UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the Fiscal Year Ended December 31, 2015

 

OR

 

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

 

STL MARKETING GROUP, INC.
(Exact name of registrant as specified in its charter)

 

Colorado   000-55013   20-4387296
(State or other jurisdiction of   (Commission   (I.R.S. Employer
incorporation or organization)   File Number)   Identification Number)

 

10 Boulder Crescent, Suite 102

Colorado Springs, CO 80903

(Address of Principal Executive Offices)

 

 

(Former name or former address, if changed since last report)

 

(719) 219-5797

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the 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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

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

 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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. (Check one):

 

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 Act). Yes [  ] No [X]

 

As of April 14, 2016, there were 995,394,273 shares of the registrant’s common stock issued and outstanding.

 

Documents Incorporated By Reference: None.

 

 

 

 
 

 

STL MARKETING GROUP, INC.

INDEX TO REPORT ON FORM 10-K

 

PART I      
       
Item 1. Business.   3
Item 1A. Risk Factors.   6
Item 1B. Unresolved Staff Comments.   15
Item 2. Properties.   15
Item 3. Legal Proceedings.   16
Item 4. Mine Safety Disclosures.   16
       
PART II      
       
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   17
Item 6. Selected Financial Data.   17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.   18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.   1 9
Item 8. Financial Statements and Supplementary Data.   19
Item 9. Changes In And Disagreements With Accountants on Accounting and Financial Disclosure.   19
Item 9A. Controls And Procedures.   20
Item 9B. Other Information.   21
       
PART III      
       
Item 10. Directors, Executive Officers and Corporate Governance.   22
Item 11. Executive Compensation.   23
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   24
Item 13. Certain Relationships and Related Transactions, and Director Independence.   27
Item 14. Principal Accounting Fees and Services.   28
       
PART IV      
       
Item 15. Exhibits, Financial Statements Schedules.   29
       
SIGNATURES   30

 

2
 

 

FORWARD LOOKING STATEMENTS

 

Included in this Form 10-K 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.

 

PART I

 

Item 1. Business.

 

General Information

 

Our business address is 10 Boulder Crescent, Suite 102, Colorado Springs, CO 80903. Our telephone number is (719) 219-5797 and our Internet website address is www.stlgroup.com. The information contained in, or that can be accessed through, our website is not part of this registration statement.

 

History

 

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. In 2008, Image Worldwide concentrated its business activities on helping clients create, market and promote their brands and image in print, online and at live events. Image Worldwide entered into a share exchange agreement with St. Louis Packaging Inc. on January 31, 2009. In April 2009, the Company changed its name to STL Marketing Group, Inc. On December 1, 2009, the Company sold majority of the STL Brands to Alliance Creative Group, Inc. In March of 2011, the Company entered into a distribution agreement with United Fuel Savers and entered into an option agreement to purchase land in Texas for a potential business opportunity. Prior to October 15, 2012, this distribution agreement and option agreement was canceled. On October 15, 2012, the Company agreed to merge with Versant Corporation, a Colorado based renewable energy company. On February 4, 2013 the Company entered into a share exchange agreement with Versant whereby Versant became the Company’s wholly owned operating subsidiary. The transaction is being accounted for as a reverse merger. Accordingly, the historical financial information going forward will be that of Versant Corporation and subsidiaries.

 

3
 

 

On May 29, 2014, the Board of Directors (the “Board”) of STL Marketing Group, Inc. (the “Company”) approved the formation of PhoneSuite Solutions, Inc. (“PSS”), as a Delaware corporation and a wholly owned subsidiary of the Company. On June 16, 2014, the Board approved the issuance of one-hundred (100) shares of common stock of PSS to the Company (the “Subsidiary Shares”). The Subsidiary Shares represent 100% of the authorized shares of common stock of PSS.

 

On June 24, 2014, PSS, as the Company’s wholly owned subsidiary, entered into a Strategic Alliance and Distribution Agreement (the “Agreement”) with Call Management Products, Inc. (“CMP”), a Colorado corporation in the business of designing, manufacturing, marketing, and selling telecommunications products. The Agreement provides that PSS will establish a dealer network and market and sell CMP’s products both internationally and in the United States (the “Territory”). In the domestic market PSS will market to the general business market, excluding the hospitality and assisted living verticals. Internationally, PSS may sell to all markets and develop both the hospitality and general business marketplaces.

 

Additionally, the Agreement provides that PSS will develop the Territories at its cost and promote CMP’s brands, name and products consistently across the globe. PSS is an exclusive Strategic Ally for CMP’s products in the Territory. The Agreement provides that, each year, PSS and CMP will mutually establish a sales quota for PSS to meet, with the first quota set for fiscal 2015.

 

As a result, our business operations are currently (i) the sale and distribution of telecommunications under the brand name PhoneSuite; and (ii) the prospective sale of electricity through a planned wind park to a government owned utility company in Costa Rica. The Company continues to evaluate additional opportunities to bolster its revenue stream.

 

STL Marketing Group, Inc. has been trading on the OTC Market Pink Sheets under the symbol ‘STLK’ since April 2009.

 

OVERVIEW OF OUR RENEWABLE ENERGY BUSINESS

 

STL Marketing Group, Inc. (OTC: STLK), (the “Company”) is a Colorado corporation seeking to provide wind energy to the Costa Rican government from a wind power generation plant the Company intends to build and operate pursuant to a PPA (as defined in previous filings). Currently, Costa Rica has placed any new non-government renewable energy projects on an indefinite hold. The Company reported these developments but has not seen any resolution in country. As such, the Company will continue to monitor the political situation and when, and if, the political situation changes or allows for such a project as ours, we will renew efforts to pursue the PPA. Until this is resolved in the political arena, the Company will focus on its software applications efforts.

 

OVERVIEW OF OUR SOFTWARE / APPLICATIONS BUSINESS

 

In 2015, the Company pivoted towards technology. In late 2015, the Company signed two binding letters of intent, one for a mobile application named F3TCH and the second with KINETOS, S.A., a software developer and designer based in Costa Rica. The Company’s previous agreement with Call Management Products, Inc. is also in essence an application, an IP based hotel communications application. As envisioned two of these three software platforms will be sold on a business-to-business model with F3TCH being a hybrid application that requires acceptance and approval from hotel chains, for example, and conversion or downloads by end users.

 

PhoneSuite Solutions

 

On May 29, 2014, the Board of Directors (the “Board”) of STL Marketing Group, Inc. (the “Company”) approved the formation of PhoneSuite Solutions, Inc. (“PSS”), as a Delaware corporation and a wholly owned subsidiary of the Company. On June 16, 2014, the Board approved the issuance of one-hundred (100) shares of common stock of PSS to the Company (the “Subsidiary Shares”). The Subsidiary Shares represent 100% of the authorized shares of common stock of PSS.

 

4
 

 

On June 24, 2014, PSS, as the Company’s wholly owned subsidiary, entered into a Strategic Alliance and Distribution Agreement (the “Agreement”) with Call Management Products, Inc. (“CMP”), a Colorado corporation in the business of designing, manufacturing, marketing, and selling telecommunications products. The Agreement provides that PSS will establish a dealer network and market and sell CMP’s products both internationally and in the United States (the “Territory”). In the domestic market PSS will market to the general business market, excluding the hospitality and assisted living verticals. Internationally, PSS may sell to all markets and develop both the hospitality and general business marketplaces.

 

Additionally, the Agreement provides that PSS will develop the Territories at its cost and promote CMP’s brands, name and products consistently across the globe. PSS is an exclusive Strategic Ally for CMP’s products in the Territory. The Agreement provides that, each year, PSS and CMP will mutually establish a sales quota for PSS to meet, with the first quota set for fiscal 2015.

 

At this time, 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. Internal review of our accounting systems has also been completed and is now loaded and adapted to quoting, entering orders, and invoicing.

 

To date, the Company has issued 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 sales.

 

To ensure an active and successful dealer program and sales funnel, we have begun the process of establishing our dealer network. In 2014, the Company has successfully signed three distribution agreements covering the United Arab Emirates and India, Barbados and Nigeria. The initial efforts over the past year, 2015, have been slow and creating the brand awareness has been more difficult than expected. New solutions like CMP’s cloud offering should alleviate some of the current challenges in our opinion. We believe PhoneSuite Solutions, Inc. will begin to generate revenue, add dealers, and follow through with our goal to gain financial independence in 2016.

 

Competition

 

Competitors vary by region. However, we believe our major competitors include Avaya, Shoretel, NEC, Mitel and Cisco. PSS is focused on providing newer technologies such as Voiceware (full VoIP) and the Series 2 (VoIP/ Analog hybrid) for its dealer business vertical as well as a new Voiceware cloud based offering.

 

Business Plan

 

PSS is focused on the promotion, marketing, and sales of two of PhoneSuite’s core products (i) Voiceware and (ii) the Series2. These products are already deployed in the United States, with PSS now developing the dealer channel to achieve sales revenues overseas. These products are VoIP Private Branch Exchange products, designed to provide a feature rich software based communications system to primarily hotels.

 

  1. Voiceware - Voiceware is a VoIP phone system (IP-PBX) application designed for today’s hospitality voice communication needs. The server-based core makes Voiceware extremely flexible, and enables PhoneSuite to continually enhance and improve a hotel PBX feature set without expensive equipment upgrades.
     
  2. Series 2 - Series2 VoIP combines a traditional telephone platform (analog room phones and digital and analog telephone lines) with a Voiceware server. This converts traditional analog and digital end points to be compatible with VoIP technology. With this technology a customer will be able to use existing wiring plans and phones without potentially expensive upgrades.

 

PSS is the exclusive distributor of PhoneSuite branded products to both the international market, as well as the Small Business Market (SMB) here in the United States. PSS currently has plans to offer products in geographic areas including, but not limited to: Asia, the Caribbean, Africa, Australia, the Middle East and India, Europe, Central America, and South America.

 

Reports to Security Holders.

 

  1. The Company will file with the SEC reports as required under the Exchange Act and comply with the requirements of the Exchange Act.
     
  2. The public may read and copy any materials the Company files with the SEC in the SEC’s Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

 

5
 

 

Where You Can Find More Information

 

The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

Item 1A. Risk Factors.

 

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

We have a history of losses and may continue to incur operating and net losses for the foreseeable future. For the year ended December 31, 2015, we incurred a net loss of $1,155,951 and used cash in operating activities of $165,880, and at December 31, 2015, we had a stockholders’ deficit of $6,047,343. These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2015 with respect to this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise, and future reports on our financial statements may also include an explanatory paragraph with respect to our 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. 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. The Company plans 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 it will be 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 need to cease operations or seek protection under bankruptcy laws. These financial statements do not include any adjustments that might result from the uncertainty as to whether we will continue as a “going concern”. Our ability to continue status as a “going concern” is dependent upon our generating cash flow sufficient to fund operations. If we continue incurring losses and fail to achieve profitability, we may have to cease our operations. Our business plan may not be successful in addressing these issues.

