UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the period ended June 30, 2014

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________ to ____________

 

Commission File Number: 0-11050

 

 

ELITE DATA SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Florida

 

59-2181303

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

4447 N. Central Expressway Ste 110-135 Dallas, TX 75205

 (Address of Principal Executive Offices) (Zip Code)

 

Registrant's telephone number including area code: (972) 885-3981

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

Larger accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 19, 2014, the Company had 16,179,108 shares of common stock of the registrant outstanding.

 

 

 

 

ELITE DATA SERVICES, INC. AND ITS SUBSIDARIES

  Quarterly Report on Form 10-Q for the period ended June 30, 2014

 

TABLE OF CONTENTS

 

    Page  

PART I - FINANCIAL INFORMATION

 

Item 1.

Unaudited condensed Consolidated Financial Statements.

 

4

 

Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013 (audited)

   

4

 

Condensed Consolidated Statements of Operations for Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)

   

5

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)

   

6

 

Notes to (Unaudited) Condensed Consolidated Financial Statements

   

7

 

Item 2. 

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

   

13

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

   

19

 

Item 4. 

Controls and Procedures.

   

19

 
 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings.

   

20

 

Item 1A. 

Risk Factors.

   

20

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

   

20

 

Item 3.

Defaults Upon Senior Securities.

   

20

 

Item 4.

Mine Safety Disclosures.

   

20

 

Item 5.

Other Information.

   

20

 

Item 6.

Exhibits.

   

21

 

Signatures

   

22

 

 

 
2

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Information included or incorporated by reference in this Report contains forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

 

Among the material risks which may impact Forward Looking Statements are the following: the risk that we are unsuccessful in obtaining additional capital through the private sale of common shares, debt and/or convertible debt on commercially reasonable terms and which we require in order to fund the Company’s business; the risk that we are unsuccessful in growing and developing our business, and the risk that our business does not perform to expectations, or does not operate profitably.

 

The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. The reader is cautioned that no statements contained in this Report should be construed as a guarantee or assurance of future performance or results. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks described in this report and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this Report and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of certain of the risks and factors that may affect the Company's business.

 

 
3

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ELITE DATA SERVICES, INC. AND SUBSIDIARIES

  (Formerly DYNAMIC ENERGY ALLIANCE CORPORATION)

  CONDENSED CONSOLIDATED BALANCE SHEETS

 

  June 30,
2014
  December 31,
2013
 
(Unaudited)    (audited)   

ASSETS

         

CURRENT ASSETS:

 

       

Cash

 

$

1,074

 

 

$

2,884

 

Total Current Assets

 

 

1,074

 

 

2,884

 

         

OTHER ASSETS:

 

       

Intangible assets (Note 3)

 

 

589,041

 

 

 

   

589,041

 

 

 

Total Assets

 

$

590,115

 

 

$

2,884

 

         

LIABILITIES AND STOCKHOLDERS’ DEFICIT

         

CURRENT LIABILITIES:

 

       

Accounts payable and accrued liabilities

 

$

377,165

 

 

$

313,202

 

Loans from a related parties

 

 

141,432

 

 

37,424

 

Line of credit payable

 

 

151,000

 

 

151,000

 

Contingent consideration payable

 

 

791,212

 

 

906,574

 

Total Current Liabilities

 

 

1,460,809

 

 

1,408,200

 

         

LONG TERM DEBT:

 

       

Note payable to related party (Note 3)

 

 

587,564

 

 

 

Total liabilities

 

 

2,048,373

 

 

1,408,200

 

         

STOCKHOLDERS’ DEFICIT:

 

       

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; issued and outstanding and 0, respectively

 

 

 

 

 

Common stock, $0.0001 par value; 50,000,000 shares authorized; issued and outstanding 16,179,108 and 150,488, respectively

 

 

1,618

 

 

15

 

Stock subscriptions

 

 

100,000

 

 

155,000

 

Additional paid-in capital

 

 

4,962,369

 

 

4,907,380

 

Deficit accumulated

 

 

(6,522,245

 

(6,467,711

Total Stockholders’ Deficit

 

 

(1,458,258

 

(1,405,316

Total Liabilities and Stockholders’ Deficit

 

$

590,115

 

 

$

2,884

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

 

ELITE DATA SERVICES, INC. AND SUBSIDIARIES

(Formerly DYNAMIC ENERGY ALLIANCE CORPORATION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  Three Months Ended June 30,   Six Months Ended June 30,  
 

2014

 

2013

 

 

2014

 

 

2013

 
                         

REVENUES

 

 

$

2,214

   

$

 

 

$

9,429 

  $

 
                         

OPERATING EXPENSES:

 

                       

Consulting services (Note 3)

 

   

(5,700

)

   

20,000

     

32,500

     

70,000

 

Project development costs (Note 3)

 

   

2,000

     

     

29,000

     

 

General and administrative

 

   

40,444

     

26,284

     

80,614

     

174,204

 

Total Operating Expenses

 

   

36,744

     

46,284

     

142,114

     

244,204

 
                                 

LOSS FROM OPERATIONS

 

   

(34,530

)

   

(46,284

)

   

(132,685

)

   

(244,204

)

                                 

OTHER INCOME (EXPENSE):

 

                               

Gain on extinguishment of debt

 

   

     

     

115,247

     

 

Interest expense - other

 

   

(5,662

)

   

(10,460

)

   

(11,325

)

   

(20,803

)

Interest expense – related parties

 

   

(12,853

 )

   

     

(25,771

)

   

 

Other

 

   

     

     

     

(41

)

Total Other Income (Expense)

 

   

(18,515

)

   

(10,460

)    

78,151

     

(20,844

)

                                 

NET LOSS

 

 

$

(53,045

)

 

$

(56,744

)

 

$

(54,534

)

 

$

(265,048

)

Net loss per common share, basic and diluted

 

 

$

(0.00

)

 

$

(0.89

)

 

$

(0.00

)

