See Note 7).

 

Note 7 – Derivative Liabilities

 

Under authoritative guidance issued by the FASB, debt instruments which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of the Company’s convertible notes payable and liabilities payable in shares (described in Note 5 and 6 above) did not have fixed settlement provisions because the ultimate determination of shares to be issued could exceed current available authorized shares.

 

In accordance with the FASB authoritative guidance, the conversion feature of the financial instruments was separated from the host contract and recognized as a derivative instrument. The conversion feature of the financial instruments had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

At December 31, 2015, the balance of the derivative liabilities was $3,037,500. During the nine months ended September 30, 2016, convertible notes and accrued interest totaling $21,133 were converted into shares of common stock and the Company recorded a gain of $18,640 related to the extinguishment of the corresponding derivative liability. As of September 30, 2016, the Company re-measured the derivative liabilities and determined the fair value to be $3,079,395, and for the nine months ended September 30, 2016, recorded a loss on the change in fair value of derivatives of $60,534.

 

The derivative liability was valued at the following dates using a probability weighted Black-Scholes-Merton model with the following assumptions:

 

    September 30, 2016   December 31, 2015    
Conversion feature:                
Risk-free interest rate     0.59 %     0.03 %
Expected volatility     250 %     290%  
Expected life (in years)     1 year       1 year  
Expected dividend yield     -       -  
                 
Fair Value:                
Conversion feature   $ 3,079,395     $ 3,037,500  
                       

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the conversion feature of the notes was based on the remaining terms of the financial instruments, or if the financial instruments are in default, a period of one year. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

 

Note 8 – Common Stock

 

For the nine months ended September 30, 2016, 239,249,912 shares of common stock were issued to holders of various convertible notes that converted $21,133 of principal and accrued interest.

  

F- 10  
 

 

Note 9 – Noncontrolling Interests 

 

On May 25, 2016, the Company and Kinetos, S.A., a Costa Rican corporation and unrelated third party, formed Kinver Technologies, Inc. (“Kinver”), a Florida corporation. Upon formation, the Company acquired 51% of the outstanding capital stock of Kinver, and Kinetos acquired 49% of the outstanding capital stock of Kinver. As of September 30, 2016, Kinver has minimal operations. The primary operations of Kinver are planned to be the sale and commercialization of the Hound Software product developed by Kinetos.

 

The following table is a summary of the noncontrolling interest for the nine months ended September 30, 2016:

 

    Noncontrolling
interest
 
Balance, January 1, 2016     -  
Capital contribution by noncontrolling interest     -  
Net income (loss) allocated to noncontrolling interest   $ (17,954 )
Balance, September 30, 2016 (Unaudited)   $ (17,954 )

 

Note 10 – Related Party Transactions

 

Since April 2010 through September 2016, management and board members have advanced funds to the Company for operating capital, paid certain expenses on behalf of the Company, and deferred salaries and consulting fees. As of September 30, 2016 and December 31, 2015, accounts payable and accrued liabilities due to board members and companies owned by board members totaled $466,547 and $436,123, respectively. These amounts are unsecured, non-interest bearing, and due on demand.

 

For the nine months ending September 30, 2016 and 2015, the Company incurred consulting expenses to a company that is owned by a board member, of $22,500 and $22,500 respectively.

 

Note 10– Commitments and Contingencies

 

Payable to Tarpon Bay Partners LLC

 

In 2014, Tarpon Bay Partners LLC (Tarpon) assumed $519,282 of past due accounts payable of the Company from various creditors of the Company. Tarpon then commenced an action against the Company to recover the aggregate of the past due accounts. On March 19, 2014, the Circuit Court of the Second Judicial Circuit for Leon County, Florida approved an agreement between the Company and Tarpon, in which the Company agreed to issue shares of the Company’s common stock to Tarpon sufficient to generate proceeds equal to the aggregate of the past due accounts. In addition, Tarpon will receive a fee of approximately 33% based on the proceeds. The Company will record the fees as the shares are issued and the past due accounts are paid. The past due amounts assumed are recorded as current liabilities of the Company until settled under the assignment agreement.

 

During the nine months ended September 30, 2016 and 2015, the Company did not issue any shares of common stock to Tarpon in connection with the agreement. At September 30, 2016 and December 31, 2015, the balance due of $354,525 is included in accounts payable and accrued liabilities on the accompanying balance sheets. A portion of the fees that Tarpon has received in 2014, has not been fully documented by Tarpon to the Company as requested, and therefore are in dispute and are pending. For purposes of presentation in the accompanying financial statements, we have recorded these fees as fees paid to Tarpon.