 

RISKS RELATED TO OUR BUSINESSES

 

WE HAVE GENERATED SUBSTANTIAL NET LOSSES AND NEGATIVE OPERATING CASH FLOWS SINCE OUR INCEPTION AND EXPECT TO CONTINUE TO DO SO AS WE BEGIN TO DEVELOP AND CONSTRUCT OUR FUTURE ENERGY AND TELECOMMUNICATIONS PROJECTS.

 

We have generated substantial net losses and negative operating cash flows from operating activities since our operations commenced.

 

We expect that our net losses will continue and our cash used in operating activities will grow during the next several years, as compared with prior periods, as we increase our development activities. Energy and telecommunications projects typically incur operating losses prior to commercial operation at which point the projects begin to generate positive operating cash flow. We also expect to incur additional costs, contributing to our losses and operating uses of cash, as we incur the incremental costs of operating as a fully reporting public company. Our costs may also increase due to factors such as higher than anticipated financing and other costs; increases in the costs of labor or materials; and major incidents or catastrophic events. If any of those factors occurs, our losses could increase significantly and the value of our common stock could decline. As a result, our net losses and accumulated deficit could increase significantly.

 

WE DO NOT HAVE SUFFICIENT CASH ON HAND. IF WE DO NOT GENERATE SUFFICIENT REVENUES FROM SALES, AMONG OTHER FACTORS, WE WILL BE UNABLE TO CONTINUE OUR OPERATIONS.

 

There is limited history upon which to base any assumption as to the likelihood that we will prove to be successful, and we may not be able to generate enough operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will be adversely affected.

 

6
 

 

WE HAVE A LIMITED OPERATING HISTORY. IF WE ARE NOT SUCCESSFUL IN CONTINUING TO GROW THE BUSINESS, THEN WE MAY HAVE TO SCALE BACK OR EVEN CEASE ONGOING BUSINESS OPERATIONS.

 

We have no history of revenues from operations. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Operations will be subject to all the risks inherent in the establishment of a developing enterprise, such as difficulties in commercializing our wind energy power generation plant and telecommunications business, and the uncertainties arising from the absence of a significant operating history. We may be unable to sign customer contracts or operate on a profitable basis. If the business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment.

 

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING, BUSINESS OPERATIONS WILL BE HARMED, AND IF WE DO OBTAIN ADDITIONAL FINANCING THEN EXISTING SHAREHOLDERS MAY SUFFER SUBSTANTIAL DILUTION.

 

Additional capital will be required to effectively support the operations and otherwise implement overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.

 

THE LOSS OF ONE OR MORE MEMBERS OF OUR SENIOR MANAGEMENT OR KEY EMPLOYEES MAY ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT OUR STRATEGY.

 

We depend on our experienced management team and the loss of one or more key executives could have a negative impact on our business. Our success depends to a significant extent upon the continued services of Mr. Jose P. Quiros, our Chief Executive Officer. The loss of the services of Mr. Quiros could have a material adverse effect on our growth, revenues, and prospective business. Mr. Quiros does have an employment agreement with the Company.

 

In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and company personnel having experience in the small wind turbine and telecommunications business. Competition for qualified individuals is intense.

 

We also depend on our ability to retain and motivate key employees and attract qualified new employees. There can be no assurance that we will be able to retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms. If we lose a member of the management team or a key employee, we may not be able to replace him or her. Integrating new employees into our management team and training new employees with no prior experience in the wind industry could prove disruptive to our operations, require a disproportionate amount of resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient technical and managerial personnel could limit or delay our development efforts, which could have a material adverse effect on our business, financial condition and results of operations.

 

7
 

 

WE NEED TO ESTABLISH AND MAINTAIN REQUIRED DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING AND TO MEET THE PUBLIC REPORTING AND THE FINANCIAL REQUIREMENTS FOR OUR BUSINESS, WHICH WILL BE TIME CONSUMING FOR OUR MANAGEMENT.

 

Our management has a legal and fiduciary duty to establish and maintain disclosure controls and control procedures in compliance with the securities laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Because we have limited resources, we may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting, and other disclosure controls and procedures. If we cannot assess our internal control over financial reporting as effective or provide adequate disclosure controls or implement sufficient control procedures, or our independent registered public accounting firm is unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

 

IF WE CANNOT EFFECTIVELY MANAGE OUR INTERNAL GROWTH, OUR POTENTIAL BUSINESS PROSPECTS, REVENUES AND PROFIT MARGINS MAY SUFFER.

 

If we fail to effectively manage our internal growth in a manner that minimizes strains on our resources, we could experience disruptions in our operations and ultimately be unable to generate revenues or profits. We expect that we will need to significantly expand our operations to successfully implement our business strategy. As we add manufacturing, marketing, sales and installation and build our infrastructure, we expect that our operating expenses and capital requirements will increase. To effectively manage our growth, we must continue to expend funds to improve our operational, financial and management controls and our reporting systems and procedures. In addition, we must effectively expand, train and manage our employee base. If we fail in our efforts to manage our internal growth, our prospects, revenue and profit margins may suffer.

 

THE PRODUCTION OF WIND ENERGY DEPENDS HEAVILY ON SUITABLE WIND CONDITIONS. IF WIND CONDITIONS ARE UNFAVORABLE OR BELOW OUR ESTIMATES, OUR ELECTRICITY PRODUCTION, AND THEREFORE OUR REVENUES, MAY BE SUBSTANTIALLY BELOW OUR EXPECTATIONS.

 

The electricity produced and revenues generated by a wind energy project depend heavily on wind conditions, which are variable and difficult to predict. Operating results for projects vary significantly from period to period depending on the wind resource during the periods in question. We base our decisions about which sites to develop in part on the findings of long-term wind and other meteorological studies conducted in the proposed area, which measure the wind’s speed, prevailing direction and seasonal variations. Actual wind conditions, however, may not conform to the measured data in these studies and may be affected by variations in weather patterns, including any potential impact of climate change. Therefore, the electricity generated by our projects may not meet our anticipated production levels or the rated capacity of the turbines located there, which could adversely affect our business, financial condition and results of operations. If the wind resources at a project are below the average level we expect, our rate of return for the project would be below our expectations and we would be adversely affected. Projections of wind resources also rely upon assumptions about turbine placement, interference between turbines and the effects of vegetation, land use and terrain, which involve uncertainty and require us to exercise considerable judgment. We or our consultants may make mistakes in conducting these wind and other meteorological studies. Any of these factors could cause us to develop sites that have less wind potential than we had expected, or to develop sites in ways that do not optimize their potential, which could cause the return on our investment in these projects to be lower than expected.

 

If our wind energy assessments turn out to be wrong, our business could suffer a number of material adverse consequences, including:

 

our energy production and sales may be significantly lower than we predict;
   
any future hedging arrangements may be ineffective or more costly;
   
we may not produce sufficient energy to meet future commitments to sell electricity as a result, we may have to pay damages; and
   
our projects may not generate sufficient cash flow to make payments of principal and interest as they become due on any future project-related debt, and we may have difficulty obtaining financing for future projects.

 

8
 

 

NATURAL EVENTS MAY REDUCE ENERGY PRODUCTION BELOW OUR EXPECTATIONS.

 

A natural disaster, severe weather or an accident that damages or otherwise adversely affects any of our operations could have a material adverse effect on our business, financial condition and results of operations. Lightning strikes, icing, earthquakes, tornados, extreme wind, severe storms, wildfires and other unfavorable weather conditions or natural disasters could damage or require us to shut down our turbines or related equipment and facilities, impeding our ability to maintain and operate our facilities and decreasing electricity production levels and our revenues. Operational problems, such as degradation of turbine components due to wear or weather or capacity limitations on the electrical transmission network, can also affect the amount of energy we are able to deliver. Any of these events, to the extent not fully covered by insurance, could have a material adverse effect on our business, financial condition and results of operations.

 

OPERATIONAL PROBLEMS MAY REDUCE ENERGY PRODUCTION BELOW OUR EXPECTATIONS .

 

Spare parts for wind turbines and key pieces of electrical equipment may be hard to acquire or unavailable to us. Sources for some significant spare parts and other equipment are located outside of North America. If we were to experience a shortage of or inability to acquire critical spare parts, we could incur significant delays in returning facilities to full operation. In addition, we may not hold spare substation main transformers. These transformers are designed specifically for each wind energy project, and the current lead time to receive an order for this type of equipment is over eight months. If we had to replace any future substation main transformers, we could be unable to sell electricity from the affected wind energy project until a replacement is installed. That interruption to our business might not be fully covered by insurance.

 

WE FACE COMPETITION PRIMARILY FROM OTHER RENEWABLE ENERGY SOURCES AND, IN PARTICULAR, OTHER WIND ENERGY COMPANIES.

 

We believe our primary competitors are developers and operators focused on renewable energy generation, specifically wind energy companies. We will compete with other wind energy companies primarily for sites with good wind resources that can be built in a cost-effective manner. We will also compete for access to transmission or distribution networks. Because the wind energy industry in the United States is at an early stage, we will also compete with other wind energy developers for the limited pool of personnel with requisite industry knowledge and experience. Furthermore, in recent years, there have been times of increased demand for wind turbine related components, causing turbine suppliers to have difficulty meeting the demand. If these conditions return in the future, component manufacturers may give priority to other market participants, including our competitors, who may have resources greater than ours.

 

We compete with other renewable energy companies (and energy companies in general) for the financing needed to pursue our development plan. Once we have developed a project and put a project into operation, we may compete on price if we sell electricity into power markets at wholesale market prices. Depending on the regulatory framework and market dynamics of a region, we may also compete with other wind energy companies, as well other renewable energy generators, when we bid on or negotiate for a long-term PPA.

 

WE WILL ALSO COMPETE WITH TRADITIONAL ENERGY COMPANIES.

 

We will also compete with traditional energy companies. For example, depending on the regulatory framework and market dynamics of a region, we also compete with traditional electricity producers when we bid on or negotiate for a long-term PPA. Furthermore, technological progress in traditional forms of electricity generation (including technology that reduces or sequesters greenhouse gas emissions) or the discovery of large new deposits of traditional fuels could reduce the cost of electricity generated from those sources or make them more environmentally friendly, and as a consequence reduce the demand for electricity from renewable energy sources or render existing or future wind energy projects uncompetitive. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

 

9
 

 

NEGATIVE PUBLIC OR COMMUNITY RESPONSE TO WIND ENERGY PROJECTS IN GENERAL OR OUR PROJECTS SPECIFICALLY CAN ADVERSELY AFFECT OUR ABILITY TO DEVELOP OUR WIND FARM PROJECTS.