 

$

(4.18

)

Weighted average number of common shares outstanding, basic and diluted

 

   

16,117,460

     

63,468

     

16,093,417

     

63,468

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
5

 

ELITE DATA SERVICES, INC. AND SUBSIDIARIES

(Formerly DYNAMIC ENERGY ALLIANCE CORPORATION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  SixMonths Ended June 30,  

2014

   

2013

 

OPERATING ACTIVITIES:

             

Net loss

$

(54,534

)

 

$

(265,048

)

Adjustments to reconcile net loss to net cash used by operating activities:

             

Gain on extinguishment of debt

(115,247

)

   

 

Warrants issued for services

 

     

130,000

 

Changes in operating assets and liabilities :

             

Accounts payable and accrued expenses

 

63,963

     

77,741

 

Income taxes payable

 

   

(238

)

Net cash used in operating activities

(105,818

)

 

(57,545

)

             

FINANCING ACTIVITIES:

             

Proceeds from related parties

 

104,008

     

56,953

 

Net cash provided by financing activities

 

104,008

     

56,963

 

NET DECREASE IN CASH

(1,810

)

 

(592

)

CASH BEGINNING OF THE PERIOD

 

2,884

     

592

 

CASH END OF THE PERIOD

$

1,074

   

$

 

SUPPLEMENTAL CASH FLOW INFORMATION:

           

Income taxes paid

$

   

$

 

Interest paid

$

   

$

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

Issuance of common stock in connection with the purchase of classifiedride.com 

$

1,400

$

Issuance of common stock in connection with the purchase of Autoglance, LLC

$

77

$

Issuance of common stock for conversion of debt

$

115,362

$

Note payable for the purchase of classifiedride.com (Note 3)

$

587,564

$

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

 

ELITE DATA SERVICES, INC. AND SUBSIDIARIES

(Formerly DYNAMIC ENERGY ALLIANCE CORPORATION)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

 

1.  DESCRIPTION OF BUSINESS

 

Elite Data Services, Inc. (hereinafter the “Company”, “Our”, “We” or “Us”) changed its name from Dynamic Energy Alliance Corporation on November 4, 2013. Prior to that, we were formerly Mammatech Corporation, and were incorporated in the State of Florida on November 23, 1981 under the name Mammathetics Corp.

 

The Company is engaged primarily in the marketing and advertising sector pertaining to the following:www.classifiedride.com (“ClassifiedRide”) and www.autoglance.com (“Autoglance”). Launched to the public in February 2012, ClassifiedRide’s platform was designed to revolutionize the selling and buying for online automotive markets. Currently, ClassifiedRide provides a classified listing platform where users can list their vehicle, truck, boat (i.e. anything that has a motor) to the Company’s website (either by free or paid listing options). The main premise of the website is to aid the private seller in selling or trading their vehicle. The Company, in turn, then works as the community leader to establish relationships between buyers and sellers using social media platforms and consumer customer support incentives. These relationships are used to generate revenue from private sellers, dealerships, affiliate lead providers, and third party advertisers.

 

Autoglance is a search engine of used cars that prioritizes and compares inventory in individualized markets by displaying the best deals first while hiding listings that are older, more expensive, and have more mileage. Autoglance currently has a provisional patent for this method of organizing and displaying vehicles. More specifically, Autoglance’s invention group’s vehicles of the same make and model in a market location to determine the best price based on the market value of the vehicle. Vehicles that are deemed worse deals are hidden from the user. The user may easily see hidden cars if he/she wishes by the click of a button.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Elite Data Services, Inc. (the "Company") are presented in accordance with the requirements for Form 10-Q and Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (all of which were of a normal recurring nature) considered necessary to fairly present the financial position, results of operations, and cash flows of the Company on a consistent basis, have been made.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on May 12, 2014. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding fiscal year, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s consolidated financial statements for the fiscal year ended December 31, 2013, has been omitted. The results of operations for the six month period ended June 30, 2014 are not necessarily indicative of results for the entire year ending December 31, 2014.

 

Going Concern

 

Since inception, the Company has a cumulative net loss of $6,522,245. The Company currently has only limited working capital with which to continue its operating activities. The amount of capital required to sustain operations is subject to future events and uncertainties. The Company must secure additional working capital through loans, sale of equity securities, or a combination, in order to implement its business plans. There can be no assurance that such funding will be available in the future, or available on commercially reasonable terms. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

The accompanying unaudited condensed consolidated financial statements have been presented on the basis of the continuation of the Company as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 
7

 

  3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company and its subsidiaries, Dynamic Energy Development Corporation and Transformation Consulting, Inc. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

Preparation of the Company's financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as well as the reported amounts of revenues and expenses. Accordingly, actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made in Statement of Operations during the quarter ended June 30, 2014. These reclassifications impacted the classification of certain items within the Statement ofOperations: relating to classification of consulting expenses and project development costs. The reclassifications had no impact on previously reported total operating expenses, net loss, or stockholders' equity.

 

Valuation of Intangible Assets and Note Payable to Related Party

 

The Company’s intangible asset value and note balance to a related party were reduced to the appropriate carrying value of $589,041 as of June 30, 2014. The change was done in accordance with Generally Accepted Accounting Principles, ASC 805-50-30 which relates to the carrying value of assets and liabilities at the date of transfer by related parties.

 

Development Costs

 

Development costs are expensed in the period they are incurred unless they meet specific criteria related to technical, market and financial feasibility, as determined by management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life, or written off if a product is abandoned. For the period ended June 30, 2014 and 2013, total development costs amounted to $29,000 and $0, respectively. At December 31, 2013 and June 30, 2014, the Company had no deferred product development costs.

 

Income Taxes

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted the accounting standards codified in ASC 740, Income Taxes as of its inception. Pursuant to those standards, the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years.