 

As part of the agreement with Tarpon, the Company issued to Tarpon two convertible notes aggregating $50,000, which were due in May 2014 and September 2014. At September 30, 2016 and December 31, 2015, the notes total $41,680 and are included in the balance of convertible notes payable, net of discount on the accompanying balance sheets. The notes are currently in default. At September 30, 2016, the amounts outstanding on the notes plus accrued interest was $51,302, and are convertible into 10,260,308,000 shares of the Company’s common stock.

 

F- 11  
 

 

Litigations, Claims and Assessments

 

The Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. Other than the below litigation with the Costa Rican Investment Bank, the Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

 

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

 

The arbitration found that Grupo Aldesa did not perform an underwriting as they claimed in defense to withhold a 50% commission. The arbitration also found that the commission was 5%, not 50%. However, the arbitrators reasoned that Versant Corporation breached the contract by seeking arbitration. The Company believes there is no legal basis for this finding on Versant, as arbitration is part of the signed contract between Aldesa and Versant. Yet, due to this finding, the Company cannot recover those funds on behalf of the affected investors. The Company will now review its legal options, including seeking relief at the international center for arbitration. Regardless, this action was taken by the Company to try and resolve this overcharge of its subscription to Preferred Class A, while a private Company, on behalf of the investors. The funds in question are investor funds, so any funds returned would be returned to the investors themselves.

 

F- 12  
 

 

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

 

Forward Looking Statements

 

Included in this Form 10-Q are “forward-looking” statements, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

 

Results of Operations

 

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.

 

Plan of Operation

 

The Company has reported the delays in private power generation in Costa Rica and its effects on the Company. At this time, there is no clear timing on when the government’s policies and views will change, if ever. As previously reported, the Company has significantly reduced or eliminated any expenditures or work in Costa Rica. If the delays in Costa Rica take much more time to resolve themselves, it is entirely possible that the Company will cease pursuing the Power Purchase Agreement. Information pertaining to these efforts can be found in previous filings.

 

As a result of the delays in Costa Rica, the Company has pivoted to technology, an area where executive management has significant expertise and sales experience. The Company’s efforts for the next 12 months are focused on software applications in the following three areas: (i) PhoneSuite Solutions overseas sale of VoIP telecommunications equipment (“PBX Systems”); (ii) the commercialization, sale and adoption of F3TCH, a mobile APP designed to enhance a hotel guests interaction within the hotel services worldwide; and (iii) the sale and commercialization of the Hound Software branded software platform comprised of Data Wrangling, Analytics, Automated Workflow and Telecommunications modules.

 

PhoneSuite Solutions, Inc.

 

We are currently working to create a structure that will help garner more sales activity from our existing dealer base e.g. quotes, meetings, demos etc. As reference, our PBX manufacturer recently stated that is has its five thousandth PBX system since its inception (North America). This is a significant amount of market share in North America and we continue to try and leverage this as we expand the brand’s presence overseas. 

 

  3    
 

 

On the technology front, we have successfully implemented the PhoneSuite Voiceware offering on our own cloud infrastructure to be able to provide the contracted features to overseas properties as required by one of Call Management Products’ (“CMP”) contracted customer- a major worldwide hotel chain. We chose a premier provider of cloud infrastructure services for this deployment and look forward to pursuing new business opportunities for this, and other chains, overseas. Our cloud infrastructure is a very reliable, redundant and powerful network from which to deliver the PhoneSuite product.

 

We feel confident on this solution, however we caution that adoption by hotels for a cloud based service has not gained as much momentum as in the generic business community. However, in order to pursue the major chains overseas, we did need to have this offering in place. We also do have a premise-based solution from CMP running Voiceware on a server or its Series2 configuration, which gives a potential client more choices. 1

 

F3TCH- “Hotel Phones Just Got a Whole Lot Smarter”

 

On February 11, 2016, the Company entered into an agreement with Camposagrado, Inc. to exclusively license and commercialize Camposagrado’s patent pending Application or “App” to the worldwide hospitality industry (U.S. Pat. Application No. 14/877,595). This Application, trademarked as F3TCH, migrates the hotel guestroom telephone to a user’s smart device, including their smartphone or tablet, and will allow the guest to utilize their own smart device as their point of contact within the hotel’s communications platform during their stay at a “F3TCH compatible” hotel. The App is intended to be free to users and hotels and is monetized through the placement of advertisements on the Application.

 

This past quarter, the website and videos for F3TCH were released and made publicly available (www.f3tch.com). The Company is currently fielding inquiries and has initiated a more robust social media strategy to gain more attention. Demo preparations are underway and a full demo system should be available in August.

 

Hound Software

 

The Company formed Kinver Technologies, Inc., owned 51% by the Company and 49% by Kinetos, S.A. Kinver will market and commercialize Hound Software in the United States.