 

Negative public or community response to our wind energy projects can adversely affect our ability to develop, construct and operate our projects. This type of negative response can lead to legal, public relations and other challenges that impede our ability to meet our development and construction targets, achieve commercial operations for a project on schedule, address the changing needs of our projects over time, and generate revenues. If we are unable to develop, construct and operate the production capacity that we expect from our future development projects in our anticipated timeframes, it could have a material adverse effect on our business, financial condition and results of operations.

 

WE NEED GOVERNMENTAL APPROVAL FROM THE COSTA RICAN GOVERNMENT AND PERMITS TO CONSTRUCT AND OPERATE OUR PROJECTS. ANY FAILURE TO PROCURE AND/OR MAINTAIN NECESSARY PERMITS WOULD ADVERSELY AFFECT ONGOING DEVELOPMENT, CONSTRUCTION AND CONTINUING OPERATION OF OUR PROJECTS.

 

The design, construction and operation of wind energy projects are highly regulated, require various approvals from the government of Costa Rica and permits, including environmental approvals and permits, and may be subject to the imposition of related conditions that vary by jurisdiction. In some cases, these approvals and permits require periodic renewal, which we may not be able to successfully obtain. We cannot predict whether all permits required for a given project will be granted or whether the conditions associated with the permits will be achievable. The denial of a permit essential to a project or the imposition of impractical conditions would impair our ability to develop the project. In addition, we cannot predict whether the permits will attract significant opposition or whether the permitting process will be lengthened due to complexities and appeals. Delay in the review and permitting process for a project can impair or delay our ability to develop that project or increase the cost so substantially that the project is no longer attractive to us. In the future, we may experience delays in developing our future projects due to delays in obtaining non-appealable permits. If we were to commence construction in anticipation of obtaining the final, non-appealable permits needed for a project, we would be subject to the risk of being unable to complete the project if all the permits were not obtained. If this were to occur, we would likely lose a significant portion of our investment in the project and could incur a loss as a result. Any failure to procure and maintain necessary permits would adversely affect ongoing development, construction and continuing operation of our projects.

 

OUR DEVELOPMENT ACTIVITIES AND OPERATIONS ARE SUBJECT TO NUMEROUS ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS.

 

We are subject to numerous environmental, health and safety laws and regulations in each of the jurisdictions in which we intend to operate. These laws and regulations will require us to obtain approvals and maintain permits, undergo environmental impact assessments and review processes and implement environmental, health and safety programs and procedures to control risks associated with the citing, construction, operation and decommissioning of wind energy projects. For example, to obtain permits we could be required to undertake expensive programs to protect and maintain local endangered species. If such programs are not successful, we could be subject to penalties or to revocation of our permits. In addition, permits frequently specify permissible sound levels.

 

If we do not comply with applicable laws, regulations or permit requirements, we may be required to pay penalties or fines or curtail or cease operations of the affected projects. Violations of environmental and other laws, regulations and permit requirements, including certain violations of laws protecting migratory birds and endangered species, may also result in criminal sanctions or injunctions.

 

Environmental, health and safety laws, regulations and permit requirements may change or become more stringent. Any such changes could require us to incur materially higher costs than we have incurred to date. Our costs of complying with current and future environmental, health and safety laws, regulations and permit requirements, and any liabilities, fines or other sanctions resulting from violations of them, could adversely affect our business, financial condition and results of operations.

 

10
 

 

WE WILL RELY ON TRANSMISSION LINES AND OTHER TRANSMISSION FACILITIES THAT ARE OWNED AND OPERATED BY THIRD PARTIES. WHEREVER WE DEVELOP OUR OWN GENERATOR LEADS, WE WILL BE EXPOSED TO TRANSMISSION FACILITY DEVELOPMENT AND CURTAILMENT RISKS, WHICH MAY DELAY AND INCREASE THE COSTS OF OUR PROJECTS OR REDUCE THE RETURN TO US ON THOSE INVESTMENTS.

 

We will depend on electric transmission lines owned and operated by third parties to deliver the electricity we generate. Some of our projects may have limited access to interconnection and transmission capacity because there can be many parties seeking access to the limited capacity that may be available. We may not be able to secure access to this limited interconnection or transmission capacity at reasonable prices or at all. Moreover, a failure in the operation by third parties of these transmission facilities could result in our losing revenues because such a failure could limit the amount of electricity we deliver. In addition, our production of electricity may be curtailed due to third-party transmission limitations, reducing our revenues and impairing our ability to capitalize fully on a particular project’s potential. Such a failure could have a material adverse effect on our business, financial condition and results of operations.

 

In certain circumstances, we may develop our own generator leads in the future from our projects to available electricity transmission or distribution networks when such facilities do not already exist. In some cases, these facilities may cover significant distances. To construct such facilities, we need approvals, permits and land rights, which may be difficult or impossible to acquire or the acquisition of which may require significant expenditures. We may not be successful in these activities, and our projects that rely on such generator lead development may be delayed, have increased costs or not be feasible. Our failure in operating these generator leads could result in lost revenues because it could limit the amount of electricity we are able to deliver. In addition, we may be required by law or regulation to provide service over our facilities to third parties at regulated rates, which could constrain transmission of our power from the affected facilities, or we could be subject to additional regulatory risks associated with being considered the owner of a transmission line.

 

WE MAY BE UNABLE TO CONSTRUCT OUR WIND ENERGY PROJECTS ON TIME, AND OUR CONSTRUCTION COSTS COULD INCREASE TO LEVELS THAT MAKE A PROJECT TOO EXPENSIVE TO COMPLETE OR MAKE THE RETURN ON OUR INVESTMENT IN THAT PROJECT LESS THAN EXPECTED.

 

There may be delays or unexpected developments in completing our future wind energy projects, which could cause the construction costs of these projects to exceed our expectations. We may suffer significant construction delays or construction cost increases as a result of a variety of factors, including, without limitation:

 

  failure to manufacture turbines on the required schedule;
     
  failure to receive other critical components and equipment, including batteries, that meet our design specifications on schedule;
     
  failure to complete interconnection to transmission networks;
     
  failure to obtain all necessary rights to land access and use;
     
  failure to receive quality and timely performance of third-party services;
     
  failure to secure and maintain environmental and other permits or approvals;
     
  appeals of environmental and other permits or approvals that we obtain;
     
  failure to obtain capital to develop our planned wind farm projects;
     
  shortage of skilled labor;
     
  inclement weather conditions;
     
  adverse environmental and geological conditions; and
     
  force majeure or other events out of our control.

 

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Any of these factors could give rise to construction delays and construction costs in excess of our expectations. This could prevent us from completing construction of a project, cause defaults under any potential financing agreements or under PPAs that require completion of project construction by a certain time, cause the project to be unprofitable for us, or otherwise impair our business, financial condition and results of operations.

 

FUTURE LITIGATION OR ADMINISTRATIVE PROCEEDINGS RELATED TO OUR WIND FARM PROJECTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

In the future, we may be involved in legal proceedings, administrative proceedings, claims and/or litigation that arise in the ordinary course of business of wind farm projects. Individuals and interest groups may sue to challenge the issuance of a permit for a wind energy project or seek to enjoin construction of a wind energy project. In addition, we may be subject to legal proceedings or claims contesting the construction or operation of future wind energy projects. Unfavorable outcomes or developments relating to any such proceedings, such as judgments for monetary damages, injunctions or denial or revocation of permits, could have a material adverse effect on our business, financial condition and results of operations.

 

WE ARE NOT ABLE TO INSURE AGAINST ALL POTENTIAL RISKS AND MAY BECOME SUBJECT TO HIGHER INSURANCE PREMIUMS.

 

Our wind energy division will be exposed to the risks inherent in the construction and operation of wind energy projects, such as breakdowns, manufacturing defects, natural disasters, terrorist attacks and sabotage, not all of which is insurable. We may also be exposed to environmental risks. We will have insurance policies covering certain risks associated with our business. However, any such insurance policies will not cover losses as a result of force majeure , natural disasters, terrorist attacks or sabotage, among other things. We do not expect to maintain insurance for certain environmental risks, such as environmental contamination with respect to our wind energy business. In addition, our insurance policies may be subject to annual review by our insurers and may not be renewed at all or on similar or favorable terms. A serious uninsured loss or a loss significantly exceeding the limits of our future insurance policies could have a material adverse effect on our business, financial condition and results of operations.

 

WE FACE FORMIDABLE COMPETITION FROM NUMEROUS ESTABLISHED FIRMS THAT PROVIDE BOTH TRADITIONAL ENTERPRISE VOICE COMMUNICATIONS SOLUTIONS AS WELL AS PROVIDERS OF TECHNOLOGY RELATED TO BUSINESS COLLABORATION AND CONTACT CENTER SOLUTIONS; AS THESE MARKETS EVOLVE, WE EXPECT COMPETITION TO INTENSIFY AND EXPAND TO INCLUDE COMPANIES THAT DO NOT CURRENTLY COMPETE DIRECTLY AGAINST US.

 

We compete against providers of both traditional enterprise voice communications solutions, as well as providers of technology related to business collaboration and contact center solutions. In addition, because the business collaboration market continues to evolve and technology continues to develop rapidly, we may face competition in the future from companies that do not currently compete against us, but whose current business activities may bring them into competition with us in the future. In particular, information technology and communications applications deployed on converged networks become more integrated to support business collaboration. We may face increased competition from current leaders in information technology infrastructure, information technology, consumer products companies, personal and business applications and the software that connects the network infrastructure to those applications. Several of our existing competitors have, and many of our future competitors may have, greater financial, personnel, technical, research and development and other resources, more well-established brands or reputations and broader customer bases and, as a result, these competitors may be in a stronger position to respond quickly to potential acquisitions and other market opportunities, new or emerging technologies and changes in customer requirements. Some of these competitors may have customer bases that are more geographically balanced and therefore, may be less affected by an economic downturn in a particular region. Other competitors may have deeper expertise in a particular stand-alone technology that develops more quickly than we anticipate. Competitors with greater resources also may be able to offer lower prices, additional products or services or other incentives. Industry consolidations may also create competitors with broader and more geographic coverage and the ability to reach enterprises through communications service providers. Existing customers of data networking companies that compete against us may be inclined to purchase enterprise communications solutions from their current data networking or software vendors. Additionally, as communications and data networks converge, we may face competition from systems integrators that traditionally have been focused on data network integration.

 

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RISKS RELATED TO THE TELECOMMUNICATIONS INDUSTRY - REGULATION OF IP-BASED NETWORKS AND COMMERCE IN THE UNITED STATES AND ELSEWHERE MAY INCREASE, COMPLIANCE WITH THESE REGULATIONS MAY BE TIME-CONSUMING, DIFFICULT AND COSTLY AND, IF WE FAIL TO COMPLY, OUR SALES MIGHT DECREASE.