 

ASC 740-10-25 prescribes recognition thresholds that must be met before a tax position is recognized in the financial statements and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. An entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

 

 
8

 

The Company does not have any unrecognized tax benefits as of June 30, 2014 and December 31, 2013 that, if recognized, would affect the Company's effective income tax rate. The Company's policy is to recognize interest and penalties related to income tax issues as components of income tax expense. The Company did not recognize or have any accrual for interest and penalties relating to income taxes as of June 30, 2014 and December 31, 2013. 

 

Cash and Cash Equivalents

 

Cash and cash equivalents, if any, include all highly liquid instruments with an original maturity of three months or less at the date of purchase. At the period ended June 30, 2014, the Company had no cash equivalents as at June 30, 2014.

 

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures ("Topic 820"). Topic 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.

 

The three levels are defined as follows:

 

Level 1

inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2

inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3

inpuinputs to the valuation methodology are unobservable and significant to the fair measurement.

 

The fair value of the Company's cash and cash equivalents, accrued liabilities and accounts payable approximate carrying value because of the short-term nature of these items.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the FASB ASC Section 605-10-S99, Revenue Recognition, Overall, SEC Materials ("Section 605-10-S99"). Section 605-10-S99 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured.

 

Net Income (Loss) Per Common Share

 

Basic income (loss) per common share (“EPS”) is calculated by dividing the income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company currently has no dilutive securities and as such, basic and diluted income (loss) per share is the same for all periods presented.

 

Share Purchase Warrants

 

The Company accounts for common share purchase warrants at fair value in accordance with ASC 815, Derivatives and Hedging. The Black-Scholes option pricing valuation method is used to determine fair value of these warrants. Use of this method requires that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

 

Recently Issued Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not, or are not, believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

 
9

 

4. RELATED PARTY TRANSACTIONS  

 

a) Loans payable to related party – Myers - LOC

 

The principle amount due Sarah Myers (director and executive officer of the Company, the related party) at June 30, 2014 was $128,107.07, represents an unsecured promissory note (“Myers – LOC”). These amounts are unsecured and bear interest at the rate of 12% per annum. The Myers – LOC is due and payable on December 1, 2014. The accrued interest under the Myers – LOC as of June 30, 2014 was $10,305.

 

b) Loans payable to related party – Frye

 

On April 14, 2014, the Company entered into a promissory note with Stephen Frye, an executive officer (President) and director of the Company, for $13,500. The principle amount due Mr. Frye as of June 30, 2014 was $13,325. These amounts are unsecured and bear interest at the rate of 12% per annum. The note is due and payable in April 2015. The accrued interest under the Note as of June 30, 2014 was $348.

 

c) January 13, 2014Agreement - ClassifiedRide

 

On January 13, 2014, the Company entered into an asset purchase agreement with Baker Myers and Associates, LLC (“Baker Myers ”) to acquire certain assets including, www.classifiedride.com, whose platform was designed to revolutionize the selling and buying platform for online automotive markets. Ms. Myers (our Chief Operations Officer and Director), is the managing member and sole owner of Baker Myers. As consideration for the sale, the Company entered into a promissory note for $3,000,000 with an interest rate of 7% per annum and issued 14,000,000 shares of the Company’s common stock. At June 30, 2014, the carrying value of the assetswas reduced pursuant to the transaction being made by a related party under GAAP ASC 805-50-30, thereby reducing the value of the asset by $2,412,436. As a result, the Baker Myers note was restated such that the principal amount was reduced to $587,564 and interest re-calculated from the contract date based on the reduced principal balance of the note. At June 30, 2014, the note balance and accrued interest was $587,564 and $19,042, respectively.

 

d) January 15, 2014 Agreement - Autoglance

 

On January 15, 2014, the Company entered into an Agreement with Baker Myers for 51% of the membership interest of Autoglance, LLC, a Tennessee Limited Liability Company, and with it majority control over all owned assets of Autoglance, LLC, including the website www.autoglance.com (collectively “Autoglance”) for 765,000 shares the Company’s common stock as consideration.

 

 
10

 

5. CAPITAL STOCK

 

Authorized Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock, having a par value of $0.0001 per share, and 50,000,000 shares of common stock, having a par value of $0.0001 per share.

 

Issued and Outstanding

 

Preferred Stock

 

As of June 30, 2014, the Company had not issued any preferred stock.

 

Common Stock

 

At June 30, 2014, the Company had 16,179,108 shares of common stock issued and outstanding.

 

During the six months ended June 30, 2014, the Company issued 16,028,620 shares of common stock as follows:

 

On January 13, 2014, the Company issued 14,000,000 shares of the Company’s Common Stockin conjunction with its asset purchase agreement to acquire www.classifiedride.com.See further discussion at Note 1.

 

On January 15, 2014, the Company issued 765,000 shares of the Company’s Common Stock for 51% of the membership interests of Autoglance, LLC, a Tennessee Limited Liability Company. See discussion at Note 1.

 

 
11

 

On March 14, 2014, the Company entered into a note conversion agreement with Rocky Road Capital, Inc. to convert 12.725% of the note balance, which was due to a former director and subsequently assigned to Rocky Road Capital, Inc., into 1,153,620 shares of Common Stock at $0.10 per share, as partial payment for $115,362, thereby reducing the balance owed to $791,212. The Company recognizeda gain of $115,247 on extinguishment of the debt, as a result of this transaction. Below is a summary of the Contingent Consideration Payable at June 30, 2014:

 

    As of
June 30,
2014
    As of
December 31, 2013
 
(Unuadited)   (Unuadited)  

Contingent consideration due

 

$

2,000,000

   

$

2,000,000

 

Less payments

 

(984,638

)

 

(984,638

)

Payment of exercise of warrants

 

(108,788

)

   

(108,788)

 

Conversion of contingent consideration to common stock

 

(115,362

)

   

-

 
 

$

791,212

   

$

906,574

 

 

On May 22, 2014, the Board of Directors approved three subscription agreements aggregating $55,000 and authorized issuance of 110,000 shares of common stock pursuant to the terms of the subscription agreements.