 

Hound’s core product is a complete software platform that is currently comprised of three distinct modules- Data Wrangling, Analytics, and Automated Work Flow. These products can be sold as stand alone, or as a suite, and have powerful Big Data and Machine Learning components. The Company has completed a revised website for Hound Software ( www.houndsoftware.net ) as well as various Social Media sites.

 

The Company has begun marketing for the product.

 

For the three months ended September 30, 2016 compared to the three months ended September 30, 2015

 

For the three months ended September 30, 2016 and 2015, the Company reported a net loss of $(899,409) and $(169,147) respectively. The change in net loss between the periods ended September 30, 2016 and 2015 is primarily due to an increase in the loss on change in the fair value of derivative liabilities. For the three months ended September 30, 2016 the Company reported derivative loss of $(786,820) compared to a derivate loss of $(29,559) for the three months ended September 30, 2015. In addition, the Company also reported its first sales of $9,066 for the three months ended September 30, 2016, as compared to zero sales for the three months ended September 30, 2015.

 

Operating expenses increased by approximately one percent during the three months ended September 30, 2016, compared to the three months ended September 30, 2015. The increase in operating expenses is primarily attributed to a decrease in professional fees of $8,600 and an increase in general and administrative of $9,639 primarily related to the increase of marketing compared to the three months ended September 30, 2015.

 

 

1 Please note that CMP is a separate company and not related to STL Marketing Group, Inc.

  

  4    
 

 

For the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015

 

For the nine months ended September 30, 2016 and 2015, the Company reported a net loss of $(430,257) and $(1,327,103), respectively. The change in net loss between the periods ended September 30, 2016 and 2015 is primarily due to a decrease in the loss on change in the fair value of derivative liabilities. For the nine months ended September 30, 2016 the Company reported derivative loss of $(60,534) compared to a derivate loss of $(870,433) for the nine months ended September 30, 2015. In addition, the Company also reported its first sales of $9,066 for the nine months ended September 30, 2016, as compared to zero sales for the nine months ended September 30, 2015.

  

Operating expenses decreased by roughly 17% during the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015. The $67,395 decrease in operating expenses is primarily attributed to the following changes in operating expenses: increase in professional fees of $5,243 and decrease in general and administrative of $72,638 primarily related to the write off of $84,000 of deferred offering costs in 2015 and an increase in marketing and dues in 2016.

 

Liquidity and Capital Resources

 

During the nine months ended September 30, 2016, the Company recorded a net loss of $430,257 and used cash in operations of $117,881, and at September 30, 2016, the Company had a stockholders’ deficit of $6,438,513 and a working deficit of $6,457,602. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2015 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

At September 30, 2016, the Company had cash on hand in the amount of $1,262. Management estimates that the current funds on hand will not be sufficient to continue operations. We expect to be able to secure capital advances from our officers or principal shareholders in order to pay our operating expenses over the next 12 months. In addition, management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business, and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.

 

Net cash used in operating activities for the nine months ended September 30, 2016 and 2015, was $(117,881) and $(132,836), respectively. The Net Loss for the nine months ended September 30, 2016 and 2015 was $(430,257) and $(1,327,103), respectively.

 

Net cash provided by all financing activities for the nine months ended September 30, 2016 was $118,350, as compared to $137,695 for the nine months ended September 30, 2015. During the nine month period ended September 30, 2016, the Company had an increase of related party notes payable of $118,350.

 

Critical Accounting Policies and Estimates

 

The Company prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

 

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s condensed consolidated financial statements.

 

  5    
 

 

Stock-Based Compensation

 

The Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option and stock warrant grants to employees based on the authoritative guidance provided by the Financial Accounting Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company’s common stock option and warrant grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

 

Derivative Financial Instruments

 

The Company evaluates its 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. The Company uses a probability weighted average Black-Scholes-Merton 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.

 

Recent Accounting Pronouncements

 

See Footnote 2 of the financial statements for a discussion of recently issued accounting standards.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, the Company is not required to provide this disclosure.

 

  6    
 

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

(b) Changes in Internal Control over Financial Reporting

 

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

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Arbitration- Grupo Aldesa

 

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

 

The arbitration found that Grupo Aldesa did not perform an underwriting as it claimed and a reason for the close to 50% commission it paid itself. The arbitration also found that the commission was 5%, however, the arbitrators reasoned that Versant Corporation (Delaware private company) breached the contract by seeking arbitration. There is no legal basis for this finding as arbitration is part of the contract Versant signed, however, it is the reason that the Company cannot recover those funds on behalf of the affected investors. The Company will now review its legal options, including, seeking relief at the international center for arbitration, as it is evident that the system in Costa Rica, as mentioned in other cases most notably Alcatel v. Grupo ICE, is corrupt. Regardless, this action is to return to initial investors in Versant Corporation, a private Delaware Corporation, their funds, funds that were overcharged by Grupo Aldesa. Regardless of further action, there is no material effect to the Company either way, if we pursue and prevail, those funds go to the investors. The funds in question are investor funds, so any funds returned would be returned to the investors themselves. This action was taken by the Company to try and resolve this overcharge of its subscription to Preferred Class A, while a private Company, on behalf of the investors.