 

In general, the telecommunications industry is highly regulated. Regulatory treatment of VoIP telephony outside the United States varies from country to country and often the laws are unclear. We currently plan to distribute our products and services directly through resellers that may be subject to telecommunications regulations in their home countries. The failure by us or our resellers to comply with these laws and regulations could impact our business operations. Such regulations could include matters such as using or providing VoIP services or protocols, encryption technology and access charges for service providers. The adoption of such regulations could prohibit entry into a target market or force us to withdraw products in one or more jurisdictions. As a result, overall demand for our products could decrease and, at the same time, the cost of selling our products could increase, either of which, or the combination of both, could have a material adverse effect on our business, operating results and financial condition.

 

In addition, the convergence of the public switched telephone network, or PSTN, and IP-based networks could become subject to governmental regulation, including the imposition of access fees or other tariffs, and such regulation could adversely affect the market for our products and services. User uncertainty regarding future policies and regulations may also affect demand for communications products such as ours. We may be required, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment. Our inability to timely alter our products or address any regulatory changes may have a material adverse effect on our financial condition, results of operations or cash flows.

 

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR HIGHLY COMPETITIVE INDUSTRIES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION .

 

We face significant competition in many of the markets in which we do business and expect that this competition will intensify. The principal competitive factors in our business are range of service offerings, global capabilities and price and quality of services. In addition, we believe there has been an industry trend to move agent-based operations toward offshore sites. The trend toward international expansion by foreign and domestic competitors and continuous technological changes may erode profits by bringing new competitors into our markets and reducing prices. Our competitors’ products, services and pricing practices, as well as the timing and circumstances of the entry of additional competitors into our markets, could adversely affect our business, results of operations and financial condition.

 

We rely on a combination of an internal sales effort and third party relationships to market our services. If we are unable to offset pricing declines through increased transaction volume and greater efficiency due to a failure of our sales efforts or otherwise, our business, results of operations and financial condition could be adversely affected.

 

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RISKS RELATED TO COMMON STOCK

 

POTENTIAL FUTURE FINANCINGS MAY DILUTE THE HOLDINGS OF OUR CURRENT SHAREHOLDERS.

 

In order to provide capital for the operation of our business, in the future we may enter into financing arrangements. These arrangements may involve the issuance of new shares of common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of common stock outstanding, which would in turn result in a dilution of the ownership interests of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.

 

WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES .

 

We currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.

 

YOU MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.

 

We are in a capital intensive business and we do not have sufficient funds to finance the growth of our natural gas, oil and wind energy divisions of our business or the construction costs of our development projects or to support our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including tax equity financing transactions or sales of preferred shares or convertible debt, to complete the development of new projects and pay the general and administrative costs of our business. We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to issue 2,600,000,000 shares of common stock and 1,401,925,000 shares of preferred stock with preferences and rights as determined by our board of directors. The potential issuance of such additional shares of common stock or preferred stock or convertible debt may create downward pressure on the trading price of our common stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings of our common shares or securities convertible into common shares.

 

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THERE IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK. FAILURE TO DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT ITS VALUE AND MAKE IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES.

 

There has been a limited public market for our common stock and an active public market for our common stock may never develop. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or recover any part of your investment in us. Even if a market for our common stock does develop, the market price of our common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.

 

“PENNY STOCK” RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.

 

If the market price for our common stock is below $5.00 per share, trading in our common stock will be subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules would require that any broker-dealer that would recommend our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations would require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

Currently, we are headquartered in Colorado Springs, Colorado and operate our main office located at 10 Boulder Crescent, Suite 102, Colorado Springs, CO 80903. The office is approximately 973 square feet. The original lease including operating building costs increased to $1,135 per month in November 2012 and ended on October 31, 2013. On November 13, 2013, the Company entered into a second rental amendment to the original lease agreement by and between G. Douglas and Janis Wasson and Engelage Real Estate One, LLC, (Landlord) and Versant Corporation, (Tenant), dated October 15, 2010. The lease expires on November 14, 2016. Not including operating building costs, the minimum base rent schedule is $694.08 per month for the year beginning November 15, 2013, $742.66 per month for the year beginning November 15, 2014, and $794.65 per month for the year beginning November 15, 2015.

 

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Item 3. Legal Proceedings.

 

Arbitration- Grupo Aldesa- (Pending)

 

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 legal process has taken much longer than anticipated due to structural changes in the courts themselves. We do expect to be notified of a resolution soon. 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 $519,281.96 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.

 

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 4. Mine Safety Disclosures.

 

Not applicable

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

(a) Market Information

 

Our shares of common stock are currently quoted on the OTCQB under the symbol “STLK”. We have provided ranges of high and low bids per share of our common stock for the applicable periods as available.

 

The following table sets forth the range of available high and low bid quotations as reported on the OTCQB for the periods indicated.

 

Fiscal Year Ended December 31, 2014   High     Low  
Quarter ended December 31, 2014   $ .006     $ .004  
Quarter ended September 30, 2014     .0735       .003  
Quarter ended June 30, 2014     .1575       .0165  
Quarter ended March 31, 2014     .3555       .1155  

 

Fiscal Year Ended December 31, 2015     High     Low  
Quarter ended December 31, 2015   $ .0001     $ .0001  
Quarter ended September 30, 2015     .0001       .0001  
Quarter ended June 30, 2015     .0001       .0001  
Quarter ended March 31, 2015     .0015       .0007  

 

(b) Holders

 

As of April 14, 2016, a total of 995,394,273 shares of the Company’s common stock are currently outstanding held by approximately 195 shareholders of record. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees.

 

(c) Dividends

 

We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Delaware law.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

We currently do not have an equity compensation plan.

 

Rule 10B-18 Transactions

 

During the year ended December 31, 2015, there were no repurchases of the Company’s common stock by the Company.

 

Recent Sales of Unregistered Securities

 

There were no sales of unregistered securities not already reported on the Company’s quarterly filings on Form 10-Q or on a Current Report on Form 8-K.

 

Item 6. Selected Financial Data.

 

Pursuant to permissive authority under Regulation S-K, Rule 301, we have omitted Selected Financial Data.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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.

 

Due to the effect it had on operations, it is important to note that last year was personally difficult for everyone at the Company. As a very small company, there was an unavoidable delay in our efforts due to the personal tragedy that affected our team. On April 2, 2015, the eldest son of the CEO died at the United States Air Force Academy, six weeks from graduating with honors with an astronautics degree. Less than a few weeks later, on April 15 th , the CEO’s wife went missing. She was found three days later in the mountains, deceased. These people were either family or very close to everyone at the Company. While we continued operations and made every attempt to push through, the effect on our progress, or lack thereof, was marked and significant.

 

PhoneSuite Solutions, Inc.

 

Our latest efforts have been producing a lot of activity and interest. We are continuing to add new dealers to bolster our presence in key areas. 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. In addition, our goal is to further the US focused brand overseas, which Call Management Products, Inc (“CMP” d/b/a Phonesuite) claims to have installed five thousand systems since its inception (North America). Our meeting with a major US chain this past October, was positive and we are now working that hotel’s pipeline lists for various opportunities.

 

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On the technology front, we have finalized our cloud infrastructure to be able to provide the contracted features to overseas properties, as required by one of CMP’s contracted partners- Hilton Hotels Worldwide. We chose Amazon’s Web Services for this deployment and look forward to pursuing new business opportunities for this with other chains, overseas. AWS is a very reliable, redundant and a powerful infrastructure from which to deliver the PhoneSuite product. While we feel confident we can go to market with this structure, we caution that adoption by hotels for a cloud-based service has not gained as much momentum as in the generic business community. However, it is a contractual requirement for Hilton and we do have a premise based IP solution available that is already working and in properties here in the USA (though CMP). Please note that CMP is a separate company and not related to STL Marketing Group, Inc.

 

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

 

On November 5, 2015 the Company entered into a binding Letter of Intent with Camposagrado, Inc. to market and commercialize Camposagrado’s patent pending Application or “APP”. 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.

 

Hound Software

 

On August 3, 2015 the Company entered into a Letter of Intent with a software developer, Kinetos, S.A.. The Board of Directors is reviewing documentation to implement the Letter of Intent in a more formal manner between the partners. The KINETOS software platform is being branded under the name Hound Software. The Company will release information on this as soon as it is available. We look forward to making this public.

 

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 December 31, 2015 and 2014 this debt is included on the accompanying consolidated financial statements.

 

For the years ended December 31, 2015 and 2014

For the period ended December 31, 2015 and 2014, the Company reported a net loss of $(1,155,951) and $(220,734), respectively. The change in net loss between the periods ended December 31, 2015 and 2014 is primarily due to a decrease in the derivative liabilities.

Operating expenses decreased by $344,563 during the period ended December 31, 2015, as compared to the period ended December 31, 2014. This decrease in operating expenses is primarily attributed to the following changes in operating expenses: decrease in professional fees of $258,069 due a decrease in outside services and a decrease in general and administrative of $91,494 due to a decrease in offering cost expense in 2015 compared to 2014 and a decrease in overall operating expenses.

The Company has no revenues to date.

Liquidity and Capital Resources

As of December 31, 2015, we had a working deficit of $6,048,478 as compared to December 31, 2014 of $5,101,747, an increase of $946,731. The increase in working capital deficit for the period ended December 31, 2015, is primarily attributed to an increase in derivative liabilities of $597,502. In addition, the Company had an increase in liabilities related to accrued payables and expenses of $241,980, and in notes payable - related party of $107,571.

Net cash used in operating activities for the period ended December 31, 2015 and 2014, was $(165,880) and $(286,175), respectively. The Net Loss for the period ended December 31, 2015 and 2014 was $(1,155,951) and $(220,734), respectively.

Net cash provided by investing activities for the period ended December 31, 2015 was $0, as compared to the period ended December 31, 2014 of $2,758.

Net cash provided by all financing activities for the period ended December 31, 2015 was $166,571, as compared to $282,802 for the period ended December 31, 2014. During the period ended December 31, 2015, the Company sold notes for the proceeds of $59,000.

 

At December 31, 2015, the Company had cash on hand for $793. Management estimates that the current funds on hand will not be sufficient to continue operations. 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.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 8. Financial Statements.

 

Our consolidated financial statements begin on page F-1 at the end of this Annual Report.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

On August 6, 2015 the Company dismissed Rosenberg Rich Baker Berman & Company (“RRBB”) as its independent registered public accounting firm. None of the reports of RRBB on the Company’s financial statements for either of the past two years or subsequent interim period contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the Company’s audited financial statements contained in its Form 10-K for the year ended December 31, 2013 and December 31, 2014, contained a going concern qualification in the Registrant’s audited financial statements.