 

6. COMMITMENTS AND CONTRACTUAL OBLIGATIONS

 

Birch First Capital Fund, LLC On August 16, 2013 Birch First Capital Fund, LLC (“Birch First”) filed a complaint against the Company in the 15th judicial circuit of Florida (2013 CA 012838) alleging that the Company owes them $168,661. The Company filed a response and counterclaim. On November 18, 2013 the Company became aware of litigation by Birch First and Birch First Capital Management, LLC against Mr. Charles Cronin and Dr. Earl Beaver, naming the Company as a nominal defendant. A motion to dismiss was filed by the Company concerning this derivative lawsuit. As of June 30, 2014, the Company has entered into settlement negotiations with Birch First and hopes to resolve this matter by settlement , although there is no guarantee the Company will be able to settle this matter or if the settlement will be on terms deemed favorable to the Company.The disputed liability amount, including accrued interest, as of June 30, 2014 is $190,144.

 

 
12

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Basis of Presentation

 

The following management’s discussion and analysis is intended to provide additional information regarding the significant changes and trends which influenced our financial performance for the six-month period ended June 30, 2014. This discussion should be read in conjunction with the unaudited financial statements and notes as set forth in this report.

 

Company Overview

 

Elite Data Services, Inc. (hereinafter the “Company”, “Our”, “We” or “Us”) changed its name from Dynamic Energy Alliance Corporation on November 4, 2013. Prior to that, we were formerly Mammatech Corporation, and were incorporated in the State of Florida on November 23, 1981 under the name Mammathetics Corp. Through the first quarter of 2011, the Company’s business was that of a marketer of tumor detection equipment. On March 9, 2011, the Company completed a merger transaction pursuant to a Share Exchange Agreement with Dynamic Energy Development Company, LLC(“DEDC”), with DEDC becoming a wholly-owned subsidiary of the Company,shifting its focus to the recoverable energy sector. In conjunction with the acquisition of DEDC, the Company acquired Transformation Consulting (‘TC”), a wholly-owned subsidiary of DEDC. TC provides business development, marketing, and administrative consulting services. Through a January 2010 management services and agency agreement (“Agency Agreement”), TC received revenues from a related party based on billings received from certain of TC’s direct to consumer membership club products that were transferred to the related party under the Agency Agreement. As the Company continues its operations, it has decided to direct its focuson the advertising and marketing plan as evidenced by its recent purchases of the domain classfiedride.com and 51% of the membership interests in Autoglance, LLC.

 

Plan of Operations

 

The Company’s plan of operation is to continue development on ClassifiedRide’s website from end user’s private upgrades, third party advertising, dealership servicesand affiliate lead programs on the ClassfiedRide website (www.classifiedride.com) , and continue development on Autoglance’s (www.autoglance.com) platform . On ClassifiedRide, end users can search or list their vehicle, boat, RV, (anything with a motor) for sale.Development on Autoglance will include the enhancement for end users to search for a vehicle and view the best deal based on the market value grouping of similar cars for sale in the searched demographic area.

 

 

ClassifiedRide’s mission is to establish relationships through the car buying process and help private sellers buy, trade, and sell their vehicles by connecting with other local buyers, sellers, and dealerships. To offer a different approach to the car purchasing and selling market, the ClassifiedRide team works on aiding the private seller buy and trade their vehicle using social media and mobile application enhancements. The Company has been in the development of creating mobile marketing and social media tools for integrated maximum exposure to connect with traders and sellers on a more personal level. The Company’s mission is to expand its offerings to revolutionize each sector of its industries. Our management team is experienced in the advertising and marketing industry; however, the Company’s goal is to eventually penetrate different markets by utilizing the Company’s technology and network-maximizing software. Currently, the Company is intently focused on the automotive sector, yet we believe the potential application of the Company’s software aligns to a multitude of other industries and products.

 

 
13

 

Our Strategy

 

We are in the early days of pursuing our mission to make the vehicle buying and selling process more open and connected. We have a significant opportunity to further enhance the value we deliver to users, advertisers, and dealerships. Key elements of our strategy are:

 

 

Expand Our User Community and Networks.  We continue to focus on growing our user base across the United States, Canada, and Europe. We intend to grow our user base by continuing our marketing and user acquisition efforts and enhancing our products and software designed to help our users reach their end goal of finding or selling their vehicle.

 

 

Build Great Products and Widgets to Increase Engagement.  We prioritize product development investments that we believe will create engaging interactions between our usersand advertisers on our website, across the web, and on mobile devices.

 

 

Provide Users with Innovative Resources and Tools.  ClassifiedRideaims to provide innovative technology that is designed to aid the user reach their end goal (buying, selling, and/or trading their vehicle, boat, etc).

 

 

Build Engaging Mobile Experiences.  In our quest, we are devoting substantial importance to developing mobile friendly products for a wide range of platforms, including smartphones and feature phones. Reaching buyers through mobile applications is a commitment that we strive to keep on-going.

 

 

 

Some of Our Milestones

 

 

 

 

 

·

The Carline Negotiator. As part of the user experience, our software developers have created the CarLine Negotiator that gives the end user the ability to have us assistthem find what vehicle they are looking for and at what price range. After talking to our users, we found that the most cumbersome process of buying a vehicle is having to provide personal information such as email addresses and phone numbers just to get a bottom line idea of certain vehicle features The CarLine Negotiator acts as the middle man in the vehicle searching process and offers vehicles based on the user’s specifications available in the searched market area of dealerships who are subscribed on ClassifiedRide services. This feature is currently on www.classifiedride.com.

 

 
14

 

 

·

The VIP Salesmen Directory. One of the largest concerns for users is being bombarded or harassed by dealerships when they are in the stages of searching for a vehicle. To combat this problem, our software developers created the VIP Salesmen directory that enables users to view salesmen’s profile from dealerships and interact with them online before having to commit or walk onto a dealership lot. With user friendly review systems and ratings, end users can easily do research and ask questions, establishing a relationship based on community review and peer systems. This Directory is currently available for subscription on www.classifiedride.com.