 

Exchange Under Section 3(a)(10)

 

On March 19, 2014, the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida (the “Court”), entered an order (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement (the “Settlement Agreement”) between STL Marketing Group, Inc., a Colorado corporation (the “Company”), and Tarpon Bay Partners, LLC, a Florida limited liability company (“Tarpon”), in the matter entitled Tarpon Bay Partners, LLC v. STL Marketing Group, Inc., Case No. 2014-CA-278 (the “Action”). Tarpon commenced the Action against the Company on February 6, 2014 to recover an aggregate of $519,282 of past-due accounts payable of the Company, which Tarpon had purchased from certain service providers of the Company pursuant to the terms of separate receivable purchase agreements between Tarpon and each of such vendors (the “Assigned Accounts”), plus fees and costs (the “Claim”). The Assigned Accounts relate to certain legal, accounting, and financial services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and Tarpon upon execution of the Order by the Court on March 19, 2014. Please see the current report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2014.

 

  7    
 

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except for the foregoing, we are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. 

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by the item.

 

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

 

For the nine months ended September 30, 2016, 239,249,912 shares of common stock were issued to holders of various convertible notes that converted $21,133 of principal and accrued interest.

 

The issuances of these shares were made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the registrant held by each shareholder, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering

 

Item 3. Defaults upon Senior Securities.

 

Between October 2010 and March 2011, the Company issued Notes Payable to various third parties totaling $60,000, bearing zero interest. The Company is currently in default of the principal amount of $60,000.

 

The Company's officers and shareholders have made various promissory notes to the Company to fund operations. The notes are unsecured, and bear interest at 6% per annum. The principal balance of $226,841 and interest of $16,283 are past due and in default.

 

From 2009 to 2015, the Company issued Convertible Promissory Notes (“Notes”) to various accredited investors. The Notes bear interest ranging from 8% to 12% per annum and mature on various dates from February 2010 to September 2016. The Company is currently in default of payment for Notes in the aggregate principal amount of $921,103 and interest of $394,096.

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

Item 5. Other Information.

 

Not applicable.

 

  8    
 

 

Item 6. Exhibits, Financial Statement Schedules

 

3.1   Amended and restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10 registration statement filed with the Securities and Exchange Commission on July 30, 2013)
     
3.2   By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Form 10 registration statement filed with the Securities and Exchange Commission on July 30, 2013)
     
31.1   Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
     
31.2   Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
     
32.1   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
32.2   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
101.INS   XBRL Instance Document**
     
101.SCH   XBRL Taxonomy Extension Schema Document**
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document**
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document**
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document**
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document**

 

* Filed Herewith.

 

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this quarterly report on Form 10-Q shall be deemed “furnished” and not “filed”. 

 

  9    
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  STL MARKETING GROUP, INC.
     
Date: November 14, 2016 By: /s/ Jose P. Quiros
  Name:  Jose P. Quiros
  Title: (Principal Executive Officer)
    Chief Executive Officer
     
  By: /s/ Jaime Kniep
Date: November 14, 2016 Name:  Jaime Kniep
  Title: (Principal Financial Officer)
    (Principal Accounting Officer)
    Chief Financial Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Jose P. Quiros   Chief Executive Officer, Chairman   November 14, 2016
Jose P. Quiros   (Principal Executive Officer)    
         
/s/ Jaime Kniep   Chief Financial Officer, Director   November 14, 2016
Jaime Kniep   (Principal Financial Officer) (Principal Accounting Officer)    

  

  10    
 

    

 

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

REQUIRED BY RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jose P. Quiros, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of STL Marketing Group, Inc. for the period ended September 30, 2016;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2016 By: /s/ Jose P. Quiros
    Chief Executive Officer
    (Principal Executive Officer)

 

     
 

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

REQUIRED BY RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jaime Kniep, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of STL Marketing Group, Inc. for the period ended September 30, 2016;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2016 By: /s/ Jaime Kniep
    Chief Financial Officer
   

(Principal Accounting Officer)

 

     
 

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Jose P. Quiros, Chief Executive Officer of STL Marketing Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2016 By: /s/ Jose P. Quiros
    Chief Executive Officer
    (Principal Executive Officer)

 

     
 

   

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Jaime Kniep, Chief Financial Officer, of STL Marketing Group, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 14, 2016 By: /s/ Jaime Kniep
    Chief Financial Officer
    (Principal Accounting Officer)