 

During the two most recent fiscal years and any subsequent interim period preceding RRBB’s dismissal, there were no disagreements with RRBB on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of RRBB concerning the subject matter of each of such disagreements would have caused them to make reference thereto in their report on the financial statements.

 

On August 6, 2015, the Company’s Board of Directors approved the engagement of Weinberg & Company, PA (“Weinberg”), as the Company’s independent registered public accounting firm, to audit the Company’s financial statements and to perform reviews of interim financial statements. During the fiscal years ended December 31, 2014 and 2013, and any subsequent interim period through August 6, 2015, neither the Company nor anyone acting on its behalf consulted with Weinberg regarding (i) either the application of any accounting principles to a specific completed or contemplated transaction of the Registrant, or the type of audit opinion that might be rendered by Weinberg on the Company’s financial statements; or (ii) any matter that was either the subject of a disagreement with RRBB or a reportable event with respect to RRBB.

 

19
 

 

Item 9A. Controls and Procedures.

 

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, 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) MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Company management is responsible for establishing and maintaining internal controls over financial reporting and disclosure controls. Internal Control Over Financial Reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
   
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the registrant; and
   
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is appropriately recorded, processed, summarized and reported within the specified time periods.

 

Management has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based on this assessment, management concluded that as of December 31, 2015, it had material weaknesses in its internal control procedures.

 

As of December 31, 2015, we have concluded that our internal control over financial reporting was ineffective. The Company’s assessment identified certain material weaknesses, which are set forth below:

 

Functional Controls and Segregation of Duties

 

Because of the Company’s limited resources, there are limited controls over information processing.

 

There is an inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation we would need to hire additional staff. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.

 

20
 

 

Accordingly, as the result of identifying the above material weaknesses we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

 

Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for the Company’s business operations.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report herein.

 

(c) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

We are committed to improving our financial organization. As part of this commitment, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us by preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

Management believes that preparing and implementing sufficient written policies and checklists will remedy the material weaknesses pertaining to insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, including:

 

(1) We will revise processes to provide for a greater role of independent board members in the oversight and review until such time that we are adequately capitalized to permit hiring additional personnel to address segregation of duties issues, ineffective controls over the revenue cycle and insufficient supervision and review by our corporate management.
   
(2) We will continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.

 

We intend to consider the results of our remediation efforts and related testing as part of our year-end 2015 assessment of the effectiveness of our internal control over financial reporting.

 

Subsequent to December 31, 2015, we have undertaken the following steps to address the deficiencies stated above:

 

  Continued the development and documentation of internal controls and procedures surrounding the financial reporting process, primarily through the use of account reconciliations, and supervision.

 

Item 9B. Other Information.

 

Not applicable.

 

21
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

 

The following table discloses our directors and executive officers as of April 14, 2016.

 

Name   Age   Position
Jose P. Quiros   48   Chief Executive Officer, Chairman
         
Jaime L. Kniep   39   Chief Financial Officer, Director
         
Ing. Pedro P. Quiros   77   Director

 

Jose P. Quiros, age 48, Chief Executive Officer, Chairman

 

Mr. Quiros has worked at a variety of industries and companies from start-ups to Fortune 1000 companies. He has operated companies in the UK, Dubai, India, Russia and the US. Most recently, Mr. Quiros was the Chief Operating Officer for CETIS, a telecommunications manufacturer from 2006 through 2010. While at CETIS, he undertook a multi continent expansion and completed two successful mergers and acquisitions.

 

Mr. Quiros received two Bachelor of Science from Barry University in Miami. He holds degrees in Economics/ Finance & International Business Management and graduated Summa Cum Laude. Mr. Quiros also attended the University of Miami School of Law.

 

Ing. Pedro P. Quiros, age 77, Director

 

Ing. Pedro P. Quiros (“Ing. Quiros”), began his career as a high level executive at the Instituto Costarricense de Electricidad (ICE). Over the past 50 years, he has had a varied career where he worked at a variety of multinational corporations such as Ascom-Timeplex, ITT, Harris Corporation, General Electric and GTECH to name a few. He has operated, restructured and started companies in more than a dozen countries including telecommunications systems in Saudi Arabia, Jordan, Brazil and Colombia. Most recently, Ing. Quiros served, from 2006 through 2010, as the Chief Executive Officer & Chairman of the Instituto Costarricense de Electricidad (Grupo ICE) where he oversaw that company’s telecommunications and electrical utilities companies. ICE has revenue of $1 billion, over twenty thousand employees and is Costa Rica’s predominant state owned telecommunications and energy company.

 

Ing. Quiros received his Bachelor’s Degree in Mathematics from St. Michael’s College, Vermont, (magna cum laude) and Bachelor’s Degree Electrical Engineering degree from Purdue University, Indiana.

 

22
 

 

Jaime L. Kniep, age 39, Chief Financial Officer, Director

 

Ms. Kniep has focused her career in business management and accounting. She has worked for several companies directly handling their financials, daily accounting practices and overall internal procedures. From 2000 to 2010, Ms. Kniep served in a variety or roles and rose to be the Financial Controller for CETIS, Inc., a manufacturer of telecommunications equipment, where she managed $30 mm in revenues. In this role, she managed four offices containing a staff of ten accountants, bookkeepers, and administrative people on three continents.

 

Ms. Kniep attended Utah State University.

 

Family Relationships.

 

The Chairman of the Board, Mr. Jose Quiros is the son of our Director, Mr. Ing. Pedro P. Quiros.

 

Board Committees and Charters

 

We currently have no committees of the Board of Directors of the Company.

 

Involvement in Certain Legal Proceedings

 

During the past five years no director, person nominated to become a director, executive officer, promoter or control person of the Company has: (i) had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or (iv) been found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended December 31, 2015, were timely.

 

Code of Ethics

 

The Company has had a Code of Ethics since the merger and has this Code posted on its website along with its Corporate Governance documents.

 

Item 11. Executive Compensation.

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the periods ended December 31, 2015, 2014, 2013 and 2012.

 

Name and
Principal
Position
  Year   Salary
$)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Nonequity
Incentive
Plan
Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings ($)
    All Other
Compensation
($)
    Total
($)
 
(a)   (b)   (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  
Jose P. Quiros President & CEO(1)   2015   $ 130,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 130,000  
    2014   $ 130,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 130,000  
    2013   $ 130,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 130,000  
    2012   $ 130,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 130,000  
                                                                     
Jaime L. Kniep Chief Financial Officer(2)   2015   $ 100,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 100,000  
    2014   $ 100,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 100,000  
    2013   $ 100,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 100,000  
    2012   $ 100,000     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 0.00     $ 100,000  

 

  (1) The following amounts were accrued $124,000, $72,231, $82,820, $125,000, for 2015, 2014, 2013 and 2012, respectively.
     
  (2) The following amounts were accrued $47,350, $91,569, $55,000, $95,000 for 2015, 2014, 2013 and 2012, respectively.

 

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We currently do not have any retirement, pension, profit-sharing, stock options or insurance programs for the benefit of our employees.

 

Members of the Company’s Board of Directors receive a stipend of $100 per meeting per director.

 

Currently, the Company does not have an equity incentive plan and therefore has no outstanding equity awards as of April 14, 2016.

 

Employment Contracts

 

Currently, the Company has employment contracts with Mr. Jose P. Quiros and Mrs. Jaime L. Kniep.

 

Mr. Jose Quiros

 

Effective October 15, 2012, the Company and Mr. Jose P Quiros, our President and Chief Executive Officer, entered into a five (5) year employment agreement, which provides for an annual salary of $130,000. Under such agreement, Mr. Quiros shall administer, supervise, manage and control the business development of the Company and conduct day to day managerial duties as are customary for such a position. The Company will provide Mr. Quiros with medical dental and life insurance. The Company will reimburse of all his reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out his duties and responsibilities under the agreement.

 

The Company may terminate Mr. Quiros with or without cause upon thirty (30) days written notice. In the event that Mr. Quiros is terminated without cause all compensation owed to him will be due immediately upon such termination. During the term of his employment, Mr. Quiros will not work for or provide any services in any capacity to any competitor during the term of his employment and for (1) year thereafter.

 

Mrs. Jaime L. Kniep.

 

Effective October 15, 2012, the Company and Mrs. Jaime L Kniep, our Chief Financial Officer, entered into a five (5) year employment agreement, which provides for an annual salary of $100,000. Under such agreement, Mrs. Kniep shall perform such duties as are customary with her position including, but not limited to, managing the Company’s finances and reviewing and preparing financials statements. The Company will provide Mrs. Kniep with medical dental and life insurance. The Company will reimburse of all her reasonable and necessary travel, entertainment or other related expenses incurred by him in carrying out her duties and responsibilities under the agreement.

 

The Company may terminate Mrs. Kniep with or without cause upon thirty (30) days written notice. In the event that Mrs. Kniep is terminated without cause all compensation owed to her will be due immediately upon such termination. During the term of her employment, Mrs. Kniep will not work for or provide any services in any capacity to any competitor during the term of her employment and for (1) year thereafter.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table summarizes certain information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of outstanding Common Stock and Preferred Stock as of April 14, 2016, by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of our directors, (iii) each of our named executive officers (as defined in Item 403(a) of Regulation S-K under the Securities Act), and (iv) all executive officers and directors as a group. Except as indicated in the footnotes below, the security and stockholders listed on the following page possess sole voting and investment power with respect to their shares.

 

24
 

 

  Common Stock (4)     Series A Preferred Stock (4)     Series B Preferred Stock (4)     Series C Preferred Stock (4)        
Name
and Address of Beneficial Owner
(1)(2)
  Number of Shares Owned     Percent of Class     Number of Shares Owned     Percent of Class     Number of Shares Owned     Percent of Class     Number of Shares Owned     Percent of Class     All Stock
Versant I, Inc. (3)     6,666,667       0.66 %                 1,400,000,000       100 %                 1,406,666,667     0.66% of Common Stock
100% of Series B Preferred Stock
All Directors and Executive Officers as a Group     6,666,667       0.66 %                     1,400,000,000       100 %                     1,406,666,667     0.66% of Common Stock
100% of Series B Preferred Stock

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise stated, the address of all beneficial owners is 10 Boulder Crescent, Suite 102, Colorado Springs, CO 80903.

 

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There are 995,394,273 shares of common stock, 1,800,000 shares of Series A Preferred Stock, 1,400,000,000 shares of Series B Preferred stock and 0 shares of series C Preferred Stock, respectively, issued and outstanding as of April 14, 2016 including securities exercisable or convertible into shares of Common Stock within sixty (60) days hereof for each stockholder.