 

·

Carline Evaluator. Our software developers have completed the betalaunch of the CarLine Evaluator. This will allow the dealer to login and have access to an interactive algorithm designed to evaluate the dealership’s inventory by a scoring system, which is, in part, generated by buyers and sellers input in dealerships’ local market. In early December 2013, the popular website craigslist began charging $5 per vehicle in the dealership section. This inspired us to have our developers launch the CarLine Evaluator as a special tool that would give dealerships the ability to categorize vehicles by people’s popularity based in their local market. By analyzing the algorithm with our system, the dealership’s inventory is displayed by tier levels: Top, Tier 1, Tier 2, and Tier 3 which gives dealerships the ability to easily view and post the vehicles in their inventory that produce better responses.

 

Current Developments in Production

 

·

SEO and Website Reconstruction. Currently, our software developers are working on reconstructing our platform with a more stream lined database. This will aid users in functionality of classifiedride.com and also will help improve our rankings on search engines.

   
·

Network Platform. A large part of our technology is in our network platform that we are currently working to expand.

 

 

Autoglance is a search engine of used cars that prioritizes and compares inventory in individualized markets by displaying the best deals first while hiding listings that are older, more expensive, and have more mileage. Autoglance has filed a provisional patent for this method of organizing and displaying vehicles. More specifically, Autoglance’s invention groups vehicles of the same make and model in a market location to determine the best price based on the market value of the vehicle. Vehicles that are deemed worse deals are hidden from the user. The user can easily see hidden cars if he/she wishes by the click of a button.

 

 

 

As depicted in the picture, Autoglance’s unique method groups all vehicles in the local market and places them in a graph where a user can easily see the best deals available “in a glance” (if you hover your mouse over the car icon, a picture of the actual vehicle along with information will appear). Under this algorithm, vehicles in each retrospective market compete with one another for priority to be viewed by the end user.

 

 
15

 

RESULTS OF OPERATIONS

 

Results for the three months ended June 30, 2014 compared to the three months ended June 30, 2013

 

Revenues and Net Loss From Operations

 

  Three Months Ended June 30,  
 

2014

 

2013

  Unuadited

Unuadited  

Revenue

 

$

2,214

   

$

-

 

Operating and other expenses

   

(97,520

)    

(56,744

)

Net (loss) from operations

 

$

(95,306

)

 

$

(56,744

)

 

In 2013, no revenues were generated from the Company’s efforts in their business plan under the recoverable energy sector. For three month period ended June 30, 2014, the Company generated $2,214 in revenue from classifiedride.com.

 

Operating Expenses and Other Expenses

 

  Three Months Ended June 30,  

2014

   

2013

 

Unuadited  

Unuadited  

Project development costs

$

2,000

   

$

-

 

Consulting services

(5,700

)

   

20,000

 

General and administrative expenses

 

40,444

     

26,284

 

Interest expense

 

60,776

     

10,460

 

Total Operating and Other Expenses

$

97.520

   

$

56,744

 

 

The increase in project development costs from 2013 to 2014 is primarily due to project activities related to development and web design of networks that started in the fourth quarter of 2013 and was contingent upon external financing, which the Company did not receive. The decrease in consulting services from 2013 to 2014 is primarily due to the Company budgeting its expenses and decreasing costs under current operating capital restrictions. The increase in general and administrative expenses from 2013 to 2014 is primarily due to Company legal, audit and accounting fees incurred relating to the acquisition of the former company and the pending litigation of Birch First.

 

 
16

 

Results for the sixmonths ended June 30, 2014 compared to the six months ended June 30, 2013

 

Revenues and Net Loss From Operations

 

  Six Months Ended June 30,  

2014

 

2013

 

Unuadited 

Unuadited  

Revenue

$

9,429

 

$

-

 

Operating and other expenses

 

(142,313

)    

(265,048

)

Net (loss) from operations

$

(132,884

)  

$

(265,048

)

 

In 2013, no revenues were generated from the Company’s efforts in their business plan under the recoverable energy sector. For the six month period ended June 30, 2014, the Company generated $9,429 in revenue from classifiedride.com.

 

Operating Expenses and Other Expenses and (Income)

 

  Six Months Ended June 30,  
 

2014

 

2013

 

Unuadited  

Unuadited  

Project development costs

$

29,000

   

$

-

 

Consulting services

 

32,500

     

70,000

 

General and administrative expenses

 

80,614

     

174,204

 

Gain on extinguishment of debt

(115,247

)

   

-

 

Interest expense and other

 

115,446

     

20,844

 

Total Operating and Other Expenses

$

142,313

   

$

265,048

 

 

The increase in project development costs from 2013 to 2014 is primarily due to project activities related to development and web design of networks that started in the fourth quarter of 2013 and was contingent upon external financing, which the Company did not receive. The decrease in consulting services from 2013 to 2014is primarily due to the Company budgeting its expenses and decreasing costs. The decrease in general and administrative expenses from 2013 to 2014 is primarily due to Company budgeting its expenses and decreasing costs under current operating capital restrictions. We approved a note conversion agreement with Rocky Road to convert 12.725% of the note balance into 1,153,620 common shares at $0.10 per share, as partial payment for $115,362, thereby reducing the balance owed to $791,212. We recognized a gain of $115,247 on extinguishment of the debt, as a result of this transaction.

 

Liquidity and Capital Resources

 

As of June 30, 2014 and December 31, 2013, the Company had cash on hand of $1,074 and $2,884, respectively. The Company had decreased cash flow of $1,810 for six months ended June 30, 2014 resulting primarily from the operations of the Company’s activities in the advertising and marketing sector.