 

(3) The shares held by Versant I, Inc. are owned by Jose P. Quiros, our Chief Executive Officer.

 

(4) The Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock have voting rights of 1 vote per share, 1 vote per share, 1.6 votes per share and 0 votes per shares, respectively.

 

25
 

 

General

 

The Company is authorized by its Certificate of Incorporation to issue an aggregate of 4,001,925,000 shares of capital stock, of which 2,600,000,000 are shares of common stock, par value $0.001 per share (the “Common Stock”), and 1,800,000 are shares of Series A preferred stock, par value $1.00 per share, 1,400,000,000 are shares of Series B preferred stock, par value $0.001 per share, and 125,000 are shares of Series C preferred stock, par value $0.001 per share (collectively the “Preferred Stock”). As of April 14, 2016, 995,394,273 shares of Common Stock, 1,800,000 shares of Series A Preferred Stock, and 1,400,000,000 shares of Series B Preferred Stock were issued and outstanding.

 

(1) Common Stock

 

The holders of our Common Stock (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have pre-emptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which shareholders may vote.

 

The shares of our Common Stock are not subject to any future call or assessment and all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the shares of our Common Stock and they all rank at equal rate or “paripassu”, or each with the other, as to all benefits, which might accrue to the holders of the shares of our Common Stock. All registered shareholders are entitled to receive a notice of any general annual meeting to be convened.

 

At any general meeting, subject to the restrictions on joint registered owners of shares of our Common Stock, on a showing of hands, every shareholder who is present in person and entitled to vote has one vote, and on a poll every shareholder has one vote for each share of our Common Stock of which he is the registered owner and may exercise such vote either in person or by proxy. Holders of shares of our Common Stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.

 

(2) Preferred Stock

 

Our Board of Directors is authorized to issue 1,401,925,000 shares of preferred stock in one or more series, from time to time, with each such series to have such designation, relative rights, preferences or limitations as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors, subject to the limitations prescribed by law and in accordance with the provisions of our Certificate of Incorporation, the Board of Directors being expressly vested with authority to adopt any such resolution or resolutions.

 

Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of our Company. The ability of the Board to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of our Company by tender offer or other means. Such issuances could therefore deprive shareholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause.

 

Series A Convertible Preferred Stock

 

As of April 14, 2016, 1,800,000 shares of our Series A Preferred Stock (the “Series A Preferred”) have been designated, of which 1,800,000 are issued and outstanding and held by five shareholders. Each share of the Series A Preferred has one vote per share and the holder(s) of the Series A Preferred shall have the right to vote with the holders of the Company’s Common Stock on all matters that are submitted to the Company’s stockholders. Each share of the Series A Preferred Stock shall be entitled to a 10% preferred annual dividend on Par ($0.10 per share) non-cumulative on any dividends, whether ordinary or liquidating that may be declared or paid by this Company. At the option of the holder of the Series A Preferred, each share of the Series A Preferred may be converted into the Company’s common stock at any time and from time to time after March 1, 2018. The Series A Preferred does not contain any sinking fund provisions.

 

26
 

 

Series B Preferred Stock

 

As of April 14, 2016, 1,400,000,000 shares of our Series B Preferred Stock have been designated, of which all are issued and outstanding and held by one shareholder. Each share of the Series B Preferred Stock (the “Series B Preferred”) shall have a 1.6 votes per share and shall be entitled to any non-preferred dividends, whether ordinary or liquidating, that may be declared or paid by the Company. The Series Preferred do not have contain any sinking fund provisions and have no conversion rights.

 

Series C Convertible Preferred Stock

 

As of April 14, 2016, 125,000 shares of our Series C Preferred Stock (the “Series C Preferred”) have been designated, of which none are currently issued and outstanding. The Series C Preferred do not have voting rights and are not entitled to any dividends. The Series C preferred do not contain any sinking fund provisions.

 

At the option of the holder of the Series C Preferred, each share of the Series C Preferred may be converted into the Company’s Common Stock at a 50% discount to the average of the lowest three (3) trading prices in the ten trading days immediately prior to the date upon which the Series C Preferred is converted.

 

Dividends

 

We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

While there is not an established public trading market for our Common Stock, our Common Stock is quoted on the OTCQB under the symbol “STLK”.

 

The market price of our Common Stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our Common Stock, regardless of our actual or projected performance.

 

Transfer Agent and Registrar

 

The Company’s transfer agent is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. VStock Transfer, LLC is registered under the Exchange Act and is a Securities and Exchange Commission (“SEC”) approved transfer agent, under the regulatory authority of the SEC.

 

Holders

 

As of April 14, 2016, we have 995,394,273 shares of our common stock par value, $0.001, issued and outstanding. There are approximately 195 holders of our common stock.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Our Director, Mr. Ing. Pedro P. Quiros is the father of our Chief Executive Officer, Mr. Jose P. Quiros.

 

The Company incurred consulting expenses to a company, which is owned by Pedro P. Quiros, a board member, and for the fiscal year ended December 31, 2015 and 2014, the amounts were $37,500 and $75,000, respectively. These consulting expenses correlate to the monitoring and lobbying on behalf of the Company’s wind power generation plans in Costa Rica.

 

The Company executed various promissory notes to related parties since inception. New notes were issued for the year ending December 31, 2015.

 

27
 

 

The notes had the following range of terms:

 

Maturing in 3 months to 1 year;
   
Non-interest bearing
   
Unsecured
   
Default interest rate at 6%, per annum;

 

During the year ended December 31, 2015 and December 31, 2014, the Company repaid $5,000 and $34,071, respectively leaving a balance of $150,322 and $42,751 respectively.

 

The Company is currently in default on $71,446 of these notes.

 

The Company has not had and does not currently have any promoters.

 

Director Independence

 

The common stock of the Company is currently quoted on the OTCQB quotation systems which currently do not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the NASDAQ.

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200.

 

Item 14. Principal Accounting Fees and Services.

 

Audit Fees

 

Audit Fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. The aggregate audit fees billed during the fiscal years ended December 31, 2015 and 2014 were $47,500 and $36,650, respectively.

 

Tax Fees

 

Tax fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns. The aggregate tax fees billed for the fiscal years ended December 31, 2015 and 2014 were $0 and $0, respectively.

 

Audit Committee Pre-Approval Policies and Procedures

 

As of December 31, 2015 we did not have an audit committee. Our board of directors pre-approved all services provided by our independent auditors

 

28
 

 

PART IV

 

Item 15. 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 annual report on Form 10-K shall be deemed “furnished” and not “filed”.

 

29
 

 

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: April 20, 2016 By: /s/ Jose P. Quiros
  Name: Jose P. Quiros
  Title: (Principal Executive Officer)
    Chief Executive Officer
     
  By: /s/ Jaime Kniep
Date: April 20, 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   April 20, 2016
Jose P. Quiros   (Principal Executive Officer)    
         
/s/ Ing. Pedro P.Quiros   Director   April 20, 2016
Ing. Pedro P.Quiros        
         
/s/ Jaime Kniep   Chief Financial Officer, Director   April 20, 2016
Jaime Kniep   (Principal Financial Officer) (Principal Accounting Officer)    

 

30
 

 

STL Marketing Group, Inc. & Subsidiaries

Consolidated Financial Statements

 

December 31, 2015 and 2014

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

    PAGES
     
Report of Independent Registered Public Accounting Firm   F-2
     
Consolidated balance sheets   F-3
     
Consolidated statements of operations   F-4
     
Consolidated statements of stockholders’ deficit   F-5
     
Consolidated statements of cash flows   F-6
     
Notes to the consolidated financial statements   F-7

 

F- 1  
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

STL Marketing Group, Inc. & Subsidiaries

  

We have audited the accompanying consolidated balance sheets of STL Marketing Group, Inc. & Subsidiaries (the “Company”) as of December 31, 2015 and 2014 (restated), and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ending December 31, 2015, and the related restated consolidated statements of operations, stockholders’ deficit, and cash flows for the year ending December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 3 to the consolidated financial statements, the 2014 consolidated financial statements have been restated to correct a misstatement.

 

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, during the year ended December 31, 2015, the Company incurred a net loss and utilized cash flows in operations, and at December 31, 2015, had a shareholders’ deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Weinberg and Company, P.A.

 

Los Angeles, California

April 20, 2016

 

F- 2  
 

 

STL Marketing Group, Inc. & Subsidiaries

Consolidated Balance Sheets

 

    December 31, 2015     December 31, 2014  
          (Restated)  
Assets                
                 
Current Assets                
Cash   $ 793     $ 102  
Total Current Assets     793       102  
                 
Property and Equipment, net     -       5,755  
                 
Other Assets                
Security deposits     1,135       1,135  
                 
Total Assets   $ 1,928     $ 6,992  
                 
Liabilities and Stockholders’ Deficit                
                 
Current Liabilities:                
Accounts payable and accrued liabilities, including $750,470 and $579,120 salaries due to officers, respectively   $ 1,322,834     $ 1,080,854  
Accrued liabilities and accounts payable - related party     436,123       385,677  
Notes payable - related party     150,322       42,751  
Liabilities payable in shares     114,500       114,500  
Notes payable     60,000       60,000  
Convertible notes payable, net of discount     927,992       978,069  
Derivative liabilities     3,037,500       2,439,998  
Total Liabilities     6,049,271       5,101,849  
                 
Commitments and Contingencies                
                 
Stockholders’ 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, 910,305,734 Shares Issued and Outstanding at December 31, 2015, 59,763,617 Issued and Outstanding at December 31, 2014      910,306         59,764   
Additional paid in capital     (2,675,428 )     ( 2,028,351 )  
Accumulated Deficit     (7,482,221 )     ( 6,326,270 )
Total Stockholders’ Deficit     (6,047,343 )     (5,094,857 )
                 
Total Liabilities and Stockholders’ Deficit   $ 1,928     $ 6,992  

 

See accompanying notes to the consolidated financial statements

 

F- 3  
 

 

STL Marketing Group, Inc. & Subsidiaries  

Consolidated Statements of Operations

 

    For the Year Ending  
    December 31, 2015     December 31, 2014  
          (Restated)  
Revenues   $ -     $ -  
                 
Cost of revenues     -       -  
                 
Gross profit     -       -  
                 
Operating expenses                
Compensation     248,304       243,304  
Professional fees     110,589       368,658  
Selling, general and administrative including $37,500 and $75,000, to related parties, respectively     44,192       135,686  
Total operating expenses     403,085       747,648  
                 
Loss from operations     (403,085 )     (747,648 )
                 
Other income (expense):                
Interest expense, including $10,210 and $ 2,392 to related parties     (214,362 )     (513,712 )
Interest expense - Tarpon Bay Partners     -       (83,428 )
Change in fair value of derivative liabilities     (675,045 )     1,369,729  
Gain on extinguishment of derivative liabilities     291,118       280,158  
Private placement costs     (154,577 )     (525,833 )
                 
Other income (expense) - net     (752,866 )     526,914
                 
Net Loss   $ (1,155,951 )   $ (220,734 )
                 
Net loss per common share - basic and diluted   $ (0.00 )   $ (0.00 )
                 
Weighted average common shares outstanding - basic and diluted      586,638,334        237,058,602  

 

See accompanying notes to the consolidated financial statements

 

F- 4  
 

 

STL Marketing Group, Inc. & Subsidiaries
Consolidated Statements of Stockholders’ Deficit
For the years ending December 31, 2015 and 2014

 

    Preferred Stock, Class A Par Value $1.00     Preferred Stock, Class B Par Value $0.001     APIC     Discount on     Common Stock, Class B Par Value $0.001     APIC              
    Shares     Amount     Shares     Amount     Preferred Stock     Preferred Stock     Shares     Amount     Common Stock     Deficit     Total  
                                                                   
Balance January 1, 2014     1,800,000     $ 1,800,000       1,400,000,000     $ 1,400,000     $ (232,000 )   $ (2,466,999 )     9,281,568     $ 9,282     $ 204,718     $ (6,105,536 )   $ (5,390,535 )
                                                                                         
Reclassification                                     232,000       2,466,999                       (2,698,999 )             -  
                                                                                         
Shares issued for services and payment of fee                                                     1,991,944       1,991       115,649               117,640  
                                                                                         
Shares issued for conversion of notes                                                     33,797,238       33,798       118,240               152,038  
                                                                                         
Shares issued to Tarpon Bay Partners                                                     14,692,867       14,693       232,041               246,734  
                                                                                         
Net Loss     -       -       -       -       -       -       -       -       -       (220,734 )     (220,734 )
                                                                                         
Balance, December 31, 2014     1,800,000       1,800,000       1,400,000,000       1,400,000       -       -       59,763,617       59,764       (2,028,351 )     (6,326,270 )     (5,094,857 )
                                                                                         
Adjustment for reverse stock split                                                     622                                  
                                                                                         
Shares of stock issued for conversion of convertible notes                                                     850,541,495       850,542       (647,077 )             203,465  
                                                                                         
Net Loss                                                                             (1,155,951 )     (1,155,951 )
Balance, December 31, 2015     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 )

 

See accompanying notes to the consolidated financial statements

 

F- 5  
 

 

STL Marketing Group, Inc. & Subsidiaries

Consolidated Statements of Cash Flows 

 

    For the Year Ended  
    December 31, 2015     December 31, 2014  
          (Restated)  
Cash Flows From Operating Activities:                
Net Loss   $ (1,155,951 )   $ (220,734 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation and amortization     5,755       2,115  
Stock based compensation     -       117,640  
Deferred offering costs     -       84,070  
Amortization of debt discount     151,097       407,398  
Change in fair value of derivative liabilities     675,045       (1,369,729 )
Private placement costs     154,577       525,833  
Amortization of deferred offering costs     -       15,930  
Interest Expense - Tarpon Bay Partners     -       83,428  
Gain on extinguishment of derivative liabilities     (291,118 )     (280,158 )
Changes in operating assets and liabilities:             -  
Accounts payable and accrued liabilities     244,269       286,607  
Accounts payable - related party     50,446       61,425  
Net Cash Used in Operating Activities     (165,880 )     (286,175 )
                 
Cash Flows From Investing Activities:                
Purchase of property and equipment     -       (640 )
Security deposits     -       3,398  
Net Cash Provided by Investing Activities     -       2,758  
                 
Cash Flows From Financing Activities:                
Proceeds from related party notes payable     112,571       2,873  
Payment of related party notes payable     (5,000 )     (34,071 )
Proceeds from convertible notes     59,000       314,000  
Net Cash Provided by Financing Activities     166,571       282,802  
                 
Net increase (decrease) cash     691       (615 )
                 
Cash at beginning of period     102       717  
                 
Cash at end of period   $ 793     $ 102  
                 
Supplemental disclosure of non-cash investing and financing activities:                
                 
Conversion of convertible notes into common stock   $ 201,175     $ 142,181  
Conversion of accrued interest on convertible note into common stock   $ 2,288     $ -  
Note payable issued for deferred offering costs   $ -     $ 25,000  
Common stock issued for fees   $ -     $ 50,000  
Liabilities settled in connection with the Liabilities Purchase Agreement   $ -     $ 165,447  

 

See accompanying notes to the consolidated financial statements

 

F- 6  
 

  

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015 and 2014

 

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 (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 year ended December 31, 2015, the Company incurred a net loss of $1,155,951, used cash in operations of $165,880, and at December 31, 2015, had a stockholders’ deficit of $6,047,343. These factors raise 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 December 31, 2015, the Company had cash on hand in the amount of $793. Management estimates that the current funds on hand will not be sufficient to continue operations. 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.

 

F- 7  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015 and 2014

 

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 stock holders, 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.

 

Note 2 – Summary of Significant Accounting Policies

 

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.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Property and Equipment

 

Property and equipment is stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, which ranges from three to seven years. The Company evaluates property and equipment for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. The Company had no such impairments at December 31, 2015 and 2014.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

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.

 

F- 8  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015 and 2014

  

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.

 

Fair Value of Financial Instruments

 

The fair value of our financial assets and liabilities reflects our estimate of amounts that we would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of our assets and liabilities, we seek to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally unobservable inputs based on the Company’s assumptions and not corroborated by market data.

 

As of December 31, 2015 and December 31, 2014, the Company’s consolidated balance sheets included the fair value of derivative liabilities of $3,037,500 and $2,439,998, respectively, which was based on Level 2 measurements.

 

The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, and notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

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.

 

F- 9  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015 and 2014

 

Net Loss per Common Share

 

Basic loss per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all potentially dilutive shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method.

 

At December 31, 2015 and 2014, we excluded the outstanding securities summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been anti-dilutive:

 

Common stock equivalents are as follows:

 

    December 31, 2015     December 31, 2014  
             
Convertible Debt     26,317,577,848       151,220,118  
Liability to be paid in shares     545,000,000       2,422,222  
Liability to be paid in shares (30% discount)     1,016,669,714       4,289,961  
Common stock equivalents     27,879,247,562       157,932, 301  

 

Advertising and Marketing Costs

 

Marketing costs are expensed as incurred and are included in selling, general, and administrative expenses. For the years ended December 31, 2015 and 2014, marketing expenses were $7,187 and $82,048, respectively.

 

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.

 

F- 10  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015 and 2014

 

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.

 

Reclassification

 

In presenting the Company’s consolidated statements of stockholders’ deficit for the year ended December 31, 2014, the Company presented ($232,000) of additional paid in capital –preferred stock and ($2,466,999) of discount on preferred stock. In presenting the Company’s consolidated statement of stockholders’ deficit in the accompanying consolidated financial statements, the Company has reclassified the ($232,000) and ($2,466,999) to additional paid in capital. There was no effect on total assets, total liabilities, total equity, or net loss.

 

Note 3 – Restatement of Prior Periods

 

For the year ended December 31, 2014, it was determined that the Company had previously recorded $354,920 related to issuance of shares of common stock where the par value of those shares in excess of their fair value had been recorded as an expense and not a reduction of additional paid in capital, had previously recorded a gain of $280,158 on the extinguishment of a derivative liability related to debt as additional paid in capital, and not recorded an expense of $84,070 for a previously recorded prepaid asset related to professional fees of an abandoned offering. The following sets forth the significant effects of the aforementioned restatement to the Company’s consolidated financial statements as of December 31, 2014:

 

F- 11  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

    December 31, 2014
As Previously
Reported
    2014
Adjustment
    December 31, 2014
As Restated
    Reference
Balance Sheet                      
Current Assets   $ 84,172     $ (84,070 )   $ 102     [1]
Total Assets   $ 91,062     $ (84,070 )   $ 6,992      
                             
Accounts payable and accrued expenses   $ 1,447,850         $ 1,447,50    
Convertible Notes, net of discount     978,069             $ 978,069    
Other     235,932             $ 235,932    
Derivative Liabilities     2,439,998           $ 2,439,998    
Total Liabilities   $ 5,101,849           $ 5,101,849      
                             
Preferred Stock and common stock     3,259,764               3,259,764      
Additional Paid in Capital-Preferred     (2,698,999 )     2,698,999       -   [4]
Additional Paid in Capital     1,305,726      

(354,920 )

(280,158)

(2,698,999

)     (2,028,351 )   [2], [3], [4]
Accumulated Deficit     (6,877,278 )     551,008     (6,326,270 )    
Total Shareholders’ Deficit     5,010,787       (84,070 )     (5,094,857 )    
Total Liabilities & Stockholders’ Deficit   $ 91,062     $ (84,070 )   $ 6,992      
Statement of operations                            
Total operating expenses   $ 663,579     $ 84,070     $ 747,648     [1]
                             
Interest expense     (461,234 )    

354,920

      (106,314 )   [2]
Interest expenses-discount on notes     (407,398 )     -       (407,398 )    
Interest expense - Tarpon Bay Partners     (83,428 )     -       (83,428 )    
Change in fair value of derivative liabilities     1,369,729           1,369,729      
Derivative expense     (525,832 )     -       (525,832 )  
Gain on extinguishment of derivative     -       280,158       280,158     [3]
                             
Net loss   $ (771,742 )   $ 551,008   $ (220,734 )    
Net loss per share, basic and diluted   $ (0.03 )     (0.00 )   $ (0.03 )    

 

For the year ended December 31, 2014, the net cash used in operations of $(286,175), net cash provided by investing activities of $2,758, and net cash provided by financing activities of $282,802 as previously reported have not changed, therefore the statement of cash flows information is omitted.

 

The restatements to the financial statements for the year ended December 31, 2014 are as follows:

 

  1. Expense deferred offering costs for professional fees on abandoned financing.
  2. To adjust $354,920 related to issuance of shares of common stock where the par value of those shares in excess of their fair value was previously recorded as an expense and not a reduction of additional paid in capital.
  3. Correct the accounting for the extinguishment of derivative liabilities due to conversion of debt originally accounted for as additional paid capital adjustment
  4. Reclassification of additional paid in capital to conform the 2014 to the 2015 presentation.

 

F- 12  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

Note 4 – Liabilities Payable in Shares

 

In August 2012, the Company executed a consulting agreement with a third party to provide various services. Under the terms of the agreement, the consultant would be paid $10,000 per month for six months in the form of free trading shares. The share total is computed as follows: earned compensation will accrue interest at 6%, and accrued compensation will be convertible into 70% of the average of the lowest three closing bid prices of the 20 days preceding any conversion. At December 31, 2015 and 2014, a balance of $60,000 remains outstanding and at December 31, 2015, is convertible into 1,016,669,714 shares of Common Stock.