 

The Company expects significant capital expenditures during the next 12 months, contingent upon raising additional capital. We anticipate that we will need $2,000,000 for operations for the next 12 months to effectively deploy our business plan. The capital will be needed for continued development of the Company’s network strategy and development of its website platform assets. The source of such capital is uncertain, and there is no assurance that the Company will be successful in obtaining such capital on commercially reasonable terms, or at all. Company presently does not have any available credit, bank financing or other external sources of liquidity.

 

The Company has a working capital deficit at June 30, 2014 of $1,538,085.

 

 
17

 

Going Concern Uncertainties

 

There is substantial doubt about our ability to continue as a “going concern” because the Company has incurred continuing losses for operations, and accumulated deficit of $6,522,245 at June 30, 2014. We currently have only limited working capital with which continue its operating activities. The amount of capital required to sustain operations is subject to future events and uncertainties, but the Company anticipates it will need to obtain approximately $2,000,000 in additional capital in the form of debt or equity in order to cover its current expenses over the next 12 months and continue to implement its business plan. Whether such capital will be obtainable, or obtainable on commercially reasonable terms is at this date uncertain. These circumstances raise substantial doubt about the Company's ability to continue as a going concern.

 

Management believes that our current financial condition, liquidity and capital resources may not satisfy our cash requirements for the next twelve months and as such we will need to either raise additional proceeds and/or our officers and/or directors will need to make additional financial commitments to our Company, neither of which is guaranteed. We plan to satisfy our future cash requirements, primarily the working capital required to execute on our objectives, including marketing and sales of our product, and legal and accounting fees, through financial commitments from future debt/equity financings, if and when possible.

 

Management believes that we may generate more sales revenue within the next 12 months, but that these sales revenues may not satisfy our cash requirements to implement our business plan, including, but not limited to, project acquisitions, engineering, and integration costs, and other operating expenses and corporate overhead (which is subject to change depending upon pending business opportunities and available financing).

 

We have no committed source for funds as of this date. No representation is made that any funds will be available when needed. In the event that funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales, and could fail to satisfy our future cash requirements as a result of these uncertainties.

 

If we are unsuccessful in raising the additional proceeds from officers and/or directors, we may then have to seek additional funds through debt or equity financing, which would be extremely difficult for an early stage company to secure and may not be available to us. However, if such financing is available, we would likely have to pay additional costs associated with high-risk loans and be subject to above market interest rates.

 

Commitments and Contractual Obligations

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

 
18

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that these controls and procedures are effective in all material respects, including those to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

In the fiscal quarter ended June 30, 2014, there had been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
19

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

On August 16, 2013 Birch First Capital Fund, LLC (“Birch First”) filed a complaint against the Company in the 15th judicial circuit of Florida (2013 CA 012838) alleging that the Company owes them $168,661. The Company filed a response and counterclaim. On November 18, 2013 the Company became aware of litigation by Birch First and Birch First Capital Management, LLC against Mr. Charles Cronin and Dr. Earl Beaver, naming the Company as a nominal defendant. A motion to dismiss was filed by the Company concerning this derivative lawsuit.As if June 30, 2014, the Company has entered into settlement negotiations with Birch First. The disputed liability amount, including accrued interest, as of June 30, 2014 is $190,144.

 

ITEM 1A. RISK FACTORS.

 

Smaller reporting companies are not required to provide disclosure pursuant to this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

Unregistered Sales of Equity Securities

 

During the period ended June 30, 2014, the Company issued 110,000 shares of common stock as follows:

 

On May 22, 2014, the Board of Directors approved three subscription agreements aggregating $55,000 and authorized issuance of 110,000 shares of common stock pursuant to the terms of the subscription agreements. These sales were not registered under the Securities Act of 1933, as amended (the “Securities Act”). For these issuances, the Company relied on the exemption from federal registration under Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on the Company’s belief that the offer and sale of the shares did not involve a public offering, as each investor was “accredited” and no general solicitation was involved in the Offering.

 

Purchases of equity securities by the issuer and affiliated purchasers

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

N/A

 

 
20

 

ITEM 6. EXHIBITS.

 

Those exhibits marked with an asterisk (*) refer to exhibits filed herewith. The other exhibits are incorporated herein by reference, as indicated in the following list.

 

Exhibit Number

 

Description of Exhibit

     

10.30*

 

Amendment to Asset Purchase Agreement between Elite Data Services, Inc. and Baker Myers &Associates, LLC dated January 13, 2014.

10.31*

 

Restated Convertible Promissory Note between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 13, 2014.

10.32*

 

Addendum to Revolving Line of Credit Agreement between Elite Data Services, Inc. and Sarah Myers dated June 30, 2014.

10.33*

 

Promissory Note in the principal amount of $13,500 between Elite Data Services, Inc. and Steven Frye dated April 15, 2014.

21.1

 

List of Subsidiaries

101***

 

Interactive Data File

31.1**

 

Certification of the registrant's Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1**

 

Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

___________

** In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

*** In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 
21

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ELITE DATA SERVICES, INC.

 
       

Date: August 19, 2014

By:

/s/ Steven Frye

 
   

Steven Frye,

 
   

Chief Executive Officer

 
   

(Duly Authorized and Principal Executive Officer)

 

 

Date: August 19, 2014

By:

/s/ Steven Frye

 
   

Steven Frye,

 
   

Chief Financial Officer

 
   

(Duly Authorized and Principal Financial Officer) 

 

 

 

22


 

 

EXHIBIT 10.30

 

AMENDMENT OF ASSET PURCHASE AGREEMENT

 

This Amendment (the “Amendment”) dated as of August 18, 2014 (the “Effective Date”), is made and entered into between Elite Data Services, Inc., a corporation organized under the laws of Florida (the “Purchaser”), and Baker Myers & Associates, LLC, a Nevada Corporation with its headquarters in Tennessee (the “ Seller ”, and together with Purchaser, each a collectively, the “ Parties ”, and each a “ Party ”).