 

In January 2014, the Company executed a three-month consulting agreement with a third party to provide strategic planning matters. The consultant would be paid $15,000 per month for three months in the form of restricted common stock, using the average of the last five trading days of the month. As of December 31, 2015 and 2014, a balance of $15,000 remains outstanding and at December 31, 2015, is convertible into 150,000,000 shares of Common Stock.

 

In February 2014, the Company engaged an attorney as counsel. According to the engagement contract, a portion of the fees due to the attorney would be paid in restricted common shares. As of December 31, 2015 and 2014, the Company has fees payable in the amount of $39,500, which at December 31, 2015 is convertible into 395,000,000 shares of Common Stock.

 

Note 5 – Notes Payable

 

    December 31, 2015     December 31, 2014  
In October 2010, a third party loaned the Company $50,000 under a demand note bearing zero interest. At December 31, 2015 and 2014, 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 and at December 31, 2015 and 2014 is in default.     10,000       10,000  
    $ 60,000     $ 60,000  

 

Note 6 – Convertible Notes Payable

 

At December 31, 2015 and December 31, 2014, convertible notes consisted of the following:

 

    December 31, 2015     December 31, 2014  
Unsecured convertible notes payable   $ 942,144     $ 1,084,319  
Debt discount     (14,152 )     (106,250 )
Notes payable, net of discount   $ 927,992     $ 978,069  

 

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 that matured in February 2010 through July 2015 in the aggregate principal amount of $893,330.

 

The Notes are convertible into shares of Common Stock of the Company at the option of the holder commencing on various dates following the issuance date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, are convertible at price per share at discounts ranging from 10% to 75% of the Company’s Common Stock trading market price during a certain time period, as defined in the agreements. Further, the conversion prices for three notes are subject to a floor such that the conversion prices will not be less than a certain price, as defined in the agreement, with such floor prices ranging from $0.004 to $0.015 per share. 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.

 

F- 13  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

As of December 31, 2014, the balance of the Notes was $1,084,319. During the year ended December 31, 2015, the Company issued $59,000 of new unsecured convertible notes. During the year ended December 31, 2015, note holders converted $201,175 of principal and $2,288 of accrued interest into 850,541,495 shares of the Company’s common stock. At December 31, 2015, the principal balance of the Notes was $942,144.

 

As of December 31, 2014, the debt discount related to issuance of the Notes was $106,250. During the year ended December 31, 2015, the Company recorded debt discounts of $59,000, and recorded discount amortization of $151,098. As of December 31, 2015, debt discount was $14,152. The remainder of the valuation discount will be amortized as interest expense over the remaining term of the note of one year.

 

As of December 31, 2013, the balance of the Notes was $882,000. During the year ended December 31, 2014, the Company issued $344,500 of new unsecured convertible notes, of which $314,000 were issued for cash. During the year ended December 31, 2014, note holders converted $142,181 of principal and $9,857 of accrued interest into 33,797,238 shares of the Company’s common stock. At December 31, 2014, the principal balance of the Notes was $1,084,319.

 

As of December 31, 2013, the debt discount related to issuance of the Notes was $184,312. During the year ended December 31, 2014, the Company recorded debt discounts of $329,336, and recorded discount amortization of $407,398. As of December 31, 2014, debt discount was $106,250.

 

The Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.004 to $0.015 were de minimus and in substance not indexed to the Company’s own stock. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance (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 December 31, 2015 and 2014 this debt is included on the accompanying consolidated financial statements.

 

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.

 

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

 

    December 31, 2015    

January to December, 2015

(Dates of Inception)

    December 31, 2014  
Conversion feature:                        
Risk-free interest rate     0.33 %     .11 %     0.03 %
Expected volatility     262%-549 %     636%-756 %       290%-959 %
Expected life (in years)     0.25 -1 year       0.33-1 year       0.1-1.68 years  
Expected dividend yield     -       -       -  
                         
Fair Value:                        
Conversion feature   $ 3,037,500     $ 213,577     $ 2,439,998  

 

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. 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.

 

F- 14  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

At December 31, 2014, the balance of the derivative liabilities was $2,439,998. During the year ended December 31, 2014, the Company recorded additional derivative liabilities of $213,575. In addition, during the period ended December 31, 2015, convertible notes and accrued interest totaling $203,465 were converted into shares of common stock and the Company recorded a gain of $291,118 related to the extinguishment of the corresponding derivative liability. As of December 31, 2015, the Company re-measured the derivative liabilities and determined the fair value to be $3,037,500, and for the year ended December 31, 2015, recorded a loss on the change in fair value of derivatives of $675,045.

 

At December 31, 2013, the balance of the derivative liabilities was $3,250,672. During the year ended December 31, 2014, the Company recorded additional derivative liabilities of $839,213. In addition, during the period ended December 31, 2015, convertible notes and accrued interest totaling $152,038 were converted into shares of common stock and the Company recorded a gain of $280,158 related to the extinguishment of the corresponding derivative liability. As of December 31, 2015, the Company re-measured the derivative liabilities and determined the fair value to be $2,439,998, and for the year ended December 31, 2015, recorded a gain on the change in fair value of derivatives of $1,369,729.

 

Note 8 – Related Party Transactions

 

(A) Accounts Payable and Accrued Liabilities – Related Party

 

Since April 8, 2010 through December 31, 2015, management and board members have been advancing funds to the Company, paying expenses on behalf of the Company, and deferring salaries and consulting fees. As of December 31, 2015 and December 31, 2014, accounts payable and accrued liabilities due to board members and companies owned by board members totaled $436,123 and $385,677, respectively, these amounts are unsecured, non-interest bearing, and due on demand.

 

(B) Related Party Consulting Services

 

The Company incurred consulting expenses to a company that is owned by a board member, and for the period ending December 31, 2015 and 2014 the amounts were $37,500 and $75,000 respectively.

   

(C) Notes Payable – Related Parties

 

The Company executed various promissory notes to related parties since inception. The balance of the outstanding notes at December 31, 2013 was $73,949. During the year ended December 31, 2014, notes were issued for $2,873 to related parties, and the Company repaid $34,071 of notes to related parties. The notes mature in 3 months to 1 year, are unsecured, and have interest rate at 6%, per annum. The balance of the outstanding notes at December 31, 2014 was $42,751.

 

During the year ended December 31, 2015, notes were issued in the amount of $112,571 to related parties. The notes mature in 3 months to 1 year, are unsecured, and have interest rate at 6%, per annum. During the year ended December 31, 2015, the Company repaid $5,000 on notes to related parties. The balance of the outstanding notes at December 31, 2015 was $150,322. At December 31, 2015, the Company is in default on $71,446 of these notes.

 

F- 15  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

Note 9 – Stockholders Deficit

 

Series A Convertible Preferred Stock

 

1,800,000 shares of our Series A Preferred Stock (the “Series A Preferred”) have been designated, of which 1,800,000 are issued and outstanding and held by five shareholders. Each share of the Series A Preferred has one vote per share and the holder(s) of the Series A Preferred shall have the right to vote with the holders of the Company’s Common Stock on all matters that are submitted to the Company’s stockholders. Each share of the Series A Preferred Stock shall be entitled to a 10% preferred annual dividend on Par ($0.10 per share) non-cumulative on any dividends, whether ordinary or liquidating that may be declared or paid by this Company. At the option of the holder of the Series A Preferred, each share of the Series A Preferred may be converted into the Company’s common stock at any time and from time to time after March 1, 2018. The Series A Preferred does not contain any sinking fund provisions.

 

Series B Preferred Stock

 

1,400,000,000 shares of our Series B Preferred Stock have been designated, of which all are issued and outstanding and held by one shareholder. Each share of the Series B Preferred Stock (the “Series B Preferred”) shall have a 1.6 votes per share and shall be entitled to any non-preferred dividends, whether ordinary or liquidating, that may be declared or paid by the Company. The Series Preferred do not have contain any sinking fund provisions and have no conversion rights.

 

Series C Convertible Preferred Stock

 

125,000 shares of our Series C Preferred Stock (the “Series C Preferred”) have been designated, of which none are currently issued and outstanding. The Series C Preferred do not have voting rights and are not entitled to any dividends. The Series C preferred do not contain any sinking fund provisions.

 

At the option of the holder of the Series C Preferred, each share of the Series C Preferred may be converted into the Company’s Common Stock at a 50% discount to the average of the lowest three (3) trading prices in the ten trading days immediately prior to the date upon which the Series C Preferred is converted.

 

Common Stock

 

For the year ended December 31 2015, 850,541,495 shares of common stock were issued to holders of various convertible notes that converted $203,465 of principal and accrued interest.

 

For the year ended December 31 2014, 33,797,238 shares of common stock were issued to the holders of various convertible notes that converted $152,038 in principal and accrued interest.

 

During the period ended December 31, 2014, the Company issued 14,692,867 shares of common stock to Tarpon Bay Partners valued at $246,734, of which Tarpon received fees of $81,287 and $165,447 reduced past due accounts payable.

 

During the year ended December 31, 2014, the Company issued 1,991,944 shares of common stock with a fair value of $117,460 for $67,460 for services rendered and the payment of a $50,000 of note payable.

 

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 period ended December 31, 2015, the Company did not issue any shares of common stock to Tarpon in connection with the agreement. During the period ended December 31, 2014, the Company issued 14,692,867 shares of common stock to Tarpon valued at $246,734, of which Tarpon received fees of $81,287 and $165,447 reduced past due accounts payable, leaving a balance owed to vendors of $353,836. At December 31, 2015 and December 31, 2014, the balance due of $353,836 is included in accounts payable and accrued liabilities on the accompanying balance sheets. A portion of the fees that Tarpon has received has not been fully documented by Tarpon to the Company as requested, and therefore are in dispute and are pending of file date. For purposes of presentation in the accompanying financial statements, we have recorded these fees as fees paid to Tarpon.

 

F- 16  
 

 

STL Marketing Group, Inc. & Subsidiaries

Notes to the Condensed Consolidated Financial Statements

December 31, 2015 and 2014

 

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 December 31, 2015 and December 31, 2014, 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 December 31, 2015, the amounts outstanding on the notes plus accrued interest was $48,176, and are convertible into 963,511,000 shares of the Company’s common stock.

 

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. 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 CICA process has reached its final legal stage and we are awaiting the final judgment.

 

Note 11 – Subsequent Events

 

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).

 

Subsequent to December 31, 2015, convertible note holders converted $4,594 of principal and $92 of accrued interest into 85,088,539 shares of the Company’s common stock at conversion prices ranging from $0.00004 to $0.00005 per share.

 

F- 17