 

RECITALS

 

WHEREAS , the Purchaser and the Seller entered into an Asset Purchase Agreement (the “Agreement”) and related Convertible Promissory Note (the “Note:) dated on or about January 13, 2014; and

 

WHEREAS, the parties wish to amend certain provisions of the Agreement and Restate the Note as set forth herein;

 

NOW THEREFORE , in consideration of the foregoing, the parties hereby agree as follows:

 

1.  Section 1.2 of the Agreement is hereby deleted and replaced in its entirety with the following:

 

Section 1.2  Purchase Price and Payment. As consideration for the sale of the Acquired Assets and other commitments of Seller set forth in this Agreement, Purchaser shall pay Seller $587,564, payable in a Promissory Note, as amended (in the form attached hereto as Exhibit A), and Purchaser shall issue to the Seller Fourteen Million (14,000,000) shares of the Company’s Common Stock (the “ Issued Shares ”).”

 

2.   The Note is hereby deemed null and void, and replaced in its entirety with the Restated Convertible Promissory Note annexed hereto.

 

All other provisions of the Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF , the parties have executed this Amendment as of the date first above written.

 

 

Elite Data Services Inc.

 

By:

/s/ Steven Frye

 
 

Steven Frye, CEO

 

 

Baker Myers & Associates, LLC

 

By:

/s/ Sarah Myers

 
 

Sarah Myers

Managing Member

 

 

   

 

EXHIBIT 10.31

 

RESTATED CONVERTIBLE PROMISSORY NOTE

 

 

Principal Amount: $587,564

  Issue Date: January 13, 2014

 

RESTATED CONVERTIBLE PROMISSORY NOTE

 

THIS NOTE SHALL SUPERSEDE AND REPLACE THAT CERTAIN NOTE DATED JANUARY 13, 2014 BETWEEN THE PARTIES HERETO. SAID ORIGINAL NOTE SHALL BE DEEMED NULL AND VOID AND REPLACED BY THIS NOTE.

 

FOR VALUE RECEIVED , ELITE DATA SERVICES, INC. , a Florida corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of BAKER MYERS & ASSOCIATES, LLC , a limited liability company, or registered assigns (the “Holder”) the sum of $587,564 together with any interest as set forth herein, on January 13, 2017 (the “Maturity Date”).

 

The monies due to the Holder are the balance of the Purchase Price for the sale of the assets of Holder, including the website ClassifiedRide.com, in the Asset Purchase Agreement between Elite Data Services, Inc. and Baker Myers & Associates, LLC dated January 13 2014 (the “Earned Date”) and shown on the attached Exhibit. Borrower therefore promises to pay interest on the unpaid principal balance hereof at the rate of seven percent (7%) (the “Interest Rate”) per annum until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid when due, shall bear interest at the rate of ten percent (10%) per annum from the due date thereof until the same is paid (“Default Interest”).

 

Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of Nashville, Tennessee are authorized or required by law or executive order to remain closed.

 

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof. The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the Earned Date and in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and nonassessable shares of Common Stock at the conversion price (the “Conversion Price”) determined (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.

 

 
1

 

1.2 Conversion Price. The Conversion Price shall be $.05 per Share.

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note.. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, Florida time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.

 

(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder.

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.

 

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., Nashville, Tennessee time, on such date.

 

(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

 
2

 

(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock through willful or deliberate hindrances on the part of the Borrower. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the responsibility of the Holder to provide, and shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

 
3

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date, subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note if the Borrower fails to eliminate any such prohibition within fifteen (15) Business Days from the date of written notice from the Holder of such a default..

 

1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.

 

ARTICLE II. INJUNCTION

 

2.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties accessible herein, to an injunction or injunctions restraining, preventing, or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

ARTICLE III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

 

3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.

 

 
4

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.

 

3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the current Pink or OTCQB listing on OTCMarkets.com of the Common Stock.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.13 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

3.15 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions signed by the successor transfer agent to Borrower and the Borrower.

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in the Note, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.

 

 
5

 

ARTICLE IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Borrower:

ELITE DATA SERVICES, INC.

4447 N Central Expressway

Suite 110-135

Dallas, TX 75204

 

If to the Holder:

BAKER MYERS & ASSOCIATES, LLC

Attn: Sarah Baker

522 B Third Avenue South

Nashville, TN 37210

 

4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

 
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4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Tennessee without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of Tennessee or in the federal courts located in the state and county of Davidson. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

 

4.8 Dates for Calculation of Rule 144. Both parties expressly agree that the underlying loan upon which this Note is based occurred on the Earned Date, and that any calculations for holding periods under Rule 144 shall use the Earned Date as the starting point, and note the date of this Note. Further, the Borrower acknowledges and agrees that as of the date of this Note, the debt is more than six (6) month’s old.

 

4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution , any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.

 

IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name by its duly authorized officer this 18 th day of August , 2014.

 

 

ELITE DATA SERVICES, INC.

 
 

 

 

By:

/s/ Steven Frye 

 
 

Steven Frye,

President and Chief Executive Officer

 

 

 

7


EXHIBIT 10.32

 

Addendum #2 to the Revolving Line of Credit Agreement

 

[$128,107.07]

[06/30/2014]

 

This Addendum to the Revolving Line of Credit Agreement by and between Elite Data Services, Inc., a Florida Corporation (the "BORROWER") and Sarah Myers an Individual ("LENDER") is made and executed as of the date referred to above. An additional principal sum totaling Eight Thousand One Hundred and Seven Dollars Thousand Dollars and 7/100 ($8,107.07) has been added to the Revolving Line of Credit Agreement Promissory Note dated September 1, 2013 (the "LOAN AGREEMENT"), bringing the Loan Agreement to a total sum of One Hundred and Twenty Eight Thousand One Hundred and Seven Dollars and 07/100 ($128,107.07). The default date under the Loan Agreement is December 1, 2014.

 

This Addendum shall be governed by and construed and enforced in accordance with the laws of Florida.

 

 

By:

/s/ Steven Frye 

 
 

Steven Frye

President, Chief Executive Officer,Director and Chief Financial Officer

 

 

 

EXHIBIT 10.33

 

Promissory Note

 

Date: April 15, 2014 

$13,500

 

For value received, Elite Data Services, Inc. (hereinafter referred to as the “ Company ”) hereby promises to pay to Steven Frye (“Lender”), in lawful money of the United States, the principal sum of Thirteen Thousand Five Hundred Dollars ($13,500), together with unpaid interest accrued thereon. 

 

1.  Payment of Principal and Interest . The Company shall pay interest to the Lender on the outstanding principal amount of this Note at the rate of twelve percent (12%) per annum. The outstanding principal amount of this Note and interest due hereunder shall be due and payable on or before April 15, 2015 (the “Maturity Date”). This Note may be prepaid in part or in full with accrued interest without penalty at any time.

 

2.   Events of Default. The occurrence of any one or more of the following events shall constitute an event of default hereunder (each an “ Event of Default ”):

 

(a)  The Company’s failure to pay when due any principal, accrued interest or other amounts due to Lender under this Note;

 

(b)  the Company’s default in the performance of or failure to comply with any covenant, agreement or other obligation of the Company contained in this Note (other than the Company’s failure to pay when due any principal, accrued interest or other amounts due to Lender under this Note), which shall not have any cure period, that is not remedied, waived or cured within thirty (30) days following such default in performance or noncompliance;

 

(c)   if, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (each, a “ Bankruptcy Law ”), the Company shall: (i) commence a voluntary case or proceeding; (ii) consent to the entry of an order for relief against it in an involuntary case; (iii) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official; (iv) make an assignment for the benefit of its creditors; or (v) admit in writing its inability to pay its debts as they become due; or

 

(d)   if a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company in an involuntary case; (ii) appoints a trustee, receiver, assignee, liquidator or similar official for the Company or substantially all of the Company’s properties; or (iii) orders the liquidation of the Company, and in each case the order or decree is not dismissed within thirty (30) days.

 

4.   Remedies. Upon the occurrence of any Event of Default hereunder (unless otherwise cured within the applicable cure period or waived by the Lender), all outstanding principal due hereunder, all accrued but unpaid interest thereon, and all other payments due by the Company to the Lender hereunder, shall be accelerated automatically, without any further action by any party, and shall become immediately due and payable notwithstanding any other provision of this Note, without presentment, demand, protest, notice of protest or other notice of dishonor of any kind, all of which are hereby expressly waived by the Company.

 

5.   Waiver and Amendment . Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender. Any amendment, waiver, modification or consent entered into pursuant to this Section shall be effective only in the specific instance and for the specific purpose for which it was given.

 

6.   Notices . All notices, requests, consents, instructions and other communications required or permitted to be given hereunder shall be in writing and sent by nationally-recognized, next-day delivery service or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed as set forth below or by facsimile or e-mail transmission confirmed in writing by next-day delivery service; receipt shall be deemed to occur on the date of actual receipt if delivered by registered or certified mail, if sent by facsimile or e-mail six (6) hours from the time of transmission (provided such facsimile or e-mail is sent within two hours prior to the end of normal business hours on a business day or, if not, on the next business day) and confirmed in writing by next-day delivery service, or one (1) business day after it is sent by nationally-recognized, next-day delivery service.

 

To the Company: 

Elite Data Services, Inc.4447 N. Central Expressway, Suite 110-135

Dallas, Texas 75205

   

To the Lender:

Steven Frye

22349 N. 76 th Place

Scottsdale, AZ 85255

 

 
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7.   Governing Law/Jurisdiction. This Note shall be governed by and construed in accordance with the laws of the State of Tennessee. The Company (a) submits to the exclusive jurisdiction of any state or federal court sitting in the State of Connecticut in any action or proceeding arising out of or relating to this Note or the transactions contemplated hereby, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, (c) waives any claim of inconvenient forum or other challenge to venue in such court, (d) agrees not to bring any action or proceeding arising out of or relating to this Note in any other court, and (e) waives any right it may have to a trial by jury with respect to any action or proceeding arising out of or relating to this Note. Each party hereto agrees to accept service of any summons, complaint or other initial pleading made in the manner provided for the giving of notices in Section 6; provided, however, that nothing in this Section shall affect the right of any party hereto to serve such summons, complaint or other initial pleading in any other manner permitted by Law.

 

8.   Lost, Stolen or Mutilated Note. If this Note is lost, stolen, mutilated or destroyed, the Company will, on such reasonable terms with respect to indemnity or otherwise as it may in its reasonable discretion impose, issue a new note of like denomination, tenor, and date as this Note. Any such new note shall constitute an original contractual obligation of the Company, and the lost, stolen, mutilated or destroyed, as applicable, Note shall be null and void.

 

This Note has been executed and delivered as of the date first above written.

 

 

Elite Data Services, Inc.  

 
 

 

 
By:

/s/ Sarah Myers

 
 

Sarah Myers, Chief Operating Officer 

 

 

 

2


 

EXHIBIT 31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Steven Frye, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Elite Data Services, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

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

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 19, 2014

By:

/s/ Steven Frye

 
   

Steven Frye

 
   

President, Chief Executive Officer,Director and Chief Financial Officer

 

 

EXHIBIT 32.1

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

The undersigned, as Chief Executive Officer and Chief Financial Officer of Elite Data Services, Inc. certifies that to the undersigned’s knowledge, the Form 10-Q for the period ended June 30, 2014, which accompanies this certification:

 

a)

fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and

 

b)

the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Dynamic Energy Alliance Corporation at the dates and for the periods indicated.

 

The foregoing certification is made solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code and is subject to the knowledge and willfulness qualifications contained in Title 18, Chapter 63, Section 1350(c).

 

 

Date: August 19, 2014

By:

/s/ Steven Frye

 
   

Steven Frye

 
   

President, Chief Executive Officer,Director and Chief Financial Officer